SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1997
Commission file number 1-11037
PRAXAIR, INC.
1997 FORM 10-K
Praxair, Inc. Tel. (203) 837-2000
39 Old Ridgebury Road State of incorporation: Delaware
Danbury, Connecticut 06810-5113 IRS identification number: 06-124 9050
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS: REGISTERED ON :
Common Stock ($.01 per value) New York Stock Exchange
Common Stock Purchase Rights New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Security 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 [ ]
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 [X]
At January 31, 1998, 157,439,209 shares of common stock of Praxair, Inc. were
outstanding. The aggregate market value of common stock held by non-affiliates
at January 31, 1998 was approximately $6,498 million.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the 1997 Annual Report to Shareholders of the Registrant are
incorporated in Parts I, II and IV of this report. Also, portions of the Proxy
Statement of Praxair, Inc., dated March 6, 1998, are incorporated in Part III
of this report.
The Index to Exhibits is located on page 11 of this report.
<PAGE>
FORWARD-LOOKING STATEMENTS
The forward-looking statements contained in this document concerning, among
other things, projected capital spending, continuation of acquisition
activities in the packaged gases and surface technologies businesses, tax
planning initiatives and effective tax rates, impacts in Brazil related to
economic conditions and a prospective change in hyperinflationary accounting,
impacts from currency and economic developments in Asia, the timing, proceeds
and other terms of the disposition of assets held for sale, and market risks
and sensitivity analyses disclosures related to financial instruments involve
risks and uncertainties, and are subject to change based on various factors,
including the impact of changes in worldwide and national economies, 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 continue to develop potential
acquisition opportunities, and the impact of tax and other legislation and
regulation in the jurisdictions in which the Company operates.
<PAGE>
INDEX
PART I PAGE
Item 1: Business ..................................................... 2
Item 2: Properties ................................................... 6
Item 3: Legal Proceedings ............................................ 6
Item 4: Submission of Matters to a Vote of Security Holders .......... 6
PART II
Item 5: Market for Registrant's Common Equity and Related
Shareholder Matters ......................................... 7
Item 6: Selected Financial Data ...................................... 7
Item 7: Management's Discussion and Analysis of Financial
Condition and Results of Operations ......................... 7
Item 7a: Quantitative and Qualitative Disclosures About Market Risk.... 7
Item 8: Financial Statements and Supplementary Data .................. 7
Item 9: Changes in and Disagreements
with Accountants on Accounting and Financial Disclosure ..... 7
PART III
Item 10: Directors and Executive Officers of the Registrant .......... 8
Item 11: Executive Compensation ...................................... 8
Item 12: Security Ownership of Certain Beneficial
Owners and Management ...................................... 8
Item 13: Certain Relationships and Related Transactions .............. 8
PART IV
Item 14: Exhibits, Financial Statement Schedules,
and Reports on Form 8-K .................................... 9
Signatures ............................................................. 10
Index to Exhibits ...................................................... 11
<PAGE>
PART I
PRAXAIR, INC. AND SUBSIDIARIES
ITEM 1. BUSINESS
GENERAL - Praxair, Inc. (Praxair or Company) was founded in 1907 and became an
independent publicly-traded company on June 30, 1992. Praxair was the first
company in the United States to produce oxygen from air using a cryogenic
process. Praxair has been, and continues to be, a major technological
innovator in the industrial gases industry and has done much to create value
for its customers by developing new applications for industrial gases and to
open new markets by lowering the cost of supply.
Praxair is the largest industrial gases company in North and South America and
the third largest worldwide. The Company is the world's largest supplier of
carbon dioxide. Praxair's primary products are atmospheric gases (oxygen,
nitrogen, argon, rare gases) and process gases (carbon dioxide, helium,
hydrogen, electronics gases, acetylene). The Company's coatings services
business, operated through Praxair Surface Technologies, supplies
wear-resistant and high-temperature corrosion-resistant metallic and ceramic
coatings and powders. Sales for Praxair were $4,735, $4,449, and $3,146
million for 1997, 1996 and 1995, respectively, with industrial gases accounting
for 90% of sales in 1997, 91% in 1996 and 90% in 1995, and coatings
services/other accounting for the balance.
During 1996, Praxair acquired the common stock of CBI Industries, Inc. (CBI)
(See Note 2 to the Consolidated Financial Statements). The industrial gases
segment of CBI has been integrated into Praxair's worldwide industrial gases
business. The remainder of CBI was considered not strategic to Praxair, and
those businesses have been sold, or actions have been taken to sell them. The
remaining businesses to be sold are immaterial at December 31, 1997.
Gases produced by the Company find wide use in the aerospace, beverage,
chemicals, electronics, environmental remediation, food processing and
preservation, glass, healthcare, metal fabrication, oil and gas, primary
metals, pulp and paper, and various other industries. By using the gases that
Praxair produces and, in many cases, the proprietary processes that it invents,
customer value is created through improved product quality, increased
productivity, conservation of energy, and the attainment of environmental
improvement objectives. The Company has been and continues to be a major
technological innovator in the industrial gases industry and, working with
customers, has done much to increase the use of its industrial gases to support
the manufacture of other products and for many other uses. Historically,
consumption of industrial gases has increased at approximately 1.5 to 2.0 times
local GDP growth in countries in which the Company does business.
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. As a pioneer in the industrial gases
industry, Praxair has been a leader in developing a wide range of proprietary
and patented applications and supply systems technology. In recent years,
Praxair has developed and commercialized new air separation technologies for
the production of industrial gases and is a recognized leader in this rapidly
growing market segment. These technologies open important new markets and
optimize production capacity for the Company by lowering the cost of supply of
industrial gases. These new technologies include proprietary vacuum pressure
swing adsorption ("VPSA") and membrane separation to produce gaseous oxygen and
nitrogen, respectively. During 1997, Praxair introduced a new product offering
of small cryogenic nitrogen plants.
<PAGE>
PART I (CONT.)
PRAXAIR, INC. AND SUBSIDIARIES
Process gases, including carbon dioxide, carbon monoxide, hydrogen, helium and
acetylene, are produced by different methods than air separation. Most carbon
dioxide is purchased from by-product sources, including chemical plants,
refineries and industrial processes, or from carbon dioxide wells, and is
processed in Praxair's own plants to produce commercial carbon dioxide. Most
of the helium sold by Praxair is derived from certain helium-rich natural gas
streams in the United States, with additional supplies being acquired from
outside the United States. Hydrogen and carbon monoxide are produced by
purifying hydrocarbon sources or by purifying by-product sources obtained from
the chemical and petrochemical industries. Acetylene is typically produced
from calcium carbide and water.
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 on-site plants. Praxair constructs plants on
or adjacent to these customers' sites and supplies the product directly to
customers. Because these are usually dedicated plants, the product supply
contracts generally are total requirement contracts, typically having 10-20
year terms and containing minimum purchase requirements and price escalation
provisions. Many of the cryogenic on-site plants also produce liquid products
for the merchant market. New 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.
MERCHANT. The merchant business is generally associated with distributable
liquid oxygen, nitrogen, argon, carbon dioxide, hydrogen and helium.
Atmospheric gases for the merchant business are produced by cryogenic
processes, whereas carbon dioxide, hydrogen and helium are produced by other
processes as discussed earlier. The deliveries generally are made from
Praxair's plants by tanker truck to storage containers owned and maintained by
Praxair at the customer's site. Although 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 except for carbon dioxide which typically has
one year requirement contracts.
PACKAGED GASES. Customers requiring small volumes are supplied products in
metal containers called cylinders, usually at medium to high pressure. These
so-called packaged gases include the 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.
In the United States, most cylinder products are sold along with welding
equipment (hardgoods) by distributors that buy the merchant product from
industrial gases producers and package the product at their own facilities.
Praxair has a large network of independent distributors and owns equity
interests in distributor operations in 30 states in the U.S. and Puerto Rico.
Praxair has acquired independent distributors in various locations in the
United States.
<PAGE>
PART I (CONT.)
PRAXAIR, INC. AND SUBSIDIARIES
SURFACE TECHNOLOGIES
Praxair's surface technologies business provides metallic and ceramic coatings
services for parts and equipment provided by customers. It also provides
aircraft engine and airframe component overhaul services and sells a variety of
specialty powders. Praxair Surface Technologies also manufactures a complete
line of electric arc, plasma, and high velocity oxygen fuel spray equipment as
well as arc and flame wire equipment. This equipment is used for the
application of thermal barrier wear resistant coating. The coatings extend
wear life at high temperatures and under corrosive conditions. These coatings
are applied at Praxair's facilities using a variety of thermal spray coatings
processes. The coated parts are finished to the customer's precise
specifications before shipment. Customers for Praxair's surface technologies
products and services include the aircraft, automotive, electronics, metal
finishing, paper, petrochemical, printing and textile industries.
INVENTORIES - Praxair carries inventories of merchant and cylinder gases and
coatings materials to supply products to its customers on a reasonable delivery
schedule. On-site plants and pipeline complexes have limited inventory.
Inventories, inventory obsolescence and backlogs are not material to Praxair's
business.
CUSTOMERS - Praxair is not dependent, to a significant extent, upon a single
customer or a few customers.
INTERNATIONAL - Praxair is a global enterprise with 49% of its 1997 sales
outside of the United States. It conducts industrial gases business through
subsidiary and affiliated companies in Argentina, Australia, Belgium, Belize,
Bolivia, Brazil, Canada, Chile, Colombia, Costa Rica, Ecuador, France, Germany,
Indonesia, India, Israel, Italy, Japan, Korea, Mexico, the Netherlands, the
People's Republic of China, Paraguay, Peru, Poland, Portugal, Spain, Thailand,
Turkey, Uruguay and Venezuela. S.I.A.D. (Societa Italiana Acetilene & Derivati
S.p.A.), an Italian company carried at equity, also has established positions
in Austria, Bulgaria, Croatia, the Czech Republic, Hungary, Romania and
Slovenia. Praxair's surface technologies business has operations in Brazil,
Denmark, France, Germany, Italy, Japan, Singapore, Spain, Switzerland and the
United Kingdom.
Praxair's international business is subject to risks customarily encountered in
foreign operations, including fluctuations in foreign currency exchange rates
and controls, import and export controls, and other economic, political and
regulatory policies of local governments. Also, see Note 1 of the section
captioned "Notes to Consolidated Financial Statements", and the section
captioned "Management's Discussion and Analysis - Market Risk and Sensitivity
Analyses" in Praxair's 1997 Annual Report to Shareholders.
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 frequent introduction of new industrial gas
applications. It has also led to the development of new advanced air
separation process technologies. Research and development for industrial gases
is principally conducted at Tonawanda and Tarrytown, New York; Burr Ridge,
Illinois; Rio de Janeiro, Brazil; Mississauga, Canada and Norwood,
Massachusetts.
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, Praxair does not
consider its business as a whole to be materially dependent upon any one
particular patent or patent license. Praxair also owns a large number of
trademarks.
<PAGE>
PART I (CONT.)
PRAXAIR, INC. AND SUBSIDIARIES
RAW MATERIALS AND ENERGY - Energy is the largest single cost item in the
production and distribution of industrial gases. Principal risks to Praxair's
business and financial performance include shortage of electric power and
natural gas, interruption of supply or increases in price which cannot be
passed through to customers. Praxair has not, historically, experienced
significant difficulties of this nature. Also, Praxair operates a large fleet
of trucks, and any fuel shortage may adversely affect its distribution system.
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 The BOC Group p.l.c., L'Air Liquide S.A., Air Products
and Chemicals, Inc., and AGA Aktiebolag.
At a worldwide level, there are no congruent competitors for the surface
technologies business. However, principal domestic competitors are Sermatech
International, Inc., a subsidiary of Teleflex, Inc., and Chemtronics, Inc., a
subsidiary of Interlake, Inc. International competitors in surface
technologies vary from country to country.
EMPLOYEES AND LABOR RELATIONS - As of December 31, 1997, Praxair had 25,388
employees worldwide, excluding employees related to assets held for sale. Of
this number, 8,797 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 -
Costs Relating to the Protection of the Environment" in Praxair's 1997 Annual
Report to Shareholders.
<PAGE>
PART I (CONT.)
PRAXAIR, INC. AND SUBSIDIARIES
ITEM 2. PROPERTIES
Praxair's worldwide headquarters is located in leased office space in Danbury,
Connecticut. Other principal administrative offices are owned in Tonawanda,
New York and Rio de Janeiro, Brazil.
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; Norwood, Massachusetts; Burr Ridge, Illinois and Rio de
Janeiro, Brazil. Praxair's Italian equity affiliate, Societa Italiana
Acetilene & Derivati S.p.A. (S.I.A.D.) also has such capacity.
Praxair owns 301 cryogenic air separation plants (164 in the United States); 89
by-product carbon dioxide plants (22 in the United States); 291 non-cryogenic
plants, and 30 hydrogen plants. No single production facility is material
except for the following complexes:
Number of
SUPPLY SYSTEM CONNECTED PLANTS PRODUCTS PRODUCED
Northern Indiana 11 Air Separation/Hydrogen
Houston 8 Air Separation
Gulf Coast * 11 Hydrogen/ Carbon Monoxide
Detroit 6 Air Separation/Hydrogen
Southern Brazil * 2 Air Separation
Northern Spain 3 Air Separation/Hydrogen
* partially owned and partially leased.
The surface technologies business operates 33 plants located near customers in
Brazil, Denmark, France, Germany, Italy, Japan, Singapore, Spain, Switzerland,
the United Kingdom and the United States.
Generally, these facilities are fully utilized and sufficient to meet customer
needs.
ITEM 3. LEGAL PROCEEDINGS
Information required by this item is incorporated herein by reference to the
section captioned "Notes to Consolidated Financial Statements - Note 14
Commitments and Contingencies" in Praxair's 1997 Annual Report to Shareholders.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Praxair did not submit any matters to a shareholder vote during the fourth
quarter of 1997.
<PAGE>
PART II
PRAXAIR, INC. AND SUBSIDIARIES
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Market, trading, shareholder and dividend information for Praxair's common
stock is incorporated herein by reference to the section captioned "Information
for Investors" in Praxair's 1997 Annual Report to Shareholders.
Praxair's annual dividend on its common stock for 1997 was $0.44 per share. In
January 1998, Praxair's Board of Directors declared a dividend of $0.125 per
share for the first quarter of 1998, or $0.50 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.
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data for the five years ended December 31, 1997 is
incorporated herein by reference to the section captioned "Five-year Financial
Summary" in Praxair's 1997 Annual Report to Shareholders. This summary should
be read in conjunction with the Consolidated Financial Statements and related
Notes to Consolidated Financial Statements.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Information required by this item is incorporated herein by reference to the
section captioned "Management's Discussion and Analysis" in Praxair's 1997
Annual Report to Shareholders.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information required by this item is incorporated herein by reference to the
section captioned "Management's Discussion and Analysis" in Praxair's 1997
Annual Report to Shareholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information required by this item is incorporated herein by reference to the
sections captioned "Consolidated Statement of Income," "Consolidated Balance
Sheet," "Consolidated Statement of Cash Flows," "Consolidated Statement of
Shareholders' Equity" and "Notes to Consolidated Financial Statements" in
Praxair's 1997 Annual Report to Shareholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no changes in or disagreements with accountants reportable
under this item.
<PAGE>
PART III
PRAXAIR, INC. AND SUBSIDIARIES
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this item is incorporated herein by reference to the
section captioned "Directors and Executive Officers" in Praxair's Proxy
Statement for the Annual Meeting of Shareholders to be held on April 28, 1998.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this item is incorporated herein by reference to the
section captioned "Executive Compensation" in Praxair's Proxy Statement for
the Annual Meeting of Shareholders to be held on April 28, 1998.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this item is incorporated herein by reference to the
section captioned "Voting Securities and Principal Holders" in Praxair's Proxy
Statement for the Annual Meeting of Shareholders to be held April 28, 1998.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There have been no transactions or relationships since the beginning of 1997
which are reportable under this item.
<PAGE>
PART IV
PRAXAIR, INC. AND SUBSIDIARIES
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements and Schedules
PAGE NO. IN
PRAXAIR'S 1997
ANNUAL REPORT (AR)*
FINANCIAL STATEMENTS
Consolidated Statement of Income for the Years Ended
December 31, 1997, 1996 and 1995 ......................... AR-34
Consolidated Balance Sheet at December 31, 1997 and 1996 .. AR-35
Consolidated Statement of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995 ......................... AR-36
Consolidated Statement of Shareholders' Equity for the
Years Ended December 31, 1997, 1996 and 1995 ............. AR-37
Notes to Consolidated Financial Statements ................ AR-38
Report of Independent Accountants ......................... AR-53
* Incorporated by reference from the indicated pages of the 1997 Annual
Report to Shareholders.
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.
(b) Reports on Form 8-K
Non-applicable.
(c) Exhibits
Exhibits filed as a part of this Annual Report on Form 10-K are listed in
the Index to Exhibits located on page 11 of this Report.
<PAGE>
SIGNATURES
PRAXAIR, INC. AND SUBSIDIARIES
Pursuant to the requirements of Section 13 or 15(d) 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: March 18, 1998
/s/J. Robert Vipond
J. Robert Vipond
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 24, 1998.
/s/John A. Clerico /s/Alejandro Achaval /s/Ronald L. Kuehn, Jr.
John A. Clerico Alejandro Achaval Ronald L. Kuehn, Jr.
EXECUTIVE VICE PRESIDENT DIRECTOR DIRECTOR
& CHIEF FINANCIAL OFFICER
AND DIRECTOR
/s/Edgar G. Hotard /s/Raymond W. LeBoeuf /s/Benjamin F. Payton
Edgar G. Hotard Raymond W. LeBoeuf Benjamin F. Payton
PRESIDENT AND CHIEF DIRECTOR DIRECTOR
OPERATING OFFICER AND
DIRECTOR
/s/H. William Lichtenberger /s/C. Fred Fetterolf /s/G. Jackson Ratcliffe, Jr.
H. William Lichtenberger C. Fred Fetterolf G. Jackson Ratcliffe, Jr.
CHAIRMAN AND CHIEF DIRECTOR DIRECTOR
EXECUTIVE OFFICER
/s/Dale F. Frey /s/H. Mitchell Watson, Jr.
Dale F. Frey H. Mitchell Watson, Jr.
DIRECTOR DIRECTOR
/s/Claire W. Gargalli
Claire W. Gargalli
DIRECTOR
<PAGE>
INDEX TO EXHIBITS
PRAXAIR, INC. AND SUBSIDIARIES
EXHIBIT NO. DESCRIPTION
2.01 Agreement and Plan of Merger dated as of December 22, 1995 among
Praxair, Inc., PX Acquisition Corp. and CBI Industries, Inc. (Filed
as Exhibit 2 to the Company's Current Report on Form 8-K dated
December 22, 1995, Filing No. 1-11037, and incorporated herein by
reference).
3.01 Restated Certificate of Incorporation (Filed as Exhibit 3.01 to the
Company's Registration Statement on Form 10, Filing No. 1-11037, and
incorporated herein by reference).
3.02 Amended By Laws of Praxair, Inc. (Filed as Exhibit 3.02 to
the Company's Registration Statement on Form 10, 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 7, 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 7, 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 Rights Agreement between the registrant and The Bank of New York as
Rights Agent. (Filed as Exhibit 4.02 to the Company's Registration
Statement on Form 10, Filing No. 1-11037, and incorporated herein by
reference).
4.03 Indenture, dated as of July 15, 1992, between Praxair, Inc. and
State Street Bank and Trust Company, successor trustee to Fleet Bank
of Connecticut and the ultimate successor trustee to Bank of America
Illinois (formerly Continental Bank, National Association) (Filed as
Exhibit 4 to the Company's Form 10-Q for the quarter ended June 30,
1992, Filing No. 1-11307, and incorporated herein by reference).
4.04 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.
4.05 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).
4.06 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 1992 Long-Term Incentive Plan (Filed as Exhibit 10.01 to the
Company's Registration Statement on Form 10, Filing No. 1-11037, and
incorporated herein by reference).
*10.01a First Amendment to the 1992 Long-Term Incentive Plan (Filed as
Exhibit 10.01a to the Company's 1993 Annual Report on Form 10-K,
Filing No. 1-11037, and incorporated herein by reference).
<PAGE>
INDEX TO EXHIBITS (CONT.)
PRAXAIR, INC. AND SUBSIDIARIES
EXHIBIT NO. DESCRIPTION
*10.01b Second Amendment to the 1992 Long-Term Incentive Plan (Filed as
Exhibit 10.01b to the Company's 1995 Annual Report on Form 10-K,
Filing No. 1-11037, and incorporated herein by reference).
*10.01c Third Amendment to the 1992 Long-Term Incentive Plan (Filed as
Exhibit 10.01c to the Company's 1995 Annual Report on Form 10-K,
Filing No. 1-11037, and incorporated herein by reference).
*10.01d Fourth Amendment to the 1992 Long-Term Incentive Plan (Filed as
Exhibit 10.01d to the Company's 1996 Annual Report on Form 10-K,
Filing No. 1-11037, and incorporated herein by reference).
