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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________________________  
FORM 10-K
___________________________________  
þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2012
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
  ___________________________________  
Praxair, Inc.
___________________________________  
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
___________________________________  
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, 2012 , was approximately $32 billion (based on the closing sale price of the stock on that date as reported on the New York Stock Exchange).
At January 31, 2013 , 296,188,748 shares of common stock of Praxair, Inc. were outstanding.
Documents incorporated by reference:
Portions of the Proxy Statement of Praxair, Inc., for its 2013 Annual Meeting of Shareholders, are incorporated in Part III of this report.
 

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PRAXAIR, INC.
ANNUAL REPORT ON FORM 10-K
For the fiscal year ended December 31, 2012
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 for internal use and external sale. 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 $11,224 million , $11,252 million , and $10,116 million for 2012 , 2011 , and 2010 , respectively. Refer to Note 18 to the consolidated financial statements for additional information related to Praxair’s reportable segments.
Praxair serves approximately 25 industries as diverse as healthcare and petroleum refining; computer-chip manufacturing and beverage carbonation; fiber-optics and steel making; and aerospace, chemicals and water treatment. In 2012 , 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 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).
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 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.

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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 owned or leased and maintained by Praxair or the customer at the customer’s site. 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 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 and acetylene. 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 by 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 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 62% of its 2012 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, India, Italy, Japan, South Korea, Mexico, the Netherlands, Norway, Paraguay, Peru, Portugal, Puerto Rico, Russia, Saudi Arabia, Spain, Sweden, Taiwan, Thailand, United Arab Emirates, 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.
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

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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 businesses are Chromalloy Gas Turbine Corporation, a subsidiary of Sequa Corporation, Bodycote, PLC, and Sulzer Ltd. Other competitors in surface coating technologies vary by geographic region.
Employees and Labor Relations – As of December 31, 2012 , Praxair had 26,539 employees worldwide. Of this number, 9,693 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, 57, is Chairman and Chief Executive Officer of Praxair, Inc. since 2007. Before this, Mr. Angel served as President & 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 was General Manager for the General Electric Company Industrial Systems Power Equipment business from 1999 to 2001, and was General Manager, Marketing and Sales, for General Electric’s Transportation Systems business from 1996 to 1999. Mr. Angel is a director of PPG Industries, Inc., a member of the Board of the U.S.-China Business Council, a member of the U.S.-Brazil CEO Forum, a member of The Business Council, and a member of the Board of the Business Roundtable.
James T. Breedlove, 65, is Senior Vice President, General Counsel and Secretary of Praxair, Inc. and served as Vice President, General Counsel and Secretary from 2004 to 2006. Prior to joining Praxair in 2004, Mr. Breedlove was Senior Vice President and General Counsel at GE Equipment Services from 2002, and from 1992 to 2002 he served as a Senior Vice President of a division of General Electric Capital Corp.
Domingos H. G. Bulus, 51, is a Senior Vice President of Praxair, Inc. overseeing Praxair’s businesses in South America, and served as a Vice President from 2003 to 2011. He is also President of White Martins Gases Industriais Ltda. (“White Martins”), Praxair’s Brazilian subsidiary, since 2003. He served as President of Praxair Asia from 2001 to 2003. Mr. Bulus also served as Executive Director of the Andean Treaty region for White Martins from 1996 to 2001.
Elizabeth T. Hirsch, 59, 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.
Eduardo F. Menezes, 49, was promoted to Executive Vice President from Senior Vice President effective March 1, 2012. He oversees Praxair’s North American Industrial Gases and Mexico businesses and Praxair Distribution, Inc. (the packaged gases

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business). 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.
Raymond P. Roberge, 62, was promoted to Senior Vice President from Vice President, effective April 24, 2012, and has been the Chief Technology Officer since 2008. He is also responsible for Praxair's Global Supply Systems, Global Operations Excellence and Sustainable Development. Mr. Roberge joined Praxair in 1973 in research and development and subsequently held positions in applications technology, business management, marketing and Accelerated Quality Implementation. In 1996, he became director of business development for advanced air separation, and added ceramic membrane development to his portfolio two years later. Mr. Roberge moved to Global Supply Systems in 1993 as director of product line development. He became vice president of Praxair/MRC in 1999, and in 2002 was named vice president, Sales and Business Development, for Praxair Electronics. He became president of Praxair Electronics in 2005.
Sally A. Savoia, 57, is Vice President, Human Resources of Praxair since 2002. She joined Praxair in 1981, holding positions in marketing, operations and quality before being named business manager, merchant gases, North America, in 1989. In 1993, she was named associate director, Investor Relations, and the following year became director of Praxair’s worldwide re-engineering and quality programs. She was named vice president and general manager, Helium and Rare gases, in 1996 and became vice president, Healthcare, in 1998.
James S. Sawyer, 56, has been Chief Financial Officer of Praxair since 2000 and was named Executive Vice President and Chief Financial Officer in 2006. He was Vice President and Treasurer from 1994 until 2000. He joined Praxair in 1985 and held various financial roles including Finance Director for Europe between 1989 and 1992 and Assistant Treasurer from 1992 through 1994.
Scott E. Telesz, 45, was promoted to Executive Vice President from Senior Vice President, effective March 1, 2012. He is responsible for Praxair’s business in Asia, Europe/Russia, the Middle East, Praxair Surface Technologies, Strategic Planning, and the Company’s Global Procurement and Materials Management group. 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.
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 approximately 25 diverse 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.
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 energy efficiency initiatives. 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.

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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. 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. In particular, due to government actions related to business and currency regulations, there is considerable risk associated with operations in Venezuela (see Notes 2 and 20 to the consolidated financial statements). At December 31, 2012 , Praxair’s sales and net assets in Venezuela were less than 1% of Praxair’s consolidated amounts. 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 remain challenging and uncertain. Historically, collection of such government receivables has extended well beyond the contractual terms of sale; however, payment has always been received. At December 31, 2012 , government receivables in Spain and Italy totaled about $88 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;
•
Domestic and international tax laws and currency controls;
•
Safety;
•
Securities laws (e.g., SEC and generally accepted accounting principles in the United States);
•
Trade and import/ export restrictions;
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Antitrust matters;
•
Global anti-bribery laws;
•
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

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impact on the company’s financial results. Environmental protection ,and healthcare reimbursement legislation are 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 event s 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 hurricanes, 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. 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 at greater percentages than the rate of industrial production growth in such geographies. 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.
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.

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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 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.
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;

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•
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, 2012 . 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.
Europe
The Europe segment has production facilities primarily in Italy, Spain, Germany, the Benelux region, France, Scandinavia and Russia which include more than 55 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 45 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 40 of which are cryogenic air separation plants. Also located throughout Asia are noncryogenic air separation, carbon dioxide, hydrogen, packaged gas and other production facilities.

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Surface Technologies
The surface technologies segment provides coating services and manufactures coating equipment at approximately 40 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  

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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 is the New York Stock Exchange ("NYSE"). At December 31, 2012 there were 14,683 shareholders of record.
NYSE quarterly stock price and dividend information  
Market Price
Trading
High
 
Trading
Low
 
Close
 
Dividend
Per Share
2012
 
 
 
 
 
 
 
First Quarter
$
114.89

 
$
103.54

 
$
114.64

 
$
0.55

Second Quarter
$
116.92

 
$
101.93

 
$
108.73

 
$
0.55

Third Quarter
$
110.27

 
$
102.00

 
$
103.88

 
$
0.55

Fourth Quarter
$
110.91

 
$
102.84

 
$
109.45

 
$
0.55

2011
 
 
 
 
 
 
 
First Quarter
$
102.19

 
$
90.04

 
$
101.60

 
$
0.50

Second Quarter
$
108.51

 
$
99.55

 
$
108.39

 
$
0.50

Third Quarter
$
111.74

 
$
88.64

 
$
93.48

 
$
0.50

Fourth Quarter
$
107.81

 
$
89.78

 
$
106.90

 
$
0.50

Praxair’s annual dividend on its common stock for 2012 was $2.20 per share. On January 22, 2013, Praxair’s Board of Directors declared a dividend of $0.60 per share for the first quarter of 2013, or $2.40 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, 2012 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)
 
Maximum Number (or
approximate dollar
value) of Shares that
May Yet be Purchased
Under the Program (2)
(Millions)
October 2012
862

 
$104.52
 
862

 
$
1,068

November 2012
461

 
$106.63
 
461

 
$
1,019

December 2012
282

 
$106.87
 
282

 
$
989

Fourth Quarter 2012
1,605

 
$105.54
 
1,605

 
$
989

 
________________________
(1)
On January 24, 2012, the Company’s board of directors approved the repurchase of $1.5 billion of its common stock ("2012 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. The 2012 program does not have any stated expiration date.
(2)
As of December 31, 2012 , the Company purchased $ 511 million of its common stock pursuant to the 2012 program, leaving an additional $ 989 million remaining authorized under the 2012 program.

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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, 2007 and that all dividends have been reinvested.


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ITEM 6.     SELECTED FINANCIAL DATA
FIVE-YEAR FINANCIAL SUMMARY
(Dollar amounts in millions, except per share data)  
Year Ended December 31,
2012 (a)
 
2011 (a)
 
2010 (a)
 
2009 (a)
 
2008 (a)
From the Consolidated Statements of Income
 
 
 
 
 
 
 
 
 
Sales
$
11,224

 
$
11,252

 
$
10,116

 
$
8,956

 
$
10,796

Cost of sales, exclusive of depreciation and amortization
6,396

 
6,458

 
5,754

 
5,032

 
6,495

Selling, general and administrative
1,270

 
1,239

 
1,196

 
1,088

 
1,312

Depreciation and amortization
1,001

 
1,003

 
925

 
846

 
850

Research and development
98

 
90

 
79

 
74

 
97

Cost reduction program and other charges – net
65

 
1

 
85

 
306

 
194

Other income (expenses) – net
43

 
7

 
5

 
(35
)
 
35

Operating profit
2,437

 
2,468

 
2,082

 
1,575

 
1,883

Interest expense – net
141

 
145

 
118

 
133

 
198

Income before income taxes and equity investments
2,296

 
2,323

 
1,964

 
1,442

 
1,685

Income taxes
586

 
641

 
768

 
169

 
465

Income before equity investments
1,710

 
1,682

 
1,196

 
1,273

 
1,220

Income from equity investments
34

 
40

 
38

 
24

 
36

Net income (including noncontrolling interests)
1,744

 
1,722

 
1,234

 
1,297

 
1,256

Noncontrolling interests
(52
)
 
(50
)
 
(39
)
 
(43
)
 
(45
)
Net income – Praxair, Inc.
$
1,692

 
$
1,672

 
$
1,195

 
$
1,254

 
$
1,211

Per Share Data – Praxair, Inc. Shareholders
 
 
 
 
 
 
 
 
 
Basic earnings per share
$
5.67

 
$
5.53

 
$
3.90

 
$
4.08

 
$
3.87

Diluted earnings per share
$
5.61

 
$
5.45

 
$
3.84

 
$
4.01

 
$
3.80

Cash dividends per share
$
2.20

 
$
2.00

 
$
1.80

 
$
1.60

 
$
1.50

Weighted Average Shares Outstanding (000’s)
 
 
 
 
 
 
 
 
 
Basic shares outstanding
298,316

 
302,237

 
306,720

 
307,676

 
312,658

Diluted shares outstanding
301,845

 
306,722

 
311,395

 
312,382

 
318,302

Other Information and Ratios
 
 
 
 
 
 
 
 
 
Total assets
$
18,090

 
$
16,356

 
$
15,274

 
$
14,317

 
$
13,054

Total debt
$
7,362

 
$
6,562

 
$
5,557

 
$
5,055

 
$
5,025

Cash flow from operations
$
2,752

 
$
2,455

 
$
1,905

 
$
2,168

 
$
2,038

Capital expenditures
$
2,180

 
$
1,797

 
$
1,388

 
$
1,352

 
$
1,611

Acquisitions
$
280

 
$
294

 
$
148

 
$
131

 
$
130

After-tax return on capital (b)
13.9
%
 
14.8
%
 
14.5
%
 
13.9
%
 
15.4
%
Return on equity (b)
28.9
%
 
28.1
%
 
26.4
%
 
27.0
%
 
26.8
%
Debt-to-capital ratio (b)
51.9
%
 
51.8
%
 
47.3
%
 
47.0
%
 
53.7
%
Debt-to-adjusted EBITDA (b)
1.9

 
1.7

 
1.6

 
1.8

 
1.6

Shares outstanding (000’s)
296,229

 
298,530

 
303,997

 
306,478

 
306,861

Number of employees
26,539

 
26,184

 
26,261

 
26,164

 
26,936

 
_______ _________________
(a)
Amounts for 2012 include: (i) a pre-tax charge of $56 million , ( $38 million after-tax and non-controlling interests) related to the 2012 cost reduction program; (ii) a pre-tax charge of $9 million ($6 million after-tax) related to pension settlement; and (iii) an income tax benefit of $55 million 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 net income – Praxair, Inc.); and (ii) a pretax charge of $40 million ($31 million net income – Praxair, Inc.) relating to the 2011 cost reduction program. Amounts for 2010 include: (i) an i ncome tax charge of $250 million related to a Spanish income tax settlement; (ii) a pre-tax charge of $58 million ($40 million after-tax) related to the U.S. homecare divestiture; (iii) a net repatriation tax benefit of $35 million; and (iv) a pre-tax charge of $27 million ($26 million after-tax) related to the Venezuela currency devaluation. Amounts for 2009 include the impact of the Brazil tax amnesty program and other charges of $306 million ($7 million after-tax benefit). Amounts for 2008 include the impact of the cost reduction program and other charges of $194 million ($125 million after-tax and noncontrolling interests). See Note 2 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. Calculations for years prior to 2012 have been adjusted to conform to the current year presentation.

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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 are oxygen, hydrogen, nitrogen, argon, carbon dioxide, helium, electronic gases and a wide range of specialty gases. 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 2012 , 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 approximately 25 industries as diverse as healthcare and petroleum refining; computer-chip manufacturing and beverage carbonation; fiber-optics and steel making; and 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 through the following 11 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
  
Thailand
 
  
 
  
 
  
Korea
Praxair manufactures and distributes its products through a network 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 significant growth opportunities in diverse markets including: hydrogen for refining; oxygen for gasification and oxy-fuel applications; and nitrogen and carbon dioxide for oil and gas production.

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EXECUTIVE SUMMARY – FINANCIAL RESULTS & OUTLOOK
Adjusted Amounts and Comparisons
The discussion of consolidated results and outlook in this Management’s Discussion and Analysis ("MD&A") is based on adjusted amounts and comparisons with adjusted amounts. Adjusted amounts are non-GAAP measures that supplement an understanding of the company’s financial information by presenting information that investors, financial analysts and management use to help evaluate the company’s performance and ongoing business trends on a comparable basis. See the “Consolidated Results” section of this MD&A for a summary of these adjusted amounts. A reconciliation of reported amounts to adjusted amounts can be found in the “Non-GAAP Financial Measures” section of this MD&A.
2012 Year in review
Praxair delivered solid results for the full year of 2012 . Strong growth in our North American businesses was offset by recessionary economic conditions in Europe and Brazil, and by the negative currency translation impact of a significantly stronger US dollar against most major currencies. Overall sales were stable while earnings per share grew from the prior year.
•
Sales of $11,224 million were comparable to $11,252 million in 2011 . Excluding negative currency impacts and lower cost pass-through, sales grew 5% primarily due to organic sales growth and new project start-ups in North America and Asia.
•
Reported operating profit of $ 2,437 million decreased from $ 2,468 million in 2011 . Adjusted operating profit of $2,502 million increased 1% from 2011 , and 6% excluding currency effects. Adjusted operating profit grew faster than sales from higher pricing and continued leverage from productivity and cost reduction programs.
•
Reported net income – Praxair, Inc. of $1,692 million and diluted earnings per share of $5.61 increased from $1,672 million and $5.45 , respectively, in 2011 . Adjusted net income – Praxair, Inc. of $1,681 million and diluted earnings per share of $5.57 increased 1% and 3% from 2011 , respectively. Earnings per share grew faster than net income due to lower shares outstanding as a result of share repurchases during the year.
•
Cash flow from operations was a record $ 2,752 million , up 12% from 2011.
•
Capital expenditures were $ 2,180 million , primarily for the construction of new on-site production plants under contract with customers around the world. Acquisition expenditures of $ 280 million were primarily related to 17 packaged gas acquisitions in North America, and an industrial gas business in Russia.
2013 Outlook
•
Sales are forecasted to be in the area of $12 billion.
•
Diluted earnings per share are forecasted to be in the range of $5.77 to $6.02, including an estimated $0.08 per share impact from the first-quarter 2013 devaluation of the Venezuela bolivar. Excluding the impact of this devaluation, adjusted diluted earnings per share are forecasted to be in the range of $5.85 to $6.10 (see Note 20 to the consolidated financial statements). This represents an increase of 5% to 10% from 2012 adjusted diluted earnings per share.
•
Effective tax rate of about 28%.
•
Capital expenditures in the range of $1.8 to $2.0 billion.
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.

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CONSOLIDATED RESULTS AND OTHER INFORMATION
The following table provides selected data for 2012 , 2011 , and 2010 :  
 
 
 
 
 
 
 
Variance
(Dollar amounts in millions, except per share data)
Year Ended December 31,
2012
 
2011
 
2010
 
2012 vs. 2011
 
2011 vs. 2010
Reported Amounts:
 
 
 
 
 
 
 
 
 
Sales
$
11,224

 
$
11,252

 
$
10,116

 
—
 %
 
11
 %
Gross margin (a)
$
4,828

 
$
4,794

 
$
4,362

 
1
 %
 
10
 %
As a percent of sales
43.0
%
 
42.6
%
 
43.1
%
 
 
 
 
Selling, general and administrative
$
1,270

 
$
1,239

 
$
1,196

 
3
 %
 
4
 %
As a percent of sales
11.3
%
 
11.0
%
 
11.8
%
 
 
 
 
Depreciation and amortization
$
1,001

 
$
1,003

 
$
925

 
—
 %
 
8
 %
Cost reduction program and other charges – net (b)
$
65

 
$
1

 
$
85

 
 
 
 
Other income (expenses) – net
$
43

 
$
7

 
$
5

 
 
 
 
Operating Profit
$
2,437

 
$
2,468

 
$
2,082

 
(1
)%
 
19
 %
As a percent of sales
21.7
%
 
21.9
%
 
20.6
%
 
 
 
 
Interest expense – net
$
141

 
$
145

 
$
118

 
(3
)%
 
23
 %
Effective tax rate
25.5
%
 
27.6
%
 
39.1
%
 
 
 
 
Income from equity investments
$
34

 
$
40

 
$
38

 
(15
)%
 
5
 %
Noncontrolling interests
$
(52
)
 
$
(50
)
 
$
(39
)
 
4
 %
 
28
 %
Net Income – Praxair, Inc.
$
1,692

 
$
1,672

 
$
1,195

 
1
 %
 
40
 %
Diluted earnings per share
$
5.61

 
$
5.45

 
$
3.84

 
3
 %
 
42
 %
Diluted shares outstanding
301,845

 
306,722

 
311,395

 
(2
)%
 
(2
)%
Number of employees
26,539

 
26,184

 
26,261

 
 
 
 
Adjusted Amounts (c):
 
 
 
 
 
 
 
 
 
Operating profit
$
2,502

 
$
2,469

 
$
2,167

 
1
 %
 
14
 %
As a percent of sales
22.3
%
 
21.9
%
 
21.4
%
 
 
 
 
Effective tax rate
28.0
%
 
27.8
%
 
27.9
%
 
 
 
 
Noncontrolling interests
$
(54
)
 
$
(51
)
 
$
(39
)
 
 
 
 
Net income – Praxair, Inc.
$
1,681

 
$
1,666

 
$
1,476

 
1
 %
 
13
 %
Diluted earnings per share
$
5.57

 
$
5.43

 
$
4.74

 
3
 %
 
15
 %
 
________________________
(a)
Gross margin excludes depreciation and amortization expense.
(b)
See Note 2 to the consolidated financial statements.
(c)
Adjusted amounts are non-GAAP measures. Variances are calculated using adjusted amounts, where indicated. Non-GAAP adjustments are summarized below and a reconciliation of reported amounts to adjusted amounts can be found in the “Non-GAAP Financial Measures” section of this MD&A.







17
Table of Contents

The following items were recorded in the consolidated financial statements and were excluded for adjusted amounts. See Note 2 to the consolidated financial statements for a more detailed description of these items.
Year Ended December 31, 2012  
(Millions of dollars)
 
Operating
Loss
 
Income Tax
Benefit
 
Noncontrolling
Interests
 
Net Income
(Loss) – Praxair,
Inc.
Cost reduction program
 
$
(56
)
 
$
(16
)
 
$
(2
)
 
$
(38
)
Pension settlement charge
 
(9
)
 
(3
)
 
—
 
 
(6
)
Income tax benefit
 
—
 
 
(55
)
 
—
 
 
55
 
Total
 
$
(65
)
 
$
(74
)
 
$
(2
)
 
$
11
 
Cost Reduction Program
In the third quarter of 2012, Praxair recorded pre-tax charges totaling $ 56 million ($ 38 million after-tax and noncontrolling interest), relating to severance and business restructuring actions primarily in Europe within the industrial gases and surface technologies businesses. The cost reduction program was initiated primarily in response to the continuing economic downturn in Europe.

Pension Settlement Charge
During 2011, a number of senior managers retired. These retirees are covered by the U.S. supplemental pension plan which provides for a lump sum benefit payment option. Under certain circumstances, such lump sum payments must be accounted for as a settlement of the related pension obligation, but only when paid. Accordingly, Praxair recorded a settlement charge related to net unrecognized actuarial losses of $ 9 million ($ 6 million after-tax) in July 2012 when cash payments were made.
Income Tax Benefit
In 2011 Praxair requested a pre-filing agreement (“PFA”) with the U.S. Internal Revenue Service (“IRS”) related to a loss on a liquidated subsidiary resulting from the divestiture of the U.S. Homecare Business. During the third quarter of 2012, the IRS approved the PFA resulting in a net income tax benefit of $ 55 million .

Year Ended December 31, 2011
(Millions of dollars)
Operating Profit
(Loss)
 
Income Tax
Provision (Benefit)
 
Noncontrolling
Interest
 
Net Income
(Loss)
Net gain on acquisition
$
39

 
$
3

 
$
(1
)
 
$
37

Cost reduction program
(40
)
 
(9
)
 
—

 
(31
)
Total
$
(1
)
 
$
(6
)
 
$
(1
)
 
$
6

Gain on Acquisition
During the fourth quarter 2011 Praxair increased its ownership in its Yara Praxair Holding AS (“Yara Praxair”) joint venture in Scandinavia from 50% to 66% and consolidated the company. Previously, Praxair accounted for its 50% ownership interest in the joint venture as an equity method investment. In accordance with U. S. accounting rules, upon consolidation Praxair was required to fair value the entire Yara Praxair joint venture, including its original 50% ownership interest. Accordingly, Praxair recorded a net gain of $39 million ( $37 million net income – Praxair, Inc.) during the fourth quarter of 2011 primarily for the amount that the fair value of its original 50% ownership interest exceeded the equity investment book value.
Cost Reduction Program
In the fourth quarter 2011, Praxair recorded pre-tax charges totaling $ 40 million ($ 31 million net income – Praxair, Inc.), relating to severance and business restructuring actions primarily in Europe within the industrial gases and surface technologies businesses. The cost reduction program was initiated primarily in response to the economic downturn in Europe.



18
Table of Contents

Year Ended December 31, 2010
(Millions of dollars)
Operating Loss
 
Income Tax
Provision (Benefit)
 
Net Income
(Loss)
Spanish income tax settlement
$
—

 
$
250

 
$
(250
)
US homecare divestiture
(58
)
 
(18
)
 
(40
)
Repatriation tax benefit
—

 
(35
)
 
35

Venezuela currency devaluation
(27
)
 
(1
)
 
(26
)
Total
$
(85
)
 
$
196

 
$
(281
)
Spanish Income Tax Settlement
During the fourth quarter 2010, the Company’s Spanish subsidiaries settled various income tax disputes with the Spanish Government. As a result, Praxair recorded an income tax charge of $250 million representing the settlement amount in excess of previously recorded expenses. The settlement requires cash payments of approximately $500 million, $481 million of which was paid in the fourth quarter 2010, and the remaining amounts were paid in 2011.
US Homecare Divestiture
During the fourth quarter 2010, the company announced its intent to sell the U.S. homecare portion of its North American healthcare business and recorded a pre-tax charge of $58 million ($40 million after-tax) representing an adjustment to estimated fair value. On February 2, 2011, the company announced that it had entered into a definitive agreement for sale of the U.S. homecare business to Apria Healthcare Group Inc. The sale was finalized on March 4, 2011.
Repatriation Tax Benefit
Also during the fourth quarter 2010, the company recognized an income tax benefit of $35 million related to the repatriation of highly-taxed foreign earnings.
Venezuela Currency Devaluation
In the first quarter 2010, Praxair recorded a $27 million charge ($26 million after-tax) due primarily to the remeasurement of the local Venezuelan balance sheet to reflect the new official 4.3 exchange rate (representing a 50% devaluation).
Results of Operations
As previously described, references to “adjusted” amounts refer to reported amounts adjusted to exclude the impact of non-GAAP adjustments and 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.

The following table provides a summary of changes in consolidated sales and adjusted operating profit:
 
 
2012 vs. 2011
 
2011 vs. 2010
 
 
% Change
 
% Change
 
 
Sales
 
Adjusted
Operating Profit
 
Sales
 
Adjusted
Operating Profit
Factors Contributing to Changes
 
 
 
 
 
 
 
 
Volume
 
2
 %
 
1
 %
 
6
 %
 
10
 %
Price
 
2
 %
 
7
 %
 
2
 %
 
11
 %
Cost pass-through
 
(1
)%
 
—
 %
 
1
 %
 
—
 %
Currency
 
(4
)%
 
(5
)%
 
3
 %
 
3
 %
Acquisitions/Divestitures
 
1
 %
 
1
 %
 
(1
)%
 
1
 %
Other
 
—
 %
 
(3
)%
 
—
 %
 
(11
)%
 
 
—
 %
 
1
 %
 
11
 %
 
14
 %



19
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The following tables provide consolidated sales by end-market and distribution method:
 
 
 
 
 
Organic Sales*
 
 
% of Sales
 
% Change
 
 
2012
 
2011
 
2010
 
2012 vs. 2011
 
2011 vs. 2010
Sales by End Markets
 
 
 
 
 
 
 
 
 
 
Manufacturing
 
25
%
 
24
%
 
23
%
 
5
 %
 
12
%
Metals
 
18
%
 
18
%
 
17
%
 
6
 %
 
14
%
Energy
 
11
%
 
11
%
 
11
%
 
10
 %
 
11
%
Chemicals
 
10
%
 
10
%
 
10
%
 
(1
)%
 
12
%
Electronics
 
8
%
 
9
%
 
9
%
 
(5
)%
 
1
%
Healthcare
 
8
%
 
8
%
 
10
%
 
6
 %
 
5
%
Food & Beverage
 
6
%
 
6
%
 
7
%
 
1
 %
 
5
%
Aerospace
 
3
%
 
3
%
 
3
%
 
11
 %
 
3
%
Other
 
11
%
 
11
%
 
10
%
 
(6
)%
 
5
%
 
 
100
%
 
100
%
 
100
%
 
 
 
 

* Excludes impact of currency, natural gas/precious metals cost pass-through and acquisitions/divestitures.
 
 
 
% of Sales
 
 
2012
 
2011
 
2010
Sales by Distribution Method
 
 
 
 
 
 
On-Site
 
25
%
 
25
%
 
25
%
Packaged Gas
 
29
%
 
28
%
 
29
%
Merchant
 
31
%
 
31
%
 
30
%
Other
 
15
%
 
16
%
 
16
%
 
 
100
%
 
100
%
 
100
%

2012 Compared With 2011

Sales in 2012 were comparable to 2011 . Higher volumes and price, primarily in North America and Asia, were offset by negative currency translation impacts, due to the strengthening of the U.S. Dollar against most global currencies, primarily the Brazilian Real and the Euro, and lower cost pass-through, primarily lower natural gas prices.
Gross margin in 2012 increased $ 34 million , or 1% , versus 2011 . The modest increase in the gross margin percentage to 43.0% in 2012 versus 42.6% in 2011 was due primarily to the impact of lower natural gas cost pass-through to customers.
Selling, general and administrative ("SG&A") expenses in 2012 were $ 1,270 million , or 11.3% of sales, versus $ 1,239 million , or 11.0% of sales, for 2011 . The increase in SG&A expense was primarily due to higher pension and benefit costs, and acquisitions, partially offset by negative currency effects.
Depreciation and amortization expense in 2012 decreased $2 million versus 2011 due to currency effects.
Other income (expenses) – net in 2012 was a $ 43 million benefit versus a $ 7 million benefit in 2011 . The change in 2012 versus 2011 was primarily due to gains on asset sales in North America and Asia, and a litigation settlement in South America, partially offset by business restructuring charges in South America and currency related losses. See Note 7 to the consolidated financial statements for a summary of the major components of Other income (expenses) – net.
Adjusted operating profit of $ 2,502 million in 2012 was $ 33 million , or 1% higher than adjusted operating profit of $ 2,469 million in 2011 . As a percentage of sales, adjusted operating profit improved to 22.3% in 2012 versus 21.9% in 2011 . A discussion of operating profit by segment is included in the segment discussion that follows.


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Interest expense – net in 2012 decreased $4 million , versus 2011 primarily due to lower interest rates and increased capitalized interest resulting from higher capital expenditures. This decrease was partially offset by the impacts of higher debt levels.
The adjusted effective tax rate for 2012 was 28.0% , versus 27.8% in 2011 .
Praxair’s significant equity investments are in the United States, China, Italy, and the Middle East. Equity income decreased $6 million in 2012 related primarily to the negative impact of currencies and the consolidation of Yara Praxair in the fourth quarter of 2011 which was previously accounted for as an equity investment.
At December 31, 2012 , adjusted 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 $3 million increase in adjusted noncontrolling interests in 2012 was primarily due to the impact of the consolidation of Yara Praxair as a result of obtaining a controlling ownership interest in the fourth quarter of 2011, partially offset by the negative impact of currency on the other European and Asian investments.
Adjusted net income – Praxair, Inc. of $ 1,681 million in 2012 was $ 15 million , or 1% higher than adjusted net income – Praxair, Inc. of $ 1,666 million in 2011 . The increase was due to higher adjusted operating profit and lower interest expense partially offset by lower income from equity investments.
Adjusted diluted earnings per share ("EPS") of $5.57 in 2012 increased $0.14 per diluted share, or 3% , from adjusted diluted EPS of $5.43 in 2011 . The increase in adjusted diluted EPS was primarily due to higher net income – Praxair, Inc. and a 2% decrease in the number of diluted shares outstanding as a result of the company’s net repurchases of common stock during 2012 .
The number of employees at December 31, 2012 was 26,539 , reflecting an increase of 355 employees from December 31, 2011 . This increase reflects acquisitions and additions in growing businesses, partially offset by the impact of cost reduction plans put in place during the fourth quarter of 2011 and the third quarter of 2012, primarily in Europe and South America.

2011 Compared With 2010

Sales in 2011 increased $ 1,136 million , or 11% versus 2010 , primarily due to 8% organic growth from 6% higher volume and 2% higher price. The favorable impact of currency, primarily in South America, Canada and Mexico, increased sales by 3% .
Gross margin in 2011 increased $ 432 million , or 10% , versus 2010 . The modest decrease in the gross margin percentage to 42.6% in 2011 versus 43.1% in 2010 was due primarily to higher power cost pass-through to customers.
Selling, general and administrative expenses in 2011 were $ 1,239 million , or 11.0% of sales, versus $ 1,196 million , or 11.8% of sales, for 2010 . The increase in SG&A expenses was primarily due to benefit costs, incentive compensation and other labor costs associated with increased business activity and currency effects. These increases were partially offset by the impact of the US Homecare divestiture which was completed in March 2011, resulting in lower expense as a percentage of sales.
Depreciation and amortization expense in 2011 increased $ 78 million versus 2010 . The increase was due to increased depreciation associated with project start-ups and currency effects.
Other income (expenses) – net in 2011 was a $ 7 million benefit versus a $ 5 million benefit in 2010 . The change in 2011 versus 2010 was primarily due to higher partnership income and positive currency related items in 2011. See Note 7 to the consolidated financial statements for a summary of the major components of Other income (expenses) – net.
Adjusted operating profit of $ 2,469 million in 2011 was $ 302 million , or 14% , higher than adjusted operating profit of $ 2,167 million in 2010 . As a percentage of sales, adjusted operating profit improved to 21.9% in 2011 versus 21.4% in 2010 . This improvement is primarily attributable to higher volumes and pricing, and productivity gains which together more than offset inflationary cost increases. A discussion of operating profit by segment is included in the segment discussion that follows.
Interest expense – net in 2011 increased $ 27 million , or 23% versus 2010 primarily due to higher debt levels.
The adjusted effective tax rate for 2011 was 27.8% , versus 27.9% in 2010 , which was essentially unchanged.
Praxair’s significant sources of equity income are from companies based in China, Italy, and the Middle East. The company’s share of net income from equity investments increased $ 2 million in 2011 related primarily to higher earnings from our affiliates and the investment in the ROC Group in the Middle East.

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Table of Contents

At December 31, 2011 , adjusted 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 $11 million increase in noncontrolling interests in 2011 was due primarily to higher earnings from these business affiliates.
Adjusted net income – Praxair, Inc. of $ 1,666 million in 2011 was $ 190 million , or 13% higher than adjusted net income – Praxair, Inc. of $ 1,476 million in 2010 . The increase was due to higher operating profit and increased income from equity investments. Adjusted net income grew less than operating profit primarily due to higher interest expense.
Adjusted diluted earnings per share of $5.43 in 2011 increased $0.69 per diluted share, or 15% , from adjusted diluted EPS of $4.74 in 2010 . The increase in adjusted diluted EPS was primarily due to higher net income – Praxair, Inc. and benefited from the 2% decrease in the number of diluted shares outstanding as a result of the impact of the company’s net repurchases of common stock during 2011.
The number of employees at December 31, 2011 was 26,184 , reflecting a decrease of 77 employees from December 31, 2010 . This decrease includes the US Homecare divestiture in March 2011, partially offset by acquisitions and additions in growing businesses.
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 monitoring and controlling GHG emissions and one of these rules regulates GHG emissions from light-duty vehicles and certain large manufacturing facilities, many of which are Praxair suppliers or customers. 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. 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. 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.
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

22
Table of Contents

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 2012 included approximately $18 million in capital expenditures and $25 million of expenses. Praxair anticipates that future annual environmental protection expenditures will be similar to 2012 , 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 $93 million in 2012 , $66 million in 2011 and $57 million in 2010 . Consolidated net periodic benefit cost included settlement charges of $10 million , $6 million and $3 million in 2012 , 2011 and 2010 , respectively.
The funded status (pension benefit obligation ("PBO") less the fair value of plan assets) for the U.S. plans was a deficit of $535 million as December 31, 2012 versus a deficit of $583 million at December 31, 2011 . This improvement was due to higher investment performance in 2012 and contributions of $165 million.
Global pension contributions were $ 184 million in 2012 , $ 94 million in 2011 and $ 124 million in 2010 . Estimates for 2013 contributions are in the area of $ 50 million .
Praxair assumes an expected return on plan assets for 2013 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, 2013 consolidated pension expense is expected to be approximately $105 million. The increase is due primarily to an increase in the amortization of net actuarial gains/losses, partially attributable to lower discount rates. The amortization is recognized based on the amount of net actuarial gains/losses above certain thresholds and over the period of either the average remaining service lives or average remaining life expectancies of the retirees.
OPEB
The net periodic benefit cost for postretirement benefits other than pensions ("OPEB") was $9 million in 2012 , $12 million in 2011 and $20 million in 2010 . The decrease is primarily due to the lower interest costs. The funded status deficit increased $25 million during 2012 due primarily to lower discount rates.
In 2013, consolidated net periodic benefit costs for the OPEB plans is expected to be approximately $12 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 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 and retains $2.5 million to $5 million per occurrence at its various properties worldwide. To mitigate its aggregate loss potential above varying retentions, the company purchases insurance coverage from highly rated insurance companies at what it believes are reasonable coverage levels.
At December 31, 2012 and 2011 , the company had recorded a total of $28 million and $27 million , respectively, 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.

23
Table of Contents

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. Accordingly, segment operating profit and the following discussion of segment results, including comparisons with prior periods, exclude the impacts of: (i) a cost reduction program and a pension settlement charge in 2012, (ii) the net gain on acquisition and cost reduction program in 2011, and (iii) the US homecare divestiture and Venezuela currency devaluation in 2010.  
(Dollar amounts in millions)
Year Ended December 31,
 
 
Variance
2012
 
2011 (a)
 
2010 (a)
 
2012 vs. 2011
 
2011 vs. 2010
Sales
 
 
 
 
 
 
 
 
 
North America
$
5,598

 
$
5,490

 
$
5,079

 
2
 %
 
8
 %
Europe
1,474

 
1,458

 
1,341

 
1
 %
 
9
 %
South America
2,082

 
2,308

 
1,970

 
(10
)%
 
17
 %
Asia
1,414

 
1,348

 
1,158

 
5
 %
 
16
 %
Surface Technologies
656

 
648

 
568

 
1
 %
 
14
 %
 
$
11,224

 
$
11,252

 
$
10,116

 
—
 %
 
11
 %
Operating Profit
 
 
 
 
 
 
 
 
 
North America
$
1,465

 
$
1,331

 
$
1,158

 
10
 %
 
15
 %
Europe
256

 
272

 
278

 
(6
)%
 
(2
)%
South America
429

 
530

 
454

 
(19
)%
 
17
 %
Asia
246

 
234

 
193

 
5
 %
 
21
 %
Surface Technologies
106

 
102

 
84

 
4
 %
 
21
 %
Segment operating profit
2,502

 
2,469

 
2,167

 
1
 %
 
14
 %
Cost reduction program and other charges (Note 2)
(65
)
 
(1
)
 
(85
)
 
 
 
 
Total operating profit
$
2,437

 
$
2,468

 
$
2,082

 
 
 
 

(a). Calculations for years prior to 2012 have been adjusted to conform to the current year presentation (see Note 18 to the consolidated financial statements).

24
Table of Contents

North America  
(Dollar amounts in millions)
Year Ended December 31,
 
 
Variance
2012
 
2011
 
2010
 
2012 vs. 2011
 
2011 vs. 2010
 
 
 
 
 
 
 
 
 
 
Sales
$
5,598

 
$
5,490

 
$
5,079

 
2
%
 
8
%
Cost of sales, exclusive of depreciation and amortization
2,968

 
2,995

 
2,766

 
 
 
 
Gross margin
2,630

 
2,495

 
2,313

 
 
 
 
Operating expenses
667

 
669

 
688

 
 
 
 
Depreciation and amortization
498

 
495

 
467

 
 
 
 
Operating profit
$
1,465

 
$
1,331

 
$
1,158

 
10
%
 
15
%
Margin %
26.2
%
 
24.2
%
 
22.8
%
 
 
 
 


2012 vs. 2011

2011 vs. 2010
 

% Change

% Change
 

Sales

Operating Profit

Sales

Operating Profit
Factors Contributing to Changes








Volume

3
 %
 
3
 %
 
6
 %
 
10
 %
Price

2
 %
 
8
 %
 
2
 %
 
11
 %
Cost pass-through

(3
)%
 
—
 %
 
1
 %
 
—
 %
Currency

(1
)%
 
(1
)%
 
1
 %
 
2
 %
Acquisitions/Divestitures

1
 %
 
1
 %
 
(2
)%
 
1
 %
Other

—
 %
 
(1
)%
 
—
 %
 
(9
)%
 

2
 %
 
10
 %
 
8
 %
 
15
 %
The following tables provide sales by end-market and distribution method:
 



Organic Sales
 

% of Sales

% Change
 

2012
 
2011
 
2010
 
2012 vs. 2011
 
2011 vs. 2010
Sales by End Markets










Manufacturing

32
%
 
29
%
 
26
%
 
8
 %
 
16
 %
Metals

14
%
 
13
%
 
13
%
 
5
 %
 
11
 %
Energy

17
%
 
17
%
 
17
%
 
12
 %
 
13
 %
Chemicals

11
%
 
11
%
 
11
%
 
(6
)%
 
13
 %
Electronics

5
%
 
6
%
 
6
%
 
(9
)%
 
1
 %
Healthcare

7
%
 
8
%
 
11
%
 
—
 %
 
4
 %
Food & Beverage

5
%
 
5
%
 
6
%
 
—
 %
 
(5
)%
Aerospace

1
%
 
1
%
 
1
%
 
4
 %
 
1
 %
Other

8
%
 
10
%
 
9
%
 
(1
)%
 
1
 %


100
%
 
100
%
 
100
%
 
 
 
 

25
Table of Contents

 

% of Sales
 

2012
 
2011
 
2010
Sales by Distribution Method


 

 

On-Site

27
%
 
28
%
 
29
%
Packaged Gas

34
%
 
31
%
 
33
%
Merchant

32
%
 
32
%
 
30
%
Other

7
%
 
9
%
 
8
%


100
%
 
100
%
 
100
%
The North America segment includes Praxair’s industrial gases operations in the United States, Canada and Mexico.
Sales for 2012 increased $ 108 million , or 2% , versus 2011 , due to higher volumes and price. Volume growth of 3% was driven by higher sales to the energy, manufacturing and metals end-markets which more than offset weaker sales to the electronics and chemical end-markets. Higher pricing increased sales by 2% . Negative currency impacts decreased sales by 1% . Lower cost pass-through, primarily lower natural gas prices passed through to hydrogen customers, decreased sales by 3% , with a minimal impact on operating profit. Acquisitions of packaged gas distributors, primarily in the United States, contributed 1% to sales growth.
Operating profit for 2012 increased $ 134 million , or 10% versus 2011, driven by higher pricing and volumes. The operating margin increased to 26.2% from 24.2% in 2011 due primarily to higher volumes and price and the impact of lower natural gas pass-through.
Sales for 2011 increased $ 411 million , or 8% , versus 2010 , due to higher volumes and higher price. Sales to metals, chemical and manufacturing end-markets increased significantly from 2010 . Sales to the energy market, primarily hydrogen for refining, were higher than 2011 due to strong demand and a new plant start-up. Currency appreciation in Canada and Mexico increased sales by 1% . Higher cost pass-through increased sales by 1% , with a minimal impact on operating profit. Sales were reduced by 2% as a result of the divestiture of the US Homecare business.
Operating profit for 2011 increased $ 173 million , or 15% versus 2010 driven primarily by higher volumes and productivity gains. The operating margin increased to 24.2% from 22.8% in 2010 due to higher volumes, pricing, productivity and the divestiture of the US Homecare business.
Europe  
(Dollar amounts in millions)
Year Ended December 31,
 
 
Variance
2012
 
2011
 
2010
 
2012 vs. 2011
 
2011 vs. 2010
 
 
 
 
 
 
 
 
 
 
Sales
$
1,474

 
$
1,458

 
$
1,341

 
1
 %
 
9
 %
Cost of sales, exclusive of depreciation and amortization
841

 
849

 
750

 
 
 
 
Gross margin
633

 
609

 
591

 
 
 
 
Operating expenses
228

 
196

 
189

 
 
 
 
Depreciation and amortization
149

 
141

 
124

 
 
 
 
Operating profit
$
256

 
$
272

 
$
278

 
(6
)%
 
(2
)%
Margin %
17.4
%
 
18.7
%
 
20.7
%
 
 
 
 

26
Table of Contents

 
 
2012 vs. 2011
 
2011 vs. 2010
 
 
% Change
 
% Change
 
 
Sales
 
Operating Profit
 
Sales
 
Operating Profit
Factors Contributing to Changes
 
 
 
 
 
 
 
 
Volume
 
(2
)%
 
(7
)%
 
—
%
 
(4
)%
Price
 
1
 %
 
3
 %
 
—
%
 
1
 %
Cost pass-through
 
(1
)%
 
—
 %
 
—
%
 
—
 %
Currency
 
(7
)%
 
(8
)%
 
5
%
 
5
 %
Acquisitions/Divestitures
 
10
 %
 
8
 %
 
4
%
 
1
 %
Other
 
—
 %
 
(2
)%
 
—
%
 
(5
)%
 
 
1
 %
 
(6
)%
 
9
%
 
(2
)%
The following tables provide sales by end-market and distribution method:
 
 
 
 
Organic Sales
 
 
% of Sales
 
% Change
 
 
2012
 
2011
 
2010
 
2012 vs. 2011
 
2011 vs. 2010
Sales by End Markets
 
 
 
 
 
 
 
 
 
 
Manufacturing
 
23
%
 
22
%
 
22
%
 
(3
)%
 
(1
)%
Metals
 
16
%
 
17
%
 
17
%
 
(2
)%
 
—
 %
Energy
 
4
%
 
3
%
 
3
%
 
(11
)%
 
(8
)%
Chemicals
 
17
%
 
18
%
 
18
%
 
—
 %
 
4
 %
Electronics
 
8
%
 
8
%
 
8
%
 
(13
)%
 
(9
)%
Healthcare
 
11
%
 
12
%
 
13
%
 
1
 %
 
(1
)%
Food & Beverage
 
9
%
 
7
%
 
7
%
 
(3
)%
 
2
 %
Aerospace
 
1
%
 
1
%
 
1
%
 
—
 %
 
—
 %
Other
 
11
%
 
12
%
 
11
%
 
5
 %
 
5
 %
 
 
100
%
 
100
%
 
100
%
 
 
 
 
 
 
% of Sales
 
 
2012
 
2011
 
2010
Sales by Distribution Method
 

 

 

On-Site
 
20
%
 
20
%
 
21
%
Packaged Gas
 
42
%
 
41
%
 
40
%
Merchant
 
33
%
 
32
%
 
31
%
Other
 
5
%
 
7
%
 
8
%

 
100
%
 
100
%
 
100
%
Praxair’s European industrial gases business is primarily in France, Germany, Italy, Spain, Scandinavia and the Benelux region. In addition, Praxair has recently established a presence in Russia.
Sales for 2012 increased $ 16 million , or 1% versus 2011 . The acquisition of an increased investment in Yara Praxair during the fourth quarter of 2011 (see Note 3 to the consolidated financial statements) required consolidation, increased sales by 10% , versus the prior year. Underlying sales were 1% below the prior year as lower volumes offset modest price improvements. Currency reduced sales by 7% .
Operating profit for 2012 of $256 million was 6% lower when compared to 2011 . The positive contribution to operating profit from the consolidation of Yara Praxair and higher pricing was offset by lower packaged gas sales in Spain, Germany and Western Europe and the negative impact of currency.
Sales for 2011 increased $ 117 million , or 9% versus 2010 . Excluding favorable currency effects, sales increased 4% primarily due to the acquisition of a majority interest in Yara Praxair in the fourth quarter of 2011 (see Note 3). Underlying sales growth in Germany and Italy was offset by lower sales in Spain versus prior year. Cost pass-through to customers increased sales by $6 million, with a minimal impact on operating profit.

