FORM 10Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 1-11037
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Praxair, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 06-1249050
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
39 Old Ridgebury Road, Danbury, CT 06810-5113
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(Address of principal executive offices) (Zip Code)
(203) 837-2000
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Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
At June 30, 2000, 158,060,040 shares of common stock ($.01 par value) of the
Registrant were outstanding.
<PAGE>
Forward-looking statements
--------------------------
The forward-looking statements contained in this document concerning, among
other things, projected capital spending, the impact of energy costs in North
America, sales and earnings growth, volume increases, the impact of new
technology in the marketplace, tax planning initiatives and effective tax rates,
the commercial success of MetFabCity, Inc., the impact of the White Martins
tender offer in Brazil, the impact of economic conditions, including currency
movements, management's assessment of the impact of the Euro Conversion, and
market risks and sensitivity analyses disclosures relating 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 services, the impact of competitive products and
pricing, the ability to continue to develop potential acquisition opportunities,
and the impact of tax and other legislation and regulation in the jurisdictions
in which the Company operates.
<PAGE>
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statement of Income - Praxair, Inc. and Subsidiaries
Quarter and Six Months Ended June 30, 2000 and 1999 (Unaudited)
Condensed Consolidated Balance Sheet - Praxair, Inc. and Subsidiaries
June 30, 2000 (Unaudited) and December 31, 1999
Condensed Consolidated Statement of Cash Flows - Praxair, Inc. and
Subsidiaries Six Months Ended June 30, 2000 and 1999 (Unaudited)
Notes to Condensed Consolidated Financial Statements - Praxair, Inc.
and Subsidiaries (Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
Signature
Exhibit Index
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PRAXAIR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
(Millions of dollars, except per share data)
Quarter Ended Six Months Ended
June 30, June 30,
---------------- ----------------
2000 1999 2000 1999
------- ------- ------- -------
SALES .................................. $1,265 $1,149 $2,495 $2,267
Cost of sales, exclusive of
depreciation and amortization ........ 761 673 1,483 1,325
Selling, general and administrative .... 162 170 329 325
Depreciation and amortization .......... 118 111 236 224
Research and development ............... 16 17 32 33
Other income-net ....................... 11 23 17 52
------- ------- ------- -------
OPERATING PROFIT ....................... 219 201 432 412
Interest expense ....................... 57 50 109 107
------- ------- ------- -------
INCOME BEFORE INCOME TAXES ............. 162 151 323 305
Income taxes ........................... 37 37 74 72
------- ------- ------- -------
INCOME OF CONSOLIDATED ENTITIES ........ 125 114 249 233
Minority interests ..................... (6) (10) (18) (23)
Income from equity investments ......... 3 3 5 5
------- ------- ------- -------
INCOME BEFORE ACCOUNTING CHANGE ........ 122 107 236 215
Cumulative effect of an accounting change - - - (10)
------- ------- ------- -------
NET INCOME ............................. $ 122 $ 107 $ 236 $ 205
======= ======= ======= =======
PER SHARE DATA:
Basic earnings per share:
Before accounting change.............. $ 0.77 $ 0.67 $ 1.49 $ 1.35
Accounting change .................... - - - (.06)
------- ------- ------- -------
Net income $ 0.77 $ 0.67 $ 1.49 $ 1.29
======= ======= ======= =======
Diluted earnings per share:
Before accounting change............... $ 0.76 $ 0.66 $ 1.47 $ 1.33
Accounting change...................... - - - (.06)
------- ------- ------- -------
Net income............................. $ 0.76 $ 0.66 $ 1.47 $ 1.27
======= ======= ======= =======
Cash dividends per share ............... $ 0.155 $ 0.14 $ 0.31 $ 0.28
======= ======= ======= =======
WEIGHTED AVERAGE SHARES OUTSTANDING (000'S):
Basic shares outstanding ............... 158,515 159,363 158,974 158,750
Diluted shares outstanding ............. 160,629 162,641 161,102 161,825
The accompanying notes are an integral part of these financial statements.
