UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 1-11037
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Praxair, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 06-124-9050
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
39 Old Ridgebury Road, Danbury, CT 06810-5113
- --------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(203) 837-2000
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Registrant's telephone number, including area code
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 [X] No [ ]
At September 30, 1996, 156,444,449 shares of common stock ($.01 par value) of
the Registrant were outstanding.
<PAGE>
FORWARD-LOOKING STATEMENTS
The forward-looking statements contained in this document concerning, among
other things, projected capital spending, tax planning initiatives and
effective tax rates, and the timing, proceeds and other terms of the
disposition of businesses and assets held for sale, involve risks and
uncertainties, and are subject to change based on various factors, including
the impact of changes in worldwide and national economies, achievement of
synergies and cost reductions in the integration of the recently acquired
Liquid Carbonic business of CBI Industries, Inc., the timing of divestments and
the proceeds realized therefrom, pricing fluctuations in foreign currencies,
changes in interest rates, the continued timely development and acceptance of
new products and processes, the impact of competitive products and pricing, the
ability to achieve tax synergies that will reduce the effective tax rate for
the CBI businesses, and the impact of tax and other legislation and regulation
in the jurisdiction in which the company operates.
<PAGE>
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statement of Income - Praxair, Inc. and Subsidiaries
Quarter and Nine Months Ended September 30, 1996 and 1995 (Unaudited)
Condensed Consolidated Balance Sheet - Praxair, Inc. and Subsidiaries
September 30, 1996 (Unaudited) and December 31, 1995
Condensed Consolidated Statement of Cash Flows - Praxair, Inc. and
Subsidiaries Nine Months Ended September 30, 1996 and 1995 (Unaudited)
Notes to Condensed Consolidated Financial Statements - Praxair, Inc.
and Subsidiaries (Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
Signature
Exhibit Index
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PRAXAIR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
(Millions of dollars, except per share)
Quarter Ended Nine Months Ended
September 30, September 30,
---------------- -----------------
1996 1995 1996 1995
------- ------- -------- --------
SALES $1,115 $ 795 $3,298 $2,339
Cost of sales, exclusive of
depreciation and amortization ....... 637 456 1,897 1,317
Selling, general and administrative ... 170 121 518 360
Depreciation and amortization ......... 107 70 313 211
Research and development .............. 18 15 53 44
CBI integration charges ............... - - 85 -
Other expenses-net .................... (7) (3) (17) (4)
------- ------- ------- -------
OPERATING PROFIT ...................... 190 136 449 411
Interest expense ...................... 47 29 146 88
------- ------- ------- -------
INCOME BEFORE INCOME TAXES ............ 143 107 303 323
Income taxes .......................... 36 29 73 88
------- ------- ------- -------
INCOME OF CONSOLIDATED ENTITIES ....... 107 78 230 235
Minority interests .................... (22) (15) (51) (40)
Income from equity investments ........ 3 1 7 1
------- ------- ------- -------
NET INCOME ............................ $ 88 $ 64 $ 186 $ 196
PER SHARE:
Net Income ............................ $ 0.54 $ 0.44 $ 1.18 $ 1.37
Cash dividends ........................ $ 0.095 $ 0.08 $ 0.285 $ 0.24
The accompanying notes are an integral part of these financial statements.
<PAGE>
PRAXAIR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Millions of dollars)
September 30,
1996 December 31,
(Unaudited) 1995
------------- ------------
ASSETS
Cash and cash equivalents ....................... $ 82 $ 15
Accounts receivable ............................. 891 617
Inventories ..................................... 298 228
Assets held for sale - net ...................... 472 -
Prepaid and other ............................... 119 70
-------- --------
TOTAL CURRENT ASSETS ....................... 1,862 930
Property, plant and equipment-net ............... 4,119 2,737
Other assets (including goodwill) ............... 1,478 467
-------- --------
TOTAL ASSETS ............................... $ 7,459 $ 4,134
LIABILITIES AND EQUITY
Accounts payable ................................ $ 340 $ 272
Short-term debt ................................. 1,704 349
Current portion of long-term debt ............... 36 36
Other current liabilities ....................... 574 372
-------- --------
TOTAL CURRENT LIABILITIES .................. 2,654 1,029
Long-term debt .................................. 1,671 933
Other long-term obligations ..................... 766 643
-------- --------
TOTAL LIABILITIES .......................... 5,091 2,605
Minority interests .............................. 573 408
Shareholders' equity ............................ 1,795 1,121
-------- --------
TOTAL LIABILITIES AND EQUITY ............... $ 7,459 $ 4,134
The accompanying notes are an integral part of these financial statements.