*10.02 Form of Severance Compensation Agreement
*10.03 1992 Variable Compensation Plan (Filed as Exhibit 10.03 to the
Company's Registration Statement on Form 10, Filing No. 1-11037, and
incorporated herein by reference).
*10.03a First Amendment to the 1992 Variable Compensation Plan (Filed as
Exhibit 10.03a to the Company's 1993 Annual Report on Form 10-K,
Filing No. 1-11037, and incorporated herein by reference).
*10.04 1995 Stock Option Plan for Non-Employee Directors (Filed as Exhibit
10.04 to the Company's Form 10-Q for the Quarter ended March 31,
1995, Filing No. 1-11037, and incorporated herein by reference).
*10.05 Special Severance Protection Program (Filed as Exhibit 10.05 to
the Company's Registration Statement on Form 10, Filing No. 1-11037,
and incorporated herein by reference).
*10.06 Restated Praxair, Inc. Directors' Fees Deferral Plan (Filed as
Exhibit 10.06 to the Company's 1996 Annual Report on Form 10-K,
Filing No. 1-11037, and incorporated herein by reference).
*10.07 Amended and Restated 1993 Praxair Compensation Deferral Program
(Filed as Exhibit 10.07 to the Company's 1996 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).
<PAGE>
INDEX TO EXHIBITS (CONT.)
PRAXAIR, INC. AND SUBSIDIARIES
EXHIBIT NO. DESCRIPTION
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).
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).
10.15 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).
<PAGE>
INDEX TO EXHIBITS (CONT.)
PRAXAIR, INC. AND SUBSIDIARIES
EXHIBIT NO. DESCRIPTION
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 Credit Agreement dated as of December 7, 1995, among Praxair, Inc.,
The Banks Party Thereto, Morgan Guaranty Trust Company of New York as
Documentation Agent and The Chase Manhattan Bank (formerly known as
Chemical Bank), as Administrative Agent (Filed as Exhibit 10.17 to
the Company's 1995 Annual Report on Form 10-K, Filing No. 1-11037,
and incorporated herein by reference).
10.17a Amendment No. 1 to Credit Agreement, dated as of December 22, 1997.
*10.18 1996 Praxair, Inc. Senior Executive Performance Award Plan (Filed
as Exhibit 10.19 to the Company's Report on Form 10-Q for the Quarter
ended March 31, 1996, Filing No. 1-11037, and incorporated herein by
reference).
10.19 Form of Underwriting Agreement related to the sale of shares of
Chicago Bridge & Iron Company N.V. (Filed as Exhibit 1 to the
Registration Statement on Form S-1 of Chicago Bridge & Iron Company
N.V., Registration No. 333-18065, and incorporated herein by
reference).
12.01 Computation of Ratio of Earnings to Fixed Charges.
13.01 Praxair's 1996 Annual Report to Shareholders (such report, except
for those portions which are expressly referred to in this Form 10-K,
is furnished for the information of the Commission and is not deemed
"filed" as part of this Form 10-K).
21.01 Subsidiaries of Praxair, Inc.
23.01 Consent of Independent Accountants.
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.
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1997
Commission file number 1-11037
EXHIBITS
Praxair, Inc.
1997 Form 10-K
Praxair, Inc. Tel. (203) 837-2000
39 Old Ridgebury Road State of incorporation: Delaware
Danbury, Connecticut 06810-5113 IRS identification number: 06-124 9050
Exhibit 10.02
Praxair, Inc.
Severance Compensation Agreement
February 28, 1997
NAME
ADDRESS
Dear Mr. <E^><E^><E^><E^><E^><E^><E^><E^>:
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 incorporated in the
United States (hereinafter to be referred to collectively as the
"Company").
The Board of Praxair 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 your continued service to the Company, 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.
1. DEFINITIONS.
a. "CHANGE IN CONTROL" of Praxair means the occurrence of any
one of the following events:
(i) individuals who, on January 1, 1997, 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,
1997, 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 proxy statement of the Company 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 the Company 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 the Company representing 20%
or more of the combined voting power of the Company's then
outstanding securities eligible to vote for the election
of the Board (the "Company Voting Securities"); PROVIDED,
HOWEVER, that the event described in this paragraph (ii)
shall not be deemed to be a Change in Control by virtue of
any of the following acquisitions: (A) by the Company or
any Subsidiary, (B) by any employee benefit plan sponsored
or maintained by the Company or Subsidiary, (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 paragraph
(iii));
(iii) the consummation of a merger, consolidation, statutory
share exchange or similar form of corporate transaction
involving the Company or any of its Subsidiaries that
requires the approval of the Company'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 Company Voting Securities
that were outstanding immediately prior to such Business
Combination (or, if applicable, shares into which such
Company 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 Company 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 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 the Company approve a plan of complete
liquidation or dissolution of the Company or a sale or
disposition of all or substantially all of the Company's
assets.
Notwithstanding the foregoing, a Change in Control of the
Company shall not be deemed to occur solely because any
person acquires beneficial ownership of more than 20% of
the Company Voting Securities as a result of the
acquisition of Company Voting Securities by the Company
which reduces the number of Company Voting Securities
outstanding; PROVIDED, THAT if after such acquisition by
the Company such person becomes the beneficial owner of
additional Company Voting Securities that increases the
percentage of outstanding Company Voting Securities
beneficially owned by such person, a Change in Control of
the Company shall then occur.
b. "DATE OF TERMINATION" shall mean
(i) in case 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), and
(ii) in all other cases, the date specified in the Notice of
Termination (which shall not be less than thirty (30) nor
more than sixty (60) days, respectively, from the date
such Notice of Termination is given).
c. "TOTAL DISABILITY" shall mean total physical or mental
disability rendering you unable to perform the duties of your employment
for a continuous period of six (6) months. Any question as to the
existence of your Total Disability upon which you and the Company cannot
agree shall be determined by a qualified physician not employed by the
Company and selected by you (or, if you are unable to make such selection,
it shall be made by any adult member of your immediate family), and
approved by the Company. The determination of such physician made in
writing to the Company and to you shall be final and conclusive for all
purposes of this Agreement.
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 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 for Cause, Retirement,
or Total Disability 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 a
Change in Control or as the same may be increased from
time to time thereafter, or the Company's failure to
increase the annual rate of your base salary for a
calendar year in an amount at least equal to the
percentage increase in base salary for all domestic
employees of the Company with Severance Compensation
Agreements in the preceding calendar year. Within three
(3) days after your request, the Company shall notify you
of the average percentage increase in base salary for all
such employees of the Company in the calendar year
preceding your request;
(iii) the Company's requiring you to be based outside of a
fifteen (15) mile radius from where your office is located
immediately prior to a Change in Control except for
required travel on the Company's business to an extent
substantially consistent with your business travel
obligations immediately prior to a Change in Control;
(iv) the failure by the Company to continue in effect any
compensation plan in which you participate as in effect
immediately prior to the Change in Control, including but
not limited to the Retirement Program Plan for Employees
of Praxair, Inc. and its Participating Subsidiary
Companies and any of the Incentive Compensation Plans,
compensation deferral plans, or any substitute plans
adopted prior to the Change in Control, unless an
arrangement satisfactory to you (embodied in an ongoing
substitute or alternative plan) has been made with respect
to such plan, or the failure by the Company to continue
your participation therein on at least as favorable a
basis, both in terms of the amount of benefits provided
and the level of your participation relative to other
participants, as existed immediately prior to the Change
in Control;
(v) the failure by the Company to continue to provide you with
benefits at least as favorable as those enjoyed by you
(and your dependents, if applicable) under any of the
Company's pre-retirement and post-retirement life
insurance, medical, health and accident, and disability
plans or any other plan, program or policy of the Company
intended to benefit employees in which you were
participating immediately prior to the Change in Control,
the taking of any action by the Company which would
directly or indirectly materially reduce any of such
benefits or deprive you of any material fringe benefit
enjoyed by you immediately prior to the Change in Control,
or the failure by the Company to provide you with the
number of annual paid vacation days to which you were
annually entitled immediately prior to the Change in
Control;
(vi) the failure of the Company to obtain a satisfactory
agreement from any Successor (as defined in Paragraph 4a
hereof) to assume and agree to perform this Agreement, as
contemplated in Paragraph 4a hereof;
(vii) 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.
e. "INCENTIVE COMPENSATION AWARD" shall mean payment or
payments under Incentive Compensation Plans.
f. "INCENTIVE COMPENSATION PLANS" shall mean any variable
compensation or incentive compensation plans maintained by the Company,
including, but not limited to: (i) 1992 Praxair, Inc. Long Term Incentive
Plan, (ii) 1992 Praxair, Inc. Variable Compensation Plan, (iii) Praxair,
Inc. Profit Sharing Plan, (iv) 1996 Praxair, Inc. Senior Executive
Performance Award Plan and (v) 1996 Praxair, Inc. Performance Incentive
Plan.
g. "NOTICE OF TERMINATION" shall mean a written notice as
provided in Paragraph 9 hereof.
h. "RETIREMENT" shall mean (1) voluntary retirement before
your mandatory retirement age, if any, with an immediate,
nonactuarially-reduced pension under the Company's Retirement Program
(termination of your employment by you before your mandatory retirement
age, if any, with Good Reason for Resignation shall not be deemed a
Retirement for purposes of this Agreement even though you are eligible for
and elect to receive an immediate, nonactuarially-reduced pension under
the Company's Retirement Program) or (2) termination in accordance with any
retirement arrangement other than under the Company's Retirement Program,
which is established with your consent with respect to you or (3) mandatory
retirement as set forth under the policy of the Company as it existed prior
to the Change in Control or as agreed to by you following a Change in
Control.
i. "RETIREMENT PROGRAM" shall mean the Retirement Program
Plan for Employees of Praxair, Inc. and its Participating Subsidiary
Companies plus any excess or supplemental pension plans maintained by the
Company.
j. "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 of
the Company at a meeting of the Board of the Company 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 of the Company),
finding that in the good faith opinion of the Board of the Company you were
guilty of the conduct set forth and specifying the particulars thereof in
detail.
For purposes of this Paragraph 1j, 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 of the
Company 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.
2. COMPENSATION UPON TERMINATION OR WHILE DISABLED. Following a
Change in Control of Praxair you shall be entitled to the following
benefits:
a. TERMINATION OTHER THAN FOR CAUSE, RETIREMENT, DEATH OR
TOTAL DISABILITY; TERMINATION BY YOUR RESIGNATION WITH GOOD REASON FOR
RESIGNATION. If your employment by the Company shall be terminated
subsequent to the Change in Control and during the term of this Agreement
(a) by the Company other than for Cause, Retirement, Death or Disability or
(b) by you for 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, not later than
the fifth day following the Date of Termination, your full
base salary and vacation pay accrued through the 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 a Change in Control, if such amounts
were 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. If the 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 the greatest of: (a)
an amount that bears the same ratio to your total base
salary in said Variable Compensation Year as the Incentive
Compensation paid to you during the immediately prior
Variable Compensation Year bears to your base salary for
said prior Variable Compensation Year, (b) an amount that
bears the same ratio to your base salary for such Variable
Compensation Year as the Incentive Compensation paid to
you during the three (3) immediately prior Variable
Compensation Years bears to your base salary for said
three (3) prior years, (c) the amount of your target
variable compensation payment for such Variable
Compensation Year, or (d) the average amount of Incentive
Compensation, as a percentage of base compensation, paid
to other executives of the Company at the same grade level
as yourself.
In addition, if the 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 the Date of Termination occurs,
the greatest of: (a) an amount that bears the same ratio
to your total base salary earned (up to the Date of
Termination) in said Variable Compensation Year as the
Incentive Compensation paid to you during the immediately
prior Variable Compensation Year bears to your base salary
for said prior Variable Compensation Year, (b) an amount
that bears the same ratio to your total base salary earned
(up to the Date of Termination) for such Variable
Compensation Year as the Incentive Compensation paid to
you during the three (3) Variable Compensation Years
immediately prior to such Variable Compensation Year bears
to your base salary for said three (3) prior years, or (c)
the amount of your target variable compensation payment
for such Variable Compensation Year multiplied by a
fraction, the numerator of which is the total number of
days which have elapsed in the current Variable
Compensation Year to the Date of Termination, and the
denominator of which is three hundred sixty-five (365).
Such payment shall be made to you not later than thirty
(30) days after the Date of Termination.
If there is more than one Incentive Compensation Program,
your accrued Incentive Compensation under each Program
shall be determined individually for that Program.
For the purpose of determining the amount of your Accrued
Incentive Compensation under this Paragraph 2a(ii), you
will be deemed to have been paid the full amount of all
prior variable and incentive compensation, whether or not
such award was includible in your gross income for Federal
Income tax purposes.
For the purpose of this Paragraph 2a(ii), "Incentive
Compensation Program" means any of the Incentive
Compensation Plans defined in Paragraph 1f and any other
plan or program for the payment of incentive compensation,
variable compensation, bonus, benefits or awards for which
you were, or your position was, eligible to participate;
"Incentive Compensation" means any compensation, variable
compensation, bonus, benefit or award paid or payable
under an Incentive Compensation Program; and "Variable
Compensation Year" means a calendar or fiscal plan year of
an Incentive Compensation Program.
(iii) INSURANCE COVERAGE. The Company shall arrange to provide
you (and your dependents, if applicable) with life,
disability, accident and health insurance benefits
substantially equivalent to those which you are receiving
or entitled to receive immediately prior to the Change in
Control of the Company. Such insurance benefits shall be
provided to you for the longer of (x) thirty six (36)
months after such 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
and disability insurance plans of the Company in effect
immediately prior to the Change in Control of the Company
(except that after a period of thirty six (36) months,
such insurance benefits 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 (iii) could be
included in your gross income for federal, state or local
tax purposes, then the following shall apply:
(a) If you are retirement eligible on your Date of
Termination, then you shall participate in the Company's
medical benefit plans as if you retired from the Company
on your Date of Termination, except that the Company shall
provide such medical coverage at no cost to you for three
(3) years following your Date of Termination and
thereafter, you shall participate therein on the same
terms as other retired employees;
(b) If you are not eligible for retirement upon your Date
of Termination, you will no longer continue to participate
in the Company's medical benefit plans and (i) the Company
shall provide you with a cash payment in an amount equal
to the amount required by you to pay for coverage under
COBRA for the first eighteen (18) months following your
loss of medical coverage, and thereafter, (ii) the Company
shall, for the subsequent eighteen (18) 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. The Company shall pay you, at the
time you are entitled to be paid a retirement pension
under the Retirement Program, a retirement pension equal
to the greater of (x) an amount computed in accordance
with the terms of the Retirement Program in effect
immediately prior to the Change in Control of Praxair and
as if those terms were in effect on the Date of
Termination, or (y) an amount computed in accordance with
the terms of the Retirement Program in effect immediately
prior to the Date of Termination, in either case less the
amount of retirement pension actually to be paid to you
under the Retirement Program. In computing the amounts of
your retirement pension under clauses (x) and (y) of this
Paragraph 2a(iv), three years shall be added to your
actual age and to your actual Company Service Credit under
the Retirement Program so that your retirement pension
under clauses (x) and (y) will be the amount it would have
been if you had been three years older than you actually
were, and had three years more Company Service Credit than
you actually had, on the Date of Termination.
If for any reason, the benefits under this subparagraph
(iv) cannot be paid under the tax-qualified portion of the
Retirement Program, the Company shall provide such
benefits to you through the purchase, and delivery to you,
of a non-qualified annuity from an insurance company, or
you may elect to receive a lump sum payment for the
benefits under this subparagraph (iv), 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 Plan and Equalization Benefit Plan in effect
immediately prior to a Change in Control, (b) calculated
under the same factors (interest rate and mortality) as
lump sum payments are made under the Company's
Supplemental Retirement Income Plan and Equalization
Benefit Plan, or other similar plans, as in effect on the
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 Plan and Equalization
Benefit Plan on the Date of Termination, if such factors
were determined using the same methodology as such plans
used prior to the Change in Control.
(v) OUTPLACEMENT COUNSELING. The Company shall make available
to you, at the Company's expense, outplacement counseling.
You may select the organization that will provide the
outplacement counseling, however, the Company's obligation
to provide you benefits under this subsection (v) shall be
limited to $35,000.
(vi) FINANCIAL COUNSELING. The Company shall, within 30 days
of the Date of Termination, make available to you three
individual financial counseling sessions, of at least two
hours each and at times and locations that are convenient
to you, with a nationally recognized financial counseling
firm. The financial counseling firm may also provide you
with tax counseling and tax preparation services. You may
select the organization that will provide the financial
and tax counseling, however, the Company's obligation to
provide you benefits under this subsection (vi) shall be
limited to $10,000. At the financial counseling sessions,
the financial counseling firm shall provide you with
detailed financial advice that is tailored to your
particular personal and financial situation. The Company
shall specify to you the information regarding your
personal and financial situation that you must provide to
the financial counseling firm in order for the firm to
provide the counseling services required by this Section
2(a)(vi). The Company shall take all reasonable and
appropriate measures to assure that the financial
counseling firm preserves the confidentiality of all
information conveyed by you to the counseling firm.
(vii) SEVERANCE PAYMENT. The Company shall pay as severance pay
to you, not later than the fifth day following the Date of
Termination, a lump sum severance payment (the "Severance
Payment") equal to three (3) 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 the
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 greater of: (y) the amount of your most recent
Incentive Compensation Award received prior to the Date of
Termination, or, if higher, the amount of your most recent
Incentive Compensation Awards received prior to the Change
in Control, whether or not such bonus or award was
includible in your gross income for Federal Income tax
purposes, or (z) an amount that bears the same ratio to
your annual base salary in effect immediately prior to the
Date of Termination, or, if higher, your annual base
salary in effect immediately prior to the Change in
Control, as the Incentive Compensation paid to you during
the three (3) immediately prior Incentive Compensation
Years bears to your base salary for said three (3) prior
years; plus
(c) the greater of the value, as determined by the Company
at the time of the grant, attributable to any stock
options awarded to you by the Company at the most recent
date of grant of stock options prior to the Date of
Termination and the value, as determined by the Company at
the time of grant, attributable to any stock options
awarded to you by the Company at the most recent date of
grant of stock options prior to a Change in Control. In
determining such value, the number of stock options
awarded to you shall be multiplied by the value ascribed
to a stock option by the Company using the Black-Scholes
method or other similar methodology. If at the time of
either of such grants it is specified in writing that the
grant covers a period of more than one year, then the
value of such grant as determined above shall be
annualized by dividing such value by the number of years
(or part thereof) the grant is specified to cover; plus
(d) the greater of the value, as determined by the Company
at the time of the grant, attributable to the grant to you
by the Company of performance or restricted stock of the
Company at the most recent date of grant prior to the Date
of Termination and the value, as determined by the Company
at the time of grant, attributable to the grant to you by
the Company of performance or restricted stock of the
Company at the most recent date of grant prior to a Change
in Control. If at the time of either of such grants it is
specified in writing that the grant covers a period of
more than one year, then the value of such grant as
determined above shall be annualized by dividing such
value by the number of years (or part thereof) the grant
is specified to cover. In determining such annualized
value, the number of shares of performance or restricted
stock awarded to you shall be multiplied by the closing
price of the common stock of the Company on the New York
Stock Exchange-Composite Transactions on the date of
grant.
The Severance Payment shall not be reduced to the extent
the Company could not properly deduct amounts paid
pursuant to Paragraph 2a(i) through 2a(vii) hereof or
otherwise pursuant to section 280G of the Code.
(viii) PAYMENT OF TAXES.
(a) For purposes of this subparagraph (viii), 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, but
determined without regard to any additional
payments required under this subsection
(viii)). 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.
(II) EXCISE TAX shall mean the excise tax imposed
by Section 4999 of the Code, or any interest
or penalties incurred by you with respect to
such excise tax.
(III) INCOME TAX shall mean all taxes other than
the Excise Tax (including any interest or
penalties imposed with respect to such taxes)
including, without limitation, any income and
employment taxes imposed by any federal
(including (i) FICA and medicare taxes, and
(ii) the loss of any federal deductions or
exemptions which would have been available to
you but for receipt of the Payment), state,
local, commonwealth or foreign government.
(b) In the event it shall be determined that a Payment
would be subject to an Excise Tax, then you shall
be entitled to receive an additional payment (a
"Gross-Up Payment") in an amount such that after
payment by you of Income Tax and Excise Tax
imposed upon the Gross-Up Payment, you retain an
amount of the Gross-Up Payment equal to the Excise
Tax imposed upon the Payment.