27
Table of Contents

Operating profit for 2011 of $272 million , was comparable to 2010 . The positive contribution to operating profit from the Yara Praxair acquisition and currency was offset by cost inflation and the negative impact on sales from product mix.
South America  
(Dollar amounts in millions)
Year Ended December 31,
 
 
Variance
2012
 
2011
 
2010
 
2012 vs. 2011
 
2011 vs. 2010
 
 
 
 
 
 
 
 
 
 
Sales
$
2,082

 
$
2,308

 
$
1,970

 
(10
)%
 
17
%
Cost of sales, exclusive of depreciation and amortization
1,202

 
1,293

 
1,087

 
 
 
 
Gross margin
880

 
1,015

 
883

 
 
 
 
Operating expenses
267

 
288

 
255

 
 
 
 
Depreciation and amortization
184

 
197

 
174

 
 
 
 
Operating profit
$
429

 
$
530

 
$
454

 
(19
)%
 
17
%
Margin %
20.6
%
 
23.0
%
 
23.0
%
 
 
 
 
 
 
2012 vs. 2011
 
2011 vs. 2010
 
 
% Change
 
% Change
 
 
Sales
 
Operating Profit
 
Sales
 
Operating Profit
Factors Contributing to Changes
 
 
 
 
 
 
 
 
Volume
 
—
 %
 
(5
)%
 
6
%
 
9
 %
Price
 
2
 %
 
9
 %
 
5
%
 
21
 %
Cost pass-through
 
—
 %
 
—
 %
 
1
%
 
—
 %
Currency
 
(12
)%
 
(14
)%
 
5
%
 
4
 %
Acquisitions/Divestitures
 
—
 %
 
—
 %
 
—
%
 
—
 %
Other
 
—
 %
 
(9
)%
 
—
%
 
(17
)%
 
 
(10
)%
 
(19
)%
 
17
%
 
17
 %
The following tables provide sales by end-market and distribution method:
 
 
 
 
Organic Sales
 
 
% of Sales
 
% Change
 
 
2012
 
2011
 
2010
 
2012 vs. 2011
 
2011 vs. 2010
Sales by End Markets
 
 
 
 
 
 
 
 
 
 
Manufacturing
 
22
%
 
23
%
 
24
%
 
(2
)%
 
10
%
Metals
 
28
%
 
27
%
 
26
%
 
6
 %
 
18
%
Energy
 
4
%
 
5
%
 
5
%
 
(9
)%
 
11
%
Chemicals
 
6
%
 
6
%
 
6
%
 
(6
)%
 
11
%
Electronics
 
—
%
 
—
%
 
—
%
 
—
 %
 
—
%
Healthcare
 
16
%
 
15
%
 
15
%
 
11
 %
 
10
%
Food & Beverage
 
12
%
 
12
%
 
12
%
 
(1
)%
 
17
%
Aerospace
 
—
%
 
—
%
 
—
%
 
—
 %
 
—
%
Other
 
12
%
 
12
%
 
12
%
 
3
 %
 
4
%
 
 
100
%
 
100
%
 
100
%
 
 
 
 

28

 
 
% of Sales
 
 
2012
 
2011
 
2010
Sales by Distribution Method
 
 
 
 
 
 
On-Site
 
23
%
 
22
%
 
23
%
Packaged Gas
 
26
%
 
26
%
 
27
%
Merchant
 
39
%
 
39
%
 
39
%
Other
 
12
%
 
13
%
 
11
%
 
 
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 2012 decreased $266 million, or 10%, versus 2011 due to negative currency effects. Underlying sales grew 2% in 2012 from improved pricing. Overall volumes were flat as higher volumes from new on-site production facilities were offset by lower volumes to merchant and packaged gas customers largely attributable to the lower industrial production rates in Brazil. By end-market, sales increased to metals and healthcare, and were slightly lower to general manufacturing customers.
Operating profit decreased $101 million or 19% versus 2011, primarily due to currency translation impacts which reduced operating profit by 14%. Underlying operating profit decreased 5% versus 2011. Higher pricing in 2012 improved operating profit by 9% but this was more than offset by the impact of a lower mix of higher margin packaged gas and merchant liquid volumes, and higher operating costs primarily related to power, distribution and cost inflation. Reported operating expenses in 2012 were below prior year amounts due primarily to currency impacts. Depreciation and amortization increased in 2012 due to the start up of new on-site production facilities but was more than offset by the impacts of currency translation. 2012 included a benefit from litigation settlements, which was largely offset by charges in connection with business restructuring in Brazil, Chile and Colombia.

Sales in 2011 increased $338 million, or 17% versus 2010. Excluding the impact of currency and cost pass-through, underlying sales grew 11% from higher volumes, including new plant start-ups, and higher pricing. Sales grew in all major end markets served.
Operating profit in 2011 increased $76 million, or 17% versus 2010. Excluding currency, operating profit increased by 13%. This operating profit increase was in line with sales growth as the 30% increase due to higher pricing and volumes was partially offset by higher operating costs primarily related to power, distribution and cost inflation. Operating profit in 2011 included a gain from an asset sale largely offset by asset write-downs.

Asia  
(Dollar amounts in millions)
Year Ended December 31,
 
 
Variance
2012
 
2011
 
2010
 
2012 vs. 2011
 
2011 vs. 2010
 
 
 
 
 
 
 
 
 
 
Sales
$
1,414

 
$
1,348

 
$
1,158

 
5
%
 
16
%
Cost of sales, exclusive of depreciation and amortization
952

 
893

 
784

 
 
 
 
Gross margin
462

 
455

 
374

 
 
 
 
Operating expenses
89

 
95

 
63

 
 
 
 
Depreciation and amortization
127

 
126

 
118

 
 
 
 
Operating profit
$
246

 
$
234

 
$
193

 
5
%
 
21
%
Margin %
17.4
%
 
17.4
%
 
16.7
%
 
 
 
 

29

 
 
2012 vs. 2011
 
2011 vs. 2010
 
 
% Change
 
% Change
 
 
Sales
 
Operating Profit
 
Sales
 
Operating Profit
Factors Contributing to Changes
 
 
 
 
 
 
 
 
Volume
 
6
 %
 
6
 %
 
10
%
 
21
 %
Price
 
(1
)%
 
(4
)%
 
1
%
 
4
 %
Cost pass-through
 
2
 %
 
—
 %
 
2
%
 
—
 %
Currency
 
(2
)%
 
(2
)%
 
3
%
 
3
 %
Other
 
—
 %
 
5
 %
 
—
%
 
(7
)%
 
 
5
 %
 
5
 %
 
16
%
 
21
 %
The following tables provide sales by end-market and distribution method:
 
 
 
 
Organic Sales
 
 
% of Sales
 
% Change
 
 
2012
 
2011
 
2010
 
2012 vs. 2011
 
2011 vs. 2010
Sales by End Markets
 
 
 
 
 
 
 
 
 
 
Manufacturing
 
12
%
 
13
%
 
14
%
 
(1
)%
 
6
 %
Metals
 
25
%
 
23
%
 
21
%
 
20
 %
 
25
 %
Energy
 
1
%
 
1
%
 
1
%
 
—
 %
 
—
 %
Chemicals
 
11
%
 
10
%
 
9
%
 
18
 %
 
24
 %
Electronics
 
37
%
 
39
%
 
41
%
 
(1
)%
 
3
 %
Healthcare
 
1
%
 
1
%
 
1
%
 
—
 %
 
—
 %
Food & Beverage
 
3
%
 
4
%
 
5
%
 
(8
)%
 
(11
)%
Aerospace
 
—
%
 
—
%
 
—
%
 
—
 %
 
—
 %
Other
 
10
%
 
9
%
 
8
%
 
18
 %
 
7
 %
 
 
100
%
 
100
%
 
100
%
 
 
 
 
 
 
% of Sales
 
 
2012
 
2011
 
2010
Sales by Distribution Method
 
 
 
 
 
 
On-Site
 
42
%
 
38
%
 
36
%
Packaged Gas
 
12
%
 
14
%
 
13
%
Merchant
 
29
%
 
31
%
 
33
%
Other
 
17
%
 
17
%
 
18
%
 
 
100
%
 
100
%
 
100
%

The Asia segment includes Praxair’s industrial gases operations in China, India, Korea and Thailand, with smaller operations in Japan, Taiwan and the Middle East.
Sales for 2012 increased $ 66 million , or 5% , versus 2011. Volume growth increased sales by 6% due to higher on-site sales from new plant start-ups in China partially mitigated by lower demand from the electronics end-market including semiconductor, flat panel display, and solar customers. Lower merchant pricing, primarily due to the electronics end-market, reduced sales as compared to the prior year. Negative currency impacts, primarily the weakening of the Indian Rupee against the U.S. Dollar, reduced sales by 2% . Cost pass-through increased sales 2% and relates to the contractual pass through of precious metals and power costs fluctuations, with minimal impact on operating profit. By end-market, sales increased to metals and chemicals customers, and decreased to manufacturing and electronics.
Operating profit for 2012 increased $ 12 million , or 5% , versus 2011. Higher volumes due to new plant start-ups increased operating profit; however, this was partially offset by lower sales of higher margin merchant volumes in China and Thailand. Pricing reduced operating profit by 4% primarily due to lower pricing within the electronics end-market. Operating profit included a gain on a land sale in Korea which was partially offset by inflationary cost increases.

30
Table of Contents

Sales for 2011 increased $190 million, or 16% versus 2010 primarily due to 10% volume growth and 1% higher prices. Currency and cost pass-through increased sales by 5%. Volume growth was driven by strong growth in on-site and merchant gas volumes in China, India and Korea and includes new plant start-ups. Sales grew to the electronics, metals, chemicals and manufacturing end-markets.
Operating profit for 2011 increased $41 million, or 21%, versus 2010 primarily due to higher volumes from new plant start-ups. Operating profit increased due to price and currency were offset by higher costs during the period.
Surface Technologies  
(Dollar amounts in millions)
Year Ended December 31,
 
 
Variance
2012
 
2011
 
2010
 
2012 vs. 2011
 
2011 vs. 2010
 
 
 
 
 
 
 
 
 
 
Sales
$
656

 
$
648

 
$
568

 
1
%
 
14
%
Cost of sales, exclusive of depreciation and amortization
433

 
428

 
367

 
 
 
 
Gross margin
223

 
220

 
201

 
 
 
 
Operating expenses
74

 
74

 
75

 
 
 
 
Depreciation and amortization
43

 
44

 
42

 
 
 
 
Operating profit
$
106

 
$
102

 
$
84

 
4
%
 
21
%
 
16.2
%
 
15.7
%
 
14.8
%
 
 
 
 
 
 
2012 vs. 2011
 
2011 vs. 2010
 
 
% Change
 
% Change
 
 
Sales
 
Operating Profit
 
Sales
 
Operating Profit
Factors Contributing to Changes
 
 
 
 
 
 
 
 
Volume/Price
 
4
 %
 
13
 %
 
9
%
 
30
 %
Cost pass-through
 
—
 %
 
—
 %
 
1
%
 
—
 %
Currency
 
(3
)%
 
(5
)%
 
4
%
 
2
 %
Acquisitions/Divestitures
 
—
 %
 
—
 %
 
—
%
 
1
 %
Other
 
—
 %
 
(4
)%
 
—
%
 
(12
)%
 
 
1
 %
 
4
 %
 
14
%
 
21
 %
The following table provides sales by end-market:
 
 
 
 
Organic Sales
 
 
% of Sales
 
% Change
 
 
2012
 
2011
 
2010
 
2012 vs. 2011
 
2011 vs. 2010
Sales by End Markets
 
 
 
 
 
 
 
 
 
 
Manufacturing
 
14
%
 
14
%
 
14
%
 
6
 %
 
9
%
Metals
 
8
%
 
10
%
 
9
%
 
(15
)%
 
14
%
Energy
 
28
%
 
25
%
 
26
%
 
14
 %
 
7
%
Chemicals
 
3
%
 
2
%
 
2
%
 
11
 %
 
12
%
Electronics
 
—
%
 
—
%
 
—
%
 
—
 %
 
—
%
Healthcare
 
—
%
 
—
%
 
—
%
 
—
 %
 
—
%
Food & Beverage
 
3
%
 
3
%
 
3
%
 
5
 %
 
6
%
Aerospace
 
34
%
 
31
%
 
33
%
 
13
 %
 
5
%
Other
 
10
%
 
15
%
 
13
%
 
(24
)%
 
26
%
 
 
100
%
 
100
%
 
100
%
 
 
 
 
Surface technologies provides high-performance coatings and thermal-spray powders and equipment in the Americas, Europe, and Asia.

31
Table of Contents

Sales increased $ 8 million , or 1% versus 2011 . Underlying sales increased 4% driven by higher volumes and pricing. The underlying sales growth came from increased aerospace coatings and increased coatings for energy markets, particularly coatings for parts used in the oil and gas markets. Currency translation negatively impacted sales by 3%, due primarily to the weakening of the Euro versus the U.S. Dollar.
Operating profit increased $ 4 million , or 4% versus 2011 . Higher volumes and pricing increased operating profit by 13% . This growth was partially offset by negative currency impacts and higher costs as compared to the prior year, primarily relating to employee wages and benefit costs, incentive plans expense and general cost inflation.
Sales for 2011 increased $ 80 million , or 14% versus 2010 . Underlying sales increased 9% driven by increased jet engine coatings and coatings to both the energy as well as industrial markets.
Operating profit increased $ 18 million , or 21% , versus 2010 . Higher volumes and pricing increased operating profit by 30%. These increases were offset by higher costs as compared to the prior year, primarily relating to employee benefit and incentive plans cost and general cost inflation.
Currency
The results of Praxair’s non-U.S. operations are translated to the company’s reporting currency, the U.S. dollar, from the functional currencies used in the countries in which the company operates. For most foreign operations, Praxair uses the local currency as its functional currency. There is inherent variability and unpredictability in the relationship of these functional currencies to the U.S. dollar and such currency movements may materially impact Praxair’s results of operations in any given period.
To help understand the reported results, the following is a summary of the significant currencies underlying Praxair’s consolidated results and the exchange rates used to translate the financial statements (rates of exchange expressed in units of local currency per U.S. dollar):  
   
Percent of
2012
Consolidated
Sales (a)
 
Statements of Income
 
Balance Sheets
   
Average Year Ended December 31,    
 
December 31,
Currency
2012
 
2011
 
2010
 
2012
 
2011
Brazil real
16
%
 
1.95

 
1.67

 
1.76

 
2.04

 
1.88

Euro
13
%
 
0.78

 
0.72

 
0.75

 
0.76

 
0.77

Canada dollar
9
%
 
1.00

 
0.99

 
1.04

 
0.99

 
1.02

Mexico peso
6
%
 
13.24

 
12.32

 
12.69

 
13.05

 
13.95

China yuan
5
%
 
6.31

 
6.48

 
6.78

 
6.29

 
6.31

India rupee
3
%
 
53.46

 
46.28

 
45.95

 
54.85

 
52.96

Korea won
3
%
 
1,132

 
1,107

 
1,163

 
1,073

 
1,157

Singapore dollar
2
%
 
1.25

 
1.26

 
1.37

 
1.22

 
1.30

Argentina peso
1
%
 
4.54

 
4.13

 
3.91

 
4.91

 
4.30

Colombia peso
<1%

 
1,797

 
1,846

 
1,897

 
1,768

 
1,943

Taiwan dollar
<1%

 
29.65

 
29.40

 
31.69

 
29.04

 
30.30

Thailand bhat
<1%

 
31.11

 
30.50

 
31.92

 
30.64

 
31.54

Venezuela bolivar (b)
<1%

 
4.30

 
4.30

 
4.30

 
4.30

 
4.30

 
________________________
a)
Certain Surface technologies segment sales are included in European, Indian, Korean, and Brazilian sales.
b)
On February 8, 2013, the Venezuelan government announced a devaluation of the Venezuelan bolivar from an exchange rate of 4.30 to 6.30 effective February 13, 2013 (see Note 20 to the consolidated financial statements). Effective January 8, 2010, the Venezuelan government announced a devaluation of the Venezuelan bolivar from 2.15 to 4.30 (see Note 2 to the consolidated financial statements).

32
Table of Contents

LIQUIDITY, CAPITAL RESOURCES AND OTHER FINANCIAL DATA  
(Millions of dollars)  
Year Ended December 31,
2012
 
2011
 
2010 (a)
Net Cash Provided by (Used for)
 
 
 
 
 
Operating Activities
 
 
 
 
 
Net income – Praxair, Inc. plus depreciation and amortization
$
2,693

 
$
2,675

 
$
2,120

Noncontrolling interests
52

 
50

 
39

Net income plus depreciation and amortization (including noncontrolling interests)
2,745

 
2,725

 
2,159

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
 
Cost reduction program and other charges – net, net of payments (b)
43

 
(5
)
 
80

Deferred income taxes
258

 
(3
)
 
133

Working capital
(105
)
 
(87
)
 
16

Spanish income tax settlement (b)
—

 
—

 
(231
)
Pension contributions
(184
)
 
(94
)
 
(124
)
Other – net
(5
)
 
(81
)
 
(128
)
Total provided by operating activities
$
2,752

 
2,455

 
$
1,905

Investing Activities
 
 
 
 
 
Capital expenditures
$
(2,180
)
 
$
(1,797
)
 
$
(1,388
)
Acquisitions, net of cash acquired
(280
)
 
(294
)
 
(148
)
Divestitures and asset sales
82

 
86

 
52

Total used for investing
$
(2,378
)
 
$
(2,005
)
 
$
(1,484
)
Financing Activities
 
 
 
 
 
Debt increases (reductions) – net
$
807

 
$
914

 
490

Issuances (purchases) of common stock – net
(459
)
 
(742
)
 
(404
)
Cash dividends – Praxair, Inc. shareholders
(655
)
 
(602
)
 
(551
)
Excess tax benefit on stock based compensation
60

 
53

 
51

Noncontrolling interest transactions and other
(56
)
 
(3
)
 
(5
)
Total used for financing
$
(303
)
 
$
(380
)
 
$
(419
)
Other Financial Data (c)
 
 
 
 
 
Debt-to-capital ratio
51.9
%
 
51.8
%
 
47.3
%
After-tax return on capital
13.9
%
 
14.8
%
 
14.5
%
 
________________________
(a)
The total payments related to the Spanish income tax settlement in the fourth quarter 2010 were $481 million and are shown in the consolidated statement of cash flows as follows:
Net income – Praxair, Inc. plus depreciation and amortization
$
(250
)
Spanish income tax settlement – payment of previously recorded liabilities
(231
)
Net operating cash flow impact
$
(481
)
(b)
See Note 2 to the consolidated financial statements.
(c)
Non-GAAP measures. See the “Non-GAAP Financial Measures” section for definitions and reconciliations to reported amounts.
Cash increased $67 million in 2012 versus 2011 . The primary sources of cash in 2012 were cash flow from operations of $2,752 million , and debt increases net of repayments of $807 million . The major uses of cash were capital expenditures of $2,180 million , acquisitions of $280 million , purchases of Praxair common stock net of issuances of $459 million , and cash dividends to shareholders of $655 million .

33


Cash Flows From Operations  
________________________
*    Includes Spanish income tax settlement payment of $481 million.
2012 compared with 2011
Cash flow from operations increased $297 million to $2,752 million in 2012 from $2,455 million in 2011 . The increase was due to higher net income plus depreciation and amortization, other non-cash charges and lower income tax payments, partially offset by an increase in pension funding, mainly in the United States. The lower tax payments are primarily the result of a tax benefit associated with a loss on a liquidated subsidiary (see Note 2 to the consolidated financial statements), and increased deferred income tax liabilities related to fixed asset depreciation.
In July 2012 the Moving Ahead for Progress in the 21st Century Act was passed in the United States that could impact companies’ pension funding requirements and pension expense. Praxair does not expect it to have a significant impact on future pension contributions or pension expense.
2011 compared with 2010
Cash flow from operations increased $550 million to $2,455 million from $1,905 million in 2010. The increase was due primarily to higher net income before depreciation and amortization and other non-cash charges in 2011 versus 2010 partially offset by higher working capital investments and other payments to support growth. Cash flow from operations in 2010 included the impact of the Spanish income tax settlement.
Investing


34

2012 compared with 2011
Net cash used for investing activities of $2,378 million increased $373 million versus 2011 primarily due to increased capital expenditures.
Capital expenditures in 2012 were $2,180 million , an increase of $383 million from 2011. Capital expenditures during 2012 related largely to new production plants under contract for customers globally.
Acquisition expenditures in 2012 were $280 million which were in line with 2011 . Acquisitions consisted primarily of the acquisition of packaged gas distributors in North America and an industrial gas business in Russia. 2011 included the acquisition of a controlling interest in Yara Praxair, several packaged gas distributors in the United States, and a 49% ownership in ROC Group’s industrial gases business operating in the United Arab Emirates. On February 4, 2013, Praxair executed a definitive agreement to acquire 100% of NuCO 2, Inc. for total cash consideration of $1.1 billion. The transaction is subject to certain closing conditions and is expected to close around March 1, 2013 (see Note 20 to the consolidated financial statements).
Divestitures and asset sales in 2012 totaled $82 million , which included the sale of an electronics business in the United States and a land sale in Korea.
2011 compared with 2010
Net cash used for investing activities of $2,005 million increased $521 million versus 2010 primarily due to increased capital expenditures and acquisitions.
Capital expenditures in 2011 were $1,797 million, an increase of $409 million from 2010. Capital expenditures during 2011 related largely to new production plants under contract for customers in North and South America, and Asia.
Acquisition expenditures in 2011 were $294 million. 2011 included the acquisition of a controlling interest in Yara Praxair, several packaged gas distributors in the United States, and a 49% ownership in ROC Group’s industrial gases business operating in the United Arab Emirates. 2010 included the acquisition of a 49% ownership interest in the ROC group’s Kuwait and Qatar operations (see Note 3 to the consolidated financial statements).
Divestitures and asset sales in 2011 totaled $86 million, which includes proceeds from the US Homecare business sale that closed in March 2011.
Financing
Praxair’s financing strategy is to secure long-term committed funding at attractive interest rates by issuing U.S. public notes and debentures and commercial paper backed by long-term bank credit agreements. Praxair’s international operations are funded through a combination of local borrowing and inter-company funding to minimize the total cost of funds and to manage and centralize currency exchange exposures. As deemed necessary, Praxair manages its exposure to interest-rate changes through the use of financial derivatives (see Note 12 to the consolidated financial statements and Item 7A. Quantitative and Qualitative Disclosures About Market Risk).
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. At December 31, 2012 , the company’s credit ratings as reported by Standard & Poor’s and Moody’s were A-1 and P-1 for short-term debt, respectively, and A and A-2 for long-term debt, respectively. Additionally, the company plans to maintain its undistributed earnings of foreign subsidiaries to support foreign growth opportunities and reduce local debt.

35

In February 2012, Praxair issued $600 million of 2.45% notes due 2022; in August 2012, Praxair issued $500 million of 2.20% notes due 2022; and in November 2012, Praxair issued $400 million of 1.05% and $300 million of 3.55% notes due 2017 and 2042, respectively.
In April 2012, Praxair repaid $500 million of 6.375% notes that became due; in November 2012 repaid $400 million of 1.75% notes that became due, and repaid all borrowings outstanding under the revolving multi-currency facility in Europe that expired in November 2012.
Note 11 to the consolidated financial statements includes information with respect to the company’s debt refinancing in 2012 , current debt position, debt covenants and available credit facilities; and Note 12 includes information relating to derivative financial instruments. Such credit facilities are with major financial institutions and are non-cancellable until maturity. Therefore, the company believes the risk of the financial institutions being unable to make required loans under the credit facilities, if requested, to be low. Praxair’s major bank credit and long-term debt agreements contain standard financial covenants. The company was in compliance with these covenants at December 31, 2012 and expects to remain in compliance for the foreseeable future.
Cash used for financing activities was $303 million in 2012 compared to $380 million in 2011 . Cash dividends of $655 million increased $53 million from the year period.
At December 31, 2012 , Praxair’s total debt outstanding was $7,362 million , $800 million higher than $6,562 million at December 31, 2011 due primarily to higher debt levels required to fund capital expenditures, dividends, and share repurchases. The December 31, 2012 debt balance includes $7,159 million in public securities and $203 million representing primarily worldwide bank borrowings. Praxair’s global effective borrowing rate was approximately 3.2% for 2012 .
On February 21, 2013, Praxair issued $400 million of 0.75% notes due 2016 and $500 million of 2.70% notes due 2023. The proceeds will be used for general corporate purposes, including acquisitions and share repurchases under our share repurchase program.
Other Financial Data
Praxair’s debt-to-capital ratio was 51.9% at December 31, 2012 versus 51.8% at December 31, 2011 . The modest increase is attributed to higher debt levels.
After-tax return on capital ("ROC") decreased to 13.9% at December 31, 2012 versus 14.8% at 2011 reflecting the large amount of capital projects under construction.
See the “Non-GAAP Financial Measures” section for definitions and reconciliation of these non-GAAP measures to reported amounts.
CONTRACTUAL OBLIGATIONS
The following table sets forth Praxair’s material contract obligations and other commercial commitments as of December 31, 2012 :  
(Millions of dollars)
Due or expiring by December 31,
   
2013
 
2014
 
2015
 
2016
 
2017
 
Thereafter
 
Total
Long-term debt obligations:
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt and capitalized lease maturities
$
39

 
$
770

 
$
923

 
$
1,257

 
$
730

 
$
3,005

 
$
6,724

Contractual interest
212

 
188

 
148

 
138

 
106

 
541

 
1,333

Operating leases
111

 
98

 
84

 
72

 
56

 
62

 
483

Retirement obligations
97

 
43

 
38

 
37

 
37

 
170

 
422

Unconditional purchase obligations
576

 
491

 
404

 
391

 
385

 
834

 
3,081

Construction commitments
1,161

 
528

 
—

 
—

 
—

 
—

 
1,689

Total Contractual Obligations
$
2,196

 
$
2,118

 
$
1,597

 
$
1,895

 
$
1,314

 
$
4,612

 
$
13,732

Long-term debt and capitalized lease maturities of $6,724 million are more fully described in Note 11 to the consolidated financial statements and are included on the company’s balance sheet as long-term liabilities and current portion of long-term debt.
Contractual interest on long-term debt of $ 1,333 million represents interest the company is contracted to pay on outstanding long-term debt, current portion of long-term debt and capital lease obligations, calculated on a basis consistent with

36

planned debt maturities, excluding the interest impact of interest rate swaps. At December 31, 2012 , Praxair had fixed-rate debt of $6,239 million and floating-rate debt of $1,123 million . The rate assumed for floating-rate debt was the rate in effect at December 31, 2012 .
Obligations under operating leases of $ 483 million represent non-cancellable contractual obligations primarily for manufacturing and distribution equipment and office space. See Note 4 to the consolidated financial statements for further details.
Retirement obligations of $ 422 million include estimates of pension plan contributions and expected future benefit payments for unfunded pension and postretirement benefits other than pensions ("OPEB"). Pension plan contributions are forecast for 2013 only. For purposes of the table, $50 million of contributions have been included for 2013. Expected future unfunded pension and OPEB benefit payments are forecast only through 2022. Contribution and unfunded benefit payment estimates are based upon current valuation assumptions. Estimates of pension contributions after 2013 and unfunded benefit payments after 2022 are not included in the table because the timing of their resolution cannot be estimated. Retirement obligations are more fully described in Note 16 to the consolidated financial statements.
Unconditional purchase obligations of $ 3,081 million represent contractual commitments under various long and short-term take-or-pay arrangements with suppliers. These obligations are primarily minimum-purchase commitments for helium, electricity, natural gas and feedstock used to produce atmospheric and process gases including a multi-year contract for the purchase of silane. During 2012 , payments related to Praxair's unconditional purchase obligations totaled $1,093 million , including $679 million for electricity and $207 million for natural gas. A significant portion of these obligations is passed on to customers through similar take-or-pay or other contractual arrangements. Purchase obligations that are not passed along to customers through such contractual arrangements are subject to market conditions, but do not represent a material risk to Praxair. At December 31, 2012 the total purchase obligation for the silane contract is $166 million . Since the contract was signed, the market for silane has not developed as expected and prices have decreased due to lower demand from the photovoltaics markets, primarily in Asia. At December 31, 2012 , Praxair's current selling prices and estimated future demand for silane are in excess of its contractual purchase obligations under the contract. The company is continually monitoring market developments.
Construction commitments of $ 1,689 million represent outstanding commitments to complete authorized construction projects as of December 31, 2012 . A significant portion of Praxair’s capital spending is related to the construction of new production facilities to satisfy customer commitments which may take a year or more to complete.
Liabilities for uncertain tax positions totaling $85 million , including interest and penalties, are not included in the table because the timing of their resolution cannot be estimated. See Note 5 to the consolidated financial statements for disclosures surrounding uncertain income tax positions.
OFF-BALANCE SHEET ARRANGEMENTS
As discussed in Note 17 to the consolidated financial statements, at December 31, 2012 , Praxair had entered into various guarantees and other arrangements, and had undrawn outstanding letters of credit from financial institutions. These arrangements were entered into in connection with normal business operations and they are not reasonably likely to have a material impact on Praxair’s consolidated financial condition, results of operations, or liquidity.
CRITICAL ACCOUNTING POLICIES
The policies discussed below are considered by management to be critical to understanding Praxair’s financial statements and accompanying notes prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP). Their application places significant importance on management’s judgment as a result of the need to make estimates of matters that are inherently uncertain. Praxair’s financial position, results of operations and cash flows could be materially affected if actual results differ from estimates made. These policies are determined by management and have been reviewed by Praxair’s Audit Committee.
Depreciable Lives of Property, Plant and Equipment
Praxair’s net property, plant and equipment at December 31, 2012 was $11,453 million , representing 63% of the company’s consolidated total assets. Depreciation expense for the year ended December 31, 2012 was $980 million , or 11% of total operating costs. Management judgment is required in the determination of the estimated depreciable lives that are used to calculate the annual depreciation expense and accumulated depreciation.
Property, plant and equipment are recorded at cost and depreciated over the assets’ estimated useful lives on a straight-line basis for financial reporting purposes. The estimated useful life represents the projected period of time that the asset will be productively employed by the company and is determined by management based on many factors, including historical experience with similar assets, technological life cycles, geographic locations and contractual supply relationships with on-site customers. Circumstances and events relating to these assets, such as on-site contract modifications, are monitored to ensure

37

that changes in asset lives or impairments (see “Asset Impairments”) are identified and prospective depreciation expense or impairment expense is adjusted accordingly. Praxair’s largest asset values relate to cryogenic air-separation production plants with depreciable lives of principally 15 years.
Based upon the assets as of December 31, 2012 , if depreciable lives of machinery and equipment, on average, were increased or decreased by one year, annual depreciation expense would be decreased by approximately $62 million or increased by approximately $71 million , respectively.
Pension Benefits
Pension benefits represent 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, significant estimates are required to calculate pension expense and liabilities related to the company’s plans. The company utilizes the services of several independent actuaries, whose models are used to facilitate these calculations.
Several key assumptions are used in actuarial models to calculate pension expense and liability amounts recorded in the financial statements. Management believes the three most significant variables in the models are the expected long-term rate of return on plan assets, the discount rate, and the expected rate of compensation increase. The actuarial models also use assumptions for various other factors, including employee turnover, retirement age, and mortality. Praxair management believes the assumptions used in the actuarial calculations are reasonable, reflect the company’s experience and expectations for the future and are within accepted practices in each of the respective geographic locations in which it operates. Actual results in any given year will often differ from actuarial assumptions because of economic and other factors.
The weighted-average expected long-term rates of return on pension plan assets were 8.25% for U.S. plans and 8.70% for international plans for the years ended December 31, 2012 and 2011 . These rates are determined annually by management based on a weighted average of current and historical market trends, historical and expected portfolio performance and the current and expected portfolio mix of investments. A 0.50% change in these expected long-term rates of return, with all other variables held constant, would change Praxair’s pension expense by approximately $9 million.
The company has consistently used a market-related value of assets rather than the fair value at the measurement date to determine annual pension expense. The market-related value recognizes investment gains or losses over a five-year period. As a result, changes in the fair value of assets from year to year are not immediately reflected in the company’s annual pension expense. Instead, annual pension expense in future periods will be impacted as deferred investment gains or losses are recognized in the market-related value of assets over the five-year period. The consolidated market-related value of assets was $1,959 million, or $10 million higher than the fair value of assets of $1,949 million at December 31, 2012 . These net deferred investment losses of $10 million will be recognized in the calculation of the market-related value of assets ratably over the next four years and will impact future pension expense. Future actual investment gains or losses will impact the market-related value of assets and, therefore, will impact future annual pension expense in a similar manner.
The weighted-average discount rates for pension plan liabilities were 3.90% for U.S. plans and 5.80% for international plans at December 31, 2012 ( 4.70% and 7.00% , respectively, at December 31, 2011 ). These rates are used to calculate the present value of plan liabilities and are determined annually by management. The discount rate for the U.S. plans is established utilizing a cash flow matching model provided by the company’s independent actuaries. The model includes a portfolio of corporate bonds graded Aa or better by at least half of the ratings agencies and matches the U.S. plan’s projected cash flows to the calculated spot rates and develops the single equivalent discount rate which produces the same present value. The discount rates for the remaining international plans are based on market yields for high-quality fixed income investments representing the approximate duration of the pension liabilities on the measurement date. A 0.50% increase/decrease in discount rates, with all other variables held constant, would decrease/increase Praxair’s pension expense by approximately $12 million and would impact the PBO by approximately $171 million.
The weighted-average expected rate of compensation increase was 3.25% for U.S. plans and 4.00% for international plans at December 31, 2012 and 2011 . The estimated annual compensation increase is determined by management every year and is based on historical trends and market indices. A 0.50% change in the expected rate of compensation increase, with all other variables held constant, would change Praxair’s pension expense by approximately $5 million and would impact the PBO by approximately $32 million.
Asset Impairments
Goodwill
At December 31, 2012 , the company had goodwill of $2,507 million , which represents the aggregate of the excess purchase price for acquired businesses over the fair value of the net assets acquired.
The company performs a goodwill impairment test annually in the second quarter or more frequently if events or circumstances indicate that an impairment loss may have been incurred, and no impairments were indicated. The company has

38

continuously re-evaluated the likelihood of goodwill impairments in its reporting units subsequent to the second quarter test, and does not believe there is indication of impairment for any of its reporting units. At December 31, 2012 , Praxair’s enterprise value was approximately $40 billion (outstanding shares multiplied by the year-end stock price plus debt, and without any control premium) while its total capital was approximately $14 billion.
The impairment test allows an entity to first assess qualitative factors to determine if it is more likely than not that the fair value of a reporting unit is less than carrying value. If it is determined, that it is more likely than not that the fair value of a reporting unit is less than carrying value then the company will estimate and compare the fair value of its reporting units to their carrying value, including goodwill. Reporting units are determined based on one level below the operating segment level. Fair value is determined through the use of projected future cash flows, multiples of earnings and sales and other factors.
Such analysis requires the use of certain market assumptions and discount factors, which are subjective in nature. As applicable, estimated values can be affected by many factors beyond the company's control such as business and economic trends, government regulation, and technological changes. Management believes that the qualitative factors used to perform its annual goodwill impairment assessment are appropriate and reasonable. Although the 2012 qualitative assessment indicated that it is more likely than not that the fair value of each reporting unit substantially exceeded its carrying value, changes in circumstances or conditions affecting this analysis could have a significant impact on the fair value determination, which could then result in a material impairment charge to the company's results of operations.

See Note 9 to the consolidated financial statements for disclosures concerning the carrying value of goodwill by reportable segment.
Property, Plant and Equipment
Property, plant and equipment is tested for impairment whenever events or changes in circumstances indicate that the carrying amount of an individual asset or asset group may not be recoverable. To assess recoverability, the company compares the estimated undiscounted future cash flows expected to be generated from the asset or asset group to the carrying amount of the asset or asset group. If the undiscounted future cash flows are less than the carrying amount of the asset or asset group, an impairment charge reducing the carrying amount to fair value is required. Fair value is determined based on the most appropriate valuation technique, including discounted cash flows. This analysis requires management to make various subjective estimates and assumptions, including the amount of projected future cash flows related to the asset or asset group, the useful life over which cash flows will occur and the asset’s residual value, if any.
Income Taxes
At December 31, 2012 , Praxair had deferred tax assets of $867 million (net of valuation allowances of $ 86 million ), and deferred tax liabilities of $1,450 million . At December 31, 2012 , uncertain tax positions totaled $142 million (see Notes 1 and 5 to the consolidated financial statements). Income tax expense was $586 million for the year ended December 31, 2012 , or about 25.5% of pre-tax income.
In the preparation of consolidated financial statements, Praxair estimates income taxes based on diverse legislative and regulatory structures that exist in various jurisdictions where the company conducts business. Deferred income tax assets and liabilities represent tax benefits or obligations that arise from temporary differences due to differing treatment of certain items for accounting and income tax purposes. Praxair evaluates deferred tax assets each period to ensure that estimated future taxable income will be sufficient in character (e.g. capital gain versus ordinary income treatment), amount and timing to result in their recovery. A valuation allowance is established when management determines that it is more likely than not that a deferred tax asset will not be realized to reduce the assets to their realizable value. Considerable judgments are required in establishing deferred tax valuation allowances and in assessing exposures related to tax matters. As events and circumstances change, related reserves and valuation allowances are adjusted to income at that time. Praxair’s tax returns are subject to audit and local taxing authorities could challenge the company’s tax positions. The company’s practice is to review tax filing positions by jurisdiction and to record provisions for uncertain income tax positions, including interest and penalties when applicable. Praxair believes it records and/or discloses such potential tax liabilities as appropriate and has reasonably estimated its income tax liabilities and recoverable tax assets. If new information becomes available, adjustments are charged or credited against income at that time. Management does not anticipate that such adjustments would have a material adverse effect on the company’s consolidated financial position or liquidity; however, it is possible that the final outcomes could have a material impact on the company’s reported results of operations.
Contingencies
The company accrues liabilities for non-income tax contingencies when management believes that a loss is probable and the amounts can be reasonably estimated, while contingent gains are recognized only when realized. If new information becomes available or losses are sustained in excess of recorded amounts, adjustments are charged against income at that time.

39

Management does not anticipate that in the aggregate such losses would have a material adverse effect on the company’s consolidated financial position or liquidity; however, it is possible that the final outcomes could have a material impact on the company’s reported results of operations.
Praxair is subject to various claims, legal proceedings and government investigations that arise from time to time in the ordinary course of business. These actions are based upon alleged environmental, tax, antitrust and personal injury claims, among others (see Note 17 to the consolidated financial statements). Such contingencies are significant and the accounting requires considerable management judgments in analyzing each matter to assess the likely outcome and the need for establishing appropriate liabilities and providing adequate disclosures. Praxair believes it records and/or discloses such potential contingencies as appropriate and has reasonably estimated its liabilities.
NEW ACCOUNTING STANDARDS
See Note 1 to the consolidated financial statements for information concerning new accounting standards and the impact of the implementation of these standards on the company’s financial statements.
FAIR VALUE MEASUREMENTS
Praxair does not expect changes in the aggregate fair value of its financial assets and liabilities to have a material impact on the consolidated financial statements. See Note 13 to the consolidated financial statements.
NON-GAAP FINANCIAL MEASURES
The company presents the following non-GAAP financial measures in the discussion of financial condition, results of operations and liquidity throughout the MD&A. These measures are intended to supplement investors’ understanding of the company’s financial information by providing information which investors, financial analysts and management use to help evaluate the company’s financial leverage, return on capital employed and operating performance. Special items which the company does not believe to be indicative of on-going business performance are excluded from these calculations so that investors can better evaluate and analyze historical and future business trends on a consistent basis. Definitions of these non-GAAP measures may not be comparable to similar definitions used by other companies and are not a substitute for similar GAAP measures.
The following are the non-GAAP measures presented in the Selected Financial Data (Item 6) or this MD&A:  
(Dollar amounts in millions, except for per share data)
Year ended December 31,
2012
 
2011
 
2010
 
2009
 
2008
Performance Measures:
 
 
 
 
 
 
 
 
 
After-tax return on capital ("ROC")*
13.9
%
 
14.8
%
 
14.5
%
 
13.9
%
 
15.4
%
Return on equity ("ROE")
28.9
%
 
28.1
%
 
26.4
%
 
27.0
%
 
26.8
%
Debt-to-capital*
51.9
%
 
51.8
%
 
47.3
%
 
47.0
%
 
53.7
%
Debt-to-adjusted EBITDA*
1.9

 
1.7

 
1.6

 
1.8

 
1.6

Adjusted Amounts:
 
 
 
 
 
 
 
 
 
Operating profit
$
2,502

 
$
2,469

 
$
2,167

 
$
1,881

 
$
2,077

As a percent of sales
22.3
%
 
21.9
%
 
21.4
%
 
21.0
%
 
19.2
%
Effective tax rate
28.0
%
 
27.8
%
 
27.9
%
 
27.6
%
 
28.2
%
Noncontrolling interests
$
54

 
$
51

 
$
39

 
$
43

 
$
45

Net income – Praxair, Inc.
$
1,681

 
$
1,666

 
$
1,476

 
$
1,247

 
$
1,336

Diluted earnings per share
$
5.57

 
$
5.43

 
$
4.74

 
$
3.99

 
$
4.20

* Calculations for years prior to 2012 have been adjusted to conform to the current year presentation, where debt is defined as total debt less cash and cash equivalents.
After-tax Return on Capital ("ROC")
After-tax return on capital is a measure used by investors, financial analysts and management to evaluate the return on capital employed in the business. ROC measures the after-tax operating profit that the company was able to generate with the investments made by all parties in the business (debt, noncontrolling interests and Praxair, Inc. shareholders’ equity).  

