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, 1999
Commission file number 1-11037
Praxair, Inc.
1999 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 [v] 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 [ ]
At January 31, 2000, 159,954,060 shares of common stock of Praxair, Inc. were
outstanding. The aggregate market value of common stock held by non-affiliates
at January 31, 2000 was approximately $6,491 million.
Documents incorporated by reference:
Portions of the 1999 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 1, 2000, are incorporated in Part III of
this report.
The Index to Exhibits is located on page 11 of this report.
<PAGE>
Forward-looking statements
The forward-looking statements contained in this document concerning, among
other things, projected capital and acquisition spending, sales and earnings
growth, volume increases, the impact of new technology in the marketplace, tax
planning initiatives and effective tax rates, the impact of economic conditions
in Brazil, including currency movements and the change in functional currency,
the impact of currency movements in other countries, management's assessment of
the impact 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.
<PAGE>
INDEX
Part I PAGE
Item 1: Business...........................................................2
Item 2: Properties.........................................................6
Item 3: Legal Proceedings..................................................6
Item 4: Submission of Matters to a Vote of Security Holders................6
Part II
Item 5: Market for Registrant's Common Equity and Related
Shareholder Matters................................................7
Item 6: Selected Financial Data............................................7
Item 7: Management's Discussion and Analysis of Financial Condition and
Results of Operations..............................................7
Item 7a: Quantitative and Qualitative Disclosures About Market Risk ........7
Item 8: Financial Statements and Supplementary Data........................7
Item 9: Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure...........................................7
Part III
Item 10: Directors and Executive Officers of the Registrant................8
Item 11: Executive Compensation............................................8
Item 12: Security Ownership of Certain Beneficial Owners and Management....8
Item 13: Certain Relationships and Related Transactions....................8
Part IV
Item 14: Exhibits, Financial Statement Schedules, and Reports on Form 8-K..9
Signatures...................................................................10
Index to Exhibits............................................................11
<PAGE>
PART I
Praxair, Inc. and Subsidiaries
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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 $4,639 million, $4,833 million,
and $4,735 million for 1999, 1998 and 1997, respectively, with industrial gases
accounting for 89% of sales in 1999 and 90% of sales in 1998 and 1997, and
surface technologies and global supply systems accounting for the balance. Refer
to Note 2 of the section captioned "Notes to Consolidated Financial Statements"
in Praxair's 1999 Annual Report to Shareholders for information related to
Praxair's segment information.
Gases produced by the Company find wide use in the metal fabrication, chemicals
& refining, primary metals, food & beverage, healthcare, semiconductor
materials, 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,
including small cryogenic nitrogen plants. In recent years, Praxair has
developed and commercialized 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 technologies include proprietary vacuum pressure swing adsorption ("VPSA")
and membrane separation to produce gaseous oxygen and nitrogen, respectively.
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.
A substantial amount of the cylinder gases sold in the United States is
distributed by independent distributors that buy merchant gases in liquid form
and repackage the products in their facilities. These businesses also distribute
welding equipment purchased from manufacturers of such products. Praxair has
acquired independent industrial gas and welding products distributors at various
locations in the United States. Between distributors in which it owns an equity
interest and independent distributors that resell its gases, Praxair is
represented in 42 states, the District of Columbia and Puerto Rico.
3
<PAGE>
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. Additionally, Praxair Surface Technologies
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. Resulting
from a recent acquisition, Praxair Surface Technologies also manufactures
precious metal and ceramic sputtering targets used principally in the production
of semiconductors.
Inventories - Praxair carries inventories of merchant and cylinder gases,
hardgoods 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 46% of its 1999 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, France, Germany, India,
Israel, Italy, Japan, South Korea, Mexico, the Netherlands, the People's
Republic of China, Paraguay, Peru, Poland, Portugal, Spain, Taiwan, 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, France,
Germany, Italy, Japan, Singapore, South Korea, Taiwan, 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 1999 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., The Messer Group, Linde AG 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., Chemtronics, Inc., a
subsidiary of GKN p.l.c. and Johnson Matthey Electronics, a subsidiary of
Honeywell. International competitors in surface technologies vary from country
to country.