(c) All determinations required to be made under this
subsection (viii), including whether and when a
Gross-Up Payment is required and the amount of
such Gross-Up Payment and the assumptions to be
utilized in arriving at such determination, shall
be made by the public accounting firm that is
retained by the Company as of the date immediately
prior to the Change in Control (the "Accounting
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 the event
that the Accounting Firm is serving as accountant
or auditor for the individual, entity or group
affecting the Change in Control, you may appoint
another nationally recognized public accounting
firm to make the determinations required hereunder
(which accounting firm shall then be referred to
as the Accounting Firm hereunder). All fees and
expenses of the Accounting Firm shall be borne
solely by the Company. Any Gross-Up Payment, as
determined pursuant to this subsection (viii),
shall be paid by the Company to you within ten
(10) days of your receipt of the Payment. If the
Accounting Firm determines that no Excise Tax is
payable by you, you may request the Accounting
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
Accounting Firm shall be binding upon the Company
and you. As a result of the uncertainty in the
application of Section 4999 of the Code at the
time of the Determination, it is possible that
Gross-Up Payments which will not have been made by
the Company should have been made
("Underpayment"), consistent with the calculations
required to be made hereunder. In the event that
the Company exhausts its remedies pursuant to
Section (viii)(d) and you thereafter are required
to make payment of any Excise Tax or Income Tax,
the Accounting Firm shall determine the amount of
the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company
to or for your benefit.
(d) You shall notify the Company in writing of any
claim by the Internal Revenue Service that, if
successful, would require the payment by the
Company of the Gross-Up Payment or the
Underpayment. Such notification shall be given as
soon as practicable but no later than ten (10)
business days after you are informed in writing of
such claim and shall apprise the Company of the
nature of such claim and the date on which such
claim is requested to be paid. You shall not pay
such claim prior to the expiration of the 30-day
period following the date on which you give such
notice to the Company (or such shorter period
ending on the date that any payment of taxes with
respect to such claim is due). If the Company
notifies you in writing prior to the expiration of
such period that it desires to contest such claim,
you shall:
(1) give the Company any information reasonably
requested by the Company relating to such
claim,
(2) take such action in connection with
contesting such claim as the Company shall
reasonably request in writing from time to
time, including, without limitation,
accepting legal representation with respect
to such claim by an attorney reasonably
selected by the Company,
(3) cooperate with the Company in good faith in
order effectively to contest such claim, and
(4) permit the Company to participate in any
proceeding relating to such claim; provided,
however, that the Company shall bear and pay
directly all costs and expenses (including
additional interest and penalties) incurred
in connection with such contest and shall
indemnify and hold you harmless, on an
after-tax basis, for any Excise Tax or Income
Tax imposed as a result of such
representation and payment of costs and
expenses. Without limitation on the
foregoing provisions of this Section
(viii)(d), the Company shall control all
proceedings taken in connection with such
contest and, at its sole option, may pursue
or forego any and all administrative appeals,
proceedings, hearings and conferences with
the taxing authority in respect of such claim
and may, at its sole option, either direct
you to pay the tax claimed and sue for a
refund or contest the claim in any
permissible manner, and you agree to
prosecute such contest to a determination
before any administrative tribunal, in a
court of initial jurisdiction and in one or
more appellate courts, as the Company shall
determine; provided further, that if the
Company directs you to pay such claim and sue
for a refund, the Company shall advance the
amount of such payment to you on an
interest-free basis and shall indemnify and
hold you harmless, on an after-tax basis,
from any Excise Tax or Income Tax imposed
with respect to such advance or with respect
to any imputed income with respect to such
advance; and provided further, that any
extension of the statute of limitations
relating to payment of taxes for your taxable
year with respect to which such contested
amount is claimed to be due is limited solely
to such contested amount. Furthermore, the
Company's control of the contest shall be
limited to issues with respect to which a
Gross-Up Payment would be payable hereunder
and you shall be entitled to settle or
contest, as the case may be, any other issue
raised by the Internal Revenue Service or any
other taxing authority.
(e) If, after the receipt by you of an amount advanced
by the Company pursuant to Section (viii)(d), you
become entitled to receive, and receive, any
refund with respect to such claim, you shall
(subject to the Company's complying with the
requirements of Section (viii)(d)) promptly pay to
the Company the amount of such refund (together
with any interest paid or credited thereon after
taxes applicable thereto). If, after the receipt
by you of an amount advanced by the Company
pursuant to Section (viii)(d), a determination is
made that you shall not be entitled to any refund
with respect to such claims and the Company does
not notify you in writing of its intent to contest
such denial of refund prior to the expiration of
thirty (30) days after such determination, then
such advance shall be forgiven and shall not be
required to be repaid and the amount of such
advance shall be offset, to the extent thereof,
the amount of the Gross-Up Payment required to be
paid.
(ix) NO DUTY TO MITIGATE. You shall not be required to
mitigate the amount of any payment provided for in this
Paragraph 2 by seeking other employment or otherwise, nor
shall the amount of any payment or benefit as provided for
be reduced by any compensation earned by you as the result
of employment by another employer or by retirement
benefits after the Date of Termination, or otherwise
except as specifically provided herein. However,
notwithstanding the foregoing, 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 2(a)(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.
b. PAYMENTS WHILE DISABLED. During any period prior to the
Date of Termination and during the term of this Agreement 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 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, together with all
other compensation and benefits that are payable or provided under the
Company's benefit plans, including its disability plans. After the Date of
Termination, your benefits shall be determined in accordance with the
Company's Retirement Program, insurance and other applicable programs. The
compensation and benefits, other than salary, payable or provided pursuant
to this Paragraph 2b shall be the greater of (x) the amounts computed under
the Retirement Program, disability benefit plans, insurance and other
applicable programs in effect immediately prior to a Change in Control of
Praxair and (y) the amounts computed under the Retirement 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 EXCEPT WITH
GOOD REASON. If your employment shall be terminated by the Company for
Cause or by you other than with Good Reason for Resignation, the Company
shall pay you your full base salary and accrued vacation pay then in effect
through the Date of Termination, at the rate in effect at the time Notice
of Termination is given plus any benefits or awards which have been earned
or become payable but which have not yet been paid to you. You shall
receive any payment due under this subsection c. on your Date of
Termination. Thereafter the Company shall have no further obligation to
you under this Agreement.
d. AFTER RETIREMENT OR DEATH. If your employment shall be
terminated by your Retirement, or by reason of your death, your benefits
shall be determined in accordance with the Company's retirement and
insurance programs then in effect.
3. TERM OF AGREEMENT. This Agreement shall commence on the date
hereof and shall continue in effect through December 31, 1998; provided,
however, that commencing on January 1, 1999 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 the 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. This Agreement shall terminate if your employment is
terminated by you or the Company prior to a Change in Control.
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 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 of the Company has occurred or thereafter occurs, shall
entitle you immediately to the benefits provided in Paragraph 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 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 Paragraph 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. COVENANT NOT TO COMPETE. In consideration for this Agreement,
you agree that at all times within a three (3) year period following your
Date of Termination, that you will not, as a principal, agent, employee,
employer, consultant, stockholder (other than an owner of less than 5% of
the stock of a publicly traded company), investor, director or co-partner
of any person, firm, corporation or business entity other than the Company,
or in any individual representative capacity whatsoever, directly or
indirectly, without the express prior written consent of the Company:
(a) engage or participate in any business whose products or
services are competitive with the business of the Company as it existed
prior to a Change in Control;
(b) aid or counsel any other person, firm, corporation or
business entity to do any of the above;
(c) approach, solicit business from, or otherwise do business
or deal with any person, partnership, firm, corporation or other entity
that at the time of your Date of Termination is a present client of the
Company or which has been a client of the Company during your employment by
the Company in connection with any product or service competitive to any
provided by the Company as described in section 5(a) above.
6. 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.
7. 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.
8. 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.
9. 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.
10. NOTICE. Any purported termination of this Agreement 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 of Praxair 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.
11. FEES AND EXPENSES. Praxair shall pay all 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 fees and expenses, if any,
incurred in contesting or disputing any such termination or incurred by you
in seeking advice in connection therewith).
12. SURVIVAL. The respective obligations of, and benefits afforded
to, the Company and you as provided in Paragraphs 2, 4, 5, 6, 10 and 11 of
this Agreement shall survive termination of this Agreement.
13. 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.
14. GOVERNING LAW. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Connecticut.
15. AMENDMENT. No amendment to this Agreement shall be effective
unless in writing and signed by both you and the Company.
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.
Sincerely,
PRAXAIR, INC.
By:
Title:
Agreed to this day
of , 1997
-1-
[CONFORMED COPY]
Exhibit 10.17a
AMENDMENT NO. 1 TO CREDIT AGREEMENT
AMENDMENT dated as of December 22, 1997 to the Credit Agreement dated
as of December 7, 1995 (the "CREDIT AGREEMENT") among PRAXAIR, INC. (the
"BORROWER"), the BANKS party thereto (the "Banks"), MORGAN GUARANTY TRUST
COMPANY OF NEW YORK, as Documentation Agent (the "DOCUMENTATION AGENT"),
and THE CHASE MANHATTAN BANK, as Administrative Agent.
W I T N E S S E T H :
WHEREAS, the parties hereto desire to amend the Credit Agreement to
modify the conditions to borrowing;
NOW, THEREFORE. the parties hereto agree as follows:
SECTION 1. DEFINED TERMS; REFERENCES. Unless otherwise specifically
deemed herein, each term used herein which is defined in the Credit
Agreement has the meaning assigned to such term in the Credit Agreement.
Each reference to "hereof", "hereunder", "herein" and "hereby" and each
other similar reference and each reference to "this Agreement" and each
other similar reference contained in the Credit Agreement shall, after this
Amendment becomes effective, refer to the Credit Agreement as amended
hereby.
SECTION 2. MODIFICATION OF CONDITION TO BORROWING. Section 3.02(d) of
the Credit Agreement is amended to read in its entirety as follows:
(d) if such Borrowing is not a Refunding Borrowing, the fact that the
representations and warranties of the Borrower contained in this Agreement
(except the representation and warranty set forth in Section 4.04(c) as to
any material adverse change which has theretofore been disclosed in writing
to the Banks) shall be true on and as of the date of such Borrowing; and
SECTION 3. REPRESENTATIONS OF BORROWER. The Borrower represents and
warrants that (i) the representations and warranties of the Borrower set
forth in Article 4 of the Credit Agreement will be true on and as of the
Amendment Effective Date and (ii) no Default will have occurred and be
continuing on such date.
SECTION 4. GOVERNING LAW. This Amendment shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 5. COUNTERPARTS. This Amendment may be signed in any number of
counterparts, each of which shall be an original, with the same effect as
if the signatures thereto and hereto were upon the same instrument.
SECTION 6. EFFECTIVENESS. This Amendment shall become effective as of
the date hereof on the date (the "AMENDMENT EFFECTIVE DATE") when the
Documentation Agent shall have received from each of the Borrower and the
Required Banks a counterpart hereof signed by such party or facsimile or
other written confirmation (in form satisfactory to the Documentation
Agent) that such party has signed a counterpart hereof
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed as of the date first above written.
PRAXAIR, INC.
By: /S/ JAMES S. SAWYER
Title: Vice President & Treasurer
MORGAN GUARANTY TRUST
COMPANY OF NEW YORK
By: /S/ JAMES S. FINCH
Title: Vice President
THE CHASE MANHATTAN BANK
By: /S/ ROBERT T. SACKS
Title: Managing Director
BANCA COMMERCIALE ITALIANA,
NEW YORK BRANCH
By: /S/ CHARLES DOUGHERTY
Title: Vice President
By: /S/ KAREN PURELIS
Title: Vice President
- 2 -
<PAGE>
BANCA NAZIONALE DEL LAVORO SPA,
NEW YORK BRANCH
By: /S/ LEONARDO VALENTINI
Title: First Vice President
By: /S/ MIGUEL J. MEDIDA
Title: Vice President
BANCA POPOLARE DI MILANO
By: /S/ FULVIO MONTANARI
Title: First Vice President
By: /S/ PATRICK DILLON
Title: Vice President
Chief Credit Officer
BANK BRUSSELS LAMBERT,
NEW YORK BRANCH
By: /S/ JOHN KIPPAX
Title: Vice President & Manager
By: /S/ DOMINICK VANGAEVER
Title: Senior Vice President & Manager
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By: /S/ DONALD J. CHIN
Title: Manager, Director
THE BANK OF NEW YORK
By: /S/ KENNETH P. SNEIDER. JR.
Title: Vice President
THE BANK OF NOVA SCOTIA
By: /S/ J.R. TRIMBLE
Title: Senior Relationship Manager
THE BANK OF TOKYO-MITSUBISHI, LTD.,
NEW YORK BRANCH
By: /S/ WILLIAM J. DARBY
Title: Vice President
BANKBOSTON, N.A.
By: /S/ HARVEY H. THAYER. JR.
Title: Director
BANQUE NATIONALE DE PARIS
By: /S/ RICHARD L. STED
Title: Senior Vice President
By: /S/ SOPHIE REVILLARD KAUFMAN
Title: Vice President
BARCLAYS BANK PLC
By: /S/ RICHARD B. WILLIAMS
Title: Director
BAYERISCHE VEREINSBANK AG
NEW YORK BRANCH
By: /S/ MARIANNE WEINZINGER
Title: Vice President
By: /S/ PAMELA J. GILLONS
Title: Assistant Treasurer
CIBC INC.
By: /S/ JOHN-PAUL MAROTTA
Title: Executive Director
CIBC Oppenheimer Corp., as agent
COMMERZBANK AG, NEW YORK BRANCH
By: /S/ ROBERT DONOHUE
Title: Vice President
By: /S/ PETER DOYLE
Title: Assistant Treasurer
CREDIT LYONNAIS NEW YORK BRANCH
By: /S/ MARV E. COLLIER
Title: Vice President
CREDIT SUISSE FIRST BOSTON
By: /S/ LYNN ALLEGAERT
Title: Vice President
By: /S/ ROBERT B. POTTER
Title: Vice President
THE DAI-ICHI KANGYO BANK, LIMITED
NEW YORK BRANCH
By: /S/ MATTHEW G. MURPHY
Title: Vice President
DEUTSCHE BANK AG, NEW YORK
AND/OR CAYMAN ISLANDS BRANCH
By: /S/ SUSAN L. PEARSON
Title: Vice President
By: /S/ STEPHAN A. WEIDEMANN
Title: Director
- 2 -
<PAGE>
FLEET NATIONAL BANK
By: /S/ ROBERT C. RUBINO
Title: Senior Vice President
THE FUJI BANK, LIMITED,
NEW YORK BRANCH
By:
Title:
GULF INTERNATIONAL BANK
By: ________________________ ___________
Title:
THE INDUSTRIAL BANK OF JAPAN,
LIMITED, NEW YORK BRANCH
By: /S/ JOHN V. VELTRI
Title: Joint General Manager
ISTITUTO BANCARIO SAN PAOLO DI
TORINO, SPA
By: /S/ WENDELL JONES
Title: Vice President
By: /S/ ETTORE VIAZZO
Title: Vice President
LTCB TRUST COMPANY
By: /S/ MASANORI SHOJI
Title: Senior Vice President
- 2 -
<PAGE>
MARINE MIDLAND BANK
By: /S/ MARK J. RAKOV
Title: Vice President
MELLON BANK, N.A.
By: /S/ GEORGE B. DAVIS
NATIONSBANK, N.A.
By: /S/ MARGARET K. VANDENBERG
Title: Senior Vice President
PNC BANK, NATIONAL ASSOCIATION
By: /S/ DONALD V. DAVIS
Title: Vice President
ROYAL BANK OF CANADA
By: /S/ DON S. BRYSON
Title: Senior Manager
THE SAKURA BANK, LIMITED
By: /S/ YASUMASA KIKUCHI
Title: Senior Vice President
THE SANWA BANK, LIMITED
By: /S/ STEPHEN C. SMALL
Title: Vice President & Area Manager
- 2 -
<PAGE>
THE SUMITOMO BANK OF CALIFORNIA
By: /S/ SHUJI ITO
Title: Vice President
THE SUMITOMO BANK, LIMITED
By: /S/ KAZOVOSHI OGAEA
Title: Joint General Manager
THE TOKAI BANK, LIMITED
By:
Title:
TORONTO DOMINION (NEW YORK), INC.
By: /S/ DEBBIE A. GREENE
Title: Vice President
UNION BANK OF SWITZERLAND
By: /S/ HAMILTON W. BULLARD
Title: Assistant Treasurer
By: /S/ C.C. GLOCKLER
Title: Director
- 2 -
<PAGE>
WESTDEUTSCHE LANDESBANK
GIROZENTRALE, NEW YORK BRANCH
By: /S/ RALPH WHITE
Title: Vice President
By: /S/ THOMAS LEE
Title: Associate
THE YASUDA TRUST & BANKING CO., LTD.
By:
Title:
- 2 -
PRAXAIR, INC. AND SUBSIDIARIES
EXHIBIT 12.01
PRAXAIR, INC. AND SUBSIDIARIES
RATIO OF EARNINGS TO FIXED CHARGES
(MILLIONS OF DOLLARS, EXCEPT RATIOS)
YEARS ENDED DECEMBER 31,
1997 1996 1995 1994 1993
EARNINGS
Income of consolidated companies
before provision for income taxes $622 $452 $432 $339 $236
Capitalized interest (32) (25) (9) (4) (3)
Depreciation of capitalized interest 7 9 8 8 9
Dividends from less than 50%-owned
companies carried at equity 1 1 1 - 2
Praxair share of income (loss) before
provision for income taxes of
50%-owned companies carried at equity 3 16 15 8 10
Total earnings, net of fixed charges $601 $453 $447 $351 $254
FIXED CHARGES
Interest on long-term
and short-term debt $216 $195 $116 $108 $105
Capitalized interest 32 25 9 4 3
Rental expenses representative of an
interest factor 23 23 10 11 12
Praxair share of fixed charges of
50%-owned companies carried at equity 1 3 4 2 7
Total fixed charges $272 $246 $139 $125 $127
Total adjusted earnings available for
payment of fixed charges $873 $699 $586 $476 $381
Preferred stock dividend requirements $ 8 $ 8 - - -
RATIO OF EARNINGS TO FIXED CHARGES 3.2 2.8 4.2 3.8 3.0
RATIO OF EARNINGS TO FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS 3.1 2.7 4.2 3.8 3.0
INDEX TO FINANCIAL STATEMENTS AND INFORMATION
Five-Year Financial Summary 26
Management's Discussion and Analysis 27
Consolidated Statement of Income 34
Consolidated Balance Sheet 35
Consolidated Statement of Cash Flows 36
Consolidated Statement of Shareholders' Equity 37
Notes to Consolidated Financial Statements 38
Note 1. Summary of Significant Accounting Policies 38
Note 2. 1996 Acquisition of CBI Industries, Inc. (CBI) 39
Note 3. Special Charges 40
Note 4. Segment Data 41
Note 5. Income Taxes 41
Note 6. Debt and Financial Instruments 42
Note 7. Shareholders' Equity 44
Note 8. Preferred Stock 44
Note 9. Supplementary Income Statement Information 45
Note 10. Incentive Plans and Stock Options 45
Note 11. Supplementary Balance Sheet Information 47
Note 12. Retirement Programs 48
Note 13. Leases 50
Note 14. Commitments and Contingencies 50
Note 15. Quarterly Data (Unaudited) 51
Management's Statement of Responsibility for Financial Statements 52
Report of Independent Accountants 53
Information for Investors 54
25
<PAGE>
Five-Year Financial Summary
<TABLE>
<CAPTION>
Year Ended December 31, 1997 1996(a) 1995 1994 1993
From the Income Statement
<S> <C> <C> <C> <C> <C>
Sales $ 4,735 $ 4,449 $ 3,146 $ 2,711 $ 2,438
Cost of sales 2,764 2,564 1,777 1,507 1,387
Selling, general and administrative 662 688 496 409 392
Depreciation and amortization 444 420 279 273 262
Research and development 79 72 61 58 58
Special charges 10 85 -- -- --
Other income (expenses) - net 62 27 15 (17) 2
- ---------------------------------------------------------------------------------------------------------------------------------
Operating profit 838 647 548 447 341
Interest expense 216 195 116 108 105
- ---------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 622 452 432 339 236
Income taxes 151 110 122 82 48
- ---------------------------------------------------------------------------------------------------------------------------------
Income of consolidated entities 471 342 310 257 188
Minority interests (66) (68) (50) (61) (49)
Income from equity investments 11 8 2 7 4
- ---------------------------------------------------------------------------------------------------------------------------------
Income before cumulative effect of accounting changes 416 282 262 203 143
Cumulative effect of accounting changes (b) (11) -- -- -- (25)
- ---------------------------------------------------------------------------------------------------------------------------------
Net income $ 405 $ 282 $ 262 $ 203 $ 118
Net income excluding special charges and accounting changes $ 422 $ 335 $ 262 $ 203 $ 143
=================================================================================================================================
Per Share Data(c)
Basic earnings per share:
Income before cumulative effect of accounting changes $ 2.63 $ 1.85 $ 1.89 $ 1.49 $ 1.07
Cumulative effect of accounting changes(b) (.07) -- -- -- (.19)
Net income $ 2.56 $ 1.85 $ 1.89 $ 1.49 $ .88
Diluted earnings per share:
Income before cumulative effect of accounting changes $ 2.53 $ 1.77 $ 1.82 $ 1.45 $ 1.06
Cumulative effect of accounting changes(b) (.07) -- -- -- (.19)
Net income $ 2.46 $ 1.77 $ 1.82 $ 1.45 $ .87
Cash dividends per share $ .44 $ .38 $ .32 $ .28 $ .25
- ---------------------------------------------------------------------------------------------------------------------------------
Weighted average shares outstanding (000's)
Basic shares outstanding 158,095 152,654 138,818 136,254 133,084
Diluted shares outstanding 164,053 159,038 144,147 139,991 135,131
=================================================================================================================================
Capital
Total debt $ 3,305 $ 3,265 $ 1,318 $ 1,265 $ 1,360
Minority interests 521 493 408 371 345
Preferred stock 75 75 -- -- --
Shareholders' equity 2,122 1,924 1,121 839 635
- ---------------------------------------------------------------------------------------------------------------------------------
Total capital $ 6,023 $ 5,757 $ 2,847 $ 2,475 $ 2,340
=================================================================================================================================
Other Information and Ratios
Operating profit as a percentage of sales 17.7% 14.5% 17.4% 16.5% 14.0%
Return on average shareholders' equity(d) 20.9% 22.0% 26.7% 27.6% 25.0%
Capital expenditures and investments $ 1,003 $ 3,333 $ 802 $ 385 $ 350
Total assets $ 7,810 $ 7,538 $ 4,134 $ 3,520 $ 3,255
Shares outstanding at year-end (000's) 157,373 157,489 140,536 137,863 134,450
Debt-to-capital ratio 54.9% 56.7% 46.3% 51.1% 58.1%
Number of employees 25,388 25,271 18,222 17,780 16,766
=================================================================================================================================
(Millions of dollars, except per share data)
<FN>
(a) Effective in 1996, results reflect the acquisition of CBI Industries, Inc.