<PAGE>
PRAXAIR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(Millions of dollars)
Nine months ended September 30,
-------------------------------
1996 1995
----------- -----------
OPERATIONS
Cash received from customers ................... $ 3,184 $ 2,296
Cash paid to employees, suppliers and other .... (2,575) (1,780)
Interest paid-net .............................. (170) (87)
Income taxes paid .............................. (48) (59)
-------- --------
Net cash provided by operating activities .. 391 370
-------- --------
INVESTING
Capital expenditures ........................... (652) (420)
Investments .................................... (1,594) (168)
Divestitures and asset sales ................... 27 22
-------- --------
Net cash used for investing activities ..... (2,219) (566)
-------- --------
FINANCING
Short-term borrowings-net ...................... 1,548 100
Long-term borrowings ........................... 304 185
Long-term debt repayments ...................... (480) (138)
Minority transactions and other ................ 6 (15)
Issuances of common stock ...................... 568 83
Purchases of common stock ...................... (7) (37)
Cash dividends ................................. (43) (33)
-------- --------
Net cash used for financing activities ..... 1,896 145
-------- --------
Effect of exchange rate changes on cash and
cash equivalents ............................... (1) -
-------- --------
Change in cash and cash equivalents .............. 67 (51)
Cash and cash equivalents beginning-of-year....... 15 63
-------- --------
Cash and cash equivalents end-of-period .......... $ 82 $ 12
The accompanying notes are an integral part of these financial statements.
<PAGE>
PRAXAIR INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Presentation of Condensed Consolidated Financial Statements
In the opinion of Praxair, Inc. (Praxair) management, the accompanying
condensed consolidated financial statements include all adjustments
necessary for a fair presentation of the results for the interim periods
presented. These adjustments consisted of only normal recurring
adjustments. The accompanying condensed consolidated financial statements
should be read in conjunction with the Notes to Financial Statements of
Praxair, Inc. and subsidiaries in Praxair's 1995 Annual Report.
2. 1996 Acquisition of CBI Industries, Inc. (CBI)
On January 12, 1996, Praxair acquired approximately 94% of the outstanding
shares of CBI common stock and on March 13, 1996 Praxair acquired the
remaining common stock outstanding. The total purchase price for CBI's
common stock was approximately $1.45 billion after taking into account
amounts paid or to be paid in respect of executive compensation
agreements, CBI's outstanding stock options and ESOP debt, and transaction
expenses. The funds used to consummate the acquisition initially came
from short-term borrowings of Praxair, primarily commercial paper.
Historically, CBI has operated in three major business segments:
Industrial Gases (Liquid Carbonic), Contracting Services (Chicago Bridge
and Iron) and Investments (primarily Statia Terminals). Because the
Contracting Services and Investments businesses of CBI are not considered
strategic to the combined company, Praxair intends to sell these
businesses. Additionally, based on an agreement with the U.S. Federal
Trade Commission on antitrust matters relating to the Acquisition, Praxair
will sell four air separation plants operated by CBI's Liquid Carbonic
segment in the United States. It is Praxair's intention to complete these
sales within a year (see paragraphs at the end of this footnote for
progress made on these sales). Accordingly, the assets, liabilities, debt
and operations related to these businesses have been eliminated from the
historical consolidated financial statements and are shown in the
unaudited combined condensed balance sheet at September 30, 1996 as Assets
held for sale - net at amounts equal to estimated net realizable values
adjusted for anticipated earnings, interest and other carrying costs until
sale.
<PAGE>
The purchase price for the common stock of CBI has been allocated to
assets and liabilities of CBI based on CBI's current estimated net
realizable values, earnings and carrying costs related to businesses held
for sale. These allocations will be adjusted based on the amounts of
actual proceeds, earnings and carrying costs for businesses held for sale,
and appraisals, valuations and other studies which will be completed over
the next several months. Praxair has recorded approximately $750 million
as goodwill, representing the costs in excess of the fair value of net
assets acquired (shown on the balance sheet in Other assets), which is
being amortized on a straight line basis over forty years. The results of
CBI's operations have been included in the consolidated financial
statements effective January 1, 1996.