Employees and Labor Relations - As of December 31, 1999, Praxair had 24,102
employees worldwide. Of this number, 9,421 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 1999 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 314 cryogenic air separation plants (196 in the United States); 89
by-product carbon dioxide plants (23 in the United States); 326 non-cryogenic
plants, and 36 hydrogen plants. No single production facility is material except
for the following complexes:
Number of
Supply System Connected Plants Products Produced
- ------------- ---------------- -------------------
Northern Indiana 14 Air Separation/Hydrogen/Carbon Dioxide
Houston 8 Air Separation
Gulf Coast * 11 Hydrogen/ Carbon Monoxide
Detroit 7 Air Separation/Hydrogen
Louisiana* 4 Hydrogen/Carbon Monoxide
Southern Brazil * 2 Air Separation
Northern Spain 5 Air Separation/Hydrogen/Carbon Dioxide
* partially owned and partially leased.
The surface technologies business operates 50 plants located near customers in
Brazil, France, Germany, Italy, Japan, Singapore, South Korea, Taiwan, 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 12
Commitments and Contingencies" in Praxair's 1999 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 1999.
6
<PAGE>
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 1999 Annual Report to Shareholders.
Praxair's annual dividend on its common stock for 1999 was $0.56 per share. In
January 2000, Praxair's Board of Directors declared a dividend of $0.15 1/2 per
share for the first quarter of 2000, or $0.62 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, 1999 is
incorporated herein by reference to the section captioned "Five-year Financial
Summary" in Praxair's 1999 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 1999
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 1999
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 1999 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" and "Section 16(a)
Beneficial Ownership Reporting Compliance" in Praxair's Proxy Statement for the
Annual Meeting of Shareholders to be held on April 25, 2000.
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 25, 2000.
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 25, 2000.
Item 13. Certain Relationships and Related Transactions
There have been no transactions or relationships since the beginning of 1999
which are reportable under this item.
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 1999
Annual Report (AR)*
Financial Statements
Consolidated Statement of Income for the Years Ended
December 31, 1999, 1998 and 1997 ......................AR-19
Consolidated Balance Sheet at December 31, 1999 and 1998 ......AR-20
Consolidated Statement of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997 .............................AR-21
Consolidated Statement of Shareholders' Equity for the
Years Ended December 31, 1999, 1998 and 1997 .................AR-22
Notes to Consolidated Financial Statements ....................AR-32
Report of Independent Accountants ........................AR-48
* Incorporated by reference to the indicated pages of the 1999 Annual
Report to Shareholders. With the exception of this information and the
information incorporated in Items 5, 6, 7, 7A, 8 and 9, the 1999 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.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of 1999.
(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
<PAGE>
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, 2000
/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 22, 2000.
<TABLE>
<S> <C> <C>
/s/ John A. Clerico /s/ H. William Lichtenberger
- ---------------------- -----------------------------
John A. Clerico H. William Lichtenberger
Executive Vice President and Chairman and Chief
Chief Financial Officer and Executive Officer and Director
Director
/s/ Alejandro Achaval /s/ C. Fred Fetterolf /s/ Dale F. Frey
- ---------------------- ----------------------------- ---------------------------
Alejandro Achaval C. Fred Fetterolf Dale F. Frey
Director Director Director
/s/ Claire W. Gargalli /s/ Ronald L. Kuehn, Jr. /s/ Raymond W. LeBoeuf
- ---------------------- ----------------------------- ---------------------------
Claire W. Gargalli Ronald L. Kuehn, Jr. Raymond W. LeBoeuf
Director Director Director
/s/ Benjamin F. Payton /s/ G. Jackson Ratcliffe, Jr. /s/ H. Mitchell Watson, Jr.
- ---------------------- ----------------------------- ---------------------------
Benjamin F. Payton G. Jackson Ratcliffe, Jr. H. Mitchell Watson, Jr
Director Director 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).
11
<PAGE>
INDEX TO EXHIBITS (Cont.)