(see Note 2 to the consolidated financial statements). Capital expenditures
and acquisitions include $2.2 billion associated with the CBI acquisition
(including $735 million of debt assumed). Number of employees excludes
those at facilities held for sale.
(b) Required changes in 1997 related to accounting for previously capitalized
business process reengineering costs associated with information technology
transformation. Required changes in 1993 related to accounting for
postemployment benefits.
(c) Includes special charges of $0.04 per share in 1997 and $0.34 per share in
1996 for both basic and diluted calculations (see Note 3 to the
consolidated financial statements).
(d) 1997 and 1996 exclude special charges (see Note 3 to the consolidated
financial statements). 1997 and 1993 are based on income before cumulative
effect of accounting changes. The 1993 shareholders' equity and capital
have been retroactively adjusted for the cumulative effect of an accounting
change.
</FN>
</TABLE>
26
<PAGE>
Management's Discussion and Analysis
Praxair's 1997 results reflect strong product demand in major customer markets
and significant productivity improvements including the successful integration
of the Liquid Carbonic business acquired in 1996. During 1996, Praxair acquired
CBI Industries, Inc. (CBI) for $2.2 billion, including assumed debt of $735
million. The discussion of Praxair's consolidated and geographic segment results
as it relates to the comparison of 1996 to 1995 is based upon the unaudited pro
forma consolidated results of operations reflecting the CBI acquisition as
though it had occurred at January 1, 1995 (see Note 2 to the consolidated
financial statements).
Consolidated Results
The following provides summary data for 1997, 1996, and 1995 pro forma
(unaudited) and actual:
<TABLE>
<CAPTION>
1995
Pro
Year Ended December 31, 1997 1996 Forma Actual
<S> <C> <C> <C> <C>
Sales $ 4,735 $ 4,449 $ 4,109 $ 3,146
Selling, general and administrative $ 662 $ 688 $ 690 $ 496
Depreciation and amortization $ 444 $ 420 $ 395 $ 279
Operating profit $ 838 $ 647 $ 576 $ 548
Interest expense $ 216 $ 195 $ 219 $ 116
Income before cumulative
effect of an accounting change $ 416 $ 282 $ 190 $ 262
Number of employees(a) 25,388 25,271 25,562 18,222
- -----------------------------------------------------------------------------------------
Excluding special charges(b):
Operating profit $ 848 $ 732 $ 630 $ 548
Effective tax rate 25% 26% 29% 28%
Income before cumulative
effect of an accounting change $ 422 $ 335 $ 223 $ 262
=========================================================================================
(Millions of dollars, except percentages and employee data)
</TABLE>
(a) Excludes employees related to assets held for sale.
(b) During 1997, Praxair recorded a $10 million pre-tax special charge ($6
million after tax) related primarily to profit improvement initiatives in
the North American packaged gases business. During 1996, Praxair recorded
an $85 million pre-tax special charge ($53 million after tax and minority
interest) for CBI integration costs (see Note 3 to the consolidated
financial statements).
1997 compared with 1996
The sales growth of 6% in 1997 as compared to 1996 was predominately due to
increased sales volumes and the effect of newly acquired packaged gases and
Surface Technologies subsidiaries. This increase was partly offset by
unfavorable currency translation effects. Overall pricing was unchanged for the
year. Surface Technologies posted record sales, increasing 23% to $381 million
for the year primarily due to volume growth and acquisitions.
The operating profit growth of 16% for 1997 as compared to 1996 (both excluding
the special charges), was primarily due to the sales growth and productivity
gains including the integration of the Liquid Carbonic business, partly offset
by cost inflation and unfavorable currency translation effects. Increased
depreciation and amortization reflected new projects coming on-stream, as well
as packaged gases and Surface Technologies acquisitions. Selling, general and
administrative expenses decreased primarily due to productivity improvements and
cost synergies, including the integration of the Liquid Carbonic business,
partly offset by cost inflation.
Interest expense increased due to higher debt levels (after adjustment for the
debt associated with the purchase of the assets held for sale) and higher
interest rates in certain international countries. The effective tax rate for
1997 was 25%, a 1% decrease from the 1996 effective tax rate (both excluding the
special charges). This decrease is due primarily to planned tax initiatives.
Net income for 1997 increased 26% over 1996 (both excluding the special charges
and accounting changes) due principally to higher operating profit, the lower
effective tax rate and improved income from equity investments, partially offset
by higher interest expense and negative currency translation effects. In
addition, the Company recorded an $11 million charge in the fourth quarter of
1997 related to a required accounting change for capitalized business process
reengineering costs associated with information technology transformation. This
charge was reflected as a cumulative effect of an accounting change.
The number of employees at December 31, 1997 increased 117 as compared to
December 31, 1996 due primarily to an increase associated with new acquisitions
(678 employees) and the addition of employees to support volume growth partially
offset by decreases resulting from profit improvement efforts in South America
and the North American packaged gases business, the integration of the Liquid
Carbonic business and other cost improvement efforts.
27
<PAGE>
Management's Discussion and Analysis
1996 compared with 1995
The 1996 sales growth of 8%, as compared to the 1995 pro forma amount, was
primarily due to increased sales volumes and the effect of newly acquired and
recently consolidated packaged gases and Surface Technologies subsidiaries.
Additionally, merchant, packaged gases and carbon dioxide prices were up in all
geographic segments. Surface Technologies posted record sales, increasing 21% to
$311 million, primarily due to volume growth and acquisitions.
The sales growth along with productivity gains were primarily responsible for
the 16% increase in operating profit as compared to the 1995 pro forma amount
(both excluding the CBI special 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
decreased slightly primarily due to productivity improvements and cost synergies
associated with the integration of the Liquid Carbonic business, mostly offset
by the increases due to the newly acquired subsidiaries. Selling, general and
administrative expenses as a percentage of sales, excluding the newly acquired
subsidiaries, declined 8% as compared to the 1995 pro forma amount.
Interest expense decreased in 1996 versus the 1995 pro forma amount, 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 1996 effective tax rate was 26% (excluding the
impact associated with the 1996 special charges), a decrease of 3% from the
effective tax rate of the 1995 pro forma period. The decrease is due primarily
to tax planning initiatives.
Net income, excluding the special charges, increased 50% over the 1995 pro forma
amount due principally to higher operating profit, lower interest expense and a
lower effective tax rate.
The number of employees at December 31, 1996 decreased by 291 as compared to
December 31, 1995 due primarily to Praxair's worldwide productivity improvement
initiatives and the integration of the Liquid Carbonic business partly offset by
new acquistions (955 employees) and the addition of employees to support volume
growth.
Segment Discussion
This summary of sales, operating profit and operating profit excluding the 1997
and 1996 special charges by geographic segment provides a basis for the
discussion that follows:
1995
Pro
Year Ended December 31, 1997 1996 Forma Actual
Sales:
United States $ 2,411 $ 2,157 $ 1,929 $ 1,569
South America 996 990 957 667
Europe 603 613 557 494
Canada, Mexico, Asia and Other 725 689 666 416
- -------------------------------------------------------------------------
Total $ 4,735 $ 4,449 $ 4,109 $ 3,146
=========================================================================
Operating profit:
United States $ 465 $ 322 $ 239 $ 285
South America 197 190 193 137
Europe 110 113 98 90
Canada, Mexico, Asia and Other 89 52 83 53
Corporate (23) (30) (37) (17)
- -------------------------------------------------------------------------
Total $ 838 $ 647 $ 576 $ 548
=========================================================================
Operating profit excluding
special charges:
United States $ 474 $ 359 $ 288 $ 285
South America 197 203 194 137
Europe 110 117 98 90
Canada, Mexico, Asia and Other 90 80 85 53
Corporate (23) (27) (35) (17)
- -------------------------------------------------------------------------
Total $ 848 $ 732 $ 630 $ 548
=========================================================================
(Millions of dollars)
United States
Volume growth and the effect of newly acquired packaged gases and Surface
Technologies subsidiaries accounted for the 12% sales increases both in 1997 and
1996 as compared to the prior period. In 1997, U.S. industrial gases volumes
increased 8% while merchant liquid pricing decreased 1% and carbon dioxide
pricing increased 1%. Packaged gases sales increased 15% to $508 million as
compared to the 1996 period. In 1996, U.S. industrial gases volumes increased
7%, while merchant liquid pricing increased 2% and carbon dioxide pricing
increased 8%. Packaged gases 1996 sales increased 76% to $441 million as
compared to the 1995 period.
Operating profit improved 32% for 1997 as compared to the 1996 period (both
excluding the special charges). Operating margin for 1997 increased to 19.7%
from 16.6% in 1996. The
28
<PAGE>
Management's Discussion and Analysis
improvement is due primarily to the increased sales, cost synergies associated
with the integration of the Liquid Carbonic business, higher profitability in
the Surface Technologies business and other cost improvements. Operating profit
improved 25% for 1996 as compared to the 1995 pro forma amounts (both excluding
the special charges). The improvement is due primarily to the increased sales
and the realization of synergies related to the integration of the Liquid
Carbonic business. Operating margin for 1996 versus 1995 pro forma amounts
increased to 16.6% from 14.9%. Also affecting the comparisons for both periods
was an increase in the U.S. business portfolio of packaged gases businesses
which are characterized by lower operating margins and higher capital turnover.
During 1997, Praxair's packaged gases business embarked on a profit improvement
program focused on increasing its operating performance to levels above those
achieved prior to the 1996 Liquid Carbonic acquisition. In support of that
program, packaged gases has initiated a 10% headcount reduction in late 1997.
The benefits of this program will be derived from the consolidation of
administrative processes and facilities, the realignment of its sales force, the
implementation of a national industrial hardgoods procurement and warehousing
strategy, the optimization of its gas distribution network and improved
operational efficiencies through standardized practices.
Additionally, at December 31, 1997 the U.S. packaged gases business' equity
investment, Gas Tech, Inc., had sales of $90 million. Effective in 1998, Praxair
gained operating control of Gas Tech, Inc. by acquiring the remaining shares
that it did not already own; therefore, Praxair will consolidate Gas Tech, Inc.
in 1998.
South America
Praxair's South American operations are conducted by its majority-owned
subsidiary, S.A. White Martins (White Martins), which is the largest industrial
gases company in Brazil. Sales for 1997 increased 1% as compared to 1996,
primarily due to sales volume growth of approximately 8%, mostly offset by price
declines and unfavorable currency translation effects. The price declines are
attributable to the ongoing effects of the Brazilian government economic plan
("Real Plan") which has resulted in industrial commodity pricing deflation
across a wide range of industries, and an increased competitive environment in
Brazil. Excluding the currency translation effects, sales increased by 6% as
compared to the 1996 period. Sales for 1996 as compared to the 1995 pro forma
results increased 3% primarily due to sales volume growth.
Operating profit for 1997 decreased 3% as compared to 1996 (excluding the 1996
special charges). This was due to unfavorable currency translation effects,
price declines, and higher energy and distribution costs partly offset by sales
volume growth, productivity improvements and an $11 million benefit due to a
favorable judgment related to a dispute with the Rio de Janeiro State public
hospitals. Excluding the currency translation effects, operating profit
increased 5% (excluding the 1996 special charges). Operating profit for 1996 as
compared to the 1995 pro forma results, excluding the special charges, increased
slightly.
Historically, Brazil has been considered a hyperinflationary economy and,
accordingly, Praxair has managed its Brazilian operations with a focus on U.S.
dollar results. Since the implementation of the "Real Plan" in mid-1994, Brazil
has produced steady economic growth and, for the first time in decades,
single-digit inflation. However, during 1997 and especially in the last half of
1997, economic growth slowed and in the fourth quarter the government
implemented a new fiscal package aimed at minimizing inflation and maintaining
the strength of the Brazilian currency (the "Real"). As a result, economic
growth in 1998 is initially expected to be flat or slightly recessionary and
then improve later in the year. These recent developments in Brazil have created
uncertainty in anticipating 1998 business results.
As required by accounting standards, effective January 1, 1998, Praxair will no
longer account for Brazil as a hyperinflationary economy and the Brazilian Real
will replace the U.S. dollar as Brazil's functional currency. Praxair currently
estimates that this change will result in an increase in consolidated operating
profit which will be offset by an increase to interest expense. On January 1,
1998, the functional currency change will require Praxair to record additional
balance sheet deferred income tax liabilities with a reduction to shareholders'
equity (cumulative translation adjustment) of approximately $60 million. In 1998
and beyond, translation losses in Brazil will also be charged directly to
shareholders' equity like Praxair's other international operations. At current
levels of Real devaluation (approximately 7% per year) and holding the December
31, 1997 balance sheet constant, the translation losses charged to shareholders'
equity would be approximately $70 million for 1998. Also, refer to the Market
Risks and Sensitivity Analysis section of the Management's Discussion and
Analysis for additional information on Praxair's approach to managing currency
exchange risks.
29
<PAGE>
Management's Discussion and Analysis
Europe
Sales for 1997 decreased 2% as compared to the 1996 period. The decrease was due
primarily to unfavorable currency translation effects in Spain and Italy partly
offset by volume increases and increased sales associated with Surface
Technologies acquisitions. Excluding the currency translation effects, sales
increased by 10%. Sales for 1996 increased 10% 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 1997 decreased 6% as compared to 1996 (excluding the 1996
special charges). Excluding the currency translation effects, operating profit
increased 9%, primarily due to increased volumes and Surface Technologies
acquisitions. Operating profit for 1996 (excluding the 1996 special charges)
increased 19% as compared to the 1995 pro forma period due primarily to the
sales growth and continued productivity improvements.
Canada, Mexico, Asia and Other
Sales for 1997 increased 5% as compared to 1996, due to volume growth in Mexico
and Asia and pricing improvement in Mexico partly offset by unfavorable currency
translation effects. Excluding the currency translation effects, sales increased
by 10%. Sales increased 3% in 1996 as compared to the 1995 pro forma amounts due
to volume growth in Mexico and Asia.
Operating profit for 1997 increased 13% as compared to 1996 (both excluding the
special charges), primarily due to the sales growth and synergies realized from
the integration of the Liquid Carbonic business in Canada. This was partly
offset by increased business development costs in Asia and unfavorable currency
translation effects. Excluding the currency translation effects, operating
profit increased 20%. Operating profit for 1996 compared to the 1995 pro forma
amounts (excluding the special charges) decreased $5 million primarily due to
higher business development expenses in Asia and an increase in technology
costs, which more than offset the sales growth.
In the second half of 1997 and continuing into 1998, the U.S. dollar has
strengthened considerably against several Asian currencies (including the Korean
Won and the Thailand Baht) producing uncertainty about the economic outlook in
these countries. Since Asia represents a small percentage of Praxair's sales and
operating profit, there should be no material impact on Praxair's 1998 results.
Selling, General and Administrative Expenses
In 1997, selling, general and administrative expenses were $662 million, a $26
million decrease from the 1996 amount. The decrease is primarily due to cost
improvements, including the integration of the Liquid Carbonic business, partly
offset by cost inflation. Selling, general and administrative expenses as a
percentage of sales declined to 14.0% in 1997 from 15.5% in 1996.
In 1996, selling, general and administrative expenses were $688 million, a $2
million decrease from the 1995 pro forma amount. The decrease is primarily due
to cost improvements associated with the integration of the Liquid Carbonic
business, largely offset by newly acquired and recently consolidated
subsidiaries. Selling, general and administrative expenses as a percentage of
sales declined to 15.5% in 1996 from 16.8% in 1995 on a pro forma basis.
Other income (expenses) - net
In 1997, other income (expenses) - net increased $35 million over the 1996
amount of $27 million due primarily to an $11 million benefit due to the
favorable judgment related to a dispute with the Rio de Janeiro State public
hospitals, higher partnership income and higher non-recurring expenses in 1996
related to the integration of the Liquid Carbonic business.
In 1996, other income (expenses) - net increased $5 million over the 1995 pro
forma amount of $22 million primarily due to currency and the 1995 productivity
improvement charges partly offset by non-recurring credits in 1995.
Interest Expense
The 1997 interest expense increased $21 million from the 1996 amount due to
higher debt levels (after adjustment for the debt associated with the purchase
of the assets held for sale) and higher interest rates in certain international
countries. As noted in the South American segment discussion, interest expense
is expected to increase in 1998 due to the functional currency change in Brazil
effective January 1, 1998.
The 1996 interest expense decreased $24 million from the 1995 pro forma amounts
due primarily 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.
Income Taxes
The effective tax rate for 1997 was 25%, a 1% decrease from the 1996 effective
tax rate (excluding the tax benefits associated with the special charges).
30
<PAGE>
Management's Discussion and Analysis
The 1996 effective tax rate was 26% (excluding the tax benefit associated with
the 1996 special charges), a decrease of 3% from the effective tax rate of the
1995 pro forma period. The decreases in both periods are due primarily to tax
planning initiatives.
Minority Interests
On December 31, 1997, minority interests consisted primarily of minority
shareholders' investments in three affiliates: S.A. White Martins (Brazil),
Rivoira S.p.A. (Italy) and Praxair Korea. Additionally, Praxair records the
dividends on preferred stock in minority interests. Minority shareholders' share
of income for 1997 was $66 million, a decrease of $2 million as compared to the
1996 amount of $68 million. This decrease was primarily due to the lower income
in South America. Minority shareholders' share of income for 1996 was $68
million, an increase of $3 million as compared to the 1995 pro forma amount of
$65 million. This increase was primarily due to the recording of $6 million of
preferred stock dividends and the increased income in South America mostly
offset by the decreased minority position in White Martins.
Income from Equity Investments
Praxair's more significant equity investments are in the United States, Belgium,
India, Italy, Spain, Turkey and China. Praxair's share of net income from
corporate equity investments improved to $11 million from $8 million in the 1996
results primarily due to improved equity company results in the United States.
In 1996, Praxair's share of net income from corporate equity investments
improved to $8 million from $5 million in the 1995 pro forma results primarily
due to improved equity company results in the United States and Europe.
Costs Relating to the Protection of the Environment
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 both to increasingly stringent
laws and regulations and to Praxair's ongoing commitment to rigorous internal
standards. Environmental protection costs for Praxair in 1997 were approximately
$5 million of capital expenditures and $13 million of expenses. Included in the
expenses were approximately $2 million for remedial projects. Praxair
anticipates that future environmental protection expenditures will approximate
the level of those in 1997 and will not have a material adverse effect on the
consolidated financial position of Praxair or on the consolidated results of
operations or cash flows in a given year.
Commitments and Contingencies
See Note 14 to the consolidated financial statements for information concerning
commitments and contingencies.
Liquidity, Capital Resources and Financial Data
Cash Flow from Operations
Cash flow from operations increased to $752 million in 1997 from $606 million in
1996. The increase reflects cash inflows from higher net income, depreciation
and amortization expense, deferred taxes, and lower working capital requirements
partly offset by payments related to prior years' incentive compensation
programs and the special charges. Working capital needs decreased as compared to
the 1996 period primarily due to lower growth in outstanding accounts
receivables and higher payments in 1996 related to the CBI acquisition partially
offset by higher scheduled payments on accounts payable and other current
liabilities, higher prepaid expenses and higher inventory required to support
the sales growth.