The following table provides the unaudited pro forma consolidated results
of operations for the quarter and nine-months ended September 30, 1995,
reflecting the acquisition as though it had occurred at January 1, 1995.
The 1995 pro forma amounts are based upon the historical consolidated
financial statements of Praxair and CBI combined and adjusted to give
effect to the acquisition using the purchase method of accounting and to
eliminate the operations and interest carrying costs related to acquired
businesses to be sold. This unaudited pro forma financial information is
not necessarily indicative of the results of the combined company that
would have occurred had the acquisition occurred at the beginning of 1995
nor are they necessarily indicative of future operating results.
(Millions of dollars, except per share data)
Period Ended September 30, 1995
-------------------------------
Quarter Nine Months
------- -----------
SALES................................. $1,034 $3,055
Cost of sales, exclusive of
depreciation and amortization...... 596 1,745
Selling, general and administrative... 165 495
Depreciation and amortization......... 101 296
Research and development.............. 18 51
Other (income) expenses-net........... (4) (9)
------- -------
OPERATING PROFIT...................... 158 477
Interest expense...................... 57 166
------- -------
INCOME BEFORE INCOME TAXES............ 101 311
Income taxes.......................... 28 95
------- -------
INCOME OF CONSOLIDATED ENTITIES....... 73 216
Minority interests.................... (18) (50)
Income from equity investments........ 3 4
------- -------
NET INCOME............................ $ 58 $ 170
NET INCOME PER SHARE.................. $ 0.40 $ 1.20
<PAGE>
As described above, Praxair intends to sell CBI's Contracting Services and
Investments businesses and four air separation plants operated by CBI's
Liquid Carbonic segment in the United States. Accordingly, the net assets
related to these businesses are shown in the unaudited condensed balance
sheet at September 30, 1996 as Assets held for sale - net at amounts equal
to estimated net realizable values adjusted for anticipated earnings,
interest and other carrying costs until sale. Upon sale, any difference
between the actual after-tax proceeds received and the carrying value of
the assets sold will be recorded as an adjustment to the original purchase
price allocation. The following provides summary data for activity during
the nine months ended September 30, 1996 related to these businesses
(Millions of dollars)
Assets held for sale - net, date of acquisition... $ 476
Add: Interest carrying costs and other........... 13
Less: Net income of operations held for sale...... (12)
After tax proceeds from sale of businesses (5)
------
Assets held for sale - net, September 30, 1996.... $ 472
On July 23, 1996, Praxair announced that AGA AB, of Stockholm, Sweden, has
agreed to purchase, for about $200 million pre-tax, five air separation
plants (four in the United States and one in Spain). The sale of the four
U.S. plants is required by the U.S. Federal Trade Commission (FTC).
Subsequent to September 30, 1996 this transaction was completed.
On September 30, 1996, Praxair announced that it has reached a definitive
agreement to sell Statia Terminals, Inc., and its affiliated companies for
$210 million pre-tax to Castle Harlan Partners II, L.P., and the
management of Statia Terminals (subject to financing and regulatory
approval). Proceeds from this transaction are expected in the fourth
quarter of 1996.
Praxair continues to work towards an initial public offering of Chicago
Bridge & Iron in early 1997.
These assets are included in Praxair's September 30, 1996 balance sheet as
Assets held for sale - net. The after-tax proceeds from these
transactions, after repayment of substantial debt related to the Statia
business, will be used by Praxair to repay outstanding short-term debt and
will reduce the Assets held for sale - net balance.
3. CBI Integration Charges
In March 1996, Praxair recorded a charge of $85 million pre-tax ($53
million after tax benefits of $30 million and minority interests of $2
million) for severance-related, lease termination and other exit costs
associated with the integration of the industrial gases businesses of CBI
and Praxair.
The severance-related costs are for payments that will be made to Praxair
and CBI employees who will be terminated because of synergies related to
integrating the operations of the two companies, primarily manufacturing
and product distribution, sales and marketing, and administrative
functions. The other exit costs are primarily related to estimated net
costs associated with lease commitments for surplus office and production
space.
<PAGE>
The following table summarizes, by segment, the number of separations and
the amounts of severance-related benefits, and other exit costs (primarily
lease termination costs) involved in the integration plan and recorded in
the first quarter of 1996.