Praxair, Inc. and Subsidiaries
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Exhibit No. Description
*10.01b Second Amendment to the 1992 Long-Term Incentive Plan (Filed
as Exhibit 10.01b to the Company's 1995 Annual Report on Form
10-K, Filing No. 1-11037, and incorporated herein by
reference).
*10.01c Third Amendment to the 1992 Long-Term Incentive Plan (Filed as
Exhibit 10.01c to the Company's 1995 Annual Report on Form
10-K, Filing No. 1-11037, and incorporated herein by
reference).
*10.01d Fourth Amendment to the 1992 Long-Term Incentive Plan (Filed
as Exhibit 10.01d to the Company's 1996 Annual Report on Form
10-K, Filing No. 1-11037, and incorporated herein by
reference).
*10.02 Form of Severance Compensation Agreement (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 (Filed as Exhibit 10.04 to the Company's 1998 Annual
Report on Form 10-K, Filing No. 1-11037, and incorporated
herein by reference).
*10.05 Special Severance Protection Program (Filed as Exhibit 10.05
to the Company's Registration Statement on Form 10, Filing No.
1-11037, and incorporated herein by reference).
*10.06 Restated Praxair, Inc. Directors' Fees Deferral Plan (Filed as
Exhibit 10.06 to the Company's 1996 Annual Report on Form
10-K, Filing No. 1-11037, and incorporated herein by
reference).
*10.07 Amended and Restated 1993 Praxair Compensation Deferral
Program (Filed as Exhibit 10.07 to the Company's 1996 Annual
Report on Form 10-K, Filing No. 1-11037, and incorporated
herein by reference).
10.08 Transfer Agreement dated January 1, 1989, between Union
Carbide Corporation and the registrant. (Filed as Exhibit
10.06 to the Company's Registration Statement on Form 10,
Filing No. 1-11037, and incorporated herein by reference).
10.08a Amendment No. 1 dated as of December 31, 1989, to the Transfer
Agreement (Filed as Exhibit 10.07 to the Company's
Registration Statement on Form 10, Filing No. 1-11037, and
incorporated herein by reference).
10.08b Amendment No. 2 dated as of July 2, 1990, to the Transfer
Agreement (Filed as Exhibit 10.08 to the Company's
Registration Statement on Form 10, Filing No. 1-11037, and
incorporated herein by reference).
12
<PAGE>
INDEX TO EXHIBITS (Cont.)
Praxair, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Exhibit No. Description
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).
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).
13
<PAGE>
INDEX TO EXHIBITS (Cont.)
Praxair, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Exhibit No. Description
10.14d Fifth Amendment to Carbide Center Lease (Filed as Exhibit
10.14d to the Company's 1994 Annual Report on Form 10-K,
Filing No. 1-11037, and incorporated herein by reference).
10.15 Employee Benefits Agreement dated as of June 4, 1992 (Filed as
Exhibit 10.25 to the Company's Registration Statement on Form
10, Filing No. 1-11037, and incorporated herein by reference).
10.15a First Amendatory Agreement to the Employee Benefits Agreement
(Filed as Exhibit 10.15a to the Company's 1994 Annual Report
on Form 10-K, Filing No. 1-11037, and incorporated herein by
reference).
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 1999 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.