40

(Dollar amounts in millions)
Year Ended December 31,
2012
 
2011
 
2010
 
2009
 
2008
Adjusted operating profit (see below)
$
2,502

 
$
2,469

 
$
2,167

 
$
1,881

 
$
2,077

Less: adjusted income taxes (see below)
(660
)
 
(647
)
 
(572
)
 
(482
)
 
(530
)
Less: tax benefit on interest expense (a)
(39
)
 
(41
)
 
(33
)
 
(37
)
 
(56
)
Add: income from equity investments
34

 
40

 
38

 
24

 
36

Net operating profit after-tax ("NOPAT")
$
1,837

 
$
1,821

 
$
1,600

 
$
1,386

 
$
1,527

Beginning capital
$
12,489

 
$
11,663

 
$
10,658

 
$
9,304

 
$
9,638

First quarter ending capital
$
13,248

 
$
12,289

 
$
10,758

 
$
9,366

 
$
10,106

Second quarter ending capital
$
13,017

 
$
12,809

 
$
10,745

 
$
10,020

 
$
10,557

Third quarter ending capital
$
13,617

 
$
12,306

 
$
11,336

 
$
10,577

 
$
10,118

Year-end ending capital
$
13,878

 
$
12,489

 
$
11,663

 
$
10,658

 
$
9,304

Five-quarter average capital
$
13,250

 
$
12,311

 
$
11,032

 
$
9,985

 
$
9,945

After-tax return on capital
13.9
%
 
14.8
%
 
14.5
%
 
13.9
%
 
15.4
%
 
________________________
(a)
Tax benefit on interest expense is computed using the effective rate adjusted for non-recurring income tax benefits and charges. The effective tax rates used for all periods were 28% .
Return on Praxair, Inc. Shareholders’ Equity ("ROE")
Return on Praxair, Inc. shareholders’ equity is a measure used by investors, financial analysts and management to evaluate operating performance from a Praxair shareholder perspective. ROE measures the net income attributable to Praxair, Inc. that the company was able to generate with the money shareholders have invested.  
(Dollar amounts in millions)
Year Ended December 31,
2012
 
2011
 
2010
 
2009
 
2008
Adjusted net income – Praxair, Inc. (see below)
$
1,681

 
$
1,666

 
$
1,476

 
$
1,247

 
$
1,336

Beginning Praxair, Inc. shareholders’ equity
$
5,488

 
$
5,792

 
$
5,315

 
$
4,009

 
$
5,142

First quarter ending Praxair, Inc. shareholders’ equity
$
5,940

 
$
6,165

 
$
5,398

 
$
4,073

 
$
5,209

Second quarter ending Praxair, Inc. shareholders’ equity
$
5,615

 
$
6,400

 
$
5,452

 
$
4,638

 
$
5,671

Third quarter ending Praxair, Inc. shareholders’ equity
$
6,015

 
$
5,753

 
$
5,991

 
$
5,085

 
$
4,891

Year-End ending Praxair, Inc. shareholders’ equity
$
6,064

 
$
5,488

 
$
5,792

 
$
5,315

 
$
4,009

Five-quarter average Praxair, Inc. shareholders’ equity
$
5,824

 
$
5,920

 
$
5,590

 
$
4,624

 
$
4,984

Return on Praxair, Inc. Shareholders’ Equity
28.9
%
 
28.1
%
 
26.4
%
 
27.0
%
 
26.8
%
Debt-to-Capital Ratio
The debt-to-capital ratio is a measure used by investors, financial analysts and management to provide a measure of financial leverage and insights into how the company is financing its operations.  

41

(Dollar amounts in millions)
2012
 
2011
 
2010
 
2009
 
2008
Year Ended December 31,
 
 
 
 
Total debt
$
7,362

 
$
6,562

 
$
5,557

 
$
5,055

 
$
5,025

Less: cash and cash equivalents
(157
)
 
(90
)
 
(39
)
 
(45
)
 
(32
)
Net debt
7,205

 
6,472

 
5,518

 
5,010

 
4,993

Equity and redeemable noncontrolling interests
 
 
 
 
 
 
 
 
 
Redeemable noncontrolling interests
252

 
220

 
—

 
—

 
—

Praxair, Inc. shareholders’ equity
6,064

 
5,488

 
5,792

 
5,315

 
4,009

Noncontrolling interests
357

 
309

 
353

 
333

 
302

Total equity and redeemable noncontrolling interests
6,673

 
6,017

 
6,145

 
5,648

 
4,311

Total capital
$
13,878

 
$
12,489

 
$
11,663

 
$
10,658

 
$
9,304

Debt-to-capital ratio
51.9
%
 
51.8
%
 
47.3
%
 
47.0
%
 
53.7
%
Adjusted EBITDA and Debt-to-Adjusted EBITDA Ratio
(Dollar amounts in millions)
2012
 
2011
 
2010
 
2009
 
2008
Year Ended December 31,
 
 
 
 
Adjusted net income - Praxair, Inc. (see below)
$
1,681

 
$
1,666

 
$
1,476

 
$
1,247

 
$
1,336

Add: adjusted noncontrolling interests (see below)
54

 
51

 
39

 
43

 
45

Add: interest expense - net
141

 
145

 
118

 
133

 
198

Add: adjusted income taxes (see below)
$
660

 
$
647

 
$
572

 
$
482

 
$
530

Add: depreciation and amortization
1,001

 
1,003

 
925

 
846

 
850

Adjusted EBITDA
$
3,537

 
$
3,512

 
$
3,130

 
$
2,751

 
$
2,959

 
 
 
 
 
 
 
 
 
 
Beginning Praxair, Inc. net debt
$
6,472

 
$
5,518

 
$
5,010

 
$
4,993

 
$
4,175

First quarter ending Praxair, Inc. net debt
6,749

 
5,752

 
5,028

 
4,991

 
4,553

Second quarter ending Praxair, Inc. net debt
6,891

 
6,039

 
4,978

 
5,074

 
4,569

Third quarter ending Praxair, Inc. net debt
7,028

 
6,185

 
5,006

 
5,170

 
4,920

Year-End ending Praxair, Inc. net debt
7,205

 
6,472

 
5,518

 
5,010

 
4,993

Five-quarter average Praxair, Inc. net debt
6,869

 
5,993

 
5,108

 
5,048

 
4,642

Debt-to- adjusted EBITDA ratio
1.9

 
1.7

 
1.6

 
1.8

 
1.6

Adjusted Amounts
2012 amounts are adjusted for the impact of the cost reduction program, a pension settlement and income tax benefit related to US homecare divestiture. 2011 amounts are adjusted for the impact of a net gain on acquisition and the cost reduction program. 2010 amounts are adjusted for the impact of the: (i) Spanish income tax settlement, (ii) US homecare divestiture, (iii) repatriation tax benefit and (iv) Venezuela currency devaluation. 2009 amounts were adjusted for the Brazil tax amnesty program and other charges, and the 2008 amounts were adjusted for the impact of the cost reduction program and other charges. The company does not believe these items are indicative of on-going business performance and, accordingly, their impacts are excluded from the reported amounts so that investors can better evaluate and analyze historical and future business trends on a consistent basis.
(Dollar amounts in millions, except per share data)
2012
 
2011
 
2010
 
2009
 
2008
Year Ended December 31,
 
 
 
 
Adjusted Operating Profit and Margin
 
 
 
 
 
 
 
 
 
Reported operating profit
$
2,437

 
$
2,468

 
$
2,082

 
$
1,575

 
$
1,883

Add: Pension settlement charge
9

 
—

 
—

 
—

 
—

Add: Cost reduction program
56

 
40

 
—

 
—

 
194

Less: Net gain on acquisition
—

 
(39
)
 
—

 
—

 
—

Add: US homecare divestiture
—

 
—

 
58

 
—

 
—


42

(Dollar amounts in millions, except per share data)
2012
 
2011
 
2010
 
2009
 
2008
Year Ended December 31,
 
 
 
 
Add: Venezuela currency devaluation
—

 
—

 
27

 
—

 
—

Add: Brazil tax amnesty and other charges
—

 
—

 
—

 
306

 
—

Total adjustments
65

 
1

 
85

 
306

 
194

Adjusted operating profit
$
2,502

 
$
2,469

 
$
2,167

 
$
1,881

 
$
2,077

Reported percent change
(1
)%
 
19
%
 
32
 %
 
(16
)%
 
5
%
Adjusted percent change
1
 %
 
14
%
 
15
 %
 
(9
)%
 
16
%
Reported sales
$
11,224

 
$
11,252

 
$
10,116

 
$
8,956

 
$
10,796

Reported operating profit margin
21.7
 %
 
21.9
%
 
20.6
 %
 
17.6
 %
 
17.4
%
Adjusted operating profit margin
22.3
 %
 
21.9
%
 
21.4
 %
 
21.0
 %
 
19.2
%
Adjusted Income Taxes and Effective Tax Rate
 
 
 
 
 
 
 
 
 
Reported income taxes
$
586

 
$
641

 
$
768

 
$
169

 
$
465

Add: Pension settlement charge
3

 
—

 
—

 
—

 
—

Add: Income tax benefit
55

 
—

 
—

 
—

 
—

Add: Cost reduction program
16

 
9

 
—

 
—

 
65

Less: Spanish income tax settlement
—

 
—

 
(250
)
 
—

 
—

Less: Net gain on acquisition
—

 
(3
)
 
—

 
—

 
—

Add: US homecare divestiture
—

 
—

 
18

 
—

 
—

Add: Repatriation tax benefit
—

 
—

 
35

 
—

 
—

Add: Venezuela currency devaluation
—

 
—

 
1

 
—

 
—

Add: Brazil tax amnesty and other charges
—

 
—

 
—

 
313

 
—

Total adjustments
74

 
6

 
(196
)
 
313

 
65

Adjusted income taxes
$
660

 
$
647

 
$
572

 
$
482

 
$
530

Reported income before income taxes and equity investments
$
2,296

 
$
2,323

 
$
1,964

 
$
1,442

 
$
1,685

Add: Pension settlement charge
9

 
—

 
—

 
—

 
—

Add: Cost reduction program
56

 
40

 
—

 
—

 
194

Less: Net gain on acquisition
—

 
(39
)
 
—

 
—

 
—

Add: US homecare divestiture
—

 
—

 
58

 
—

 
—

Add: Venezuela currency devaluation
—

 
—

 
27

 
—

 
—

Add: Brazil tax amnesty and other charges
—

 
—

 
—

 
306

 
—

Total adjustments
65

 
1

 
85

 
306

 
194

Adjusted income before income taxes and equity investments
$
2,361

 
$
2,324

 
$
2,049

 
$
1,748

 
$
1,879

Adjusted effective tax rate
28.0
 %
 
27.8
%
 
27.9
 %
 
27.6
 %
 
28.2
%
Adjusted Noncontrolling Interests
 
 
 
 
 
 
 
 
 
Reported noncontrolling interests
$
52

 
$
50

 
$
39

 
$
43

 
$
45

Add: Cost reduction program
2

 
—

 
—

 
—

 
—

Add: Net gain on acquisition
—

 
1

 
—

 
—

 
—

Adjusted noncontrolling interests
$
54

 
$
51

 
$
39

 
$
43

 
$
45

Adjusted Net Income – Praxair, Inc.
 
 
 
 
 
 
 
 
 
Reported net income – Praxair, Inc.
$
1,692

 
$
1,672

 
$
1,195

 
$
1,254

 
$
1,211

Add: Pension settlement charge
6

 
—

 
—

 
—

 
—

Add: Income tax benefit
(55
)
 
—

 
—

 
—

 
—

Add: Cost reduction program
38

 
31

 
—

 
—

 
125

Less: Net gain on acquisition
—

 
(37
)
 
—

 
—

 
—

Add: Spanish tax settlement
—

 
—

 
250

 
—

 
—

Add: US homecare divestiture
—

 
—

 
40

 
—

 
—

Less: Repatriation tax benefit
—

 
—

 
(35
)
 
—

 
—

Add: Venezuela currency devaluation
—

 
—

 
26

 
—

 
—

Less: Brazil tax amnesty and other charges
—

 
—

 
—

 
(7
)
 
—

Total adjustments
(11
)
 
(6
)
 
281

 
(7
)
 
125

Adjusted net income – Praxair, Inc.
$
1,681

 
$
1,666

 
$
1,476

 
$
1,247

 
$
1,336

Reported percent change
1
 %
 
40
%
 
(5
)%
 
4
 %
 
3
%
Adjusted percent change
1
 %
 
13
%
 
18
 %
 
(7
)%
 
14
%

43

(Dollar amounts in millions, except per share data)
2012
 
2011
 
2010
 
2009
 
2008
Year Ended December 31,
 
 
 
 
Adjusted Diluted Earnings Per Share
 
 
 
 
 
 
 
 
 
Reported diluted earnings per share
$
5.61

 
$
5.45

 
$
3.84

 
$
4.01

 
$
3.80

Add: Pension settlement charge
0.02

 
—

 
—

 
—

 
—

Add: Income tax benefit
(0.18
)
 
—

 
—

 
—

 
—

Add: Cost reduction program
0.12

 
0.10

 
—

 
—

 
0.40

Less: Net gain on acquisition
—

 
(0.12
)
 
—

 
—

 
—

Add: Spanish income tax settlement
—

 
—

 
0.80

 
—

 
—

Add: US homecare divestiture
—

 
—

 
0.13

 
—

 
—

Less: Repatriation tax benefit
—

 
—

 
(0.11
)
 
—

 
—

Add: Venezuela currency devaluation
—

 
—

 
0.08

 
—

 
—

Less: Brazil tax amnesty program and other charges
—

 
—

 
—

 
(0.02
)
 
—

Total adjustments
(0.04
)
 
(0.02
)
 
0.90

 
(0.02
)
 
0.40

Adjusted diluted earnings per share
$
5.57

 
$
5.43

 
$
4.74

 
$
3.99

 
$
4.20

Reported percent change
3
%
 
42
%
 
(4
)%
 
6
 %
 
 
Adjusted percent change
3
%
 
15
%
 
19
 %
 
(5
)%
 
 
 
 
 
 
 
 
 
 
 
 
2013 Diluted Earnings Per Share Outlook
 
 
 
 
 
 
 
 
 
 
Low
End
 
High
End
 
 
 
 
 
 
2013 diluted EPS outlook
$5.77
 
$6.02
 
 
 
 
 
 
Add: Venezuela currency devaluation charge
$0.08
 
$0.08
 
 
 
 
 
 
Adjusted 2013 diluted earnings per share outlook
$5.85
 
$6.10
 
 
 
 
 
 
2012 adjusted diluted EPS (see above)
$5.57
 
$5.57
 
 
 
 
 
 
Percentage change from 2012
5
%
 
10
%
 
 
 
 
 
 
FORWARD-LOOKING STATEMENTS
This document contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management’s reasonable expectations and assumptions as of the date the statements are made but involve risks and uncertainties. These risks and uncertainties include, without limitation: the performance of stock markets generally; developments in worldwide and national economies and other international events and circumstances; changes in foreign currencies and in interest rates; the cost and availability of electric power, natural gas and other raw materials; the ability to achieve price increases to offset cost increases; catastrophic events including natural disasters, epidemics and acts of war and terrorism; the ability to attract, hire, and retain qualified personnel; the impact of changes in financial accounting standards; the impact of changes in pension plan liabilities; the impact of tax, environmental, healthcare and other legislation and government regulation in jurisdictions in which the company operates; the cost and outcomes of investigations, litigation and regulatory proceedings; continued timely development and market acceptance of new products and applications; the impact of competitive products and pricing; future financial and operating performance of major customers and industries served; the impact of information technology system failures, network disruptions and breaches in data security; and the effectiveness and speed of integrating new acquisitions into the business. These risks and uncertainties may cause actual future results or circumstances to differ materially from the projections or estimates contained in the forward-looking statements. Additionally, financial projections or estimates exclude the impact of special items which the company believes are not indicative of ongoing business performance.The company assumes no obligation to update or provide revisions to any forward-looking statement in response to changing circumstances. The above listed risks and uncertainties are further described in Item 1A (Risk Factors) in this report which should be reviewed carefully. Please consider the company’s forward-looking statements in light of those risks.

44

ITEM 7A.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Praxair is exposed to market risks relating to fluctuations in interest rates and currency exchange rates. The objective of financial risk management at Praxair is to minimize the negative impact of interest rate and foreign exchange rate fluctuations on the company’s earnings, cash flows and equity.
To manage these risks, Praxair uses various derivative financial instruments, including interest-rate swaps, currency swaps, forward contracts, currency options and commodity contracts. Praxair only uses commonly traded and non-leveraged instruments. These contracts are entered into primarily with major banking institutions thereby minimizing the risk of credit loss. Also, see Notes 1 and 12 to the consolidated financial statements for a more complete description of Praxair’s accounting policies and use of such instruments.
The following discussion presents the sensitivity of the market value, earnings and cash flows of Praxair’s financial instruments to hypothetical changes in interest and exchange rates assuming these changes occurred at December 31, 2012. The range of changes chosen for these discussions reflects Praxair’s view of changes which are reasonably possible over a one-year period. Market values represent the present values of projected future cash flows based on interest rate and exchange rate assumptions.
Interest Rate and Debt Sensitivity Analysis
At December 31, 2012 , Praxair had debt totaling $7,362 million ($6,562 million at December 31, 2011 ). At December 31, 2012 and 2011 , there was one interest-rate swap agreement outstanding with a notional amount totaling $400 million that converts fixed-rate interest to variable-rate interest on the $400 million 3.25% notes that mature in 2015. When considered necessary, interest-rate swaps are entered into as hedges of underlying financial instruments to effectively change the characteristics of the interest rate without actually changing the underlying financial instrument.
For fixed-rate instruments, interest-rate changes affect the fair market value but do not impact earnings or cash flows. Conversely, for floating-rate instruments, interest-rate changes generally do not affect the fair market value but impact future earnings and cash flows, assuming other factors are held constant.
At December 31, 2012 , Praxair had fixed-rate debt of $6,239 million and floating-rate debt of $1,123 million , representing 85% and 15%, respectively, of total debt. At December 31, 2011 , Praxair had fixed-rate debt of $5,366 million and floating-rate debt of $1,196 million, representing 82% and 18%, respectively, of total debt. Praxair increased its percentage of fixed rate debt instruments, as a percentage of total debt in 2012 , to take advantage of historically low fixed interest rates. Holding other variables constant (such as foreign exchange rates, swaps and debt levels), a one-percentage-point decrease in interest rates would increase the unrealized fair market value of the fixed-rate debt by approximately $368 million ($244 million in 2011 ). At December 31, 2012 and 2011 , the after-tax earnings and cash flows impact for the subsequent year resulting from a one-percentage-point increase in interest rates would be approximately $7 million and $8 million, respectively, holding other variables constant.
Exchange Rate Sensitivity Analysis
Praxair’s exchange-rate exposures result primarily from its investments and ongoing operations in South America (primarily Brazil, Argentina, Colombia and Venezuela), Europe (primarily Germany, Italy, Scandinavia and Spain), Canada, Mexico, Asia (primarily China, India, Korea and Thailand) and other business transactions such as the procurement of equipment from foreign sources. From time to time, Praxair utilizes foreign exchange forward contracts to hedge these exposures. At December 31, 2012 , Praxair had $2,515 million notional amount ( $1,541 million at December 31, 2011 ) of foreign exchange contracts all of which were to hedge recorded balance sheet exposures. See Note 12 to the consolidated financial statements.
Holding other variables constant, if there were a 10% adverse change in foreign-currency exchange rates for the portfolio, the fair market value of foreign-currency contracts outstanding at December 31, 2012 and 2011 would decrease by approximately $32 million and $22 million, respectively, which would be largely offset by an offsetting gain or loss on the foreign-currency fluctuation of the underlying exposure being hedged.
On February 8, 2013, Venezuela announced a devaluation of the Venezuelan bolivar from an exchange rate of 4.30 to 6.30 (implying a 32% devaluation) effective February 13, 2013. This devaluation will result in an estimated charge to earnings of $0.08 per diluted share in the first quarter of 2013 due primarily to the remeasurement of the local Venezuelan balance sheet to reflect the new official 6.30 exchange rate. The company does not expect the impact on results of operations for 2013 to be significant.


45
Table of Contents

ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 
 
 
Page
 
 
Audited Consolidated Financial Statements
 
 
 
Notes to Consolidated Financial Statements
 

46
Table of Contents

MANAGEMENT’S STATEMENT OF RESPONSIBILITY FOR FINANCIAL STATEMENTS
Praxair’s consolidated financial statements are prepared by management, which is responsible for their fairness, integrity and objectivity. The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America applied on a consistent basis, except for accounting changes as disclosed, and include amounts that are estimates and judgments. All historical financial information in this annual report is consistent with the accompanying financial statements.
Praxair maintains accounting systems, including internal accounting controls, monitored by a staff of internal auditors, that are designed to provide reasonable assurance of the reliability of financial records and the protection of assets. The concept of reasonable assurance is based on recognition that the cost of a system should not exceed the related benefits. The effectiveness of those systems depends primarily upon the careful selection of financial and other managers, clear delegation of authority and assignment of accountability, inculcation of high business ethics and conflict-of-interest standards, policies and procedures for coordinating the management of corporate resources, and the leadership and commitment of top management. In compliance with Section 404 of the Sarbanes-Oxley Act of 2002, Praxair assessed its internal control over financial reporting and issued a report (see below).
PricewaterhouseCoopers LLP, an independent registered public accounting firm, has completed an integrated audit of Praxair’s 2012 , 2011 and 2010 consolidated financial statements and of its internal control over financial reporting as of December 31, 2012 in accordance with the standards of the Public Company Accounting Oversight Board (United States) as stated in their report.
The Audit Committee of the Board of Directors, which consists solely of non-employee directors, is responsible for overseeing the functioning of the accounting system and related controls and the preparation of annual financial statements. The Audit Committee periodically meets with management, internal auditors and the independent accountants to review and evaluate their accounting, auditing and financial reporting activities and responsibilities, including management’s assessment of internal control over financial reporting. The independent registered public accounting firm and internal auditors have full and free access to the Audit Committee and meet with the committee, with and without management present.
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Praxair’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of management, including the company’s principal executive officer and principal financial officer, the company conducted an evaluation of the effectiveness of its internal control over financial reporting based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (often referred to as COSO). Based on th is evaluation, management concluded that the company’s internal control over financial reporting was effective as of December 31, 2012 .
Praxair’s evaluation of internal control over financial reporting as of December 31, 2012 did not include the internal control over financial reporting related to Acetylene Oxygen Company and Portagas Inc. because they were acquired by Praxair in purchase business combinations consummated during 2012 . Total assets and sales for these acquisitions represent 0.8% and 0.1%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2012 (See Note 3).
PricewaterhouseCoopers LLP, an independent registered public accounting firm, has issued their opinion on the company’s internal control over financial reporting as of December 31, 2012 as stated in their report.  
/s/    S TEPHEN  F. A NGEL
 
/s/    E LIZABETH  T. H IRSCH
Stephen F. Angel
Chairman, President and
Chief Executive Officer
  
Elizabeth T. Hirsch
Vice President and Controller
/s/    J AMES  S. S AWYER
 
James S. Sawyer
Executive Vice President and
Chief Financial Officer
  
Danbury, Connecticut
February 27, 2013

47
Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To The Board of Directors and Shareholders of Praxair, Inc:
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, comprehensive income (loss), equity and cash flows present fairly, in all material respects, the financial position of Praxair, Inc. and its subsidiaries at December 31, 2012 and 2011 , and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2012 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012 based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). The company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on these financial statements, and on the company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
As described in Management’s Report on Internal Control Over Financial Reporting, management has excluded Acetylene Oxygen Company and Portagas Inc. from its assessment of internal control over financial reporting as of December 31, 2012 because these businesses were acquired by the Company in purchase business combinations during 2012. We have also excluded Acetylene Oxygen Company and Portagas Inc. from our audit of internal control over financial reporting. Acetylene Oxygen Company and Portagas Inc. are wholly owned subsidiaries of the Company. The aggregate total assets and total sales of these 2 entities represent 0.8% and 0.1%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2012 .
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers
Stamford, Connecticut
February 27, 2013


48


CONSOLIDATED STATEMENTS OF INCOME
PRAXAIR, INC. AND SUBSIDIARIES
(Dollar amounts in millions, except per share data)  
Year Ended December 31,
2012
 
2011
 
2010
Sales
$
11,224

 
$
11,252

 
$
10,116

Cost of sales, exclusive of depreciation and amortization
6,396

 
6,458

 
5,754

Selling, general and administrative
1,270

 
1,239

 
1,196

Depreciation and amortization
1,001

 
1,003

 
925

Research and development
98

 
90

 
79

Cost reduction program and other charges – net
65

 
1

 
85

Other income (expenses) – net
43

 
7

 
5

Operating Profit
2,437

 
2,468

 
2,082

Interest expense – net
141

 
145

 
118

Income Before Income Taxes and Equity Investments
2,296

 
2,323

 
1,964

Income taxes
586

 
641

 
768

Income Before Equity Investments
1,710

 
1,682

 
1,196

Income from equity investments
34

 
40

 
38

Net Income (Including Noncontrolling Interests)
1,744

 
1,722

 
1,234

Less: noncontrolling interests
(52
)
 
(50
)
 
(39
)
Net Income – Praxair, Inc.
$
1,692

 
$
1,672

 
$
1,195

 
 
 
 
 
 
Per Share Data – Praxair, Inc. Shareholders
 
 
 
 
 
Basic earnings per share
$
5.67

 
$
5.53

 
$
3.90

Diluted earnings per share
$
5.61

 
$
5.45

 
$
3.84

 
 
 
 
 
 
Weighted Average Shares Outstanding (000’s):
 
 
 
 
 
Basic shares outstanding
298,316

 
302,237

 
306,720

Diluted shares outstanding
301,845

 
306,722

 
311,395

The accompanying Notes on pages 55 to 95 are an integral part of these financial statements.



49
Table of Contents

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
PRAXAIR, INC. AND SUBSIDIARIES
(Dollar amounts in millions)  


Year Ended December 31,
2012
 
2011
 
2010
 NET INCOME (INCLUDING NONCONTROLLING INTERESTS)
$
1,744

 
$
1,722

 
$
1,234

 
 
 
 
 
 
OTHER COMPREHENSIVE INCOME (LOSS)
 
 
 
 
 
Translation adjustments:
 
 
 
 
 
 Foreign currency translation adjustments
(13
)
 
(563
)
 
135

 Income Taxes
17

 
29

 
(11
)
Translation adjustments
4

 
(534
)
 
124

Funded status - retirement obligations (Note 16):
 
 
 
 
 
Retirement program remeasurements
(228
)
 
(347
)
 
(7
)
Reclassifications to net income
71

 
42

 
34

Income taxes
49

 
115

 
(19
)
Funded status - retirement obligations
(108
)
 
(190
)
 
8

Derivative instruments (Note 12):
 
 
 
 
 
Current year unrealized gain (loss)
(1
)
 
(15
)
 
—

Reclassifications to net income
—

 
—

 
1

Income taxes
1

 
6

 
(1
)
Derivative instruments
—

 
(9
)
 
—

TOTAL OTHER COMPREHENSIVE INCOME (LOSS)
(104
)
 
(733
)
 
132

 
 
 
 
 
 
COMPREHENSIVE INCOME (INCLUDING NONCONTROLLING INTERESTS)
1,640

 
989

 
1,366

Less: noncontrolling interests
(54
)
 
(45
)
 
(34
)
COMPREHENSIVE INCOME - PRAXAIR, INC.
$
1,586

 
$
944

 
$
1,332


The accompanying Notes on pages 55 to 95 are an integral part of these financial statements.



50
Table of Contents



CONSOLIDATED BALANCE SHEETS
PRAXAIR, INC. AND SUBSIDIARIES
(Dollar amounts in millions)  
December 31,
2012
 
2011
Assets
 
 
 
Cash and cash equivalents
$
157

 
$
90

Accounts receivable – net
1,834

 
1,795

Inventories
476

 
456

Prepaid and other current assets
325

 
266

Total Current Assets
2,792

 
2,607

Property, plant and equipment – net
11,453

 
10,131

Equity investments
654

 
523

Goodwill
2,507

 
2,372

Other intangible assets – net
173

 
167

Other long-term assets
511

 
556

Total Assets
$
18,090

 
$
16,356

Liabilities and Equity
 
 
 
Accounts payable
$
928

 
$
896

Short-term debt
638

 
337

Current portion of long-term debt
39

 
387

Accrued taxes
123

 
145

Other current liabilities
751

 
770

Total Current Liabilities
2,479

 
2,535

Long-term debt
6,685

 
5,838

Other long-term liabilities
1,276

 
1,228

Deferred credits
977

 
738

Total Liabilities
11,417

 
10,339

Commitments and contingencies (Note 17)

 

Redeemable noncontrolling interests
252

 
220

Praxair, Inc. Shareholders’ Equity:
 
 
 
Common stock $0.01 par value, authorized – 800,000,000 shares, issued
2012 – 383,073,446 shares and 2011 – 382,854,272 shares
4

 
4

Additional paid-in capital
3,889

 
3,809

Retained earnings
9,534

 
8,510

Accumulated other comprehensive income (loss)
(1,852
)
 
(1,746
)
Less: Treasury stock, at cost (2012 – 86,843,966 shares and
2011 – 84,324,255 shares)
(5,511
)
 
(5,089
)
Total Praxair, Inc. Shareholders’ Equity
6,064

 
5,488

Noncontrolling interests
357

 
309

Total Equity
6,421

 
5,797

Total Liabilities and Equity
$
18,090

 
$
16,356

The accompanying Notes on pages 55 to 95 are an integral part of these financial statements.

51
Table of Contents

CONSOLIDATED STATEMENTS OF CASH FLOWS
PRAXAIR, INC. AND SUBSIDIARIES
(Millions of dollars)
Year Ended December 31,
2012
 
2011
 
2010
Increase (Decrease) in Cash and Cash Equivalents
 
 
 
 
 
Operations
 
 
 
 
 
Net income – Praxair, Inc.
$
1,692

 
$
1,672

 
$
1,195

Noncontrolling interests
52

 
50

 
39

Net income (including noncontrolling interests)
$
1,744

 
$
1,722

 
$
1,234

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
 
Cost reduction program and other charges-net, net of payments
43

 
(5
)
 
80

Depreciation and amortization
1,001

 
1,003

 
925

Deferred income taxes
258

 
(3
)
 
133

Share-based compensation
70

 
62

 
47

Non-cash charges and other
(127
)
 
(71
)
 
(15
)
Working capital
 
 
 
 
 
Accounts receivable
(36
)
 
(108
)
 
(114
)
Inventory
(18
)
 
(31
)
 
(26
)
Prepaid and other current assets
(17
)
 
8

 
(7
)
Payables and accruals
(34
)
 
44

 
163

Spanish income tax settlement (Note 2)
—

 
—

 
(231
)
Pension contributions
(184
)
 
(94
)
 
(124
)
Long-term assets, liabilities and other
52

 
(72
)
 
(160
)
Net cash provided by operating activities
2,752

 
2,455

 
1,905

Investing
 
 
 
 
 
Capital expenditures
(2,180
)
 
(1,797
)
 
(1,388
)
Acquisitions, net of cash acquired
(280
)
 
(294
)
 
(148
)
Divestitures and asset sales
82

 
86

 
52

Net cash used for investing activities
(2,378
)
 
(2,005
)
 
(1,484
)
Financing
 
 
 
 
 
Short-term debt borrowings (repayments) – net
293

 
(47
)
 
115

Long-term debt borrowings
2,036

 
1,541

 
1,890

Long-term debt repayments
(1,522
)
 
(580
)
 
(1,515
)
Issuances of common stock
164

 
195

 
183

Purchases of common stock
(623
)
 
(937
)
 
(587
)
Cash dividends – Praxair, Inc. shareholders
(655
)
 
(602
)
 
(551
)
Excess tax benefit on stock based compensation
60

 
53

 
51

Noncontrolling interest transactions and other
(56
)
 
(3
)
 
(5
)
Net cash used for financing activities
(303
)
 
(380
)
 
(419
)
Effect of exchange rate changes on cash and cash equivalents
(4
)
 
(19
)
 
(8
)
Change in cash and cash equivalents
67

 
51

 
(6
)
Cash and cash equivalents, beginning-of-period
90

 
39

 
45

Cash and cash equivalents, end-of-period
$
157

 
$
90

 
$
39

Supplemental Data
 
 
 
 
 
Income taxes paid
$
277

 
$
515

 
$
757

Interest paid
$
223

 
$
219

 
$
185

The accompanying Notes on pages 55 to 95 are an integral part of these financial statements.


52
Table of Contents

CONSOLIDATED STATEMENTS OF EQUITY
PRAXAIR, INC. AND SUBSIDIARIES
(Dollar amounts in millions, except per share data, shares in thousands)  
 
Praxair, Inc. Shareholders’ Equity
 
 
 
 
 
Common Stock
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated  Other
Comprehensive
Income (Loss)
(Note 7)
 
Treasury Stock
 
Praxair, Inc.
Shareholders’
Equity
 
Noncontrolling
Interests
 
Total
Equity
Activity
Shares
 
Amounts
 
Shares
 
Amounts
 
Balance, December 31, 2009
379,416

 
$
4

 
$
3,473

 
$
6,831

 
$
(1,155
)
 
72,938

 
$
(3,838
)
 
$
5,315

 
$
333

 
$
5,648

Net Income
 
 
 
 
 
 
1,195

 
 
 
 
 
 
 
1,195

 
39

 
1,234

Other comprehensive income (loss)
 
 
 
 
 
 
 
 
137

 
 
 
 
 
137

 
(5
)
 
132

Noncontrolling interests:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dividends and other capital reductions
 
 
 
 
 
 
 
 
 
 
 
 
 
 
—

 
(22
)
 
(22
)
Additions (Reductions)
 
 
 
 
(1
)
 
 
 
 
 
 
 
 
 
(1
)
 
8

 
7

Dividends to Praxair, Inc. common stock ($1.80 per share)
 
 
 
 
 
 
(551
)
 
 
 
 
 
 
 
(551
)
 
 
 
(551
)
Issuances of common stock:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the dividend reinvestment and stock purchase plan
83

 
 
 
7

 
 
 
 
 
 
 
 
 
7

 
 
 
7

For employee savings and incentive plans
3,124

 
 
 
120

 
 
 
 
 
(1,190
)
 
67

 
187

 
 
 
187

Purchases of common stock
 
 
 
 
 
 
 
 
 
 
6,879

 
(600
)
 
(600
)
 
 
 
(600
)
Tax benefit from stock options
 
 
 
 
56

 
 
 
 
 
 
 
 
 
56

 
 
 
56

Share-based compensation
 
 
 
 
47

 
 
 
 
 
 
 
 
 
47

 
 
 
47

Balance, December 31, 2010
382,623

 
$
4

 
$
3,702

 
$
7,475

 
$
(1,018
)
 
78,627

 
$
(4,371
)
 
$
5,792

 
$
353

 
$
6,145

Net Income
 
 
 
 
 
 
1,672

 
 
 
 
 
 
 
1,672

 
48

 
1,720

Other comprehensive income (loss)
 
 
 
 
 
 
 
 
(728
)
 
 
 
 
 
(728
)
 
(5
)
 
(733
)
Noncontrolling interests:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dividends and other capital reductions
 
 
 
 
 
 
 
 
 
 
 
 
 
 
—

 
(26
)
 
(26
)
Additions (Reductions)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
—

 
4

 
4

Reclassification to redeemable noncontrolling interests (Note 14)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
—

 
(65
)
 
(65
)
Redemption value adjustments (Note 14)
 
 
 
 
 
 
(35
)
 
 
 
 
 
 
 
(35
)
 
 
 
(35
)
Dividends to Praxair, Inc. common stock ($2.00 per share)
 
 
 
 
 
 
(602
)
 
 
 
 
 
 
 
(602
)
 
 
 
(602
)

53
Table of Contents

 
Praxair, Inc. Shareholders’ Equity
 
 
 
 
 
Common Stock
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated  Other
Comprehensive
Income (Loss)
(Note 7)
 
Treasury Stock
 
Praxair, Inc.
Shareholders’
Equity
 
Noncontrolling
Interests
 
Total
Equity
Activity
Shares
 
Amounts
 
Shares
 
Amounts
 
Issuances of common stock:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the dividend reinvestment and stock purchase plan
71

 
 
 
7

 
 
 
 
 
 
 
 
 
7

 
 
 
7

For employee savings and incentive plans
160

 
 
 
(17
)
 
 
 
 
 
(3,682
)
 
215

 
198

 
 
 
198

Purchases of common stock
 
 
 
 
 
 
 
 
 
 
9,379

 
(933
)
 
(933
)
 
 
 
(933
)
Tax benefit from stock options
 
 
 
 
55

 
 
 
 
 
 
 
 
 
55

 
 
 
55

Share-based compensation
 
 
 
 
62

 
 
 
 
 
 
 
 
 
62

 
 
 
62

Balance, December 31, 2011
382,854

 
$
4

 
$
3,809

 
$
8,510

 
$
(1,746
)
 
84,324

 
$
(5,089
)
 
$
5,488

 
$
309

 
$
5,797

Net Income
 
 
 
 
 
 
1,692

 
 
 
 
 
 
 
1,692

 
34

 
1,726

Other comprehensive income (loss)
 
 
 
 
 
 
 
 
(106
)
 
 
 
 
 
(106
)
 
2

 
(104
)
Noncontrolling interests:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dividends and other capital reductions
 
 
 
 
 
 
 
 
 
 
 
 
 
 
—

 
(48
)
 
(48
)
Purchases of noncontrolling interests
 
 
 
 
 
 
 
 
 
 
 
 
 
 
—

 
44

 
44

Additions (Reductions)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
—

 
16

 
16

Redemption value adjustments (Note 14)
 
 
 
 
 
 
(13
)
 
 
 
 
 
 
 
(13
)
 
 
 
(13
)
Dividends to Praxair, Inc. common stock ($2.20 per share)
 
 
 
 
 
 
(655
)
 
 
 
 
 
 
 
(655
)
 
 
 
(655
)
Issuances of common stock:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the dividend reinvestment and stock purchase plan
66

 
 
 
7

 
 
 
 
 
 
 
 
 
7

 
 
 
7

For employee savings and incentive plans
153

 
 
 
(60
)
 
 
 
 
 
(3,298
)
 
208

 
148

 
 
 
148

Purchases of common stock
 
 
 
 
 
 
 
 
 
 
5,818

 
(630
)
 
(630
)
 
 
 
(630
)
Tax benefit from stock options
 
 
 
 
63

 
 
 
 
 
 
 
 
 
63

 
 
 
63

Share-based compensation
 
 
 
 
70

 
 
 
 
 
 
 
 
 
70

 
 
 
70

Balance, December 31, 2012
383,073

 
$
4

 
$
3,889

 
$
9,534

 
$
(1,852
)
 
86,844

 
$
(5,511
)
 
$
6,064

 
$
357

 
$
6,421

The accompanying Notes on pages 55 to 95 are an integral part of these financial statements


54
Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PRAXAIR, INC. AND SUBSIDIARIES
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Operations – Praxair, Inc. and its subsidiaries ("Praxair" or "the company") comprise one of the largest industrial gases companies worldwide, and the largest in North and South America. Praxair produces, sells and distributes atmospheric, process and specialty gases, and high-performance surface coatings to a diverse group of industries including aerospace, chemicals, electronics, energy, food and beverage, healthcare, manufacturing and metals.
Principles of Consolidation – The consolidated financial statements include the accounts of all significant subsidiaries where control exists and, in limited situations, variable-interest entities where the company is the primary beneficiary. Intercompany transactions and balances are eliminated in consolidation and any significant related-party transactions have been disclosed.
Equity investments generally consist of 20% to 50% owned operations where the company exercises significant influence, but does not have control. Equity income from equity investments in corporations is reported on an after-tax basis. Pre-tax income from equity investments that are partnerships or limited-liability corporations ("LLC") is included in other income (expenses) – net with related taxes included in Income taxes. Equity investments are reviewed for impairment whenever events or circumstances reflect that an impairment loss may have incurred. Operations less than 20% owned, where the company does not exercise significant influence, are generally carried at cost.
Changes in ownership interest that result either in consolidation or deconsolidation of an investment are recorded at fair value through earnings, including the retained ownership interest, while changes that do not result in either consolidation or deconsolidation of a subsidiary are treated as equity transactions.
Use of Estimates – The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. While actual results could differ, management believes such estimates to be reasonable.
Revenue Recognition – Revenue is recognized when: a firm sales agreement exists; product is shipped or services are provided to customers; and collectability of a fixed or determinable sales price is reasonably assured. Sales returns and allowances are not a normal practice in the industry and are not significant.
A small portion of the company’s revenues relate to long-term construction contracts and are generally recognized using the percentage-of-completion method. Under this method, revenues from sales of major equipment, such as large air-separation facilities, are recognized based primarily on cost incurred to date compared with total estimated cost. Changes to total estimated cost and anticipated losses, if any, are recognized in the period determined.
For contracts that contain multiple products and/or services, amounts assigned to each component are based on its objectively determined fair value, such as the sales price for the component when it is sold separately or competitor prices for similar components.
Certain of the company’s facilities that are built to provide product to a specific customer are required to be accounted for as leases. The associated revenue streams are classified as rental revenue and are not significant.
Amounts billed for shipping and handling fees are recorded as sales, generally on FOB destination terms, and costs incurred for shipping and handling are recorded as cost of sales.
Amounts billed for sales and use taxes, value-added taxes, and certain excise and other specific transactional taxes imposed on revenue producing transactions are presented on a net basis and are not included in sales in the consolidated statement of income.
Cash Equivalents – Cash equivalents are considered to be highly liquid securities with original maturities of three months or less.
Inventories – Inventories are stated at the lower of cost or market. Cost is determined using the last-in, first-out ("LIFO") method for certain U.S. operations and the average-cost method for most other operations (see Note 7).
Property, Plant and Equipment – Net – Property, plant and equipment are carried at cost, net of accumulated depreciation. The company capitalizes interest as part of the cost of constructing major facilities (see Note 7). Depreciation is calculated on the straight-line method based on the estimated useful lives of the assets, which range from 3 years to 40 years (see Note 8). Praxair uses accelerated depreciation methods for tax purposes where appropriate. Maintenance of property, plant and equipment is generally expensed as incurred.