(Millions of dollars, except number of employees to be separated)
Integration Charge
--------------------------
Employee Other Exit
Separations Severance Costs Total
----------- --------- ---------- -----
United States.................... 390 $18 $19 $37
South America.................... 530 12 1 13
Europe........................... 100 4 - 4
Canada, Mexico, Asia and Other... 460 13 15 28
Corporate........................ 120 3 - 3
----- --- --- ---
1,600 $50 $35 $85
Through September 30, 1996, actual separations totaled approximately 1,200
employees and at September 30, 1996, the remaining accrual balance was $61
million.
4. Inventories
The following is a summary of Praxair's consolidated inventories:
(Millions of dollars)
September 30,
1996 December 31,
(Unaudited) 1995
----------- ------------
Raw materials and supplies...... $ 111 $ 86
Work in process................. 42 54
Finished goods.................. 145 88
----- -----
$ 298 $ 228
5. Shareholders' Equity
Changes in Shareholders' Equity were as follows:
(Thousands of shares)
Common Treasury
Stock Stock
------ --------
Balance, January 1, 1996........... 140,624 89
Common stock issuance (a).......... 12,650 -
Other Common stock activity (b)... 3,182 (78)
------- ----
Balance, September 30, 1996........ 156,456 11
<PAGE>
(Millions of dollars)
Additional Cumulative
Common Paid-In Retained Translation Treasury
Stock Capital Earnings Adjustment Stock Total
------ ---------- -------- ----------- ------ -------
Balance, January 1, 1996..$ 1 $ 748 $ 474 $ (101) $(1) $1,121
Net income................ 186 186
Dividends - common stock.. (43) (43)
Common stock issuance (a). 1 461 462
Other Common stock
activity (b)............ 100 1 101
Translation adjustments... (32) (32)
------ ---------- -------- ----------- ------ -------
Balance,
September 30, 1996......$ 2 $1,309(c) $ 617 $ (133) $ - $1,795
(a) During the quarter ended March 31, 1996, Praxair sold 12,650,000 shares of
common stock in a public offering.
(b) Relates to issuances of common stock for the Dividend Reinvestment and
Stock Purchase Plan, and employee savings and incentive plans, and
purchases and sales of common stock.
(c) Net of unearned performance stock of $1 million.
During the quarter and nine months ended September 30, 1996, Praxair
granted options for 646,750 and 1,498,800 shares, respectively, of common
stock having option prices ranging from $34.13 to $40.88 per share, the
closing market price of Praxair's common stock on the day of the grants.
At September 30, 1996, there were 10,907,300 shares under option at prices
ranging from $9.80 to $40.88 per share (weighted average of $18.31) of
which options for 7,709,350 shares were exercisable at prices ranging from
$9.80 to $23.63 per share (weighted average of $14.21). During the
quarter and nine months ended September 30, 1996, 385,535 and 1,993,345
options were exercised, respectively.
6. Earnings Per Share
Earnings per share is computed by dividing net income for the period by
the weighted average number of common shares outstanding and common stock
equivalents. Weighted average common shares and common stock equivalents
used to compute earnings per share amounts were as follows:
Quarter ended September 30, 1996................. 162,315,717
Quarter ended September 30, 1995................. 144,832,467
Nine-months ended September 30, 1996............. 157,499,700
Nine-months ended September 30, 1995............. 143,232,173
<PAGE>
7. Debt and Financial Instruments
Debt - The following is a summary of Praxair's outstanding debt at
September 30, 1996 and December 31, 1995. The changes relate primarily to
the acquisition of CBI (see Note 2) and the sale of common stock (see Note
5):
(Millions of dollars)
September 30, December 31,
1996 1995
------------- ------------
Current
Short-term debt:
Commercial paper...................... $ 988 $ 118
Other U.S. bank borrowings............ 328 106
International borrowings.............. 388 125
Current portion of long-term debt....... 36 36
------ ------
Total Current Debt...................... 1,740 385
Long-term
6.75% Notes due 2003.................... 300 300
8.70% Debentures due 2022............... 300 300
6.70% Notes due 2001.................... 250 -
Commercial paper (see note below)....... 250 -
6.85% Notes due 2005.................... 150 150
Canadian subsidiary borrowings.......... 90 90
Brazilian subsidiary borrowings......... 102 35
Other borrowings........................ 265 94
------ ------
1,707 969
Less: Current portion of long-term debt.. 36 36
------ ------
Total Long-term Debt..................... 1,671 933
------ ------
Total Debt............................... $3,411 $1,318
On April 15, 1996, Praxair issued $250 million of 6.70% non-redeemable
Notes due 2001 with interest payable semi-annually. The proceeds from the
Notes was used to repay outstanding commercial paper.