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 12.01
PRAXAIR, INC. AND SUBSIDIARIES
Ratio of Earnings to Fixed Charges
(Millions of dollars, except ratios)
Years Ended December 31,
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
EARNINGS
- --------
Income of consolidated companies
before provision for income taxes $627 $596 $622 $452 $432
Capitalized interest (30) (36) (32) (25) (9)
Depreciation of capitalized interest 9 7 7 9 8
Dividends from less than 50%-owned
companies carried at equity 1 2 1 1 1
Praxair share of income (loss) before
provision for income taxes of
50%-owned companies carried at equity 5 1 3 16 15
Total earnings, net of fixed charges $612 $570 $601 $453 $447
FIXED CHARGES
- -------------
Interest on long-term
and short-term debt $204 $260 $216 $195 $116
Capitalized interest 30 36 32 25 9
Rental expenses representative of an
interest factor 22 23 23 23 10
Praxair share of fixed charges of
50%-owned companies carried at equity 2 2 1 3 4
Total fixed charges $258 $321 $272 $246 $139
Total adjusted earnings available for
payment of fixed charges $870 $891 $873 $699 $586
Preferred stock dividend requirements $ 8 $ 8 $ 8 $ 8 -
RATIO OF EARNINGS TO FIXED CHARGES 3.4 2.8 3.2 2.8 4.2
RATIO OF EARNINGS TO FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS 3.3 2.7 3.1 2.7 4.2
Audited Financial Statements
Consolidated Statement of Income 19
Consolidated Balance Sheet 20
Consolidated Statement of Cash Flows 21
Consolidated Statement of Shareholders' Equity 22
Notes to Consolidated Financial Statements 32
Management's Discussion and Analysis 23
Consolidated Results 23
Segment Discussion 24
Liquidity, Capital Resources and Financial Data 28
Raw Materials and Markets 30
Year 2000 30
Euro Conversion 30
Market Risks and Sensitivity Analysis 31
Management's Statement of
Responsibility for Financial Statements 47
Report of Independent Accountants 48
Five-Year Financial Summary 49
Information for Investors 52
[GRAPHICS OMITTED]
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF INCOME
Year Ended December 31, 1999 1998 1997
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales $ 4,639 $ 4,833 $ 4,735
Cost of sales, exclusive of depreciation and amortization 2,732 2,807 2,764
Selling, general and administrative 641 644 662
Depreciation and amortization 445 467 444
Research and development 67 72 79
Other income-- net 77 13 52
- -----------------------------------------------------------------------------------------------------
Operating Profit 831 856 838
Interest expense 204 260 216
- -----------------------------------------------------------------------------------------------------
Income Before Taxes 627 596 622
Income taxes 152 127 151
- -----------------------------------------------------------------------------------------------------
Income of Consolidated Entities 475 469 471
Minority interests (45) (55) (66)
Income from equity investments 11 11 11
- -----------------------------------------------------------------------------------------------------
Income Before Cumulative Effect of Accounting Changes 441 425 416
Cumulative effect of accounting changes (10) -- (11)
- -----------------------------------------------------------------------------------------------------
Net Income $ 431 $ 425 $ 405
=====================================================================================================
Basic Earnings per Share:
Income before cumulative effect of accounting changes $ 2.77 $ 2.68 $ 2.63
Cumulative effect of accounting changes (.06) -- (.07)
Net income $ 2.71 $ 2.68 $ 2.56
Diluted Earnings per Share:
Income before cumulative effect of accounting changes $ 2.72 $ 2.60 $ 2.53
Cumulative effect of accounting changes (.06) -- (.07)
Net income $ 2.66 $ 2.60 $ 2.46
Weighted Average Shares Outstanding (000's):
Basic shares outstanding 159,280 158,462 158,095
Diluted shares outstanding 162,222 163,356 164,053
- -----------------------------------------------------------------------------------------------------
The accompanying notes on pages 32 to 46 are (Dollar amounts in millions, except per share data)
an integral part of these financial statements.
