SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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[] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
Commission file number 1-11037
Praxair, Inc.
1998 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:
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Title of each class: Registered on :
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Common Stock ($.01 par value) New York Stock Exchange
Common Stock Purchase Rights New York Stock Exchange
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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, 1999, 157,454,972 shares of common stock of Praxair, Inc. were
outstanding. The aggregate market value of common stock held by non-affiliates
at January 31, 1999 was approximately $5,071 million.
Documents incorporated by reference:
Portions of the 1998 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, 1999, are incorporated in Part III of
this report.
The Index to Exhibits is located on page 11 of this report.
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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, currency movements, and the change in functional currency, impacts
from currency and economic developments in Asia, management's assessments of the
impacts of the Year 2000 Problem and Euro Conversion, 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, foreign currency
movements, pricing fluctuations for the Company's products, 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.
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INDEX
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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
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<PAGE>
PART I
Praxair, Inc. and Subsidiaries
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Item 1. Business
General
Praxair, Inc. (Praxair or Company) was founded in 1907 and became an independent
publicly traded company in 1992. Praxair was the first company in the United
States to produce oxygen from air using a cryogenic process. 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 also the world's largest supplier of
carbon dioxide. Praxair's primary products for its industrial gases business are
atmospheric gases (oxygen, nitrogen, argon, rare gases) and process gases
(carbon dioxide, helium, hydrogen, electronic gases, specialty gases,
acetylene). The Company's surface technology segment, operated through Praxair
Surface Technologies, Inc., supplies wear-resistant and high-temperature
corrosion-resistant metallic and ceramic coatings and powders. The Company also
designs, engineers and builds equipment that produces industrial gases (for
internal use and external sale) through its global supply systems included in
its All Other segment. Sales for Praxair were $4,833 million, $4,735 million,
and $4,449 million for 1998, 1997 and 1996, respectively, with industrial gases
accounting for 90% of sales in 1998 and 1997, and 91% in 1996, and surface
technologies and global supply systems accounting for the balance. Refer to Note
4 of the section captioned "Notes to Consolidated Financial Statements" in
Praxair's 1998 Annual Report to Shareholders for information related to
Praxair's segment information.
During 1996, Praxair acquired the common stock of CBI Industries, Inc. (CBI)
(See Note 2 of the section captioned "Notes to Consolidated Financial
Statements" in Praxair's 1998 Annual Report to Shareholders). 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.
Gases produced by the Company find wide use in the metal fabrication, chemicals
& refining, primary metals, food & beverage, healthcare, electronics, aerospace,
glass, pulp & paper, environmental remediation, and 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 industrial production 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 primarily produces oxygen, nitrogen and argon
through several air separation processes. Cryogenic air separation, which is the
primary process, compresses and cools air until it liquefies. 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.
2
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PART I (Cont.)
Praxair, Inc. and Subsidiaries
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Process gases, including carbon dioxide, hydrogen, carbon monoxide, 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. Hydrogen
and carbon monoxide are produced by purifying hydrocarbon sources or by
purifying by-product sources obtained from the chemical and petrochemical
industries. 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. 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 and process gas 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
trucks to storage containers owned or leased and maintained by Praxair or the
customer 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 in the United States.
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 40 states in the U.S. and Puerto Rico.
Praxair has acquired independent distributors in various locations in the United
States.
3
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PART I (Cont.)
Praxair, Inc. and Subsidiaries
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Surface Technologies
Praxair's surface technologies business supplies wear-resistant and
high-temperature corrosion-resistant metallic and ceramic coatings and powders
to the aircraft, electronics, printing, textile, plastics, primary metals
petrochemical, and other industries. It also provides aircraft engine and
airframe component overhaul services. 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; including its
patented Super D-Gun. This equipment is used for the application of thermal
barrier wear resistant coatings. The coatings extend wear life at high
temperatures and under corrosive conditions and 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
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 48% of its 1998 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 1998 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.
4
<PAGE>
PART I (Cont.)
Praxair, Inc. and Subsidiaries
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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, 1998, Praxair had 24,834
employees worldwide. Of this number, 9,373 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 1998 Annual Report
to Shareholders.
5
<PAGE>
PART I (Cont.)
Praxair, Inc. and Subsidiaries
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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 329 cryogenic air separation plants (196 in the United States); 94
by-product carbon dioxide plants (23 in the United States); 297 non-cryogenic
plants, and 31 hydrogen plants. No single production facility is material except
for the following complexes:
Number of
Supply System Connected Plants Products Produced
- ------------- ---------------- ---------------------------
Northern Indiana 12 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 38 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 1998 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 1998.
6
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PART II
Praxair, Inc. and Subsidiaries
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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 1998 Annual Report to Shareholders.
Praxair's annual dividend on its common stock for 1998 was $0.50 per share. In
January 1999, Praxair's Board of Directors declared a dividend of $0.14 per
share for the first quarter of 1999, or $0.56 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, 1998 is
incorporated herein by reference to the section captioned "Five-year Financial
Summary" in Praxair's 1998 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 1998
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 1998
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 1998 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.
7
<PAGE>
PART III
Praxair, Inc. and Subsidiaries
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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 27, 1999.
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 27, 1999.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information required by this item is incorporated herein by reference to the
section captioned "Share Ownership" in Praxair's Proxy Statement for the Annual
Meeting of Shareholders to be held April 27, 1999.
Item 13. Certain Relationships and Related Transactions
Information required by this item is incorporated by reference to the section
captioned "Certain Relationships and Related Transactions" in Praxair's Proxy
Statement for the Annual Meeting of Shareholders to be held April 27, 1999.
8
<PAGE>
PART IV
Praxair, Inc. and Subsidiaries
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Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Financial Statements and Schedules
Page No. in
Praxair's 1998
Annual Report (AR)*
Financial Statements
Consolidated Statement of Income for the Years Ended
December 31, 1998, 1997 and 1996 ..........................AR-18
Consolidated Balance Sheet at December 31, 1998 and 1997 .........AR-19
Consolidated Statement of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996 ................................AR-20
Consolidated Statement of Shareholders' Equity for the
Years Ended December 31, 1998, 1997 and 1996 ....................AR-21
Notes to Consolidated Financial Statements .......................AR-32
Report of Independent Accountants .............................AR-48
* Incorporated by reference to the indicated pages of the 1998 Annual
Report to Shareholders. With the exception of this information and the
information incorporated in Items 5, 6, 7, 7A, 8 and 9, the 1998 Annual
Report to Shareholders is not to be deemed filed as part of this Annual
Report on Form 10-K.
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.
Quarterly Segment Information (Unaudited)
Effective in 1998, Praxair adopted Statement of Financial Accounting
Standards No. 131 which requires a new "management" approach to segment
disclosures (see Notes 1 and 4 in the section captioned "Notes to
Consolidated Financial Statements" in Praxair's 1998 Annual Report to
Shareholders). Restated segment information to conform to the new
requirements for the 1998 quarters (unaudited) is included in Exhibit 99.01
to this Form 10-K.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of 1998.
(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.
9
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SIGNATURES
Praxair, Inc. and Subsidiaries
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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 15, 1999
/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 23, 1999.
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<S> <C> <C>
/s/ Paul J. Bilek /s/ Alejandro Achaval /s/ Ronald L. Kuehn, Jr.
- --------------------------- --------------------------- ---------------------------
Paul J. Bilek Alejandro Achaval Ronald L. Kuehn, Jr.
Executive Vice President Director Director
/s/ John A. Clerico /s/ Raymond W. LeBoeuf /s/ Benjamin F. Payton
- --------------------------- --------------------------- ---------------------------
John A. Clerico Raymond W. LeBoeuf Benjamin F. Payton
Executive Vice President and Director Director
Chief Financial 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 and Director
/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
</TABLE>
10
<PAGE>
INDEX TO EXHIBITS
Praxair, Inc. and Subsidiaries
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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).
*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).
11
<PAGE>
INDEX TO EXHIBITS (Cont.)
Praxair, Inc. and Subsidiaries
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Exhibit No. Description
*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 (Filed as Exhibit 10.02
to the Company's 1997 Annual Report on Form 10K, Filing No.
1-11037, and incorporated herein by reference).
*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 Amended and Restated 1995 Stock Option Plan for Non-Employee
Directors.
*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).
12
<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).
13
<PAGE>
INDEX TO EXHIBITS (Cont.)
Praxair, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Exhibit No. Description
10.15a First Amendatory Agreement to the Employee Benefits Agreement
(Filed as Exhibit 10.15a to the Company's 1994 Annual Report on
Form 10-K, Filing No. 1-11037, and incorporated herein by
reference).
10.16 Tax Disaffiliation Agreement dated as of June 4, 1992 (Filed as
Exhibit 10.20 to the Company's Registration Statement on Form 10,
Filing No. 1-11037, and incorporated herein by reference).
10.17 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 (Filed as Exhibit 10.17a to the Company's 1997 Annual Report
on Form 10-K, Filing No. 1-11037, and incorporated herein by
reference).
*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 1998 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.
27.01 Financial Data Schedule.
99.01 Segment Information for the 1998 Quarters (Unaudited).
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.
14
Praxair, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
EXHIBIT 10.04
PRAXAIR, INC.
1995 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
AMENDED AND RESTATED
AS OF OCTOBER 27, 1998
Adopted by the Board: February 21, 1995
Approved by Shareholders: April 19, 1995
Effective: February 21, 1995
Amendment #1
Adopted by the Committee: As of October 21, 1997
Ratified by the Board: October 27, 1998
Amendment #2
Adopted by the Board: October 27, 1998
<PAGE>
THE PRAXAIR, INC.
1995 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
1. Purposes.
The 1995 Stock Option Plan for Non-Employee Directors (the "Plan") is
established to attract, retain and compensate highly qualified individuals, who
are not employees of Praxair, Inc. (the "Company") or any of its subsidiaries or
affiliates for service as members of the Company's Board of Directors
("Non-Employee Directors") and to provide them with an ownership interest in the
Company's common stock. The Plan will be beneficial to the Company and its
stockholders by allowing these Non-Employee Directors to have a personal
financial stake in the Company through an ownership interest in the Company's
common stock, in addition to underscoring their common interest with
stockholders in increasing the value of the Company's stock over the long term.
2. Effective Date.
The Plan shall be effective as of February 21, 1995, subject to the
approval of the Plan by the holders of at least a majority of the outstanding
shares of Company common stock present, or represented, and entitled to vote at
the 1995 Annual Meeting of Stockholders. Grants of options may be made under the
Plan on and after its effective date, subject to stockholder approval of the
Plan as provided above. In the event such approval is not obtained, any options
granted under the Plan shall be null and void. Amendment #1 hereof relating to
the transferability of options shall be effective as of October 21, 1997.
Amendment #2 hereof relating to administration of the Plan, Change in Control
and other matters shall be effective as of October 27, 1998.
3. Administration of the Plan.
The Plan shall be administered by the Public Policy and Nominating
Committee of the Company's Board of Directors (the "Committee"). Subject to the
provisions of the Plan, the Committee shall be authorized to interpret the Plan,
to establish, amend and rescind any rules and regulations relating to the Plan,
and to make, or delegate to the Corporate Secretary or other officer the
authority to make, all other determinations necessary or advisable for the
administration of the Plan; provided, however, that the Committee shall have no
discretion with respect to the eligibility or selection of Non-Employee
Directors to receive options under the Plan, the number of shares of stock
subject to any such options or the Plan, or the purchase price thereunder; and
provided further, that the Committee shall not have the authority to take any
action or make any determination that would materially increase the benefits
accruing to participants under the Plan. The Committee's interpretation of the
Plan, and all actions taken and determinations made by the Committee pursuant to
the powers vested in it hereunder, shall be conclusive and binding upon all
parties concerned including the Company, its stockholders and persons or
entities to whom options have been granted or transferred under the Plan. The
Corporate Secretary of the Company shall be authorized to implement the Plan in
accordance with its terms and to take or cause to be taken such actions of a
ministerial nature as shall be necessary to effectuate the intent and purposes
thereof; including, among other actions, the establishment of administrative
procedures and rules for the exercise of options, the payment of option price
and tax withholding obligations, the designation of beneficiaries, the transfer
of options and the administration of transferred options.
4. Participation in the Plan.
All Non-Employee Directors in service on the grant date (as hereinafter
defined) shall be eligible to receive grants hereunder.
Former Non-Employee Directors who have been granted stock options under
this Plan and all Non-Employee Directors so long as they are in such service are
hereinafter referred to collectively as "Participants" in the Plan.
A person or entity to whom options granted under this Plan have been
assigned or transferred pursuant to Article 10(b) herein is hereinafter referred
to as a "Transferee"; such term to include a grantee's or transferee's estate
and persons or entities holding an option as a beneficiary of a grantee or as a
distributee of a grantee's estate.
<PAGE>
5. Non-Qualified Stock Options.
Only non-qualified stock options ("options") may be granted under this
Plan.
6. Terms, Conditions and Form of Options.
(a) Option Grant Dates. Options to purchase 2,500 shares of the
Company's Common Stock (as adjusted pursuant to Section 9) shall be
automatically granted on an annual basis to each eligible Non-Employee Director
on April 1st (or the first succeeding business day thereafter on which the
Company's common stock is traded on the principal securities exchange on which
it is listed) of each year, except for the first year in which case options
shall be granted on February 21, 1995.
(b) Exercise Price. The exercise price per share of stock for which each
option is exercisable shall be 100% of the closing price of the Company's common
stock on the date the option is granted, as reported on the New York Stock
Exchange - Composite Transactions.
(c) Exercisability and Term of Options. Each option granted under the
Plan shall become exercisable on the second anniversary of its date of grant.
Each option granted under the Plan shall expire ten years from the date of
grant, and shall be subject to earlier termination as hereinafter provided.
(d) Termination of Service. In the event of the termination of service
on the Board by the grantee of any option by reason of voluntary resignation
(other than for disability or mandatory retirement) or failure, as a nominee, to
be elected at an Annual Meeting of Shareholders, the then outstanding options
held by such grantee and such grantee's Transferees shall be exercisable on
their stated exercisable dates and shall expire three years after such
termination, or on their stated expiration dates, whichever occurs first. In the
case of removal of a grantee for cause, the then outstanding options held by
such grantee and such grantee's Transferees shall be exercisable only to the
extent that they were exercisable on the date of such removal and shall expire
six months after such removal or on their stated expiration dates, whichever
occurs first. Such options that are not exercisable on the date of such removal
shall be forfeited.
(e) Retirement. In the event of termination of service of a grantee by
reason of mandatory retirement pursuant to Board policy, the then outstanding
options held by such grantee and such grantee's Transferees shall be exercisable
on their stated exercisable dates and shall expire on their stated expiration
dates. In the case of retirement of a grantee prior to the retirement date
required by mandatory Board policy, all outstanding options held by such grantee
and such grantee's Transferees on the retirement date shall be exercisable on
their stated exercisable dates and shall expire three years after the retirement
date, or on their stated expiration dates, whichever occurs first.
