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 September 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 September 30, 2000, 158,603,216 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 Nine Months Ended September 30, 2000 and 1999 (Unaudited)
Condensed Consolidated Balance Sheet - Praxair, Inc. and Subsidiaries
September 30, 2000 (Unaudited) and December 31, 1999
Condensed Consolidated Statement of Cash Flows - Praxair, Inc. and
Subsidiaries Nine Months Ended September 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 Nine Months Ended
September 30, September 30,
---------------- ----------------
2000 1999 2000 1999
------- ------- ------- -------
SALES .................................. $1,275 $1,169 $3,770 $3,436
Cost of sales, exclusive of
depreciation and amortization ........ 776 691 2,259 2,016
Selling, general and administrative .... 161 155 490 480
Depreciation and amortization .......... 117 111 353 335
Research and development ............... 17 16 49 49
Other income-net ....................... 14 12 31 64
------- ------- ------- -------
OPERATING PROFIT ....................... 218 208 650 620
Interest expense ....................... 58 47 167 154
------- ------- ------- -------
INCOME BEFORE INCOME TAXES ............. 160 161 483 466
Income taxes ........................... 37 40 111 112
------- ------- ------- -------
INCOME OF CONSOLIDATED ENTITIES ........ 123 121 372 354
Minority interests ..................... (4) (11) (22) (34)
Income from equity investments ......... 3 2 8 7
------- ------- ------- -------
INCOME BEFORE ACCOUNTING CHANGE ........ 122 112 358 327
Cumulative effect of an accounting change - - - (10)
------- ------- ------- -------
NET INCOME ............................. $ 122 $ 112 $ 358 $ 317
======= ======= ======= =======
PER SHARE DATA:
Basic earnings per share:
Before accounting change.............. $ 0.77 $ 0.70 $ 2.25 $ 2.05
Accounting change .................... - - - (.06)
------- ------- ------- -------
Net income $ 0.77 $ 0.70 $ 2.25 $ 1.99
======= ======= ======= =======
Diluted earnings per share:
Before accounting change............... $ 0.76 $ 0.69 $ 2.22 $ 2.02
Accounting change...................... - - - (.06)
------- ------- ------- -------
Net income............................. $ 0.76 $ 0.69 $ 2.22 $ 1.96
======= ======= ======= =======
Cash dividends per share ............... $ 0.155 $ 0.14 $ 0.465 $ 0.42
======= ======= ======= =======
WEIGHTED AVERAGE SHARES OUTSTANDING (000'S):
Basic shares outstanding ............... 158,912 159,704 158,953 159,068
Diluted shares outstanding ............. 160,854 162,564 161,036 162,100
The accompanying notes are an integral part of these financial statements.
<PAGE>
PRAXAIR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Millions of dollars)
September 30,
2000 December 31,
(Unaudited) 1999
------------ ------------
ASSETS
Cash and cash equivalents ....................... $ 31 $ 76
Accounts receivable ............................. 905 848
Inventories ..................................... 313 310
Prepaid and other ............................... 126 101
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TOTAL CURRENT ASSETS ....................... 1,375 1,335
Property, plant and equipment-net ............... 4,750 4,720
Other assets .................................... 1,685 1,667
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TOTAL ASSETS ............................... $ 7,810 $ 7,722
======= =======
LIABILITIES AND EQUITY
Accounts payable ................................ $ 380 $ 361
Short-term debt ................................. 186 756
Current portion of long-term debt ............... 328 128
Other current liabilities ....................... 465 480
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TOTAL CURRENT LIABILITIES .................. 1,359 1,725
Long-term debt .................................. 2,729 2,111
Other long-term obligations ..................... 1,156 1,162
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TOTAL LIABILITIES .......................... 5,244 4,998
Minority interests .............................. 143 359
Preferred stock ................................. 20 75
Shareholders' equity ............................ 2,403 2,290
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TOTAL LIABILITIES AND EQUITY ............... $ 7,810 $ 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)
Nine Months Ended September 30,
-------------------------------
2000 1999
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OPERATIONS
Net income ..................................... $ 358 $ 317
Adjustments:
Depreciation and amortization ................ 353 335
Deferred income taxes ........................ 48 42
Working capital .............................. (79) 39
Long-term assets and liabilities ............. (93) (120)
Other non-cash charges ....................... 7 15
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Net cash provided by operating activities .. 594 628
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INVESTING
Capital expenditures ........................... (517) (464)
Acquisitions ................................... (283) (16)
Divestitures and asset sales ................... 93 99
-------- --------
Net cash used for investing activities ..... (707) (381)
-------- --------
FINANCING
Short-term borrowings (repayments)- net......... 459 (186)
Long-term borrowings ........................... 16 47
Long-term debt repayments ...................... (223) (137)
Minority transactions and other ................ (67) 68
Issuances of common stock ...................... 101 92
Purchases of common stock ...................... (144) (61)
Cash dividends ................................. (73) (67)
-------- --------
Net cash provided by (used for)
financing activities ................... 69 (244)
-------- --------
Effect of exchange rate changes on cash and
cash equivalents ............................... (1) (2)
-------- --------
Change in cash and cash equivalents .............. (45) 1
Cash and cash equivalents beginning-of-year....... 76 34
-------- --------
Cash and cash equivalents end-of-period .......... $ 31 $ 35
======== ========
Supplemental Data:
Short-term debt classified as long-term (Note 6).. $ 1,029 $ -
South American rights offering.................... $ - $ 138
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
nine months ended September 30, 2000, the cash expenditures charged to
this accrual were approximately $1 million and $3 million, respectively
and the balance is expected to be paid out within the next year.