19
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
Year Ended December 31, 1999 1998
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and cash equivalents $ 76 $ 34
Accounts receivable 848 919
Inventories 310 319
Prepaid and other current assets 101 122
- ---------------------------------------------------------------------------------------------
Total Current Assets 1,335 1,394
Property, plant and equipment-- net 4,720 4,875
Equity investments 234 251
Other long-term assets 1,433 1,576
- ---------------------------------------------------------------------------------------------
Total Assets $ 7,722 $ 8,096
=============================================================================================
Liabilities and Equity
Accounts payable $ 361 $ 378
Short-term debt 756 295
Current portion of long-term debt 128 84
Accrued taxes 75 63
Other current liabilities 405 469
- ---------------------------------------------------------------------------------------------
Total Current Liabilities 1,725 1,289
Long-term debt 2,111 2,895
Other long-term liabilities 562 553
Deferred credits 600 465
- ---------------------------------------------------------------------------------------------
Total Liabilities 4,998 5,202
- ---------------------------------------------------------------------------------------------
Minority interests 359 487
Preferred stock 75 75
Shareholders' equity:
Common stock $.01 par value, authorized 500,000,000 shares, issued
164,215,383 shares in 1999 and 161,517,042 shares in 1998 2 2
Additional paid-in capital 1,613 1,528
Retained earnings 1,722 1,380
Accumulated other comprehensive income (loss) (828) (412)
Less: Treasury stock, at cost (5,167,801 shares in 1999 and
3,945,843 shares in 1998) (219) (166)
- ---------------------------------------------------------------------------------------------
Total Shareholders' Equity 2,290 2,332
- ---------------------------------------------------------------------------------------------
Total Liabilities and Equity $ 7,722 $ 8,096
=============================================================================================
The accompanying notes on pages 32 to 46 are (Millions of dollars)
an integral part of these financial statements.
20
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended December 31, 1999 1998 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents
Operations
Net income $ 431 $ 425 $ 405
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 445 467 444
Deferred income taxes 53 11 67
Other non-cash charges 19 38 22
Working capital:
Accounts receivable 93 17 (54)
Inventories 12 18 (14)
Prepaid and other current assets 20 (2) (10)
Payables and accruals (26) (14) (41)
Long-term assets and liabilities (94) (24) (67)
- --------------------------------------------------------------------------------------------
Net cash provided by operating activities 953 936 752
- --------------------------------------------------------------------------------------------
Investing
Capital expenditures (653) (781) (902)
Acquisitions (136) (241) (101)
Divestitures and asset sales 103 206 300
- --------------------------------------------------------------------------------------------
Net cash used for investing activities (686) (816) (703)
- --------------------------------------------------------------------------------------------
Financing
Short-term debt repayments-- net (167) (93) (269)
Long-term borrowings 29 388 438
Long-term debt repayments (109) (331) (110)
Minority transactions and other 78 (31) (31)
Issuances of common stock 105 117 110
Purchases of common stock (73) (97) (137)
Dividends (89) (79) (69)
- --------------------------------------------------------------------------------------------
Net cash used for financing activities (226) (126) (68)
Effect of exchange rate changes on cash and cash equivalents 1 (3) (1)
- --------------------------------------------------------------------------------------------
Change in cash and cash equivalents 42 (9) (20)
Cash and cash equivalents, beginning-of-year 34 43 63
- --------------------------------------------------------------------------------------------
Cash and cash equivalents, end-of-year $ 76 $ 34 $ 43
============================================================================================
Supplemental Data:
Taxes paid $ 51 $ 66 $ 58
Interest paid $ 209 $ 265 $ 211
Debt reclassifications (Note 4) $ 627 $ -- $ 860
South American rights offering (Note 7) $ 138 $ -- $ --
Other liabilities reclassified to equity (Note 5) $ -- $ -- $ 19
Effect of functional currency change (Note 1) $ -- $ 81 $ --
Acquired debt from acquisitions $ -- $ 20 $ --
============================================================================================
The accompanying notes on pages 32 to 46 are (Millions of dollars)
an integral part of these financial statements.
21
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Accumulated
Other Com-
Additional prehensive
Common Stock Paid-In Treasury Stock Retained Income
Activity Shares Amounts Capital Shares Amounts Earnings (Loss) Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
- -----------------------------------------------------------------------------------------------------------------------------------
Net income 431 431
Translation adjustments (416) (416)
-------
Comprehensive income 15
Dividends on common stock ($.56 per share) (89) (89)
Issuances of common stock:
For the dividend reinvestment and
stock purchase plan 64 1 1
For employee savings and incentive plans 2,634 84 (488) 20 104
Purchases of common stock 1,710 (73) (73)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 164,215 $ 2 $ 1,613 5,168 $ (219) $ 1,722 $ (828) $ 2,290
===================================================================================================================================
The accompanying notes on pages 32 to 46 are (Dollar amounts in millions, shares in thousands)
an integral part of these financial statements.