55

The company performs a test for impairment whenever events or changes in circumstances indicate that the carrying amount of an individual asset or asset group may not be recoverable. Should projected undiscounted future cash flows be less than the carrying amount of the asset or asset group, an impairment charge reducing the carrying amount to fair value is required. Fair value is determined based on the most appropriate valuation technique, including discounted cash flows.
Asset-Retirement Obligations – An asset-retirement obligation is recognized in the period in which sufficient information exists to determine the fair value of the liability with a corresponding increase to the carrying amount of the related property, plant and equipment which is then depreciated over its useful life. The liability is initially measured at discounted fair value and then accretion expense is recorded in each subsequent period. The company’s asset-retirement obligations are primarily associated with its on-site long-term supply arrangements where the company has built a facility on land leased from the customer and is obligated to remove the facility at the end of the contract term. The company’s asset-retirement obligations are not material to its financial statements.
Foreign Currency Translation – For most foreign operations, the local currency is the functional currency and translation gains and losses are reported as part of the accumulated other comprehensive income (loss) component of equity as a cumulative translation adjustment (see Note 7). For other foreign operations, the U.S. dollar is the functional currency and translation gains and losses are included in other income (expenses) – net.
Financial Instruments – Praxair enters into various derivative financial instruments to manage its exposure to fluctuating interest and currency exchange rates and energy costs. Such instruments primarily include interest-rate swap and treasury lock agreements; currency-swap agreements; forward contracts; currency options; and commodity-swap agreements. These instruments are not entered into for trading purposes. Praxair only uses commonly traded and non-leveraged instruments.
There are two types of derivatives the company enters into: hedges of fair-value exposures and hedges of cash-flow exposures. Fair-value exposures relate to recognized assets or liabilities, and firm commitments; while cash-flow exposures relate to the variability of future cash flows associated with recognized assets or liabilities, or forecasted transactions. When a derivative is executed and hedge accounting is appropriate, it is designated as either a fair-value hedge or a cash-flow hedge. Currently, Praxair designates all interest-rate and commodity-swap agreements as hedges; however, currency contracts are generally not designated as hedges for accounting purposes. All derivatives are linked to an appropriate underlying exposure. On an ongoing basis, the company assesses the hedge effectiveness of all derivatives designated as hedges to determine if they continue to be highly effective in offsetting changes in fair values or cash flows of the underlying hedged items. If it is determined that the hedge is not highly effective, then hedge accounting will be discontinued prospectively and changes in fair value are recorded in the consolidated statements of income.
Changes in the fair value of derivatives designated as fair-value hedges are recognized in earnings as an offset to the change in the fair values of the underlying exposures being hedged. The changes in fair value of derivatives that are designated as cash-flow hedges are deferred in accumulated other comprehensive income (loss) and are reclassified to earnings as the underlying hedged transaction affects earnings. Any ineffectiveness is recognized in earnings immediately. Hedges of net investments in foreign subsidiaries are recognized in the cumulative translation adjustment component of accumulated other comprehensive income (loss) on the consolidated balance sheets to offset translation gains and losses associated with the hedged net investment. Derivatives that are entered into for risk-management purposes and are not designated as hedges (primarily related to anticipated net income and currency derivatives other than for firm commitments) are recorded at their fair market values and recognized in current earnings.
See Note 12 for additional information relating to financial instruments.
Goodwill – Acquisitions are accounted for using the acquisition method which requires allocation of the purchase price to assets acquired and liabilities assumed based on estimated fair values. Any excess of the purchase price over the fair value of the assets and liabilities acquired is recorded as goodwill. Allocations of the purchase price are based on preliminary estimates and assumptions at the date of acquisition and are subject to revision based on final information received, including appraisals and other analyses which support underlying estimates.
The company performs a goodwill impairment test annually in the second quarter or more frequently if events or circumstances indicate that an impairment loss may have been incurred. The impairment test allows an entity to first assess qualitative factors to determine if it is more likely than not that the fair value of a reporting unit is less than carrying value. If it is determined, that it is more likely than not that the fair value of a reporting unit is less than carrying value then the company will estimate and compare the fair value of its reporting units to their carrying value, including goodwill. Reporting units are determined based on one level below the operating segment level. As applicable, fair value is determined through the use of projected future cash flows, multiples of earnings and sales and other factors. Such analysis requires the use of certain market assumptions and discount factors, which are subjective in nature.
See Note 9 for additional information relating to goodwill.

56

Other Intangible Assets – Customer and license/use agreements, non-compete agreements and patents and other intangibles are amortized over the estimated period of benefit. The determination of the estimated period of benefit will be dependent upon the use and underlying characteristics of the intangible asset. Praxair evaluates the recoverability of its intangible assets subject to amortization when facts and circumstances indicate that the carrying value of the asset may not be recoverable. If the carrying value is not recoverable, impairment is measured as the amount by which the carrying value exceeds its estimated fair value. Fair value is generally estimated based on either appraised value or other valuation techniques.
See Note 10 for additional information relating to other intangible assets.
Income Taxes – Deferred income taxes are recorded for the temporary differences between the financial statement and tax bases of assets and liabilities using currently enacted tax rates. Valuation allowances are established against deferred tax assets whenever circumstances indicate that it is more likely than not that such assets will not be realized in future periods.
Under the guidance for accounting for uncertainty in income taxes, the company can recognize the benefit of an income tax position only if it is more likely than not (greater than 50% ) that the tax position will be sustained upon tax examination, based solely on the technical merits of the tax position. Otherwise, no benefit can be recognized. The tax benefits recognized are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Additionally, the company accrues interest and related penalties, if applicable, on all tax exposures for which reserves have been established consistent with jurisdictional tax laws. Interest and penalties are classified as income tax expense in the financial statements.
See Note 5 for additional information relating to income taxes.
Retirement Benefits – Most Praxair employees participate in a form of defined benefit or contribution retirement plan, and additionally certain employees are eligible to participate in various post-employment health care and life insurance benefit plans. The cost of such benefits is recognized over the employees’ expected service period to the company in accordance with the applicable accounting standards. The funded status of the plans is recorded as an asset or liability in the consolidated balance sheets. Funding of retirement benefits varies and is in accordance with local laws and practices.
See Note 16 for additional information relating to retirement programs.
Share-based Compensation – The company has granted share-based awards which consist of stock options, restricted stock and performance-based stock. Share-based compensation expense is generally recognized on a straight-line basis over the stated vesting period. For stock awards granted to full-retirement-eligible employees, compensation expense is recognized over the period from the grant date to the date retirement eligibility is achieved. For performance-based awards, compensation expense is recognized only if it is probable that the performance condition will be achieved.
See Note 15 for additional disclosures relating to share-based compensation.
Recently Issued Accounting Standards
Accounting Standards Implemented in 2012
The following standards were all effective for Praxair in 2012 and their adoption did not have a significant impact on the condensed consolidated financial statements:
•
Testing for Goodwill Impairment - In September 2011, the Financial Accounting Standards Board ("FASB") issued updated guidance on the periodic testing of goodwill for impairment. This guidance provides companies with the option to assess qualitative factors to determine if it is more-likely-than-not that goodwill might be impaired and whether it is necessary to perform a quantitative two-step goodwill impairment test. Praxair applied the updated guidance during its annual goodwill review performed in the second quarter of 2012. Refer to Note 9.
•
Statement of Comprehensive Income - In June 2011, the FASB issued (and subsequently amended in December 2011) a revised standard regarding the presentation of other comprehensive income. Praxair has elected a two-statement approach. Refer to the Consolidated Statements of Comprehensive Income (Loss) following the Consolidated Statements of Income.
•
Expanded Disclosures for Fair Value Measurements - In May 2011, the FASB issued additional guidance expanding the disclosures for Fair Value Measurements, particularly Level 3 inputs. Refer to Note 13 for the additional guidance, as applicable.
•
Testing Indefinite-Lived Intangible Assets for Impairment - In July 2012, the FASB issued updated guidance on the testing of indefinite-lived intangible assets for impairment. This guidance provides companies with the option to apply a qualitative approach to determine if it is more-likely-than-not that the asset might be

57

impaired and whether it is necessary to perform a quantitative test. Early adoption is permitted and did not have an impact on Praxair's consolidated financial statements.

Accounting Standards to Be Implemented
•
Statement of Comprehensive Income - In February 2013, the FASB issued updated disclosure requirements regarding the presentation of other comprehensive income, which will be effective beginning with the first quarter 2013. Praxair does not expect this requirement to significantly change its current comprehensive income disclosures.
•
Offsetting Assets and Liabilities - In December 2011, the FASB issued (and subsequently amended in January 2013) updated disclosure requirements related to a company's right or requirement to offset derivative balance sheet items and the related arrangements associated with its financial instruments and derivative instruments. The new guidance requires the disclosure of the gross amounts subject to rights of setoff, amounts offset, and the related net exposure. This guidance will be effective for Praxair beginning with the first quarter 2013. Praxair does not expect this requirement to have any impact on the consolidated financial statements.
Reclassifications – Certain prior years’ amounts have been reclassified to conform to the current year’s presentation.
NOTE 2. COST REDUCTION PROGRAM AND OTHER CHARGES – NET
2012 Cost Reduction Program and Other Charges– Net
The year ended December 31, 2012 includes the following items which are recorded as a separate line item in the consolidated financial statements:
 
(Millions of dollars)
 
Operating
Loss
 
Income Tax
Benefit
 
Noncontrolling
Interests
 
Net Income
(Loss) – Praxair,
Inc.
Cost reduction program
 
$
(56
)
 
$
(16
)
 
$
(2
)
 
$
(38
)
Pension settlement charge
 
(9
)
 
(3
)
 
—
 
 
(6
)
Income tax benefit
 
—
 
 
(55
)
 
—
 
 
55
 
Total
 
$
(65
)
 
$
(74
)
 
$
(2
)
 
$
11
 
Cost Reduction Program
In the third quarter of 2012, Praxair recorded pre-tax charges totaling $56 million ( $38 million after-tax and noncontrolling interest), relating to severance and business restructuring actions primarily in Europe within the industrial gases and surface technologies businesses. The cost reduction program was initiated primarily in response to the continuing economic downturn in Europe.
The following is a summary of the charges by reportable segment:
 
(Millions of dollars)
 
Severance
Costs
 
Costs Associated
with Exit or
Disposal
Activities
 
Total Cost
Reduction
Program
North America
 
$
1

 
$
—

 
$
1

Europe
 
28

 
8

 
36

South America
 
1

 
—

 
1

Asia
 
2

 
—

 
2

Surface Technologies
 
11

 
5

 
16

Total
 
$
43

 
$
13

 
$
56

The severance costs of $43 million are for the termination of approximately 410 employees, primarily in Europe (industrial gases and surface technologies) of which approximately 123 have been terminated as of December 31, 2012 . The remaining employees are expected to be terminated during 2013. These actions reflect the continued business slow-down in Europe and result from a decision to eliminate and/or restructure operations and product lines.

58

The costs associated with exit or disposal activities of $13 million include asset write-downs and other costs associated with a decision to eliminate and/or restructure operations and product lines. In Europe the costs primarily relate to the elimination and consolidation of operations in Spain. In Surface Technologies, the costs relate to the consolidation/rationalization of operations and product lines, primarily in Germany and Italy.
The following table summarizes the activities related to the company's cost reduction program during 2012:
 
(Millions of dollars)
 
Severance
Costs
 
Costs Associated
with Exit or
Disposal
Activities
 
Total Cost
Reduction
Program
Cost reduction program
 
$
43

 
$
13

 
$
56

Less: Cash payments
 
(13
)
 
—

 
(13
)
Less: Non-cash asset write-offs
 
—

 
(9
)
 
(9
)
Foreign currency translation
 
—

 
—

 
—

Balance, December 31, 2012
 
$
30

 
$
4

 
$
34

Pension Settlement Charge
During 2011, a number of senior managers retired. These retirees are covered by the U.S. supplemental pension plan which provides for a lump sum benefit payment option. Under certain circumstances, such lump sum payments must be accounted for as a settlement of the related pension obligation, but only when paid. Accordingly, Praxair recorded a settlement charge related to net unrecognized actuarial losses of $9 million ( $6 million after-tax) in July 2012 when cash payments were made (refer to Note 16).

Income Tax Benefit
In 2011 Praxair requested a pre-filing agreement (“PFA”) with the U.S. Internal Revenue Service (“IRS”) related to a loss on a liquidated subsidiary resulting from the divestiture of the U.S. Homecare Business. During the third quarter of 2012, the IRS approved the PFA resulting in a net income tax benefit of $55 million (refer to Note 5).
Classification in the consolidated financial statements
The $65 million of operating loss from the cost reduction program and pension settlement is shown as a separate line item on the consolidated statements of income. The $74 million tax benefit resulting from the pre-filing agreement, cost reduction program and pension settlement charge is reflected in income taxes. In the balance sheets, asset write-offs are recorded as a reduction to the carrying value of the related assets and unpaid amounts are recorded as short-term liabilities. As of December 31, 2012 , there is a short-term liability of $34 million which is anticipated to be paid during 2013. On the consolidated statement of cash flows, the pre-tax loss from the cost reduction program, net of cash payments, is shown as an adjustment to reconcile net income to net cash provided by operating activities. In Note 18, Praxair excluded these items in its management definition of segment operating profit; a reconciliation of segments operating profit to consolidated operating profit is shown within the operating profit table.

2011 Gain on Acquisition and Cost Reduction Program – net
The year ended December 31, 2011 includes the following items which are recorded as a separate line item in the consolidated financial statements:  
(Millions of dollars)
Operating Profit
(Loss)
 
Income Tax
Provision (Benefit)
 
Noncontrolling
Interests
 
Net Income
(Loss) -
Praxair, Inc.
Net gain on acquisition
$
39

 
$
3

 
$
(1
)
 
$
37

Cost reduction program
(40
)
 
(9
)
 
—

 
(31
)
Total
$
(1
)
 
$
(6
)
 
$
(1
)
 
$
6

Gain on Acquisition
As discussed in Note 3, during the fourth quarter 2011 Praxair increased its ownership in its Yara Praxair Holding AS (“Yara Praxair”) joint venture in Scandinavia from 50% to 66% and consolidated the company. Previously, Praxair accounted for its 50% ownership interest in the joint venture as an equity method investment. In accordance with U. S. accounting rules, upon consolidation Praxair was required to fair value the entire Yara Praxair joint venture, including its original 50% ownership

59

interest. Accordingly, Praxair recorded a net pre-tax gain of $39 million ( $37 million net income – Praxair, Inc.) during the fourth quarter of 2011 primarily for the amount that the fair value of its original 50% ownership interest exceeded the equity investment book value.
Cost Reduction Program
In the fourth quarter 2011, Praxair recorded pre-tax charges totaling $40 million ( $31 million after-tax), relating to severance and business restructuring actions primarily in Europe within the industrial gases and surface technologies businesses. The cost reduction program was initiated primarily in response to the economic downturn in Europe.
The following is a summary of the charges by reportable segment.  
(Millions of dollars)
Severance
Costs
 
Costs Associated
with Exit or
Disposal Activities
 
Total Cost
Reduction Program
North America
$
1

 
$
—

 
$
1

Europe
20

 
1

 
21

South America
4

 
—

 
4

Surface Technologies
8

 
6

 
14

Total
$
33

 
$
7

 
$
40

The severance costs of $33 million are for the termination of approximately 290 employees, primarily in Europe, South America and Surface technologies, of which approximately half were terminated as of December 31, 2011. At December 31, 2012, all actions have been substantially completed. These costs include $6 million of pension settlement charges, primarily related to the closure of the surface technologies business in Switzerland.
The costs associated with exit or disposal activities of $7 million include asset write-downs and other costs primarily associated with a decision to close the company’s surface technologies facility in Switzerland, and to consolidate operations in the United Kingdom.
Classification in the consolidated financial statements
The net $1 million of operating profit from the pre-tax gain, offset by the cost reduction program is shown as a separate line item on the consolidated statement of income and the tax benefit of $6 million is reflected in income taxes. In the balance sheets, asset write-offs are recorded as a reduction to the carrying value of the related assets and unpaid amounts are recorded as short-term liabilities (See Note 7). On the consolidated statement of cash flows, the pre-tax impact of the gain on acquisition and cost reduction program, net of cash payments, is shown as an adjustment to reconcile net income to net cash provided by operating activities. In Note 18, Praxair excluded these items in its management definition of segment operating profit; a reconciliation of segments operating profit to consolidated operating profit is shown within the operating profit table.
2010 Spanish Income Tax Settlement and Other Charges – Net
The year ended December 31, 2010 includes the following items which are recorded in the consolidated financial statements:  
(Millions of dollars)
Operating Loss
 
Income Tax
Provision (Benefit)
 
Net Income
(Loss)
Spanish income tax settlement
$
—

 
$
250

 
$
(250
)
U.S. Homecare divestiture
(58
)
 
(18
)
 
(40
)
Repatriation tax benefit
—

 
(35
)
 
35

Venezuela currency devaluation
(27
)
 
(1
)
 
(26
)
Total
$
(85
)
 
$
196

 
$
(281
)
Spanish Income Tax Settlement
During the fourth quarter 2010, the Company’s Spanish subsidiaries settled various income tax disputes with the Spanish Government. As a result, Praxair recorded an income tax charge of $250 million representing the settlement amount in excess of previously recorded expenses. The settlement requires cash payments of approximately $500 million , $481 million of which was paid in the fourth quarter 2010. The remaining amounts were paid out during 2011 and are included within payables and accruals in the Consolidated Statement of Cash Flows. This matter was previously disclosed as a contingency in Note 17. Also, see Note 5 relating to income taxes.

60

U.S. Homecare Divestiture
During the fourth quarter 2010, the company announced its intent to sell the U.S. homecare portion of its North American healthcare business and recorded a pre-tax charge of $58 million ( $40 million after-tax) representing an adjustment to estimated fair value representing the company’s best estimate of the cash proceeds that would be realized upon eventual sale or other disposition of the net assets of the business. There was no cash impact for 2010. On February 2, 2011, the company announced that it had entered into a definitive agreement for sale of the U.S. homecare business to Apria Healthcare Group Inc. The sale was finalized on March 4, 2011.
Repatriation Tax Benefit
Also during the fourth quarter 2010, the company recognized an income tax benefit of $35 million related to the repatriation of highly-taxed foreign earnings. There was no cash impact for 2010. See Note 5 for additional disclosures relating to foreign tax credit carryforwards and related valuation allowances.
Venezuela Currency Devaluation;
In January 2010, Venezuela announced a devaluation of the Venezuelan Bolivar and created a two tier exchange rate system. Effective January 1, 2011, the two tier rate system was eliminated and a single exchange rate of 4.3 (implying 50% devaluation) is now required for all transactions, including Praxair’s operations. In the first quarter 2010, Praxair recorded a $27 million charge ( $26 million after-tax) due primarily to the remeasurement of the local Venezuelan balance sheet to reflect the new official 4.3 exchange rate. The company does not expect the impact of the devaluation on future results of operations to be significant.
Classification in the consolidated financial statements
The pre-tax impact of $85 million is shown as a separate line item on the consolidated statements of income; the income tax impact of $196 million is reflected in income taxes. In the consolidated balance sheets, asset write-downs are recorded as a reduction to the carrying value of the related assets and unpaid amounts are recorded as short-term or long-term liabilities. In the consolidated statement of cash flows, the $481 million cash payment related to the Spanish income tax settlement is shown as follows: $250 million as a charge to net income – Praxair, Inc. and $231 million in a separate line item called Spanish income tax settlement. The pre-tax impact of the other matters is shown as an adjustment to reconcile net income to net cash provided by operating activities. In Note 18, Praxair excluded these items in its management definition of segment operating profit; a reconciliation of segments operating profit to consolidated operating profit is shown within the operating profit table.
NOTE 3. ACQUISITIONS
The results of operations of these businesses have been included in Praxair’s consolidated statements of income since their respective dates of acquisition. Proforma financial statements for the following acquisitions have not been provided as the acquisitions are not material individually or in the aggregate.
2012 Acquisitions
In November 2012, Praxair acquired Acetylene Oxygen Company ("AOC"), one of the top ten independent gas and welding products distributors in the U.S, which operates throughout central and southern Texas. The acquisition of AOC allows Praxair to further expand its packaged gases presence in this region. Also, during the twelve months ended December 31, 2012, Praxair completed a number of other smaller acquisitions, primarily North American packaged gas distributors, including PortaGas, located in Houston, Texas. The aggregate purchase price for all acquisitions was $280 million , and resulted in recognition of $122 million of goodwill (see Note 9).
2011 Acquisitions
In December 2011, Praxair acquired Texas Welders Supply Company, the largest independent gas and welding products distributor in the greater Houston, Texas area. This acquisition increased Praxair’s packaged gas presence in what is considered one of top five welding markets in the U.S.
In October 2011, Praxair increased its ownership in its Yara Praxair industrial gases joint venture with Yara International ASA of Norway from 50% to 66% . The Yara Praxair joint venture, formed in late 2007, comprises Yara International’s former industrial gases businesses located in Norway, Denmark and Sweden. Through the third quarter 2011, Praxair accounted for its 50% ownership interest in the joint venture as an equity method investment. As a result of the acquisition of a controlling interest, Praxair consolidated Yara Praxair within the European segment beginning in the fourth quarter of 2011 (including $50 million of sales). In accordance with U.S. accounting rules, Praxair was also required to fair value its original 50% ownership interest in Yara Praxair which resulted in a $39 million net gain (see Note 2).

61

On June 15, 2011, Praxair completed the acquisition of a 49% ownership interest in the ROC Group’s industrial gases business operating in the United Arab Emirates (also see 2010 acquisitions below). This investment has been accounted for as an equity investment in Praxair’s consolidated financial statements.
Also, during the twelve months ended December 31, 2011, Praxair completed several smaller acquisitions, related primarily to North American packaged gas distributors, including American Gas Group, primarily located in Toledo, Ohio and National Alloy and Equipment, in Houston, Texas.
The aggregate net cash paid for these acquisitions was $294 million and resulted in the recognition of $396 million of goodwill. The goodwill includes the consolidation of Yara Praxair, while the cash paid only relates to Praxair’s ownership increase.
2010 Acquisitions
In August 2010, Praxair acquired a 49% ownership interest in the ROC Group’s industrial gases businesses operating in Kuwait and Qatar. These investments are accounted for as equity investments in Praxair’s consolidated financial statements (also see 2011 acquisitions above). Additionally, during the twelve months ended December 31, 2010, Praxair completed several small acquisitions, related primarily to North American packaged gas distributors. The aggregate purchase price for the acquisitions was $148 million , and resulted in recognition of $10 million of goodwill.
NOTE 4. LEASES
In the normal course of its business, Praxair enters into various leases as the lessee, primarily involving manufacturing and distribution equipment and office space. Total lease and rental expenses under operating leases were $120 million in 2012 , $115 million in 2011 and $111 million in 2010 . Capital leases are not significant and are included in property, plant and equipment – net. Related obligations are included in debt.
At December 31, 2012 , minimum payments due under operating leases are as follows:  
(Millions of dollars)
 
2013
$
111

2014
98

2015
84

2016
72

2017
56

Thereafter
62

 
$
483

The present value of these future lease payments under operating leases is approximately $399 million .
Praxair’s leases where it is the lessor are not significant.
NOTE 5. INCOME TAXES
Pre-tax income applicable to U.S. and foreign operations is as follows:  
(Millions of dollars)
Year Ended December 31,
2012
 
2011
 
2010
United States
$
880

 
$
762

 
$
643

Foreign
1,416

 
1,561

 
1,321

Total income before income taxes
$
2,296

 
$
2,323

 
$
1,964









62

The following is an analysis of the provision for income taxes:  
(Millions of dollars)
Year Ended December 31,
2012
 
2011
 
2010
Current tax expense
 
 
 
 
 
U.S. federal (a)
$
14

 
$
273

 
$
133

State and local
20

 
30

 
18

Foreign (b)
294

 
341

 
484

 
328

 
644

 
635

Deferred tax expense
 
 
 
 
 
U.S. federal
198

 
(47
)
 
70

State and local
17

 
3

 
(1
)
Foreign (c)
43

 
41

 
64

 
258

 
(3
)
 
133

Total income taxes
$
586

 
$
641

 
$
768

 
________________________
(a)
2012 includes income tax benefit from liquidated subsidiary of $ 55 million . See Note 2.
(b)
2010 includes Spain tax settlement of $ 250 million . See Note 2.
(c)
2010 includes $ 35 million repatriation tax benefit. See Note 2.
An analysis of the difference between the provision for income taxes and the amount computed by applying the U.S. statutory income tax rate to pre-tax income follows:  
(Dollar amounts in millions)
Year Ended December 31,
2012
 
2011
 
2010
U.S. statutory income tax rate
$
804

 
35.0
 %
 
$
813

 
35.0
 %
 
$
688

 
35.0
 %
State and local taxes – net of federal benefit
24

 
1.0
 %
 
21

 
0.9
 %
 
11

 
0.6
 %
U.S. tax credits and deductions (a)
(22
)
 
(1.0
)%
 
(21
)
 
(0.9
)%
 
(18
)
 
(0.9
)%
Foreign tax rate differentials (b)
(159
)
 
(6.9
)%
 
(164
)
 
(7.0
)%
 
(128
)
 
(6.5
)%
Income tax benefit from liquidation of subsidiary (c)
(55
)
 
(2.4
)%
 
—

 
—
 %
 
—

 
—
 %
Spain tax settlement (d)
—

 
—
 %
 
—

 
—
 %
 
250

 
12.7
 %
Repatriation tax benefit (d)
—

 
—
 %
 
—

 
—
 %
 
(35
)
 
(1.8
)%
Other – net
(6
)
 
(0.2
)%
 
(8
)
 
(0.4
)%
 
—

 
—
 %
Provision for income taxes
$
586

 
25.5
 %
 
$
641

 
27.6
 %
 
$
768

 
39.1
 %
 
________________________
(a)
U.S. tax credits and deductions relate to manufacturing deductions and to the research and experimentation tax credit.
(b)
Includes statutory foreign tax rate differentials and various tax incentives primarily in Europe, Asia and South America. Other tax rate changes were not significant.
(c)
Income tax benefit from liquidation of subsidiary. See Note 2.
(d)
Relates to the income tax settlement in Spain and the tax benefit related to the repatriation of foreign earnings. See Note 2.

63

Net deferred tax liabilities included in the consolidated balance sheet are comprised of the following:  
(Millions of dollars)
December 31,
2012
 
2011
Deferred tax liabilities
 
 
 
Fixed assets
$
1,153

 
$
972

Exchange gains
92

 
104

Goodwill
84

 
89

Other
121

 
119

 
$
1,450

 
$
1,284

Deferred tax assets
 
 
 
Carryforwards
$
294

 
$
329

Benefit plans and related (a)
433

 
451

Inventory
20

 
21

Accruals and other (b)
206

 
209

 
$
953

 
$
1,010

Less: Valuation allowances (c)
(86
)
 
(107
)
 
$
867

 
$
903

Net deferred tax liabilities
$
583

 
$
381

Recorded in the consolidated balance sheets as:
 
 
 
Current deferred tax assets, net (Note 7)
$
185

 
$
142

Long-term deferred tax liabilities, net (Note 7)
768

 
523

 
$
583

 
$
381

________________________
(a)
Includes deferred taxes of $ 427 million and $ 378 million in 2012 and 2011 , respectively, related to pension / OPEB funded status (Note 16).
(b)
Includes $ 77 million and $ 93 million in 2012 and 2011 , respectively, related to research and development costs.
(c)
Summary of valuation allowances relating to deferred tax assets follows (millions of dollars):
 
2012
 
2011
 
2010
Balance, January 1,
$
(107
)
 
$
(111
)
 
$
(37
)
Income tax (charge) benefit:
 
 
 
 
 
Brazil
—

 
—

 
(1
)
U.S.
17

 
6

 
(66
)
Other
(8
)
 
(4
)
 
(3
)
Translation adjustments
—

 
1

 
—

Other, including write-offs
12

 
1

 
(4
)
Balance, December 31,
$
(86
)
 
$
(107
)
 
$
(111
)
Praxair evaluates deferred tax assets quarterly to ensure that estimated future taxable income will be sufficient in character (e.g., capital gain versus ordinary income treatment), amount and timing to result in their recovery. After considering the positive and negative evidence, a valuation allowance is established to reduce the assets to their realizable value when management determines that it is more likely than not (i.e., greater than 50% likelihood) that a deferred tax asset will not be realized. Considerable judgment is required in establishing deferred tax valuation allowances. At December 31, 2012 , Praxair had $ 294 million of deferred tax assets relating to net operating losses (“NOLs”) and tax credits and $ 86 million of valuation allowances. These deferred tax assets include $ 114 million relating to NOLs in Brazil (primarily one subsidiary) which never expire and have no valuation allowances and $ 76 million relating to U.S. foreign tax credits which expire in 2021 and have a $ 51 million valuation allowance. The utilization of the U.S. foreign tax credits is dependent on many factors including U.S. interest expense, future U.S. investment, foreign sales and earnings growth, foreign currency exchange rates, and acquisitions

64

and dispositions. Management’s assessment and judgment are highly dependent on these variables and any significant changes to any one of them can substantially impact the amount of foreign tax credit utilization over the ten year carryforward period.
The remaining $ 104 million of NOLs and other carryforwards ($ 66 million in U.S. and $ 38 million foreign) which expire through 2031 have valuation allowances totaling $ 35 million . The remaining valuation allowances relate to certain foreign and U.S. state NOLs and are required because management has determined, based on financial projections and available tax strategies, that it is unlikely that the NOLs will be utilized before they expire. If events or circumstances change, valuation allowances are adjusted at that time resulting in an income tax benefit or charge.
A provision has not been made for additional U.S. federal or foreign taxes at December 31, 2012 on $ 8 billion of undistributed earnings of foreign subsidiaries because Praxair intends to reinvest these funds indefinitely to support foreign growth opportunities. It is not practicable to estimate the unrecognized deferred tax liability on these undistributed earnings. These earnings could become subject to additional tax if they are remitted as dividends, loaned to Praxair in the U.S., or upon sale of the subsidiary’s stock.
Uncertain Tax Positions
Unrecognized income tax benefits represent income tax position s taken on income tax returns but not yet recognized in the consolidated financial statements. The company has unrecognized income tax benefits totaling $ 142 million , $ 163 million and $ 153 million as of December 31, 2012 , 2011 and 2010 , respectively. If recognized, e ssentially all of the unrecognized tax benefits and related interest and penalties would be recorded as a benefit to income tax expense on the consolidated statement of income.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:  
(Millions of dollars)
2012
 
2011
 
2010
Unrecognized income tax benefits, January 1
$
163

 
$
153

 
$
372

Additions for tax positions of prior years
12

 
24

 
2

Reductions for tax positions of prior years
(17
)
 
(1
)
 
(12
)
Additions for current year tax positions
—

 
2

 
14

Reductions for settlements with taxing authorities (a)
(1
)
 
(2
)
 
(206
)
Reductions as a result of a lapse of an applicable statute of limitations
(9
)
 
(1
)
 
(8
)
Foreign currency translation
(6
)
 
(12
)
 
(9
)
Unrecognized income tax benefits, December 31
$
142

 
$
163

 
$
153

 
________________________
(a)
Settlements are uncertain tax positions that were effectively settled with the taxing authorities, including positions where the company has agreed to amend its tax returns to eliminate the uncertainty. The 2010 settlement amount primarily relates to the Spain tax settlement. See Note 2.
Expenses for interest and penalties on tax reserves of $ 1 million , $ 4 million and $ 11 million were recognized for the years ended December 31, 2012 , 2011 and 2010 , respectively and were classified as income tax expense in the consolidated statement of income. The company had $ 17 million and $ 18 million of accrued interest and penalties as of December 31, 2012 and December 31, 2011 , respectively which were recorded in other long-term liabilities in the consolidated balance sheets (see Note 7).

65

As of December 31, 2012 , the company remained subject to examination in the following major tax jurisdictions for the tax years as indicated below:  
 
 
Major tax jurisdictions
Open Years
North America
 
United States
2009 through 2012
Canada
2000 through 2012
Mexico
2006 through 2012
 
 
Europe
 
Germany
2008 through 2012
Italy
2008 through 2012
Spain
2004 through 2012
 
 
South America
 
Brazil
1998 through 2012
 
 
Asia
 
China
2007 through 2012
India
2006 through 2012
Korea
2006 through 2012
Thailand
2006 through 2012
The company is currently under audit in a number of tax jurisdictions including the United States and Canada. As a result, it is reasonably possible that some of these audits will conclude or reach the stage where a change in unrecognized income tax benefits may occur within the next twelve months. At that time, the Company will record any adjustment to income tax expense as required. During 2012 , the Company settled its 2007 and 2008 U.S. Income tax audits with the IRS. The settlement was not significant to the consolidated financial statements. The company is also subject to income taxes in many hundreds of state and local taxing jurisdictions that are open to tax examinations.
NOTE 6. EARNING PER SHARE – PRAXAIR, INC. SHAREHOLDERS
Basic earnings per share is computed by dividing Net income – Praxair, Inc. for the period by the weighted average number of Praxair common shares outstanding. Diluted earnings per share is computed by dividing Net income – Praxair, Inc. for the period by the weighted average number of Praxair common shares outstanding and dilutive common stock equivalents, as follows:  
 
2012
 
2011
 
2010
Numerator (Millions of dollars)
 
 
 
 
 
Net income – Praxair, Inc.
$
1,692

 
$
1,672

 
$
1,195

Denominator (Thousands of shares)
 
 
 
 
 
Weighted average shares outstanding
297,746

 
301,611

 
306,069

Shares earned and issuable under compensation plans
570

 
626

 
651

Weighted average shares used in basic earnings per share
298,316

 
302,237

 
306,720

Effect of dilutive securities
 
 
 
 
 
Stock options and awards
3,529

 
4,485

 
4,675

Weighted average shares used in diluted earnings per share
301,845

 
306,722

 
311,395

Basic Earnings Per Common Share
$
5.67

 
$
5.53

 
$
3.90

Diluted Earnings Per Common Share
$
5.61

 
$
5.45

 
$
3.84

Stock options of 1,589,235 were antidilutive and therefore excluded in the computation of diluted earnings per share for the year ended December 31, 2012 . There were no antidilutive shares for the year ended December 31, 2011 . Stock options of

66

14,540 were antidilutive and therefore excluded in the computation of diluted earnings per share for the year ended December 31, 2010 .
NOTE 7. SUPPLEMENTAL INFORMATION
Income Statement
(Millions of dollars)
Year Ended December 31,
2012
 
2011
 
2010
Selling, General and Administrative
 
 
 
 
 
Selling
$
547

 
$
563

 
$
531

General and administrative
723

 
676

 
665

 
$
1,270

 
$
1,239

 
$
1,196

Year Ended December 31,
2012
 
2011
 
2010
Depreciation and Amortization
 
 
 
 
 
Depreciation
$
980

 
$
982

 
$
904

Amortization of other intangibles (Note 10)
21

 
21

 
21

 
$
1,001

 
$
1,003

 
$
925

Year Ended December 31,
2012
 
2011
 
2010
Other Income (Expenses) – Net
 
 
 
 
 
Currency related net gains (losses)
$
(9
)
 
$
7

 
$
(1
)
Partnership income
10

 
9

 
1

Net legal settlements
24

 
—

 
—

Severance expense
(17
)
 
(17
)
 
(12
)
Business divestitures and asset gains (losses) – net
49

 
17

 
—

State of Rio amnesty program
—

 
—

 
19

Other – net
(14
)
 
(9
)
 
(2
)
 
$
43

 
$
7

 
$
5


Year Ended December 31,
2012
 
2011
 
2010
Interest Expense – Net
 
 
 
 
 
Interest incurred on debt
$
226

 
$
222

 
$
187

Interest capitalized
(70
)
 
(62
)
 
(62
)
Amortization of swap termination costs (Note 12)
(15
)
 
(15
)
 
(7
)
 
$
141

 
$
145

 
$
118


Balance Sheet
(Millions of dollars)
December 31,
2012
 
2011
Accounts Receivable
 
 
 
Trade
$
1,763

 
$
1,750

Other
163

 
140

 
1,926

 
1,890

Less: allowance for doubtful accounts (a)
(92
)
 
(95
)
 
$
1,834

 
$
1,795


67


December 31,
2012
 
2011
Inventories (b)
 
 
 
Raw materials and supplies
$
164

 
$
153

Work in process
56

 
58

Finished goods
256

 
245

 
$
476

 
$
456

December 31,
2012
 
2011
Prepaid and Other Current Assets
 
 
 
Deferred income taxes (Note 5)
$
185

 
$
142

Prepaid
87

 
73

Other
53

 
51

 
$
325

 
$
266

December 31,
2012
 
2011
Other Long-term Assets
 
 
 
Pension assets (Note 16)
$
—

 
$
14

Insurance contracts (c)
71

 
71

Long-term receivables, net (d)
46

 
53

Deposits
57

 
62

Investments carried at cost
9

 
9

Deferred charges
159

 
171

Other
169

 
176

 
$
511

 
$
556

December 31,
2012
 
2011
Accrued Taxes
 
 
 
Tax liabilities for uncertain tax positions
$
5

 
$
5

Other accrued taxes
118

 
140

 
$
123

 
$
145

December 31,
2012
 
2011
Other Current Liabilities
 
 
 
Accrued expenses
$
257

 
$
258

Payrolls
156

 
196

Cost reduction program and other charges (Note 2)
34

 
23

Pension and postretirement (Note 16)
46

 
38

Interest payable
56

 
53

Employee benefit accrual
20

 
20

Severance
12

 
12

Insurance reserves
6

 
6

Other
164

 
164

 
$
751

 
$
770


68

December 31,
2012
 
2011
Other Long-term Liabilities

 
 
Pension and postretirement (Note 16)
$
909

 
$
905

Tax liabilities for uncertain tax positions
63

 
76

Interest and penalties for uncertain tax positions (Note 5)
17

 
18

Insurance reserves
22

 
21

Other
265

 
208

 
$
1,276

 
$
1,228

 
December 31,
2012
 
2011
Deferred Credits
 
 
 
Deferred income taxes (Note 5)
$
768

 
$
523

Other
209

 
215

 
$
977

 
$
738

Accumulated Other Comprehensive Income (Loss)
 
 
 
Cumulative translation adjustment
 
 
 
North America (e)
$
(178
)
 
$
(277
)
South America (e)
(837
)
 
(666
)
Europe
(93
)
 
(124
)
Asia
23

 
(17
)
Surface Technologies
30

 
27

 
(1,055
)
 
(1,057
)
Derivatives – net of taxes
(5
)
 
(5
)
Pension/ OPEB funded status obligation (net of $427 million and
 
 
 
$378 million taxes in 2012 and 2011, respectively) (Note 16)
(792
)
 
(684
)
 
$
(1,852
)
 
$
(1,746
)
 
________________________
(a)
Provisions to the allowance for doubtful accounts were $ 29 million , $ 57 million , and $ 82 million in 2012 , 2011 , and 2010 , respectively. The remaining allowance activity in each period related primarily to write-offs of uncollectible amounts, net of recoveries and currency movements.
(b)
Approximately 7% and 5% of total inventories were valued using the LIFO method at December 31, 2012 and 2011 , respectively. If inventories had been valued at current costs, they would have been approximately $ 14 million and $ 11 million higher than reported at December 31, 2012 and 2011 .
(c)
Consists primarily of insurance contracts and other investments to be utilized for non-qualified pension and OPEB obligations (see Note 16).
(d)
Financing receivables is not normal practice for the company. The balances at December 31, 2012 and 2011 are net of reserves of $ 43 million and $ 64 million , respectively. The balance in both periods relates primarily to government receivables in Brazil and other long-term notes receivable from customers, the majority of which are fully reserved. Collectibility is reviewed regularly and uncollectible amounts are written-off as appropriate. The fluctuation within this account was due primarily to foreign currency movements.
(e)
North America consists of currency translation adjustments in Canada and Mexico while South America relates primarily to Brazil and Argentina.

69

NOTE 8. PROPERTY, PLANT AND EQUIPMENT – NET
Significant classes of property, plant and equipment are as follows:  
(Millions of dollars)
December 31,
 
2012
 
2011
Machinery and equipment
 
$
18,644

 
$
17,365

Buildings
 
1,092

 
1,048

Construction in progress and other
 
2,453

 
1,891

Land and land improvements
 
490

 
324

 
 
22,679

 
20,628

Less: accumulated depreciation
 
(11,226
)
 
(10,497
)
 
 
$
11,453

 
$
10,131

Machinery and equipment includes production plants, tanks, cylinders, transportation equipment and other assets that have useful lives of 3 years to 30 years. Praxair’s largest asset values relate to cryogenic air separation production plants with depreciable lives of principally 15 years. Buildings have useful lives of 25 years to 40 years and land improvements have useful lives of up to 20 years.

NOTE 9. GOODWILL
Changes in the carrying amount of goodwill for the years ended December 31, 2012 and 2011 were as follows:  
(Millions of dollars)
North
America
 
South
America
 
Europe
 
Asia
 
Surface
Technologies
 
Total
Balance, December 31, 2010
$
1,303

 
$
246

 
$
343

 
$
33

 
$
141

 
$
2,066

Acquisitions (Note 3)
93

 
—

 
303

 
—

 
—

 
396

Purchase adjustments & other
(4
)
 
—

 
—

 
(8
)
 
—

 
(12
)
Foreign currency translation
(17
)
 
(31
)
 
(28
)
 
(1
)
 
(1
)
 
(78
)
Balance, December 31, 2011
$
1,375

 
$
215

 
$
618

 
$
24

 
$
140

 
$
2,372

Acquisitions (Note 3)
121

 
—

 
1

 
—

 
—

 
122

Purchase adjustments & other
(9
)
 
—

 
—

 
—

 
—

 
(9
)
Foreign currency translation
12

 
(20
)
 
26

 
1

 
3

 
22

Balance, December 31, 2012
$
1,499

 
$
195

 
$
645

 
$
25

 
$
143

 
$
2,507

 
Praxair has performed goodwill impairment tests annually during the second quarter of each year, and historically we have determined that the fair value of each of our reporting units was substantially in excess of its carrying value. For the 2012 test completed during the second quarter, Praxair applied the FASB's updated accounting guidance (refer to Note 1) which allows us to first assess qualitative factors to determine the extent of quantitative analysis that may be required to test goodwill for impairment. Based on the qualitative assessments performed, we concluded that it was more likely than not that the fair value of each reporting unit substantially exceeded its carrying value and therefore, further quantitative analysis was not required. Also, there were no indicators of impairment through December 31, 2012 .

70

NOTE 10. OTHER INTANGIBLE ASSETS
The following is a summary of Praxair’s other intangible assets at December 31, 2012 and 2011 :  
(Millions of dollars)
For the year ended December 31, 2012
Customer &
License/Use
Agreements
 
Non-compete
Agreements
 
Patents
&
Other
 
Total
Cost:
 
 
 
 
 
 
 
Balance, December 31, 2011
$
208

 
$
37

 
$
27

 
$
272

Additions (primarily acquisitions)
41

 
5

 
—

 
46

Foreign currency translation
4

 
—

 
1

 
5

Other *
(21
)
 
(5
)
 
(8
)
 
(34
)
Balance, December 31, 2012
232

 
37

 
20

 
289

Less: accumulated amortization:
 
 
 
 
 
 
 
Balance, December 31, 2011
(75
)
 
(20
)
 
(10
)
 
(105
)
Amortization expense
(15
)
 
(5
)
 
(1
)
 
(21
)
Foreign currency translation
(2
)
 
—

 
—

 
(2
)
Other *
3

 
5

 
4

 
12

Balance, December 31, 2012
(89
)
 
(20
)
 
(7
)
 
(116
)
Net balance at December 31, 2012
$
143

 
$
17

 
$
13

 
$
173

(Millions of dollars)
For the year ended December 31, 2011
Customer &
License/Use
Agreements
 
Non-compete
Agreements
 
Patents
&
Other
 
Total
Cost:
 
 
 
 
 
 
 
Balance, December 31, 2010
$
166

 
$
28

 
$
24

 
$
218

Additions (primarily acquisitions)
50

 
10

 
1

 
61

Foreign currency translation
(5
)
 
—

 
—

 
(5
)
Other *
(3
)
 
(1
)
 
2

 
(2
)
Balance, December 31, 2011
208

 
37

 
27

 
272

Less: accumulated amortization:
 
 
 
 
 
 
 
Balance, December 31, 2010
(63
)
 
(16
)
 
(7
)
 
(86
)
Amortization expense
(15
)
 
(5
)
 
(1
)
 
(21
)
Foreign currency translation
2

 
—

 
—

 
2

Other *
1

 
1

 
(2
)
 
—

Balance, December 31, 2011
(75
)
 
(20
)
 
(10
)
 
(105
)
Net balance at December 31, 2011
$
133

 
$
17

 
$
17

 
$
167

 
________________________
*
Other primarily relates to the write-off of fully amortized assets and purchase accounting adjustments.
There are no expected residual values related to these intangible assets. Amortization expense for the years ended December 31, 2012 , 2011 and 2010 was $21 million . The remaining weighted-average amortization period for intangible assets is approximately 12 years.