(f) Disability. In the event of termination of service of a grantee by
reason of disability (as defined herein), the then outstanding options held by
such grantee and such grantee's Transferees shall be exercisable on their stated
exercisable dates and shall expire on their stated expiration dates.
"Disability" as used herein shall mean a grantee's inability to engage in any
substantial gainful activity because of any medically determinable physical or
mental impairment which can be expected to result in death or which has lasted,
or can be expected to last, for a continuous period of six months or longer.
(g) Death. In the event of a grantee's death, each of the then
outstanding options held by such grantee and such grantee's Transferees shall
become immediately exercisable. Options held by a grantee at the time of his/her
death shall be exercisable by the grantee's designated beneficiary, if any and
if alive, by the executor or administrator of the grantee's estate before
distribution to the grantee's heirs by will or the laws of descent and
distribution, or by the distributee(s) of such options by will or the laws of
descent and distribution. Any such option shall be so exercisable at any time
until the expiration date of the option (as such date may have been adjusted
pursuant to Sections 6(d)or 6(e)). A grantee may designate a beneficiary for an
option in accordance with procedures established by the Corporate Secretary,
however such beneficiary designation shall not be binding on grantee's
Transferee with respect to any option that has been transferred before the
grantee's death. In the event of the death of a Transferee, any outstanding
option then held by the Transferee shall become immediately exercisable, and
shall be exercisable only by the executor or administrator of such Transferee's
estate at any time until the expiration date of the option (as such date may
have been adjusted pursuant to Sections 6(d) or 6(e)).
<PAGE>
(h) Change in Control. In the event of a Change in Control of the
Company (as defined herein), all of the then outstanding options held by a
grantee and such grantee's Transferees shall become immediately exercisable on
the date the Change in Control has been deemed to have occurred and shall expire
on the earlier of their stated expiration dates or three years after any
termination of service of such grantee, other than by reason of mandatory
retirement, disability, death or removal for cause (in which cases the
expiration provisions of this Plan associated with those events shall apply),
which occurs after said Change in Control. "Change in Control" as used herein
shall have the meaning set forth in Section 14 herein.
7. Exercise and Payment
(a) Exercise. An option may be exercised by its holder with respect to
part or all of the shares subject to the option by giving written notice to the
Company of the exercise of the option. The option price for the shares for which
an option is exercised shall be paid by the exercisor on or within ten business
days after the date of exercise in cash, in whole shares of common stock of the
Company owned by the exercisor prior to exercising the option, or in a
combination of cash and such shares of common stock. If the exercisor is a
Participant, the Participant may elect to satisfy the option price obligation by
requesting that the Company withhold a number of shares that would be otherwise
issuable pursuant to the exercise having an aggregate value equal to the option
price obligation. Such request shall be accompanied by a form approved by the
Corporate Secretary and executed by the Participant attesting that the
Participant owns, as of the date of exercise, an equal number of shares of the
Company's common stock and has held such number of shares continuously for at
least six (6) months prior to the date of exercise. The value of any share of
common stock delivered or withheld in payment of the option price shall be the
mean of the high and low prices of the stock as reported in the New York Stock
Exchange - Composite Transactions on the date the option is exercised.
(b) Payment of Tax Withholding. To enable the Company to meet any
applicable federal, state or local withholding tax requirements arising as a
result of the exercise of a stock option, whether by the grantee or by such
grantee's Transferee, the grantee or grantee's estate shall pay the Company the
amount of tax to be withheld, if any, or may elect to satisfy such obligation by
delivering to the Company shares of the Company's common stock owned by the
grantee prior to exercising the option, or by making a payment to the Company
consisting of a combination of cash and such shares of common stock. If the
exercisor is a Participant, the Participant may elect to satisfy the tax
obligation by requesting that the Company withhold a number of shares that would
be otherwise issuable pursuant to the exercise having an aggregate value equal
to the tax obligation. The value of any share of common stock delivered to the
Company or withheld in payment of the tax obligation shall be the mean of the
high and low prices of the stock as reported in the New York Stock Exchange -
Composite Transactions on the date used to determine the amount of tax to be
withheld. The Company reserves the right to delay completion of any exercise of
an option until the applicable withholding tax has been paid.
8. Shares of Stock Subject to the Plan.
The shares that may be purchased pursuant to options under the Plan
shall not exceed an aggregate of 500,000 shares of Company Common Stock (as
adjusted pursuant to Section 9). Any shares subject to an option which for any
reason expires or is terminated unexercised as to such shares shall again be
available for issuance under the Plan.
9. Dilution and Other Adjustment.
In the event of any change in the outstanding shares of Company stock by
reason of any stock split, stock dividend, recapitalization, merger,
consolidation, combination or exchange of shares or other similar corporate
change, such equitable adjustments shall be made in the Plan and the grants
thereunder, including the exercise price of outstanding options, as the
Committee determines are necessary or appropriate, including, if necessary, any
adjustments in the maximum number of shares referred to in Section 8 of the
Plan. Such adjustment shall be conclusive and binding for all purposes of the
Plan.
<PAGE>
10. Miscellaneous Provisions.
(a) Rights as Stockholder. A grantee or Transferee shall have no rights
as a holder of Company common stock with respect to options granted hereunder,
unless and until certificates for shares of such stock are issued to the grantee
or Transferee, or such shares are credited to the grantee's or Transferee's
Dividend Reinvestment and Stock Purchase Plan Account.
(b) Assignment or Transfer. No options granted under the Plan or any
rights or interests therein shall be assignable or transferable other than:
(1) In the case of the grantee's death, pursuant to the beneficiary designation
then on file with the Company, or, in the absence of such a beneficiary
designation(or if the designated beneficiary has predeceased the grantee), by
will or the laws of descent or distribution (in which case, the Company, without
liability to any other person, may rely on the directions of the executor or
administrator of the grantee's estate with respect to the disposition or
exercise of such options); or
(2) For all options granted hereunder on or after October 21, 1997, and, if the
Committee approves, for options granted earlier: By the grantee, in whole or
parts to
(i) the grantee's spouse, children(including by adoption), stepchildren or
grandchildren ("Immediate Family Members"),
(ii) a trust for the exclusive benefit of such Immediate Family Members,
(iii) a partnership in which such Immediate Family Members are the only
partners, or
(iv) such other persons or entities as the Committee may approve on a
case-by-case basis;
so long as such transfer under this Article 10(b)(2) does not cause the total
number of shares included in all unexpired, unexercised options held by the
grantee's Transferees to exceed the total number of shares included in all
unexpired, unexercised options held by the grantee; or
(3) In the case of a Transferee's death, to his/her estate without rights to
further distribution.
(c) Transfer of Options. Any transfer of an option pursuant to Article
10(b) herein is subject to acceptance by the Company and shall be effected
according to such procedures as the Corporate Secretary may establish.
(d) Agreements. All options granted under the Plan shall be evidenced by
agreements in such form and containing such terms and conditions (not
inconsistent with the Plan) as the Corporate Secretary may adopt.
(e) Compliance with Regulations. During the term of the Plan and the
term of any options granted under the Plan, the Company shall at all times
reserve and keep available such number of shares as may be issuable under the
Plan, and shall seek to obtain from any regulatory body having jurisdiction any
requisite authority required in the opinion of counsel for the Company in order
to grant or transfer options to purchase shares of Company common stock or to
issue such stock pursuant thereto. If, in the opinion of counsel for the
Company, the transfer, issue or sale of any options or shares of its stock under
the Plan shall not be lawful for any reason, including the inability of the
Company to obtain from any regulatory body having jurisdiction authority deemed
by such counsel to be necessary to such transfer, issuance or sale, the Company
shall not be obligated to transfer, issue or sell any such options or shares. In
any event, the Company shall not be obligated to transfer, issue or sell any
options or shares to any Participant or Transferee unless a registration
statement which complies with the provisions of the Securities Act of 1933, as
amended (the "Securities Act"), is in effect at the time with respect to such
options or shares or other appropriate action has been taken under and pursuant
to the terms and provisions of the Securities Act, or the Company receives
evidence satisfactory to the Committee that the transfer, issuance or sale of
such options or shares, in the absence of an effective registration statement or
other appropriate action, would not constitute a violation of the terms and
provisions of the Securities Act.
(f) Costs and Expenses. The costs and expenses of administering the Plan
shall be borne by the Company and not charged to any option or to any
Participant or Transferee.
<PAGE>
11. Amendment and Termination of the Plan.
(a) Amendments. The Board of Directors of Praxair, Inc. may from time to
time amend the Plan in whole or in part; provided that no such action shall
adversely affect any rights or obligations with respect to any options
theretofore granted under the Plan.
Unless the holders of at least a majority of the outstanding shares of
Company common stock present, or represented, and entitled to vote at a meeting
of stockholders shall have first approved thereof, no amendment of the Plan
shall be effective which would (i) materially increase the maximum number of
shares which may be issued under the Plan, or (ii) materially increase the
benefits accruing to Participants under the Plan, or (iii) materially modify the
requirements as to eligibility for participation in the Plan.
With the consent of the grantee, the Committee may direct the Corporate
Secretary to amend any outstanding agreement evidencing options granted to such
grantee under the Plan, whether held by grantee or by his/her Transferee, so
long as such amendment is not inconsistent with the terms of the Plan. No such
consent shall be required from grantees for amendments pursuant to Article
10(b)(2) herein relating to the transferability of options granted before
October 21, 1997. No such consent shall be required from a Transferee with
respect to amendments of any kind to options held by such Transferee, so long as
grantee has provided such consent.
(b) Termination. The Committee may terminate the Plan (but not any
options theretofore granted under the Plan) at any time. The Plan (but not any
options theretofore granted under the Plan) shall in any event terminate on, and
no options shall be granted after, December 31, 2005.
12. Compliance with SEC Regulations.
It is the Company's intent that the Plan comply in all respects with
Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and any related regulations. If any provision of this Plan is later found
not to be in compliance with such Rule and regulations, the provision shall be
deemed null and void. All grants, transfers and exercises of options under this
Plan shall be executed in accordance with the requirements of Section 16 of the
Exchange Act and regulations promulgated thereunder.
13. Governing Law.
The validity and construction of the Plan and any agreements entered
into thereunder shall be governed by the laws of the State of Connecticut.
14. Change-in-Control
A "Change in Control" shall be deemed to occur in the event, and on the
first date, that any of the following circumstances have occurred (as used
herein, "Board" shall refer to the Board of Directors of Praxair, Inc. ):
(i) individuals who, on October 22, 1996, 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 October 22, 1996, 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, (D) pursuant to a Non-Qualifying Transaction (as
defined in paragraph (iii));
<PAGE>
(iii) the consummation of a merger, consolidation, 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 Company"), 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 Company (the "Parent Company"), 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
Company or the Parent Company), 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
Company (or, if there is no Parent Company, the Surviving Company) and
(C) at least a majority of the members of the board of directors of the
Parent Company (or, if there is no Parent Company, the Surviving
Company) 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 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.
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,
1998 1997 1996 1995 1994
EARNINGS
Income of consolidated companies
before provision for income taxes $596 $622 $452 $432 $339
Capitalized interest (36) (32) (25) (9) (4)
Depreciation of capitalized interest 7 7 9 8 8
Dividends from less than 50%-owned
companies carried at equity 2 1 1 1 -
Praxair share of income (loss) before
provision for income taxes of
50%-owned companies carried at equity 1 3 16 15 8
Total earnings, net of fixed charges $570 $601 $453 $447 $351
FIXED CHARGES
Interest on long-term
and short-term debt $260 $216 $195 $116 $108
Capitalized interest 36 32 25 9 4
Rental expenses representative of an
interest factor 23 23 23 10 11
Praxair share of fixed charges of
50%-owned companies carried at equity 2 1 3 4 2
Total fixed charges $321 $272 $246 $139 $125
Total adjusted earnings available for
payment of fixed charges $891 $873 $699 $586 $476
Preferred stock dividend requirements $ 6 $ 8 $ 8 - -
RATIO OF EARNINGS TO FIXED CHARGES 2.8 3.2 2.8 4.2 3.8
RATIO OF EARNINGS TO FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS 2.7 3.1 2.7 4.2 3.8
Financial Index
Audited Financial Statements
Consolidated Statement of Income 18
Consolidated Balance Sheet 19
Consolidated Statement of Cash Flows 20
Consolidated Statement of Shareholders' Equity 21
Notes to Consolidated Financial Statements 32
Management's Discussion and Analysis 22
Consolidated Results 22
Segment Discussion 23
Liquidity, Capital Resources and Financial Data 26
Raw Materials and Markets 28
Year 2000 28
Euro Conversion 30
Market Risks and Sensitivity Analyses 30
Management's Statement of Responsibility for
Financial Statements 47
Report of Independent Accountants 48
Five-Year Financial Summary 49
Information for Investors 50
[GRAPHICS OMITTED]
*Excludes special charges.