Cash flow from operations decreased slightly in 1996 versus 1995 from $611
million to $606 million. The decrease reflects one-time after-tax cash payments
made in 1996 related to the acquisition of CBI for integration charges,
antitrust litigation settlements and other non-recurring payments totaling $75
million. Excluding these charges, operating cash flow increased $70 million due
to increased net income, depreciation and amortization expense, deferred taxes
and other non-cash charges partly offset by cash outflows from long-term assets
and liabilities, and working capital.
Investing
Cash flow used for investing in 1997 totaled $703 million versus $2,334 million
in 1996. This decrease was due primarily to the 1996 acquisition of CBI.
Excluding the CBI acquisition in 1996, investing cash flow needs decreased $186
million reflecting the lower level of acquisitions and increased proceeds from
asset sales.
Construction expenditures for 1997 totaled $902 million, up slightly from 1996,
largely due to the timing of cash payments.
Acquisition expenditures for 1997 totaled $101 million primarily relating to
investments in India, Surface Technologies acquisitions in Brazil and the United
Kingdom, minority share purchases in South America, and the continuation of
packaged gases acquisitions in North America. Acquisition expenditures in 1996
were $1,705 million ($260 million excluding the CBI acquisition).
31
<PAGE>
Management's Discussion and Analysis
Proceeds on divestitures and asset sales increased $36 million to $300 million
in 1997 as compared to 1996 primarily due to the sale of substantially all of
Praxair's investment in Chicago Bridge & Iron Company, N.V. in an initial public
offering transaction (see Note 2 to the consolidated financial statements).
Substantially all of the assets held for sale were sold as of December 31, 1997.
On a worldwide basis, construction and investment expenditures for the full year
1998 are expected to continue at approximately $1 billion primarily from
industrial gases growth opportunities worldwide and the continuation of
Praxair's packaged gases and Surface Technologies acquisition strategies.
Financing
At December 31, 1997, Praxair's total debt outstanding was $3,305 million, an
increase of $40 million over 1996. Praxair's debt-to-capital ratio decreased
from 56.7% at December 31, 1996 to 54.9% as of December 31, 1997. At December
31, 1997, there were no borrowings under Praxair's $1.5 billion U.S. bank credit
facility and Praxair's investment grade credit rating for long-term debt was
maintained at A3/BBB+.
During October 1997, Praxair issued $250 million of 6.625% non-redeemable Notes
due 2007 with interest payable semi-annually. As discussed above, Praxair sold
most of the remaining assets held for sale acquired in the CBI acquisition. The
proceeds from these transactions were used to repay outstanding commercial paper
and for general corporate purposes. Also, during 1997, a Canadian subsidiary of
Praxair refinanced approximately $70 million of short-term debt on a long-term
basis.
Praxair's financing strategy is to secure sufficient funds to support its
operations in the United States and around the world. Praxair sources the
funding through a combination of local borrowing and intercompany lending in
order to minimize the total cost of funds and to manage and centralize currency
exchange exposures. Praxair manages its exposure to interest rate changes
through the use of financial derivatives (see Note 6 to the consolidated
financial statements).
Raw Materials and Markets
Energy is the single largest cost item in the production and distribution of
industrial gases. For some products, such as carbon dioxide, helium, hydrogen,
specialty gases and surface coatings and powders, raw materials are largely
purchased from outside sources. Praxair generally has contracts or commitments
for, or readily available sources of, these raw materials.
Praxair's industrial gases are used by a diverse group of customers in a variety
of industries including metal fabrication, primary metals, chemicals,
healthcare, food processing, electronics, beverage, aerospace, petroleum
refining, pulp and paper, oil and gas, glass, and numerous other markets. By
using the gases Praxair produces and, in many cases, the proprietary processes
that it invents, customers benefit through improved product quality, increased
productivity, lower operating costs, conservation of energy and the attainment
of environmental improvement objectives. Praxair has a large number of customers
and no single customer accounts for a significant portion of Praxair's annual
sales. Aircraft engines are Surface Technologies primary market, but it also
serves the printing, textile, chemical and primary metals markets.
Aircraft-engine and airframe-component overhaul services are another offering.
Year 2000
Praxair is aware of the potential for Year 2000 software failures and the
associated impact on business operations. The Company has been actively working
on this project since mid-1996 and teams are in place worldwide to address this
situation. An assessment has been and continues to be conducted and plans are
being developed to complete Year 2000 software compliance for business sensitive
areas before the year 2000. Costs to complete this program are expected to
approximate $15 million.
New Accounting Standards
The FASB has issued SFAS No. 130, "Reporting Comprehensive Income" and SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information" which
will not become effective for Praxair until the fourth quarter of 1998. These
standards will require Praxair to review its current segment information and
report a new Comprehensive Income amount. Praxair has not determined what
changes, if any, SFAS No. 131 will require to its current segment definitions.
32
<PAGE>
Management's Discussion and Analysis
Market Risks and Sensitivity Analyses
Like other global companies, 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 swap, forward starting interest rate swap and interest
rate cap and option agreements, and currency swap, forward and option contracts.
These derivative financial instruments are generally held to maturity and
Praxair only uses commonly traded and non-leveraged instruments. These contracts
are entered into with major financial institutions thereby minimizing the risk
of credit loss. Also, refer to Notes 1 and 6 to the consolidated financial
statements for a more complete description of Praxair's accounting policies and
use of such instruments.
As required by new Securities and Exchange Commission (SEC) rules, the following
analyses present the sensitivity of the market value, earnings and cash flows of
Praxair's financial instruments to hypothetical changes in interest and exchange
rates as if these changes occurred at December 31, 1997. The range of changes
chosen for these analyses reflect Praxair's view of changes which are reasonably
possible over a one-year period. Market values are the present values of
projected future cash flows based on the interest rate and exchange rate
assumptions. These forward looking disclosures are selective in nature and only
address the potential impacts from financial instruments. They do not include
other potential effects which could impact Praxair's business as a result of
these changes in interest and exchange rates.
Interest Rate and Debt Sensitivity Analysis
At December 31, 1997, Praxair has debt totaling $3,305 million and interest rate
swaps with a net notional value of $1,150 million. Interest rate swaps are
entered into as a hedge of underlying debt instruments to effectively change the
characteristics of the interest rate without actually changing the debt
instrument. At December 31, 1997, most of Praxair's interest rate swap
agreements convert outstanding floating rate debt to fixed rate debt for a
period of time. For fixed rate debt, interest rate changes affect the fair
market value but do not impact earnings or cash flows. Conversely for floating
rate debt, interest rate changes generally do not affect the fair market value
but do impact future earnings and cash flows, assuming other factors are held
constant.
At December 31, 1997 after adjusting for the effect of interest rate swap
agreements, Praxair has fixed rate debt of $2,637 million and floating rate debt
of $668 million. Holding other variables constant (such as foreign exchange
rates 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 $105 million. The earnings and cash flows impact for the next year
resulting from a one percentage point increase in interest rates would be
approximately $6 million, 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), Europe (primarily Spain
and Italy), Canada, Mexico, Asia (primarily China, India, Korea and Thailand)
and certain other business transactions such as the procurement of equipment
from foreign sources. Among other techniques, Praxair utilizes foreign exchange
forward contracts to hedge these exposures. At December 31, 1997 Praxair had
$324 million notional amount of foreign exchange contracts of which $254 million
hedged recorded balance sheet exposures or firm commitments.
Holding other variables constant, if there were a ten percent adverse change in
foreign currency exchange rates, the market value of foreign currency contracts
outstanding at December 31, 1997 would decrease by approximately $21 million. Of
this decrease, only about $4 million would impact earnings since the gain (loss)
on the majority of these contracts would be offset by an equal (gain) loss on
the underlying exposure being hedged.
33
<PAGE>
Consolidated Statement of Income
<TABLE>
<CAPTION>
Year Ended December 31, 1997 1996 1995
<S> <C> <C> <C>
Sales $ 4,735 $ 4,449 $ 3,146
Cost of sales, exclusive of depreciation and amortization 2,764 2,564 1,777
Selling, general and administrative 662 688 496
Depreciation and amortization 444 420 279
Research and development 79 72 61
Special charges 10 85 --
Other income (expenses) - net 62 27 15
======================================================================================================
Operating profit 838 647 548
Interest expense 216 195 116
- ------------------------------------------------------------------------------------------------------
Income before taxes 622 452 432
Income taxes 151 110 122
- ------------------------------------------------------------------------------------------------------
Income of consolidated entities 471 342 310
Minority interests (66) (68) (50)
Income from equity investments 11 8 2
- ------------------------------------------------------------------------------------------------------
Income before cumulative effect of an accounting change 416 282 262
Cumulative effect of an accounting change (11) -- --
- ------------------------------------------------------------------------------------------------------
Net income $ 405 $ 282 $ 262
======================================================================================================
Basic earnings per share:
Income before cumulative effect of an accounting change $ 2.63 $ 1.85 $ 1.89
Cumulative effect of an accounting change (.07) -- --
Net income $ 2.56 $ 1.85 $ 1.89
Diluted earnings per share:
Income before cumulative effect of an accounting change $ 2.53 $ 1.77 $ 1.82
Cumulative effect of an accounting change (.07) -- --
Net income $ 2.46 $ 1.77 $ 1.82
======================================================================================================
The accompanying notes are an integral part of these financial statements.
(Millions of dollars, except per share data)
</TABLE>
34
<PAGE>
Consolidated Balance Sheet
<TABLE>
<CAPTION>
Year Ended December 31, 1997 1996
<S> <C> <C>
Assets
Cash and cash equivalents $ 43 $ 63
Accounts receivable 971 914
Inventories 329 312
Prepaid and other current assets 154 377
- --------------------------------------------------------------------------------------------------------
Total current assets 1,497 1,666
Property, plant and equipment - net 4,607 4,269
Equity investments 210 195
Other long-term assets 1,496 1,408
- --------------------------------------------------------------------------------------------------------
Total assets $ 7,810 $ 7,538
========================================================================================================
Liabilities and Equity
Accounts payable $ 383 $ 408
Short-term debt 391 1,520
Current portion of long-term debt 40 42
Accrued taxes 51 69
Other current liabilities 501 511
- --------------------------------------------------------------------------------------------------------
Total current liabilities 1,366 2,550
Long-term debt 2,874 1,703
Other long-term liabilities 528 535
Deferred credits 324 258
- --------------------------------------------------------------------------------------------------------
Total liabilities 5,092 5,046
========================================================================================================
Minority interests 521 493
Preferred stock 75 75
Shareholders' equity:
Common stock $.01 par value, authorized
500,000,000 shares, issued 159,969,641 shares
in 1997 and 157,501,453 shares in 1996 2 2
Additional paid-in capital 1,471 1,350
Retained earnings 1,034 698
Cumulative translation adjustment (256) (126)
Less: Treasury stock, at cost (2,596,417 shares in 1997 and 12,496 shares in 1996) (129) --
- --------------------------------------------------------------------------------------------------------
Total shareholders' equity 2,122 1,924
- --------------------------------------------------------------------------------------------------------
Total liabilities and equity $ 7,810 $ 7,538
========================================================================================================
The accompanying notes are an integral part of these financial statements. (Millions of dollars)
</TABLE>
35
<PAGE>
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31, 1997 1996 1995
<S> <C> <C> <C>
Increase (decrease) in cash and cash equivalents
Operations
Net income $405 $282 $262
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 444 420 279
Special charges (13) 37 --
Deferred income taxes 67 48 42
Gain on sale of fixed assets (7) (4) 1
Other non-cash charges 42 49 39
Working capital:
Accounts receivable (54) (121) (48)
Inventories (14) (4) (52)
Prepaid and other (10) 25 (12)
Payables and accruals (41) 9 118
CBI acquisition payments -- (75) --
Long-term assets and liabilities (67) (60) (18)
- -----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 752 606 611
- -----------------------------------------------------------------------------------------------------------------------
Investing
Capital expenditures (902) (893) (600)
Acquisitions (101) (1,705) (202)
Divestitures and asset sales 300 264 82
- -----------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (703) (2,334) (720)
- -----------------------------------------------------------------------------------------------------------------------
Financing
Short-term borrowings (repayments) - net (269) 1,114 3
Long-term borrowings 438 602 201
Long-term debt repayments (110) (489) (154)
Minority transactions and other (31) 4 (10)
Issuances of common stock 110 611 111
Purchases of common stock (137) (7) (45)
Dividends (69) (58) (45)
- -----------------------------------------------------------------------------------------------------------------------
Net cash (used for) provided by financing activities (68) 1,777 61
- -----------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents (1) (1) --
- -----------------------------------------------------------------------------------------------------------------------
Change in cash and cash equivalents (20) 48 (48)
Cash and cash equivalents, beginning-of-year 63 15 63
- -----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end-of-year $43 $63 $15
=======================================================================================================================
Supplemental data:
Taxes paid $58 $59 $74
Interest paid $211 $241 $120
Short-term debt classified as long-term (Note 6) $860 $ -- $ --
Other long-term liabilities reclassified to equity (Note 7) $19 $ -- $ --
Acquired debt from CBI Industries, Inc. (Note 2) $ -- $735 $ --
=======================================================================================================================
The accompanying notes are an integral part of these financial statements. (Millions of dollars)
</TABLE>
36
<PAGE>
Consolidated Statement of Shareholders' Equity
<TABLE>
<CAPTION>
Additional Cumulative
Common Stock Paid-In Retained Translation Treasury Stock
Activity Shares Amounts Capital Earnings Adjustment Shares Amounts Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 138,237 $1 $688 $257 $(99) 374 $(8) $839
Net income 262 262
Dividends on common stock
($.32 per share) (45) (45)
Issuances of common stock:
For the dividend reinvestment
and stock purchase plan 107 1 1
For employee savings and
incentive plans 2,280 59 (2,284) 52 111
Purchases of common stock 1,999 (45) (45)
Translation adjustments (2) (2)
- -----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 140,624 $1 $748 $474 $(101) 89 $(1) $1,121
=============================================================================================================================
Net income 282 282
Dividends on common stock
($.38 per share) (58) (58)
Issuances of common stock:
Public offering 12,650 1 461 462
For the dividend reinvestment
and stock purchase plan 83 2 2
For employee savings and
incentive plans 4,144 139 (264) 8 147
Purchases of common stock 187 (7) (7)
Translation adjustments (25) (25)
- -----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 157,501 $2 $1,350 $698 $(126) 12 $-- $1,924
=============================================================================================================================
Net income 405 405
Dividends on common stock
($.44 per share) (69) (69)
Issuances of common stock:
For the dividend reinvestment
and stock purchase plan 74 2 2
For employee savings and
incentive plans 2,395 119 (157) 8 127
Purchases of common stock 2,742 (137) (137)
Translation adjustments (130) (130)
- -----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 159,970 $2 $1,471 $1,034 $(256) 2,597 $(129) $2,122
=============================================================================================================================
The accompanying notes are an integral part of these financial statements. (Millions of dollars, shares in thousands)
</TABLE>
37
<PAGE>
Notes to Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies
Operations - Praxair, Inc. (Praxair or Company) was founded in 1907 and became
an independent publicly traded company on June 30, 1992. Praxair is the largest
industrial gases company in North and South America, and one of the largest
worldwide. The Company is also the world's largest supplier of carbon dioxide.
Praxair produces, sells and distributes atmospheric, process and specialty
gases, and high-performance surface coatings to a diverse group of industries
including metal fabrication, primary metals, chemicals, healthcare, electronics,
oil and gas, aerospace, food processing, glass, and pulp and paper.
Principles of Consolidation - The consolidated financial statements include the
accounts of all significant subsidiaries where control exists. Equity
investments generally consist of 20-50% owned operations. Operations less than
20% owned are generally carried at cost. Pre-tax income from equity investments
which are partnerships is included in other income (expenses) - net with related
taxes included in income taxes. Partnership net assets are reported as equity
investments in the balance sheet. Praxair does not allocate corporate costs to
its equity investments. Significant intercompany transactions are eliminated.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
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.
Cash and 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 generally using the last-in, first-out (LIFO) method for certain U.S.
operations and the average cost method for most other operations.
Property, Plant and Equipment-net - Property, plant and equipment are carried at
cost, net of accumulated depreciation. Depreciation is calculated on the
straight-line method based on the estimated useful lives of the assets which
range from 3 to 40 years. Praxair generally uses accelerated depreciation
methods for tax purposes where appropriate. The Company periodically reviews the
recoverability of long-lived assets based upon anticipated cash flows generated
from such assets.
Foreign Currency Translation - For international subsidiaries where the local
currency is the functional currency, translation gains and losses are
accumulated as a separate component of shareholders' equity. For international
subsidiaries operating in hyperinflationary economies, the U.S. dollar is the
functional currency and translation gains and losses are included in income.
Financial Instruments - Praxair enters into various derivative financial
instruments to manage its exposure to fluctuating interest and currency exchange
rates. Such instruments include interest rate swap, forward rate, cap and option
agreements, and currency swap, forward and option contracts. These instruments
are not entered into for trading purposes and are generally held to maturity.
Praxair only uses commonly traded and non-leveraged instruments.
Interest rate swap and forward rate agreements involve the exchange of fixed and
floating interest payments without the exchange of the underlying principal
amounts. The differential to be paid or received is recognized as an adjustment
to interest expense. Interest rate cap and option agreements are used to reduce
the impact of interest rate changes on floating rate debt. The premiums paid are
amortized to interest expense over the terms of the agreements. The notional
amounts of interest rate swap, forward rate and cap agreements do not exceed the
underlying debt principal amounts. If an interest rate swap or forward rate
agreement is terminated before its maturity, any gain or loss is deferred and
amortized as interest expense over the remaining life of the underlying debt or
the remaining life of the swap, if shorter.
Currency swap, forward and option contracts are generally entered into to hedge
recorded balance sheet amounts related to international operations and firm
commitments that create currency exposures. Gains and losses on hedges of assets
and liabilities are recorded in other income (expenses) - net as offsets to the
gains and losses from the underlying hedged amounts; gains and losses on hedges
of net investments are reported on the balance sheet as part of the cumulative
translation adjustment within shareholders' equity; and gains and losses on
hedges of firm commitments are recorded on the balance sheet and included in the
basis of the underlying transaction. Forward exchange contracts that cover
exposures which do not qualify as hedges are recorded in other income (expenses)
- - net on a mark-to-market basis.
Praxair uses the following methods and assumptions to estimate the fair value of
each class of financial instrument. Due to their nature, the carrying value of
cash, short-term investments and short-term debt, receivables and payables
approximates fair value. The fair value of long-term debt is estimated based on
the quoted market prices for the same or similar issues. The fair value of
interest rate swaps and currency exchange contracts are estimated based on
market prices obtained from dealer quotes. Such quotes represent the estimated
amount Praxair would receive or pay to terminate the agreements taking into
consideration current rates and the credit worthiness of the counterparties.
(See Note 6).
38
<PAGE>
Notes to Consolidated Financial Statements
Patents, Trademarks And Goodwill - Amounts paid for patents and the excess of
the purchase price over the fair value of the net assets of acquired operations
(goodwill) are recorded as other long-term assets. Patents are amortized over
their remaining useful lives, while trademarks and goodwill are amortized over
the estimated period of benefit, up to forty years. Praxair periodically
evaluates the recoverability of patents, trademarks and goodwill by assessing
whether the unamortized balance can be recovered over its remaining life through
cash flows generated by underlying tangible assets.
Research And Development - Research and development costs are charged to expense
as incurred.
Income Taxes - Deferred income taxes are recorded for the temporary differences
between the financial statement and tax bases of assets and liabilities using
current tax rates.
Retirement Programs - Most Praxair employees worldwide are covered by various
pension plans. The cost of pension benefits under these plans is determined
using the "projected unit credit" actuarial cost method. Funding of pension
plans varies and is in accordance with local laws and practices.
Praxair accrues the cost of retiree life and health insurance benefits during
the employees' service period when such benefits are earned.
Postemployment Benefits - Praxair recognizes the estimated cost of future
benefits provided to former and inactive employees after employment but before
retirement on the accrual basis.
Stock-Based Compensation - Effective in 1996, Praxair adopted Statement of
Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based
Compensation, and continues to account for incentive plans and stock options
using the provisions of Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees. Pro forma information required by SFAS No. 123 is
included in Note 10.
Earnings Per Share - Effective with the fourth quarter of 1997, Praxair
implemented SFAS No. 128 which establishes new standards for computing and
presenting earnings per share and requires the disclosure of basic and diluted
amounts. Earnings per share amounts for all prior periods have been restated.
Basic earnings per share is computed by dividing net income for the period by
the weighted average number of Praxair common shares outstanding. Diluted
earnings per share, which is consistent with Praxair's previously disclosed
amounts, is computed by dividing net income for the period by the weighted
average number of Praxair common shares outstanding and dilutive common stock
equivalents.
Weighted average shares used to compute basic earnings per share were
158,094,511, 152,653,827, and 138,817,512 shares in 1997, 1996, and 1995,
respectively. Weighted average shares and common stock equivalents used to
compute diluted earnings per share amounts were 164,053,485, 159,037,716, and
144,147,469 shares in 1997, 1996, and 1995, respectively. The difference between
the number of shares used in the basic earnings per share calculation compared
to the diluted earnings per share calculation is due to the dilutive effect of
outstanding stock options.