At September 30, 2000, the remaining accrual balance related to the 1996
and 1997 special charges was $10 million and is related to estimated
costs associated with lease commitments for surplus office and
production space (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)
September 30, 2000
(Unaudited) December 31, 1999
------------- -----------------
Raw materials and supplies...... $ 104 $ 104
Work in process................. 65 50
Finished goods.................. 144 156
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$ 313 $ 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)............... 1,645 2,089
--------- --------
Balance, September 30, 2000............. 165,860 7,257
========= ========
<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 .................. 358 358
Translation adjustments...... (129) (129)
-------
Comprehensive income(b)...... 229
Dividends - common stock..... (73) (73)
Common stock activity (a).... 30 (73) (43)
--- ------ ------ ------- ------ -------
Balance, September 30, 2000.. $ 2 $1,643 $(292) $2,007 $(957) $2,403
=== ====== ====== ======= ====== =======
</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 nine months ended
September 30, 2000 was $60 million and $229 million, respectively and
includes translation losses of $(62) million and $(129) million,
respectively due primarily to currency movements in Europe and South
America. Comprehensive income (loss) for the quarter and nine months ended
September 30, 1999 was $42 million and $(141) million, respectively. The
loss for the 1999 nine-month period was primarily caused by currency
movements in Brazil.
During the quarter and nine months ended September 30, 2000, Praxair
granted options for 740,100 and 2,893,745 shares, respectively, of common
stock having option prices ranging from $33.31 to $53.56 per share
(weighted average price of $42.61), the closing market price of Praxair's
common stock on the day of the grants. At September 30, 2000 there were
14,714,147 shares under option at prices ranging from $9.80 to $56.13 per
share (weighted average of $35.17) of which options for 8,427,252 shares
were exercisable at prices ranging from $9.80 to $56.13 per share
(weighted average of $30.73). During the quarter and nine months ended
September 30, 2000, 133,813 and 722,103 options were exercised,
respectively.
<PAGE>
6. Debt and Financial Instruments
Debt - The following is a summary of Praxair's outstanding debt at
September 30, 2000 and December 31, 1999:
(Millions of dollars) September 30,
2000 December 31,
(Unaudited) 1999
----------- ------------
Short-term:
Commercial paper and U.S. borrowings...... $ - $ 632
Canadian borrowings....................... 15 6
South American borrowings................. 80 65
Other international borrowings............ 91 53
------- -------
Total short-term debt....................... 186 756
Long-term:
U.S.:
Commercial paper and U.S. borrowings...... 939 -
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.......................... 31 32
Canadian subsidiary borrowings.............. 177 177
South American subsidiary borrowings........ 64 81
Other international borrowings.............. 21 49
------- -------
3,057 2,239
Less: current portion of long-term debt..... 328 128
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Total long-term debt........................ 2,729 2,111
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Total debt.................................. $3,243 $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 September 30, 2000 $939 million of short-term borrowings have been
classified as long-term ($1,029 million at June 30, 2000) 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 September 30, 2000.
On June 30, 2000 Praxair paid off the 6.25% Notes that were due on that
date.
<PAGE>
Financial Instruments - At September 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. Subsequent to September 30, 2000 Praxair entered into an
additional $350 million notional amount of interest rate swap agreements
that effectively convert variable rate interest and lease payments to
fixed rate interest and lease payments.