<PAGE>
Consolidated Statement of Income
<TABLE>
<CAPTION>
Year Ended December 31, 1998 1997 1996
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
Sales $ 4,833 $ 4,735 $ 4,449
Cost of sales, exclusive of depreciation and amortization 2,807 2,764 2,564
Selling, general and administrative 644 662 688
Depreciation and amortization 467 444 420
Research and development 72 79 72
Special charges 29 10 85
Other income (expenses) - net 42 62 27
=============================================================================================================
Operating profit 856 838 647
Interest expense 260 216 195
- -------------------------------------------------------------------------------------------------------------
Income before taxes 596 622 452
Income taxes 127 151 110
- -------------------------------------------------------------------------------------------------------------
Income of consolidated entities 469 471 342
Minority interests (55) (66) (68)
Income from equity investments 11 11 8
- -------------------------------------------------------------------------------------------------------------
Income before cumulative effect of
an accounting change 425 416 282
Cumulative effect of an accounting change -- (11) --
- -------------------------------------------------------------------------------------------------------------
Net income $ 425 $ 405 $ 282
=============================================================================================================
Basic earnings per share:
Income before cumulative effect of an accounting change $ 2.68 $ 2.63 $ 1.85
Cumulative effect of an accounting change -- (.07) --
Net income $ 2.68 $ 2.56 $ 1.85
Diluted earnings per share:
Income before cumulative effect of an accounting change $ 2.60 $ 2.53 $ 1.77
Cumulative effect of an accounting change -- (.07) --
Net income $ 2.60 $ 2.46 $ 1.77
Weighted average shares outstanding (000's):
Basic shares outstanding 158,462 158,095 152,654
Diluted shares outstanding 163,356 164,053 159,038
=============================================================================================================
The accompanying notes on pages 32 to 46 are an
integral part of these financial statements. (Dollar amounts in millions, except per share data)
</TABLE>
18 Praxair
<PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheet
Year Ended December 31, 1998 1997
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
Assets
Cash and cash equivalents $ 34 $ 43
Accounts receivable 919 971
Inventories 319 329
Prepaid and other current assets 122 154
- ----------------------------------------------------------------------------------------------------------------
Total current assets 1,394 1,497
Property, plant and equipment - net 4,875 4,607
Equity investments 251 210
Other long-term assets 1,576 1,496
- ----------------------------------------------------------------------------------------------------------------
Total assets $ 8,096 $ 7,810
================================================================================================================
Liabilities and Equity
Accounts payable $ 378 $ 383
Short-term debt 295 391
Current portion of long-term debt 84 40
Accrued taxes 63 51
Other current liabilities 469 501
- ----------------------------------------------------------------------------------------------------------------
Total current liabilities 1,289 1,366
Long-term debt 2,895 2,874
Other long-term liabilities 553 528
Deferred credits 465 324
- ----------------------------------------------------------------------------------------------------------------
Total liabilities 5,202 5,092
================================================================================================================
Minority interests 487 521
Preferred stock 75 75
Shareholders' equity:
Common stock $.01 par value, authorized 500,000,000 shares,
issued 161,517,042 shares in 1998 and 159,969,641 shares in 1997 2 2
Additional paid-in capital 1,528 1,471
Retained earnings 1,380 1,034
Cumulative translation adjustment (412) (256)
Less: Treasury stock, at cost (3,945,843 shares in 1998 and 2,596,417 shares in 1997) (166) (129)
- ----------------------------------------------------------------------------------------------------------------
Total shareholders' equity 2,332 2,122
- ----------------------------------------------------------------------------------------------------------------
Total liabilities and equity $ 8,096 $ 7,810
================================================================================================================
The accompanying notes on pages 32 to 46
are an integral part of these financial statements. (Millions of dollars)
</TABLE>
Making Our Planet More Productive 19
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statement of Cash Flows
<S> <C> <C> <C>
Year Ended December 31, 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
OPERATIONS
Net income $ 425 $ 405 $ 282
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 467 444 420
Special charges 22 (13) 37
Deferred income taxes 11 67 48
Gain on sale of fixed assets (6) (7) (4)
Other non-cash charges 22 42 49
Working capital:
Accounts receivable 17 (54) (121)
Inventories 18 (14) (4)
Prepaid and other (2) (10) 25
Payables and accruals (14) (41) 9
CBI acquisition payments -- -- (75)
Long-term assets and liabilities (24) (67) (60)
- ---------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 936 752 606
- ---------------------------------------------------------------------------------------------------------
INVESTING
Capital expenditures (781) (902) (893)
Acquisitions (241) (101) (1,705)
Divestitures and asset sales 206 300 264
- ---------------------------------------------------------------------------------------------------------
Net cash used for investing activities (816) (703) (2,334)
- ---------------------------------------------------------------------------------------------------------
FINANCING
Short-term (repayments) borrowings - net (93) (269) 1,114
Long-term borrowings 388 438 602
Long-term debt repayments (331) (110) (489)
Minority transactions and other (31) (31) 4
Issuances of common stock 117 110 611
Purchases of common stock (97) (137) (7)
Dividends (79) (69) (58)
- ---------------------------------------------------------------------------------------------------------
Net cash (used for) provided by financing activities (126) (68) 1,777
Effect of exchange rate changes on cash and cash equivalents (3) (1) (1)
- ---------------------------------------------------------------------------------------------------------
Change in cash and cash equivalents (9) (20) 48
Cash and cash equivalents, beginning-of-year 43 63 15
- ---------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end-of-year $ 34 $ 43 $ 63
=========================================================================================================
SUPPLEMENTAL DATA:
Taxes paid $ 66 $ 58 $ 59
Interest paid $ 265 $ 211 $ 241
Short-term debt classified as long-term (Note 6) $ -- $ 860 $ --
Other liabilities reclassified to equity (Note 7) $ -- $ 19 $ --
Effect of functional currency change (Note 1) $ 81 $ -- $ --
Acquired debt from acquisitions (Note 2) $ 20 $ -- $ 735
=========================================================================================================
The accompanying notes on pages 32 to 46
are an integral part of these financial statements. (Millions of dollars)
</TABLE>
20 Praxair
<PAGE>
Consolidated Statement of Shareholders' Equity
<TABLE>
<CAPTION>
Accumulated
Additional Other Com-
Common Stock Paid-In Treasury Stock Retained prehensive
Activity Shares Amounts Capital Shares Amounts Earnings Income (Loss) Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 140,624 $ 1 $ 748 89 $ (1) $ 474 $ (101) $ 1,121
Net income 282 282
Translation adjustments (25) (25)
--------
Comprehensive income 257
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)
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 157,501 $ 2 $ 1,350 12 $ -- $ 698 $ (126) $ 1,924
=================================================================================================================================
Net income 405 405
Translation adjustments (130) (130)
--------
Comprehensive income 275
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)
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 159,970 $ 2 $ 1,471 2,597 $ (129) $ 1,034 $ (256) $ 2,122
=================================================================================================================================
Net income 425 425
Translation adjustments (99) (99)
Effect of functional currency change (Note 1) (57) (57)
--------
Comprehensive income 269
Dividends on common stock ($.50 per share) (79) (79)
Issuances of common stock:
For the dividend reinvestment and
stock purchase plan 80 1 1
For employee savings and incentive plans 1,467 56 (1,279) 60 116
Purchases of common stock 2,628 (97) (97)
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 161,517 $ 2 $ 1,528 3,946 $ (166) $ 1,380 $ (412) $ 2,332
=================================================================================================================================
The accompanying notes on pages 32 to 46
are an integral part of these financial statements. (Dollar amounts in millions, shares in thousands)
</TABLE>
Making Our Planet More Productive 21
<PAGE>
Management's Discussion and Analysis
Praxair's 1998 results versus 1997 reflect volume growth in all major operating
segments and significant productivity improvements; largely offset by currency
impacts, higher depreciation and interest expense, and cost inflation.
CONSOLIDATED RESULTS
The following provides summary data for 1998, 1997 and 1996:
Year Ended December 31, 1998 1997 1996
- --------------------------------------------------------------------------
Sales $ 4,833 $ 4,735 $ 4,449
Selling, general and administrative $ 644 $ 662 $ 688
Depreciation and amortization $ 467 $ 444 $ 420
Operating profit $ 856 $ 838 $ 647
Interest expense $ 260 $ 216 $ 195
Effective tax rate 21% 24% 24%
Income before cumulative
effect of an accounting change $ 425 $ 416 $ 282
Number of employees(a) 24,834 25,388 25,271
- --------------------------------------------------------------------------
Excluding special charges and
tax credits(b):
Operating profit $ 885 $ 848 $ 732
Effective tax rate 25% 25% 26%
Income before cumulative
effect of an accounting change $ 425 $ 422 $ 335
==========================================================================
(Dollar amounts in millions)
(a) Excludes employees related to assets held for sale.
(b) During 1998, Praxair recorded pre-tax special charges totaling $29 million
($18 million after tax) for an impairment loss in Indonesia and a provision for
an anticipated loss on the sale of an air separation plant to a third party.
Additionally, in 1998 Praxair recorded non-recurring tax credits of $18 million
related to the favorable settlement of various tax matters. 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 (referred to as Praxair Distribution). During 1996, Praxair recorded an
$85 million pre-tax special charge ($53 million after tax and minority
interests) for CBI integration costs.
Special Items
Reported amounts include special items that affect period-to-period comparisons.
The management's discussion and analysis that follows excludes the impact of
these special items.
1998 compared with 1997
The sales growth of 2% in 1998 as compared to 1997 was due primarily to
acquisitions in the North American packaged gases (referred to as Praxair
Distribution) and Surface Technologies businesses and sales volume increases in
all major segments. These were partially offset by unfavorable currency
translation impacts in all international segments. Overall, pricing was slightly
positive as compared to 1997, with positive comparisons in Asia, South America
and Mexico offset by negative comparisons in the United States industrial gases
and Surface Technologies businesses worldwide.
Operating profit grew 4% to $885 million. This was due primarily to the
sales growth described above and productivity improvements (mostly in North and
South America) offset by cost inflation and currency translation impacts. The
productivity improvements and currency translation impacts resulted in an $18
million decrease in selling, general and administrative expenses despite the
increase due to acquisitions. The increase in depreciation and amortization
expense reflects new projects coming on-stream and acquisitions, partially
offset by currency translation impacts.
Interest expense increased $44 million due primarily to the functional
currency change in Brazil (see Note 1 to the consolidated financial statements),
higher interest rates in South America and higher average debt levels throughout
the year. The effective tax rate for 1998 remained at 25%.
Net income for 1998 increased 1% over 1997 due primarily to the higher
operating profit, partially offset by increased interest expense. Praxair's
return on average capital was 11.1% in 1998. The number of employees at December
31, 1998 decreased about 600 as compared to December 31, 1997 due primarily to
Praxair's worldwide productivity improvement efforts, particularly in North and
South America.
The number of employees decreased despite the increase associated with
acquisitions (about 1,100 employees) and the addition of employees to support
volume growth.
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 Praxair Distribution
and Surface Technologies businesses. This increase was partly offset by
unfavorable currency translation impacts. Overall pricing was unchanged for the
year.
The operating profit growth of 16% for 1997 as compared to 1996 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 impacts. Increased depreciation and
amortization expense reflected new projects coming on-stream, as well as Praxair
Distribution 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. This decrease is
due primarily to planned tax initiatives.
22 Praxair
<PAGE>
Net Income for 1997 increased 26% over 1996 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.
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. This was
partially offset by decreases resulting from profit improvement efforts in South
America and Praxair Distribution, the integration of the Liquid Carbonic
business and other cost improvement efforts.
SEGMENT DISCUSSION
Effective in 1998, Praxair implemented the new segment disclosure requirements
required by the FASB's Statement of Financial Accounting Standards (SFAS) No.
131, Disclosures about Segments of an Enterprise and Related Information (See
Notes 1 and 4 to the consolidated financial statements). Accordingly, this
summary of segment sales and operating profit has been restated to conform to
Praxair's current segment definitions and provides a basis for the discussion
that follows:
[GRAPHIC OMITTED]
Year Ended December 31, 1998 1997 1996
-----------------------------------------------------------
Sales:
North America $ 2,752 $ 2,636 $ 2,459
South America 964 964 987
Europe 515 493 522
Surface Technologies 420 381 311
All Other 182 261 170
-----------------------------------------------------------
Total $ 4,833 $ 4,735 $ 4,449
===========================================================
Operating profit(a):
North America $ 533 $ 493 $ 422
South America 199 197 206
Europe 109 93 105
Surface Technologies 73 69 49
All Other (6) 19 (20)
Corporate Overhead (23) (23) (30)
-----------------------------------------------------------
Total $ 885 $ 848 $ 732
===========================================================
(Millions of dollars)
(a) Excludes special charges (see Note 3 to the consolidated financial
statements).
North America
The North America operating segment includes Praxair's industrial gases
operations in the U.S., Canada, and Mexico. Praxair's U.S. and Canadian packaged
gases operations within the North American industrial gases business are
collectively referred to as Praxair Distribution.
Sales for 1998 increased 4% as compared to 1997. Sales were up 16% in
Praxair Distribution and 9% in Mexico, and down 1% in the U.S. and Canadian
industrial gases operations. Overall, this increase reflects the impact of
acquisitions in Praxair Distribution and sales volume growth in all geographies,
partly offset by currency translation effects in Canada and Mexico and overall
lower pricing. Pricing improved in Mexico and in Praxair Distribution, but was
down in the U.S. and Canadian industrial gases business, reflecting more intense
competitive activity. In the U.S. and Canada, industrial gases volumes were up
about 2% while pricing decreased 3%. Praxair Distribution's sales increased to
$892 million primarily reflecting the impact of acquisitions (19%) and improved
pricing, somewhat offset by currency translation and slightly lower sales
volumes. Mexico's sales increase was driven by volume growth (14%) and improved
pricing, partially offset by currency impacts.
Sales for 1997 increased 7% as compared to 1996. Sales were up 5% in the
U.S. and Canadian industrial gases operations, 7% in Praxair Distribution, and
34% in Mexico. The increases were due primarily to sales volume growth in the
U.S. and Mexico, acquisitions in Praxair Distribution, and pricing increases in
Mexico and Praxair Distribution in excess of currency impacts. In the U.S. and
Canada, industrial gases volumes were up about 6%, while pricing decreased about
1%. Praxair Distribution's sales increased to $768 million primarily reflecting
the impact of acquisitions. Mexico showed strong sales growth from volume (22%)
and pricing (18%) as compared to 1996.
Operating profit improved 8% in 1998 as compared to 1997, while operating
margins remained about flat at 19% of sales. The sales increase including the
impact of acquisitions, and continued strong productivity improvements were the
main drivers behind the operating profit growth, partially offset by negative
currency impacts in Canada and Mexico and cost inflation. In the U.S. and
Canadian industrial gases business, operating profit increased about 4% due
primarily to productivity improvements which more than offset cost inflation.
Economic conditions remain weak in several of the Company's key markets,
especially in the steel and chemical industries. Praxair Distribution's and
Mexico's operating profit each improved 21% over 1997. Praxair Distribution's
increase reflects the impact of acquisitions while Mexico reflects strong sales
volume growth, partially offset by currency impacts and cost inflation.
Making Our Planet More Productive 23
<PAGE>
Management's Discussion and Analysis
Operating profit improved 17% in 1997 as compared to 1996, and operating
margins improved 2% to 19% of sales. The sales increase including the impact of
acquisitions, cost synergies associated with the integration of the Liquid
Carbonic business, and other productivity improvements were the main drivers
behind the operating profit growth; offsetting cost inflation and negative
currency translation impacts. In the U.S. and Canadian industrial gases
business, operating profit improved about 19%. Mexico's operating profit
improved 23% over 1996 due primarily to strong sales growth. Praxair
Distribution's operating profit increased 4% in 1997 over 1996 due to the sales
increases and productivity improvements, largely offset by cost inflation.
South America
Praxair's South American industrial gases operations are conducted by its 69.3%
owned subsidiary, S.A. White Martins (White Martins), which is the largest
industrial gases company in Brazil. White Martins has operations throughout
South America, including Argentina, Chile, Columbia, Peru and Venezuela.
Sales for 1998 were flat when compared to 1997, primarily because sales
volume growth of 5% and price increases of about 2% were offset by negative
currency translation effects. Excluding currency translation effects, sales
increased by about 7%, as compared to the 1997 period. The sales decrease of 2%
in 1997 as compared to 1996 occurred because the strong sales volume growth of
approximately 5% was more than offset by price declines and unfavorable currency
translation impacts. The 1997 price declines were attributable to the effects of
the Brazilian government's economic plan ("Real Plan") which resulted in
industrial commodity pricing deflation across a wide range of industries, and an
increased competitive environment in Brazil. Excluding currency translation
effects, sales increased by about 3% as compared to the 1996 period.
Operating profit for 1998 decreased $7 million as compared to the 1997
period after excluding the $20 million positive impact of the required
functional currency change in Brazil (see Note 1 to the consolidated financial
statements), and an $11 million benefit in 1997 from a favorable judgment
related to a dispute with the Rio de Janeiro State public hospitals. The
decrease was due primarily to the effects of currency movements throughout the
year and cost inflation, partially offset by productivity improvements and sales
volume growth. Excluding the impact of currency and the functional currency
change in Brazil, operating profit was flat. Operating profit for 1997 decreased
$9 million or about 4% as compared to 1996. The decrease was due primarily to
unfavorable currency translation effects and higher energy and distribution
costs, partly offset by sales volume growth, productivity improvements and an
$11 million benefit in 1997 due to a favorable judgment related to a dispute
with the Rio de Janeiro State public hospitals.