Accounting Change - In accordance with Emerging Issues Task Force (EITF)
Consensus No. 97-13, Praxair recorded an after-tax charge of $11 million in the
fourth quarter of 1997 as the cumulative effect of an accounting change related
to previously capitalized business process reengineering and information
technology transformation costs.
Reclassifications - Certain prior years' amounts have been reclassified to
conform to the current year's presentation.
Note 2
1996 Acquisition of CBI Industries, Inc. (CBI)
Acquisition:
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
$2.2 billion including assumed debt of $735 million.
The purchase price for the common stock of CBI has been allocated to the assets
and liabilities of Liquid Carbonic based on appraisals, valuations and other
studies; and to assets held for sale based on estimated net realizable values,
as adjusted. The goodwill associated with the CBI acquisition, representing the
costs in excess of the fair value of net assets acquired (shown on the balance
sheet in other long-term assets), is being amortized on a straight line basis
over forty years. The results of Liquid Carbonic's operations have been included
in the consolidated financial statements effective January 1, 1996.
Pro forma information:
The following table provides the unaudited pro forma consolidated results of
operations for the year ended December 31, 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.
39
<PAGE>
Notes to Consolidated Financial Statements
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.
1995 Pro Forma results (unaudited)*
Sales $4,109
Operating profit $ 576
Net income $ 190
Basic earnings per share $ 1.37
Diluted earnings per share $ 1.32
(Millions of dollars, except per share data)
*Pro forma results include an operating profit charge of $54 million ($33
million after tax or $0.23 diluted earnings per share and $0.24 basic earnings
per share) principally relating to legal, environmental and other matters of
CBI's Liquid Carbonic business.
Assets Held for Sale:
At the acquisition date, Praxair determined that the Contracting and Investments
segments of CBI were not strategic to the combined company and has now completed
the sale of substantially all of these businesses. The operations related to
these assets held for sale have been eliminated from Praxair's consolidated
financial statements in 1997 and 1996 and the remaining assets and liabilities
to be sold are included in the consolidated balance sheet within the prepaid and
other current assets line at amounts equal to estimated net realizable values
adjusted for anticipated earnings, interest and other carrying costs until sale.
The following table provides summary data for activity during 1997 and 1996
related to these businesses:
Assets Held for Sale 1997 1996
Balance, January 1 $ 287 $ --
Acquisition of CBI -- 476
Add: interest carrying costs 4 17
Less: net income of operations held for sale (3) (15)
After-tax proceeds from sale of businesses* (273) (191)
- --------------------------------------------------------------
Balance, December 31 $ 15 $ 287
==============================================================
(Millions of dollars)
* During 1997, Praxair sold 96% of Chicago Bridge & Iron Company N.V. in an
initial public offering transaction, and five other small businesses.
During 1996, Praxair sold four of Liquid Carbonic's air separation plants
(based on an agreement with the U.S. Federal Trade Commission), Statia
Terminals, Inc. and a small business that was part of CBI's Investments
segment.
Note 3
Special Charges
In the fourth quarter of 1997, Praxair recorded a charge of $10 million ($6
million after tax) related primarily to profit improvement initiatives in its
North American packaged gases business.
In the first quarter of 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 and other exit costs, primarily lease termination
costs, associated with the integration of the Liquid Carbonic business of CBI
and Praxair. The severance-related costs are for payments for the termination of
Praxair and CBI employees due to synergies related to integrating the operations
of the two companies, primarily manufacturing and product distribution, sales
and marketing, and administrative functions. The employee terminations have been
completed as of December 31, 1997. The other exit costs are primarily related to
estimated net costs associated with lease commitments for surplus office and
production space.
The following table summarizes 1997 and 1996 accrual activity:
Other Total
Accrual - Special Charges Severance Exit Costs Accrual
Balance, January 1, 1996 $ -- $ -- $ --
CBI integration 50 35 85
1996 activity (29) (10) (39)
- ------------------------------------------------------------------------
Balance, December 31, 1996 $ 21 $ 25 $ 46
Packaged gases -- 10 10
1997 activity (21) (9) (30)
- ------------------------------------------------------------------------
Balance, December 31, 1997 $ -- $ 26 $ 26
========================================================================
(Millions of dollars)
40
<PAGE>
Notes to Consolidated Financial Statements
Note 4
Segment Data
Praxair operates principally in the industrial gases business. The following is
a summary of sales, operating profit and total assets by geographic segment.
Transfers between geographic segments were not significant.
<TABLE>
<CAPTION>
Year Ended December 31, 1997 1996 1995
Sales:
<S> <C> <C> <C>
United States $ 2,411 $ 2,157 $ 1,569
South America 996 990 667
Europe 603 613 494
Canada, Mexico, Asia and Other 725 689 416
- --------------------------------------------------------------------------------
Total sales $ 4,735 $ 4,449 $ 3,146
================================================================================
Operating profit:(a)
United States $ 465 $ 322 $ 285
South America 197 190 137
Europe 110 113 90
Canada, Mexico, Asia and Other 89 52 53
Corporate (23) (30) (17)
- --------------------------------------------------------------------------------
Total operating profit $ 838 $ 647 $ 548
================================================================================
Total assets:
United States $ 3,369 $ 3,102 $ 1,869
South America 2,508 2,177 993
Europe 897 955 741
Canada, Mexico, Asia and Other(b) 1,036 1,304 531
- --------------------------------------------------------------------------------
Total assets $ 7,810 $ 7,538 $ 4,134
================================================================================
(Millions of dollars)
</TABLE>
(a) During 1997, Praxair recorded an operating profit charge of $10 million
related primarily to profit improvement initiatives in the North American
packaged gases business. During 1996, Praxair recorded an operating profit
charge of $85 million related to CBI integration costs. The following are
the operating profit impacts, by geographic segment for these special
charges.
1997 1996
United States $ 9 $37
South America -- 13
Europe -- 4
Canada, Mexico, Asia and Other 1 28
Corporate -- 3
- --------------------------------------------------------------
Total operating profit $10 $85
==============================================================
(Millions of dollars)
(b) Includes $15 million in 1997 and $287 million in 1996 related to assets
held for sale - net.
Note 5
Income Taxes
Pre-tax income applicable to U.S. and foreign operations is
as follows:
Year Ended December 31, 1997 1996 1995
United States $290 $154 $188
Foreign 332 298 244
- ------------------------------------------------------------------------------
Total income before income taxes $622 $452 $432
==============================================================================
(Millions of dollars)
The following is an analysis of the provision for income taxes:
Year Ended December 31, 1997 1996 1995
Current tax expense
U.S. Federal $ 23 $ 15 $ 48
State and local 12 5 9
Foreign 49 42 23
- ------------------------------------------------------------
Total current 84 62 80
============================================================
Deferred tax expense
U.S. Federal 65 39 14
Foreign 2 9 28
- ------------------------------------------------------------
Total deferred 67 48 42
============================================================
Total income taxes $151 $110 $122
============================================================
(Millions of dollars)
Net deferred tax liabilities are comprised of the following:
December 31, 1997 1996
Deferred tax liabilities
Fixed assets $453 $405
State and local 9 9
Other 148 156
- ---------------------------------------------------------------
Total deferred tax liabilities 610 570
- ---------------------------------------------------------------
Deferred tax assets
Benefit plans and related 174 160
Inventory 17 15
Alternative minimum tax 16 18
Loss carryforwards - gross 72 40
Other 107 138
- ---------------------------------------------------------------
386 371
- ---------------------------------------------------------------
Less: Valuation allowances 30 11
- ---------------------------------------------------------------
Total deferred tax assets 356 360
- ---------------------------------------------------------------
Net deferred tax liabilities $254 $210
===============================================================
(Millions of dollars)
41
<PAGE>
Notes to Consolidated Financial Statements
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 (amounts are in millions of dollars and percentages are of pre-tax
income):
<TABLE>
<CAPTION>
Year Ended December 31, 1997 1996 1995
$ % $ % $ %
<S> <C> <C> <C> <C> <C> <C>
U.S. statutory income tax rate 218 35.0 158 35.0 151 35.0
State and local taxes 8 1.3 3 0.7 5 1.2
U.S. tax credits (1) (0.1) (1) (0.2) (1) (0.2)
Foreign taxes (65) (10.5) (51) (11.4) (30) (6.9)
Other - net (9) (1.4) 1 0.2 (3) (0.9)
- ----------------------------------------------------------------------------------
Provision for income tax 151 24.3 110 24.3 122 28.2
==================================================================================
</TABLE>
The valuation allowances increased $19 million in 1997, and $1 million in 1996
and 1995, all relating to foreign net operating loss carryforwards activity. At
December 31, 1997, Praxair has approximately $81 million of foreign net
operating loss carryforwards that expire principally through 2002, for which the
deferred tax asset has been fully reserved by valuation allowances.
During 1997, Italy and the United Kingdom decreased and France increased their
top marginal tax rate. During 1996, Brazil increased its top marginal tax rate.
The effects of these tax rate changes were immaterial. In 1995, income taxes
included a $6 million charge related to the decrease in Brazil's top marginal
income tax rate from 43% to 30.6%.
Provision has not been made for additional Federal or foreign taxes at December
31, 1997 on $1,212 million of undistributed earnings of foreign subsidiaries
that are planned to be reinvested indefinitely. These earnings could become
subject to additional tax if they were remitted as dividends, loaned to Praxair,
or upon sale of the subsidiary's stock. It is not practicable to estimate the
amount or timing of the additional tax, if any, that might eventually be payable
on the foreign earnings.
Note 6
Debt and Financial Instruments
Debt - The following is a summary of Praxair's outstanding debt at December 31,
1997 and 1996:
Debt 1997 1996
Short-Term
Commercial paper and U.S. bank borrowings $ -- $1,181
Other U.S. bank borrowings 1 17
Canadian borrowings 84 167
South American borrowings 268 106
Other International borrowings 38 49
- ---------------------------------------------------------------------------
Total short-term debt 391 1,520
- ---------------------------------------------------------------------------
Long-Term
U.S.:
Commercial paper and U.S. bank borrowings 860 --
6.25% Notes due 2000 75 75
6.70% Notes due 2001 250 250
6.625% Notes due 2003 75 75
6.75% Notes due 2003 300 300
6.85% Notes due 2005 150 150
6.90% Notes due 2006 250 250
6.625% Notes due 2007 250 --
8.70% Debentures due 2022
(Redeemable after 2002) 300 300
Other borrowings 55 65
Canadian subsidiary borrowings 160 90
South American subsidiary borrowings 130 109
Other International borrowings 17 36
Obligations under capital leases 42 45
- ---------------------------------------------------------------------------
2,914 1,745
Less: current portion of long-term debt 40 42
- ---------------------------------------------------------------------------
Total long-term debt 2,874 1,703
- ---------------------------------------------------------------------------
Total debt $3,305 $3,265
===========================================================================
(Millions of dollars)
Praxair has available a $1.5 billion credit agreement which expires in December
2000 and is used to support commercial paper and other short-term U.S. bank
borrowings. No borrowings were outstanding under this credit agreement at
December 31, 1997 and 1996. At December 31, 1997, $860 million of short-term
borrowings have been classified as long-term debt because of the Company's
intent to refinance this debt on a long-term basis and the availability of such
financing under the terms of the credit agreement. The weighted-average interest
rate on commercial paper and U.S bank borrowings was 6.1% at December 31, 1997
and 5.7% at December 31, 1996.
42
<PAGE>
Notes to Consolidated Financial Statements
Praxair's major bank credit 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 meet leverage, net worth and interest
coverage ratios. At December 31, 1997, Praxair was in compliance with all such
covenants.
Excluding commercial paper and U.S. bank borrowings, payments due on long-term
debt in the five years following 1997 are: 1998, $40 million; 1999, $92 million;
2000, $108 million; 2001, $342 million and 2002, $93 million. At December 31,
1997, $40 million of Praxair's assets (principally international fixed assets)
were pledged as security for long-term debt including the current portion of
long-term debt.
At December 31, 1997, the estimated fair value of Praxair's long-term debt
portfolio was $2,971 million versus a carrying value of $2,914 million. (At
December 31, 1996 the estimated fair value of long-term debt was $1,760 million
versus a carrying value of $1,745 million). These differences are attributable
to interest rates changes subsequent to when the debt was issued.
Financial Instruments - Praxair has entered into various interest rate swap and
cap agreements that are used to manage exposure to interest rate changes. Fixed
rate swaps are used to convert floating rate debt into fixed rate debt. Forward
starting fixed rate swaps are generally used to extend coverage of existing
swaps and increase the period for which floating rate debt is converted to fixed
rate debt. Floating rate swaps are used to convert fixed rate debt into floating
rate debt. Interest rate caps are used to limit the impact of rising interest
rates on short-term floating rate debt. The fair market value of these swaps and
caps approximated their carrying amounts at December 31, 1997 and 1996. The
following table is a summary of the notional amount of interest rate swap and
cap agreements at December 31, 1997 and 1996:
December 31, 1997(a) 1996
Maturing within one year:
Fixed Rate Swaps $220 $950(b)
Floating Rate Swaps $150 $ 15
Caps -- $200
Maturing between 1-2 years:
Fixed Rate Swaps $550(b) $ 20
Forward Starting Fixed Rate Swaps $150 --
Floating Rate Swaps -- $150
Maturing 2001:
Fixed Rate Swaps $ 80 $ 80
(Millions of dollars)
(a) Additionally, at December 31, 1997 there are $300 million notional value of
forward starting fixed rate swaps that have been effectively offset through
June 1998 using $300 million notional value of forward starting floating
rate swaps.
(b) At December 31, 1997, the expiration dates for $300 million ($600 million
in 1996) of these swaps have effectively been extended to these dates
through the use of forward starting fixed rate swaps.
Praxair is also a party to currency exchange forward contracts to manage its
exposure to changing currency exchange rates. At December 31, 1997 and 1996,
respectively, Praxair had $324 million and $262 million of currency exchange
forward contracts outstanding: $216 million to hedge recorded balance sheet
exposures ($239 million in 1996), $38 million to hedge firm commitments
generally for the purchase of equipment related to construction projects ($23
million in 1996) and in 1997 only, $70 million to hedge other operating
exposures that are accounted for on a mark-to-market basis. Additionally, at
December 31, 1997 there are $100 million notional value of currency exchange
forward contracts that effectively offset. These contracts all mature within one
year. At December 31, 1997 and 1996, the fair market value of currency exchange
contracts approximated their carrying amounts and the deferred gains and losses
on these contracts were not material.
Counterparties to interest rate derivative contracts and currency exchange
forward contracts are major financial institutions with credit ratings of
investment grade or better and no collateral is required. There are no
significant risk concentrations. Management believes the risk of incurring
losses related to credit risk is remote and any losses would be immaterial.
43
<PAGE>
Notes to Consolidated Financial Statements
Note 7
Shareholders' Equity
At December 31, 1997 there were 500,000,000 shares of common stock authorized
(par value $.01 per share) of which 159,969,641 shares were issued and
157,373,224 were outstanding. During 1997, Praxair reclassified $19 million to
additional paid-in capital from other long-term liabilities for deferred
compensation that will be paid in common stock. Additional paid-in capital
includes unearned performance stock of $(4) million at December 31, 1995 and
$(5) million at December 31, 1994.
The Board of Directors of Praxair declared a dividend distribution of one common
stock purchase right (a "Right") for each share of Praxair's common stock
outstanding at the close of business on June 30, 1992. The holders of any
additional shares of Praxair's common stock issued after June 30, 1992 and
before the redemption or expiration of the Rights are also entitled to one Right
for each such additional share. Each Right entitles the registered holders,
under certain circumstances, to purchase from Praxair one share of Praxair's
common stock at $47.33 (subject to adjustment). At no time will the Rights have
any voting power.
The Rights may not be exercised until 10 days after a person or group acquires
15 percent or more of Praxair's common stock, or announces a tender offer that,
if consummated, would result in 15 percent or more ownership of Praxair's common
stock. Separate Rights certificates will not be issued and the Rights will not
be traded separately from the stock until then.
Should an acquirer become the beneficial owner of 15 percent or more of
Praxair's common stock (other than as approved by Praxair's Board of Directors)
and under certain additional circumstances, Praxair Rightholders (other than the
acquirer) would have the right to buy common stock in Praxair, or in the
surviving enterprise if Praxair is acquired, having a value of two times the
exercise price then in effect. Also, Praxair's Board of Directors may exchange
the Rights (other than the acquirer's Rights which will have become void), in
whole or in part, at an exchange ratio of one share of Praxair common stock
(and/or other securities, cash or other assets having equal value) per Right
(subject to adjustment).
The Rights will expire on June 30, 2002, unless exchanged or redeemed prior to
that date. The redemption price is $.001 per Right. Praxair's Board of Directors
may redeem the Rights by a majority vote at any time prior to the 20th day
following public announcement that a person or group has acquired 15 percent of
Praxair's common stock. Under certain circumstances, the decision to redeem
requires the concurrence of a majority of the independent directors.
Note 8
Preferred Stock
At December 31, 1997 and 1996, there were 25,000,000 shares of preferred stock
(par value $.01 per share) authorized, of which, 750,000 shares were issued and
outstanding. The outstanding preferred shares were issued in December 1996 when
CBI was merged into Praxair. At that time, each outstanding share of CBI
preferred stock was exchanged for a share of Praxair preferred stock having the
same terms. Each series of preferred stock ranks on parity with the other, and
no dividends may be paid on Praxair common stock unless preferred stock
dividends have been paid. The preferred stock has limited voting rights.
Dividends are included in minority interests on the consolidated statement of
income. Following is a summary of each series of preferred stock outstanding.
Series A Preferred Stock - There are 550,000 outstanding shares of Praxair 7.48%
Cumulative Preferred Stock, Series A which are entitled to receive cumulative
annual dividends of $7.48 per share, payable quarterly. The Series A Preferred
Stock is mandatorily redeemable on, but not prior to, April 1, 2000 at a price
of $100 per share and has a liquidation preference of $100 per share.
Series B Preferred Stock - There are 200,000 outstanding shares of Praxair 6.75%
Cumulative Preferred Stock, Series B which are entitled to receive cumulative
annual dividends of $6.75 per share, payable quarterly. The Series B Preferred
Stock is mandatorily redeemable on, but not prior to, September 5, 2002 at a
price of $100 per share and has a liquidation preference of $100 per share.
44
<PAGE>
Notes to Consolidated Financial Statements
Note 9
Supplementary Income Statement Information
Year Ended December 31, 1997 1996 1995
Selling, general and
administrative
Selling $ 333 $ 331 $ 236
General and administrative 329 357 260
- -----------------------------------------------------------------------
$ 662 $ 688 $ 496
=======================================================================
Other income (expenses) - net
Investment income $ 13 $ 6 $ 4
Currency 4 3 (4)
Partnership income 12 8 10
Other 33(a) 10 5(b)
- -----------------------------------------------------------------------
$ 62 $ 27 $ 15
=======================================================================
Interest expense
Interest incurred on debt $ 248 $ 220 $ 125
Interest capitalized (32) (25) (9)
- -----------------------------------------------------------------------
$ 216 $ 195 $ 116
=======================================================================
Minority Interests
Minority interests $ (58) $ (62) $ (50)
Preferred stock dividends (8) (6) --
- -----------------------------------------------------------------------
$ (66) $ (68) $ (50)
=======================================================================
(Millions of dollars)
(a) Includes $11 million from a favorable judgment related to a dispute with
State public hospitals in Brazil.
(b) Includes employee severance costs in Brazil and expenses for future lease
payments on excess office space in the U.S.; partly offset by income from
the sale of the name and trademark Linde and a favorable settlement of a
social contribution tax issue in Brazil.
Note 10
Incentive Plans and Stock Options
The 1992 Praxair Long-Term Incentive Plan (the "1992 Plan") provides for
granting nonqualified or incentive stock options, stock grants, performance
awards, and other stock-related incentives for key employees. Awards may be made
under the 1992 Plan through the year 2001.
Under the 1992 Plan, the total number of shares available for options or stock
grants shall not exceed one percent of the number of shares outstanding on the
first day of each year, plus any shares that were available but not used in a
prior year up to two percent of the total number of shares outstanding on the
first day of the year of the grant. Option prices are equal to the closing price
of Praxair's common stock on the date of the grant. The options issued under the
1992 Plan become exercisable only after one or more years, and the option term
can be no more than ten years.
In 1996, the Board of Directors approved the 1996 Praxair, Inc. Performance
Incentive Plan (the "1996 Plan") that provides for granting nonqualified or
incentive stock options, stock grants, performance awards and other
stock-related incentives for Praxair employees other than officers and
directors, employees subject to Section 16 of the Securities Exchange Act of
1934 and employees subject to Section 162(m) of the Internal Revenue Code. Under
the 1996 Plan, the number of shares of stock available for options or grants in
each calendar year is limited to two percent of the total number of shares of
common stock outstanding as of the first day of the year plus any carryover
shares from prior years that were not granted up to a maximum of four percent of
the shares of common stock that were outstanding on the first day of the year.