<PAGE>
PRAXAIR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Millions of dollars)
June 30,
2000 December 31,
(Unaudited) 1999
----------- ------------
ASSETS
Cash and cash equivalents ....................... $ 25 $ 76
Accounts receivable ............................. 917 848
Inventories ..................................... 309 310
Prepaid and other ............................... 118 101
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TOTAL CURRENT ASSETS ....................... 1,369 1,335
Property, plant and equipment-net ............... 4,796 4,720
Other assets .................................... 1,707 1,667
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TOTAL ASSETS ............................... $ 7,872 $ 7,722
======= =======
LIABILITIES AND EQUITY
Accounts payable ................................ $ 332 $ 361
Short-term debt ................................. 242 756
Current portion of long-term debt ............... 276 128
Other current liabilities ....................... 461 480
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TOTAL CURRENT LIABILITIES .................. 1,311 1,725
Long-term debt .................................. 2,883 2,111
Other long-term obligations ..................... 1,145 1,162
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TOTAL LIABILITIES .......................... 5,339 4,998
Minority interests .............................. 164 359
Preferred stock ................................. 20 75
Shareholders' equity ............................ 2,349 2,290
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TOTAL LIABILITIES AND EQUITY ............... $ 7,872 $ 7,722
======= =======
The accompanying notes are an integral part of these financial statements.
<PAGE>
PRAXAIR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(Millions of dollars)
Six Months Ended June 30,
-------------------------
2000 1999
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OPERATIONS
Net income ..................................... $ 236 $ 205
Adjustments:
Depreciation and amortization ................ 236 224
Deferred income taxes ........................ 41 19
Working capital .............................. (137) 22
Long-term assets and liabilities ............. (63) (71)
Other non-cash charges ....................... 11 20
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Net cash provided by operating activities .. 324 419
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INVESTING
Capital expenditures ........................... (349) (305)
Acquisitions ................................... (255) (7)
Divestitures and asset sales ................... 4 88
-------- --------
Net cash used for investing activities ..... (600) (224)
-------- --------
FINANCING
Short-term borrowings (repayments)- net......... 514 (183)
Long-term borrowings ........................... 14 21
Long-term debt repayments ...................... (124) (110)
Minority transactions and other ................ (69) 75
Issuances of common stock ...................... 83 77
Purchases of common stock ...................... (144) (19)
Cash dividends ................................. (49) (44)
-------- --------
Net cash provided by (used for)
financing activities ................... 225 (183)
-------- --------
Effect of exchange rate changes on cash and
cash equivalents ............................... - (1)
-------- --------
Change in cash and cash equivalents .............. (51) 11
Cash and cash equivalents beginning-of-year....... 76 34
-------- --------
Cash and cash equivalents end-of-period .......... $ 25 $ 45
======== ========
Supplemental Data:
Short-term debt classified as long-term (Note 6).. $ 1,029 $ -
The accompanying notes are an integral part of these financial statements.
<PAGE>
PRAXAIR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Presentation of Condensed Consolidated Financial Statements
In the opinion of Praxair, Inc. (Praxair) management, the accompanying
condensed consolidated financial statements include all adjustments
necessary for a fair presentation of the results for the interim periods
presented. These adjustments consisted of only normal recurring
adjustments, with the exception of the Colombian sales adjustment (see
Management's Discussion and Analysis Segment Discussion - South
America). The accompanying condensed consolidated financial statements
should be read in conjunction with the Notes to the consolidated
financial statements of Praxair, Inc. and subsidiaries in Praxair's 1999
Annual Report. Certain prior years' amounts have been reclassified to
conform to the current year's presentation.
2. Accounting Change
In accordance with the American Institute of Certified Public
Accountants (AICPA) Statement of Position (SOP) 98-5, "Reporting on the
Costs of Start-Up Activities," Praxair recorded an after-tax charge of
$10 million in the first quarter of 1999 as the cumulative effect of an
accounting change.