The early 1999 devaluation of the Brazilian currency and the eventual
impact on the local economic and competitive conditions in Brazil and throughout
South America will have an impact on future results. Refer to the discussion in
the Market Risks and Sensitivity Analyses sections of this management's
discussion and analysis.
In November 1998, White Martins announced a plan to increase its share
capital through a rights offering equal to 50% of its current number of shares
outstanding and in January 1999, the rights offering was initiated. At December
31, 1998, Praxair owned 69.3% of the share capital of White Martins and it is
Praxair's intent to subscribe for its pro rata share of the rights offering and
to subscribe for additional shares that are not subscribed to by the minority
shareholders. Praxair will effect its portion of the rights offering by means of
converting its existing loans to White Martins into stock. The rights offering
is expected to be completed in the first quarter of 1999.
Europe
Praxair's European industrial gases business is primarily in Italy and Spain
with additional operations in Benelux, Germany, France, Israel and Poland.
Sales increased 4% in 1998 as compared to 1997, primarily due to moderate
volume increases that were partly offset by negative currency translation
effects in the first three quarters of 1998. Excluding the negative currency
translation effects, sales increased by about 8% as compared to 1997. Sales for
1997 decreased 6% as compared to the 1996 period, as negative currency
translation effects more than offset the strong sales volume growth of 6%.
Operating profit increased a strong 17% in 1998 as compared to 1997 due
primarily to the sales growth and the impact of productivity improvements,
partly offset by cost inflation and unfavorable currency translation effects.
Operating profit for 1997 decreased 11% as compared to 1996, primarily because
the lower sales and cost inflation more than offset the productivity
improvements.
Surface Technologies
Praxair's worldwide Surface Technologies business primarily includes operations
in the U.S. and Europe, with smaller operations in Asia and Brazil.
Sales for 1998 increased 10% as compared to 1997. This increase was
primarily due to acquisitions and sales volume growth which added 13% in total,
partly offset by price decreases and unfavorable currency impacts. Sales for
1997 increased 23% as compared to 1996 due primarily to strong volume growth and
acquisitions which added about 26% in total, partly offset by price decreases.
24 Praxair
<PAGE>
Operating profit for 1998 increased 6% as compared to 1997, due to sales
growth and productivity improvements, partly offset by cost inflation. Operating
profit for 1997 increased 41% from 1996 due primarily to the strong sales growth
and productivity improvements, partly offset by cost inflation.
All Other
The All Other segment includes Praxair's industrial gases operations in Asia,
its global supply systems business which designs, engineers and builds equipment
that produces industrial gases (for internal use and external sale), and other
globally managed functions. Praxair's operations in Asia are currently
concentrated in China, India, Japan, Korea and Thailand. Operations in China and
India are also conducted through nonconsolidated joint venture companies.
Sales for the segment decreased 30% in 1998 as compared to 1997 due to a
42% lower level of third party plant sales in the global supply systems business
and lower reported sales in Asia. The level of activity for global supply
systems is reflective of the overall capacity in the industry and local economic
conditions, and is subject to fluctuation from one year to the next; 1997 was an
unusually high sales year. Excluding currency impacts, Asian sales were up about
18% versus 1997, reflecting the impact of sales volume growth and price
improvements which added 12%, and acquisitions. In contrast, 1997 sales for the
segment increased 54% versus 1996. Global supply systems sales increased 125%
over 1996, while Asian reported sales increased about 9%. Excluding currency
impacts, 1997 sales in Asia were up about 22% versus 1996, reflecting the impact
of sales volume growth and acquisitions.
Operating profit for the segment is significantly influenced by the sales
volume in the global supply systems business and by the costs associated with
the globally managed functions, all of which fluctuate from year to year. In
1998, Asian operating profit decreased 22%, while global supply systems
decreased 38% as compared to 1997. These decreases were due primarily to
decreased sales in the global supply systems business and the impact of currency
translation effects in Asia, partly offset by productivity improvements. The
remaining operating profit reduction is related to increased costs for globally
managed initiatives. The operating profit increase in 1997 as compared to 1996
of $39 million was caused by the sales growth in both global supply systems and
Asia, partly offset by cost inflation and increased business development costs
in Asia. The remaining increase was due to the lower level of costs associated
with globally managed initiatives between the two years.
Selling, General and
Administrative Expenses
[GRAPHIC OMITTED]
In 1998, selling, general and administrative expenses were $644 million, an $18
million decrease from the 1997 amount. This decrease is due to the 1998
productivity improvement initiatives and positive currency impacts; partially
offset by acquisitions and cost inflation. Selling, general and administrative
expenses as a percentage of sales declined to 13.3% in 1998 from 14.0% in 1997.
In 1997, selling, general and administrative expenses were $662 million, a
$26 million decrease from the 1996 amount. The decrease was due primarily 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.
Other income (expenses) - net
In 1998, other income (expenses) - net decreased $20 million as compared to the
1997 amount due primarily to an $11 million benefit from a favorable judgment
related to a dispute with the Rio de Janeiro State public hospitals occurring in
1997, and increased severance expense in 1998 as compared to 1997.
In 1997, other income (expenses) - net increased $35 million over the 1996
amount of $27 million due primarily to the $11 million favorable judgment with
the Rio de Janeiro State public hospitals mentioned above, higher partnership
income and higher non-recurring expenses in 1996 related to the integration of
the Liquid Carbonic business.
Interest Expense
The 1998 interest expense increased $44 million from the 1997 amount due
primarily to the functional currency change in Brazil (see Note 1 to the
consolidated financial statements), higher interest rates in South America and
higher average debt levels throughout the year.
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.
Making Our Planet More Productive 25
<PAGE>
Management's Discussion and Analysis
Income Taxes
The effective tax rate for 1998 and 1997 was 25%, and was 26% for 1996. Praxair
currently expects the effective tax rate to remain at approximately the 25%
level in 1999.
Minority Interests
On December 31, 1998, minority interests consisted primarily of minority
shareholders' investments in two affiliates: S.A. White Martins (Brazil) and
Rivoira S.p.A. (Italy). Additionally, Praxair records the dividends on preferred
stock in minority interests ($6 million in 1998). Minority shareholders' share
of income for 1998 was $55 million, a decrease of $11 million as compared to the
1997 amount of $66 million. This decrease was primarily due to the acquisition
of minority interests and lower income in South America.
Income from Equity Investments
Praxair's more significant equity investments are in the United States, Belgium,
China, India, Italy, Spain, and Turkey. Praxair's share of net income from
corporate equity investments was $11 million for 1998 and 1997, and $8 million
in 1996.
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 in 1998 were approximately $8 million
of capital expenditures and $14 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 1998 and will not have a material adverse effect on the consolidated
financial position 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.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL DATA
Year Ended December 31, 1998 1997 1996
------------------------------------------------------------------------
Net cash provided by
(used for):
Operating activities:
Net income plus depreciation
and amortization $ 892 $ 849 $ 702
Working capital 19 (119) (91)
Non-recurring CBI
acquisition costs -- -- (75)
Total from operating activities 936 752 606
Investing activities:
Capital expenditures (781) (902) (893)
CBI acquisition -- -- (1,445)
Other acquisitions (241) (101) (260)
Divestitures and asset sales 206 300 264
Total (used for)investing (816) (703) (2,334)
Financing activities:
Debt increases (reductions) (36) 59 1,227
Issuances (purchases) of stock 20 (27) 604
Cash dividends (79) (69) (58)
Total from (used for) financing $ (126) $ (68) $ 1,777
========================================================================
Debt-to-Capital Ratio,
at December 31:
Debt $ 3,274 $ 3,305 $ 3,265
Capital $ 6,168 $ 6,023 $ 5,757
Debt-to-capital ratio 53.1% 54.9% 56.7%
========================================================================
(Millions of dollars)
</TABLE>
Cash Flow from Operations
Cash flow from operations increased to $936 million in 1998 from $752 million in
1997, or 24%. The increase is primarily related to the improvement in working
capital investment needs; a direct result of Praxair's work process improvement
initiative designed to reduce working capital as a percentage of sales, and to
lower payments for incentive compensation programs.
[GRAPHIC OMITTED]
26 Praxair
<PAGE>
Cash flow from operations increased in 1997 versus 1996 from $606 million
to $752 million. The increase is primarily related to higher cash earnings and
the impact of 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 approximately $75 million.
Investing
Cash flow used for investing in 1998 totaled $816 million versus $703 million in
1997. This increase was due primarily to the net impact of higher acquisition
expenditures and lower proceeds from divestiture and asset sales, partly offset
by lower capital expenditures.
Capital expenditures for 1998 totaled $781 million, down $121 million from
1997. The lower level of capital expenditures is due primarily to decreased
spending in South America and the United States.
Acquisition expenditures for 1998 totaled $241 million, an increase of $140
million from the 1997 period. This increase is related to the purchase of the
remaining shares outstanding of Gas Tech, Inc. a U.S. packaged gases distributor
(previously an equity investment), other U.S. investments related to Praxair
Distribution, acquisitions in the Surface Technologies business, the acquisition
of two companies in India, a company in Puerto Rico and buy-outs of minority
interests in Asia, South America and Canada.
Divestitures and asset sales in 1998 decreased $94 million as compared to
the 1997 period primarily due to proceeds received on the initial public
offering of Chicago Bridge and Iron Co., N.V. (see Note 2 to the consolidated
financial statements) in 1997, partially offset by the proceeds from a sale
leaseback transaction in 1998 (see Note 13 to the consolidated financial
statements). There are no remaining CBI assets held for sale as of December 31,
1998.
On a worldwide basis, capital and acquisition expenditures for the full
year 1999 are expected to be about 20% lower as compared to 1998, due primarily
to the expected timing of acquisitions and lower capital expenditures in Asia,
the United States and South America.
Financing
At December 31, 1998, Praxair's total debt outstanding was $3,274 million, a
decrease of $31 million from 1997. As of December 31, 1998, 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+.
[GRAPHIC OMITTED]
On April 2, 1998, Praxair issued $250 million of 6.15% non-redeemable Notes
due 2003 with interest payable semi-annually. The proceeds from the Notes were
used to repay outstanding commercial paper and for other general corporate
purposes.
On September 30, 1998, Praxair sold and leased back certain U.S. storage
equipment for $150 million which is being accounted for as an operating lease
(see Note 13 to the consolidated financial statements). The proceeds from the
sale of the equipment have been used to repay debt.
Praxair's debt-to-capital ratio decreased to 53.1% at December 31, 1998
from 54.9% at December 31, 1997. This decrease is due to an increase in retained
earnings and the lower debt levels, partially offset by the negative impact of
net currency translation losses on the accumulated other comprehensive income
(loss) component of shareholders' equity, including the effect of the functional
currency change in Brazil, which reduced Praxair's shareholders' equity and
minority interests (see Note 1 to the consolidated financial statements).
Praxair's financing strategy is to secure sufficient funds to support its
operations in the United States and around the world using 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 and the MD&A section titled
"Market Risks and Sensitivity Analyses").
Making Our Planet More Productive 27
<PAGE>
Management's Discussion and Analysis
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 &
refining, healthcare, food & beverage, electronics, aerospace, pulp and paper,
glass, environmental remediation 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
The Problem
The "year 2000 problem" arises because many existing computer programs or
date-sensitive microprocessors embedded in operating equipment use only the last
two digits to refer to a year. Therefore, these computer programs and operating
systems may not properly recognize a year that begins with "20" instead of "19".
If not corrected, many applications could fail or create erroneous results.
Although not all computer applications or systems are subject to this flaw, all
are suspect until they are assessed. Like most companies, Praxair operates and
maintains computer systems for accounting, payroll, invoicing and many other
business purposes. In addition, Praxair's operations systems (including, among
others, plant control, diagnostic and monitoring, quality control, distribution
and logistics), and its infrastructure systems (including, among others,
telecommunications) use computer programs or embedded microprocessors. Also,
Praxair, as other companies, may be affected by the year 2000 problems of its
suppliers (e.g., by the interruption of supply of critical raw materials or
utilities) or of its customers (e.g., interrupted or reduced demand for
Praxair's products due to interruptions in the customer's own manufacturing
processes).
Praxair's Readiness Status
Based upon its best available information, management believes that Praxair has
in place the appropriate programs and plans to achieve timely year 2000
readiness for its safety and mission-critical systems. However, it is uncertain
whether the year 2000 problems of Praxair's suppliers and customers will be
resolved in a timely manner.
Praxair's Readiness Program
Work on year 2000 issues at Praxair has been ongoing since 1996. Praxair has
established a Year 2000 Global Project Office to coordinate and accelerate its
year 2000 activities. The director of the Year 2000 Global Project Office
reports directly to Praxair's chief executive officer. The Global Project Office
currently consists of a project manager and 13 global functional team leaders
representing: applications technology; communications; finance; energy/other
utilities; facilities; human resources; information technology;
operations/production; procurement; product sales and services equipment; law;
research and development; and safety and environmental services. In addition,
the Global Project Office currently includes team members representing eight
Praxair businesses and affiliates in North America, South America, Europe and
Asia who have accountability for year 2000 activities.
Praxair's year 2000 readiness program consists of six phases: awareness;
inventory and assessment; renovation; validation; implementation; and business
continuity planning. These phases at any point in time may run concurrently with
respect to different systems, issues and business units. While the following
represents a general description of Praxair's overall progress in each of these
phases, progress for any individual system, issue or business unit may be more
or less advanced than that indicated.
Awareness: Praxair has launched a worldwide communications and awareness
effort in order to inform employees about year 2000 issues and enlist their
assistance in implementing solutions. This effort is ongoing. Praxair also is in
continuous discussions on year 2000 issues with customers and suppliers.
Inventory and Assessment: A global inventory of Praxair systems, and
assessment of those systems as to year 2000 readiness, has been conducted which
management currently believes has covered Praxair's safety and mission-critical
systems, and most of its other systems. However, inventory and assessment
efforts are ongoing which may reveal as yet unidentified components or issues;
contrary to the foregoing assumption. With respect to assessment of the year
2000 readiness of suppliers, certain critical suppliers have been identified and
discussions are ongoing or planned with each.
28 Praxair
<PAGE>
Renovation: Solutions for most year 2000 readiness issues have been
identified; some are in development while others are being put in place.
Renovation activities for safety and mission-critical systems are projected to
be completed in the first quarter of 1999.
Validation: An integrated testing strategy has been developed to validate
the readiness of safety and mission- critical systems affected by year 2000.
Some systems have been tested and some pilot tests have been conducted.
Management currently projects that most testing and validation will occur
beginning the first quarter of 1999 and will be completed by mid-1999.