Praxair is also a party to currency exchange forward contracts to manage
its exposure to changing currency exchange rates. At September 30, 2000
Praxair had $223 million of currency exchange forward contracts
outstanding: $191 million to hedge recorded balance sheet exposures, $5
million to hedge firm commitments (generally for the purchase of
equipment related to construction projects) and $27 million to hedge
future net income. Additionally, there are $27 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 6,661,380 and 5,992,605 shares were not included in the computation
of diluted earnings per share for the quarter and nine months ended
September 30, 2000 (636,795 and 3,569,455 during the quarter and nine
months ended September 30, 1999), respectively, because the exercise
prices were greater than the average market price of the common stock.
8. South American Tender Offer
During 2000, Praxair increased its ownership interest in its Brazilian
affiliate, White Martins, from 76.57% at December 31, 1999 to
approximately 98% at September 30, 2000, in accordance with the terms of
its tender offer. The purchase price of $240 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 nine-month period ended
September 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 Nine Months Ended
September 30, Percent September 30, Percent
2000 1999 Change 2000 1999(a) Change
------ ------- ------- -------- ------ -------
Sales.......................... $1,275 $1,169 + 9% $3,770 $3,436 + 10%
Selling, general
and administrative............ $ 161 $ 155 + 4% $ 490 $ 480 + 2%
Depreciation and amortization.. $ 117 $ 111 + 5% $ 353 $ 335 + 5%
Operating profit............... $ 218 $ 208 + 5% $ 650 $ 620 + 5%
Interest expense............... $ 58 $ 47 + 23% $ 167 $ 154 + 8%
Income taxes................... $ 37 $ 40 - 8% $ 111 $ 112 - 1%
Effective tax rate............. 23% 25% - 2% 23% 24% - 1%
Minority interests............. $ (4) $ (11) - 64% $ (22) $ (34) - 35%
Income before accounting change $ 122 $ 112 + 9% $ 358 $ 327 + 9%
Excluding one-time hedge gain in Brazil:
Operating profit............... $ 218 $ 208 + 5% $ 650 $ 599 + 9%
Income taxes................... $ 37 $ 40 - 8% $ 111 $ 110 + 1%
Effective tax rate............. 23% 25% - 2% 23% 25% - 2%
Income before accounting change $ 122 $ 112 + 9% $ 358 $ 313 + 14%
(a) The results for the nine months ended September 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 9% for the quarter and 10% for the nine months ended
September 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. For the nine-month period,
these increases were also offset by volume declines for Global Supply Systems
business and unfavorable currency impacts in South America.
Operating profit increased 5% for the 2000 quarter and, excluding the impact of
the Brazilian hedge gain, increased 9% for the nine months ended September 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 nine months ended
September 30, 2000 were lower due primarily to productivity improvement
initiatives and higher long-term incentive plan costs in 1999, 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 nine months ended September 30, 2000 was
$14 million and $31 million, an increase of $2 million and a decrease of $33
million, respectively as compared to the 1999 periods. The decrease in the nine
month period 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
$21 million from a non-recurring 1999 hedge gain in Brazil partly offset by $45
million of costs recorded in 1999, primarily for postemployment benefits and a
loss on the sale of an air separation plant under construction for a third
party.
<PAGE>
Income before accounting change increased 9% for the 2000 quarter and, excluding
the Brazilian hedge gain, increased 14% for the nine months ended September 30,
2000 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 September 30, 2000 was approximately 23,400, which
reflects a decrease of approximately 700 from December 31, 1999. The decrease is
principally the result of a divestiture and continued productivity improvement
initiatives in South America and headcount reductions in the Surface
Technologies business.