On September 28, 1996, Praxair redeemed $80 million of Senior ESOP
Notes which were due through 2002. The Notes had been used to finance
CBI's ESOP which was terminated.
On October 30, 1996, Praxair completed an offering of $250 million of
6.90% non-redeemable Notes due 2006 with interest payable semi-annually.
The proceeds from the Notes will be used to repay outstanding commercial
paper and short-term debt, and for general corporate purposes.
Accordingly, at September 30, 1996, $250 million of Praxair's commercial
paper has been classified as long-term in the condensed consolidated
balance sheet.
Financial Instruments - At September 30, 1996, the notional amount of
interest rate derivatives outstanding was $2,115 million ($565 million at
December 31, 1995). Activity for the nine month period ended September
30,1996 includes the addition of $1,800 million of interest rate swaps
that mature within 1 year and convert variable to fixed rate debt; $100
million of swaps acquired in the CBI acquisition that mature through 2001
and convert variable to fixed rate debt; $600 million of forward-starting
interest rate swaps that mature in 1997 and convert variable to fixed rate
debt; and $950 million of swaps that matured during the period.
At September 30, 1996, Praxair had $216 million of currency exchange
forward contracts outstanding ($284 million at December 31, 1995),
primarily to hedge balance sheet exposures. These contracts generally
mature within a year.
8. Reorganization of Praxair's South American Operations
In order to align its South American operations after the CBI acquisition
(see Note 2), effective April 1, 1996, Praxair merged its Liquid Carbonic
South American subsidiaries into Praxair's 54%-owned subsidiary, S.A.
White Martins (SAWM), in exchange for additional common shares in SAWM.
The transaction, valued at $728 million, increased Praxair's ownership in
SAWM to approximately 69.3%. The transaction did not significantly impact
Praxair's consolidated results of operations or financial position.
<PAGE>
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
During the quarter ended March 31, 1996, Praxair acquired 100% of the common
stock of CBI Industries, Inc. (CBI) for approximately $2.25 billion, including
assumed debt of approximately $800 million (see note 2 to the financial
statements). Also, during the quarter ended March 31, 1996, Praxair recorded a
charge of $85 million pre-tax ($53 million after a tax benefit of $30 million
and minority interests of $2 million) primarily for severance-related and lease
termination costs associated with the integration of the industrial gases
businesses of CBI and Praxair (see note 3 to the financial statements).
The following discussion of Praxair's consolidated and geographic segments
results compares the quarter and nine months ended September 30, 1996 and the
quarter and nine months ended September 30, 1995 based upon the unaudited pro
forma consolidated results of operations reflecting the CBI acquisition as
though it had occurred at January 1, 1995.
<PAGE>
Consolidated Results
The following provides summary data for the quarter and nine months ended
September 30, 1996 and 1995.
(Millions of dollars, except percent)
Percent
Change
--------1995------ versus
Quarter Ended September 30, 1996 Pro forma Actual Pro Forma
- --------------------------- ------ --------- ------ ---------
Sales.......................... $1,115 $1,034 $ 795 + 8%
Operating profit............... $ 190 $ 158 $ 136 + 20%
Interest expense............... $ 47 $ 57 $ 29 - 18%
Effective tax rate............. 25% 28% 27% - 3%
Net income..................... $ 88 $ 58 $ 64 + 52%
(Millions of dollars, except percent)
Percent
Change
--------1995------ versus
Nine Months Ended September 30, 1996 Pro forma Actual Pro Forma
- ------------------------------- ------ --------- ------ ---------
Sales.......................... $3,298 $3,055 $2,339 + 8%
Operating profit............... $ 449 $ 477 $ 411
Operating profit, excluding
CBI integration charges...... $ 534 $ 477 $ 411 + 12%
Interest expense............... $ 146 $ 166 $ 88 - 12%
Effective tax rate............. 24% 31% 27%
Effective tax rate, excluding
CBI integration charges...... 26% 31% 27% - 5%
Net income..................... $ 186 $ 170 $ 196
Net income, excluding
CBI integration charges...... $ 239 $ 170 $ 196 + 41%
The sales growth of 8% for the quarter and nine month period was predominately
due to increased sales volumes, increased pricing, and the effect of newly
acquired and recently consolidated packaged gases' and Surface Technologies'
subsidiaries partly offset by unfavorable currency translation effects.