Implementation: Solutions that have been validated through testing will be
implemented by being put into routine operation. Praxair currently expects
safety and mission-critical Praxair-maintained systems to be so implemented by
mid-1999.
Business Continuity Planning: Praxair expects to develop business
continuity, or contingency plans with respect to the build-up of product
inventory and, where possible, allocation of product from alternate plants in
the event of electric power or other interruptions of utility supplies to
certain Praxair plants. Praxair is also prepared to develop contingency plans
for failure of Praxair-maintained systems. The number and nature of the
contingency plans ultimately developed and finalized by Praxair will depend on
management's ongoing assessment of the progress of Praxair and its suppliers
towards year 2000 readiness. Contingency plans are currently projected to be
developed by mid-1999.
Costs
At this time, Praxair estimates that the total external expenditures to address
year 2000 issues associated with Praxair-maintained systems and components will
be approximately $30 million over the life of the project. Of this total, the
Company expects approximately $13 million will be expensed as incurred and the
remainder will be for capital upgrades and replacements. The capital costs were
planned for later years independent of year 2000 issues, but are being
accelerated because those costs are for projects that will also address year
2000 issues. To date, approximately $12 million has been incurred. Costs
associated with internal resources are not being accumulated separately and
relate to normal ongoing payroll costs.
Risks
If Praxair does not successfully complete a material portion of its year 2000
program by the year 2000 or if the Company is negatively impacted by the failure
of a significant third party customer or supplier to become year 2000 compliant,
it could have a material impact on the Company's results of operations or cash
flows.
Management's current projection is that the "most reasonably likely worst
case" year 2000 scenario would involve the temporary interruption of electric
power or other utility supplies to one or more of Praxair's production plants
due to failure of the utility supplier to be year 2000 ready. Management is
unable to estimate the impact of such failure or failures, but it could have a
material adverse impact on Praxair's results of operations or cash flows, the
measure of such impact would depend on the number and nature of the
interruptions that would result. Other worst case year 2000 scenarios can be
conceived which would have a material impact on Praxair as well as on many other
companies, including, for example, break-downs of communications, governmental
or banking systems external to Praxair, but Praxair has not independently
evaluated the risks of these events.
Cautionary Statements
The continued progress and timing of completion of Praxair's year 2000 readiness
program phases as projected above depend on, and may be affected by changes in,
among other factors, the cooperation and responsiveness of systems and
components suppliers with respect to solutions development; the availability of
critical skills such as instrument technicians and software applications
personnel; the level of interest and sense of urgency with respect to year 2000
issues by governments and institutions in various regions of the world; and the
cooperation of raw materials and utilities suppliers in providing readiness
assurances to Praxair and the accuracy of those assurances.
Management does not currently believe that the failures described above as
the "most reasonably likely worst case scenario" are likely or that they will be
so widespread as to have an adverse material effect on Praxair. Efforts to
assess the year 2000 readiness of energy suppliers and other suppliers are
ongoing, however, and these efforts may, at some time in the future, reveal
serious deficiencies, not currently identified or fully understood, which may
cause a material impact on Praxair contrary to the foregoing forward-looking
assumption.
Making Our Planet More Productive 29
<PAGE>
Management's Discussino and Analysis
The above forward-looking projection of costs may be affected by, among
other factors, year 2000 issues not yet identified or fully understood,
unexpected problems in the renovation or in testing of identified solutions, and
shortages in critical renovation or replacement components or skills. If these
or other circumstances arise, Praxair's costs to address the year 2000 issues of
Praxair-maintained systems and components may differ from those projected above.
To the extent that any reader of this statement reviews it for the purpose
of making any decision for the purchase of goods or services from Praxair or
evaluating Praxair's Year 2000 readiness, such reader should construe this
statement to be a Year 2000 readiness disclosure and that any statements made to
such reader in the course of any sale are subject to the Year 2000 Information
and Readiness Disclosure Act (15 USC 1 Note, P.L. 105-271, 112 Stat). Such
reader should be further advised that in the case of a dispute, this Act may
reduce the reader's legal rights regarding the use of any such statements,
unless otherwise specified in a contract or tariff.
EURO CONVERSION
Effective January 1, 1999, the euro has become the new common currency for 11
European countries (including Belgium, France, Germany, Italy and Spain; where
Praxair has most of its European operations). Since then, transactions in the
euro have become possible, but the national currencies will continue to
circulate until 2002. During this transition period, payments can be made using
both the euro and the national currencies at fixed exchange rates.
Praxair has established teams in each of the businesses and countries
affected by the euro conversion. These teams are identifying issues that must be
addressed to accommodate the conversion, are developing plans to address these
issues, and are in the process of implementing those necessary changes
identified to date. This is an ongoing process.
Beginning January 1, 1999, Praxair has the ability to conduct business with
customers in both the euro and the respective national currency. Systems and
processes that are initially impacted by this dual currency requirement are
customer billing and receivables and cash management activities, including cash
collections and disbursements. To accomplish full readiness and automatic
recording in dual currencies, Praxair continues to make the necessary system and
process changes.
By 2002, Praxair will have systems and processes in the 11 euro countries
(including payroll and other accounting systems) to accommodate the automatic
recording of all business transactions in the euro, and the euro will then
become the functional currency for these 11 countries. Praxair is identifying
all system and process changes that will be required to facilitate timely
compliance before the year 2002. Teams are also working with the respective
country marketing organizations to identify and address the potential business
implications of the creation of the euro.
Management currently believes that Praxair has in place the appropriate
programs and plans to make any required changes to its systems and processes to
accommodate a complete, timely euro conversion. The external costs associated
with implementing and completing Praxair's euro conversion program with respect
to Praxair-maintained systems are not expected to be material in any year. Also,
management currently believes the business and market implications, if any, of
the euro conversion will not be material. However, the competitive impact of
increased cross-border price transparency is uncertain; both with respect to
products sold by Praxair as well as products, utilities and services purchased
by Praxair.
Praxair's ongoing efforts and those of its significant customers and
suppliers (including financial institutions), at some time in the future, may
reveal as yet unidentified or not fully understood issues that may not be
addressable in a timely fashion, or that may cause currently unexpected
competitive or market effects; all contrary to the foregoing forward-looking
assumptions. These issues, if not resolved favorably, could have a material
impact on the Company's results of operations or cash flows in any year.
New Accounting Standards
See Note 1 to the consolidated financial statements for information concerning
new accounting standards.
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 currency swap, forward and option contracts. 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.
30 Praxair
<PAGE>
As required by Securities and Exchange Commission 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, 1998. 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, 1998, Praxair has debt totaling $3,274 million ($3,305 million
at December 31, 1997) and interest rate swaps with a notional value of $876
million ($1,150 million in 1997). 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, 1998, the 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, 1998 after adjusting for the effect of interest rate swap
agreements, Praxair has fixed rate debt of $2,978 million ($2,637 at December
31, 1997) and floating rate debt of $296 million ($668 million in 1997). Holding
other variables constant (such as foreign exchange rates, swaps and debt levels)
a one percentage point decrease in interest rates would increase the unrealized
fair market value of the fixed rate debt by approximately $98 million ($105
million in 1997). At December 31, 1998, the after-tax earnings and cash flows
impact for the next year resulting from a one percentage point increase in
interest rates would be approximately $7 million ($6 million at December 31,
1997), 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, 1998 Praxair had
$406 million notional amount ($324 million at December 31, 1997) of foreign
exchange contracts of which $306 million ($254 million in 1997) hedged recorded
balance sheet exposures or firm commitments and $100 million ($70 million in
1997) are to hedge anticipated future net income.
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, 1998 would decrease by approximately $39
million ($21 million at December 31, 1997). Of this decrease, only about $7
million ($4 million at December 31, 1997) 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.
1999 Brazilian Devaluation
As of February 22, 1999, the Brazilian currency (the Real) has devalued to 1.97
Reais to the U.S. dollar from 1.21 at December 31, 1998. The currency impact on
Praxair's Brazilian sales and operating results will be in direct proportion to
the change in exchange rates. At the same time, interest rates have generally
increased and the local economy is in recession. These developments will impact
Praxair's Brazilian operations in 1999 as reported sales and earnings will be
lower.
As described in Note 6 to the consolidated financial statements, in early
January 1999 Praxair entered into various currency exchange forward contracts
totaling $325 million to hedge anticipated Brazilian net income and a portion of
its investment. The net income hedges were effectively closed out in January
1999 resulting in a non-recurring pre-tax gain of about $20 million in the 1999
first quarter. Any gains or losses from the remaining hedge contracts will be
recognized on the balance sheet. The after-tax cash proceeds from any hedge
contracts will be used to repay debt.
Additionally, Praxair's debt-to-capital ratio will increase in the first
quarter of 1999 due to the impacts of the devaluation on the translation of
Praxair's net assets in Brazil. When the Brazilian currency stabilizes, the
debt-to-capital ratio should trend downward as it has done since the CBI
acquisition in 1996.
Making Our Planet More Productive 31
<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 in 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, chemicals and refining, primary metals, food and
beverage, healthcare, electronics, aerospace, glass, pulp and paper, and
environmental remediation.
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.
Functional Currency Change in Brazil - As required by accounting standards,
effective January 1, 1998, Brazil is no longer a hyperinflationary economy.
Accordingly, Praxair's majority owned subsidiary (S.A. White Martins) designated
the Brazilian Real as its functional currency instead of the U.S. dollar. This
change increased operating profit and interest expense by approximately $20
million for the year ended December 31, 1998. The impact on sales, taxes and net
income was not significant. This change also required Praxair to record a
one-time cumulative adjustment for additional deferred income taxes of $81
million with offsetting balance sheet adjustments to the accumulated other
comprehensive income (cumulative translation adjustment) component of
shareholders' equity, and minority interests of $57 million and $24 million,
respectively.
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 and forward rate agreements,
and currency swap, forward and option contracts. These instruments are not
entered into for trading purposes. 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. The notional amounts of interest rate swap and
forward rate 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, firm
commitments that create currency exposures and projected net income. 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
32 Praxair
<PAGE>
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 for hedge accounting (e.g., net income 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).
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.
In 1998, Praxair implemented Statement of Financial Accounting Standards
(SFAS) No. 132, Employers' Disclosures about Pension and Other Postretirement
Benefits, which changes the format of the required disclosures relating to
pensions and other postemployment benefits. All prior years' information has
been restated to conform to the current presentation. Disclosures required by
SFAS No. 132 are included in Note 12.
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 - Praxair accounts 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, Accounting for Stock-Based Compensation, is included in Note 10.
Earnings Per Share - 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 is computed by dividing net income for
the period by the weighted average number of Praxair common shares outstanding
and dilutive common stock equivalents. Stock options for 2,999,075 shares were
not included in the computation of diluted earnings per share for the year ended
December 31, 1998 because the exercise prices were greater than the average
market price of the common stock. All references in the consolidated financial
statements are to diluted earnings per share unless stated otherwise. 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.
Segment Information - Effective in 1998, Praxair adopted SFAS No. 131 which
requires a new "management" approach to segment disclosures. This new management
approach requires Praxair to define its reportable segments based on the
internal organization structure that is used by management to make operating
decisions and evaluate performance. SFAS No. 131 also requires additional
disclosures about products and services, and geographic areas. The adoption of
SFAS No. 131 did not affect results of operations, financial position or cash
flows. All prior years' segment information has been restated to conform to the
current presentation. Disclosures required by SFAS No. 131 are included in Note
4.
Comprehensive Income - Effective January 1, 1998, Praxair adopted SFAS No. 130,
Reporting Comprehensive Income. The adoption produced no effect on Praxair's
financial position, cash flows or results of operations. Comprehensive income
has been disclosed on the Consolidated Statement of Shareholders' Equity. The
accumulated other comprehensive income (loss) balance as of December 31, 1998
represents the cumulative translation adjustment.
Making Our Planet More Productive 33
<PAGE>
Notes to Consolidated Financial Statements
Accounting Changes - 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.
Impact of Recently Issued Accounting Standards
Derivatives - In June 1998, the Financial Accounting Standards Board issued SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities, which
Praxair is required to adopt effective beginning January 1, 2000. Praxair is
currently evaluating the impact on its financial statements of adopting the
standard and will comply as required.
Start-up costs - In April 1998, the American Institute of Certified Public
Accountants (AICPA) issued Statement of Position (SOP) 98-5, Reporting on the
Costs of Start-Up Activities. This SOP is effective January 1, 1999 and
generally requires that all start-up costs, as defined, be expensed as incurred.
Praxair is in the process of identifying any previously capitalized costs which
have to be expensed under this guidance. Any required adjustment, which is not
estimated to be material, will be recorded as a cumulative effect adjustment in
the first quarter of 1999.
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)
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 was 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. 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.
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 these businesses. The operations related to these
assets held for sale have been eliminated from Praxair's consolidated financial
statements and at December 31, 1998 there are no remaining assets held for sale.
NOTE 3
SPECIAL CHARGES
In the fourth quarter of 1998, Praxair recorded a pre-tax charge of $29 million
($18 million after tax) related to its investment in Indonesia ($19 million or
$11 million after tax) and an anticipated loss on the sale of an air separation
plant under construction for a third party ($10 million or $7 million after
tax). The charge related to Indonesia reflects the recent deterioration of the
local economy and reduces Praxair's investment in the net assets of its
consolidated Indonesian subsidiary to an amount equal to management's current
estimate of the fair value of the business, assuming a sale transaction. The
anticipated contract loss reflects management's best estimate of the amount by
which final costs will exceed the contract sale price. The construction is
expected to be completed in 1999.
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 had 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.
34 Praxair
<PAGE>
The following table summarizes the activity in the 1996 CBI integration accrual
and the 1997 North American packaged gases' accrual:
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
1998 activity -- (8) (8)
Balance, December 31, 1998 $ -- $ 18 $ 18
===========================================================
(Millions of dollars)
NOTE 4
Segment Information
Effective in 1998, Praxair adopted SFAS No. 131 which requires Praxair to
redefine its operating segments using a management approach and restate all
prior years' segment information on the same basis (see Note 1).
Praxair operates principally in the industrial gases business through three
reportable operating segments: North America, South America and Europe. In
addition, Praxair operates its worldwide Surface Technologies business through
its wholly-owned subsidiary, Praxair Surface Technologies, Inc. The All Other
category is composed of Praxair's industrial gases business in Asia, Praxair's
global supply systems business which designs, engineers and builds equipment
that produces industrial gases (for internal use and external sale), and other
globally managed functions including primarily procurement and strategic
marketing. Corporate includes costs related to corporate functions.
The accounting policies of the operating segments are the same as those
described in Note 1. Praxair evaluates the performance of its operating segments
based on operating profit, excluding intercompany royalties and other special
charges. Sales are determined based on the country in which the legal subsidiary
is domiciled and intersegment sales are not material. Research and development
costs relating to Praxair's industrial gases business are managed globally and
for purposes of segment reporting are allocated to operating segments based on
sales. Long-lived assets includes property, plant and equipment; patents and
trademarks; and goodwill.