3. Special Items
During the first quarter of 2000, Praxair initiated a program to
reposition the Surface Technologies operations as a result of adverse
market conditions in the aerospace original equipment and computer disk
drive markets. Praxair recorded a $5 million charge to other income-net,
including approximately $4 million for employee severance costs and over
$1 million related to other exit costs. The program includes the closure
of two U.S. facilities and headcount reductions of approximately 160
employees located at these facilities and others. For the quarter and
six months ended June 30, 2000, the cash expenditures charged to this
accrual were approximately $1 million and $2 million, respectively and
the balance is expected to be paid out within the next year.
At June 30, 2000, the remaining accrual balance related to the 1996 and
1997 special charges was $11 million (see Note 9 to Praxair's 1999
consolidated financial statements).
4. Inventories
The following is a summary of Praxair's consolidated inventories:
(Millions of dollars)
June 30, 2000
(Unaudited) December 31, 1999
------------- -----------------
Raw materials and supplies...... $ 108 $ 104
Work in process................. 56 50
Finished goods.................. 145 156
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$ 309 $ 310
===== =====
<PAGE>
5. Shareholders' Equity
Changes in Shareholders' Equity were as follows:
(Thousands of shares)
Common Treasury
Stock Issued Stock
------------ ---------
Balance, January 1, 2000................ 164,215 5,168
Common stock activity (a)............... 1,378 2,365
--------- --------
Balance, June 30, 2000................. 165,593 7,533
========= ========
<TABLE>
<CAPTION>
(Millions of dollars) Accumulated
Additional Other
Common Paid-In Treasury Retained Comprehensive
Stock Capital Stock Earnings Income(Loss) Total
<S> <C> <C> <C> <C> <C> <C>
------ --------- -------- -------- ----------- -------
Balance, January 1, 2000 .... $ 2 $1,613 $(219) $1,722 $(828) $2,290
Net income .................. 236 236
Translation adjustments...... (67) (67)
-------
Comprehensive income(b)...... 169
Dividends - common stock..... (49) (49)
Common stock activity (a).... 23 (84) (61)
--- ------ ------ ------- ------ -------
Balance, June 30, 2000 ...... $ 2 $1,636 $(303) $1,909 $(895) $2,349
=== ====== ====== ======= ====== =======
</TABLE>
(a) Relates to issuances of common stock for the Dividend Reinvestment and
Stock Purchase Plan, employee savings and incentive plans, and
issuances/purchases of common stock.
(b) Comprehensive income (loss) for the quarter and six months ended June 30,
2000 was $39 million and $169 million, respectively, as compared to $70
million and $(183) million, respectively, in the 1999 periods. The 1999
loss was primarily caused by currency movements in Brazil.
During the quarter and six months ended June 30, 2000, Praxair granted
options for 37,100 and 2,153,645 shares, respectively, of common stock
having option prices ranging from $33.31 to $53.56 per share (weighted
average of $43.70), the closing market price of Praxair's common stock on
the day of the grants. At June 30, 2000 there were 14,187,685 shares
under option at prices ranging from $9.80 to $56.13 per share (weighted
average of $34.79) of which options for 8,054,045 shares were exercisable
at prices ranging from $9.80 to $56.13 per share (weighted average of
$29.49). During the quarter and six months ended June 30, 2000, 107,725
and 588,290 options were exercised, respectively.