Merchant and packaged gases prices were up in all geographic segments. Surface
Technologies posted record sales, increasing 13% for the quarter (14% for the
nine month period), excluding currency and acquisitions.
The sales growth along with productivity gains were primarily responsible for
the increase in Operating profit for the quarter and nine month period
(excluding the CBI integration charges). Increased depreciation and
amortization reflected new projects coming on-stream which contributed to the
sales growth, as well as goodwill associated with packaged gases and surface
technologies acquisitions. Selling, general and administrative expenses
increased primarily due to newly acquired subsidiaries and higher incentive
compensation expenses, partially offset by cost improvements. However,
Selling, general and administrative expenses as a percentage of sales declined
due to productivity improvements and cost synergies associated with the
integration of the Liquid Carbonic business.Worldwide currency translation
effects for the quarter and nine month period reduced operating profit by $7
million and $16 million, respectively, primarily in Brazil, Europe and Mexico.
<PAGE>
Interest expense decreased versus the 1995 pro forma amounts, primarily due to
lower interest rates and the issuance of 12.6 million shares of Praxair common
stock at the end of the first quarter of 1996, the proceeds of which were used
to lower debt levels. The effective tax rate for the quarter was 25% and for
the nine month period (excluding the tax benefit associated with the first
quarter of 1996 CBI integration charges) was 26%, a decrease of 3% and 5%,
respectively, from the effective tax rates of the 1995 pro forma periods. The
decreases are due primarily to tax planning initiatives which are expected to
reduce Praxair's effective tax rate to approximately 26% for the full year 1996
and the next two years.
Net Income for the quarter and nine month periods (excluding the first quarter
of 1996 CBI integration charges) increased over the 1995 pro forma amounts due
principally to higher operating profit, lower interest expense and a lower
effective tax rate. Worldwide currency translation effects decreased net
income for the quarter and nine month period by $5 million and $9 million,
respectively, or $.03 and $.06 per share.
The number of employees at September 30, 1996 was 24,711 (excluding employees
of the operations held for sale) which, when adjusted for acquisitions other
than CBI, reflects a decrease of approximately 1,400 from December 31, 1995.
The decrease is principally the result of Praxair's worldwide productivity
improvement initiatives and the integration of Liquid Carbonic, predominately
in South America and the United States.
<PAGE>
Segment Discussion
This summary of Sales, Operating profit and Operating profit excluding CBI
integration charges by geographic segment provides a basis for the discussion
that follows:
(Millions of dollars)
Quarter Ended Nine Months Ended
September 30, September 30,
------------------------- ------------------------
-------1995------- -------1995-------
1996 Pro Forma Actual 1996 Pro Forma Actual
----- --------- ------ ----- --------- ------
SALES
United States...... $ 543 $ 496 $ 405 $1,594 $1,428 $1,158
South America...... 253 234 167 737 717 507
Europe............. 148 135 119 456 411 365
Canada, Mexico,
Asia and Other.. 171 169 104 511 499 309
------- ------- ------ ------- ------- -------
$1,115 $1,034 $ 795 $3,298 $3,055 $2,339
(Millions of dollars)
Quarter Ended Nine Months Ended
September 30, September 30,
------------------------- ------------------------
-------1995------- -------1995-------
1996 Pro Forma Actual 1996 Pro Forma Actual
----- --------- ------ ----- --------- ------
OPERATING PROFIT
United States...... $ 92 $ 76 $ 72 $ 224 $ 215 $ 209
South America...... 57 46 34 138 146 106
Europe............. 25 22 20 82 76 70
Canada, Mexico,
Asia and Other.. 22 22 14 29 63 38
Corporate.......... (6) (8) (4) (24) (23) (12)
------- ------- ------ ------- ------- -------
$ 190 $ 158 $ 136 $ 449 $ 477 $ 411
(Millions of dollars)
Quarter Ended Nine Months Ended
September 30, September 30,
------------------------- ------------------------
-------1995------- -------1995-------
1996 Pro Forma Actual 1996 Pro Forma Actual
----- --------- ------ ----- --------- ------
OPERATING PROFIT
excluding 1996 CBI integration charges
United States...... $ 92 $ 76 $ 72 $ 261 $ 215 $ 209
South America...... 57 46 34 151 146 106
Europe............. 25 22 20 86 76 70
Canada, Mexico,
Asia and Other.. 22 22 14 57 63 38
Corporate.......... (6) (8) (4) (21) (23) (12)
------- ------- ------ ------- ------- -------
$ 190 $ 158 $ 136 $ 534 $ 477 $ 411
<PAGE>
United States
The sales increase for the quarter and nine months ended September 30, 1996 of
9% and 12%, respectively, as compared to the 1995 pro forma amounts is
primarily due to strong volume growth and the effect of newly acquired and
recently consolidated package gases' and Surface Technologies' subsidiaries.