The table below presents information about reported segments for the years
ended December 31, 1998, 1997 and 1996:
Segment Information 1998 1997 1996
----------------------------------------------------------------------
Sales:
North America $ 2,752 $ 2,636 $ 2,459
South America 964 964 987
Europe 515 493 522
Surface Technologies 420 381 311
All Other 182 261 170
----------------------------------------------------------------------
Total sales $ 4,833 $ 4,735 $ 4,449
======================================================================
Operating profit(a):
North America $ 533 $ 493 $ 422
South America(b) 199 197 206
Europe 109 93 105
Surface Technologies 73 69 49
All Other (6) 19 (20)
Corporate (23) (23) (30)
----------------------------------------------------------------------
Total operating profit $ 885 $ 848 $ 732
======================================================================
Total assets:
North America(c) $ 3,917 $ 3,821 $ 3,608
South America 2,313 2,493 2,175
Europe(c) 871 795 872
Surface Technologies 523 397 315
All Other(c) 472 304 568
----------------------------------------------------------------------
Total assets $ 8,096 $ 7,810 $ 7,538
======================================================================
Depreciation and
Amortization:
North America $ 267 $ 254 $ 243
South America 116 108 102
Europe 47 46 45
Surface Technologies 23 19 16
All Other 14 17 14
----------------------------------------------------------------------
Total depreciation and
amortization $ 467 $ 444 $ 420
======================================================================
Capital expenditures
and acquisitions(d):
North America $ 501 $ 423 $ 604
South America 180 288 307
Europe 87 76 104
Surface Technologies 130 94 61
All Other 124 122 77
----------------------------------------------------------------------
Total capital expenditures
and acquisitions $ 1,022 $ 1,003 $ 1,153
======================================================================
(continued)
Making Our Planet More Productive 35
<PAGE>
Notes to Consolidated Financial Statements
Segment Information 1998 1997 1996
----------------------------------------------------------------------
Sales by Major Country:
United States $ 2,508 $ 2,411 $ 2,157
Brazil 786 823 760
All Other Foreign 1,539 1,501 1,532
----------------------------------------------------------------------
Total sales $ 4,833 $ 4,735 $ 4,449
======================================================================
Long-lived Assets by
Major Country:
United States $ 2,707 $ 2,426 $ 2,208
Brazil 1,505 1,588 1,471
All Other Foreign 1,935 1,806 1,763
----------------------------------------------------------------------
Total long-lived assets $ 6,147 $ 5,820 $ 5,442
======================================================================
(Millions of dollars)
(a) During 1998, Praxair recorded pre-tax special charges totaling $29 million
for an impairment loss in Indonesia and a provision for an anticipated loss on
the sale of an air separation plant to a third party. During 1997, Praxair
recorded an operating profit charge of $10 million related primarily to profit
improvement initiatives in the North American 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 operating segment for
these special charges.
Special Charges 1998 1997 1996
--------------------------------------------------------------
Segment operating profit $ 885 $ 848 $ 732
Less special charges:
North America -- (10) (66)
South America -- -- (13)
Europe -- -- (4)
Surface Technologies -- -- (2)
All Other (29) -- --
--------------------------------------------------------------
Consolidated operating profit $ 856 $ 838 $ 647
==============================================================
(Millions of dollars)
(b) As required by accounting standards, effective January 1, 1998 Brazil is no
longer a hyperinflationary economy. This change increased the South American
segment operating profit for 1998 by approximately $20 million versus 1997. The
impact on sales was not significant.
(c) Includes equity investments as follows:
Equity Investments 1998 1997 1996
---------------------------------------------
North America $ 66 $ 69 $ 65
Europe 101 88 89
All other (Asia) 84 53 41
---------------------------------------------
Total $251 $210 $195
=============================================
(Millions of dollars)
(d) 1996 excludes CBI acquisition amounts totaling $1,445 million, net of
assumed debt of $735 million.
NOTE 5
INCOME TAXES
Pre-tax income applicable to U.S. and foreign operations is as follows:
Year Ended December 31, 1998 1997 1996
-----------------------------------------------------------
United States $277 $290 $154
Foreign 319 332 298
-----------------------------------------------------------
Total income before income taxes $596 $622 $452
===========================================================
(Millions of dollars)
The following is an analysis of the provision for income taxes:
Year Ended December 31, 1998 1997 1996
-----------------------------------------------------------
Current tax expense
U.S. Federal $ 54 $ 23 $ 15
State and local 12 12 5
Foreign 50 49 42
-----------------------------------------------------------
Total current 116 84 62
-----------------------------------------------------------
Deferred tax expense
U.S. Federal 29 65 39
Foreign (18) 2 9
-----------------------------------------------------------
Total deferred 11 67 48
-----------------------------------------------------------
Total income taxes $ 127 $ 151 $ 110
===========================================================
(Millions of dollars)
Net deferred tax liabilities are comprised of the following:
December 31, 1998 1997
--------------------------------------------------
Deferred tax liabilities
Fixed assets $611 $453
State and local 10 9
Other 163 168
--------------------------------------------------
Total deferred tax liabilities 784 630
--------------------------------------------------
Deferred tax assets
Benefit plans and related 163 174
Inventory 19 17
Alternative minimum tax 42 16
Carryforwards - gross 175 72
Other 70 107
--------------------------------------------------
469 386
Less: Valuation allowances 6 10
--------------------------------------------------
Total deferred tax assets 463 376
--------------------------------------------------
Net deferred tax liabilities $321 $254
==================================================
(Millions of dollars)
36 Praxair
<PAGE>
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:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Year Ended December 31, 1998 1997 1996
- -------------------------------------------------------------------------------------
$ % $ % $ %
- -------------------------------------------------------------------------------------
U.S. statutory income
tax rate 208 35.0 218 35.0 158 35.0
State and local taxes 8 1.3 8 1.3 3 0.7
U.S. tax credits (3) (0.5) (1) (0.1) (1) (0.2)
Foreign taxes (80) (13.4) (65) (10.5) (51) (11.4)
Other - net (6) (1.0) (9) (1.4) 1 0.2
- -------------------------------------------------------------------------------------
Provision for income tax 127 21.4 151 24.3 110 24.3
=====================================================================================
(Dollar amounts in millions)
</TABLE>
The valuation allowances decreased $4 million in 1998 (decreased $1 million in
1997 and increased $1 million in 1996) all relating to foreign net operating
loss carryforwards activity. At December 31, 1998, Praxair has approximately $16
million of foreign net operating loss carryforwards that expire principally
through 2005, 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.
Provision has not been made for additional Federal or foreign taxes at
December 31, 1998 on $1,208 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,
1998 and 1997:
Debt 1998 1997
- ------------------------------------------------------------------
Short-Term
Canadian borrowings $ 116 $ 84
South American borrowings 95 268
Other International borrowings 82 38
Other U.S. borrowings 2 1
- ------------------------------------------------------------------
Total short-term debt 295 391
- ------------------------------------------------------------------
Long-Term
U.S.:
Commercial paper and U.S. borrowings 627 860
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
6.15% Notes due 2003 250 --
6.85% Notes due 2005 150 150
6.90% Notes due 2006 250 250
6.625% Notes due 2007 250 250
8.70% Debentures due 2022
(Redeemable after 2002) 300 300
Other borrowings 50 55
Canadian borrowings 204 160
South American borrowings 123 130
Other International borrowings 54 17
Obligations under capital leases 21 42
- ------------------------------------------------------------------
2,979 2,914
Less: current portion of long-term debt 84 40
- ------------------------------------------------------------------
Total long-term debt 2,895 2,874
- ------------------------------------------------------------------
Total debt $3,274 $3,305
==================================================================
(Millions of dollars)
Making Our Planet More Productive 37
<PAGE>
Notes to Consolidated Financial Statements
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, 1998 or 1997. At December 31, 1998 and 1997, $627 million and $860
million respectively, 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 5.8% at December 31, 1998 and 6.1% at December 31, 1997.
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, 1998, Praxair was in compliance with all such
covenants.
Excluding commercial paper and U.S. bank borrowings, scheduled maturities
on long-term debt are: 1999, $84 million; 2000, $150 million; 2001, $333
million; 2002, $98 million; 2003, $695 million and $992 million thereafter. At
December 31, 1998, $170 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, 1998, the estimated fair value of Praxair's long-term debt
portfolio was $3,055 million versus a carrying value of $2,979 million. At
December 31, 1997 the estimated fair value of long-term debt was $2,971 million
versus a carrying value of $2,914 million. These differences are attributable to
interest rate changes subsequent to when the debt was issued.
Financial Instruments - Praxair has entered into various interest rate swap
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. The fair market value of these swaps approximated their carrying
amounts at December 31, 1998 and 1997.
The following table is a summary of the notional amount of interest rate swap
agreements at December 31, 1998 and 1997:
December 31, 1998 1997(a)
-------------------------------------------------------
Maturing within one year:
Fixed Rate Swaps $796(b) $220
Floating Rate Swaps -- $150
Maturing between 1-2 years:
Fixed Rate Swaps -- $550(c)
Forward Starting Fixed Rate Swaps -- $150
Maturing 2001:
Fixed Rate Swaps $ 80 $ 80
========================================================
(Millions of dollars)
(a) At December 31,1997 there was $300 million notional value of forward
starting fixed rate swaps that had been effectively offset through June 1998
using $300 million notional value of forward starting floating rate swaps.
(b) These swaps expire at various dates to February 1999.
(c) At December 31, 1997, the expiration dates for $300 million of these swaps
had 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, 1998 and 1997,
respectively, Praxair had $406 million and $324 million of currency exchange
forward contracts outstanding: $280 million to hedge recorded balance sheet
exposures ($216 million in 1997), $26 million to hedge firm commitments
generally for the purchase of equipment related to construction projects ($38
million in 1997) and $100 million to hedge future net income, accounted for on a
mark-to-market basis ($70 million in 1997). Additionally, at December 31,1998
there was $34 million notional value of currency exchange forward contracts that
effectively offset ($100 million in 1997). At December 31, 1998 and 1997, the
fair market value of currency exchange contracts approximated their carrying
amounts and the deferred gains and losses on these contracts were not material.
In early 1999, the Brazilian currency devalued versus the U.S. dollar. In
anticipation of this devaluation, in early January 1999 Praxair entered into
currency exchange forward contracts totaling $325 million for estimated
Brazilian net income in 1999 and to hedge a portion of its net investment.
Approximately $100 million of these contracts were effectively settled by
entering into contracts with opposite positions, resulting in income of about
$20 million before income taxes and minority interests. The remaining $225
million of these contracts expire during April and May 1999 and any potential
after-tax gains or losses from these contracts will be recognized on the balance
sheet, mainly in the cumulative translation adjustment components of
shareholders' equity and minority interests.
38 Praxair
<PAGE>
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.
NOTE 7
SHAREHOLDERS' EQUITY
At December 31, 1998 there were 500,000,000 shares of common stock authorized
(par value $.01 per share) of which 161,517,042 shares were issued and
157,571,199 were outstanding. During 1997, Praxair reclassified $19 million to
additional paid-in capital from other 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.
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, 1998 and 1997, there were 25,000,000 shares of preferred stock
(par value $.01 per share) authorized, of which, 750,000 shares were issued and
outstanding. 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.
Making Our Planet More Productive 39
<PAGE>
Notes to Consolidated Financial Statements
NOTE 9
SUPPLEMENTARY INCOME STATEMENT INFORMATION
Year Ended December 31, 1998 1997 1996
--------------------------------------------------------------
Selling, general and
administrative
Selling $ 328 $ 333 $ 331
General and administrative 316 329 357
--------------------------------------------------------------
$ 644 $ 662 $ 688
==============================================================
Other income
(expenses) - net
Investment income $ 14 $ 13 $ 6
Currency 1 4 3
Partnership income 12 12 8
Other 15 33(a) 10
--------------------------------------------------------------
$ 42 $ 62 $ 27
==============================================================
Interest expense
Interest incurred on debt $ 296 $ 248 $ 220
Interest capitalized (36) (32) (25)
--------------------------------------------------------------
$ 260 $ 216 $ 195
==============================================================
Minority Interests
Minority interests $ (49) $ (58) $ (62)
Preferred stock dividends (6) (8) (6)
--------------------------------------------------------------
$ (55) $ (66) $ (68)
==============================================================
(Millions of dollars)
(a) Includes $11 million from a favorable judgement related to a dispute with
State public hospitals 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.
Effective January 1, 1997, Praxair initiated a 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. Through 1998, Praxair's
earnings per share growth for purposes of this calculation was 13% and the
pre-tax compensation expense related to this plan was $8 million in 1998 and $15
million in 1997. Prior to 1997, there was a five-year plan relating to the
period 1992 to 1996. The pre-tax compensation expense related to this plan was
$23 million in 1996.
40 Praxair
<PAGE>
The following table summarizes the changes in outstanding shares under option,
performance stock grants and performance stock equivalents for 1998, 1997 and
1996 (shares in thousands):
Stock Options
Average Performance
Number of Exercise Stock &
Activity Options Price Equivalents(a)
--------------------------------------------------------------
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 10,899 $ 25.20 968
Granted 2,022 $ 40.98 14
Exercised (889) $ 19.63 --
Cancelled or expired (60) $ 46.00 (31)
--------------------------------------------------------------
Outstanding at
December 31, 1998(b) 11,972 $ 28.17 951
--------------------------------------------------------------
Options exercisable at:
December 31, 1996 7,275 $ 14.20
December 31, 1997 7,167 $ 15.51
December 31, 1998(b) 7,728 $ 18.95
==============================================================
(a) The weighted-average price per share on the date performance stock
equivalents were granted was $50.26 in 1998 and $46.25 in 1997, and for
performance stock grants made under the previous 5-year plan was $41.83 in 1996.
(b) The following table summarizes information about options outstanding and
exercisable at December 31, 1998 (shares in thousands, life in years):
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Outstanding Exercisable
------------------------------------------ -----------------
Year Average Number Range of Average Number Average
of Remain- of Exercise Exercise of Exercise
Grant ing Life Options Prices Price Options Price
----------------------------------------------------------------------------
To 6/92* 2.0 3,154 $ 9.80-16.63 $12.55 3,154 $12.55
7/92-12/93 3.8 1,627 $15.50-17.13 $15.83 1,627 $15.83
1994 5.4 513 $17.88-23.63 $19.30 513 $19.30
1995 6.1 1,158 $20.25-29.63 $21.16 1,158 $21.16
1996 7.6 2,334 $34.13-47.75 $40.93 1,246 $36.40
1997 8.4 1,186 $43.88-56.13 $50.61 30 $44.99
1998 9.5 2,000 $31.25-52.50 $40.95 -- --
----------------------------------------------------------------------------
5.8 11,972 $ 9.80-56.13 $28.17 7,728 $18.95
============================================================================
* Options issued at June 30, 1992, the day Praxair became a public company.