<PAGE>
6. Debt and Financial Instruments
Debt - The following is a summary of Praxair's outstanding debt at June
30, 2000 and December 31, 1999:
(Millions of dollars) June 30,
2000 December 31,
(Unaudited) 1999
----------- ------------
Short-term:
Commercial paper and U.S. borrowings...... $ - $ 632
Canadian borrowings....................... 13 6
South American borrowings................. 81 65
Other international borrowings............ 148 53
------- -------
Total short-term debt....................... 242 756
Long-term:
U.S.:
Commercial paper and U.S. borrowings...... 1,029 -
6.25% Notes due 2000..................... - 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..................... 250 250
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.......................... 33 32
Canadian subsidiary borrowings.............. 178 177
South American subsidiary borrowings........ 72 81
Other international borrowings.............. 22 49
------- -------
3,159 2,239
Less: current portion of long-term debt..... 276 128
------- -------
Total long-term debt........................ 2,883 2,111
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Total debt.................................. $3,401 $2,995
======= =======
On July 12, 2000 Praxair entered into two new credit agreements, that
expire through 2005, totaling $1.5 billion to replace its previous
credit agreement that was due to expire in December, 2000. The terms and
financial covenants contained in the new credit agreements are not
significantly different from the terms of its previous credit agreement
(see Note 4 to Praxair's 1999 consolidated financial statements). At
June 30, 2000 $1,029 million of short-term borrowings have been
classified as long-term because of the Company's intent to refinance
this debt on a long-term basis and the availability of such financing
under the terms of its new credit agreements. No borrowings were
outstanding under the credit agreements at June 30, 2000.
On June 30, 2000 Praxair paid off the 6.25% Notes that were due on that
date.
<PAGE>
Financial Instruments - At June 30, 2000, Praxair had $80 million
notional amount of interest rate swap agreements that effectively
convert variable rate debt to fixed rate debt. These agreements mature
in 2001. Praxair is also a party to currency exchange forward contracts
to manage its exposure to changing currency exchange rates. At June 30,
2000 Praxair had $318 million of currency exchange forward contracts
outstanding: $243 million to hedge recorded balance sheet exposures, $8
million to hedge firm commitments (generally for the purchase of
equipment related to construction projects) and $67 million to hedge
future net income. Additionally, there are $57 million notional value of
currency exchange contracts that effectively offset. These contracts all
mature within one year.
During the quarter ended March 31, 1999, Praxair sold and leased
back certain U.S. distribution equipment for $80 million (see Note
11 to Praxair's 1999 consolidated financial statements).
7. 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. 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. Stock options
for 6,001,705 and 6,024,205 shares were not included in the computation
of diluted earnings per share for the quarter and six months ended June
30, 2000 (565,090 and 2,932,525 during the quarter and six months ended
June 30, 1999), respectively, because the exercise prices were greater
than the average market price of the common stock.
8. South American Tender Offer
During the second quarter of 2000, Praxair completed a tender offer
resulting in its ownership interest in its Brazilian affiliate, White
Martins, increasing from 76.57% at December 31, 1999 to approximately
97% at June 30, 2000. The purchase price of $221 million was financed
with additional debt.
9. 1999 Brazilian Currency Hedge Agreements
In early January 1999, Praxair entered into currency exchange forward
contracts totaling $325 million notional value for estimated Brazilian
net income in 1999 and to hedge a portion of its net investment. The net
income hedge agreements were settled during the first quarter of 1999
resulting in a pre-tax gain of $21 million ($14 million after tax and
minority interest). The net investment hedge contracts were either
closed out or settled in the first quarter resulting in a gain of
approximately $60 million (after tax and minority interest) which was
recognized on the balance sheet in the accumulated other comprehensive
income(loss) (cumulative translation adjustment) component of
shareholders' equity. Approximately $89 million related to the settled
investment hedges was received during the six-month period ended June
30, 1999, and is shown in the financing section of the condensed
consolidated statement of cash flows under the caption "Minority
transactions and other", and the pre-tax gain relating to the net income
hedges (approximately $21 million) is shown under the caption "net
income" in operating cash flows.