For the quarter, U.S. industrial gases volumes increased 8%, while merchant
liquid pricing increased 1% and packaged gases' pricing increased 4%.
Operating profit improved 21% for the quarter with the operating margin
increasing to 16.9% from 15.3% in the third quarter of 1995. Operating profit
for the nine month period, excluding the first quarter of 1996 CBI integration
charge, improved 21% as compared to the 1995 period. The improvement is due
primarily to the increased sales, cost improvements and an increase in
technology cost allocations to the Canada, Mexico, Asia and Other segment
within Praxair ($1 million and $3 million, respectively, for the quarter and
nine month periods), partly offset by higher incentive compensation expenses.
Also affecting the results was an increase in the U.S. business portfolio of
Package Gases' businesses which are characterized by lower operating margins
and lower capital requirements.
South America
Sales for the quarter and nine months ended September 30, 1996 increased 8% and
3%, respectively, as compared to the 1995 periods primarily due to sales volume
growth and pricing improvement partly offset by unfavorable currency
translation effects. Excluding the currency translation effects for the
quarter and nine months ended September 30, 1996, sales grew by 14% and 10%,
respectively, over the 1995 periods.
Operating profit for the quarter and nine months ended September 30, 1996
(excluding the first quarter of 1996 CBI integration charges) increased 24% and
3%, respectively, as compared to the 1995 periods. This was primarily due to
the sales growth discussed above and improved revenues from past due government
accounts partly offset by unfavorable currency translation effects and higher
energy and distribution costs. Excluding the currency translation impact,
operating profit for the quarter and nine months ended September 30, 1996
increased by 33% and 11%, respectively, as compared to the 1995 periods.
Europe
Sales for the quarter and nine months ended September 30, 1996 increased 10%
and 11%, respectively, as compared to the 1995 pro forma amounts due primarily
to volume growth, the effect of newly acquired subsidiaries, improved merchant
and packaged gases pricing in Southern Europe and improved surface technologies
results.
Operating profit for the quarter and nine months ended September 30, 1996
(excluding the first quarter of 1996 CBI integration charges) increased 14% and
13%, respectively, as compared to the 1995 periods due primarily to the sales
growth and continued productivity improvements.
<PAGE>
Canada, Mexico, Asia and Other
Sales for the quarter and nine months ended September 30, 1996 increased 1% and
2%, respectively, as compared to the 1995 pro forma amounts due to volume
growth in Mexico and Asia and pricing improvement in Mexico partly offset by
unfavorable currency translation effects, primarily in Mexico. Excluding the
currency translation effects, sales for the quarter and nine months ended
September 30, 1996 increased 6% and 7%, respectively, as compared to the 1995
periods.
Operating Profit for the quarter and nine months ended September 30, 1996
(excluding the first quarter of 1996 CBI integration charges) was flat and
decreased 10%, respectively, as compared to the 1995 periods primarily due to
an increase in technology cost allocations from the United States segment
within Praxair ($1 million and $3 million, respectively, for the quarter and
nine month periods), unfavorable currency translation effects and higher
business development expenses in Asia, which more than offset the sales growth.
<PAGE>
Liquidity, Capital Resources and other Financial Data
Cash Flow From Operations
Cash flow from operations in the first nine months of 1996 increased by $21
million from $370 million to $391 million. This reflects increased cash
received from customers due to sales growth and lower working capital
requirements, partly offset by higher payments to employees and suppliers and
increased interest on higher debt. Working capital decreased as compared to
the 1995 period as a result of lower inventory and prepaid expenses and
increased other current liabilities related to the CBI integration charges.
Investing
Cash flow used for investing in the first nine months of 1996 totaled $2,219
million, an increase of $1,653 million from 1995. This increase was due
primarily to the acquisition of CBI (see note 2 to the financial statements)
and higher construction expenditures.
Construction expenditures for the first nine months of 1996 totaled $652
million, up $232 million from the corresponding period in 1995. The increase
is primarily in the United States and South America. On a worldwide basis,
construction expenditures for the full year 1996 are expected to be more than
$800 million with most of the increase over 1995 expected to continue to be in
the United States and South America.