71

Total estimated annual amortization expense is as follows:  
(Millions of dollars)
 
2013
$
27

2014
23

2015
22

2016
20

2017
14

Thereafter
67

 
$
173


72


NOTE 11. DEBT
The following is a summary of Praxair’s outstanding debt at December 31, 2012 and 2011 :  
(Millions of dollars)
2012
 
2011
Short-term
 
 
 
Commercial paper and U.S. bank borrowings
$
563

 
$
159

Other bank borrowings (primarily international)
75

 
178

Total short-term debt
638

 
337

Long-term
 
 
 
U.S. borrowings
 
 
 
6.375% Notes due 2012 (d, e)
-

 
501

1.75% Notes due 2012 (d, e)
-

 
405

3.95% Notes due 2013 (d)
350

 
350

2.125% Notes due 2013(a, b, d)
504

 
513

4.375% Notes due 2014 (a)
299

 
299

5.25% Notes due 2014
400

 
400

4.625% Notes due 2015
500

 
500

3.25% Notes due 2015 (a, b)
431

 
434

5.375% Notes due 2016
400

 
400

5.20% Notes due 2017
325

 
325

1.05% Notes due 2017 (c)
400

 
-

4.50% Notes due 2019 (a)
598

 
597

4.05% Notes due 2021 (a)
498

 
498

3.00% Notes due 2021 (a)
496

 
496

2.45% Notes due 2022 (a, c)
598

 
-

2.20% Notes due 2022 (a, c)
499

 
-

3.55% Notes due 2042 (a, c)
298

 
-

Other
5

 
6

International bank borrowings
113

 
490

Obligations under capital lease
10

 
11

 
6,724

 
6,225

Less: current portion of long-term debt
(39
)
 
(387
)
Total long-term debt
6,685

 
5,838

Total debt
$
7,362

 
$
6,562

 
________________________
(a)
Amounts are net of unamortized discounts.
(b)
December 31, 2012 and 2011 include a $36 million and $54 million fair value increase, respectively, related to fair value hedge accounting. See Note 12 for additional information.
(c)
During 2012 , Praxair issued the following notes totaling $1.8 billion : $400 million of 1.05% notes due 2017 , $600 million of 2.45% notes due 2022 , $500 million of 2.2% notes due 2022 and $300 million of 3.55% notes due 2042 . The proceeds of these issuances were used for general corporate purposes.
(d)
Classified as long-term because of the Company’s intent to refinance this debt on a long-term basis and the availability of such financing under the company’s $1.75 billion senior unsecured credit facility with a syndicate of banks entered into on July 26, 2011 which expires in 2016 .
(e)
In April and November 2012 , Praxair repaid $500 million of 6.375% notes and $400 million of 1.75% notes, respectively, that became due.

73

On February 21, 2013, Praxair issued $400 million of 0.75% notes due 2016 and $500 million of 2.70% notes due 2023. The proceeds will be used for general corporate purposes, including acquisitions and share repurchases under our share repurchase program.
Credit Facilities
At December 31, 2012 , the company has the following major credit facility available for future borrowing:  
Millions of dollars
Total
Facility
 
Borrowings
Outstanding
 
Available for
Borrowing
 
Expires
Senior Unsecured
$
1,750

 
$
—

 
$
1,750

 
July 2016
In July 2011, the company entered into a $1.75 billion senior unsecured credit facility with a syndicate of major financial institutions. The credit facility is non-cancellable by the issuing financial institutions until its maturity in July 2016 . Also, Praxair has an option to increase the amount of the credit facility by $250 million at its sole discretion. This facility replaced the company’s $1.0 billion senior unsecured credit facility which was set to expire in December 2011 . No borrowings were outstanding under either of these credit agreements at December 31, 2012 or 2011 . Associated fees were not significant in each of the past three years.
The company had a $400 million revolving multi-currency credit facility in Europe with a syndicate of international banks that expired in November 2012 and borrowings outstanding against this facility were repaid. There was $363 million outstanding against the facility in Europe at December 31, 2011 .
Covenants
Praxair’s $1.75 billion senior unsecured credit facility and long-term debt agreements contain various covenants which may, among other things, restrict the ability of Praxair to merge with another entity, incur or guarantee debt, sell or transfer certain assets, create liens against assets, enter into sale and leaseback agreements, or pay dividends and make other distributions beyond certain limits. These agreements also require Praxair to not exceed a maximum 70% leverage ratio defined in the agreements as the ratio of consolidated total debt to the sum of consolidated total debt plus consolidated shareholders’ equity of the company. For purposes of the leverage ratio calculation, consolidated shareholders’ equity excludes changes in the cumulative foreign currency translation adjustments after June 30, 2011. At December 31, 2012 , the actual leverage ratio was 51% and the company is in compliance with all financial covenants. Also, there are no material adverse change clauses or other subjective conditions that would restrict the company’s ability to borrow under the agreement.
Other Debt Information
As of December 31, 2012 and 2011 , the weighted-average interest rate of short-term borrowings outstanding was 0.7% and 2.4% , respectively.
Expected maturities on long-term debt are as follows:  
(Millions of dollars)
 
 
2013
$
39

  
2014
770

  
2015
923

  
2016
1,257

*
2017
730

 
Thereafter
3,005

  
 
$
6,724

  
________________________
*
The $854 million of fixed-rate debt due in 2013 has been reflected in 2016 maturities due to the company’s intent to refinance this debt on a long-term basis and the ability to do so under the $1.75 billion senior unsecured credit facility which expires in 2016 .
As of December 31, 2012 , $14 million of Praxair’s assets (principally international fixed assets) were pledged as collateral for $11 million of long-term debt, including the current portion of long-term debt.
See Note 13 for the fair value information related to debt.

74

NOTE 12. FINANCIAL INSTRUMENTS
In its normal operations, Praxair is exposed to market risks relating to fluctuations in interest rates, foreign currency exchange rates, energy costs and to a lesser extent precious metal prices. The objective of financial risk management at Praxair is to minimize the negative impact of such fluctuations on the company’s earnings and cash flows. To manage these risks, among other strategies, Praxair routinely enters into various derivative financial instruments (“derivatives”) including interest-rate swap and treasury rate lock agreements, currency-swap agreements, forward contracts, currency options, and commodity-swap agreements. These instruments are not entered into for trading purposes and Praxair only uses commonly traded and non-leveraged instruments.
There are two types of derivatives that the company enters into: (i) those relating to fair-value exposures, and (ii) those relating to cash-flow exposures. Fair-value exposures relate to recognized assets or liabilities, and firm commitments; while cash-flow exposures relate to the variability of future cash flows associated with recognized assets or liabilities, or forecasted transactions.
When a derivative is executed and hedge accounting is appropriate, it is designated as either a fair-value hedge or a cash-flow hedge. Currently, Praxair designates all interest-rate, treasury rate lock and commodity-swap agreements as hedges for accounting purposes; however, currency contracts are generally not designated as hedges for accounting purposes unless they are related to forecasted transactions. Whether designated as hedges for accounting purposes or not, all derivatives are linked to an appropriate underlying exposure. On an ongoing basis, the company assesses the hedge effectiveness of all derivatives designated as hedges for accounting purposes to determine if they continue to be highly effective in offsetting changes in fair values or cash flows of the underlying hedged items. If it is determined that the hedge is not highly effective, then hedge accounting will be discontinued prospectively.
Counterparties to Praxair’s derivatives are major banking institutions with credit ratings of investment grade or better and no collateral is required, and there are no significant risk concentrations. Management believes the risk of incurring losses on derivative contracts related to credit risk is remote and any losses would be immaterial.
The following table is a summary of the notional amount and fair value of derivatives outstanding at December 31, 2012 and 2011 for consolidated subsidiaries:  
 
 
 
 
 
Fair Value
(Millions of dollars)
Notional Amounts
 
Assets
 
Liabilities
December 31,
2012
 
2011
 
2012
 
2011
 
2012
 
2011
Derivatives Not Designated as Hedging Instruments:
 
 
 
 
 
 
 
 
 
 
 
Currency contracts:
 
 
 
 
 
 
 
 
 
 
 
Balance sheet items (a)
$
2,515

 
$
1,541

 
$
6

 
$
2

 
$
8

 
$
2

Derivatives Designated as Hedging Instruments:
 
 
 
 
 
 
 
 
 
 
 
Currency contracts:
 
 
 
 
 
 
 
 
 
 
 
Forecasted purchases (a)
$
10

 
$
59

 
$
—

 
$
—

 
$
—

 
$
2

Interest rate contracts:
 
 
 
 
 
 
 
 
 
 
 
Interest rate swaps (b)
400

 
400

 
32

 
35

 
—

 
—

Total Hedges
$
410

 
$
459

 
$
32

 
$
35

 
$
—

 
$
2

Total Derivatives
$
2,925

 
$
2,000

 
$
38

 
$
37

 
$
8

 
$
4

 
________________________
(a)
Assets are recorded in prepaid and other current assets, and liabilities are recorded in other current liabilities.
(b)
Assets are recorded in other long term assets.
Currency Contracts
Balance Sheet Items
Foreign currency contracts related to balance sheet items consist of forward contracts entered into to manage the exposure to fluctuations in foreign-currency exchange rates on recorded balance sheet assets and liabilities denominated in currencies other than the functional currency of the related operating unit. The fair value adjustments on these contracts are offset by the fair value adjustments recorded on the hedged assets and liabilities.

75

Anticipated Net Income
Historically Praxair has entered into anticipated net income hedge contracts consisting of foreign currency options and forwards related primarily to anticipated net income in Brazil, Europe and Canada. Although there were no anticipated net income hedges outstanding as of December 31, 2012 and December 31, 2011 , such derivatives were outstanding during each of these years. Over the term of the contracts, the fair value adjustments from net-income hedging contracts are largely offset by the impacts on reported net income resulting from currency translation. The accounting rules pertaining to derivatives and hedging do not allow hedges of anticipated net income to be designated as hedging instruments.

Forecasted Purchases
Foreign currency contracts related to forecasted purchases consist of forward contracts entered into to manage the exposure to fluctuations in foreign-currency exchange rates on forecasted purchases of capital-related equipment and services denominated in currencies other than the functional currency of the related operating units. These forward contracts were designated and accounted for as cash flow hedges.
Interest Rate Contracts
Outstanding Interest Rate Swaps
At December 31, 2012 , Praxair had an interest-rate swap agreement outstanding related to the $400 million 3.25% fixed-rate notes that mature in 2015 which effectively convert fixed-rate interest to variable-rate interest. This swap agreement was designated as a fair value hedge with the resulting fair value adjustments recognized in earnings along with an equally offsetting charge / benefit to earnings for the changes in the fair value of the underlying debt instrument. At December 31, 2012 , $32 million was recognized as an increase in the fair value of this note ( $35 million at December 31, 2011 ).
Terminated Interest Rate Swaps
The following table summarizes information related to terminated interest rate swap contracts (None outstanding at December 31, 2012, 2011 or 2010):  
 
 
 
 
 
Amount of Gain
Recognized in
Earnings (a)
 
Unrecognized Gain (a)
December 31,
(Millions of Dollars)
Year
Terminated
 
Original
Gain
 
2012
 
2011
 
2010
 
2012
 
2011
Interest Rate Swaps
 
 
 
 
 
 
 
 
 
 
 
 
 
Underlying debt instrument (b):
 
 
 
 
 
 
 
 
 
 
 
 
 
$500 million 2.125% fixed-rate notes that mature in 2013 (c)
2011
 
$
18

 
$
9

 
$
5

 
$
—

 
$
4

 
$
13

$400 million 1.75% fixed-rate notes that matured in 2012
2010
 
13

 
5

 
6

 
2

 
—

 
5

$500 million 6.375% fixed-rate notes that matured in 2012
2002
 
47

 
1

 
4

 
5

 
—

 
1

Total
 
 
$
78

 
$
15

 
$
15

 
$
7

 
$
4

 
$
19

 
________________________
(a)
The unrecognized gain for terminated interest rate swaps is shown as an increase to long-term debt and will be recognized on a straight line basis to interest expense—net over the term of the underlying debt agreements. Upon settlement of the underlying interest rate contract, the cash received is reflected within the Noncontrolling interest transactions and other in the financing section of the consolidated statement of cash flows.
(b)
The notional amounts of the interest rate contracts are equal to the underlying debt instruments.

76

Terminated Treasury Rate Locks
The following table summarizes the unrecognized gains (losses) related to terminated treasury rate lock contracts (None outstanding at December 31, 2012, 2011 or 2010):  
 
 
 
 
 
Unrecognized Gain / (Loss) (a)
(Millions of Dollars)
Year
Terminated
 
Original
Gain / (Loss)
 
December 31, 2012
 
December 31, 2011
Treasury Rate Locks
 
 
 
 
 
 
 
Underlying debt instrument:
 
 
 
 
 
 
 
$500 million 2.20% fixed-rate notes that mature in 2022 (b)
2012
 
$
(2
)
 
$
(2
)
 
$
—

$500 million 3.000% fixed-rate notes that mature in 2021 (b)
2011
 
(11
)
 
(10
)
 
(11
)
$600 million 4.50% fixed-rate notes that mature in 2019 (b)
2009
 
16

 
11

 
12

$500 million 4.625% fixed-rate notes that mature in 2015 (b)
2008
 
(7
)
 
(2
)
 
(3
)
Total – pre-tax
 
 
 
 
$
(3
)
 
$
(2
)
Less: income taxes
 
 
 
 
1

 
1

After- tax amounts
 
 
 
 
$
(2
)
 
$
(1
)
 
________________________
(a)
The unrecognized gains / (losses) for the treasury rate locks are shown in accumulated other comprehensive income (AOCI) and will be recognized on a straight line basis to interest expense – net over the term of the underlying debt agreements. Upon settlement of the treasury rate lock contracts, the cash received or paid is reflected within Noncontrolling interest transactions and other in the financing section of the consolidated statement of cash flows. Refer to the table below summarizing the impact of the company’s consolidated statements of income and AOCI for current period gain (loss) recognition.
(b)
The notional amount of the treasury rate lock contracts are equal to the underlying debt instrument with the exception of the treasury rate lock contract entered into to hedge the $600 million 4.50% fixed-rate notes that mature in 2019. The notional amount of this contract was $500 million .
The following table summarizes the earnings impacts of derivative that are not designated as hedging instruments:
(Millions of dollars)
    Amount of Pre-Tax Gain (Loss)    
Recognized in Earnings (a)
December 31,
2012
 
2011
 
2010
Derivatives Not Designated as Hedging Instruments
 
 
 
 
 
Currency contracts:
 
 
 
 
 
Balance sheet items:
 
 
 
 
 
Debt-related
$
33

 
$
(25
)
 
$
(10
)
Other balance sheet items
(1
)
 
(3
)
 
5

Anticipated net income
(4
)
 
(1
)
 
(4
)
Total
$
28

 
$
(29
)
 
$
(9
)

77

The following table summarizes the impacts of derivatives that impact AOCI, including reclassifications to earnings:
(millions of dollars)
Amount of Gain (Loss)
Recognized in AOCI (b)
 
Amount of Gain (Loss)
Reclassified from AOCI
to Earnings (c)
December 31,
2012
 
2011
 
2010
 
2012
 
2011
 
2010
Derivatives Designated as Hedging Instruments
 
 
 
 
 
 
 
 
 
 
 
Currency contracts:
 
 
 
 
 
 
 
 
 
 
 
Forecasted purchases (b)
$
1

 
$
(4
)
 
$
—

 
$
—

 
$
—

 
$
—

Interest rate contracts:
 
 
 
 
 
 
 
 
 
 
 
Treasury rate locks (b)
(2
)
 
(11
)
 
—

 
—

 
—

 
1

Total – Pre tax
$
(1
)
 
$
(15
)
 
$
—

 
$
—

 
$
—

 
$
1

Less: income taxes
1

 
6

 
—

 
—

 
—

 
(1
)
After tax amounts
$
—

 
$
(9
)
 
$
—

 
$
—

 
$
—

 
$
—

 
________________________
(a)
The gains (losses) on balance sheet items are offset by gains (losses) recorded on the underlying hedged assets and liabilities. The gains (losses) for the derivatives and the underlying hedged assets and liabilities related to debt items are recorded in the consolidated statements of income as interest expense-net. Other balance sheet items and anticipated net income gains (losses) are recorded in the consolidated statements of income as other income (expenses)-net.
(b)
The gains (losses) on forecasted purchase and treasury rate locks are recorded as a component of AOCI within derivative instruments in the consolidated statements of equity. There was no ineffectiveness for these instruments during 2012 or 2011 .
(c)
The gains (losses) on forecasted purchases are reclassified to the depreciation and amortization expense on a straight-line basis consistent with the useful life of the underlying asset. The gains (losses) for interest rate contracts are reclassified to earnings as interest expense –net on a straight-line basis over the remaining maturity of the underlying debt. Net losses of $1 million are expected to be reclassified to earning during 2013.

78

NOTE 13. FAIR VALUE DISCLOSURES
The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels as follows:
Level 1 – quoted prices in active markets for identical assets or liabilities
Level 2 – quoted prices for similar assets and liabilities in active markets or inputs that are observable
Level 3 – inputs that are unobservable (for example cash flow modeling inputs based on assumptions)
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table summarizes assets and liabilities measured at fair value on a recurring basis at December 31, 2012 and 2011 :  
 
Fair Value Measurements Using
(Millions of dollars)
Level 1
 
Level 2
 
Level 3
 
2012
 
2011
 
2012
 
2011
 
2012
 
2011
Assets
 
 
 
 
 
 
 
 
 
 
 
Derivative assets
$
—

 
$
—

 
$
38

 
$
37

 
$
—

 
$
—

Liabilities
 
 
 
 
 
 
 
 
 
 
 
Derivative liabilities
$
—

 
$
—

 
$
8

 
$
4

 
$
—

 
$
—

The fair values of the derivative assets and liabilities are based on market prices obtained from independent brokers or determined using quantitative models that use as their basis readily observable market parameters that are actively quoted and can be validated through external sources, including third-party pricing services, brokers and market transactions. Investments are marketable securities traded on an exchange.
The fair value of cash and cash equivalents, short-term debt, accounts receivables-net, and accounts payable approximate carrying value because of the short-term maturities of these instruments. The fair value of long-term debt is estimated based on the quoted market prices for the same or similar issues, which is deemed a Level 2 measurement. At December 31, 2012 , the estimated fair value of Praxair’s long-term debt portfolio was $7,131 million versus a carrying value of $6,724 million . At December 31, 2011 , the estimated fair value of Praxair’s long-term debt portfolio was $6,692 million versus a carrying value of $6,225 million . These differences are attributable to interest-rate changes subsequent to when the debt was issued.
Assets Measured at Fair Value on a Non-Recurring Basis
Certain assets are valued at fair value on a non-recurring basis. During the first quarter 2012, the company reduced the value of certain assets in Brazil, Colombia and Chile to estimated fair value which resulted in a $21 million pre-tax charge to other income (expense) – net in the South America segment.
During the fourth quarter 2010, Praxair decided to sell the U.S. homecare portion of its North American healthcare business. Accordingly, the net assets of the business were written-down to fair value representing the Company’s best estimate of the cash proceeds that will be realized upon eventual sale or other disposition of the net assets of the business. This resulted in a pre-tax charge to earnings of $58 million during the fourth quarter 2010 (see Note 2). The estimated fair value was not significant to the Company’s consolidated financial position. In February 2011, the company announced that it had entered into a definitive agreement for sale of the U.S. homecare business to Apria Healthcare Group Inc. The sale was finalized in March 2011.
The above fair value measurements were based on internal assessments of the best information available about the local real estate and business market conditions that would be indicative of what the assets could be sold for and are considered to be Level 3 measurements.
NOTE 14. EQUITY AND REDEEMABLE NONCONTROLLING INTERESTS
Praxair, Inc. Shareholders’ Equity
At December 31, 2012 and 2011 , there were 800,000,000 shares of common stock authorized (par value $0.01 per share) of which 383,073,446 shares were issued and 296,229,480 were outstanding at December 31, 2012 ( 382,854,272 shares were issued and 298,530,017 were outstanding at December 31, 2011 ).
At December 31, 2012 and 2011 , there were 25,000,000 shares of preferred stock (par value $0.01 per share) authorized, of which no shares were issued and outstanding. Praxair’s board of directors may from time to time authorize the issuance of one or more series of preferred stock and, in connection with the creation of such series, determine the characteristics of each such series including, without limitation, the preference and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions of the series.

79

Redeemable Noncontrolling Interests
Noncontrolling interests with redemption features, such as put/sell options, that are not solely within the Company’s control (“redeemable noncontrolling interests”) are reported separately in the consolidated balance sheets at the greater of carrying value or redemption value. For redeemable noncontrolling interests that are not yet exercisable, Praxair calculates the redemption value by accreting the carrying value to the redemption value over the period until exercisable. If the redemption value is greater than the carrying value, any increase is adjusted directly to retained earnings and does not impact net income.
During October 2011 , Praxair acquired a controlling interest in Yara Praxair, a joint venture in Scandinavia that was previously accounted for as an equity investment (see Note 3). As part of the transaction, the noncontrolling shareholder obtained the right to sell its shares to Praxair starting in 2015 for a period of 4 years at a formula price. Praxair also obtained the right to purchase the shares held by the noncontrolling shareholder starting in 2017 for a period of 2 years, also at a formula price. Accordingly, the noncontrolling interests related to Yara Praxair have been recorded in the consolidated balance sheets as redeemable noncontrolling interests. Additionally, previously existing noncontrolling interests totaling $65 million were also reclassified to conform to the current year presentation.
The following is a summary of redeemable noncontrolling interests for the years ended December 31, 2012 and 2011 :
        
(Millions of dollars)
2012
 
2011
 
Beginning Balance
$
220

 
$
—

 
Reclassifications from noncontrolling interests (as of October 1, 2011)
—

 
65

 
Yara Praxair transaction
—

 
119

 
Net income
18

 
2

 
Dividends
(9
)
 
—

 
Redemption value adjustment/accretion
13

 
35

 
Foreign currency translation and other
10

 
(1
)
 
Ending Balance
$
252

 
$
220

 
NOTE 15. SHARE-BASED COMPENSATION
Share-based compensation expense totaling $70 million , $62 million , and $47 million was recognized in 2012 , 2011 and 2010 , respectively. The related income tax benefit recognized was $21 million , $19 million and $14 million in 2012 , 2011 and 2010 , respectively. The share-based compensation expense was primarily recorded in selling, general and administrative expenses and no share-based compensation expense was capitalized.
Summary of Plans
Effective April 28, 2009, the board of directors and shareholders of the company adopted the 2009 Praxair, Inc. Long-Term Incentive Plan ("the 2009 Plan"), which replaced the 2002 Praxair, Inc. Long-Term Incentive Plan ("the 2002 Plan"). Equity awards are no longer granted under the 2002 Plan. The 2009 Plan provides for similar equity awards and limitations as the 2002 Plan. The 2009 Plan provides for the granting of stock options and stock appreciation rights, restricted stock and restricted stock units, performance-based stock units and other equity awards. Under the 2009 Plan, the initial aggregate number of shares available for option and other equity grants is 12,000,000 shares, of which up to 4,000,000 shares may be granted as either restricted stock, restricted stock units or performance-based stock units. The 2009 Plan also provides calendar year per-participant limits on grants of stock options and stock appreciation rights, restricted stock and restricted stock units, and performance-based stock units. As of December 31, 2012 , 6,291,501 shares remained available for equity grants under this Plan. Both officer and non-officer employees are eligible for awards under the 2009 Plan.
In 2005, the board of directors and shareholders of the company adopted the 2005 Equity Compensation Plan for Non-Employee Directors of Praxair, Inc. ("the 2005 Plan") which replaced the 1995 Stock Option Plan for Non-Employee Directors. Under the 2005 Plan, the aggregate number of shares available for option and other equity grants is limited to a total of 500,000 shares. As of December 31, 2012 , 300,092 shares remained available for equity grants under the 2005 Plan. All non-employee directors of the company are eligible for grants under the 2005 Plan.
Exercise prices for options granted under the 2009 and 2005 Plans may not be less than the closing market price of the company’s common stock on the date of grant and granted options may not be repriced or exchanged without shareholder approval. Options granted under the 2009 and 2005 Plans may become partially exercisable after a minimum of one year after the date of grant but may not become fully exercisable until at least three years have elapsed from the date of grant, and have a maximum duration of ten years. Options granted under predecessor plans had similar terms.

80

The company has the ability to repurchase shares on the open market to satisfy share option exercises and issues shares from treasury stock upon the exercise of certain stock options.
Stock Option Fair Value
The company utilizes the Black-Scholes Options-Pricing Model to determine the fair value of stock options consistent with that used for pro forma disclosures in prior years. Management is required to make certain assumptions with respect to selected model inputs, including anticipated changes in the underlying stock price (i.e., expected volatility) and option exercise activity (i.e., expected life). Expected volatility is based on the historical volatility of the company’s stock over the most recent period commensurate with the estimated expected life of the company’s sto ck options and other factors. The expected life of options granted, which represents the period of time that the options are expected to be outstanding, is based primarily on historical exercise experience. The expected dividend yield is based on the company’s most recent history and expectation of dividend payouts. The risk-free rate is based on the U.S. Treasury yield curve in effect a t the time of grant for a period commensurate with the estimated expected life. If factors change and result in different assumptions in future periods, the stock option expense that the company records for future grants may differ significantly from what the company has recorded in the current period.
The weighted-average fair value of options granted during 2012 was $17.43 per option ( $17.70 in 2011 and $12.57 in 2010 ) based on the Black-Scholes Options-Pricing model. The following weighted-average assumptions were used for grants in 2012 , 2011 and 2010 :  
Year Ended December 31,
2012
 
2011
 
2010
Dividend yield
2.0
%
 
2.0
%
 
2.4
%
Volatility
22.5
%
 
22.3
%
 
20.8
%
Risk-free interest rate
0.9
%
 
2.2
%
 
2.5
%
Expected term years
5

 
5

 
5

The following table summarizes option activity under the plans for 2012 (averages are calculated on a weighted basis; life in years; intrinsic value expressed in millions):  
Activity
Number  of
Options
(000’s)
 
Average
Exercise
Price
 
Average
Remaining
Life
 
Aggregate
Intrinsic
Value
Outstanding at January 1, 2012
13,540

 
$
65.30

 
 
 
 
Granted
1,650

 
109.64

 
 
 
 
Exercised
(2,832
)
 
52.20

 
 
 
 
Cancelled or expired
(77
)
 
102.36

 
 
 
 
Outstanding at December 31, 2012
12,281

 
$
74.05

 
5.6

 
$
435

Exercisable at December 31, 2012
9,194

 
$
65.03

 
4.6

 
$
408

The aggregate intrinsic value represents the difference between the company’s closing stock price of $109.45 as of December 31, 2012 and the exercise price multiplied by the number of options outstanding as of that date. The total intrinsic value of stock options exercised during 2012 was $165 million ( $191 million and $182 million for 2011 and 2010 , respectively).
Cash received from option exercises under all share-based payment arrangements for 2012 was $148 million . The cash tax benefit realized from all share-based compensation totaled $81 million for 2012 , of which $60 million in excess tax benefits was classified as financing cash flows.
As of December 31, 2012 , $26 million of unrecognized compensation cost related to non-vested stock options is expected to be recognized over a weighted-average period of approximately 1.0 year.
Performance-Based and Restricted Stock Awards
In 2012 , the company granted performance-based stock awards under the 2009 Plans to senior level executives with a target payout of 403,363 shares that vest principally based on the third anniversary of their date of grant. The actual number of shares issued in settlement of a vested award can range from zero to 150 percent of the target number of shares granted based upon the company’s attainment of specified performance targets at the end of a 3 -year period. Compensation expense related to these awards is recognized over the three-year performance period based on the fair value of the closing market price of the

81

company’s common stock on the date of the grant and the estimated performance that will be achieved. Compensation expense will be adjusted during the three-year performance period based upon the estimated performance levels that will be achieved.
There were 140,897 restricted stock units granted to employees during 2012 . In addition, the company had previously granted restricted stock to certain key employees that vest after a designated service period ranging from 2 to 10 years. The restricted stock earns quarterly dividends that also vest after the designated service period and are payable in additional shares. Compensation expense related to the restricted stock units and restricted stock is recognized on a straight-line basis over the vesting period.
The weighted-average fair value of performance-based stock units granted during 2012 was $103.13 per unit ( $92.06 in 2011 and $70.99 million in 2010 ). The weighted-average fair value of restricted stock units granted during 2012 was $104.71 per unit ( $92.39 in 2011 and $72.24 in 2010 ). This is based on the closing market price of the company’s common stock on the grant date adjusted for dividends that will not be paid during the vesting period.
The following table summarizes non-vested performance-based and restricted stock award activity as of December 31, 2012 and changes during the period then ended (shares based on target amounts, averages are calculated on a weighted basis):  
   
Performance-Based
 
Restricted Stock
Performance-Based and Restricted Stock Activity
Number of
Shares
(000’s)
 
Average
Grant Date
Fair Value
 
Number of
Shares
(000’s)
 
Average
Grant Date
Fair Value
Non-vested at January 1, 2012
962

 
$
71.58

 
340

 
$
75.51

Granted (a)
403

 
103.13

 
141

 
104.71

Vested
(508
)
 
56.41

 
(101
)
 
63.72

Cancelled
(17
)
 
92.13

 
(12
)
 
86.15

Non-vested at December 31, 2012
840

 
$
88.83

 
368

 
$
89.89

(a)
Performance-based stock units granted during 2012 included 120 thousand shares relating to the actual payout of the 2009 PSU grants. The original grant date fair value of these shares was $56.02 , the cost of which was expensed in prior periods.
As of December 31, 2012 , based on current estimates of future performance, $29 million of unrecognized compensation cost related to performance-based awards is expected to be recognized through the first quarter of 2015 and $14 million of unrecognized compensation cost related to the restricted stock awards is expected to be recognized on a straight-line basis primarily through the first quarter of 2017 .
NOTE 16. RETIREMENT PROGRAMS
Defined Benefit Pension Plans
Praxair has two main U.S. retirement programs which are non-contributory defined benefit plans: the Praxair Pension Plan and the CBI Pension Plan. The latter program benefits primarily former employees of CBI Industries, Inc. which Praxair acquired in 1996. Effective July 1, 2002, the Praxair Pension Plan was amended to give participating employees a one-time choice to remain covered by the old formula or to elect coverage under a new formula. The old formula is based predominantly on years of service, age and compensation levels prior to retirement, while the new formula provides for an annual contribution to an individual account which grows with interest each year at a predetermined rate. Also, this new formula applies to all new employees hired after April 30, 2002 into businesses adopting this plan. The U.S. and international pension plan assets are comprised of a diversified mix of investments, including domestic and international corporate equities, government securities and corporate debt securities. Praxair has several plans that provide supplementary retirement benefits primarily to higher level employees that are unfunded and are nonqualified for federal tax purposes. Pension coverage for employees of certain of Praxair’s international subsidiaries generally is provided by those companies through separate plans. Obligations under such plans are primarily provided for through diversified investment portfolios, with some smaller plans provided for under insurance policies or by book reserves.

82

Multi-employer Pension Plans
In the United States Praxair participates in seven multi-employer defined benefit pension plans ("MEP") pursuant to the terms of collective bargaining agreements covering approximately 200 union-represented employees. The collective bargaining agreements expire on different dates through 2015. In connection with such agreements, the Company is required to make periodic contributions to the MEPs in accordance with the terms of the respective collective bargaining agreements. Praxair’s participation in these plans is not significant either at the plan level or in the aggregate. Praxair’s contributions to these plans were $1 million in 2012 , 2011 and 2010 (the cost is not included in the tables that follow). For all MEPs Praxair’s contributions were significantly less than 1% of the total contributions to each plan for 2011 and 2010 . Total 2012 contributions were not yet available from the MEPs.
Praxair has obtained the most recently available Pension Protection Act ("PPA") zone status letters from the Trustees of the MEPs. The PPA classifies MEPs as either Red, Yellow or Green zone plans. Among other factors, plans in the Red zone are generally less than 65 percent funded; plans in the Yellow zone are generally 65 to 80 percent funded; and plans in the Green zone are generally at least 80 percent funded. According to the most current data available, three of the MEPs that the Company participates are in a Red zone status; two are in a Yellow zone status; and two are in a Green zone status. As of December 31, 2012 , the five Red and Yellow Zone plans have pending or have implemented financial improvement or rehabilitation plans. Praxair does not currently anticipate significant future obligations due to the funding status of these plans. If Praxair determined it was probable that it would withdraw from an MEP, the Company would record a liability for its portion of the MEP’s unfunded pension obligations, as calculated at that time. Historically, such withdrawal payments have not been significant.
Defined Contribution Plans
Praxair’s U.S. business employees are eligible to participate in the Praxair defined contribution savings plan. Employees may contribute up to 40% of their compensation, subject to the maximum allowable by IRS regulations. For the US packaged gases business, company contributions to this plan are calculated as a percentage of salary based on age plus service. U.S. employees other than those in the packaged gases business have company contributions to this plan calculated on a graduated scale based on employee contributions to the plan. The cost for these defined contribution plans was $24 million in 2012 , and $22 million in 2011 and 2010 (the cost is not included in the tables that follow).
The defined contribution plans includes a non-leveraged employee stock ownership plan ("ESOP") which covers all employees participating in this plan. The collective number of shares of Praxair common stock in the two ESOPs totaled 3,619,069 at December 31, 2012 .
Certain international subsidiaries of the company also sponsor defined contribution plans where contributions are determined under various formulas. The cost for these plans was $12 million in 2012 and 2011 , and $10 million in 2010 (the cost is not included in the tables that follow).
Postretirement Benefits Other Than Pensions (OPEB)
Praxair provides health care and life insurance benefits to certain eligible retired employees. These benefits are provided through various insurance companies and healthcare providers. Praxair is also obligated to make payments for a portion of postretirement benefits related to retirees of Praxair’s former parent. Additionally, as part of the CBI acquisition in 1996, Praxair assumed responsibility for healthcare and life insurance benefit obligations for CBI’s retired employees. All postretirement healthcare programs have cost caps that limit the company’s exposure to future cost increases. In addition, as part of the retirement elections made for July 1, 2002, eligible employees were given the choice of maintaining coverage in the current retiree medical design (as may be amended from time to time), or to move to a design whereby coverage would be provided, but with no Praxair subsidy whatsoever. Also, all new employees hired after April 30, 2002 into a business adopting these plans will not receive a company subsidy. Praxair does not currently fund its postretirement benefits obligations. Praxair’s retiree plans may be changed or terminated by Praxair at any time for any reason with no liability to current or future retirees.
Praxair uses a measurement date of December 31 for its pension and other post-retirement benefit plans.

83

Pension and Postretirement Benefit Costs
The components of net pension and postretirement benefits other than pensions ("OPEB") costs for 2012 , 2011 and 2010 are shown below:  
(Millions of dollars)
Year Ended December 31,
Pensions
 
OPEB
2012
 
2011
 
2010
 
2012
 
2011
 
2010
Service cost
$
49

 
$
44

 
$
41

 
$
4

 
$
4

 
$
6

Interest cost
119

 
120

 
122

 
12

 
14

 
16

Expected return on plan assets
(153
)
 
(147
)
 
(142
)
 
—

 
—

 
—

Net amortization and deferral
68

 
43

 
33

 
(7
)
 
(6
)
 
(2
)
Net periodic benefit cost before pension settlement charge
$
83

 
$
60

 
$
54

 
$
9

 
$
12

 
$
20

Pension settlement charges *
10

 
6

 
3

 
—

 
—

 
—

Net periodic benefit cost
$
93

 
$
66

 
$
57

 
$
9

 
$
12

 
$
20

* 2012 includes a $9 million charge in the third quarter related to the retirement of senior managers in the United States (see Note 2)

84

Funded Status
The changes in benefit obligation and plan assets for Praxair’s pension and OPEB programs, including reconciliation of the funded status of the plans to amounts recorded in the consolidated balance sheet, as of December 31, 2012 and 2011 are shown below:  
(Millions of dollars)
Year Ended December 31,
Pensions
 
 
2012
 
2011
 
OPEB
U.S.
 
INTL
 
U.S.
 
INTL
 
2012
 
2011
Change in Benefit Obligation ("PBO")
 
 
 
 
 
 
 
 
 
 
 
Benefit obligation January 1
$
1,721

 
$
624

 
$
1,501

 
$
597

 
$
226

 
$
225

Service cost
34

 
15

 
31

 
13

 
4

 
4

Interest cost
79

 
40

 
80

 
40

 
12

 
14

Participant contributions
—

 
—

 
—

 
—

 
9

 
8

Plan amendment
—

 
—

 
—

 
(2
)
 
—

 
(3
)
Actuarial loss (gain)
182

 
89

 
183

 
28

 
31

 
11

Benefits paid
(90
)
 
(43
)
 
(74
)
 
(53
)
 
(29
)
 
(28
)
Acquisition
—

 
—

 
—

 
29

 
—

 
—

Foreign currency translation
—

 
2

 
—

 
(28
)
 
(2
)
 
(5
)
Benefit obligation, December 31
$
1,926

 
$
727

 
$
1,721

 
$
624

 
$
251

 
$
226

Accumulated benefit obligation ("ABO")
$
1,831

 
$
678

 
$
1,625

 
$
590

 
 
 
 
Change in Plan Assets
 
 
 
 
 
 
 
 
 
 
 
Fair value of plan assets, January 1
$
1,138

 
$
504

 
$
1,147

 
$
504

 
$
—

 
$
—

Actual return on plan assets
159

 
70

 
(18
)
 
30

 
—

 
—

Company contributions
165

 
19

 
75

 
19

 
—

 
—

Benefits paid from plan assets
(71
)
 
(39
)
 
(66
)
 
(46
)
 
—

 
—

Acquisition
—

 
—

 
—

 
19

 
—

 
—

Foreign currency translation
—

 
4

 
—

 
(22
)
 
—

 
—

Fair value of plan assets, December 31
$
1,391

 
$
558

 
$
1,138

 
$
504

 
$
—

 
$
—

Funded Status, End of Year
$
(535
)
 
$
(169
)
 
$
(583
)
 
$
(120
)
 
$
(251
)
 
$
(226
)
Recorded in the Balance Sheet
 
 
 
 
 
 
 
 
 
 
 
Other long-term assets
$
—

 
$
—

 
$
—

 
$
14

 
$
—

 
$
—

Other current liabilities
(21
)
 
(6
)
 
(14
)
 
(5
)
 
(19
)
 
(19
)
Other long-term liabilities
(514
)
 
(163
)
 
(569
)
 
(129
)
 
(232
)
 
(207
)
Net amount recognized, December 31
$
(535
)
 
$
(169
)
 
$
(583
)
 
$
(120
)
 
$
(251
)
 
$
(226
)
Amounts recognized in accumulated other comprehensive income (loss) consist of:
 
 
 
 
 
 
 
 
 
 
 
Net actuarial loss (gain)
$
956

 
$
217

 
$
891

 
$
159

 
$
34

 
$
3

Prior service cost (credit)
(1
)
 
23

 
(2
)
 
27

 
(10
)
 
(16
)
Deferred tax benefit (Note 5)
(364
)
 
(56
)
 
(339
)
 
(45
)
 
(7
)
 
6

Amount recognized in accumulated other comprehensive income (loss) (Note 7)
$
591

 
$
184

 
$
550

 
$
141

 
$
17

 
$
(7
)

85

The changes in plan assets and benefit obligations recognized in other comprehensive income in 2012 and 2011 are as follows:  
 
Pensions
 
OPEB
(Millions of dollars)
2012
 
2011
 
2012
 
2011
Current year net actuarial loss (gain)*
$
195

 
$
348

 
$
31

 
$
11

Amortization of net actuarial loss
(67
)
 
(42
)
 
—

 
1

Plan amendment
—

 
(2
)
 
—

 
(3
)
Amortization of prior service costs
(1
)
 
(1
)
 
7

 
6

Pension settlements
(10
)
 
(6
)
 
—

 
—

Foreign currency translation and other
3

 
(6
)
 
(1
)
 
(1
)
Total recognized in other comprehensive income
$
120

 
$
291

 
$
37

 
$
14

________________________
 *
The pension net actuarial loss in 2012 and 2011 relates primarily to lower discount rates. The OPEB net actuarial loss in 2012 relates primarily to lower discount rates, and the 2011 net actuarial gain relates to a plan change in the United States partially offset by lower discount rates.
The amounts in accumulated other comprehensive income (loss) that are expected to be recognized as components of net periodic benefit cost during 2013 are as follows:  
(Millions of dollars)
Pension
 
OPEB
Net actuarial loss (gain)
$
91

 
$
1

Prior service cost (credit)
1

 
(6
)
 
$
92

 
$
(5
)
The following table provides information for pension plans where the accumulated benefit obligation exceeds the fair value of the plan assets:  
(Millions of dollars)
Year Ended December 31,
Pensions
2012
 
2011
U.S.
 
INTL
 
U.S.
 
INTL
Obligation in Excess of Plan Assets
 
 
 
 
 
 
 
Projected benefit obligation ("PBO")
$
1,926

 
$
402

 
$
1,721

 
$
345

Accumulated benefit obligation ("ABO")
$
1,831

 
$
391

 
$
1,625

 
$
338

Fair value of plan assets
$
1,391

 
$
246

 
$
1,138

 
$
215


86

Assumptions
The assumptions used to determine the benefit obligations are as of the respective balance sheet date and the assumptions used to determine the net benefit cost are at the previous year-end, as shown below:  
 
Pensions
 
 
 
 
 
U.S.
 
INTL
 
OPEB
 
2012
 
2011
 
2012
 
2011
 
2012
 
2011
Weighted average assumptions used to determine benefit obligations at December 31,
 
 
 
 
 
 
 
 
 
 
 
Discount rate
3.90
%
 
4.70
%
 
5.80
%
 
7.00
%
 
5.00
%
 
5.70
%
Rate of increase in compensation levels
3.25
%
 
3.25
%
 
4.00
%
 
3.90
%
 
N/A

 
N/A

Weighted average assumptions used to determine net periodic benefit cost for years ended December 31,
 
 
 
 
 
 
 
 
 
 
 
Discount rate
4.70
%
 
5.40
%
 
7.00
%
 
7.40
%
 
5.70
%
 
6.40
%
Rate of increase in compensation levels
3.25
%
 
3.25
%
 
3.90
%
 
3.90
%
 
N/A

 
N/A

Expected long-term rate of return on plan assets *
8.25
%
 
8.25
%
 
8.70
%
 
8.60
%
 
N/A

 
N/A

________________________
*
For 2013, the expected long-term rate of return on plan assets will be 8.00% for the U.S. plans. Expected weighted average returns for international plans will vary. These rates are determined annually by management based on a weighted average of current and historical market trends, historical and expected portfolio performance and the current and expected portfolio mix of investments.  
 
OPEB
Assumed healthcare cost trend rates
2012
 
2011
Healthcare cost trend assumed
8.50
%
 
9.00
%
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)
5.00
%
 
5.00
%
Year that the rate reaches the ultimate trend rate
2020

 
2020

These healthcare-cost trend rate assumptions have an impact on the amounts reported. However, cost caps limit the impact on the net OPEB benefit cost in the U.S. To illustrate the effect, a one-percentage point change in assumed healthcare cost trend rates would have the following effects:  
 
One-Percentage Point
(Millions of dollars)
Increase
 
Decrease
Effect on the total of service and interest cost components of net OPEB benefit cost
$
1

 
$
(1
)
Effect on OPEB benefit obligation
$
9

 
$
(7
)
Pension Plan Assets
The investments of the U.S. pension plan are managed to meet the future expected benefit liabilities of the plan over the long term by investing in diversified portfolios consistent with prudent diversification and historical and expected capital market returns. When Praxair became an independent, publicly traded company in 1992, its former parent retained all liabilities for its term-vested and retired employees. Praxair’s plan received assets and retained pension liabilities for its own active employee base. Therefore, the liabilities under the Praxair U.S. pension plan mature at a later date compared to pension funds of other similar companies. Investment strategies are reviewed by the Finance and Pension Committee of the company’s Board of Directors and investment performance is tracked against appropriate benchmarks. There are no concentrations of risk as it relates to the assets within the plans.
The international pension plans are managed individually based on diversified investment portfolios, with different target asset allocations that vary for each plan.

87

Praxair’s U.S. and international pension plans’ weighted-average asset allocations at December 31, 2012 and 2011 , and the target asset allocation range for 2012 , by major asset category are as follows:  
 
U.S.
 