Options granted under the 1996 Plan have terms and conditions identical to those
that may be granted under the 1992 Plan.
In 1992, Praxair issued performance stock to corporate officers and other key
employees which became fully vested on February 1, 1997 since the cumulative 15
percent per year net income growth target for the five-year period was achieved.
During 1994 the performance stock plan was modified to provide incentive for
management to achieve net income growth beyond the original 15% per year target.
Under the modification, participants earned additional cash payments equal to
87% of the value of the original performance stock grant. The pre-tax
compensation expense related to this performance stock plan was $23 million in
1996 and $19 million in 1995.
Effective January 1, 1997, Praxair initiated a new three-year executive
compensation plan by granting performance share equivalents (payable in Praxair
common stock) and stock options to corporate officers and other key employees.
The performance share equivalents will fully vest on January 1, 2000, provided
that Praxair meets its three-year cumulative 15 percent per year earnings per
share growth target for the period. The number of actual performance share
equivalents that vest is governed by a sliding scale starting at 6.5 percent
growth based on cumulative earnings per share achieved over the three-year
period with no maximum. The performance share equivalents will be included in
earnings per share calculations as minimum performance targets are achieved. The
stock options become exercisable on January 1, 2000. For 1997, Praxair's
earnings per share growth for purposes of this calculation was 16.6% and the
pre-tax compensation expense related to this plan was $15 million.
45
<PAGE>
Notes to Consolidated Financial Statements
The following table summarizes the changes in outstanding shares under option,
performance stock grants and performance stock equivalents for 1997, 1996 and
1995 (Shares in thousands):
Stock Options
Average Performance
Exercise Stock and
Activity Options Price Equivalents(a)
Outstanding at
December 31, 1994 12,285 $ 14.45 631
- ---------------------------------------------------------------
Granted 1,422 21.14 9
Exercised (2,224) 13.94 --
Cancelled or expired (54) 18.68 (4)
- ---------------------------------------------------------------
Outstanding at
December 31, 1995 11,429 15.36 636
- ---------------------------------------------------------------
Granted 2,615 40.52 6
Exercised (2,478) 14.99 --
Cancelled or expired (89) 33.19 (3)
- ---------------------------------------------------------------
Outstanding at
December 31, 1996 11,477 21.03 639
- ---------------------------------------------------------------
Granted 1,232 50.63 992
Exercised (1,737) 15.11 --
Vested -- -- (639)
Cancelled or expired (73) 40.19 (24)
- ---------------------------------------------------------------
Outstanding at
December 31, 1997(b) 10,899 25.20 968
- ---------------------------------------------------------------
Options exercisable at:
December 31, 1995 8,671 13.99
December 31, 1996 7,275 14.20
December 31, 1997(b) 7,167 15.51
===============================================================
(a) The weighted-average price per share on the date performance stock
equivalents were granted was $46.25 and for performance stock grants was
$41.83 in 1996 and $25.18 in 1995.
(b) The following table summarizes information about options outstanding and
exercisable at December 31, 1997 (shares in thousands, life in years):
Outstanding Exercisable
Average Range of Average Average
Year of Remain- Exercise Exercise Exercise
Grant ing Life Options Prices Price Options Price
To 6/92* 2.9 3,651 $ 9.80-16.63 $12.86 3,651 $12.86
7/92-12/93 4.8 1,703 $15.50-17.13 $15.84 1,703 $15.84
1994 6.4 584 $17.88-23.63 $19.38 574 $19.31
1995 7.1 1,244 $20.25-29.88 $21.14 1,234 $21.07
1996 8.5 2,502 $34.13-47.75 $40.59 5 $34.13
1997 9.4 1,215 $43.88-56.13 $50.65 - -
- --------------------------------------------------------------------------
5.9 10,899 $ 9.80-56.13 $25.20 7,167 $15.51
==========================================================================
*Options issued at June 30, 1992, the day Praxair became a public company.
Pro forma information:
SFAS No. 123 requires Praxair to disclose pro forma net income and pro forma
earnings per share amounts as if compensation expense was recognized for options
granted after 1994. Using this approach, pro forma net income and the related
basic and diluted earnings per share amounts would be as follows:
Year Ended December 31, 1997 1996 1995
Net income:
As reported $ 405 $ 282 $ 262
Pro forma $ 391 $ 274 $ 259
- ------------------------------------------------------------------------
Basic earnings per share:
As reported $ 2.56 $ 1.85 $ 1.89
Pro forma $ 2.47 $ 1.80 $ 1.87
- ------------------------------------------------------------------------
Diluted earnings per share:
As reported $ 2.46 $ 1.77 $ 1.82
Pro forma $ 2.37 $ 1.72 $ 1.80
========================================================================
The weighted average fair value of options granted during 1997 was $16.54
($13.52 in 1996 and $7.26 in 1995). These values, which were used as a basis for
the pro forma disclosures, were estimated using the Black-Scholes
Options-Pricing Model with the following assumptions used for grants in 1997,
1996, and 1995:
Year Ended December 31, 1997 1996 1995
Dividend yield 1.0% 1.0% 1.3%
Volatility 27.0% 30.0% 30.0%
Risk-free interest rate 6.1% 6.1% 7.7%
Expected term - years 5.0 5.0 5.0
These pro forma disclosures may not be representative of the effects for future
years since options vest over several years and options granted prior to 1995
are not considered in these disclosures. Also, additional awards generally are
made each year.
46
<PAGE>
Notes to Consolidated Financial Statements
Note 11
Supplementary Balance Sheet Information
December 31, 1997 1996
Accounts receivable
Trade $ 884 $ 835
Other 112 110
- -------------------------------------------------------------------------------
996 945
Less: allowance for doubtful accounts(a) 25 31
- -------------------------------------------------------------------------------
$ 971 $ 914
===============================================================================
Inventories(b)
Raw materials and supplies $ 120 $ 118
Work in process 48 40
Finished goods 161 154
- -------------------------------------------------------------------------------
$ 329 $ 312
===============================================================================
Property, plant and equipment - net
Land and improvements $ 206 $ 183
Buildings 489 477
Machinery and equipment 6,629 6,126
Construction in progress and other 850 722
- -------------------------------------------------------------------------------
8,174 7,508
Less: accumulated depreciation 3,567 3,239
- -------------------------------------------------------------------------------
$ 4,607 $ 4,269
===============================================================================
Other long-term assets
Patents, trademarks and goodwill(c) $ 1,213 $ 1,173
Deposits(d) 47 40
Investments at cost 5 4
Other 231 191
- -------------------------------------------------------------------------------
$ 1,496 $ 1,408
===============================================================================
Other current liabilities
Accrued accounts payable $ 199 $ 160
Payrolls 108 125
Employee benefits and related 41 72
Special charges 12 24
Accrued interest payable 39 41
Other 102 89
- -------------------------------------------------------------------------------
$ 501 $ 511
===============================================================================
(continued)
December 31, 1997 1996
Other long-term liabilities
Employee benefits and related $ 443 $ 463
Special charges 14 22
Other(d) 71 50
- -------------------------------------------------------------------------------
$ 528 $ 535
===============================================================================
Deferred credits
Income taxes(e) $ 296 $ 213
Other 28 45
- -------------------------------------------------------------------------------
$ 324 $ 258
===============================================================================
Cumulative translation adjustment
Europe $ (78) $ (10)
Canada, Mexico, Asia and Other (178) (116)
- -------------------------------------------------------------------------------
$ (256) $ (126)
===============================================================================
(Millions of dollars)
(a) Provisions to the allowance for doubtful accounts were $11 million, $6
million and $5 million in 1997, 1996 and 1995, respectively.
(b) Approximately 30% and 31% of total inventories were valued using the LIFO
method at December 31, 1997 and 1996, respectively. If inventories had been
valued at current costs, they would have been approximately $22 million and
$23 million higher than reported at December 31, 1997 and 1996,
respectively.
(c) Net of accumulated amortization of $100 million in 1997 and $73 million in
1996.
(d) $65 million and $79 million of other long-term assets and other long-term
liabilities in Brazil have been offset in 1997 and 1996, respectively. (e)
Deferred income taxes related to current items are included in prepaid and
other current assets in the amount of $42 million in 1997 and $3 million in
1996.
47
<PAGE>
Notes to Consolidated Financial Statements
Note 12
Retirement Programs
Pensions - Praxair has two main U.S. retirement programs which are
non-contributory defined benefit plans, the Praxair Retirement Program and the
CBI Retirement Program (see Note 2). Pension benefits for both are based
predominantly on years of service, age and compensation levels prior to
retirement. Pension coverage for employees of Praxair's international
subsidiaries generally is provided by those companies through separate plans.
Obligations under such plans are typically provided for by depositing funds with
trustees, under insurance policies, or by book reserves.
The components of net pension cost for 1997, 1996 and 1995 and the funded status
as of December 31, 1997 and 1996 for Praxair's domestic retirement programs and
significant international plans are shown below.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Year Ended December 31, 1997 1996 1995
Net Pension Cost
Service cost - benefits earned
during the period $ 33 $ 36 $ 26
Interest on projected benefit obligation 56 53 43
Actual return on plan assets (79) (80) (134)
Net amortization and deferral 18 25 92
- ------------------------------------------------------------------------------------------------
$ 28 $ 34 $ 27
================================================================================================
(Millions of dollars)
</TABLE>
<TABLE>
<CAPTION>
U.S. Plans International Plans
Overfunded Underfunded Overfunded Underfunded
December 31, 1997 1996 1996* 1997 1996 1997 1996
<S> <C> <C> <C> <C> <C> <C> <C>
Funded Status
Accumulated benefit obligation:
Vested benefits $(463) $(301) $ (90) $(138) $(123) $ (67) $ (59)
Non-vested benefits (50) (37) (6) (1) (3) (50) (39)
- -----------------------------------------------------------------------------------------------------------------------------------
$(513) $(338) $ (96) $(139) $(126) $(117) $ (98)
===================================================================================================================================
Projected benefit obligation $(617) $(431) $(108) $(159) $(145) $(149) $(147)
Plan assets at fair value, primarily common
stocks and fixed income securities 589 415 93 202 194 75 64
- -----------------------------------------------------------------------------------------------------------------------------------
Projected benefit obligation (in excess of)
less than plan assets (28) (16) (15) 43 49 (74) (83)
Unamortized net (asset) obligation at transition (4) (5) -- (8) (11) 9 10
Unamortized prior service cost 7 9 -- 2 3 10 10
Unrecognized (gains) losses - net (53) (28) (12) (19) (26) (13) --
- -----------------------------------------------------------------------------------------------------------------------------------
Prepaid (accrued) pension obligation $ (78) $ (40) $ (27) $ 18 $ 15 $ (68) $ (63)
===================================================================================================================================
*Related to the CBI Retirement Program. (Millions of dollars)
</TABLE>
48
<PAGE>
Notes to Consolidated Financial Statements
The significant actuarial assumptions used were as follows:
<TABLE>
<CAPTION>
U.S. Plans International Plans
<S> <C> <C> <C> <C> <C> <C>
Year Ended December 31, 1997 1996 1995 1997 1996 1995
Discount rate for determining the projected benefit obligation 7.0% 7.5% 7.0% 4-9% 4-9% 4-8.5%
Rate of increase in compensation levels 4.25% 4.75% 4.25% 2-7% 3-7% 3-6.5%
Expected long-term rate of return on plan assets 9.5% 9.5% 9.5% 4.5-9.0% 5.5-9.5% 5.5-9.5%
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Effective in 1996, Praxair's North American packaged gases business has two
defined contribution plans. Company contributions to these plans are calculated
as a percentage of salary based on age plus service. U.S. employees may
supplement the company contributions up to the maximum allowable by IRS
regulations. The cost for these plans was $3 million in 1997 and $1 million in
1996.
Postretirement Benefits Other Than Pensions - Praxair provides health care and
life insurance benefits to certain eligible retired employees. These benefits
are provided through various insurance companies and health care providers.
Praxair is obligated to make payments for a portion of postretirement benefits
related to retirees of Praxair's former parent. As part of the CBI acquisition
(see Note 2), Praxair assumed responsibility for health care and life insurance
benefit obligations for CBI's retired employees. Praxair does not currently fund
its postretirement benefits obligations. The retiree plans may be changed or
terminated by Praxair at any time for any reason with no liability to current or
future retirees.
The components of net periodic postretirement benefit cost for 1997, 1996 and
1995 and the funded status as of December 31, 1997 and 1996 were as follows:
Year Ended December 31, 1997 1996 1995
Net periodic postretirement benefit cost
Service cost - benefits earned
during the year $ 5 $ 7 $ 5
Interest on accumulated post-
retirement benefit obligation 15 14 14
Actual return on plan assets (1) (1) (2)
Net amortization and deferral (8) (9) (7)
- ------------------------------------------------------------------------
$ 11 $ 11 $ 10
========================================================================
(Millions of dollars)
December 31, 1997 1996
Funded Status
Accumulated postretirement benefit
obligation attributed to:
Retirees $(180) $(185)
Fully eligible active plan participants (28) (30)
Other active plan participants (21) (15)
- -------------------------------------------------------------------------
(229) (230)
Plan assets at fair value, primarily
common stocks and fixed income
securities 10 9
Unrecognized prior service cost (11) (19)
Unrecognized gains - net (18) (3)
- -------------------------------------------------------------------------
Accrued postretirement benefit obligation $(248) $(243)
=========================================================================
(Millions of dollars)
For measurement purposes, a 7.5% annual rate of increase in the per capita cost
of covered health care benefits was assumed for 1997, gradually reducing to 4.5%
in 2004 and thereafter. For 1996 and 1995 measurement purposes, the annual rate
of increase was gradually reducing to 5.0% and 4.5%, respectively. This health
care cost trend rate assumption has a significant effect on the amounts
reported. To illustrate the effect, increasing the assumed health care cost
trend rates by one percentage point would increase the accumulated
postretirement benefit obligation by $12 million as of December 31, 1997 ($11
million as of December 31, 1996 and 1995), and the aggregate of the service and
interest cost components of net periodic postretirement benefit cost by $1
million in 1997, 1996, and 1995. Under the CBI plan, retiree health care
benefits are provided under an established formula which limits costs based on
prior years of service of retired employees. Other significant actuarial
assumptions used to calculate the accumulated postretirement benefit obligation
were the same as those used for the U.S. pension plan (see above).
49
<PAGE>
Notes to Consolidated Financial Statements
Note 13
Leases
For operating leases, primarily involving manufacturing and distribution
equipment and office space, noncancelable commitments extending for more than
one year will require the following future minimum payments at December 31, 1997
(millions of dollars):
Lease Payments
1998 $64 2001 $ 42
1999 $54 2002 $ 38
2000 $46 after 2002 $206
Included in these totals are $67 million of lease commitments to Praxair's
former parent company, principally for office space. Praxair is also
contingently required to pay certain Canadian lease obligations of the former
parent company in the event of a default totaling approximately $18 million ($25
million Canadian). If such payment is required, Praxair has a legal right to set
off any such amounts paid against other amounts it owes to the former parent
company for lease commitments.
Total lease and rental expenses under operating leases were $70 million in 1997
and 1996 and $37 million in 1995. The present value of the future lease payments
under operating leases is approximately $312 million at December 31, 1997.
Note 14
Commitments And Contingencies
In the normal course of business, Praxair is involved in legal proceedings and
claims with both private and governmental parties. These cover a variety of
items, including product liability and environmental matters. In some of these
cases, the remedies that may be sought or damages claimed are substantial. While
it is impossible at this time to determine with certainty the ultimate outcome
of any of these cases, in the opinion of management, they will not have a
material adverse effect on the consolidated financial position of Praxair or on
the consolidated results of operations or cash flows in a given year. Should any
losses be sustained in connection with any of these cases in excess of
provisions therefore, they will be charged to income in the future.
In September 1996, Praxair was named as a defendant in a four count lawsuit
filed by Airgas, Inc., a competitor, in the Philadelphia Court of Common Pleas
alleging essentially that Praxair breached an oral contract with Airgas by
acquiring CBI Industries, Inc. without allowing Airgas to participate in the
acquisition. The complaint also contains allegations of conversion, fraud and
quantum meruit. Praxair believes that the complaint is totally without merit and
intends to defend itself vigorously.
Praxair's 60%-owned Italian subsidiary has entered into two unconditional
long-term purchase agreements, signed in 1989 and 1992, for oxygen and nitrogen
to be used to supply existing merchant liquid customers. Obligations in
connection with financing under these agreements total $24 million ($19 million
on a present value basis), with annual obligations of $4 million over the next
two years and $2 million over the succeeding three years. Total purchases of
product in 1997, 1996 and 1995, including other amounts purchased under these
agreements, were $8 million, $9 million and $9 million, respectively.
At December 31, 1997, the estimated cost of completing authorized construction
projects in the normal course of business is approximately $480 million.
50
<PAGE>
Notes to Consolidated Financial Statements
Note 15
Quarterly Data (Unaudited)
<TABLE>
<CAPTION>
1997 1Q 2Q 3Q 4Q Year
<S> <C> <C> <C> <C> <C>
Sales $ 1,158 1,178 1,190 1,209 $ 4,735
Cost of sales $ 665 681 699 719 $ 2,764
Depreciation and amortization $ 110 110 111 113 $ 444
Operating profit(a) $ 207 213 211 207 $ 838
- -----------------------------------------------------------------------------------------------------------------------
Income before cumulative effect of an accounting change(a) $ 102 107 107 100 $ 416
Cumulative effect of an accounting change(b) -- -- -- (11) (11)
Net income(a) $ 102 107 107 89 $ 405
- -----------------------------------------------------------------------------------------------------------------------
Basic Per Share Data:(a)
Income before cumulative effect of an accounting change $ .65 $ .68 $ .68 $ .63 $ 2.63
Cumulative effect of an accounting change(b) -- -- -- (.07) (.07)
Net income $ .65 $ .68 $ .68 $ .56 $ 2.56
Weighted average shares (000's) 158,128 158,276 158,196 157,828 158,095
- -----------------------------------------------------------------------------------------------------------------------
Diluted Per Share Data:(a)
Income before cumulative effect of an accounting change $ .62 $ .65 $ .65 $ .61 $ 2.53
Cumulative effect of an accounting change(b) -- -- -- (.07) (.07)
Net income $ .62 $ .65 $ .65 $ .54 $ 2.46
Weighted average shares (000's) 164,332 164,542 164,384 162,926 164,053
=======================================================================================================================
(Millions of dollars, except per share data)
</TABLE>
<TABLE>
<CAPTION>
1996 1Q 2Q 3Q 4Q Year
<S> <C> <C> <C> <C> <C>
Sales $ 1,090 1,093 1,115 1,151 $ 4,449
Cost of sales $ 629 631 637 667 $ 2,564
Depreciation and amortization $ 101 105 107 107 $ 420
Operating profit(c) $ 82 177 190 198 $ 647
- -----------------------------------------------------------------------------------------------------------------------
Net income(c) $ 17 81 88 96 $ 282
- -----------------------------------------------------------------------------------------------------------------------
Basic Per Share Data:
Net income $ .12 $ .52 $ .56 $ .61 $ 1.85
Weighted average shares (000's) 142,161 155,307 156,084 157,063 152,654
=======================================================================================================================
Diluted Per Share Data:
Net income $ .11 $ .50 $ .54 $ .59 $ 1.77
Weighted average shares (000's) 148,438 161,680 162,316 163,473 159,038
=======================================================================================================================
(Millions of dollars, except per share data)
</TABLE>
(a) Operating profit and net income for the 1997 fourth quarter and year
include a charge of $10 million and $6 million, respectively, related
primarily to profit improvement initiatives in Praxair's North American
packaged gases business (see Note 3) and a favorable judgment of $11
million and $6 million, respectively, related to a dispute with State
public hospitals in Brazil (see Note 9).
(b) Related to a required accounting change for capitalized business process
reengineering costs associated with information technology transformation
(see Note 1).
(c) Operating profit and net income for the first quarter and year of 1996
include a charge of $85 million and $53 million, respectively, for
severance-related, lease termination and other exit costs associated with
the integration of the industrial gases businesses of CBI and Praxair (see
Note 3).
51
<PAGE>
Management's Statement of Responsibility for Financial Statements
Praxair's 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 generally accepted accounting
principles 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.
Praxair's financial statements are audited by Price Waterhouse LLP, independent
accountants, in accordance with generally accepted auditing standards. These
standards provide for a review of Praxair's internal accounting controls to the
extent they deem appropriate in order to issue their opinion on the financial
statements.
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.
The independent accountants and internal auditors have full and free access to
the Audit Committee and meet with the Committee, with and without management
present.