<PAGE>
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Consolidated Results
(Dollar amounts in millions) Quarter Ended Six Months Ended
June 30, Percent June 30, Percent
2000 1999 Change 2000 1999(a) Change
------ ------- ------- -------- ------ -------
Sales.......................... $1,265 $1,149 + 10% $2,495 $2,267 + 10%
Selling, general
and administrative............ $ 162 $ 170 - 5% $ 329 $ 325 + 1%
Depreciation and amortization.. $ 118 $ 111 + 6% $ 236 $ 224 + 5%
Operating profit............... $ 219 $ 201 + 9% $ 432 $ 412 + 5%
Interest expense............... $ 57 $ 50 + 14% $ 109 $ 107 + 2%
Income taxes................... $ 37 $ 37 -% $ 74 $ 72 + 3%
Effective tax rate............. 23% 25% - 2% 23% 24% - 1%
Minority interests............. $ (6) $ (10) - 40% $ (18) $ (23) - 22%
Income before accounting change $ 122 $ 107 + 14% $ 236 $ 215 + 10%
Excluding one-time hedge gain in Brazil:
Operating profit............... $ 219 $ 201 + 9% $ 432 $ 391 + 10%
Income taxes................... $ 37 $ 37 -% $ 74 $ 70 + 6%
Effective tax rate............. 23% 25% - 2% 23% 25% - 2%
Income before accounting change $ 122 $ 107 + 14% $ 236 $ 201 + 17%
(a) The results for the six months ended June 30, 1999 include a $21 million
operating benefit ($14 million after-tax and minority interests) from net
income hedges in Brazil which do not recur in 2000. The amounts shown
above under the section "Excluding one-time hedge gain in Brazil" exclude
the impacts of these hedge gains.
The sales increase of 10% for the quarter and six months ended June 30, 2000
versus the respective 1999 periods was due primarily to industrial gases volume
growth in North America, Europe, Asia and South America; acquisitions in the
Surface Technologies segment; and price improvements in North and South America.
These increases were partially offset by unfavorable currency translation
impacts, primarily in Europe and South America and volume declines for Global
Supply Systems business (for the six-month period).
Operating profit increased 9% for the 2000 quarter and, excluding the impact of
the Brazilian hedge gain, increased 10% for the six months ended June 30, 2000
versus the respective 1999 periods. These increases were due primarily to the
sales increase described above, productivity improvements, and contributions
from acquisitions in the Surface Technologies segment; partly offset by cost
inflation and currency translation impacts. As a percentage of sales, selling,
general and administrative expenses for the quarter and six months ended June
30, 2000 were lower due primarily to productivity improvement initiatives and
higher long-term incentive plan costs in the 1999 quarter, partly offset by cost
inflation and higher business development costs. The increase in depreciation
and amortization expense for both periods reflects the impact of new projects
coming on-stream, as well as Surface Technologies acquisitions. Other income -
net for the quarter and six months ended June 30, 2000 was $11 million and $17
million, a decrease of $12 million and $35 million, respectively as compared to
the 1999 periods. The decrease in the second quarter of 2000 is primarily due to
a $50 million gain recorded in 1999 related to the redemption of preference
shares from an earlier business sale and $39 million of costs primarily for
postemployment benefits and an anticipated loss on the sale of an air separation
plant under construction for a third party. For the six months ended June 30,
1999, other income - net also included $21 million from a non-recurring hedge
gain in Brazil.
<PAGE>
Income before accounting change increased 14% for the 2000 quarter and,
excluding the Brazilian hedge gain, increased 17% for the six months versus the
respective 1999 periods. This increase was due to the higher operating profit
described above and lower minority interests, partially offset by higher
interest expense. The decrease in minority interests is due to the impact of the
increase in Praxair's ownership interest in White Martins (See Note 8 to the
condensed consolidated financial statements and Segment Discussion - South
America). Interest expense increased due to the higher debt levels and
short-term interest rates. Based on an overall assessment of Praxair's global
tax position, the effective tax rate was lowered in 2000 to 23% from 25% in
1999, excluding the impact of the 1999 Brazilian hedge gain.
The number of employees at June 30, 2000 was approximately 24,000 which reflects
a decrease of approximately 100 from December 31, 1999. The decrease is
principally the result of headcount reductions in the Surface Technologies
business and continued productivity improvement initiatives in South America.