INTL
Asset Category
Target
 
2012
 
2011
 
Target
 
2012
 
2011
Equity Securities
60%-80%

 
64
%
 
63
%
 
30%-50%
 
37
%
 
36
%
Fixed income securities
20%-40%

 
36
%
 
37
%
 
40%-60%
 
54
%
 
54
%
Other
—

 
—

 
—

 
0%-10%
 
9
%
 
10
%
The following table summarizes pension assets measured at fair value by asset category at December 31, 2012 and 2011 (see Note 13 for definition of the levels):  
 
Fair Value Measurements Using
 
 
 
 
 
Level 1
 
Level 2
 
Level 3 *
 
Total
(Millions of dollars)
2012
 
2011
 
2012
 
2011
 
2012
 
2011
 
2012
 
2011
Cash and cash equivalents
$
8

 
$
2

 
$
—

 
$
—

 
$
—

 
$
—

 
$
8

 
$
2

Equity securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. equities
372

 
330

 
—

 
—

 
—

 
—

 
372

 
330

International equities
72

 
63

 
—

 
—

 
—

 
—

 
72

 
63

Mutual funds
316

 
278

 
—

 
—

 
—

 
—

 
316

 
278

Pooled funds
—

 
—

 
333

 
224

 
—

 
—

 
333

 
224

Fixed income securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government bonds
48

 
54

 
—

 
—

 
—

 
—

 
48

 
54

International government bonds
184

 
159

 
—

 
—

 
—

 
—

 
184

 
159

Mutual funds
312

 
245

 
—

 
—

 
—

 
—

 
312

 
245

Corporate bonds
—

 
—

 
169

 
152

 
—

 
—

 
169

 
152

Pooled funds
—

 
—

 
87

 
86

 
—

 
—

 
87

 
86

Other:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Insurance contracts
—

 
—

 
—

 
—

 
48

 
49

 
48

 
49

Fair value of plan assets, December 31,
$
1,312

 
$
1,131

 
$
589

 
$
462

 
$
48

 
$
49

 
$
1,949

 
$
1,642

________________________
*
The following table summarizes changes in fair value of the pension plan assets classified as level 3 for the periods ended December 31, 2012 and 2011 :  
(Millions of dollars)
Insurance
Contracts
 
Private Equity
 
Total
Balance, December 31, 2010
$
33

 
$
4

 
$
37

Gain or losses for the period
6

 
—

 
6

Acquisitions
19

 
—

 
19

Net settlements
(9
)
 
(4
)
 
(13
)
Balance, December 31, 2011
49

 
—

 
49

Gain or losses for the period
1

 
—

 
1

Net settlements
(2
)
 
—

 
(2
)
Balance, December 31, 2012
$
48

 
$
—

 
$
48


88

The descriptions and fair value methodologies for the U.S. and International pension plan assets are as follows:
Cash and Cash Equivalents – This category includes cash and short-term interest bearing investments with maturities of three months or less. Investments are valued at cost plus accrued interest. Cash and cash equivalents are classified within level 1 of the valuation hierarchy.
Equity Securities – This category is comprised of shares of common stock in U.S. and international companies from a diverse set of industries and size. Common stock is valued at the closing market price reported on a U.S. or international exchange where the security is actively traded. Equity securities are classified within level 1 of the valuation hierarchy.
Mutual Funds and Pooled Funds – This category consists of publicly and privately managed funds that invest primarily in marketable equity and fixed income securities. The fair value of these investments is determined by reference to the net asset value of the underlying securities of the fund. Shares of publicly traded mutual funds are valued at the net asset value quoted on the exchange where the fund is traded and are classified as level 1 within the valuation hierarchy. Units of pooled funds are valued at the per unit net asset value determined by the fund manager and are classified as level 2 within the valuation hierarchy.
U.S. and International Government Bonds – This category includes U.S. treasuries, U.S. federal agency obligations and international government debt. The majority of these investments are valued at the closing market prices reported on the exchange where the security is traded and are classified as level 1 within the valuation hierarchy. If quoted market prices are not available for a specific government security, the fair value is determined using quoted prices of similar securities in active markets and is classified as level 2 within the valuation hierarchy.
Corporate Bonds – This category is comprised of corporate bonds of U.S. and international companies from a diverse set of industries and size. The fair values for U.S. and international corporate bonds are determined using quoted prices of similar securities in active markets and observable data or broker or dealer quotations. The fair values for these investments are classified as level 2 within the valuation hierarchy.
Insurance Contracts – The fair value of insurance contracts is determined based on the cash surrender value of the insurance contract, which is determined based on such factors as the fair value of the underlying assets and discounted cash flow. These contracts are with highly rated insurance companies. Insurance contracts are classified within level 3 of the valuation hierarchy.
Contributions
Pension contributions were $184 million in 2012 , $94 million in 2011 and $124 million in 2010 . Estimates of 2013 contributions are in the range of $50 million .
Estimated Future Benefit Payments
The following table presents estimated future benefit payments, net of participants contributions:  
(Millions of dollars)
Pensions
 
 
Year Ended December 31,
U.S.    
 
INTL    
 
OPEB    
2013
$
99

 
$
38

 
$
19

2014
98

 
38

 
20

2015
98

 
38

 
20

2016
101

 
40

 
19

2017
107

 
41

 
18

2018 – 2022
594

 
217

 
79


NOTE 17. COMMITMENTS AND CONTINGENCIES
The company accrues non income-tax liabilities for contingencies when management believes that a loss is probable and the amounts can be reasonably estimated, while contingent gains are recognized only when realized. In the event any losses are sustained in excess of accruals, they will be charged against income at that time. Attorney fees are recorded as incurred. Commitments represent obligations, such as those for future purchases of goods or services, that are not yet recorded on the company’s balance sheet as liabilities. The company records liabilities for commitments when incurred (i.e., when the goods or services are received).


89

Contingent Liabilities
Praxair is subject to various lawsuits and government investigations that arise from time to time in the ordinary course of business. These actions are based upon alleged environmental, tax, antitrust and personal injury claims, among others. Praxair has strong defenses in these cases and intends to defend itself vigorously. However, it is possible that the company may incur losses in connection with some of these actions in excess of accrued liabilities. Management does not anticipate that in the aggregate such losses would have a material adverse effect on the company’s consolidated financial position or liquidity; however, it is possible that the final outcomes could have a significant impact on the company’s reported results of operations in any given period.
Among such matters are:
•
Claims by the Brazilian taxing authorities against several of the company’s Brazilian subsidiaries relating to non-income and income tax matters.
During May 2009, the Brazilian government published Law 11941/2009 instituting a new voluntary amnesty program (“Refis Program”) which allowed Brazilian companies to settle certain federal tax disputes at reduced amounts. During the 2009 third quarter, Praxair decided that it was economically beneficial to settle many of its outstanding federal tax disputes and these disputes were enrolled in the Refis Program and settled. The final settlement related to the Refis Program is subject to final calculation and review by the Brazilian federal government and, although the timing is very difficult to estimate, the company currently anticipates this review will conclude during the next year. Any differences from amounts recorded will be adjusted to income at that time.
After enrollment in the amnesty programs, at December 31, 2012 the most significant remaining claims relate to state VAT tax matters associated with procedural issues and a federal income tax matter where the taxing authorities are challenging the tax rate that should be applied to income generated by a subsidiary company. The total estimated exposure relating to such claims, including interest and penalties, as appropriate, is approximately $196 million . Praxair has not recorded any liabilities related to such claims based on management judgments, after considering judgments and opinions of outside counsel. Because litigation in Brazil historically takes many years to resolve, it is very difficult to estimate the timing of resolution of these matters; however, it is possible that certain of these matters may be resolved within the near term. The company is vigorously defending against the proceedings.
•
On September 1, 2010, CADE ("Brazilian Administrative Council for Economic Defense") announced alleged anticompetitive activity on the part of five industrial gas companies in Brazil and imposed fines on all five companies. Originally, CADE imposed a civil fine of R$ 2.2 billion Brazilian reais (US$ 1.1 billion ) against White Martins, the Brazil-based subsidiary of Praxair, Inc. In response to a motion for clarification, the fine was reduced to R$ 1.7 billion Brazilian reais (US$ 830 million ) due to a calculation error made by CADE. On September 2, 2010, Praxair issued a press release and filed a report on Form 8-K rejecting all claims and stating that the fine represents a gross and arbitrary disregard of Brazilian law.
On October 19, 2010, White Martins filed an annulment petition (“appeal”) with the Federal Court in Brasilia seeking to have the fine against White Martins overturned. In order to suspend payment of the fine pending the completion of the appeal process, Brazilian law required that the company tender a form of guarantee in the amount of the fine as security. Currently, 50% of the guarantee is satisfied by letters of credit with a financial institution and 50% of the guarantee is satisfied by equity of a Brazilian subsidiary.
Praxair strongly believes that the allegations are without merit and that the fine will be entirely overturned during the appeal process. The company further believes that it has strong defenses and will vigorously defend against the allegations and related fine up to such levels of the Federal Courts in Brazil as may be necessary. Because appeals in Brazil historically take many years to resolve, it is very difficult to estimate when the appeal will be finally decided. Based on management judgments, after considering judgments and opinions of outside counsel, no reserve has been recorded for this proceeding as management does not believe that a loss is probable.
Contingent Asset - Resolution
Praxair's Brazilian-based subsidiary, White Martins, had a long-standing claim against a Brazilian power company, Bandeirante Energia SA, which had been successfully litigated, and in 2011 the courts released a cash deposit to White Martins, subject to completion of an appeal process. During the first quarter of 2012, White Martins was notified that the appeal process was favorably concluded, and accordingly, recognized a $24 million gain to other income (expense), net of legal fees and another litigation matter.


90

Commitments and Contractual Obligations
The following table sets forth Praxair’s material commitments and contractual obligations as of December 31, 2012 , excluding leases, tax liabilities for uncertain tax positions, long-term debt, other post retirement and pension obligations which are summarized elsewhere in the financial statements (see Notes 4, 7, 11, and 16):  
(Millions of dollars)
Expiring through December 31,
Unconditional
Purchase
Obligations
 
Construction
Commitments
 
Guarantees
and Other
2013
$
576

 
$
1,161

 
$
56

2014
491

 
528

 
—

2015
404

 
—

 
9

2016
391

 
—

 
—

2017
385

 
—

 
—

Thereafter
834

 
—

 
12

 
$
3,081

 
$
1,689

 
$
77

Unconditional purchase obligations of $3,081 million represent contractual commitments under various long and short-term take-or-pay arrangements with suppliers and are not included on Praxair's balance sheet. These obligations are primarily minimum-purchase commitments for helium, electricity, natural gas and feedstock used to produce atmospheric and process gases including a multi-year contract for the purchase of silane. During 2012, payments related to Praxair's unconditional purchase obligations totaled $1,093 million , including $679 million for electricity and $207 million for natural gas. A significant portion of these obligations is passed on to customers through similar take-or-pay or other contractual arrangements. Purchase obligations that are not passed along to customers through such contractual arrangements are subject to market conditions, but do not represent a material risk to Praxair. At December 31, 2012 the total purchase obligation for the silane contract is $166 million . Since the contract was signed, the market for silane has not developed as expected and prices have decreased due to lower demand from the photovoltaics markets, primarily in Asia. At December 31, 2012 , Praxair's current selling prices and estimated future demand for silane are in excess of its contractual purchase obligations under the contract. The company is continually monitoring market developments.
Construction commitments of $1,689 million represent outstanding commitments to complete authorized construction projects as of December 31, 2012 . A significant portion of Praxair’s capital spending is related to the construction of new production facilities to satisfy customer commitments which may take a year or more to complete.
Guarantees and other of $77 million include $74 million related to Praxair’s contingent obligations under guarantees of certain debt of unconsolidated affiliates and $3 million of various guarantees relating to outstanding receivables and repurchase agreements. Unconsolidated equity investees had total debt of approximately $395 million at December 31, 2012 , which was non-recourse to Praxair with the exception of the guaranteed portions described above. Praxair has no significant financing arrangements with closely-held related parties.
At December 31, 2012 , Praxair had undrawn outstanding letters of credit, bank guarantees and surety bonds valued at approximately $1,480 million from financial institutions, including $557 million relating to the CADE anti-trust litigation in Brazil. These related primarily to customer contract performance guarantees (including plant construction in connection with certain on-site contracts), self-insurance claims and other commercial and governmental requirements, including foreign litigation matters.
NOTE 18. SEGMENT INFORMATION
The company’s operations are organized into five reportable segments, four of which have been determined on a geographic basis of segmentation: North America, Europe, South America and Asia. In addition, Praxair operates its worldwide surface technologies business through its wholly-owned subsidiary, Praxair Surface Technologies, Inc., which represents the fifth reportable segment.
Praxair’s operations consist of two major product lines: industrial gases and surface technologies. The industrial gases product line centers on the manufacturing and distribution of atmospheric gases (oxygen, nitrogen, argon, rare gases) and process gases (carbon dioxide, helium, hydrogen, electronic gases, specialty gases, acetylene). Many of these products are co-products of the same manufacturing process. Praxair manufactures and distributes nearly all of its products and manages its customer relationships on a regional basis. Praxair’s industrial gases are distributed to various end markets within a regional segment through one of three basic distribution methods: on-site or tonnage; merchant; and packaged or cylinder gases. The distribution methods are generally integrated in order to best meet the customer’s needs and very few of its products can be

91

economically transported outside of a region. Therefore, the distribution economics are specific to the various geographies in which the company operates and are consistent with how management assesses performance.
Praxair evaluates the performance of its reportable segments based primarily on operating profit, excluding inter-company royalties and special items. Accordingly, for 2012, segment operating profit excludes a $65 million loss associated with the cost reduction program and pension settlement charge; 2011 excludes $1 million net loss associated with the acquisition and cost reduction program; 2010 excludes the impact of the U.S. Homecare divestiture and Venezuela currency devaluation totaling $85 million (see Note 2). During the 2012 first quarter, Praxair changed the measurement of its segment sales and operating profit to be based on the country in which the customer is domiciled instead of where the company's selling subsidiary is domiciled. The company believes these changes better represent the sales and profitability by geographic segment. These changes primarily relate to helium and specialty gas sales and result in slightly higher sales and operating profit in Europe and Asia segments with offsetting declines in the North America segment. Prior amounts have been reclassified to conform to the current year presentation. Corporate and globally managed expenses, and research and development costs relating to Praxair’s global industrial gases business, are allocated to operating segments based on sales.
The table below presents information about reportable segments for the years ended December 31, 2012 , 2011 and 2010 .  
(Millions of dollars)
2012
 
2011
 
2010
Sales (a)
 
 
 
 
 
North America
$
5,598

 
$
5,490

 
$
5,079

Europe
1,474

 
1,458

 
1,341

South America
2,082

 
2,308

 
1,970

Asia
1,414

 
1,348

 
1,158

Surface Technologies
656

 
648

 
568

 
$
11,224

 
$
11,252

 
$
10,116

 

2012
 
2011
 
2010
Operating Profit
 
 
 
 
 
North America
$
1,465

 
$
1,331

 
$
1,158

Europe
256

 
272

 
278

South America
429

 
530

 
454

Asia
246

 
234

 
193

Surface Technologies
106

 
102

 
84

Segment operating profit
2,502

 
2,469

 
2,167

Cost reduction program and other charges (Note 2)
(65
)
 
(1
)
 
(85
)
Total operating profit
$
2,437

 
$
2,468

 
$
2,082

 
2012
 
2011
 
2010
Total Assets (b)
 
 
 
 
 
North America
$
8,491

 
$
7,402

 
$
7,154

Europe
2,957

 
2,728

 
2,262

South America
3,205

 
3,194

 
3,234

Asia
2,757

 
2,366

 
1,965

Surface Technologies
680

 
666

 
659

 
$
18,090

 
$
16,356

 
$
15,274


92

(Millions of dollars)
2012
 
2011
 
2010
Depreciation and Amortization
 
 
 
 
 
North America
$
498

 
$
495

 
$
467

Europe
184

 
141

 
124

South America
149

 
197

 
174

Asia
127

 
126

 
118

Surface Technologies
43

 
44

 
42

 
$
1,001

 
$
1,003

 
$
925

 
2012
 
2011
 
2010
Capital Expenditures and Acquisitions
 
 
 
 
 
North America
$
1,303

 
$
880

 
$
636

Europe
322

 
339

 
282

South America
351

 
396

 
306

Asia
431

 
431

 
275

Surface Technologies
53

 
45

 
37

 
$
2,460

 
$
2,091

 
$
1,536

 
2012
 
2011
 
2010
Sales by Product Group
 
 
 
 
 
Atmospheric gases and related
$
7,670

 
$
7,494

 
$
6,746

Process gases and other
2,898

 
3,110

 
2,802

Surface technologies
656

 
648

 
568

 
$
11,224

 
$
11,252

 
$
10,116

 
2012
 
2011
 
2010
Sales by Major Country
 
 
 
 
 
United States
$
4,305

 
$
4,206

 
$
3,973

Brazil
1,668

 
1,931

 
1,639

Other – foreign
5,251

 
5,115

 
4,504

 
$
11,224

 
$
11,252

 
$
10,116

 
2012
 
2011
 
2010
Long-lived Assets by Major Country (c)
 
 
 
 
 
United States
$
4,255

 
$
3,646

 
$
3,446

Brazil
1,535

 
1,584

 
1,620

Other – foreign
5,663

 
4,901

 
4,466

 
$
11,453

 
$
10,131

 
$
9,532

________________________
(a)
Sales reflect external sales only. Intersegment Sales, primarily from North America to other segments, were not significant.

93


(b)
Includes equity investments as of December 31 as follows:
(Millions of dollars)
2012
 
2011
 
2010
North America*
$
135

 
$
49

 
$
52

Europe *
199

 
183

 
298

Asia *
320

 
291

 
214

 
$
654

 
$
523

 
$
564

*
The 2012 increase in North America relates to the formation of a packaged gas joint venture with Nexair LLC in the Southeastern United States and the 2011 decrease for Europe relates to the consolidation of Yara Praxair effective October 2011. The 2011 and 2010 increases for Asia relate to investments in the ROC Group (see Note 3).
(c)
Long-lived assets include property, plant and equipment – net.

NOTE 19. QUARTERLY DATA (UNAUDITED)
(Dollar amounts in millions, except per share data)  
2012
1Q
 
2Q
 
3Q (a)
 
4Q
 
YEAR (a)
Sales
$
2,840

 
$
2,811

 
$
2,774

 
$
2,799

 
$
11,224

Cost of sales, exclusive of depreciation and amortization
$
1,616

 
$
1,602

 
$
1,595

 
$
1,583

 
$
6,396

Depreciation and amortization
$
252

 
$
247

 
$
248

 
$
254

 
$
1,001

Operating profit
$
627

 
$
636

 
$
558

 
$
616

 
$
2,437

Net income – Praxair, Inc.
$
419

 
$
429

 
$
430

 
$
414

 
$
1,692

Basic Per Share Data
 
 
 
 
 
 
 
 
 
Net income
$
1.40

 
$
1.43

 
$
1.44

 
$
1.40

 
$
5.67

Weighted average shares (000’s)
299,077

 
298,885

 
298,416

 
296,887

 
298,316

Diluted Per Share Data
 
 
 
 
 
 
 
 
 
Net income
$
1.38

 
$
1.42

 
$
1.43

 
$
1.38

 
$
5.61

Weighted average shares (000’s)
302,876

 
302,492

 
301,731

 
300,224

 
301,845


94


2011
1Q
 
2Q
 
3Q
 
4Q (a)
 
YEAR (a)
Sales
$
2,702

 
$
2,858

 
$
2,896

 
$
2,796

 
$
11,252

Cost of sales, exclusive of depreciation and amortization
$
1,536

 
$
1,640

 
$
1,684

 
$
1,598

 
$
6,458

Depreciation and amortization
$
244

 
$
254

 
$
256

 
$
249

 
$
1,003

Operating profit
$
591

 
$
627

 
$
632

 
$
618

 
$
2,468

Net income – Praxair, Inc.
$
398

 
$
425

 
$
429

 
$
420

 
$
1,672

Basic Per Share Data
 
 
 
 
 
 
 
 
 
Net income
$
1.31

 
$
1.40

 
$
1.42

 
$
1.40

 
$
5.53

Weighted average shares (000’s)
304,071

 
303,709

 
301,594

 
299,575

 
302,237

Diluted Per Share Data
 
 
 
 
 
 
 
 
 
Net income
$
1.29

 
$
1.38

 
$
1.40

 
$
1.38

 
$
5.45

Weighted average shares (000’s)
308,595

 
308,253

 
305,623

 
303,700

 
306,722

 
________________________
(a)
2012 and 2011 include the impact of the following benefits/(charges) (see Note 2):
(Millions of dollars)
Operating
Profit/
(Loss)
 
Net
Income/
(Loss)
Cost reduction program – Q3
$
(56
)
 
$
(38
)
Pension settlement charge – Q3
(9
)
 
(6
)
Income tax benefit – Q3
—

 
55

Year 2012
$
(65
)
 
$
11

 
 
 
 
Net gain on acquisition – Q4
$
39

 
$
37

Cost reduction program – Q4
(40
)
 
(31
)
Year 2011
$
(1
)
 
$
6


NOTE 20. SUBSEQUENT EVENTS

NuCO 2 Acquisition

On February 4, 2013, Praxair executed a definitive agreement to acquire 100% of NuCO 2 , Inc. for a total cash consideration of $1.1 billion . The transaction is subject to certain closing conditions and is expected to close around March 1, 2013.

NuCO 2 is the leading national provider of beverage carbonation solutions to the restaurant and hospitality industries with approximately 162,000 customer locations and 900 employees. The NuCO 2 micro-bulk beverage carbonation offering is the service model of choice for quick service restaurants and convenience stores offering fountain beverages. The offering is more cost effective than concentrated high pressure cylinders and is more reliable and less labor intensive for the customer. NuCO 2 services the majority of its customers under multi-year service agreements and fixed monthly payment plans.
NuCO 2 's results of operations will be accounted for as a business combination and, accordingly, will be included in Praxair’s consolidated results of operations within the North America segment following the acquisition date.

Venezuela Currency Devaluation
On February 8, 2013, Venezuela announced a devaluation of the Venezuelan bolivar from 4.30 to 6.30 (implying a 32% devaluation), effective on February 13, 2013. Praxair's estimated impact of the devaluation is that the company will incur a net income charge of approximately $0.08 per diluted share in the first quarter of 2013 due primarily to the remeasurement of the local Venezuelan balance sheet to reflect the new official 6.30 exchange rate. The company does not expect the impact on results of operations for 2013 to be significant. The February devaluation did not impact Praxair's 2012 results of operations, comprehensive income, financial position or cash flows.

95




ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A.     CONTROLS AND PROCEDURES
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Based on an evaluation of the effectiveness of Praxair’s disclosure controls and procedures, which was made under the supervision and with the participation of management, including Praxair’s principal executive officer and principal financial officer, the principal executive officer and principal financial officer have each concluded that, as of the end of the annual period covered by this report, such disclosure controls and procedures are effective in ensuring that information required to be disclosed by Praxair in reports that it files under the Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and accumulated and communicated to management including Praxair’s principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control Over Financial Reporting
Praxair’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of management, including the company’s principal executive officer and principal financial officer, Praxair conducted an evaluation of the effectiveness of its internal control over financial reporting based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (often referred to as COSO ). Based on this evaluation, management concluded that the company’s internal control over financial reporting was effective as of December 31, 2012 .
Praxair’s evaluation of internal control over financial reporting as of December 31, 2012 did not include the internal control over financial reporting related to Acetylene Oxygen Company and Portagas Inc. because they were acquired by Praxair in business purchase combinations consummated during 2012 . Total assets and sales for these acquisitions represent 0.8% and 0.1%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2012 (See Note 3 to the consolidated financial statements in Item 8).
PricewaterhouseCoopers LLP, an independent registered public accounting firm, has issued their opinion on the company’s internal control over financial reporting as of December 31, 2012 as stated in their report in Item 8.
Changes in Internal Control over Financial Reporting
There were no changes in Praxair’s internal control over financial reporting that occurred during the fourth quarter of 2012 that have materially affected, or are reasonably likely to materially affect, Praxair’s internal control over financial reporting.
ITEM 9B.     OTHER INFORMATION
None.

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PART III
ITEM 10.     DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Certain information required by this item is incorporated herein by reference to the sections captioned “The Board of Directors”, “Executive Officers” and “Corporate Governance And Board Practices- Section 16(a) Beneficial Ownership Reporting Compliance ” in Praxair’s Proxy Statement for the Annual Meeting of Shareholders to be held on April 23, 2013.
Identification of the Audit Committee
Praxair has a separately-designated standing Audit Committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934 as amended (the “Exchange Act”). The members of that Audit Committee are Ira D. Hall, Chairman, Bret K. Clayton, Nance K. Dicciani, Raymond W. LeBoeuf and Larry D. McVay.
Audit Committee Financial Expert
The Praxair Board of Directors has determined that each of, Raymond W. LeBoeuf, Ira D. Hall and Bret K. Clayton is an “audit committee financial expert” as defined by Item 407(d)(5)(ii) of Regulation S-K of the Exchange Act and is independent within the meaning of the independence standards adopted by the Board of Directors and those of the New York Stock Exchange.
Code of Ethics
Praxair has adopted a code of ethics that applies to the company’s directors and all employees, including its Chief Executive Officer, Chief Financial Officer, and Controller. This code of ethics has been approved by the Praxair Board of Directors and is named the “Compliance with Laws and Business Integrity and Ethics Policy”. To assist employees and directors in complying with this code of ethics, management, from time to time, develops specific standards implementing certain provisions of the code which standards are contained in Praxair’s “Standards of Business Integrity.” Both documents are posted on the company’s public website, www.praxair.com.
ITEM 11.     EXECUTIVE COMPENSATION
Information required by this item is incorporated herein by reference to the sections captioned “Executive Compensation” and “Director Compensation” in Praxair’s Proxy Statement for the Annual Meeting of Shareholders to be held on April 23, 2013 .
ITEM 12.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Equity Compensation Plans Information – The table below provides information as of December 31, 2012 about company stock that may be issued upon the exercise of options, warrants and rights granted to employees or members of Praxair’s Board of Directors under present and former equity compensation plans, including plans approved by shareholders and one plan which has not been approved by shareholders, the 1996 Praxair, Inc. Performance Incentive Plan ("the 1996 Plan"). The equity compensation plan not approved by shareholders was terminated in March 2001 and directors and officers of the company were not eligible to participate in that plan. Shareholder approval of that plan was not required under applicable NYSE rules. The 1996 Plan provided for granting nonqualified or incentive stock options, stock grants, performance awards and other stock related incentives for key employees. The exercise price under the 1996 Plan was equal to the closing price of Praxair’s common stock on the date of grant. Options that were granted under this plan became exercisable after one or more years after the date of grant and the option term was no more than ten years.

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EQUITY COMPENSATION PLANS TABLE  
Plan Category
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights (a)
 
Weighted-average
exercise price of
outstanding options,
warrants and rights (b)
 
Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a)) (c)
Equity compensation plans approved by shareholders
13,489,324

(1)
$
67.42

 
6,591,593

Equity compensation plans not approved by shareholders
—

  
—

 
—

Total
13,489,324

  
$
67.42

 
6,591,593

 
________________________
(1)
This amount includes 368,431 restricted shares and 840,025 performance shares. Up to an additional 420,013 performance shares could be issued if performance goals are achieved at the maximum specified targets. See Note 15 to the consolidated financial statements.
Certain information required by this item regarding the beneficial ownership of the Company’s common stock is incorporated herein by reference to the section captioned “Share Ownership” in Praxair’s Proxy Statement for the Annual Meeting of Shareholders to be held on April 23, 2013.
ITEM 13.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
Information required by this item is incorporated herein by reference to the sections captioned “Corporate Governance And Board Practices – Review, Approval or Ratification of Transactions with Related Persons ,” “Corporate Governance And Board Practices – Certain Relationships and Transactions, ” and “Corporate Governance And Board Practices – Director Independence ” in Praxair’s Proxy Statement for the Annual Meeting of Shareholders to be held on April 23, 2013 .
ITEM 14.     PRINCIPAL ACCOUNTING FEES AND SERVICES
Information required by this item is incorporated herein by reference to the section captioned “The Independent Auditor” in Praxair’s Proxy Statement for the Annual Meeting of Shareholders to be held on April 23, 2013 .  

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PART IV
ITEM 15.     EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a)
The following documents are filed as part of this report:
(1)
The company’s 2012 Consolidated Financial Statements and the Report of the Independent Registered Public Accounting Firm are included in Part II, Item 8. Financial Statements and Supplementary Data.
(2)
Financial Statement Schedules – All financial statement schedules have been omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.
(3)
Exhibits – The exhibits filed as part of this Annual Report on Form 10-K are listed in the accompanying index.


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SIGNATURES
Praxair, Inc. and Subsidiaries
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.  
 
 
PRAXAIR, INC.
 
 
(Registrant)
Date: February 27, 2013
By: 
  /s/    E LIZABETH  T. H IRSCH        
 
 
Elizabeth T. Hirsch
Vice President and Controller
(On behalf of the Registrant and
as Chief Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on February 27, 2013.  
/s/    S TEPHEN  F. A NGEL        
  
/s/    J AMES  S. S AWYER         
 
/s/    N ANCE  K. D ICCIANI         
Stephen F. Angel
Chairman, President,
Chief Executive Officer and
Director
  
James S. Sawyer   Executive Vice President and Chief Financial Officer
 
Nance K. Dicciani
Director
 
 
 
/s/    E DWARD  G. G ALANTE    
 
/s/    C LAIRE  W. G ARGALLI  
 
/s/    I RA  D. H ALL 
Edward G. Galante
Director
  
Claire W. Gargalli
Director
 
Ira D. Hall
Director
 
 
 
/s/    R AYMOND  W. L E B OEUF  
 
/s/    L ARRY  D. M C V AY  
 
/s/    W AYNE  T. S MITH   
Raymond W. LeBoeuf
Director
  
Larry D. McVay
Director
 
Wayne T. Smith
Director
 
 
 
/s/    O SCAR   DE  P AULA   B ERNARDES
 
/s/    R OBERT  L. W OOD   
 
/s/    B RET  K. C LAYTON   
Oscar de Paula Bernardes
Director
  
Robert L. Wood
Director
 
Bret K. Clayton
Director


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INDEX TO EXHIBITS
Praxair, Inc. and Subsidiaries
Exhibit No.
  
Description
 
 
3.01
  
Restated Certificate of Incorporation of Praxair, Inc. as filed with the Secretary of State of the State of Delaware on April 27, 2012 (Filed as Exhibit 3.01 to the Company’s Current Report on Form 8-K dated April 30, 2012, Filing No. 1-11037, and incorporated herein by reference).
 
 
3.02
  
Amended and Restated By-Laws of Praxair, Inc. (Filed as Exhibit 3.02 to the Company’s Current Report on Form 8-K dated April 30, 2012, Filing No. 1-11037, and incorporated herein by reference).
 
 
3.03
  
Certificate of Designations for the 7.48% Cumulative Preferred Stock, Series A (Filed on February 13, 1997 as Exhibit 3.3 to Amendment #1 to the Company’s Registration Statement on Form S-3, Registration No. 333-18141).
 
 
3.04
  
Certificate of Designations for the 6.75% Cumulative Preferred Stock, Series B (Filed on February 13, 1997 as Exhibit 3.4 to Amendment #1 to the Company’s Registration Statement on Form S-3, Registration No. 333-18141).
 
 
4.01
  
Common Stock Certificate (Filed as Exhibit 4.01 to the Company’s Registration Statement on Form 10, Filing No. 1-11037, and incorporated herein by reference).
 
 
4.02
  
Indenture, dated as of July 15, 1992, between Praxair, Inc. and U.S. Bank National Association, as the ultimate successor trustee to Bank of America, Illinois, formerly Continental Bank, National Association (Filed as Exhibit 4 to the Company’s Current Report on Form 8-K dated March 19, 2007, Filing No. 1-11037, and incorporated herein by reference).
 
 
4.03
  
Copies of the agreements relating to long-term debt which are not required to be filed as exhibits to this Annual Report on Form 10-K will be furnished to the Securities and Exchange Commission upon request.
 
 
4.04
  
Series A Preferred Stock Certificate (Filed on February 7, 1997 as Exhibit 4.3 to Amendment #1 to the Company’s Registration Statement on Form S-3, Registration No. 333-18141).
 
 
4.05
  
Series B Preferred Stock Certificate (Filed on February 7, 1997 as Exhibit 4.4 to Amendment #1 to the Company’s Registration Statement on Form S-3, Registration No. 333-18141).
 
 
*10.01
  
Restated 2002 Praxair, Inc. Long Term Incentive Plan (Filed as Exhibit 10.01 to the Company’s 2003 Annual Report on Form 10-K, Filing No. 1-11037, and incorporated herein by reference).
 
 
*10.01a
  
Amendment, dated as of October 24, 2006, to the Amended and Restated 2002 Praxair, Inc. Long Term Incentive Plan (Filed as Exhibit 10.01a to the Company’s 2006 Annual Report on Form 10-K, Filing No. 1-11037, and incorporated herein by reference).
 
 
*10.01b
  
Amendment, dated as of January 23, 2007, to the Amended and Restated 2002 Praxair, Inc. Long Term Incentive Plan (Filed as Exhibit 10.01b to the Company’s 2006 Annual Report on Form 10-K, Filing No. 1-11037, and incorporated herein by reference).
 
 
*10.01c
  
Form of Standard Option Award under the 2002 Praxair, Inc. Long Term Incentive Plan (Filed as Exhibit 10.01c to the Company’s 2007 Annual Report on Form 10-K, Filing No. 1-11037, and incorporated herein by reference).
 
 
*10.01d
  
Form of Transferable Option Award under the 2002 Praxair, Inc. Long Term Incentive Plan (Filed as Exhibit 10.01d to the Company’s 2007 Annual Report on Form 10-K, Filing No. 1-11037, and incorporated herein by reference).

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Exhibit No.
  
Description
 
 
 
 
*10.02
  
Form of Executive Severance Compensation Agreement effective January 1, 2009 (Filed as Exhibit 10.02 to the Company’s 2008 Annual Report on Form 10-K, Filing No. 1-11037, and incorporated herein by reference).
 
 
 
*10.02a
 
Form of Amendment, effective December 31, 2012, to Executive Severance Compensation Agreements that were effective January 1, 2009 (Filed as Exhibit 10.1 to the Company's Current Report on Form 8-K dated December 14, 2012, Filing No. 1-11037, and incorporated herein by reference.

 
 
*10.02b
  
Form of Executive Severance Compensation Agreement effective January 1, 2010 (Filed as Exhibit 10.02 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2010, Filing No. 1-11037, and incorporated herein by reference).
 
 
 
*10.02c
 
Form of Amendment, effective December 31, 2012, to Executive Severance Compensation Agreements that were effective January 1, 2010 is filed herewith.
 
 
 
*10.02d
 
Form of Executive Severance Compensation Agreement effective January 1, 2013 is filed herewith.

 
 
*10.03
  
Praxair, Inc. Variable Compensation Plan amended and restated effective April 24, 2012 (Filed as Exhibit 10.01 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012, Filing No. 1-11037, and incorporated herein by reference).
 
 
*10.04
  
Amended and Restated 1995 Stock Option Plan for Non-Employee Directors (Filed as Exhibit 10.04 to the Company’s 2003 Annual Report on Form 10-K, Filing No. 1-11037, and incorporated herein by reference).
 
 
*10.04a
  
First Amendment, dated as of October 24, 2006, to the Amended and Restated 1995 Stock Option Plan for Non-Employee Directors (Filed as Exhibit 10.04a to the Company’s 2006 Annual Report on Form 10-K, Filing No. 1-11037, and incorporated herein by reference).
 
 
*10.04b
  
2005 Equity Compensation Plan for Non-Employee Directors of Praxair, Inc. amended and restated effective January 26, 2010 (Filed as Exhibit 10.04b to the Company’s 2009 Annual Report on Form 10-K, Filing No. 1-11037, and incorporated herein by reference).
 
 
*10.04c
  
Form of Option Award under the 2005 Equity Compensation Plan for Non-Employee Directors of Praxair, Inc (Filed as Exhibit 10.04a to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005, Filing No. 1-11037, and incorporated herein by reference).
 
 
*10.05a
  
Praxair, Inc. Supplemental Retirement Income Plan A effective January 1, 2008 (Filed as Exhibit 10.05a to the Company’s 2008 Annual Report on Form 10-K, Filing No. 1-11037, and incorporated herein by reference).
 
 
*10.05b
  
First amendment to the Praxair, Inc. Supplemental Retirement Income Plan A effective January 1, 2010 (Filed as Exhibit 10.05b to the Company’s 2009 Annual Report on Form 10-K, Filing No. 1-11037, and incorporated herein by reference).
 
 
*10.05c
  
Praxair, Inc. Supplemental Retirement Income Plan B amended and restated effective December 31, 2007 (Filed as Exhibit 10.05b to the Company’s 2008 Annual Report on Form 10-K, Filing No. 1-11037, and incorporated herein by reference).
 
 
*10.05d
  
First amendment to the Praxair, Inc. Supplemental Retirement Income Plan B effective January 1, 2010 (Filed as Exhibit 10.05d to the Company’s 2009 Annual Report on Form 10-K, Filing No. 1-11037, and incorporated herein by reference).
 
 
 
*10.05e
 
Second amendment to Praxair, Inc. Supplemental Retirement Income Plan B effective July 1, 2012 is filed herewith.
 
 
*10.05f
  
Praxair, Inc. Equalization Benefit Plan amended and restated effective December 31, 2007 (Filed as Exhibit 10.05c to the Company’s 2008 Annual Report on Form 10-K, Filing No. 1-11037, and incorporated herein by reference).
 
 
*10.05g
  
First amendment to the Praxair, Inc. Equalization Benefit Plan amended and restated effective January 1, 2010 (Filed as Exhibit 10.05f to the Company’s 2009 Annual Report on Form 10-K, Filing No. 1-11037, and incorporated herein by reference).

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Exhibit No.
  
Description
 
 
*10.06
  
Praxair, Inc. Director’s Fees Deferral Plan amended and restated effective January 26, 2010 (Filed as Exhibit 10.06 to the Company’s 2009 Annual Report on Form 10-K, Filing No. 1-11037, and incorporated herein by reference).
 
 
*10.07
  
Praxair Compensation Deferral Program amended and restated as of January 1, 2005 (Filed as Exhibit 10.07 to the Company’s 2008 Annual Report on Form 10-K, Filing No. 1-11037, and incorporated herein by reference).
 
 
10.08
  
Transfer Agreement dated January 1, 1989, between Union Carbide Corporation and the registrant (Filed as Exhibit 10.06 to the Company’s Registration Statement on Form 10, Filing No. 1-11037, and incorporated herein by reference).
 
 
10.08a
  
Amendment No. 1 dated as of December 31, 1989, to the Transfer Agreement (Filed as Exhibit 10.07 to the Company’s Registration Statement on Form 10, Filing No. 1-11037, and incorporated herein by reference).
 
 
10.08b
  
Amendment No. 2 dated as of July 2, 1990, to the Transfer Agreement (Filed as Exhibit 10.08 to the Company’s Registration Statement on Form 10, Filing No. 1-11037, and incorporated herein by reference).
 
 
10.08c
  
Amendment No. 3 dated as of January 2, 1991, to the Transfer Agreement (Filed as Exhibit 10.09 to the Company’s Registration Statement on Form 10, Filing No. 1-11037, and incorporated herein by reference).
 
 
10.09
  
Transfer Agreement dated January 1, 1989, between Union Carbide Corporation and Union Carbide Coatings Service Corporation (Filed as Exhibit 10.14 to the Company’s Registration Statement on Form 10, Filing No. 1-11037, and incorporated herein by reference).
 
 
10.09a
  
Amendment No. 1 dated as of December 31, 1989, to the Transfer Agreement (Filed as Exhibit 10.15 to the Company’s Registration Statement on Form 10, Filing No. 1-11037, and incorporated herein by reference).
 
 
10.09b
  
Amendment No. 2 dated as of July 2, 1990, to the Transfer Agreement (Filed as Exhibit 10.16 to the Company’s Registration Statement on Form 10, Filing No. 1-11037, and incorporated herein by reference).
 
 
10.10
  
Additional Provisions Agreement dated as of June 4, 1992 (Filed as Exhibit 10.21 to the Company’s Registration Statement on Form 10, Filing No. 1-11037, and incorporated herein by reference).
 
 
10.11
  
Amended and Restated Realignment Indemnification Agreement dated as of June 4, 1992 (Filed as Exhibit 10.23 to the Company’s Registration Statement on Form 10, Filing No. 1-11037, and incorporated herein by reference).
 
 
10.12
  
Environmental Management, Services and Liabilities Allocation Agreement dated as of January 1, 1990 (Filed as Exhibit 10.13 to the Company’s Registration Statement on Form 10, Filing No. 1-11037, and incorporated herein by reference).
 
 
10.12a
  
Amendment No. 1 to the Environmental Management, Services and Liabilities Allocation Agreement dated as of June 4, 1992 (Filed as Exhibit 10.22 to the Company’s Registration Statement on Form 10, Filing No. 1-11037, and incorporated herein by reference).
 
 
10.13
  
Danbury Lease-Related Services Agreement dated as of June 4, 1992 (Filed as Exhibit 10.24 to the Company’s Registration Statement on Form 10, Filing No. 1-11037, and incorporated herein by reference).
 
 
10.13a
  
First Amendment to Danbury Lease-Related Services Agreement (Filed as Exhibit 10.13a to the Company’s 1994 Annual Report on Form 10-K, Filing No. 1-11037, and incorporated herein by reference).

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Exhibit No.
  
Description
 
 
10.14
  
Danbury Lease Agreements, as amended (Filed as Exhibit 10.26 to the Company’s Registration Statement on Form 10, Filing No. 1-11037, and incorporated herein by reference).
 
 
10.14a
  
Second Amendment to Linde Data Center Lease (Danbury) (Filed as Exhibit 10.14a to the Company’s 1993 Annual Report on Form 10-K, Filing No. 1-11037, and incorporated herein by reference).
 
 
10.14b
  
Fourth Amendment to Carbide Center Lease (Filed as Exhibit 10.14b to the Company’s 1993 Annual Report on Form 10-K, Filing No. 1-11037, and incorporated herein by reference).
 
 
10.14c
  
Third Amendment to Linde Data Center Lease (Filed as Exhibit 10.14c to the Company’s 1994 Annual Report on Form 10-K, Filing No. 1-11037, and incorporated herein by reference).
 
 
10.14d
  
Fifth Amendment to Carbide Center Lease (Filed as Exhibit 10.14d to the Company’s 1994 Annual Report on Form 10-K, Filing No. 1-11037, and incorporated herein by reference).
 
 
10.14e
  
Sixth Amendment to Carbide Center Lease (Filed as Exhibit 10.14e to the Company’s 2004 Annual Report on Form 10-K, Filing No. 1-11037, and incorporated herein by reference).
 
 
10.15
  
Employee Benefits Agreement dated as of June 4, 1992 (Filed as Exhibit 10.25 to the Company’s Registration Statement on Form 10, Filing No. 1-11037, and incorporated herein by reference).
 
 
10.15a
  
First Amendatory Agreement to the Employee Benefits Agreement (Filed as Exhibit 10.15a to the Company’s 1994 Annual Report on Form 10-K, Filing No. 1-11037, and incorporated herein by reference).
 
 
10.16
  
Tax Disaffiliation Agreement dated as of June 4, 1992 (Filed as Exhibit 10.20 to the Company’s Registration Statement on Form 10, Filing No. 1-11037, and incorporated herein by reference).
 
 
10.17
  
$1.75 Billion Credit Agreement dated as of July 26, 2011 among Praxair, Inc. and the Eligible Subsidiaries Referred to therein, the Lenders Listed therein, and Bank of America, N.A., as Administrative Agent, Citibank, N.A. and HSBC Bank USA, N.A., as Syndication Agents, (Filed as Exhibit 10.01 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011, Filing No. 1-11037, and incorporated herein by reference).
 
 
*10.18
  
Praxair, Inc. Plan for Determining Performance-Based Awards Under Section 162(m) (included as Appendix 3 to the Company’s definitive proxy statement for its 2011 annual meeting of shareholders filed on March 16, 2011 and incorporated herein by reference).
 
 
*10.19
  
Service Credit Arrangement for Stephen F. Angel dated May 23, 2007 was filed as Exhibit 10.20 to the Company’s Form 8-K filed on May 24, 2007 and is incorporated herein by reference.
 
 
*10.20
  
2009 Praxair, Inc. Long Term Incentive Plan as amended on April 27, 2010, January 25, 2011 and October 23, 2012 was filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K dated December 14, 2012 Filing No. 1-11037, and incorporated herein by reference.
 
 
*10.21
  
Form of Standard Option Award under the 2009 Praxair, Inc. Long Term Incentive Plan (Filed as Exhibit 10.22 to the Company’s 2009 Annual Report on Form 10-K, Filing No. 1-11037, and incorporated herein by reference).

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Exhibit No.
  
Description
 
 
*10.22
  
Form of Transferable Option Award under the 2009 Praxair, Inc. Long Term Incentive Plan (Filed as Exhibit 10.23 to the Company’s 2009 Annual Report on Form 10-K, Filing No. 1-11037, and incorporated herein by reference).
 
 
*10.23
  
Form of Restricted Stock Unit Award under the 2009 Praxair, Inc. Long Term Incentive Plan (Filed as Exhibit 10.24 to the Company’s 2009 Annual Report on Form 10-K, Filing No. 1-11037, and incorporated herein by reference).
 