</TABLE>
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, 1998 1997 1996
------------------------------------------------------------------
Net Income:
As reported $ 425 $ 405 $ 282
Pro forma $ 409 $ 391 $ 274
Basic earnings per share:
As reported $ 2.68 $ 2.56 $ 1.85
Pro forma $ 2.58 $ 2.47 $ 1.80
Diluted earnings per share:
As reported $ 2.60 $ 2.46 $ 1.77
Pro forma $ 2.50 $ 2.37 $ 1.72
------------------------------------------------------------------
The weighted average fair value of options granted during 1998 was $12.57
($16.54 in 1997 and $13.52 in 1996). 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 weighted average assumptions used for
grants in 1998, 1997, and 1996:
Year Ended December 31, 1998 1997 1996
--------------------------------------------------------------
Dividend yield 1.0% 1.0% 1.0%
Volatility 28.0% 27.0% 30.0%
Risk-free interest rate 5.2% 6.1% 6.1%
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.
Making Our Planet More Productive 41
<PAGE>
Notes to Consolidated Financial Statements
NOTE 11
SUPPLEMENTARY BALANCE SHEET INFORMATION
December 31, 1998 1997
------------------------------------------------------------------
Accounts receivable
Trade $ 904 $ 884
Other 44 112
------------------------------------------------------------------
948 996
Less: allowance for doubtful accounts(a) 29 25
------------------------------------------------------------------
$ 919 $ 971
==================================================================
Inventories(b)
Raw materials and supplies $ 115 $ 120
Work in process 38 48
Finished goods 166 161
------------------------------------------------------------------
$ 319 $ 329
==================================================================
Property, plant and
equipment - net
Land and improvements $ 205 $ 206
Buildings 536 489
Machinery and equipment 7,042 6,629
Construction in progress and other 895 850
Less: accumulated depreciation 3,803 3,567
------------------------------------------------------------------
$ 4,875 $ 4,607
==================================================================
Other long-term assets
Patents, trademarks and goodwill(c) $ 1,272 $ 1,213
Deposits(d) 49 47
Investments at cost 5 5
Other 250 231
------------------------------------------------------------------
$ 1,576 $ 1,496
------------------------------------------------------------------
Other current liabilities
Accrued accounts payable $ 150 $ 199
Payrolls 94 108
Employee benefits and related 45 41
Special charges 7 12
Accrued interest payable 42 39
Other 131 102
------------------------------------------------------------------
$ 469 $ 501
==================================================================
(continued)
December 31, 1998 1997
------------------------------------------------------------------
Other long-term liabilities
Employee benefits and related $ 439 $ 443
Special charges 11 14
Other(d) 103 71
------------------------------------------------------------------
$ 553 $ 528
==================================================================
Deferred credits
Income taxes(e) $ 357 $ 296
Deferred gain on sale leaseback (Note 13) 88 --
Other 20 28
------------------------------------------------------------------
$ 465 $ 324
==================================================================
Cumulative translation adjustment
North America $(181) $ (132)
South America(f) (138) --
Europe (51) (76)
Surface Technologies 1 (1)
All Other (43) (47)
------------------------------------------------------------------
$ (412) $ (256)
==================================================================
(Millions of dollars)
(a) Provisions to the allowance for doubtful accounts were $13 million, $11
million and $6 million in 1998, 1997 and 1996, respectively.
(b) Approximately 31% and 30% of total inventories were valued using the LIFO
method at December 31, 1998 and 1997, respectively. If inventories had been
valued at current costs, they would have been approximately $25 million and $22
million higher than reported at December 31, 1998 and 1997, respectively.
(c) Net of accumulated amortization of $143 million in 1998 and $100 million in
1997.
(d) $28 million and $65 million of other long-term assets and other long-term
liabilities in Brazil have been offset in 1998 and 1997, respectively.
(e) Deferred income taxes related to current items are included in prepaid and
other current assets in the amount of $36 million in 1998 and $42 million in
1997.
(f) 1998 includes a cumulative adjustment of $57 million related to the
functional currency change in Brazil (see Note 1).
42 Praxair
<PAGE>
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. 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.
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 $4 million in 1998, $3 million in
1997, and $1 million in 1996 (not included in the tables that follow).
Postretirement Benefits Other Than Pensions (OPEB) - Praxair provides health
care and life insurance benefits to certain eligible retired employees. These
benefits are provided through various insurance companies and 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 in 1996 (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.
Pension and Postretirement Benefit Costs
The components of net pension and OPEB costs for 1998, 1997 and 1996 are shown
below:
<TABLE>
<CAPTION>
PENSIONS OPEB
Year Ended December 31, 1998 1997 1996 1998 1997 1996
NET BENEFIT COST
<S> <C> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------------------
Service cost $ 35 $ 33 $ 36 $ 7 $ 5 $ 7
Interest cost 59 56 53 13 15 14
Expected return on assets (67) (62) (55) (1) (1) (1)
Net amortization and deferral -- 1 -- (9) (8) (9)
-----------------------------------------------------------------------------------------
Net periodic benefit cost $ 27 $ 28 $ 34 $ 10 $ 11 $ 11
=========================================================================================
(Millions of dollars)
</TABLE>
Making Our Planet More Productive 43
<PAGE>
Notes to Consolidated Financial Statements
The changes in benefit obligation and plan assets and the funded status
reconciliation as of December 31, 1998 and 1997 for Praxair's significant
pension and OPEB programs are shown below:
<TABLE>
<CAPTION>
PENSIONS
1998 1997 OPEB
Year Ended December 31, U.S. INT'L U.S. INT'L 1998 1997
<S> <C> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation, January 1 $ 617 $ 308 $ 539 $ 292 $ 229 $ 230
Service cost 22 13 20 13 7 5
Interest cost 42 18 40 17 14 16
Participant contributions -- 1 -- -- 9 9
Plan amendments -- -- -- 1 (14) --
Actuarial loss(gain) 20 20 43 10 14 (7)
Benefits paid (23) (16) (25) (13) (30) (24)
Curtailments -- (3) -- -- (1) --
Currency translation -- (2) -- (12) (1) --
------------------------------------------------------------------------------------------------------------
Benefit obligation, December 31 $678 $ 339 $ 617 $ 308 $ 227 $ 229
------------------------------------------------------------------------------------------------------------
CHANGE IN PLAN ASSETS
Fair value of plan assets, January 1 $ 589 $ 277 $ 508 $ 258 $ 10 $ 9
Actual return on plan assets 75 24 100 37 3 4
Participant contributions -- 1 -- -- -- --
Company contribution -- 7 5 7 -- --
Benefits paid (21) (16) (24) (12) (6) (3)
Currency translation -- (8) -- (13) -- --
------------------------------------------------------------------------------------------------------------
Fair value of plan assets, December 31 $ 643 $ 285 $ 589 $ 277 $ 7 $ 10
------------------------------------------------------------------------------------------------------------
FUNDED STATUS RECONCILIATION
Funded status, December 31 $ (35) $ (54) $ (28) $ (31) $(220) $(219)
Unrecognized (gains) losses - net (61) 1 (53) (32) (6) (18)
Unrecognized prior service cost 6 (2) 7 12 (16) (11)
Unrecognized transition amount (3) 5 (4) 1 -- --
Prepaid (accrued) benefit cost, December 31 $ (93) $ (50) $ (78) $ (50) $(242) $(248)
------------------------------------------------------------------------------------------------------------
(Millions of dollars)
</TABLE>
The projected benefit obligation, accumulated benefit obligation, and fair value
of plan assets for the pension plans with accumulated benefit obligations in
excess of plan assets were $172 million, $144 million, and $81 million,
respectively, as of December 31, 1998 ($149 million, $117 million and $75
million, respectively, as of December 31, 1997).
44 Praxair
<PAGE>
The weighted average or range of assumptions for the Company's pension and
OPEB benefit plans were as follows:
International
U.S. Plans Plans
Year Ended December 31, 1998 1997 1998 1997
- -------------------------------------------------------------------------------
Discount rate 6.75% 7.0% 4-9% 4-9%
Rate of increase in
compensation levels 4.0% 4.25% 2-7% 2-7%
Expected long-term rate of
return on plan assets 9.5% 9.5% 5-9% 4.5-9.0%
- -------------------------------------------------------------------------------
For measurement purposes, a 7% annual rate of increase in the per capita cost of
covered health care benefits was assumed for 1999, gradually reducing to 4.5% in
2004 and thereafter. These health care cost trend rate assumptions have an
impact on the amounts reported. To illustrate the effect, a one-percentage point
change in assumed health care cost trend rates would have the following effects:
One-Percentage One-Percentage
Sensitivity Point Increase Point Decrease
-------------------------------------------------------------------
Effect on the total of
service and interest cost
components of net OPEB
benefit cost $ 2 $ (1)
Effect on OPEB benefit obligation $11 $(11)
-------------------------------------------------------------------
(Millions of dollars)
In addition to the above plans, U.S. employees other than the packaged gases
business are eligible to participate in a defined contribution savings plan.
Employees may contribute up to 18% of their compensation, subject to the maximum
allowable by IRS regulations. Company contributions to this plan are calculated
on a graduated scale based on employee contributions to the plan. The cost for
this plan was $10 million in 1998, $9 million in 1997, and $7 million in 1996.
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,
1998:
Lease Payments
- --------------------------------------------
1999 $81 2002 $ 40
2000 $66 2003 $ 35
2001 $54 after 2003 $194
- --------------------------------------------
(Millions of dollars)
Included in these totals are $60 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 $15 million ($23
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 $80 million in
1998, and $70 million in 1997 and 1996. The present value of the future lease
payments under operating leases is approximately $339 million at December 31,
1998.
During 1998, Praxair sold and leased back certain U.S. storage equipment
for $150 million. This operating lease has an initial two-year term with
purchase and lease renewal options at projected future fair market values
beginning in 2000.
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 $19 million ($16 million
on a present value basis), with annual obligations of $4 million over the next
year and $2 million over the succeeding four years, and $5 million thereafter.
Total purchases of product in 1998, 1997 and 1996, including other amounts
purchased under these agreements, were $8 million, $8 million and $9 million,
respectively.
Making Our Planet More Productive 45
<PAGE>
Notes to Consolidated Financial Statements
Praxair has entered into an operating lease on liquid storage equipment
which includes a residual value guarantee not to exceed $127 million. Management
expects any losses under this guarantee to be remote. At December 31, 1998, the
estimated cost of completing authorized construction projects in the normal
course of business is approximately $218 million.
NOTE 15
Quarterly Data (Unaudited)
<TABLE>
<CAPTION>
1998 1Q 2Q 3Q 4Q Year
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales $ 1,201 1,234 1,201 1,197 $ 4,833
Cost of sales $ 697 711 697 702 $ 2,807
Depreciation and amortization $ 115 119 118 115 $ 467
Operating profit(a) $ 214 227 225 190 $ 856
- -------------------------------------------------------------------------------------------------------------------
Net income(a) $ 102 108 108 107 $ 425
- -------------------------------------------------------------------------------------------------------------------
Basic Per Share Data:(a)
Net income $ .65 $ .68 $ .68 $ .68 $ 2.68
Weighted average shares (000's) 158,058 158,623 158,893 158,297 158,462
- -------------------------------------------------------------------------------------------------------------------
Diluted Per Share Data:(a)
Net income $ .62 $ .66 $ .66 $ .66 $ 2.60
Weighted average shares (000's) 163,236 164,057 163,417 162,341 163,356
===================================================================================================================
(Dollar amounts in millions, except per share data)
1997 1Q 2Q 3Q 4Q Year
- -------------------------------------------------------------------------------------------------------------------
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(b) $ 207 213 211 207 $ 838
- -------------------------------------------------------------------------------------------------------------------
Income before cumulative effect of an
accounting change(b) $ 102 107 107 100 $ 416
Cumulative effect of an accounting change(c) -- -- -- (11) (11)
Net income(b) $ 102 107 107 89 $ 405
- -------------------------------------------------------------------------------------------------------------------
Basic Per Share Data:(b)
Income before cumulative effect of an
accounting change $ .65 $ .68 $ .68 $ .63 $ 2.63
Cumulative effect of an accounting change(c) -- -- -- (.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:(b)
Income before cumulative effect of an
accounting change $ .62 $ .65 $ .65 $ .61 $ 2.53
Cumulative effect of an accounting change(c) -- -- -- (.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
===================================================================================================================
(Dollar amounts in millions, except per share data)
</TABLE>
(a) Operating profit and net income for the 1998 fourth quarter and year include
special charges of $29 million and $18 million, respectively, related primarily
to an impairment loss in Indonesia and a provision for an anticipated loss on
the sale of an air separation plant to a third party (see Note 3). Net income
includes non-recurring tax credits totaling $18 million related to the favorable
settlement of certain tax matters for the 1998 fourth quarter and year (see Note
9).
(b) 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).
(c) Related to a required accounting change for capitalized business process
reengineering costs associated with information technology transformation (see
Note 1).
46 Praxair
<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 PricewaterhouseCoopers 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 & Chief Executive Officer
/s/ John A. Clerico
John A. Clerico
Executive Vice President & Chief Financial Officer
/s/ J. Robert Vipond
J. Robert Vipond
Vice President & Controller
Danbury, Connecticut
February 5, 1999
Making Our Planet More Productive 47
<PAGE>
Report of Independent Accountants
[PricewaterhouseCoopers logo]
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, 1998 and 1997, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1998, 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/ PricewaterhouseCoopers LLP
Stamford, Connecticut
February 5, 1999
48 Praxair
<PAGE>
<TABLE>
<CAPTION>
Five-Year Financial Summary
Year Ended December 31, 1998 1997 1996(a) 1995 1994
- --------------------------------------------------------------------------------------------------------------------------
From the Income Statement
<S> <C> <C> <C> <C> <C>
Sales $ 4,833 $ 4,735 $ 4,449 $ 3,146 $ 2,711
Cost of sales 2,807 2,764 2,564 1,777 1,507
Selling, general and administrative 644 662 688 496 409
Depreciation and amortization 467 444 420 279 273
Research and development 72 79 72 61 58
Special charges 29 10 85 -- --
Other income (expenses) - net 42 62 27 15 (17)
- --------------------------------------------------------------------------------------------------------------------------
Operating profit 856 838 647 548 447
Interest expense 260 216 195 116 108
- --------------------------------------------------------------------------------------------------------------------------
Income before taxes 596 622 452 432 339
Income taxes 127 151 110 122 82
- --------------------------------------------------------------------------------------------------------------------------
Income of consolidated entities 469 471 342 310 257
Minority interests (55) (66) (68) (50) (61)
Income from equity investments 11 11 8 2 7
- --------------------------------------------------------------------------------------------------------------------------
Income before cumulative effect of an
accounting change 425 416 282 262 203
Cumulative effect of an accounting change(b) -- (11) -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Net income $ 425 $ 405 $ 282 $ 262 $ 203
Net income excluding special items(c) $ 425 $ 422 $ 335 $ 262 $ 203
==========================================================================================================================
Per Share Data(d)
Basic earnings per share:
Income before cumulative effect of an
accounting change $ 2.68 $ 2.63 $ 1.85 $ 1.89 $ 1.49
Net income(b) $ 2.68 $ 2.56 $ 1.85 $ 1.89 $ 1.49
Diluted earnings per share:
Income before cumulative effect of an
accounting change $ 2.60 $ 2.53 $ 1.77 $ 1.82 $ 1.45
Net income(b) $ 2.60 $ 2.46 $ 1.77 $ 1.82 $ 1.45
Cash dividends per share $ .50 $ .44 $ .38 $ .32 $ .28
- --------------------------------------------------------------------------------------------------------------------------
Weighted average shares outstanding (000's)
Basic shares outstanding 158,462 158,095 152,654 138,818 136,254
Diluted shares outstanding 163,356 164,053 159,038 144,147 139,991
==========================================================================================================================
Capital
Total debt $ 3,274 $ 3,305 $ 3,265 $ 1,318 $ 1,265
Minority interests 487 521 493 408 371
Preferred stock 75 75 75 -- --
Shareholders' equity 2,332 2,122 1,924 1,121 839
- --------------------------------------------------------------------------------------------------------------------------
Total capital $ 6,168 $ 6,023 $ 5,757 $ 2,847 $ 2,475
==========================================================================================================================
Other Information and Ratios
Operating profit as a percentage of sales(c) 18.3% 17.9% 16.5% 17.4% 16.5%
Return on average shareholders' equity(c) 19.1% 20.9% 22.0% 26.7% 27.6%
Capital expenditures and acquisitions $ 1,022 $ 1,003 $ 3,333 $ 802 $ 385
Total assets $ 8,096 $ 7,810 $ 7,538 $ 4,134 $ 3,520
Shares outstanding at year-end (000's) 157,571 157,373 157,489 140,536 137,863
Debt-to-capital ratio 53.1% 54.9% 56.7% 46.3% 51.1%
Number of employees 24,834 25,388 25,271 18,222 17,780
- --------------------------------------------------------------------------------------------------------------------------
(Dollar amounts in millions, except per share data)
</TABLE>
(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) A required change in 1997 related to accounting for previously capitalized
business process reengineering costs associated with information technology
transformation. The cumulative effect of this accounting change had an impact of
$0.07 per share for both basic and diluted earnings per share.