Segment Discussion
The following summary of sales and operating profit by segment provides a basis
for the discussion that follows (for a description of Praxair's operating
segments, refer to Note 2 to the consolidated financial statements included in
Praxair's 1999 annual report to shareholders):
(Dollar amounts in millions)
Quarter Ended Six Months Ended
June 30, Percent June 30, Percent
2000 1999 Change 2000 1999 Change
------ ------ ------- ------ ------ -------
SALES
North America $ 755 $ 692 + 9% $1,477 $1,353 + 9%
South America 181 174 + 4% 367 342 + 7%
Europe 126 132 - 5% 256 265 - 3%
Surface Technologies 148 108 +37% 295 219 +35%
All Other 55 43 +28% 100 88 +14%
------- ------- ------- -------
$1,265 $1,149 +10% $2,495 $2,267 +10%
======= ======= ======= =======
OPERATING PROFIT
North America $ 140 $ 128 + 9% $ 279 $ 249 +12%
South America (a) 41 34 +21% 80 87 - 8%
Europe 31 32 - 3% 63 62 + 2%
Surface Technologies (b) 19 19 -% 30 39 -23%
All Other (b) (5) (5) -% (6) (12) +50%
Corporate (7) (7) -% (14) (13) - 8%
------- ------- ------- -------
$ 219 $ 201 + 9% $ 432 $ 412 + 5%
======= ======= ======= =======
(a) South America results for the six months ended June 30, 1999 includes a
one-time $21 million operating profit benefit from net income hedges in
Brazil which do not recur in 2000.
(b) The six months ended June 30, 2000 for Surface Technologies includes a $5
million charge relating to severance costs and other exit costs (See Note 3
to the condensed consolidated financial statements). The All Other segment
results for the six months ended June 30, 2000 include a $5 million
recovery from the cash settlement of litigation related to a previously
divested business.
<PAGE>
North America
-------------
Sales for the quarter and six months ended June 30, 2000 increased 9% as
compared to the 1999 periods. This increase reflects strong sales increases in
all geographies - U.S., Canada and Mexico. Overall, this increase is due to 5%
and 6% volume growth for the quarter and six months ended June 30, 2000,
respectively, price increases of 3% and minor favorable currency translation
impacts in Mexico and Canada. The price increases, in part, reflect higher
natural gas costs, which pass through to on-site hydrogen customers without
impacting operating profit.
Operating profit increased 9% and 12%, respectively, for the quarter and six
months ended June 30, 2000 versus the respective 1999 periods primarily due to
the increased sales volume and benefits of productivity improvements, partly
offset by higher energy related costs and cost inflation. U.S. electricity costs
and power dislocations are expected to remain an issue for industrial gas
production and Praxair will attempt to mitigate the effects of these costs
through aggressive pricing.
South America
-------------
Sales for the quarter and six months ended June 30, 2000 increased 4% and 7%,
respectively, primarily due to pricing improvements of 6% and 7%, respectively
and volume increases of 8% and 7%, respectively, partially offset by unfavorable
currency translation effects and an $8 million adjustment for sales that had
been improperly recorded by Praxair's Colombian subsidiaries.
Operating profit for the quarter and six months ended June 30, 2000 increased
21% as compared to the 1999 periods, excluding the impact of the first quarter
1999 hedge gain. This increase was primarily due to productivity improvement
initiatives and the sales increase, partially offset by cost inflation and
unfavorable currency translation effects. Operating profit for the quarter and
six months ended June 30, 2000 also includes $8 million of income related to the
termination of a carbon dioxide raw material supplier contract in Brazil which
was offset by the Colombia sales adjustment.
During the second quarter of 2000, Praxair completed a tender offer resulting in
an increase in its ownership interest in its Brazilian affiliate, White Martins
(see Note 8 to the condensed consolidated financial statements), increasing from
76.57% at December 31, 1999 to approximately 97% at June 30, 2000. The cost to
Praxair for this additional share purchase was $221 million. As a result, the
White Martins'stock was delisted from the Brazilian Stock Exchanges in May 2000.
Praxair plans to purchase the remaining shares over the next year at the
original offer price which would be an investment of approximately $30 million.
The impact of this transaction and future purchases on Praxair's results of
operations is to increase interest expense and decrease the minority interests'
share of income and is not significant to Praxair's net income.