22
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Praxair's 1999 results versus 1998 reflect a 4% improvement in income before
cumulative effect of accounting changes despite significant challenges in Brazil
(Praxair's second largest market) resulting from a 32% devaluation and a
recessionary economic environment. Lower debt levels and a resulting lower
interest expense was a major contributor to the earnings growth.
CONSOLIDATED RESULTS
The following provides summary data for 1999, 1998 and 1997:
Year Ended December 31, 1999(a) 1998 1997
- ------------------------------------------------------------------------
Sales $ 4,639 $ 4,833 $ 4,735
Selling, general and
administrative $ 641 $ 644 $ 662
Depreciation and amortization $ 445 $ 467 $ 444
Operating profit $ 831 $ 856 $ 838
Interest expense $ 204 $ 260 $ 216
Effective tax rate 24% 21% 24%
Income before cumulative effect
of accounting changes $ 441 $ 425 $ 416
Number of employees 24,102 24,834 25,388
- ------------------------------------------------------------------------
Excluding special items(b):
Operating profit $ 831 $ 885 $ 848
Effective tax rate 24% 25% 25%
Income before cumulative
effect of accounting changes $ 441 $ 425 $ 422
========================================================================
(Dollar amounts in millions)
(a) The results for 1999 versus 1998 were significantly impacted by the
devaluation of the Brazilian currency (Real) from a rate of 1.21 Reais to the
U.S. Dollar at December 31, 1998 to 1.79 at December 31, 1999 (1.81 average rate
for 1999; versus a 1.16 average rate for 1998). Reported amounts from Brazil
were all reduced in proportion to the exchange rate changes. Also, as described
in Note 4 to the consolidated financial statements, in January 1999 Praxair
entered into various currency exchange forward contracts to hedge anticipated
Brazilian net income and a portion of its investment. The net income hedges were
settled during 1999 resulting in a non-recurring pre-tax gain of $21 million
($14 million after taxes and minority interests).
(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). These are collectively referred
to as the 1998 and 1997 special items.
Special Items
Reported amounts for 1998 and 1997 include special items that affect
period-to-period comparisons. The management's discussion and analysis that
follows excludes the impact of these special items.
1999 compared with 1998
The sales decrease of 4% in 1999 as compared to 1998 was due primarily to
unfavorable currency translation effects in South America. This was partially
offset by the impact of price increases in North and South America, continued
volume growth in Asia and Europe, and volume growth in North America. Excluding
the impact of currency, sales grew 2%.
Operating profit decreased 6% for 1999 as compared to 1998. This decrease
was due to the sales decrease described above, cost inflation and currency
translation impacts; partially offset by productivity improvements and the first
quarter hedge gain in Brazil. Selling, general and administrative expenses for
1999 were slightly higher as a percentage of sales versus 1998 due primarily to
long-term incentive plan costs, higher business development costs and cost
inflation impacts; partially offset by productivity improvements. The decrease
in depreciation and amortization expense for both periods reflects the impact of
currency translation, primarily in Brazil, and the impact of the North American
sale-leaseback transactions in 1999 and 1998; offset by new projects coming
on-stream and packaged gases and Surface Technologies acquisitions.
Interest expense decreased $56 million or 22% for 1999 versus 1998 due
primarily to currency translation effects and lower consolidated debt levels,
especially in the South American segment, which had high interest rates.
Income before cumulative effect of accounting changes increased 4% in 1999
as compared to 1998. This increase was due primarily to the lower interest
expense and minority interests impacts offset by the lower operating profit.
Praxair's return on average capital was 11.2% in 1999 versus 11.1% in 1998.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
The effective tax rate remained at 25%, excluding the impact of the first
quarter hedge gain in Brazil, which is consistent with the effective tax rate
before special charges in 1998 and 1997.
The number of employees at December 31, 1999 decreased about 700 as
compared to December 31, 1998 due primarily to Praxair's continued productivity
improvement initiatives in North and South America and the divestiture of a
business in Asia. The number of employees decreased despite the increase
associated with about 500 employees added through acquisitions in Surface
Technologies.