(c) Special items include special charges and tax credits for 1998, and special
charges in 1997 and 1996 (see Notes 3 and 5 to the consolidated financial
statements). Operating profit as a percentage of sales excludes special charges.
The return on average shareholders' equity is based on income before cumulative
effect of an accounting change excluding special items.
(d) Includes the effect of special items 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).
Making Our Planet More Productive 49
<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 33,441
shareholders of record as of December 31, 1998.
Shareholder Returns
Closing high and low stock prices and dividends are presented below:
Stock Prices and Dividends High Low Dividends
----------------------------------------------------------
1998
Fourth quarter $40.938 $32.000 $0.125
Third quarter $50.125 $31.250 $0.125
Second quarter $53.563 $44.438 $0.125
First quarter $51.438 $40.563 $0.125
----------------------------------------------------------
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
----------------------------------------------------------
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.
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 1998 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. Contact Joseph S. Cappello,
Director, (203) 837 - 2073.
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
1-800-432-0140 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, New York 10286
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, Connecticut 06810-5113, (203) 837-2210
Annual Meeting of Shareholders
The 1999 annual meeting of shareholders of Praxair, Inc. will be held at 9:30
a.m. on Tuesday, April 27, 1999 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,
Connecticut 06810-5113. 1-800-PRAXAIR or, outside the U.S., (716) 879-4077
Visit Praxair Online on the World Wide Web: http://www.praxair.com
50 Praxair
<PAGE>
Board of Directors
Alejandro Achaval
Chairman, Chief Executive Officer and
Controlling Partner of IMEXTRADE S.A. and
TRINIDAD S.C.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 and Chairman & President,
General Electric Investment Corporation
Finance & Pension (Chairman);
Public Policy & Nominating Committees
Claire W. Gargalli
Director of various corporations;
former Vice Chairman,
Diversified Search Companies
Finance & Pension; Compensation &
Management Development Committees
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
Making Our Planet More Productive 51
<PAGE>
Officers, Regional Management and Advisory Council
Officers
Bal Agrawal
Vice President, Services Development
Leonard M. Baker
Vice President, Technology
Paul J. Bilek
Executive Vice President
David H. Chaifetz
Vice President, General Counsel and Secretary
John A. Clerico
Executive Vice President &
Chief Financial Officer
Frank J. Crespo
Vice President, Global Procurement
and Materials Management
Michael E. DeDomenico
President, Praxair Distribution, Inc.
Theodore W. Dougher
Vice President, Safety and Production Excellence
James J. Fuchs
President, Praxair Asia
Ivan Ferreira Garcia
Chief Executive Officer, S.A. White Martins
Jesus E. Gonzalez
Vice President, Chemicals and Refining Business and Metals Market
Barbara R. Harris
Vice President, Human Resources
John F. Hill
Chief Information Officer
Randy S. Kramer
Vice President, Carbon Dioxide
Product and Services
Thomas W. von Krannichfeldt
President, Praxair Surface Technologies, Inc.
H. William Lichtenberger
Chairman & Chief Executive Officer
Ricardo Malfitano
President, North American Industrial Gases & President, Praxair Canada
Sunil Mattoo
Vice President, Strategic Planning
Murilo Barros de Melo
Vice President, Food and Beverage Market
Nigel D. Muir
Vice President, Communications
and Public Relations
John S. Pirretti
Vice President, Metal Fabrication Market
Scott K. Sanderude
Vice President, Marketing
Sally A. Savoia
Vice President, Healthcare Market
James S. Sawyer
Vice President & Treasurer
William M. Therrien
Vice President, Engineering and
Supply Systems
Theodore F. Trumpp
Vice President, Electronics Business
Gabriel Toledo Ugarte
President, Praxair Europe
J. Robert Vipond
Vice President & Controller
Regional Management
North America
Murray G. Covello
Managing Director, Praxair Canada
Cesar Guajardo
Managing Director, Praxair Mexico
Robert P. Sheehan
President, Praxair Puerto Rico
Alan J. Westendorf
Senior Vice President, Sales
Europe
Miguel Martinez Astola
Managing Director, Spain
Robert Matth
General Manager, Poland
Franco Mazzali
Managing Director, Italy and Middle East
Jean-Michel Tiard
Managing Director, Western Europe
South America
Domingos Bulus
Assistant Director, Andean Treaty Countries
Albino Carneiro
Assistant Director, South Cone Countries
Marcelo Pereira Quintaes
Vice President, Industrial Gases, Brazil
Asia
V. Thad Evans
Managing Director, Praxair Japan &
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
Carlos Langone
Consultant, Brazil
Agostino Rocca
President for Latin America,
Organizacin Techint, Argentina
Paolo Rocca
President, Organizacin Techint, Argentina
Benjamin Steinbruch
Chairman, Companhia Sidergica
Nacional, Brazil
52
<PAGE>
Praxair Locations Worldwide
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
(905) 803-1600
South America
S.A. White Martins
Rio de Janeiro, Brazil
55 (21) 588.6622
Argentina, Bolivia, Chile,
Colombia, Paraguay,
Peru, Uruguay, Venezuela
Central America/Caribbean
Praxair Puerto Rico
Gurabo, PR
(787) 258-7200
Belize, Costa Rica
Europe
Praxair Europe
Madrid, Spain
(349) 1 556-1100
Austria, Belgium, Croatia,
Czech Republic, France, Germany,
Israel, Italy, The Netherlands,
Poland, Portugal, Slovenia, Turkey
Asia
Praxair Asia, Inc.
Singapore
(65) 736-3800
Australia, India, Indonesia,
Japan, People's Republic of China,
South Korea, Thailand
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, currency movements, and the change in functional currency, impacts
from currency and economic developments in Asia, management's assessments of the
impacts of the year 2000 problem and Euro conversion, 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, foreign currency
movements, pricing fluctuations for the Company's products, 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.
Batman and Robin courtesy of Warner Bros.
Praxair, MedigasTM, Praxair CoJetTM, and Point OneTM are trademarks of Praxair
Technology, Inc.
1999 Praxair Technology, Inc.
This report is printed on recycled paper
Design: R.L. Marciniak Inc., Typography: Ginny Doyle, Printing: The Hennegan
Company
Praxair, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
EXHIBIT 21.01
<TABLE>
<CAPTION>
Place of
Incorporation
<S> <C>
Accent Cay Holdings Inc. British Virgin Island
Adirondack Insurance Company Vermont
Agas Servizi S.r.l. Italy
Amko Service Company Ohio
Asian Surface Technologies Pte. Ltd. Singapore
Beijing Praxair Huashi Carbon Dioxide Co., Ltd. China
Carbonatos Andinos S.A. Argentina
Carborio Industria E. Comercio Ltda. Brazil
Catalana de Gases Medicinales S.L. Spain
CBI Comercio e Participacoes Ltda. Brazil
CBI Investments, Inc. Delaware
CBI Terminal Company Delaware
Chameleon Finance Company B.V. The Netherlands
CILBRAS - Empresa Brasileira de Cilindros Ltda. Brazil
Coatec Gesellschaft Fur Oberflachentechnik GmbH Germany
Companhia Nacional de Carbureto Brazil
Companhia Nacional de Oxigenio S.A. Portugal
Cryo Teruel S.A. Portugal
Domolife S.r.l. Italy
Dryce Italia 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
Gases de Ensenada S/A Argentina
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
Indugas S.A. France
Innovative Membrane Systems, Inc. Delaware
International Cryogenic Equipment Corporation Delaware
Julio Pastafiglia & Cia. S.A. Argentina
Kelvin Finance Company Ireland
Korea Liquid Carbonic Co., Ltd. Korea
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
Liquid Carbonico Colombiana S.A. Colombia
Liquid Quimica Mexicana, S.A. de C.V. Mexico
Liquid Quimica S.A. Brazil
Maxima Air Separation Center Limited Israel
<PAGE>
EXHIBIT 21.01
(cont'd.)
Place of
Incorporation
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
Oxigenos de Colombia Efese S.A. Colombia
Oxigenus S.A. Spain
Oximesa S.A. Spain
Oximinas Ltda. Brazil
P. T. Praxair Indonesia Indonesia
Praxair (China) Invesment Co., Ltd. China
Praxair (Nanjing) Carbon Dioxide Co. Ltd. China
Praxair (Shanghai) Co., Ltd. China
Praxair (Yueyang) Co., Ltd. China
Praxair Asia, Inc. Delaware
Praxair Argentina, S.A. Argentina
Praxair Australia Pty. Ltd. Australia
Praxair B.V. The Netherlands
Praxair Belize, Ltd. Belize
Praxair Bolivia, S.A. Bolivia
Praxair Canada Inc. Canada
Praxair Carbondioxide Private Limited India
Praxair Chemax Semiconductor Materials Co. Taiwan
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 Distribution Southeast, LLC 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 Holdings International, Inc. Delaware
Praxair Hydrogen Supply, Inc. Delaware
Praxair Iberica, S.A. Spain
Praxair India Private Limited India
Praxair Iwatani Electronics Gases Co. Japan
Praxair K.K. Japan
Praxair Korea Company Limited Republic South Korea
Praxair Mexico, S.A. de C.V. Mexico
Praxair Martime Company Canada
Praxair-Ozone, Inc.
Praxair N.V. Belgium
Praxair Pacific Limited Mauritius
Praxair PC Partnership Canada
Praxair Polska, SP. Z O.O Poland
Praxair Paraguay S.R.L. Paraguay
<PAGE>
EXHIBIT 21.01
(cont'd.)
Place of
Incorporation
Praxair Peru S.A. Peru
Praxair Produccion Espana, S.A. Spain
Praxair Production N.V. Belgium
Praxair Puerto Rico, Inc. Delaware
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 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 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. Mexico
PST Fluoropolymer S.p.A. Italy
Quimica Industrial Bara Do Pirai S.A. Brazil
Rapidox Gases Industriais Ltda. Brazil
Rivoira S.p.A. Italy
S. A. White Martins Brazil
Servicios Energeticos Chile S.A. Chile
Shanghai Praxair-Yidian, Inc. China
Smaltirvia S.p.A. Italy
Susano Carbonato De Calcio Ltda. Brazil
Tianjin Praxair Inc. China
Topaz Consultoria S.A. Uruguay
Transportes Flamingo S/A Peru
Treffers Precision, Inc. Arizona
UCISCO Canada Inc. Canada
UCISCO, Inc. Texas
Unigases Comercial Ltda. Brazil
Wall Chemicals, Inc. Illinois
Westair Cryogenics Company Delaware
White Martins & White Martins Comercio e Servicos Portugal
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 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
</TABLE>
Praxair, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
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 5, 1999 appearing on page 48 of
the Annual Report to Shareholders which is incorporated in this Annual Report on
Form 10-K.
PRICEWATERHOUSECOOPERS LLP
Stamford, Connecticut
March 15, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
FINANCIAL DATA SCHEDULE - EXHIBIT 27
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 34
<SECURITIES> 0
<RECEIVABLES> 948
<ALLOWANCES> 29
<INVENTORY> 319
<CURRENT-ASSETS> 1394
<PP&E> 8678
<DEPRECIATION> 3803
<TOTAL-ASSETS> 8096
<CURRENT-LIABILITIES> 1289
<BONDS> 2895
75
0
<COMMON> 2
<OTHER-SE> 2330
<TOTAL-LIABILITY-AND-EQUITY> 8096
<SALES> 4833
<TOTAL-REVENUES> 4833
<CGS> 2807<F1>
<TOTAL-COSTS> 2807<F1>
<OTHER-EXPENSES> 467<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 260
<INCOME-PRETAX> 596
<INCOME-TAX> 127
<INCOME-CONTINUING> 425
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 425
<EPS-PRIMARY> 2.68<F2>
<EPS-DILUTED> 2.60<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>
Praxair, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
EXHIBIT 99.01
PRAXAIR, INC. AND SUBSIDIARIES
Segment Information for the
1998 Quarters (Unaudited)
1998 Quarters 1Q 2Q 3Q 4Q(a) Year(a)
Sales:
North America $ 691 $ 712 $ 677 $ 672 $2,752
South America 244 238 246 236 964
Europe 124 131 124 136 515
Surface Technologies 99 104 106 111 420
All Other 43 49 48 42 182
- --------------------------------------------------------------------------
Total sales $1,201 $1,234 $1,201 $1,197 $4,833
- --------------------------------------------------------------------------
Operating Profit:
North America $ 140 $ 141 $ 128 $ 124 $ 533
South America 47 50 53 49 199
Europe 26 28 25 30 109
Surface Technologies 18 19 18 18 73
All Other (11) (5) 6 4 (6)
Corporate (6) (6) (5) (6) (23)
- ---------------------------------------------------------------------------
Total operating profit $ 214 $ 227 $ 225 $ 219 $ 885
- ---------------------------------------------------------------------------
(Millions of dollars)
(a) The fourth quarter and year segment operating profit amounts for the All
Other segment are before special charges of $29 million (see Note 3 of the
section captioned "Notes to Consolidated Financial Statements" in Praxair's
1998 Annual Report to Shareholders).