 
*10.24a
  
Form of Performance Share Unit Award under the 2009 Praxair, Inc. Long Term Incentive Plan for grants made from 2010-2013 (Filed as Exhibit 10.25 to the Company’s 2009 Annual Report on Form 10-K, Filing No. 1-11037, and incorporated herein by reference).
 
 
 
*10.24b
 
Form of Performance Share Unit Award under the 2009 Praxair, Inc. Long Term Incentive Plan for grants made in 2013 and thereafter with Earnings Per Share performance metrics is filed herewith.
 
 
 
*10.24c
 
Form of Performance Share Unit Award under the 2009 Praxair, Inc. Long Term Incentive Plan for grants made in 2013 and thereafter with Return on Capital performance metrics is filed herewith.
 
 
10.25
  
Letter of Clarification of Certain Pension Benefits dated October 26, 2010 between the Company and James T. Breedlove (Filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2010, Filing No. 1-11037, and incorporated herein by reference).
 
 
10.26
  
Form of Standard Underwriting Agreement Provisions was filed as Exhibit 1.1 to the Company’s Form S-3 filed on August 8, 2012, and is incorporated herein by reference.
 
 
10.27
  
Terms Agreement dated March 1, 2011 among the Company, Citigroup Global Markets Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Deutsche Bank Securities Inc. and HSBC Securities (USA) Inc. as representatives of the underwriters named therein for the issuance and sale of $500,000,000 4.05% Notes due 2021, was filed as Exhibit 1 to the Company’s Current Report on Form 8-K, dated March 4, 2011, Filing No. 1-11037, and incorporated herein by reference.
 
 
10.28
  
Terms Agreement dated August 31, 2011 among Credit Suisse Securities (USA) LLC, RBS Securities Inc., Mitsubishi UFJ Securities (USA), Inc. and Wells Fargo Securities, LLC as representatives of the underwriters named therein for the issuance and sale of $500,000,000 3.000% Notes due 2021, was filed as Exhibit 1 to the Company’s Current Report on Form 8-K, dated September 6, 2011, Filing No. 1-11037, and incorporated herein by reference.
 
 
10.29
  
Terms Agreement dated February 1, 2012 among the Company, Citigroup Global Markets Inc., HSBC Securities (USA) Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as representatives of the underwriters named therein for the issuance and sale of $600,000,000 2.450% Notes due 2022, was filed as Exhibit 1 to the Company’s Current Report on Form 8-K, dated February 6, 2012, Filing No. 1-11037, and incorporated herein by reference.
 
 
10.30
 
Terms Agreement dated July 30, 2012 among the Company, Credit Suisse Securities (USA) LLC, J.P. Morgan Securities LLC and Wells Fargo Securities, LLC, as representatives of the underwriters named therein for the issuance and sale of $500,000,000 2.20% Notes due August 15, 2022, was filed as Exhibit 1 to the Company’s Current Report on Form 8-K, dated August 2, 2012, Filing No. 1-11037, and incorporated herein by reference.
 
 
 
10.31
 
Terms Agreement dated November 2, 2012 among the Company, Citigroup Global Markets Inc., Deutsche Bank Securities Inc. and RBS Securities Inc., as representatives of the underwriters named therein for the issuance and sale of $400,000,000 1.05% Notes due 2017, and $300,000,000 3.55% Notes due 2042, was filed as Exhibit 1 to the Company’s Current Report on Form 8-K, dated November 7, 2012, Filing No. 1-11037, and incorporated herein by reference.
 
 
 
10.32
 
Terms Agreement dated February 13, 2013 among the Company, HSBC Securities (USA) Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Mitsubishi UFJ Securities (USA), Inc., as representatives of the underwriters named therein for the issuance and sale of $400,000,000 0.75% Notes due 2016, and $500,000,000 aggregate principal amount of its 2.70 % Notes due 2023, was filed as Exhibit 1 to the Company’s Current Report on Form 8-K, dated February 19, 2013, Filing No. 1-11037, and incorporated herein by reference.

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Exhibit No.
  
Description
 
 
 
12.01
  
Computation of Ratio of Earnings to Fixed Charges.
 
 
21.01
  
Subsidiaries of Praxair, Inc.
 
 
23.01
  
Consent of Independent Registered Public Accounting Firm.
 
 
31.01
  
Rule 13a-14(a) Certification
 
 
 
31.02
 
Rule 13a-14(a) Certification
 
 
32.01
  
Section 1350 Certification (such certifications are furnished for the information of the Commission and shall not be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act).
 
 
 
32.02
  
Section 1350 Certification (such certifications are furnished for the information of the Commission and shall not be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act).
 
 
101.INS
  
XBRL Instance Document
 
 
101.SCH
  
XBRL Taxonomy Extension Schema
 
 
101.CAL
  
XBRL Taxonomy Extension Calculation Linkbase
 
 
101.LAB
  
XBRL Taxonomy Extension Label Linkbase
 
 
101.PRE
  
XBRL Taxonomy Extension Presentation Linkbase
 
 
101.DEF
  
XBRL Taxonomy Extension Definition Linkbase
Copies of exhibits incorporated by reference can be obtained from the SEC and are located in SEC File No. 1-11037.
*    Indicates a management contract or compensatory plan or arrangement.



106
Praxair, Inc.
39 Old Ridgebury Road
Danbury, CT 06810-5113


Praxair, Inc. and Subsidiaries
EXHIBIT 10.02c

First Amendment to
Praxair, Inc.
Severance Compensation Agreement
December 11, 2012

«First_Name» «Last_Name»
«Address_Line_11»
«Address_Line_21»
«City1», «State_Province_1» «Zip_Code1»

Dear «First_Name»:
This letter serves as an amendment to the Severance Compensation Agreement between you and Praxair, Inc. dated as of (insert date) (“Agreement”). The Agreement, as modified by this amendment, shall be effective as of December 31, 2012. Kindly sign this amendment where indicated below to acknowledge your acceptance of its terms and return the original to Marge Turkenkopf by no later than December 31, 2012.

Subsection 2e is amended to add the following sentences at the end thereof:
In no event may you, directly or indirectly, designate the calendar year of any payment to be made under this Agreement or otherwise which constitutes a “deferral of compensation” within the meaning of Section 409A of the Code.  In addition, to the extent payments under this Agreement that are contingent upon your execution of the general release described above constitute deferred compensation for purposes of Section 409A and your execution period for the general release shall commence in one tax year and end in the subsequent tax year, such payments under this Agreement shall be made solely in the subsequent tax year.
    
Sincerely,
PRAXAIR, INC.            
                                                                           
By: /s/ Steve Angel
Steve Angel

Title: Chairman, President & CEO


Agreed to this __ day of __________, 2012

    
(Signature)



Praxair, Inc. and Subsidiaries
EXHIBIT 10.02d

Praxair, Inc.

Severance Compensation Agreement




[DATE]

NAME
ADDRESS


Dear [NAME]:
The Board of Directors (the “Board”) of Praxair, Inc. (“Praxair”) recognizes that the possibility of a Change in Control of Praxair exists, and the uncertainty and questions which it may raise among management may result in the departure or distraction of management personnel to the detriment of Praxair or its majority-owned subsidiaries (hereinafter to be referred to collectively as the “Company”).
The Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Company’s management, including yourself, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from a possible Change in Control of Praxair.
In order to induce you to remain in the employ of the Company and in consideration of both your continued service to the Company and your execution of a Nondisclosure, Nonsolicitation and Noncompetition agreement in the form provide to you by Praxair, Praxair agrees that you shall receive the severance benefits set forth in this Severance Compensation Agreement (“Agreement”) in the event your employment with the Company is terminated subsequent to a Change in Control under the circumstances described below in Subsection 2a. This Agreement amends and supersedes in all respects, all prior Severance Compensation Agreements previously entered into between you and the Company.
1. Definitions .
a.      “ Change in Control ” means the occurrence of any one of the following events with respect to Praxair:



(i)
individuals who, on January 1, 201_, constitute the Board (the “Incumbent Directors”) cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director subsequent to January 1, 201_, whose election or nomination for election was approved by a vote of at least two-thirds of the Incumbent Directors then on the Board (either by a specific vote or by approval of the Praxair proxy statement in which such person is named as a nominee for director, without objection to such nomination) shall be an Incumbent Director; provided , however , that no individual elected or nominated as a director of Praxair initially as a result of an actual or threatened election contest with respect to directors or any other actual or threatened solicitation of proxies or consents by or on behalf of any person other than the Board shall be deemed an Incumbent Director;
(ii)
any “person” (as such term is defined in Section 3(a)(9) of the Securities Exchange Act of 1934 (the “Exchange Act”) and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) is or becomes a “beneficial owner” (as defined in Rule 13d‑3 under the Exchange Act), directly or indirectly, of securities of Praxair representing 20% or more of the combined voting power of Praxair’s then outstanding securities eligible to vote for the election of the Board (the “Praxair Voting Securities”); provided , however , that the event described in this Subsection 1a(ii) shall not be deemed to be a Change in Control by virtue of any of the following acquisitions: (A) by Praxair or any of its subsidiaries, (B) by any employee benefit plan sponsored or maintained by Praxair or any of its subsidiaries, (C) by any underwriter temporarily holding securities pursuant to an offering of such securities, or (D) pursuant to a Non-Qualifying Transaction (as defined in Subsection 1a(iii));
(iii)
the consummation of a merger, consolidation, statutory share exchange or similar form of corporate transaction involving Praxair or any of its subsidiaries that requires the approval of Praxair’s stockholders, whether for such transaction or the issuance of securities in the transaction (a “Business Combination”), unless immediately following such Business Combination: (A) more than 50% of the total voting power of (x) the corporation resulting from such Business Combination (the “Surviving Corporation”), or (y) if applicable, the ultimate parent corporation that directly or indirectly has beneficial ownership of 100% of the voting securities eligible to elect directors of the Surviving Corporation (the “Parent Corporation”), is represented by Praxair Voting Securities that were outstanding immediately prior to such Business Combination (or, if applicable, shares into which such Praxair Voting Securities were converted pursuant to such Business Combination), and such voting power among the holders thereof is in substantially the same proportion as the voting power of such Praxair Voting Securities among the holders thereof immediately prior to the Business Combination, (B) no person (other than any employee benefit plan sponsored or maintained by the Surviving Corporation or the Parent Corporation), is or becomes the beneficial owner, directly or indirectly, of 20% or more of the

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total voting power of the outstanding voting securities eligible to elect directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation) and (C) at least a majority of the members of the board of directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation) were Incumbent Directors at the time of the Board’s approval of the execution of the initial agreement providing for such Business Combination (any Business Combination which satisfies all of the criteria specified in (A), (B) and (C) above shall be deemed to be a “Non-Qualifying Transaction”); or
(iv)
the stockholders of Praxair approve a plan of complete liquidation or dissolution of Praxair or a sale or disposition of all or substantially all of Praxair’s assets.
Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any person acquires beneficial ownership of more than 20% of the Praxair Voting Securities as a result of the acquisition of Praxair Voting Securities by Praxair which reduces the number of Praxair Voting Securities outstanding; provided , that if after such acquisition by Praxair such person becomes the beneficial owner of additional Praxair Voting Securities that increases the percentage of outstanding Praxair Voting Securities beneficially owned by such person, a Change in Control shall then occur.
b.      “ Code ” shall mean the Internal Revenue Code of 1986, as amended.
c.      “ Date of Termination ” shall mean
(i)
in case your employment is terminated for Total Disability, thirty (30) days after Notice of Termination is given (provided that you shall not have returned to the full-time performance of your duties during such thirty (30) day period),
(ii)
in case your employment is terminated due to your death, your date of death;
(iii)
in case your employment is Terminated for Cause, the date on which the Board adopts the resolution described in Subsection l of Section 1 of this Agreement
(iv)
in all other cases, the date specified in the Notice of Termination (which shall not be less than thirty (30) nor more than forty-five (45) days, respectively, from the date such Notice of Termination is given).
d.      “ Good Reason for Resignation ” shall mean, without your express written consent, any of the following:
(i)
a change in your status or position with the Company which in your reasonable judgment does not represent a promotion from your status or position immediately prior to the Change in Control, or the assignment to you of any duties or responsibilities or diminution of duties or responsibilities

3

which in your reasonable judgment are inconsistent with your status or position with the Company in effect immediately prior to the Change in Control, it being understood that any of the foregoing in connection with termination of your employment due to your death or Total Disability or your Termination for Cause shall not constitute Good Reason for Resignation;
(ii)
a reduction by the Company in the annual rate of your base salary as in effect immediately prior to the date of the Change in Control or as the same may be increased from time to time thereafter, unless such reduction is part of a policy, program or arrangement that is applicable on a nondiscriminatory basis to you and other similarly situated executives employed by the Company or its successors;
(iii)
the Company relocates your principal office to a location where the distance between your primary residence and your new principal office is more than 50 miles greater than the distance between your primary residence and your principal office location as of the date immediately prior to the Change in Control;
(iv)
the failure by the Company to continue in effect compensation or benefit plans in which you participate, which in the aggregate provide you compensation opportunities and benefits at least substantially equivalent to those prior to the Change in Control, but excluding any reduction in compensation opportunities and/or benefits that is part of a policy, program or arrangement that is applicable on a nondiscriminatory basis to you and other similarly situated executives employed by the Company or its successors;
(v)
the failure of the Company to obtain a satisfactory agreement from any Successor (as defined in Subsection 4a hereof) to assume and agree to perform this Agreement, as contemplated in Subsection 4a hereof;
(vi)
any purported termination of your employment which is not effected pursuant to a Notice of Termination satisfying the requirements hereof; for purposes of this Agreement, no such purported termination shall be effective for any purpose except to constitute a Good Reason for Resignation.
Notwithstanding the foregoing, Good Reason for Resignation shall not exist unless you provide the Company with a Notice of Termination not later than 60 days after the occurrence of the event giving rise to your Good Reason for Resignation and the Company fails to remedy such condition to your reasonable satisfaction within 30 days of such notice.
e.      “ Incentive Compensation ” means any compensation, variable compensation, incentive compensation, bonus or award paid or payable under an Incentive Compensation Plan.
f.      “ Incentive Compensation Plan ” shall mean any plan, program or arrangement for the payment of variable compensation, bonus, benefits or awards maintained by the Company,

4

in which awards are paid in cash including, but not limited to, the 2002 Praxair, Inc. Variable Compensation Plan, or any successor plan thereto, in which you are eligible to participate.
g.      “ Notice of Termination ” shall mean a written notice as provided in Section 9 hereof.
h.      “ Pension Plan ” shall mean the Praxair Pension Plan, as it may be amended prior to a Change in Control.
i.      “ Pension Program ” shall mean the Pension Plan plus any excess or supplemental pension plans maintained by the Company.
j.      “ Account-Based Participant ” shall mean a participant in the Pension Plan accruing an Account-Based benefit under the Pension Plan.
k.      “ Traditional-Design Participant ” shall mean a participant in the Pension Plan accruing a benefit under the Pension Plan other than an Account-Based benefit.
l.      “ Termination for Cause ” shall mean termination of your employment upon your willfully engaging in conduct demonstrably and materially injurious to the Company, monetarily or otherwise, provided that there shall have been delivered to you a copy of a resolution duly adopted by the unanimous affirmative vote of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice to you and an opportunity for you, together with your counsel, to be heard before the Board), finding that in the good faith opinion of the Board you were guilty of the conduct set forth and specifying the particulars thereof in detail.
For purposes of this Subsection, no act, or failure to act, on your part shall be deemed “willful” unless done, or omitted to be done, by you not in good faith and without reasonable belief that your action or omission was in the best interest of the Company. Any act or failure to act based upon authority given pursuant to a resolution duly adopted by the Board or based upon the advice of counsel for the Company shall be conclusively presumed to be done or omitted to be done by you in good faith and in the best interests of the Company.
m.      “ Total Disability ” shall mean that based on objective medical evidence, as the result of an illness or injury, you cannot perform the essential functions of your regular job for a period of six months or more, with or without an accommodation; and you are under the “regular and appropriate care” of a physician. “Regular and Appropriate Care” means that you are being treated by a physician as often as is medically required, and are receiving care that conforms to generally accepted medical standards for treating the sickness or injury; is consistent with the stated severity of the medical condition to effectively treat this illness or injury; and is provided by a physician whose specialty or experience is the most appropriate for the disability according to generally accepted medical practices.
n.      “ Variable Compensation Year ” means a calendar or fiscal plan year of any Incentive Compensation Plan.

5

2.      Compensation Upon Termination . Following a Change in Control, you shall be entitled to the following benefits:
a.      Termination Benefits . If, during the term of this Agreement (as defined in Section 3), your employment by the Company is terminated subsequent to a Change in Control and under circumstances that would qualify as a “separation from service” under Code Section 409A, (a) by the Company other than a Termination for Cause, or (b) by you with Good Reason for Resignation, then you shall be entitled to the benefits provided below, without regard to any contrary provision of any plan:
(i)
Accrued Salary . The Company shall pay you within the timeframe required under applicable law, your full base salary and vacation pay accrued through your Date of Termination at the rate in effect at the time the Notice of Termination is given (or at the rate in effect immediately prior to the Change in Control, if such amounts was higher).
(ii)
Accrued Incentive Compensation . The Company shall pay you, not later than thirty (30) days following your Date of Termination, the amount of your accrued Incentive Compensation, determined as the sum of:
(a) if your Date of Termination is after the end of a Variable Compensation Year, but before Incentive Compensation for said Variable Compensation Year has been paid, the Company shall pay you as Incentive Compensation for that Variable Compensation Year an amount equal to your actual Incentive Compensation payment for such Variable Compensation Year, determined using both your and the Company’s actual performance for such Variable Compensation Year, but in no event shall your individual performance factor for purposes of such determination, if applicable, be less than 1.0; plus
(b) if your Date of Termination is other than the first day of a Variable Compensation Year, the Company shall pay you, as Incentive Compensation for the Variable Compensation Year in which your Date of Termination occurs, an amount equal to your target Incentive Compensation payment for such Variable Compensation Year (or if higher, your target Incentive Compensation payment for the year in which the Change in Control occurred), multiplied by a fraction, the numerator of which is the total number of days which have elapsed in the current Variable Compensation Year to your Date of Termination, and the denominator of which is three hundred sixty-five (365).
If there is more than one Incentive Compensation Plan, your accrued Incentive Compensation under each Plan shall be determined individually.
(iii)
Insurance Coverage . The Company shall arrange to provide you (and your dependents, if applicable) with life, accident and health insurance benefits substantially equivalent to those which you are receiving or entitled to receive immediately prior to the Change in Control. Such insurance benefits shall

6

be provided to you for the longer of (x) twenty four (24) months after your Date of Termination, or (y) the period during which such insurance benefits would have been provided to you, as a terminated employee, under the applicable life insurance, medical, health and accident plans of the Company in effect immediately prior to the Change in Control. Benefits provided pursuant to this Subsection for the first twenty four (24) months after your Date of Termination shall be provided at no cost to you and any benefits provided after such twenty four (24) month period shall be provided to you on the same financial terms and conditions as provided for under the respective plans.
Should it be determined that any of the medical benefits to be provided to you under this Subsection 2a(iii) could be included in your gross income for federal, state or local tax purposes, then the following shall apply:
(a) If you are at least age 48 with at least eight (8) years of service with the Company on your Date of Termination, then you shall participate in the Company’s retiree medical benefit plans as if you retired from the Company on your Date of Termination with eligibility for such plans, except that the Company shall provide such medical coverage at no cost to you for two (2) years following your Date of Termination and thereafter, you shall participate therein on the same terms as other retired employees (to the extent these benefits are provided by the Company’s self-insured plan, any reimbursements for claims incurred shall be made as soon as practicable, but in no event can they be made later than the end of the calendar year following the calendar year in which the claim was incurred);
(b) If you are not at least age 48 or do not have at least eight (8) years of service upon your Date of Termination, you will no longer continue to participate in the Company’s medical benefit plans, except for COBRA, and (i) if you elect to receive COBRA benefits, the Company shall provide you with such benefits at no cost to you for the first eighteen (18) months following your loss of medical coverage, and thereafter, (ii) the Company shall, for the subsequent six (6) months, purchase for you, at its cost, a policy of medical insurance providing benefits substantially similar to the benefits you would have received under the Company’s medical benefit plans.
(iv)
Retirement Benefits .
A.
If you are a Traditional-Design Participant, the provisions of this Subsection 2a(iv)A shall apply to you.
The Company shall pay you, at the time you are entitled to be paid a retirement pension under the Pension Program, a retirement pension equal to the greater of (x) an amount computed in accordance with the terms of the Pension Program in effect immediately prior to the Change in Control and as if those terms were in effect on your Date

7

of Termination, or (y) an amount computed in accordance with the terms of the Pension Program in effect immediately prior to your Date of Termination, in either case less the amount of retirement pension actually to be paid to you under the Pension Program. In computing the amounts of your retirement pension under clauses (x) and (y) of this Subsection, two (2) years shall be added to your actual age and to your actual Company service credit under the Pension Program so that your retirement pension under clauses (x) and (y) will be the amount it would have been if you had been two (2) years older than you actually were, and had two (2) years more Company service credit than you actually had, on your Date of Termination.
If for any reason, the benefits under this Subsection cannot be paid under the tax-qualified portion of the Pension Program, the Company shall pay such benefits to you in a lump sum, not later than thirty (30) days after your Date of Termination, calculated under such one of the following options as would produce the highest lump sum payment: (a) calculated under the same factors (interest rate and mortality) as lump sum payments were made under the Company’s Supplemental Retirement Income Plans and Equalization Benefit Plan in effect immediately prior to a Change in Control; (b) calculated under the same factors (interest rate and mortality) as total lump sum payments are made under the Company’s Supplemental Retirement Income Plans and Equalization Benefit Plan, or other similar plans, as in effect on your Date of Termination; or (c) calculated under the same factors (interest rate and mortality) as lump sum payments would have been calculated under the Company’s Supplemental Retirement Income Plans and Equalization Benefit Plan on your Date of Termination, if such factors were determined using the same methodology as such plans used prior to the Change in Control.
B.
If you are an Account-Based Participant the provisions of this Subsection 2a(iv)B shall apply to you.
To provide benefits to you which are equivalent to the benefits you would have received under the Pension Program for the two (2) years following your Date of Termination, the Company shall pay you an amount equal to four percent (4%) of your Compensation (as defined in the Pension Plan but without regard to the limitations of Code Section 401(a)(17) and including amounts deferred by you under any Praxair compensation deferral program) paid for the year prior to the Change in Control or the year prior to your Date of Termination, whichever is greater, multiplied by two (2). Such amount shall be paid to you not later than the thirtieth (30 th ) day following your Date of Termination.

8

(v)
Severance Payment . The Company shall pay as severance pay to you, not later than the thirtieth (30 th ) day following your Date of Termination, a lump sum severance payment (the “Severance Payment”) equal to two (2) times the sum of the following:
(a) the greater of your annual base compensation which was payable to you by the Company immediately prior to your Date of Termination and your annual base compensation which was payable to you by the Company immediately prior to a Change in Control, whether or not such annual base compensation was includible in your gross income for federal income tax purposes; plus
(b) the amount of your target Incentive Compensation payment for the Variable Compensation Year in which the Change in Control occurs, or if higher, your target Incentive Compensation payment for the Variable Compensation Year in which your Date of Termination occurs.
(vi)
Excise Tax .
(a)    For purposes of this Subsection 2a(vi), the following terms shall have the following meanings:
(I)
Payment shall mean any payment or distribution (or acceleration of benefits) by the Company to or for your benefit (whether paid or payable or distributed or distributable (or accelerated) pursuant to the terms of this Agreement or otherwise). In addition, Payment shall mean the amount of income deemed to be received by you as a result of the acceleration of the exercisability of any of your options to purchase stock of the Company or the acceleration of the lapse of any restrictions on performance stock or restricted stock of the Company held by you or the acceleration of any payment from any deferral plan of the Company.
(II)
Excise Tax shall mean the excise tax imposed by Section 4999 of the Code.
(b) In the event it shall be determined that the amount of any Payments payable to you would constitute an “excess parachute payment,” within the meaning of Section 280G of the Code, subject to the Excise Tax, then the amount of the Payments payable to you under this Agreement shall be reduced (a “Reduction”) to the extent necessary so that no portion of such Payments payable to you is subject to the Excise Tax, but only if the effect of such Reduction would be to place you in a better after-tax economic position than you would have been in had no such Reduction been effected. In the event a Reduction is required, the payments to be reduced will be determined in a manner which has the least economic cost to you and, to the extent the economic cost is equivalent, will be reduced in the

9

inverse order of when payment would have been made to you until the Reduction is achieved.

(c)    All determinations required to be made under this Subsection 2a(vi), including whether and when an Excise Tax or a Reduction is required and the amount of such Excise Tax or Reduction and the assumptions to be utilized in arriving at such determination, shall be made by the public accounting or actuarial consulting firm that is retained by the Company (the “Firm”) which shall provide detailed supporting calculations both to the Company and to you within fifteen (15) business days of the receipt of notice from you that there has been a Payment, or such earlier time as is requested by the Company (collectively, the “Determination”). In no event may the Firm retained by the Company be serving as accountant, auditor or consultant for the individual, entity or group affecting the Change in Control. All fees and expenses of the Firm shall be borne solely by the Company. If the Firm determines that no Excise Tax is payable by you, you may request the Firm to furnish you with a written opinion that failure to report the Excise Tax on your applicable federal income tax return would not result in the imposition of a negligence or similar penalty. The Determination by the Firm shall be binding upon the Company and you.
(vii)
No Duty to Mitigate . You shall not be required to mitigate the amount of any payment provided for in this Section 2 by seeking other employment or otherwise, nor shall the amount of any payment or benefit hereunder be reduced by any compensation earned by you as the result of employment by another employer or by retirement benefits after your Date of Termination, provided, however, should you become reemployed in a job which (a) offers medical plan benefits which are equal to or greater than the medical plan benefits provided to you under Subsection 2a(iii), and (b) such medical plan benefits are offered to you at no cost, you shall no longer be eligible to receive medical plan benefits under this Agreement.
(viii)
Six Month Delay . Notwithstanding any provision of this Agreement to the contrary, and only to the extent necessary to comply with Section 409A of the Code, if, as of your Date of Termination, you are considered a Specified Employee (as such term is defined in Section 409A of the Code) the payments due you which are described in Subsections 2a(ii), 2a(iii), 2a(iv), and 2a(v) shall not be paid until the expiration of the six month period immediately following your Date of Termination (the “Delay Period”) and, at the conclusion of such Delay Period, any amounts that would have been payable during such Delay Period under these Subsections but for this Subsection 2a(viii), shall be paid in a single sum.
b.      Payments While Disabled . During any period prior to your Date of Termination and during the term of this Agreement (as defined in Section 3) that you are unable to perform your full‑time duties with the Company, whether as a result of your Total Disability or as a result of

10

a physical or mental disability that is not total or is not permanent and therefore is not a Total Disability, you shall continue to receive your base salary at the rate in effect at the commencement of any such period (reduced by the amount of any short term disability or salary continuation benefits payable on account of your disability under any Company plan, program or arrangement), together with all other compensation and benefits that are payable or provided under the Company’s benefit plans, including its disability plans. After your Date of Termination, your benefits shall be determined in accordance with the Company’s Pension Program, insurance and other applicable programs. The compensation and benefits, other than salary, payable or provided pursuant to this Subsection 2b shall be the greater of (x) the amounts computed under the Pension Program, disability benefit plans, insurance and other applicable programs in effect immediately prior to the Change in Control and (y) the amounts computed under the Pension Program, disability benefit plans, insurance and other applicable programs in effect at the time the compensation and benefits are paid.
c.      Payments if Terminated for Cause or by You Without Good Reason for Resignation . If, during the term of this Agreement (as defined in Section 3), your employment by the Company shall be Terminated for Cause or by you other than with Good Reason for Resignation, the Company shall pay you within the timeframe required under applicable law, your full base salary and accrued vacation pay through your Date of Termination, at the rate in effect at the time Notice of Termination is given. Thereafter the Company shall have no further obligation to you under this Agreement. Any other benefits due to you and/or beneficiaries shall be determined in accordance with the Company’s Pension Program and other applicable retirement, benefit and insurance programs, then in effect.
d.      After Death . If, during the term of this Agreement (as defined in Section 3), your employment by the Company is terminated by reason of your death, the Company shall pay to your estate within the timeframe required under applicable law, your full base salary and accrued vacation pay through your Date of Termination, at the rate then in effect. Any other benefits due to you, your estate and/or beneficiaries shall be determined in accordance with the Company’s Pension Program and other applicable retirement, benefit and insurance programs, then in effect.
e.     Payments Conditioned Upon Release . In addition to all other requirements set forth in this Agreement, as a condition of receiving the termination benefits described in Subsections 2a and 2b (other than the payment of accrued salary under Subsection 2a(i)) you must first sign a general release in the form attached hereto as Exhibit A (or such other mutually acceptable form), which shall be provided to you no later than two (2) days after your Date of Termination and must be executed by you, become effective and not be revoked by you by the twenty-eighth (28 th ) day following the date you receive such general release. If such release does not become effective within that timeframe or you revoke such release or otherwise repudiate it or breach its terms at any time, all termination benefits payable under Subsections 2a (other than accrued salary under Subsection 2a(i)) and 2b shall be suspended and you shall immediately repay to the Company any such termination benefits that were previously paid to you or on your behalf. Such suspended/repaid termination benefits shall only be paid if they are found to be payable by a final decision of a court. In the absence of such a finding, the suspended/repaid termination benefits shall be forfeited. In no event may you, directly or indirectly, designate the calendar

11

year of any payment to be made under this Agreement or otherwise which constitutes a “deferral of compensation” within the meaning of Section 409A of the Code.  In addition, to the extent payments under this Agreement that are contingent upon your execution of the general release described above constitute deferred compensation for purposes of Section 409A and your execution period for the general release shall commence in one tax year and end in the subsequent tax year, such payments under this Agreement shall be made solely in the subsequent tax year.
3.      Term of Agreement . This Agreement shall become effective as of [INSERT], 201_, if, and only if, you have executed and returned to Praxair the Nondisclosure, Nonsolicitation and Noncompetition agreement previously provided to you, and shall thereafter continue in effect through December 31, 201_; provided, however, that commencing on January 1, 201_ and each January 1 thereafter, the term of this Agreement shall automatically be extended for one additional year unless, not later than September 30 of the preceding year, the Company or you shall have given notice that it or you do not wish to extend this Agreement. Notwithstanding any such notice by the Company or you not to extend this Agreement, if a Change in Control shall have occurred:
(a) during the original or extended term of this Agreement or,
(b) after this Agreement has been terminated, but within twelve months after such notice to terminate the Agreement is given by the Company,
the attempted termination of the Agreement shall be deemed ineffective and this Agreement shall continue in effect. In any event, the term of this Agreement shall expire on the second (2nd) anniversary of the date of the Change in Control. Notwithstanding any provision in this Agreement to the contrary, this Agreement shall terminate immediately if your employment is terminated by you or the Company prior to a Change in Control, or if your position is changed prior to a Change in Control so that you are no longer an officer of the Company entitled by virtue of your position to have this Agreement and, in either case, the provisions of subsection (b) of this Section 3 shall not be applicable.
4.      Successors; Binding Agreement .
a.      Successors of the Company . The Company will require any Successor to all or substantially all of the business and/or assets of the Company to expressly assume and agree, by an agreement in form and substance reasonably satisfactory to you, to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such assent at least five business days prior to the time a person becomes a Successor (or where the Company does not have at least five business days advance notice that a person may become a Successor, within three business days after having notice that such person may become or has become a Successor) shall constitute Good Reason for Resignation by you and, if a Change in Control has occurred or thereafter occurs, shall entitle you immediately to the benefits provided in Subsection 2a hereof upon delivery by you of a Notice of Termination which the Company, by executing this Agreement, hereby assents to. For purposes of this Agreement, “Successor” shall mean any person that purchases all or substantially all of the assets of the Company or the Surviving Corporation (and Parent Corporation, if applicable) or obtains or succeeds to, or has the practical ability to control (either immediately or with the passage of time), the Company’s business

12

directly, by merger or consolidation, or indirectly, by purchase of voting securities of the Company or by acquisition of rights to vote voting securities of the Company or otherwise, including but not limited to any person or group that acquires the beneficial ownership or voting rights described in Subsection 1a(ii).
b.      Your Successor . This Agreement shall inure to the benefit of and be enforceable by your personal or legal representatives, executors, administrators, successors, heirs, distributees, devises and legatees. If you should die following your Date of Termination while any amount would still be payable to you hereunder if you had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to your devisee, legatee or other designee or, if there is no such designee, to your estate.
5.      Relationship to Other Agreements . To the extent that any provision of any other agreement between the Company and you shall limit, qualify or be inconsistent with any provision of this Agreement, then for purposes of this Agreement, while the same shall remain in force, the provision of this Agreement shall control and such provision of such other agreement shall be deemed to have been superseded, and to be of no force or effect, as if such other agreement had been formally amended to the extent necessary to accomplish such purpose.
6.      Nature of Payments . All payments to you under this Agreement shall be considered either payments in consideration of your continued service to the Company or severance payments in consideration of your past service to the Company.
7.      Validity . The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.
8.      Counterparts . This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument.
9.      Notice . Any purported termination of your employment by the Company or by you following a Change in Control shall be communicated to the other party by a Notice of Termination. A Notice of Termination shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of your employment under the provision so indicated. For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth on the first page of this Agreement, provided that all notices to the Company shall be directed to the attention of the Board with a copy to the Secretary of Praxair or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt.
10.      Fees and Expenses . Praxair shall pay all reasonable legal fees and related expenses incurred by you as a result of your termination following a Change in Control or by you in seeking to obtain or enforce any right or benefit provided by this Agreement (including all reasonable fees

13

and expenses, if any, incurred in contesting or disputing any such termination or incurred by you in seeking advice in connection therewith); provided that such fees are incurred no later than the end of the second calendar year after the year of your Date of Termination. Any such payments will be made as soon as practicable but in no event can they be made later than the end of the calendar year following the calendar year in which the fee or expense was incurred.
11.      Survival . The respective obligations of, and benefits afforded to, the Company and you as provided in Sections 2, 4, 5, 6, 10 and 11 of this Agreement shall survive termination of this Agreement.
12.      Miscellaneous . No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by you and such officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement.
13.      Governing Law . The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Connecticut.
14.      Amendment . No amendment to this Agreement shall be effective unless in writing and signed by both you and the Company.
15.      Duplicate Payments . If the national laws of any country require any payments to you by the Company or any of its subsidiaries or affiliates as a result of your termination due to a Change in Control, the amount of any such payment shall be deducted from any payment due to you under this Agreement. It is expressly stated as the Company’s intent under this Agreement that the amount you receive from the Company as a result of your termination due to a Change in Control shall be limited to the amount calculated as provided in this Agreement. This Section does not limit your ability, without offsetting reductions to the Company’s payment obligation, to receive government payments for which you may be eligible as a result of the termination of your employment.
16.     Tax Withholding . The Company shall withhold from all amounts payable under this Agreement any federal, state, local or other taxes that the Company, in its sole discretion, determines to be appropriate under applicable law.
If this letter sets forth our agreement on the subject matter hereof, kindly sign and return to the Company the enclosed copy of this letter which will then constitute our agreement on this subject.
    

14

Sincerely,
PRAXAIR, INC.
            
By:
[NAME]
__________________________________
Title:    [TITLE]




Agreed to this __ day
of __________, 201_


    
(signature)



15
EXHIBIT A

GENERAL RELEASE

1. In consideration of the promises and termination benefits payable pursuant to the Praxair, Inc. Severance Compensation Agreement between me and Praxair, Inc., and dated as of [INSERT], 201_, I, [INSERT NAME], for myself and on behalf of my heirs, assigns, successors, executors and administrators, hereby fully and irrevocably release and discharge Praxair, Inc., its predecessors, successors, parents, affiliates, divisions and subsidiaries and, in their capacities as such, all of their present, past, and future directors, officers, employees, representatives, attorneys, insurers, reinsurers, agents and assigns (collectively, “Praxair”), from any and all manner of claims, complaints, causes of action, grievances, liabilities, obligations, promises, damages, agreements, rights, debts and expenses (including attorney’s fees and costs), of every kind, either at law or in equity, whether known or unknown, suspected or unsuspected, relating to my employment or separation from employment with Praxair, arising at any time up to and including the date of the execution of this General Release. This includes any claims under any federal, state, local or municipal law, regulation or decision, including, but not limited to, claims arising under Title VII of the Civil Rights Acts of 1964 and 1991, the Age Discrimination in Employment Act, the Americans with Disabilities Act of 1990, the Family and Medical Leave Act, any applicable Executive Order Programs, the Fair Labor Standards Act, or their state or local counterparts, as well as any common law claims, including but not limited to claims for discrimination, retaliation, wrongful discharge, breach of contract, infliction of emotional distress, defamation, negligent hiring and/or supervision, or any allegation or claim arising under any policies, practices or procedures of Praxair, or any public policy. It is expressly agreed and understood that this release is a GENERAL RELEASE.

2. I acknowledge that:

(a)
I have read this document, and I understand its legal and binding effect. I am acting voluntarily and of my own free will in executing this release.
(b)
The consideration for this release is in addition to anything of value to which I already am entitled.
(c)
I have had the opportunity to seek and have consulted with legal counsel prior to signing this release.
(d)
I have been given at least 21 days to consider the terms of this release before signing it. In the event that I sign this release before the expiration of the 21-day period, I acknowledge that I have freely chosen to waive the 21-day period.
3. I understand that if I sign this release, I can change my mind and revoke it within seven days after signing it by sending a written revocation notice by overnight and certified mail to:
Praxair, Inc.
Vice President Human Resources
39 Old Ridgebury Rd.
Danbury, CT 06810

16

EXHIBIT A


I have read and understand the General Release set forth above and agree to be bound by its terms.


Signature:___________________________________
Name:     ___________________________________

Date: ______________________________________



17




Praxair, Inc. and Subsidiaries
EXHIBIT 10.05e

SECOND AMENDMENT TO THE
PRAXAIR, INC.
SUPPLEMENTAL RETIREMENT INCOME PLAN B
(AS AMENDED AND RESTATED EFFECTIVE DECEMBER 31, 2007)
The Praxair, Inc. Supplemental Retirement Income Plan B (As Amended and Restated Effective December 31, 2007) (the “Plan”) is hereby amended, effective as of July 1, 2012, as follows:
1. The second paragraph of the General section of the Plan is hereby amended in its entirety as follows:
“The purpose of this Plan is to provide a retirement benefit which, when combined with the benefit provided by the Pension Plan, the Praxair, Inc. Equalization Benefit Plan (the “EBP”) and the Praxair, Inc. Supplemental Retirement Income Plan A (the “SRIP A”), equals the retirement benefit which would be provided by the Pension Plan if (a) average monthly compensation included (i) deferred variable compensation payments awarded under designated incentive compensation plans and (ii) base salary deferred under the Compensation Deferral Program, and (b) the limitations of Code Sections 401(a)(17) and 415 were not applied. Employees eligible to receive benefits under this Plan are referred to herein as “Participants.” At its inception, this Plan assumed the liabilities under the Equalization Benefit Plan for Participants of the Retirement Program Plan for Employees of Union Carbide Corporation and its Participating Subsidiary Companies, with respect to employees of the Corporation.”
2. Article I Section A. of the Plan is hereby amended in its entirety as follows:
“A. Amount of SRIP B Benefit for Traditional-Design Participants .

1




Section 1 . The SRIP B Benefit hereunder payable to a Traditional-Design Participant or his or her surviving spouse shall be equal to the excess of (a) minus (b), if any, determined as of termination of employment, where (a) and (b) are defined as follows:
(a) equals the amount of such Participant’s or surviving spouse’s annual benefit under the Pension Plan computed under the provisions of the Pension Plan (but subject to the provisions of Sections A.2, A.3A and A.3B of this Article I, as applicable) without regard to the limitations of Code Sections 415 and 401(a)(17); and
(b) equals the amount of such Participant’s or surviving spouse’s annual benefit payable under the Pension Plan, the EBP and the SRIP A.
Section 2 . The amount of monthly SRIP B Benefit payable to an eligible Participant shall be computed by using the applicable formula provided in Article V of the Pension Plan except that average monthly compensation shall for this purpose be equal to an amount determined under Section A.3A or B of this Article I, as applicable, and shall be determined without regard to the limitation of Code Section 401(a)(17).
Section 3A . With respect to a Participant who terminates employment or otherwise ceases to accrue additional “Credited Service” within the meaning of the Pension Plan prior to July 1, 2012, such Participant’s average monthly compensation shall be computed by determining the sum of the following amounts:
(i)    the larger of:
(I) 1/36 of base salary related to the three full calendar years in which such salary was largest during the 10 full calendar years next preceding the earliest of the date of death, retirement, or other event

2




causing the Participant to cease accruing additional Credited Service, or
(II) 1/36 of base salary for the 36 full calendar months next preceding the earliest of the date of death, retirement, or other event causing the Participant to cease accruing additional Credited Service; provided that for purposes of this calculation the base salary received in any calendar month within the third preceding calendar year shall be the total base salary received in such year divided by the number of months worked in such year; and
(ii)    1/36 of the Participant’s Variable Compensation Payments related to the three full calendar years in which such Variable Compensation Payments were the largest during the 10 full calendar years next preceding the earliest of the date of death, retirement, or other event causing the Participant to cease accruing additional Credited Service; provided that the calendar years in which the Participant was hired or terminated employment shall each be considered a full calendar year for the purposes of this clause (ii).
    For purposes of the above calculation, a Variable Compensation Payment will be related to the calendar year in which a Participant performed the services for which the Variable Compensation Payment was paid irrespective of the calendar year in which the Variable Compensation Payment was awarded or paid.

3




For purposes of the above calculation, the amount of base salary received in any calendar month will be calculated in the same manner in which average monthly compensation used to compute pension benefits under the Pension Plan is calculated (determined without regard to Incentive Compensation as defined therein).
For purposes of the above calculation, “base salary” shall include any base salary deferred by a Participant pursuant to the terms of the Praxair Compensation Deferral Program, or any successor plan, in the calendar year in which it would otherwise have been paid to the Participant.
For purposes of the above calculations, where a Participant has less than three full calendar years of service recognized under the Plan, (i)(I) will substitute 1/24 for 1/36 if there are two full calendar years of service and 1/12 for 1/36 if there is only one full calendar year of service. In addition, (i)(II) and (ii) will utilize the actual number of months of service, if less than 36, as the denominator in the fraction.
Section 3B . With respect to a Participant who terminates employment or otherwise ceases to accrue additional “Credited Service” within the meaning of the Pension Plan after June 30, 2012, a Participant’s average monthly compensation shall be computed by determining the sum of the following amounts:
(i)
the larger of:
(I) 1/36 of the Participant’s combined base salary and Variable Compensation Payments related to the three full calendar years in which such combined base salary and Variable Compensation

4




Payments was largest during the 10 full calendar years next preceding the date of death or retirement, or
(II) 1/36 of the Participant’s combined base salary and Variable Compensation Payments for the 36 full calendar months next preceding the date of death or retirement; provided that for purposes of this calculation (i) the base salary received in any calendar month within the third preceding calendar year shall be the total base salary received in such year divided by the number of months worked in such year and (ii) Variable Compensation Payments shall be the amount related to the three full calendar years next preceding the date of retirement or death.
    For purposes of the above calculation:
•
a Variable Compensation Payment will be related to the calendar year in which a Participant performed the services for which the Variable Compensation Payment was paid irrespective of the calendar year in which the Variable Compensation Payment was awarded or paid;
•
the amount of base salary and Variable Compensation Payment received in any calendar month will be calculated in the same manner in which average monthly compensation used to compute pension benefits under the Pension Plan is calculated (determined with regard to Incentive Compensation as defined therein);

5




•
“base salary” shall include any base salary deferred by a Participant pursuant to the terms of the Praxair Compensation Deferral Program, or any successor plan, in the calendar year in which it would otherwise have been paid to the Participant; and
•
where a Participant has less than three full calendar years of service recognized under the Plan, (i)(I) will substitute 1/24 for 1/36 if there are two full calendar years of service and 1/12 for 1/36 if there is only one full calendar year of service. In addition, (i)(II) will utilize the actual number of months of service, if less than 36, as the denominator in the fraction.
In no event shall the amount of the aggregate benefit payable to a Traditional-Design Participant or his or her surviving spouse under the Pension Plan, EBP, SRIP A and/or this Plan and commencing payment after June 30, 2012 be less than the amount of such Participant’s or surviving spouse’s aggregate benefit under the Pension Plan, EBP, SRIP A and/or this Plan, determined as if the Participant had retired or otherwise terminated employment as of June 30, 2012, in accordance with their respective terms as then in effect, including Section A.3A of this Article I, provided, however, that the Variable Compensation Payment made with respect to services performed in 2012, if any, shall not be considered for purposes of such calculation.
Section 4 . If the SRIP B Benefit payable to a Participant under this Plan commences in the form of an annuity before the award to such Participant of a Variable Compensation Payment (whether or not paid) which may be used to determine average monthly compensation under Section A.3A or A.3B of this Article I, as applicable, the monthly amount of SRIP B Benefit payable hereunder shall be recalculated after such Variable Compensation

6




Payment is awarded (whether or not paid). The monthly amount of any additional SRIP B Benefit resulting from said recalculation shall be paid commencing in or before the third calendar month after the month in which such Variable Compensation Payment is awarded (provided that the first monthly payment of such recalculated SRIP B Benefit shall be adjusted (without interest) to reflect any prior underpayment of SRIP B Benefit resulting from the fact that such Variable Compensation Payment was not included in the initial calculation of SRIP B Benefit), or if earlier, with the lump sum payment described in Article III.
Section 5 . For purposes of calculating the amount of a Participant’s SRIP B Benefit pursuant to Section A.1 of this Article I, the amount of a Participant’s monthly retirement income and monthly pension under the Pension Plan, the EBP and the SRIP A shall be determined without any adjustment on account of (i) a survivor’s benefit or (ii) an election to receive level retirement income.”