Europe
------
Sales for the quarter and six months ended June 30, 2000 decreased 5% and 3%,
respectively, as compared to the 1999 periods due primarily to unfavorable
currency translation effects, partially offset by volume growth of 8% and 9%,
and price increases of 1%, respectively, which reflects a strong performance in
Spain and Italy. Excluding the currency translation effects for the quarter and
six months ended June 30, 2000, sales increased by 9% and 10%, respectively.
<PAGE>
Operating profit for the quarter and six months ended June 30, 2000 decreased 3%
and increased 2%, respectively, as compared to the 1999 periods. Excluding
currency translation effects for the quarter and six months ended June 30, 2000,
operating profit increased 12% and 15%, respectively. This was due to the sales
volume impacts discussed above, and productivity improvement initiatives, partly
offset by cost inflation.
Surface Technologies
--------------------
Praxair's Surface Technologies business has experienced adverse market
conditions in the aerospace original equipment and computer disk drive markets
which mask good growth in other markets. In addition, MRC, a newly acquired
business operates at lower operating margins because of the pass through of
precious metal costs to customers, without impacting operating margins. As a
result, operating results and margins were down significantly from the previous
year. During the first quarter of 2000, Praxair implemented a major program to
reposition the business, including headcount reductions and the closing of two
facilities. This program resulted in a $5 million charge in the 2000 first
quarter (see Note 3 to the condensed consolidated financial statements for
additional information related to this charge).
Sales for the quarter and six months ended June 30, 2000 increased 37% and 35%,
respectively, as compared to the 1999 periods due primarily to the impact of
1999 acquisitions which added 42% and 40%, respectively to overall growth. The
increase was partly offset by price decreases and unfavorable currency
translation impacts.
Operating profit for the quarter ended June 30, 2000 was flat as compared to the
1999 period and decreased 10%, excluding the $5 million charge for severance and
other exit costs for the six month period as compared to 1999. This decrease
reflects pricing pressures and cost inflation, partly offset by the contribution
from acquisitions.
All Other
---------
Sales for the quarter and six months ended June 30, 2000 increased 28% and 14%,
respectively as compared to the 1999 periods. Asia experienced 38% and 37% sales
growth for the quarter and six-month period, respectively due primarily to
volume growth and new plants coming on-stream in China and India. This increase
was partly offset by a decline in Global Supply System sales due to a decrease
in the volume of third party equipment sales in the six-month period. 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 fluctuations from
one period to the next.
Operating Profit for the quarter ended June 30, 2000 was flat when compared to
the 1999 period, and improved $6 million for the six months ended June 30, 2000
as compared to the 1999 period due primarily to a $5 million recovery from the
cash settlement of litigation related to a previously divested business.
Improvements in Asia and Global Supply Systems were partly offset by business
development costs primarily related to Praxair's e-business programs, including
MetFabCity, Inc.
<PAGE>
Liquidity, Capital Resources and Other Financial Data
The following selected cash flow information provides a basis for the discussion
that follows:
(Dollar amounts in millions)
Six Months Ended June 30, 2000 1999
----------------------------------------- ------ ------
NET CASH PROVIDED BY (USED FOR)
OPERATING ACTIVITIES:
Net income plus depreciation
and amortization........................ $ 472 $ 429
Working capital........................... (137) 22
Other - net............................... (11) (32)
------- -------
Total from operating activities........... $ 324 $ 419
======= =======
INVESTING:
Capital expenditures...................... $ (349) $ (305)
Acquisitions.............................. (255) (7)
Divestitures and asset sales.............. 4 88
------- -------
Total used for investing ................. $ (600) $ (224)
======= =======
FINANCING ACTIVITIES:
Debt increases (reductions) - net......... $ 404 $ (272)
Minority transactions and other........... (69) 75
Net (purchases) issuances of common stock. (61) 58
Cash dividends............................ (49) (44)
------- -------
Total from (used for) financing........... $ 225 $ (183)
======= =======
June 30, December 31,
DEBT-TO-CAPITAL RATIO 2000 1999
----------------------------------------- --------- ------------
Debt...................................... $3,401 $2,995
Capital*.................................. $5,934 $5,719
Debt-to-capital ratio..................... 57.3% 52.4%
*Includes debt, minority interests, preferred stock and shareholders' equity.