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 Nine Months Ended
September 30, Percent September 30, Percent
2000 1999 Change 2000 1999 Change
------ ------ ------- ------ ------ -------
SALES
North America $ 768 $ 714 + 8% $2,245 $2,067 + 9%
South America 182 178 + 2% 549 520 + 6%
Europe 119 123 - 3% 375 388 - 3%
Surface Technologies 143 105 +36% 438 324 +35%
All Other 63 49 +29% 163 137 +19%
------- ------- ------- -------
$1,275 $1,169 + 9% $3,770 $3,436 +10%
======= ======= ======= =======
OPERATING PROFIT
North America $ 135 $ 133 + 2% $ 414 $ 382 + 8%
South America (a) 46 37 +24% 126 124 + 2%
Europe 31 29 + 7% 94 91 + 3%
Surface Technologies (b) 17 17 -% 47 56 -16%
All Other (b) (4) (2) -100% (10) (14) +29%
Corporate (7) (6) - 17% (21) (19) -11%
------- ------- ------- -------
$ 218 $ 208 + 5% $ 650 $ 620 + 5%
======= ======= ======= =======
(a) South America results for the nine months ended September 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 nine months ended September 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 nine months ended September 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 nine months ended September 30, 2000 increased 8% and
9%, respectively 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 price increases of 5% and 3% and volume growth of 2% and 4%
for the quarter and nine months ended September 30, 2000, respectively. 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 2% and 8%, respectively, for the quarter and nine
months ended September 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 nine months ended September 30, 2000 increased 2% and
6%, respectively, primarily due to pricing improvements of 6% in both periods
and volume increases of 3% and 6%, respectively. These increases were partially
offset by the impact of the divestiture of the precipitated calcium carbonate
business and, in the nine-month period, unfavorable currency translation effects
and an $8 million adjustment for sales that had been improperly recorded by
Praxair's Colombian subsidiaries. Excluding the impact of the business
divestiture for the quarter and nine months ended September 30, 2000, sales
increased by 10% and 8%, respectively.
Operating profit for the quarter and nine months ended September 30, 2000
increased 24% and 22% 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 (in the nine-month
period). Operating profit for the nine months ended September 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 and third quarters of 2000, Praxair executed 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 98% at September
30, 2000. The cost to Praxair for this additional share purchase was $240
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 additional
investment of approximately $17 million. The impact of this transaction and
future purchases on Praxair's results of operations is to decrease the minority
interests' share of income, partly offset by higher interest expense.
<PAGE>
Europe
------
Sales for the quarter and nine months ended September 30, 2000 decreased 3% as
compared to the 1999 periods due primarily to unfavorable currency translation
effects, partially offset by volume growth of 7% and 9%, and price increases of
1% in both periods, respectively, which reflects strong performance in Spain and
Italy. Excluding the currency translation effects for the quarter and nine
months ended September 30, 2000, sales increased by 9% and 10%, respectively.
Operating profit for the quarter and nine months ended September 30, 2000
increased 7% and 3%, respectively, as compared to the 1999 periods. Excluding
currency translation effects for the quarter and nine months ended September 30,
2000, operating profit increased 17% 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 disc drive markets
and, during the quarter, the aircraft repair market as well. In addition, MRC, a
1999 acquisition serving the semiconductor industry operates at lower operating
margins. This is caused by 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 nine months ended September 30, 2000 increased 36% and
35%, respectively, as compared to the 1999 periods due primarily to the impact
of 1999 acquisitions which added 41% to overall growth in both periods. The
increase was partly offset by core business volume and price decreases and
unfavorable currency translation impacts.
Operating profit for the quarter ended September 30, 2000 was flat as compared
to the 1999 period and decreased 7%, excluding the $5 million charge for
severance and other exit costs for the nine-month period as compared to 1999.
This decrease reflects pricing pressures and cost inflation, partly offset by
the contribution from acquisitions and productivity improvement initiatives.
All Other
---------
Sales for the quarter and nine months ended September 30, 2000 increased 29% and
19%, respectively as compared to the 1999 periods. Asia experienced 32% and 35%
sales growth for the quarter and nine-month period, respectively due primarily
to volume growth. This increase was partly offset by a decline in Global Supply
System sales for the nine-month period due to a decrease in the volume of third
party equipment sales. The level of activity for Global Supply Systems is
subject to fluctuations from one period to the next depending on market success.
Operating Profit for the quarter ended September 30, 2000 decreased $2 million
for the quarter and improved $4 million for the nine months ended September 30,
2000. 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. In addition, nine-month comparisons were helped by a
$5 million recovery from the cash settlement of litigation related to a
previously divested business.