PRAXAIR, INC.
By: /s/ Sally Savoia
Date: 6/29/2012

7

2013 PSU Agreement – U.S. (EPS)


Praxair, Inc. and Subsidiaries
EXHIBIT 10.24b

PERFORMANCE SHARE UNIT AWARD
UNDER THE
2009 PRAXAIR, INC.
LONG TERM INCENTIVE PLAN

Effective as of INSERT DATE (the “Grant Date”), [___] (the “Participant”) is hereby granted the following Performance Share Unit Award under the 2009 Praxair, Inc. Long Term Incentive Plan (the “Plan”), subject to the terms and conditions of the Plan, which are incorporated herein by reference, and those set forth below. The Plan shall control in the event of any conflict between the terms and conditions of the Plan and those set forth in this Award.

This Award has been conveyed and will be managed online, and the Participant’s online acceptance and acknowledgement of this Award constitutes his or her acceptance of all of the terms and conditions of the Plan and this Award. A copy of the Plan has been made available to the Participant, and the Participant hereby acknowledges that he or she has read and understands the Plan and this Award.

Capitalized terms used herein and not defined shall have the meanings set forth in the Plan, as the same may be amended from time to time. For purposes of this Award, Praxair, Inc. (the “Company”) and its Subsidiaries are collectively referred to herein as “Praxair.”

1.
Award of Performance Share Units, Performance Measure and Performance Period. The Participant is hereby granted an Award of [___] notional “Performance Share Units” (the “Award”). A Performance Share Unit is a bookkeeping entry which is intended to be equal in value to a single Share. For purposes of this Award, [___] Performance Share Units are considered the Participant’s “Target Amount.” Except as otherwise provided herein, the payment due in settlement of the Participant’s vested Award shall be made in the form of Shares, with the number of Shares payable determined by reference to the Company’s cumulative earnings per share (“EPS”) growth for the [__]-year period commencing on [___] and ending on [___] (the “Performance Period”) as set forth below. For purposes of this Award, EPS shall mean the Company’s adjusted diluted EPS as reported in its quarterly and annual Consolidated Financial Statements and the related Notes.

2.
Vesting of Award; Treatment upon Termination of Service; Change in Control.
a.
Vesting Generally. Except as otherwise provided in this Section 2, this Award shall vest on the [___] anniversary of the Grant Date, provided that: (i) the Participant has remained continuously employed by Praxair at all times from the Grant Date through the third anniversary of the Grant Date; and (ii) the Company’s cumulative EPS growth for the Performance Period meets the minimum threshold Performance Goal for payout set forth in Section 3.a. Payment with respect to such vested Award shall be determined and made in accordance with Section 3.a.
b.
Death or Disability. Notwithstanding any provision of this Section 2 to the contrary, if after the Grant Date, but prior to the third anniversary of the Grant Date:
(i)
the Participant’s employment with Praxair terminates by reason of the Participant’s death; or
(ii)
the Participant becomes Totally and Permanently Disabled while employed by Praxair;
this Award shall become immediately vested and payment with respect to such vested Award shall be determined and made in accordance with Section 3.b. For purposes of this Award, a Participant shall be “Totally and Permanently Disabled” if the Participant is determined by Praxair to be unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months.
c.
Termination by Action of Praxair Other than for Cause, or Termination After Attaining Certain Age and Service Requirements. Notwithstanding any provision of this Section 2 to the contrary, in the event the Participant’s employment with Praxair terminates on or after the first anniversary of the Grant Date, but prior to the third anniversary of the Grant Date, by reason of the Participant’s:

1



(i)
termination of employment by action of Praxair other than for cause and not due to the Participant’s Total and Permanent Disability; or
(ii)
termination of employment with Praxair, other than for cause and not due to the Participant’s Death or Total and Permanent Disability, after: (a) attaining age 65; (b) attaining age 62 and completing at least ten (10) years of employment with Praxair; or (c) having accumulated 85 points, where each year of the Participant’s age and each year of employment with Praxair count for one point,
this Award shall vest on the third anniversary of the Grant Date, provided that the Company’s cumulative EPS growth for the Performance Period meets the minimum threshold Performance Goal for payout set forth in Section 3.a. Payment with respect to such vested Award shall be determined and made in accordance with Section 3.a. For purposes of this Award, the Participant’s termination by action of Praxair for cause, shall include, but not be limited to, the Participant’s termination by action of Praxair for violation of Praxair’s Standards of Business Integrity or poor performance.
d.
Change in Control. Notwithstanding any provision of this Section 2 to the contrary, except to the extent that a Replacement Award meeting the conditions set forth below is provided to the Participant to replace this Award, this Award shall become immediately vested upon the occurrence of a Change in Control prior to the third anniversary of the Grant Date, and payment with respect to such vested Award shall be determined and made in accordance with Section 3.c.
(iii)
Except as otherwise provided herein, a “Replacement Award” means an award: (a) of time-vested restricted stock or restricted stock units having a value at the time the Replacement Award is granted at least equal to that of the Target Amount and vesting no later than the time that this Award would have vested pursuant to this Section 2 disregarding the cumulative EPS growth attained over the Performance Period; (b) relating to publicly traded equity securities of the Company or its successor in the Change in Control or another entity that is affiliated with the Company or its successor following the Change in Control; (c) which shall also become fully vested, free of restrictions and/or payable upon the Participant’s termination of employment occurring in connection with or during the period of two (2) years immediately after such Change in Control, other than for cause; and (d) with such other terms and conditions that are not less favorable to the Participant than the terms and conditions of this Award (including the provisions that would apply in the event of a subsequent Change in Control).
(iv)
If, immediately following the occurrence of a Change in Control, Shares of Praxair, Inc. common stock continue to be publicly traded, a Replacement Award may, in the sole discretion of the Committee, take the form of a continuation of this Award, subject to such adjustments as the Committee shall determine to be necessary to ensure that such Replacement Award remains no less favorable to the Participant than this Award.
(v)
The determination of whether the conditions of this Section 2.d. are satisfied shall be made by the Committee in its sole discretion. All references to the Committee in this Section 2.d. shall mean the Committee as constituted immediately before the Change in Control.
e.
Materially Adverse and Unforeseen Market Conditions. Notwithstanding any provision of this Section 2 to the contrary, in the event that upon the completion of the Performance Period, it is determined by the Committee that the Company’s cumulative EPS growth for the Performance Period:
(vi)
does not meet the minimum threshold Performance Goal for payout set forth in Section 3.a. as a result of materially adverse and unforeseen market conditions beyond the control of the Company and its employees, officers and directors occurring during the Performance Period; and
(vii)
exceeds the average cumulative growth in operating earnings of the companies listed in the materials sector (Global Industry Classification Standard 15) of the S&P 500 index for the same Performance Period;
then, to the extent not previously vested pursuant to Sections 2.b. or 2.d., or forfeited in connection with the Participant’s termination of employment with Praxair pursuant to Section 2.f.(i), this Award shall vest on the third anniversary of the Grant Date unless otherwise determined by the Committee

2



in its sole discretion, and payment with respect to such vested Award will be made in accordance with Section 3.d.

f.
Forfeiture of Award.
(viii)
In the event the Participant’s employment with Praxair terminates for any reason other than those specifically set forth in Sections 2.b. or 2.c. prior to the third anniversary of the Grant Date and before the occurrence of a Change in Control, this Award shall be immediately forfeited.
(ix)
Absent the occurrence of a Change in Control occurring prior to the third anniversary of the Grant Date, and to the extent not previously forfeited pursuant to Section 2.f.(i), this Award shall be immediately forfeited as of the end of the Performance Period if either: (1) the Company’s cumulative EPS growth for the Performance Period does not meet the minimum threshold Performance Goal for payout set forth in Section 3.a. and the Committee determines that Section 2.e. does not apply; or (2) the Committee determines that Section 2.e. does apply but exercises its discretion pursuant to such Section not to vest the Award.
(x)
In the event this Award is forfeited for any reason, no payment shall be made in settlement of the Award.

3.
Payment of Vested Award.
a.
Performance Goal and Determination of Amount of Payment. Except as otherwise provided in this Section 3, the number of Shares payable in settlement of the Participant’s vested Award shall be determined by reference to the Company’s cumulative EPS growth for the Performance Period in accordance with the table below, and may range from 0% to 200% of the Participant’s Target Amount. Each Performance Share Unit is equivalent to one Share. Payouts will be interpolated if the cumulative EPS growth attained for the Performance Period falls between the Threshold and Maximum percentages specified in the table, and will be rounded down to the nearest whole number of Shares. The payment of Shares pursuant to this Section 3.a. will be made as soon as practicable after the date the Award becomes vested, but in no event later than December 31, 2016.

Cumulative EPS Growth For Performance Period
EPS Target)
Payout as Percentage of Target Amount
Less than [__]%
[$___] or less
0%
[__]% (Threshold)
[$___]
50%
[__]% (Target)
[$___]
100%
[__]% or More (Maximum)
[$___] or more
200%

b.
Determination of Amount of Payment Following Death or Total and Permanent Disability. In the event the Participant becomes vested in this Award by reason of his or her death or Total and Permanent Disability in accordance with Section 2.b., this Award shall be settled by payment of a number of Shares equal to the Participant’s Target Amount as soon as practicable following the date the Award becomes vested, but in no event later than March 15 th of the year following the year in which the Award becomes vested.
c.
Determination of Amount of Payment Following a Change in Control Where no Replacement Award is Made. In the event the Participant becomes vested in this Award as the result of the failure to provide a Replacement Award in connection with the occurrence of a Change in Control in accordance with Section 2.d., this Award shall be settled as follows:
(i)
If such Change in Control occurred prior to the first anniversary of the Grant Date, this Award will be settled by payment of a pro rata portion of the Participant’s Target Amount determined by multiplying such Target Amount by a fraction having a numerator equal to the number of days elapsed from the Grant Date through the date of the Change in Control, and a denominator equal to 365.
(ii)
If such Change in Control occurred on or after the first anniversary of the Grant Date but prior to the third anniversary of the Grant Date, this Award will be settled by payment of the Participant’s Target Amount.

3



(iii)
In either case, payment will be made as soon as practicable after the occurrence of such Change in Control, but in no event later than March 15th of the year following the year in which the Change in Control occurred. Notwithstanding any provision of this Award to the contrary, any amounts paid in settlement of this Award pursuant to this Section 3.c. shall be paid in Shares or such other form having a value equivalent to the Participant’s Target Amount or the pro rata portion thereof payable, as may be authorized by the Committee in its sole discretion.

d.
Determination of Amount of Payment Following Materially Adverse and Unforeseen Market Conditions. In the event this Award becomes vested as the result of materially adverse and unforeseen market conditions pursuant to Section 2.e., this Award shall be settled by payment of a number of Shares equal to 50% of the Participant’s Target Amount as soon as practicable after the date the Award becomes vested, but in no event later than [____].

4.
Other Terms and Conditions. It is understood and agreed that the Award evidenced hereby is subject to the following terms and conditions:
a.
Rights of Participant. Except as provided in Section 4.d., the Participant shall have no right to transfer, pledge, hypothecate or otherwise encumber the Award. Prior to the payment of Shares in satisfaction of this Award, the Participant shall have none of the rights of a stockholder of the Company with respect to the Award, including, but not limited to, voting rights and the right to receive or accrue dividends or dividend equivalents. Notwithstanding any provision of the Plan or this Award to the contrary, Shares delivered in satisfaction of this Award shall be subject to applicable Praxair policies as from time to time in effect, including but not limited to, Praxair’s insider trading and Executive Stock Ownership Policies.
b.
No Right to Continued Employment. This Award shall not confer upon the Participant any right with respect to continuance of employment by Praxair nor shall this Award interfere with the right of Praxair to terminate the Participant’s employment.
c.
No Right to Future Awards. The selection of recipients of Awards under the Plan is determined annually on the basis of several factors, including job responsibilities and anticipated future job performance. The Participant’s selection to receive this Award shall in no way entitle him/her to receive, or otherwise obligate Praxair to provide the Participant, any future Performance Share Unit Award or other award under the Plan or otherwise.
d.
Transferability. This Award is not transferable other than:
(i)
in the event of the Participant’s death, in which case this Award shall be transferred pursuant to the beneficiary designation then on file with the Company, or, in the absence of such a beneficiary designation, to the Participant’s executor, administrator, or legal representative, or
(ii)
pursuant to a domestic relations order.
Any transfer of this Award, in whole or in part, is subject to acceptance by the Company in its sole discretion and shall be affected according to such procedures as the Company’s Vice President, Human Resources may establish. The provisions of this Award, relating to the Participant, shall apply to this Award notwithstanding any transfer to a third party.
e.
Cancellation of Award. Notwithstanding any other provision of this Award, the Committee may, in its sole discretion, cancel, rescind, suspend, withhold, or otherwise limit or restrict this Award, and/or recover any gains realized by the Participant in connection with this Award, in the event any actions by the Participant are determined by the Committee to (i) constitute a conflict of interest with Praxair, (ii) be prejudicial to Praxair’s interests, or (iii) violate any non-compete agreement or obligation of the Participant to Praxair, any confidentiality agreement or obligation of the Participant to Praxair, Praxair’s applicable policies, or the Participant’s terms and conditions of employment.

5.
Tax Withholding. Upon the date of payment of the Award, Praxair will deduct from the number of Shares (or other form of payment, if applicable) otherwise due the Participant, Shares (or other form of payment, if applicable) having a Market Price (or fair market value in the event of payment other than in Shares) sufficient to discharge all applicable federal, state, city, local or foreign taxes of any kind required to be withheld with respect to such payment. In the alternative, Praxair shall have the right to require the Participant to pay cash to satisfy any applicable withholding taxes as a condition to the payment of the Award.

4




6.
Performance-Based Compensation. It is intended that all payments under this Award constitute “qualified performance-based compensation” within the meaning of Section 162(m) of the Code and the Plan. This Award is to be construed and administered in a manner consistent with such intent.

7.
References. References herein to rights and obligations of the Participant shall apply, where appropriate, to the Participant’s legal representative or estate without regard to whether specific reference to such legal representative or estate is contained in a particular provision of this Award.

8.
Governing Law. This Award shall be governed by and construed in accordance with the laws of Connecticut, without giving effect to principles of conflict of laws.




IN WITNESS WHEREOF, the Company has caused this instrument to be executed by its proper officer hereunto duly authorized, as of the day and year first hereinabove written.

Praxair, Inc.
              
By:
                
____________________________    
    


5

2013 PSU Agreement – U.S. (ROC)


Praxair, Inc. and Subsidiaries
EXHIBIT 10.24c

PERFORMANCE SHARE UNIT AWARD
UNDER THE
2009 PRAXAIR, INC.
LONG TERM INCENTIVE PLAN

Effective as of [____] (the “Grant Date”), [______] (the “Participant”) is hereby granted the following Performance Share Unit Award under the 2009 Praxair, Inc. Long Term Incentive Plan (the “Plan”), subject to the terms and conditions of the Plan, which are incorporated herein by reference, and those set forth below. The Plan shall control in the event of any conflict between the terms and conditions of the Plan and those set forth in this Award.

This Award has been conveyed and will be managed online, and the Participant’s online acceptance and acknowledgement of this Award constitutes his or her acceptance of all of the terms and conditions of the Plan and this Award. A copy of the Plan has been made available to the Participant, and the Participant hereby acknowledges that he or she has read and understands the Plan and this Award.

Capitalized terms used herein and not defined shall have the meanings set forth in the Plan, as the same may be amended from time to time. For purposes of this Award, Praxair, Inc. (the “Company”) and its Subsidiaries are collectively referred to herein as “Praxair.”

1.
Award of Performance Share Units, Performance Measure and Performance Period. The Participant is hereby granted an Award of [___] notional “Performance Share Units” (the “Award”). A Performance Share Unit is a bookkeeping entry which is intended to be equal in value to a single Share. For purposes of this Award, [___] Performance Share Units are considered the Participant’s “Target Amount.” Except as otherwise provided herein, the payment due in settlement of the Participant’s vested Award shall be made in the form of Shares, with the number of Shares payable determined by reference to the Company’s average annual return on capital (“ROC”) for the [___]-year period commencing on [__] and ending on [__] (the “Performance Period”) as set forth below. For purposes of this Award, ROC shall mean the Company’s after-tax return on capital as reported in its quarterly and annual Consolidated Financial Statements and the related Notes, adjusted to eliminate the after-tax effects of any acquisition occurring during the Performance Period; provided, however, that the Committee may, in its sole discretion, disregard such after-tax adjustments related to any acquisition(s) so long as the effect is a reduction of the ROC for the Performance Period. In no event, may the Committee’s exercise of such discretion operate to increase the ROC for the Performance Period.

1.
Vesting of Award; Treatment upon Termination of Service; Change in Control.
a.
Vesting Generally. Except as otherwise provided in this Section 2, this Award shall vest on the [__] anniversary of the Grant Date, provided that: (i) the Participant has remained continuously employed by Praxair at all times from the Grant Date through the third anniversary of the Grant Date; and (ii) the Company’s average annual ROC for the Performance Period meets the minimum threshold Performance Goal for payout set forth in Section 3.a. Payment with respect to such vested Award shall be determined and made in accordance with Section 3.a.
b.
Death or Disability. Notwithstanding any provision of this Section 2 to the contrary, if after the Grant Date, but prior to the third anniversary of the Grant Date:
(i)
the Participant’s employment with Praxair terminates by reason of the Participant’s death; or
(ii)
the Participant becomes Totally and Permanently Disabled while employed by Praxair;
this Award shall become immediately vested and payment with respect to such vested Award shall be determined and made in accordance with Section 3.b. For purposes of this Award, a Participant shall be “Totally and Permanently Disabled” if the Participant is determined by Praxair to be unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months.

1



c.
Termination by Action of Praxair Other than for Cause, or Termination After Attaining Certain Age and Service Requirements. Notwithstanding any provision of this Section 2 to the contrary, in the event the Participant’s employment with Praxair terminates on or after the first anniversary of the Grant Date, but prior to the third anniversary of the Grant Date, by reason of the Participant’s:
(i)
termination of employment by action of Praxair other than for cause and not due to the Participant’s Total and Permanent Disability; or
(ii)
termination of employment with Praxair, other than for cause and not due to the Participant’s Death or Total and Permanent Disability, after: (a) attaining age 65; (b) attaining age 62 and completing at least ten (10) years of employment with Praxair; or (c) having accumulated 85 points, where each year of the Participant’s age and each year of employment with Praxair count for one point,
this Award shall vest on the third anniversary of the Grant Date, provided that the Company’s average annual ROC for the Performance Period meets the minimum threshold Performance Goal for payout set forth in Section 3.a. Payment with respect to such vested Award shall be determined and made in accordance with Section 3.a. For purposes of this Award, the Participant’s termination by action of Praxair for cause, shall include, but not be limited to, the Participant’s termination by action of Praxair for violation of Praxair’s Standards of Business Integrity or poor performance.
d.
Change in Control. Notwithstanding any provision of this Section 2 to the contrary, except to the extent that a Replacement Award meeting the conditions set forth below is provided to the Participant to replace this Award, this Award shall become immediately vested upon the occurrence of a Change in Control prior to the third anniversary of the Grant Date, and payment with respect to such vested Award shall be determined and made in accordance with Section 3.c.
(iii)
Except as otherwise provided herein, a “Replacement Award” means an award: (a) of time-vested restricted stock or restricted stock units having a value at the time the Replacement Award is granted at least equal to that of the Target Amount and vesting no later than the time that this Award would have vested pursuant to this Section 2 disregarding the average annual ROC attained over the Performance Period; (b) relating to publicly traded equity securities of the Company or its successor in the Change in Control or another entity that is affiliated with the Company or its successor following the Change in Control; (c) which shall also become fully vested, free of restrictions and/or payable upon the Participant’s termination of employment occurring in connection with or during the period of two (2) years immediately after such Change in Control, other than for cause; and (d) with such other terms and conditions that are not less favorable to the Participant than the terms and conditions of this Award (including the provisions that would apply in the event of a subsequent Change in Control).
(iv)
If, immediately following the occurrence of a Change in Control, Shares of Praxair, Inc. common stock continue to be publicly traded, a Replacement Award may, in the sole discretion of the Committee, take the form of a continuation of this Award, subject to such adjustments as the Committee shall determine to be necessary to ensure that such Replacement Award remains no less favorable to the Participant than this Award.
(v)
The determination of whether the conditions of this Section 2.d. are satisfied shall be made by the Committee in its sole discretion. All references to the Committee in this Section 2.d. shall mean the Committee as constituted immediately before the Change in Control.

e.
Forfeiture of Award.
(vi)
In the event the Participant’s employment with Praxair terminates for any reason other than those specifically set forth in Sections 2.b. or 2.c. prior to the third anniversary of the Grant Date and before the occurrence of a Change in Control, this Award shall be immediately forfeited.
(vii)
Absent the occurrence of a Change in Control occurring prior to the third anniversary of the Grant Date, and to the extent not previously forfeited pursuant to Section 2.e.(i), this Award shall be immediately forfeited as of the end of the Performance Period

2



if the Company’s average annual ROC for the Performance Period does not meet the minimum threshold Performance Goal for payout set forth in Section 3.a.
(viii)
In the event this Award is forfeited for any reason, no payment shall be made in settlement of the Award.

2.
Payment of Vested Award.
a.
Performance Goal and Determination of Amount of Payment. Except as otherwise provided in this Section 3, the number of Shares payable in settlement of the Participant’s vested Award shall be determined by reference to the Company’s average annual ROC for the Performance Period in accordance with the table below, and may range from 0% to 200% of the Participant’s Target Amount. Each Performance Share Unit is equivalent to one Share. Payouts will be interpolated if the average annual ROC attained for the Performance Period falls between the Threshold and Maximum percentages specified in the table, and will be rounded down to the nearest whole number of Shares. The payment of Shares pursuant to this Section 3.a. will be made as soon as practicable after the date the Award becomes vested, but in no event later than December 31, 2016.

Average Annual ROC For Performance Period
Payout as Percentage of Target Amount
Less than [__]%
0%
[__]% (Threshold)
50%
[__]% (Target)
100%
[__]% or More (Maximum)
200%

b.
Determination of Amount of Payment Following Death or Total and Permanent Disability. In the event the Participant becomes vested in this Award by reason of his or her death or Total and Permanent Disability in accordance with Section 2.b., this Award shall be settled by payment of a number of Shares equal to the Participant’s Target Amount as soon as practicable following the date the Award becomes vested, but in no event later than March 15 th of the year following the year in which the Award becomes vested.
c.
Determination of Amount of Payment Following a Change in Control Where no Replacement Award is Made. In the event the Participant becomes vested in this Award as the result of the failure to provide a Replacement Award in connection with the occurrence of a Change in Control in accordance with Section 2.d., this Award shall be settled as follows:
(i)
If such Change in Control occurred prior to the first anniversary of the Grant Date, this Award will be settled by payment of a pro rata portion of the Participant’s Target Amount determined by multiplying such Target Amount by a fraction having a numerator equal to the number of days elapsed from the Grant Date through the date of the Change in Control, and a denominator equal to 365.
(ii)
If such Change in Control occurred on or after the first anniversary of the Grant Date but prior to the third anniversary of the Grant Date, this Award will be settled by payment of the Participant’s Target Amount.
(iii)
In either case, payment will be made as soon as practicable after the occurrence of such Change in Control, but in no event later than March 15th of the year following the year in which the Change in Control occurred. Notwithstanding any provision of this Award to the contrary, any amounts paid in settlement of this Award pursuant to this Section 3.c. shall be paid in Shares or such other form having a value equivalent to the Participant’s Target Amount or the pro rata portion thereof payable, as may be authorized by the Committee in its sole discretion.

3.
Other Terms and Conditions. It is understood and agreed that the Award evidenced hereby is subject to the following terms and conditions:
a.
Rights of Participant. Except as provided in Section 4.d., the Participant shall have no right to transfer, pledge, hypothecate or otherwise encumber the Award. Prior to the payment of Shares in satisfaction of this Award, the Participant shall have none of the rights of a stockholder of the Company with respect to the Award, including, but not limited to, voting rights and the right to

3



receive or accrue dividends or dividend equivalents. Notwithstanding any provision of the Plan or this Award to the contrary, Shares delivered in satisfaction of this Award shall be subject to applicable Praxair policies as from time to time in effect, including but not limited to, Praxair’s insider trading and Executive Stock Ownership Policies.
b.
No Right to Continued Employment. This Award shall not confer upon the Participant any right with respect to continuance of employment by Praxair nor shall this Award interfere with the right of Praxair to terminate the Participant’s employment.
c.
No Right to Future Awards. The selection of recipients of Awards under the Plan is determined annually on the basis of several factors, including job responsibilities and anticipated future job performance. The Participant’s selection to receive this Award shall in no way entitle him/her to receive, or otherwise obligate Praxair to provide the Participant, any future Performance Share Unit Award or other award under the Plan or otherwise.
d.
Transferability. This Award is not transferable other than:
(i)
in the event of the Participant’s death, in which case this Award shall be transferred pursuant to the beneficiary designation then on file with the Company, or, in the absence of such a beneficiary designation, to the Participant’s executor, administrator, or legal representative, or
(ii)
pursuant to a domestic relations order.
Any transfer of this Award, in whole or in part, is subject to acceptance by the Company in its sole discretion and shall be affected according to such procedures as the Company’s Vice President, Human Resources may establish. The provisions of this Award, relating to the Participant, shall apply to this Award notwithstanding any transfer to a third party.
e.
Cancellation of Award. Notwithstanding any other provision of this Award, the Committee may, in its sole discretion, cancel, rescind, suspend, withhold, or otherwise limit or restrict this Award, and/or recover any gains realized by the Participant in connection with this Award, in the event any actions by the Participant are determined by the Committee to (i) constitute a conflict of interest with Praxair, (ii) be prejudicial to Praxair’s interests, or (iii) violate any non-compete agreement or obligation of the Participant to Praxair, any confidentiality agreement or obligation of the Participant to Praxair, Praxair’s applicable policies, or the Participant’s terms and conditions of employment.

4.
Tax Withholding. Upon the date of payment of the Award, Praxair will deduct from the number of Shares (or other form of payment, if applicable) otherwise due the Participant, Shares (or other form of payment, if applicable) having a Market Price (or fair market value in the event of payment other than in Shares) sufficient to discharge all applicable federal, state, city, local or foreign taxes of any kind required to be withheld with respect to such payment. In the alternative, Praxair shall have the right to require the Participant to pay cash to satisfy any applicable withholding taxes as a condition to the payment of the Award.

5.
Performance-Based Compensation. It is intended that all payments under this Award constitute “qualified performance-based compensation” within the meaning of Section 162(m) of the Code and the Plan. This Award is to be construed and administered in a manner consistent with such intent.

6.
References. References herein to rights and obligations of the Participant shall apply, where appropriate, to the Participant’s legal representative or estate without regard to whether specific reference to such legal representative or estate is contained in a particular provision of this Award.

7.
Governing Law. This Award shall be governed by and construed in accordance with the laws of Connecticut, without giving effect to principles of conflict of laws.


IN WITNESS WHEREOF, the Company has caused this instrument to be executed by its proper officer hereunto duly authorized, as of the day and year first hereinabove written.

Praxair, Inc.
              
By:
____________________________

4



 
 
 
 
 
 
 
 
 
 
RATIO OF EARNINGS TO FIXED CHARGES
 
 
 
 
 
 
 
 
 
 
 
 
 
Praxair, Inc. and Subsidiaries
 
 
 
 
 
 
 
 
Exhibit 12.01
 
 
 
 
 
 
 
 
 
 
 
 
Year Ended December 31,
(Dollar amounts in millions, except ratios)
2012
 
2011
 
2010
 
2009
 
2008
 
 
 
 
 
 
 
 
 
 
Pre-tax income from continuing operations before adjustment for
 
 
 
 
 
 
 
 
 
   noncontrolling interests in consolidated subsidiaries or income or
 
 
 
 
 
 
 
 
 
   loss from equity investees
$2,296
 
$2,323
 
$1,964
 
$1,442
 
$1,685
      Capitalized interest
(70
)
 
(62
)
 
(62
)
 
(55
)
 
(44
)
      Depreciation of capitalized interest
20

 
22

 
18

 
17

 
17

      Dividends from less than 50%-owned companies carried at equity
7

 
6

 
9

 
11

 
24

Adjusted pre-tax income from continuing operations before adjustment
 
 
 
 
 
 
 
 
 
   for noncontrolling interests in consolidated subsidiaries or income
 
 
 
 
 
 
 
 
 
    or loss from equity investees
$2,253
 
$2,289
 
$1,929
 
$1,415
 
$1,682
Fixed charges
 
 
 
 
 
 
 
 
 
   Interest on long-term and short-term debt
$141
 
$145
 
$118
 
$133
 
$198
   Capitalized interest
70

 
62

 
62

 
55

 
44

   Rental expenses representative of an interest factor
39

 
38

 
$37
 
$37
 
$37
Total fixed charges
$250
 
$245
 
$217
 
$225
 
$279
 
 
 
 
 
 
 
 
 
 
Adjusted pre-tax income from continuing operations before adjustment
 
 
 
 
 
 
 
 
 
  for noncontrolling interests in consolidated subsidiaries or income or
 
 
 
 
 
 
 
 
 
  loss from equity investees plus total fixed charges
$2,503
 
$2,534
 
$2,146
 
$1,640
 
$1,961
RATIO OF EARNINGS TO FIXED CHARGES
10.0

 
10.3

 
9.9

 
7.3

 
7.0






SUBSIDIARIES OF PRAXAIR, INC.
Praxair, Inc. and Subsidiaries
EXHIBIT 21.01

The following is a list of the Company's subsidiaries, including unconsolidated affiliates, as of December 31, 2012 .
 
 
Place of Incorporation
3058581 Canada Inc.
Canada
Acetylene Oxygen Company
Texas
AMKO Service Company
Ohio
Andaluza de Gases S.A.
Spain
Antwerpse Chemische Bedrijven (LCB) N. V.
Belgium
Asistencia Technologica Medioambiental, S.A.
Spain
Beijing Praxair Huashi Carbon Dioxide Co., Ltd.
China
Beijing Praxair, Inc.
China
Carbonorte S.L.
Spain
Coatec Gesellschaft für Oberflächenveredelung mbH
Germany
Consultora Rynuter S.A.
Uruguay
Dablioeme Participacoes Ltda
Brazil
Distribuciones Invegas SCA
Venezuela
Domolife S.r.l.
Italy
Dryce Italia S.r.l.
Italy
Ferrygas, S.A.
Spain
Gases de Ensenada S.A.
Argentina
Gases Tachira S.A.
Venezuela
GNC Matco Compressco de Gus Natural Ltda.
Brazil
GNL Gemini Comercializacao e Logistica de Gas Ltda.
Brazil
Grenslandgas G.m.b.H.
Germany
Helium Centre Pte. Ltd.
Singapore
Iberica del Carbonico S.A. (Ibercasa)
Spain
Industria Paraguaya de Gases S.r l
Paraguay
Industria Venezoelana de Gas INVEGAS, S.C.A.
Venezuela
Ingemedical Ltda.
Colombia
Jindal Praxair Oxygen Company Private Limited
India
Kelvin Finance Company Limited
Ireland
Kirk Welding Supply Inc.
Missouri
Kosmoid Finance
Ireland
Kunshan Praxair Co., Ltd.
China
Legault Gaz et Soudure Ltee
Quebec
Limited Liability Company Argon Service
Russia
Limited Liability Company Praxair Rus
Russia
Limited Liability Company Praxair Volgograd
Russia
Liquid Carbonic Corporation
Delaware
Liquid Carbonic del Paraguay S.A.
Paraguay
Liquid Carbonic of Oklahoma, Inc.
Oklahoma
Liquido Carbonico Colombiana S.A.
Colombia
Liquidos Cryogenicos Panamenos, S.A.
Panama
Malaysian Industrial Gas Company Sdn. Bhd.
Malaysia
Mills Welding & Speciality Gases, Inc.
New York
Nitraco N.V.
Belgium




Nitropet, S.A. de C.V.
Mexico
Old Danford S.A.
Uruguay
OOO Volzhsky Azot
Russia
Oxigeno del Norte S.A.
Spain
Oxigenos Camatagua, C. A.
Venezuela
Oxigenos de Colombia Ltda.
Colombia
Oximesa S.L.
Spain
Oxygene Industriel Girardin, Inc.
Canada
Pittsburg Production, LLC
Delaware
PortaGas, Inc.
Texas
Praxair & M.I. Services, S.r.l.
Italy
Praxair (Anhui) Industrial Gases Co., Ltd.
China
Praxair (China) Investment Co., Ltd.
China
Praxair (Guangzhou) Industrial Gases Co., Ltd.
China
Praxair (Hainan) Indusrial Gases Co., Ltd.
China
Praxair (Huizhou) Industrial Gases Limited
China
Praxair (Jiaxing) Industrial Gases Co., Ltd.
China
Praxair (Nanjing) Carbon Dioxide Co., Ltd.
China
Praxair (Shanghai) Co., Ltd.
China
Praxair (Shanghai) Industrial Gases Co., Ltd.
China
Praxair (Shanghai) Semiconductor Gases Co., Ltd.
China
Praxair (Thailand) Company Limited
Thailand
Praxair (Wuhan), Inc.
China
Praxair (Yangzhou) Application Technology Co., Ltd.
China
Praxair (Zhengjing) Industrial Gas Co. Ltd.
China
Praxair Alberta Ltd.
Alberta
Praxair Anlagebau GmbH
Germany
Praxair Argentina S.R.L.
Argentina
Praxair Asia, Inc.
Delaware
Praxair Bahrain B.S.C.
Kingdom of Bahrain
Praxair B.V.
Netherlands
Praxair Bolivia Srl
Luxembourg
Praxair Canada Inc.
Canada
Praxair Carbondioxide Private Limited
India
Praxair Chemax Semiconductor Materials Co. Ltd.
Taiwan
Praxair Chile Ltda.
Chile
Praxair Colonia Limitada
Uruguay
Praxair Consultoria y Administracion S de RL de CV
Mexico
Praxair Costa Rica, S.A.
Costa Rica
Praxair Deutschland GmbH
Germany
Praxair Deutschland Holding GmbH & Co. KG
Germany
Praxair Distribution Mid-Atlantic, LLC
Delaware
Praxair Distribution Southeast, LLC
Delaware
Praxair Distribution, Inc.
Delaware
Praxair do Brasil Ltda.
Brazil
Praxair E-Services Private Limited
India
Praxair Employees Association of Danbury, Inc.
Connecticut
Praxair Energy Resources, Inc.
Delaware
Praxair España, S.L.
Spain
 
 




Praxair Euroholding, S. L.
Spain
Praxair Fray Bentos S.C.A.
Uruguay
Praxair Gases Industriales Ltda
Columbia
Praxair Gulf Industrial Gases LLC
Abu Dhabi
Praxair Holding Latinoamerica (Sarl)
Luxembourg
Praxair Holdings International, Inc.
Delaware
Praxair Huayi (Chongqing) Industrial Gases Co. Ltd.
China
Praxair Hydrogen Supply, Inc.
Delaware
Praxair India Private Limited
India
Praxair International BV
Netherlands
Praxair International Finance
Ireland
Praxair Investments B.V.
Netherlands
Praxair K.K.
Japan
Praxair Korea Company, Limited
Korea
Praxair Latin America Holdings LLC
Delaware
Praxair Luxembourg Finance S.a.r.l.
Luxembourg
Praxair Luxembourg S.a.r.L.
Luxembourg
Praxair Meishan (Nanjin) Industrial Gases Co., Ltd.
China
Praxair Mexico, S. de R.L. de C.V.
Mexico
Praxair Middle East Holding Company
Delaware
Praxair MRC S.A.S.
France
Praxair N.V.
Belgium
Praxair Pacific Ltd.
Mauritius
Praxair Partnership
Delaware
Praxair PC Partnership
Canada
Praxair Peru S.R.L.
Peru
Praxair PHP S.A.S.
France
Praxair Plainfield, Inc.
Delaware
Praxair Portugal Gases S.A.
Portugal
Praxair Puerto Rico B. V.
Netherlands
Praxair Puerto Rico LLC
Delaware
Praxair Republica Dominicana, SRL
Dominican Republic
Praxair Samara LLC
Russia
Praxair S.A.S.
France
Praxair-SenVac GmbH
Germany
Praxair S.r.l.
Italy
Praxair S.T. Technology, Inc.
Delaware
Praxair Services (UK) Limited
United Kingdom
Praxair Services Canada Inc.
Ontario
Praxair Services, Inc.
Texas
Praxair Shanghai Meishan Inc.
China
Praxair Shaogang Co., Ltd.
China
Praxair Surface Technologies (Changzhou) Co. Ltd.
China
Praxair Surface Technologies (Europe) S.A.
Switzerland
Praxair Surface Technologies Co., Ltd.
Korea
Praxair Surface Technologies do Brasil Ltda.
Brazil
Praxair Surface Technologies G.m.b.H.
Germany
Praxair Surface Technologies K.K.
Japan
Praxair Surface Technologies Limited
United Kingdom
 
 




Praxair Surface Technologies Pte. Ltd.
Singapore
Praxair Surface Technologies S.A.S.
France
Praxair Surface Technologies, Inc.
Delaware
Praxair Switzerland GmbH
Switzerland
Praxair Technology, Inc.
Delaware
Praxair UK Limited
United Kingdom
Praxair Uruguay Ltda.
Uruguay
Production Praxair Canada Inc.
Canada
Productos Especiales Quimicos, S.A. de C.V.
Mexico
Quality Welding Supply Corp.
New York
Recuperadora Integral de Nitrogeno SAPI
Mexico
Rivoira S.p.A.
Italy
Rivoira Siad Servizi S. Con S.A.R.L.
Italy
S.B.S. Bakeware Technologies S.L.
Spain
Sauerstoff und Stickstoffrohrleitungs
Germany
Sermatech International Canada Corp.
Delaware
Sermatech International Canada GP LLC
Delaware
Sermatech International UK Limited
United Kingdom
Sermatech Korea Ltd.
Korea
Sermatech Power Solutions L.P.
New Brunswick
Shanghai Chemical Industry Park Industrial Gases Co., Ltd.
China
Shanghai Praxair-Yidian Inc.
China
Sinopal Pte. Ltd.
Singapore
Sociedade Portuguesa de Oxigenio Ltda.
Portugal
South Texas Chlorine, Inc.
Texas
Specialty Gases of America, Inc.
Ohio
Sure/Arc Welding Supply (1977) Ltd.
Canada
TAFA Incorporated
Delaware
Texas Welders Supply Company, Inc.
Texas
Tianjin Praxair, Inc.
China
Tongling Praxair Co., Ltd.
China
Topaz Consultora S.A.
Uruguay
Vision Energy Group LLC
Oklahoma
Welco-CGI Gas Technologies, LLC
Delaware
Weld World, Inc.
Maryland
Westair Cryogenics Company
Delaware
Westair Cryogenics Holding Company
Delaware
Westair Gas and Equipment, L.P.
Texas
White Martins e White Martins Comércio e Serviços SARL
Luxembourg
White Martins Gas Natural Ltda
Brazil
White Martins Gases Industriais do Nordeste S.A.
Brazil
White Martins Gases Industriais do Norte S.A.
Brazil
White Martins Gases Industriais Ltda.
Brazil
White Martins Participacoes Ltda
Brazil
White Martins Solucoes Ambientais Ltda
Brazil
White Martins Steel Gases Industrials Ltda.
Brazil
WM Servicos de Lavanderia Industrial Ltda
Brazil
WM Transporte de Gases Ltda
Brazil
Yara Praxair AB
Sweden
 
 




Yara Praxair A/S
Denmark
Yara Praxair AS
Norway
Yara Praxair Holding AS
Norway
Yara Praxair Holding Danmark A/S
Denmark






CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Praxair, Inc. and Subsidiaries
EXHIBIT 23.01



We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 33-48480, 33-93444, 333-304, 333-18141, 333-40003, 333-57386, 333-102020, 333-139328 and 333-183150) and on Form S-8 (No. 33-48479, 33-48478, 33-87274, 33-92868, 33-18111, 333-18113, 333-33801, 333-64608, 333-81248, 333-97191, 333-115191, 333-115192, 333-124618, 333-163005 and 333-183147) of Praxair, Inc. of our report dated February 27, 2013 relating to the financial statements and the effectiveness of internal control over financial reporting, which appears in this Form 10‑K.
.

/s/ PricewaterhouseCoopers LLP     

PricewaterhouseCoopers LLP
Stamford, Connecticut
February 27, 2013





RULE 13a-14(a) CERTIFICATIONS
Praxair, Inc. and Subsidiaries
EXHIBIT 31.01
I, Stephen F. Angel, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Praxair, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting ; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date:  
February 27, 2013
By:
/s/ Stephen F. Angel
 
 
 
Stephen F. Angel
 
 
 
Chairman, President
Chief Executive Officer
 
 
 
(principal executive officer)




RULE 13a-14(a) CERTIFICATIONS
Praxair, Inc. and Subsidiaries
EXHIBIT 31.02
I, James S. Sawyer, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Praxair, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting ; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date:  
February 27, 2013
By:
/s/ James S. Sawyer
 
 
 
James S. Sawyer
 
 
 
Executive Vice President and
Chief Financial Officer
 
 
 
(principal financial officer)




SECTION 1350 CERTIFICATION
Praxair, Inc. and Subsidiaries
EXHIBIT 32.01
Pursuant to 18 U.S.C. § 1350, the undersigned officer of Praxair, Inc. (the “Company”), hereby certifies that the Company’s Annual Report on Form 10-K for the year ended December 31, 2012 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
Date:
February 27, 2013
By:
/s/ Stephen F. Angel
 
 
 
Stephen F. Angel
Chairman, President and Chief Executive Officer
(principal executive officer)
The foregoing certification is being furnished solely pursuant to 18 U.S.C. § 1350 and is not being filed as part of the Report or as a separate disclosure document.
A signed original of this written statement required by 18 U.S.C. § 1350 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.




SECTION 1350 CERTIFICATION
Praxair, Inc. and Subsidiaries
EXHIBIT 32.02
Pursuant to 18 U.S.C. § 1350, the undersigned officer of Praxair, Inc. (the “Company”), hereby certifies that the Company’s Annual Report on Form 10-K for the year ended December 31, 2012 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
Date:  
February 27, 2013
By:
/s/ James S. Sawyer
 
 
 
James S. Sawyer
Executive Vice President and
Chief Financial Officer
(principal financial officer)
The foregoing certification is being furnished solely pursuant to 18 U.S.C. § 1350 and is not being filed as part of the Report or as a separate disclosure document.
A signed original of this written statement required by 18 U.S.C. § 1350 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.