/s/ H. William Lichtenberger
H. William Lichtenberger
Chairman and Chief Executive Officer
/s/ John A. Clerico
John A. Clerico
Executive Vice President and
Chief Financial Officer
/s/ J. Robert Vipond
J. Robert Vipond
Vice President and Controller
Danbury, Connecticut
February 6, 1998
52
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders of Praxair, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of cash flows and of shareholders' equity
present fairly, in all material respects, the financial position of Praxair,
Inc. and its subsidiaries at December 31, 1997 and 1996, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes 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.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ Price Waterhouse LLP
Stamford, Connecticut
February 6, 1998
53
<PAGE>
Information for Investors
Common Stock Information
Praxair lists its common stock for trading on the New York Stock Exchange under
the stock symbol, "PX." Unlisted trading privileges also have been granted by
the Pacific, Cincinnati and Midwest Stock Exchanges. There were 36,294
shareholders of record as of December 31, 1997.
Shareholder Returns
Closing high and low stock prices and dividends are presented below:
Stock Prices and Dividends
High Low Dividends
1997
Fourth quarter $49.313 $40.875 $0.11
Third quarter $57.563 $50.313 $0.11
Second quarter $57.125 $43.500 $0.11
First quarter $51.875 $44.250 $0.11
- ------------------------------------------------------------
1996
Fourth quarter $49.375 $43.125 $0.095
Third quarter $43.375 $36.500 $0.095
Second quarter $42.250 $37.125 $0.095
First quarter $39.875 $31.750 $0.095
- ------------------------------------------------------------
1995
Fourth quarter $33.875 $24.375 $0.08
Third quarter $28.750 $24.875 $0.08
Second quarter $25.250 $22.250 $0.08
First quarter $23.250 $19.875 $0.08
============================================================
Dividend Policy
Dividends on Praxair's common stock are declared by the Board of Directors and,
when declared, usually will be paid in March, June, September and December. It
is the company's objective to pay dividends consistent with the reinvestment of
earnings necessary for long-term growth.
Dividend Reinvestment and Stock Purchase Plan
Shareholders holding shares registered in their name may increase
their investment in Praxair shares through the Dividend Reinvestment and Stock
Purchase Plan without payment of any brokerage commission. Full details
concerning this plan may be obtained from The Bank of New York.
Diluted earnings per share*
1997 $2.57++
1996 $2.11++
1995 $1.82
1994 $1.45
1993 $1.06
*Before cumulative effect of accounting changes
++Before special charges
Shareholder Information
The annual report is the principal means of communicating Praxair's business
strategies and financial performance to its shareholders. Additional information
on corporate governance matters is provided in the proxy statement prepared in
conjunction with Praxair's annual meeting. Also, Praxair's 1997 Annual Report on
Form 10-K, which incorporates parts of this annual report by reference and is
filed with the U.S. Securities and Exchange Commission, provides certain
additional information.
Praxair Investor Relations is responsible for shareholder communications and
welcomes shareholder inquiries about Praxair, either by telephone or in writing.
The Bank of New York is Praxair's stock transfer agent and registrar, and
maintains shareholder records. Shareholders needing information about account
records, stock certificates, change of address and dividend payments should
contact:
The Bank of New York
800-432-0140 or, outside the U.S., (212) 815-5800
e-mail address: [email protected]
website address: http://stock.bankofny.com
Address shareholder inquiries to:
Shareholder Relations, Department 11E
P.O. Box 11258
Church Street Station
New York, NY 10286-1258
Send certificates for transfer and address changes to:
Receive and Deliver Department - 11W
P.O. Box 11002 Church Street
Station New York, New York 10286
The annual report, proxy statement and filings with the U.S. Securities and
Exchange Commission can be obtained upon request to The Bank of New York or:
Investor Relations, Praxair, Inc., 39 Old Ridgebury Road, Danbury, CT 06810-5113
(203) 837-2210
Annual Meeting of Shareholders
The 1998 annual meeting of
shareholders of Praxair, Inc. will be held at 9:30 a.m. on Tuesday, April 28,
1998 at Hilton Inn and Towers, 18 Old Ridgebury Road, Danbury, Connecticut.
General Corporate Information
For general information about Praxair, its
products and services, write or call:
Corporate Communications, Praxair, Inc., 39 Old Ridgebury Road, Danbury, CT
06810-5113 800-PRAXAIR or, outside the U.S., (716) 879-4077
Visit Praxair Online on the World Wide Web:
http://www.praxair.com
54
<PAGE>
Alejandro Achaval
Director, Argentine National Institute of Technology; former Vice Chairman
& Chief Executive Officer, IPAKO Industrias Petroquimicas Argentinas S.A.
Audit; Finance & Pension Committees
John A. Clerico
Executive Vice President & Chief Financial Officer, Praxair, Inc.
Finance & Pension Committee
C. Fred Fetterolf
Director of various corporations; former
President & Chief Operating Officer, Aluminum Company of America
Audit (Chairman); Public Policy & Nominating Committees
Dale F. Frey
Director of various corporations;
former Vice President, General Electric Company; former Chairman & President,
General Electric Investment Corporation
Finance & Pension (Chairman); Public Policy & Nominating Committees
Claire W. Gargalli
Vice Chairman, Diversified Search Companies
Finance & Pension; Compensation & Management Development Committees
Edgar G. Hotard
President & Chief Operating Officer, Praxair, Inc.
Finance & Pension Committee
Ronald L. Kuehn, Jr.
Chairman, President & Chief Executive Officer, Sonat Inc.
Audit; Compensation & Management Development (Chairman) Committees
Raymond W. LeBoeuf
Chairman & Chief Executive Officer,
PPG Industries, Inc.
Finance & Pension, Compensation & Management Development Committees
H. William Lichtenberger
Chairman & Chief Executive Officer, Praxair, Inc.
Public Policy & Nominating Committee
Benjamin F. Payton
President, Tuskegee University
Audit; Public Policy & Nominating Committees
G. Jackson Ratcliffe, Jr.
Chairman, President & Chief Executive Officer, Hubbell Incorporated
Compensation & Management Development;
Public Policy & Nominating (Chairman) Committees
H. Mitchell Watson, Jr.
President, Sigma Group of America
Audit; Compensation & Management Development Committees
55
<PAGE>
Officers
Leonard M. Baker
Vice President, Technology
Paul J. Bilek
President, North American Industrial Gases and President, Praxair Canada
David H. Chaifetz
Vice President, General Counsel
& Secretary
John A. Clerico
Executive Vice President
& Chief Financial Officer
Michael E. DeDomenico
President, Praxair Europe
Theodore W. Dougher
Vice President, Safety &
Production Excellence
Ivan Ferreira Garcia
Chief Executive Officer,
S.A. White Martins
Jesus E. Gonzalez
Vice President, Chemicals &
Refining Business and Steel Market
Barbara R. Harris
Vice President, Human Resources
John F. Hill
Chief Information Officer
Bradley J. Holcomb
Vice President, Global Procurement
& Materials Management
Edgar G. Hotard
President & Chief Operating Officer
Thomas W. von Krannichfeldt
President, Praxair Surface
Technologies, Inc.
H. William Lichtenberger
Chairman & Chief Executive Officer
Sunil Mattoo
Vice President, Marketing
Murilo Barros de Melo
Vice President, Food Market
Nigel D. Muir
Vice President, Communications
& Public Relations
John S. Pirretti
Vice President, General Industry Markets
Jose R. Rivero
President, Praxair Distribution, Inc. (North American Packaged Gases)
Sally A. Savoia
Vice President, Healthcare Market
James S. Sawyer
Vice President & Treasurer
Donald W. Terry
Vice President, Carbon Dioxide Product and Services
William M. Therrien
Vice President, Engineering and Supply Systems
Theodore F. Trumpp
Vice President, Electronics Business
J. Robert Vipond
Vice President & Controller
Regional Management
North America
Michael J. Douglas
Managing Director, Praxair Canada
Cesar Guajardo
Managing Director, Praxair Mexico
Robert P. Sheehan
President, Praxair Puerto Rico
Alan J. Westendorf
Senior Vice President, Sales
South America
Domingos Bulus
Assistant Director, Andean Treaty Countries
Albino Carneiro
Assistant Director, South Cone Countries
Ricardo Malfitano
Industrial Gases Officer, Brazil
Europe
Olivier Lambotte
Business Director, Specialty Gases
Robert Matthe
General Manager, Poland
Franco Mazzali
Managing Director, Italy and Middle East
Jean-Michel Tiard
Managing Director, Western Europe
Gabriel Toledo
Managing Director, Spain and Turkey
Asia
James J. Fuchs
Vice President, Asia
V. Thad Evans
Managing Director, Praxair Japan, and President, Praxair Iwatani Electronics
Gases Brian Evison Managing Director, Praxair Indonesia and Praxair Australia
K.H. Lee President, Praxair Korea Brent Lok President, Praxair Greater China
Indrajit Mookerjee Managing Director, Praxair India Kitti Prapasuchart Managing
Director, Praxair Thailand South American Advisory Council H. William
Lichtenberger Chairman Ivan Ferreira Garcia Deputy Chairman Ricardo Cillioniz
President, Aceros Arequipa, Peru Enzo Debernardi Senior Consultant, Paraguay
Isaac Gilinski President, Bancol SA, Colombia Agostino Rocca President for Latin
America, Organizacion Techint, Argentina Paolo Rocca President, Organizacion
Techint, Argentina Benjamin Steinbruch Chairman, Companhia Siderugica Nacional,
Brazil
56
<PAGE>
World Headquarters
Praxair, Inc.
39 Old Ridgebury Road
Danbury, CT 06810-5113
USA
1-800-PRAXAIR
(716) 879-4077 (from outside the U.S.)
Praxair Surface Technologies, Inc.
Indianapolis, IN, USA
(317) 240-2500
(affiliates in Brazil, Denmark, France, Germany, Italy, Japan, Singapore,
Spain, Switzerland, United Kingdom)
North America
Praxair, Inc.
Danbury, CT, USA
1-800-PRAXAIR
(716) 879-4077
Praxair Mexico S.A. de C.V.
Mexico City, Mexico
52 (5) 627-9500
Praxair Canada Inc.
Mississauga, Ontario, Canada
(905) 803-1600
South America
S.A. White Martins
Rio de Janeiro, Brazil
55 (21) 588.6622
Argentina, Bolivia, Chile, Colombia, Ecuador, Paraguay, Peru, Uruguay, Venezuela
Central America/Caribbean
Praxair Puerto Rico
Gurabo, PR
(787)258-7200
Belize, Costa Rica
Europe
Praxair N.V.
Zaventem (Brussels), Belgium
32 (2) 716.0580
Austria, Croatia, Czech Republic, France, Germany, Israel, Italy,
The Netherlands, Poland, Portugal, Slovenia, Spain, Turkey
Asia
Praxair Asia, Inc.
Singapore
(65)736-3800
Australia, India, Indonesia, Japan, People's Republic of China,
South Korea, Thailand
EXHIBIT 21.01
Place of
INCORPORATION
Accent Cay Holdings Inc. British Virgin Island
Adirondack Insurance Company Vermont
Amko Service Company Ohio
Asian Surface Technologies Pte. Ltd. Singapore
Beijing Praxair Huashi Carbondioxide Co., Ltd. China
Carbonatos Andinos S.A. Argentina
Carborio Industria E. Comercio, Lta. Brazil
Catalana de Gases Medicinales S.L. Spain
CBI Investments, Inc. Delaware
CBI Terminal COmpany Delaware
CBI Comercio e Participacoes Ltda. Brazil
Chameleon Finance Company B.V. The Netherlands
CILBRAS - Empresa Brasileira de Cilindros Ltda. Brazil
Coatec Gesellschaft Fur Oberflachentechnik GmbH Germany
Companhia Nacional de Calcareos e Derivados - CONCAL Brazil
Companhia Nacional de Carbureto Brazil
Companhia Nacional de Oxigenio S.A. Portugal
Cryo Teruel S.A. Spain
Distribudora Mexicana de Criogenicos S.A. de C.V. Mexico
Domolife S.r.l. Italy
Emigas Servizi S.r.l. Italy
Euro Cantley S.A. Colombia
Euro Silver S.A. Uruguay
Euro Vitoria S/A Uruguay
Fabrica de Oxigeno Miller Hermanos, S.A. Costa Rica
Frios Industrias Argentinas S.A. Argentina
Gases de Ensenada S/A Argentina
Gases International, Inc. Delaware
GASOX - Goias Oxigenio Ltda. Brazil
Gas Tech, Incorporated Illinois
Glace Seche Quebec Inc. Canada
Groupo Praxair S.A. de C.V. Mexico
Hielo Secco S.A. Bolivia
Ibis Investments, Inc. Delaware
Igas Servizi S.r.l. Italy
IMOX Industria e Comercio Ltda. Brazil
Industrial Gases, Inc. Delaware
Innovative Membrane Systems, Inc. Delaware
Intercorp Mexico S.A. de C.V. Mexico
International Cryogenic Equipment Corporation Delaware
Jacksonville Welding Supply, Inc. Florida
Julio Pastafiglia & Cia. S.A. Argentina
Kelvin Finance Company Ireland
L. Clausen & Cia. SRL Uruguay
Liquid Carbonic Corporation Delaware
Liquid Carbonic Del Paraguay S.A. Paraguay
Liquid Carbonic do Ceara Ltd. Brazil
Liquid Carbonic Do Nordeste, S.A. Brazil
Liquid Carboinc Industrias S.A. Brazil
Liquid Carbonic LNG International, Inc. Delaware
Liquid Carbonic Noroeste Ltda. Brazil
Liquid Carbonic of Oklahoma, Inc. Oklahoma
<PAGE>
EXHIBIT 21.01
(cont'd.)
Place of
INCORPORATION
Liquid Carbonico Colombiana S.A. Colombia
Liquid Natural Gas de Mexico S.A. de C.V. Mexico
Liquid Quimica Mexicana, S.A. de C.V. Mexico
Liquid Quimica S.A. Brazil
Maxima Air Separation Center Limited Israel
Medigas Iberica S.A. Spain
Miller Hermanos S.A. Costa Rica
Monte Bravo S.A. Uruguay
Nitropet, S.A. Mexico
Oak Brook International Insurance Co. Ltd. Bermuda
Old Danford S.A. Uruguay
Operadora Perinorte, S.A. de C.V. Mexico
Oxiazuay & Cia. Ltda. Ecuador
Oxiambato Ltda. Ecuador
Oxigenos de Colombia Efese S.A. Colombia
Oxigenus S.A. Spain
Oximesa S.A. Spain
Oximinas Ltda. Brazil
P. T. Praxair Indonesia Indonesia
Plainfield, Inc. Delaware
Praxair e Compania Portugal
Praxair & M.I. Services, S.R.L. Italy
Praxair Asia, Inc. Delaware
Praxair Argentina, S.A. Argentina
Praxair Australia Pty. Ltd. Australia
Praxair B.V. The Netherlands
Praxair BCEEP Carbon Dioxide, Inc. China
Praxair Belize, Ltd. Belize
Praxair Bolivia, S.A. Bolivia
Praxair Canada Inc. Canada
Praxair Chile S.A. Chile
Praxair Comercio e Participacos Ltda. Brazil
Praxair Costa Rica, S.A. Costa Rica
Praxair Deer Park Cogen, Inc. Delaware
Praxair Distribution, Inc. Delaware
Praxair Ecuador S.A. Ecuador
Praxair Energy Resources, Inc. Delaware
Praxair Energy Services, Inc. Delaware
Praxair Espana, S.L. Spain
Praxair Foreign Sales Corporation Virgin Islands
Praxair G.m.b.H. Germany
Praxair Gmbh & Co., KG Germany
Praxair Holding Espana, S.L. Spain
Praxair Holding N.V. Belgium
Praxair Hydrogen Supply, Inc. Delaware
Praxair Iberica, S.A. Spain
Praxair India Private Limited India
Praxair International, Inc. Delaware
Praxair Iwatani Electronics Gases Co. Japan
Praxair K.K. Japan
Praxair Korea Company Limited Republic South Korea
Praxair Martime Company Nova Scotia
<PAGE>
EXHIBIT 21.01
(cont'd.)
Place of
INCORPORATION
Praxair Mexico, S.A. de C.V. Mexico
Praxair N.V. Belgium
Praxair-Ozone, Inc. Delaware
Praxair Pacific Limited Mauritius
Praxair Polska, SP. z o.o. Poland
Praxair Paraguay S.R.L. Paraguay
Praxair Peru S.A. Peru
Praxair Produccion Espana, S.L. Spain
Praxair Production N.V. Belgium
Praxair Products Inc. Canada
Praxair Puerto Rico, Inc. Delaware
Praxair (Shanghai) Co., Ltd. China
Praxair S.A. France
Praxair S.p.A. Italy
Praxair S. T. Technology, Inc. Delaware
Praxair Services et Systemes S.A. France
Praxair Services G.m.b.H. Germany
Praxair Shanghai Meishan Inc. China
Praxair Soldadura S.A. Spain
Praxair Surface Technologies A/S Denmark
Praxair Surface Technologies Espana S.A. Spain
Praxair Surface Technologies (Europe) S.A. Switzerland
Praxair Surface Technologies G.m.b.H. Germany
Praxair Surface Technologies, Inc. Delaware
Praxair Surface Technologies K.K. Japan
Praxair Surface Technologies Limited United Kingdom
Praxair Surface Technologies Mexico, S.A. de C.V. Mexico
Praxair Surface Technologies Pte. Ltd. Singapore
Praxair Surface Technologies S.A. France
Praxair Surface Technologies S.p.A. Italy
Praxair Technology, Inc. Delaware
Praxair (Thailand) Company, Ltd. Thailand
Praxair UK Limited United Kingdom
Praxair US Holdings, Inc. Delaware
Praxair Uruguay S.A. Uruguay
Praxair Venezuela, S.A. Venezuela
Precigas Gases Industriais S.A. Brazil
Production Praxair Canada Inc. Canada
Products Especiales Quimicos, S.A. de C.V. Mexico
Quimica Industrial Bara Do Pirai S.A. Brazil
Rapidox Gases Industriais Ltda. Brazil
Rivoira S.p.A. Italy
Rolmaster Industrial Ltda. Brazil
S. A. White Martins Brazil
Servicios Ejecutivos Praxair, S.A. de C.V. Mexico
Servicios Energeticos Chile S.A. Chile
Specialty International Chemicals, Inc. Delaware
Tianjin Praxair Inc. China
Topaz Consultoria S.A. Uruguay
Transportes Flamingo S/A Peru
UCISCO Canada Inc. Canada
UCISCO, Inc. Texas
Unigases Comercial Ltda. Brazil
<PAGE>
EXHIBIT 21.01
(cont'd.)
Place of
INCORPORATION
Wall Chemicals, Inc. Illinois
Westair Cryogenics Company Delaware
White Martins Administracao, Investimentos e
Fomento Comercial Ltda. Brazil
White Martins de Camacari S.A. Bahia
White Martins e Companhia Comercio e Servicos Brazil
White Martins & White Martins Comercio e Servicos Portugal
White Martins Gases Industriais do Nordeste S.A. Brazil
White Martins Gases Industriais do Norte S.A. Brazil
White Martins Gases Industriais S.A. Brazil
White Martins Soldagem Ltda. Brazil
3/12/98
EXHIBIT 23.01
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-3 (Nos.
333-40003, 333-18141, 333-304, 33-93444, and 33-48480) and in the
Registration Statement on Form S-8 (Nos. 333-18111, 333-18113, 33-92868,
33-87274, 33-48479, and 33-48478) of Praxair, Inc. of our report dated
February 6, 1998 appearing on page 53 of the Annual Report to Shareholders
which is incorporated in this Annual Report on Form 10-K.
/s/PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Stamford, Connecticut
March 16, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 43
<SECURITIES> 0
<RECEIVABLES> 996
<ALLOWANCES> 25
<INVENTORY> 329
<CURRENT-ASSETS> 1497
<PP&E> 8174
<DEPRECIATION> 3567
<TOTAL-ASSETS> 7810
<CURRENT-LIABILITIES> 1366
<BONDS> 2874
75
0
<COMMON> 2
<OTHER-SE> 2120
<TOTAL-LIABILITY-AND-EQUITY> 7810
<SALES> 4735
<TOTAL-REVENUES> 4735
<CGS> 2764<F1>
<TOTAL-COSTS> 2764<F1>
<OTHER-EXPENSES> 444<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 216
<INCOME-PRETAX> 622
<INCOME-TAX> 151
<INCOME-CONTINUING> 471
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (11)
<NET-INCOME> 405
<EPS-PRIMARY> 2.56<F2>
<EPS-DILUTED> 2.46<F2>
<FN>
<F1>Cost of goods sold and total costs are exclusive of depreciation and
amortization which is shown on the other expense line in the Financial Data
Schedule.
<F2>Effective in 1997, SFAS No. 128 established new standards for computing and
presenting earnings per share (EPS). In the Financial Data Schedule, Praxair's
Basic EPS is presented on the "EPS-Primary" line and Diluted EPS is presented
on the "EPS-Diluted" line. Diluted EPS is consistent with Praxair's
previously disclosed amounts.
</FN>
</TABLE>