<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)
Nine Months Ended September 30, 2000 1999
----------------------------------------- ------ ------
NET CASH PROVIDED BY (USED FOR)
OPERATING ACTIVITIES:
Net income plus depreciation
and amortization........................ $ 711 $ 652
Working capital........................... (79) 39
Other - net............................... (38) (63)
------- -------
Total from operating activities........... $ 594 $ 628
======= =======
INVESTING:
Capital expenditures...................... $ (517) $ (464)
Acquisitions.............................. (283) (16)
Divestitures and asset sales.............. 93 99
------- -------
Total used for investing ................. $ (707) $ (381)
======= =======
FINANCING ACTIVITIES:
Debt increases (reductions) - net......... $ 252 $ (276)
Minority transactions and other........... (67) 68
Net (purchases) issuances of common stock. (43) 31
Cash dividends............................ (73) (67)
-------- -------
Total from (used for) financing........... $ 69 $ (244)
======== =======
September 30, December 31,
DEBT-TO-CAPITAL RATIO 2000 1999
----------------------------------------- ------------ ------------
Debt...................................... $3,243 $2,995
Capital*.................................. $5,809 $5,719
Debt-to-capital ratio..................... 55.8% 52.4%
*Includes debt, minority interests, preferred stock and shareholders' equity.
Cash Flow From Operations
-------------------------
Cash flow from operations decreased to $594 million in the first nine months of
2000 versus $628 million in 1999. Cash flow in 1999 includes $50 million
proceeds related to the redemption of preference shares from an earlier business
sale and $21 million from net income hedges in Brazil. Excluding these items,
cash flow from operations increased 7% due to higher net income, partly offset
by increased working capital requirements associated with higher sales and the
1999 impact of accrual increases for postemployment benefits and contract
losses.
<PAGE>
Investing
---------
Cash flow used for investing in the first nine months of 2000 totaled $707
million, an increase of $326 million from the 1999 period. This increase was due
primarily to higher capital and acquisition expenditures, and slightly lower
proceeds from divestitures and asset sales.
Capital expenditures for the first nine months of 2000 totaled $517 million, up
$53 million from the corresponding period in 1999. The increase in capital
expenditures is primarily in Canada, Mexico and in the United States, which is
primarily due to the development of Praxair's e-business programs, including
MetFabCity Inc.
Acquisition expenditures for the first nine months of 2000 totaled $283 million,
an increase of $267 million from the 1999 period. This increase is primarily
related to the buyout of minority interests in South America for $240 million in
2000. Other acquisitions were made in the U.S., South America and Asia.
Acquisition expenditures for the first nine months of 1999 related to an
acquisition in the Surface Technologies business, a Chinese joint venture and
buy-outs of minority interests in South America.
Divestiture and asset sales in the first nine months of 2000 totaled $93
million, a decrease of $6 million from the 1999 period. The 2000 divestitures
primarily relate to the disposal of the precipitated calcium carbonate business
in South America. The 1999 amount relates primarily to the sale leaseback
transaction in the United States (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 $650 to $700 million.
Financing
---------
At September 30, 2000, Praxair's total debt outstanding was $3,243 million, an
increase of $248 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).
In October 2000, Praxair entered into three interest rate swap agreements with
an aggregate notional amount of $350 million expiring between 2001 and 2002. The
purpose of these swap agreements was to convert variable rate interest and lease
payments to fixed rate interest and lease payments.
Praxair's debt-to-capital ratio increased from 52.4% at December 31, 1999 to
55.8% at September 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.
<PAGE>
Euro Conversion
Refer to Euro Conversion in the Management's Discussion and Analysis Section of
Praxair's 1999 Annual Report.
Impact of Recently Issued Accounting Standards
Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for
Derivative Instruments and Hedging Activities, as amended by SFAS No. 138, is
effective for Praxair as of January 1, 2001. SFAS No. 133 requires that all
derivatives be recorded on the balance sheet as assets or liabilities at their
fair values. Depending on the purpose of a derivative, the accounting for
changes in its fair value will be recognized in either the results of operations
or the balance sheet. At January 1, 2001, the adoption of the new accounting
standard will result in one-time adjustments to various assets and liabilities
to reflect the fair values of derivatives that are outstanding at that time. The
net after-tax impact of these adjustments will be recorded as either a
cumulative effect adjustment in the statement of operations or in other
comprehensive income. At this time, management does not believe the impact of
adopting SFAS No. 133 will be material to its results of operations or financial
condition; however, actual amounts will depend on the derivatives outstanding
and market conditions existing in the future.
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.
None
Item 6. Exhibits and Reports on Form 8-K
Exhibits
27. Financial Data Schedule
Reports on Form 8-K
On October 19, 2000, Praxair, Inc. filed a Current Report on Form 8-K, Item 9,
reporting its approach to the new SEC Fair Disclosure Rules and the impact on
its investor communication program.
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PRAXAIR, INC.
-------------
(Registrant)
Date: November 2, 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