Investment expenditures for the first nine months of 1996 totaled $1,594
million predominately due to the acquisition of CBI ($149 million excluding
CBI). Also included are minority share purchases and acquisitions of
independent packaged gases distributors and Surface Technologies companies in
the United States and Germany, investments in Europe (Israel and Italy), South
America, and Asia. Investment expenditures for the full year 1996 are expected
to be approximately $200 million (excluding the acquisition of CBI), reflecting
Praxair's packaged gases and Surface Technologies acquisition strategies, as
well as increasing ownership of affiliates through minority share purchases and
continued geographic expansion initiatives.
Financing
Due to the CBI acquisition and increased capital expenditures, partially offset
by the sale of common stock, debt increased by $2,093 million to $3,411 million
at September 30, 1996. Praxair's debt-to-capital ratio increased from 46% at
December 31, 1995 to 59% as of September 30, 1996. As of September 30, 1996,
there were no borrowings under Praxair's $2.5 billion U. S. bank credit
facility and in April, Praxair terminated CBI's $300 million revolving credit
facility.
During the nine months ended September 30, 1996, Praxair issued 12.6 million
shares of common stock and used the proceeds of $462 million to repay
short-term borrowings.
On April 15, 1996, Praxair issued $250 million of 6.70% non-redeemable Notes
due 2001 with interest payable semi-annually. The proceeds from the Notes was
used to repay outstanding commercial paper.
On October 30, 1996, Praxair completed an offering of $250 million of 6.90%
non-redeemable Notes due 2006 with interest payable semi-annually. The
proceeds from the Notes will be used to repay outstanding commercial paper and
short-term debt, and for general corporate purposes. Accordingly, at September
30, 1996, $250 million of Praxair's commercial paper has been classified as
long-term in the consolidated balance sheet.
As discussed in Note 2 to the financial statements, subsequent to September 30,
1996 Praxair sold five air separation plants for about $200 million, pre-tax.
Additionally, on September 29, 1996 Praxair announced that it has reached a
definitive agreement to sell Statia Terminals, Inc., and its affiliated
companies for $210 million pre-tax to Castle Harlan Partners II, L.P., and the
management of Statia Terminals (subject to financing and regulatory approval).
Praxair continues to work towards an initial public offering of Chicago Bridge
& Iron in early 1997. These businesses are included in Praxair's September 30,
1996 balance sheet as Assets held for sale - net. The after-tax proceeds from
these transactions, after repayment of substantial debt related to the Statia
business, will be used by Praxair to repay outstanding short-term debt.
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
Exhibits
11. Computation of Earnings per Share
27. Financial Data Schedule
Reports on Form 8-K
On September 19, 1996, Praxair filed a Current Report on Form 8-K relating to a
lawsuit filed by Airgas, Inc. against Praxair, Inc. on September 9, 1996
relating to the CBI acquisition. Praxair believes that the Airgas claims are
wholly without merit and intends to vigorously defend the case.
<PAGE>
SIGNATURE
---------
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: November 5, 1996 By: J. ROBERT VIPOND
------------------------- -----------------------------
J. ROBERT VIPOND
Vice President and Controller
(On behalf of the Registrant
and as Chief Accounting Officer)
<PAGE>
Exhibit Index
-------------
Exhibit No.
- -----------------------------------------------------------------------------
11. Computation of Earnings per Share
27. Financial Data Schedule
Exhibit 11
PRAXAIR, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(Millions of dollars except share and per share amounts)
Quarter ended Nine Months ended
September 30, September 30,
------------------------ ---------------------------
1996 1995 1996 1995
----------- ----------- -------------- -----------
Net income $ 88 $ 64 $ 186 $ 196
Weighted average common
shares and common
stock equivalents:
Weighted average common
shares outstanding 156,084,145 139,415,430 151,184,188 138,388,098
Dilutive effect of
convertible debt 154,378 154,378 154,378 154,378
Dilutive effect of
stock options 6,077,194 5,262,659 6,161,135 4,689,697
----------- ----------- ----------- -----------
162,315,717 144,832,467 157,499,700 143,232,173
Earnings per share $ 0.54 $ 0.44 $ 1.18 $ 1.37
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<PERIOD-END> SEP-30-1996
<CASH> 82
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<RECEIVABLES> 891<F1>
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