Cash Flow From Operations
-------------------------
Cash flow from operations decreased to $324 million in the first six months of
2000 versus $419 million in 1999. This decrease is primarily due to higher
working capital requirements reflecting the sales growth, slower receivable
collections, and the timing of payables. In addition, 1999 includes $50 million
proceeds related to the redemption of preference shares from an earlier business
sale, $21 million from net income hedges in Brazil and the impact of accrual
increases for postemployment benefits and contract losses.
<PAGE>
Investing
---------
Cash flow used for investing in the first six months of 2000 totaled $600
million, an increase of $376 million from the 1999 period. This increase was due
primarily to higher capital and acquisition expenditures, and lower proceeds
from divestitures and asset sales.
Capital expenditures for the first six months of 2000 totaled $349 million, up
$44 million from the corresponding period in 1999. The increase in capital
expenditures is primarily in Canada and Mexico and is a function of timing.
Acquisition expenditures for the first six months of 2000 totaled $255 million,
an increase of $248 million from the 1999 period. This increase is primarily
related to the buyout of minority interests in South America for $221 million in
2000. Other acquisitions were made in the U.S. packaged gases business, South
America and Asia. Acquisition expenditures for the first six months of 1999
related to an acquisition in the Surface Technologies business and buy-outs of
minority interests in South America.
Divestiture and asset sales in the first six months of 2000 totaled $4 million,
a decrease of $84 million from the 1999 period. This change is primarily
attributed to the sale leaseback transaction in the United States during 1999
(see Note 6 to the condensed consolidated financial statements).
On a worldwide basis, capital expenditures for the full year 2000 are expected
to be about $600 to $650 million.
Financing
---------
At June 30, 2000, Praxair's total debt outstanding was $3,401 million, an
increase of $406 million versus December 31, 1999. This increase in debt was
needed primarily to finance acquisitions; share repurchases and for the other
operating and investing activities discussed above. In addition, in April 2000
Praxair redeemed its 7.48% Cumulative Series A Preferred Stock for $55 million.
In July 2000, Praxair entered into a $500 million, 364-day revolving credit
agreement and a $1 billion, five-year revolving credit agreement to replace its
then existing credit agreement which was due to expire in December 2000 (see
Note 6 to the condensed consolidated financial statements).
Praxair's debt-to-capital ratio increased from 52.4% at December 31, 1999 to
57.3% at June 30, 2000. This increase from December is due primarily to the
increase in debt and reduced minority interests, both related to the successful
tender offer for White Martin's shares.
Euro Conversion
Refer to Euro Conversion in the Management's Discussion and Analysis Section of
Praxair's 1999 Annual Report.
<PAGE>
Impact of Recently Issued Accounting Standards
See Note 1 to the consolidated financial statements of Praxair's 1999 Annual
Report relating to Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities."
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Refer to the Market Risks and Sensitivity Analyses in the Management's
Discussion and Analysis section of Praxair's 1999 Annual Report.
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
The annual meeting of shareholders of Praxair, Inc. was held on April 25, 2000.
Information concerning the matters submitted to a vote of the security holders
at that meeting was disclosed in the company's Report on Form 10-Q for the
quarter ended March 31, 2000.
Item 6. Exhibits and Reports on Form 8-K
Exhibits
27. Financial Data Schedule
Reports on Form 8-K
None
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PRAXAIR, INC.
-------------
(Registrant)
Date: August 4, 2000 By: /s/George P. Ristevski
------------------------ -----------------------------
George P. Ristevski
Vice President and Controller
(On behalf of the Registrant
and as Chief Accounting Officer)
<PAGE>
Exhibit Index
-------------
Exhibit No.
-----------------------------------------------------------------------------
27. Financial Data Schedule