1998 compared with 1997
The sales growth of 2% in 1998 as compared to 1997 was due primarily to
acquisitions in the U.S. and Canadian 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%.
Income before cumulative effect of accounting changes 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 remained at
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.
SEGMENT DISCUSSION
The following summary of sales and operating profit by segment provides a basis
for the discussion that follows:
Year Ended December 31, 1999 1998 1997
- ------------------------------------------------------------------
Sales:
North America $ 2,779 $ 2,752 $ 2,636
South America 697 964 964
Europe 516 515 493
Surface Technologies 456 420 381
All Other 191 182 261
- ------------------------------------------------------------------
Total $ 4,639 $ 4,833 $ 4,735
==================================================================
Segment Operating Profit(a):
North America $ 514 $ 533 $ 493
South America 163 199 197
Europe 123 109 93
Surface Technologies 74 73 69
All Other (17) (6) 19
Corporate Overhead (26) (23) (23)
- ------------------------------------------------------------------
Total $ 831 $ 885 $ 848
==================================================================
(Millions of dollars)
(a) Excludes special charges in 1998 and 1997 (see Note 7 to the
consolidated financial statements).
North America
The North America operating segment includes Praxair's industrial and packaged
gases operations in the United States, 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 1999 increased 1% as compared to 1998. Sales increased 7% in
Mexico, 1% in the U.S. and Canadian industrial gases operations, and Praxair
Distribution's sales were essentially flat.
[GRAPHIC OMITTED - 1999 OPERATING MARGIN]
24
<PAGE>
Overall, this increase is due to price increases of about 1% with volume growth
offsetting currency impacts. Pricing improved in both Mexico and Praxair
Distribution, was generally flat in U.S. industrial gases, and decreased in the
Canadian industrial gases business. U.S. industrial gases volumes improved about
1% and pricing was flat despite decreases during the first half of 1999. The
Canadian industrial gases business had volume growth of 10% and price decreases
of 3%. Praxair Distribution's sales increased slightly to $893 million
reflecting improved pricing offset by lower sales volumes. Mexico's sales
increase was driven by improved pricing (10%) and volume growth (3%), partially
offset by currency impacts.
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
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.
Operating profit decreased 4% in 1999 versus 1998. The decrease was due
primarily to cost inflation, higher costs associated with significant product
dislocations resulting from higher than expected energy costs and supplier
feedstock curtailments, partly offset by the benefits of productivity
improvements and the improvement in sales in the second half of 1999. In the
U.S. and Canadian industrial gases business, operating profit decreased about 6%
due primarily to cost inflation and the higher costs associated with product
dislocations, with offsets coming mostly from productivity improvements. Praxair
Distribution's operating profit improved by about 4% and Mexico's operating
profit improved 2% over 1998. Praxair Distribution's increase reflects the
impact of productivity improvements. Mexico's increase reflects sales volume
growth and productivity improvements, partially offset by currency impacts and
cost inflation.
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 4% due primarily
to productivity improvements which more than offset cost inflation. 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.
South America
Praxair's South American industrial gases operations are conducted by its
majority 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. During the first quarter of 1999, White Martins completed a rights
offering resulting in Praxair's ownership interest in White Martins increasing
from 69.33% at December 31, 1998 to 76.57% at December 31, 1999. As
consideration for the additional shares it purchased during the rights offering,
Praxair used approximately $138 million of intercompany loans it had previously
made to White Martins. Approximately $15 million of the rights offering was
purchased by minority shareholders.
As described above under the section on Consolidated Results, the results
for 1999 were significantly impacted by the devaluation of the Brazilian
currency (Real) and the resulting recessionary conditions for much of the year.
The currency devaluation reduced sales by $284 million and reduced operating
profit by $59 million as compared to 1998. The Brazilian economy has improved
during 1999 and the currency has generally stabilized at about 1.8 Real per U.S.
Dollar. Also, as described in Note 4 to the consolidated financial statements,
in early January 1999 Praxair entered into various currency exchange forward
contracts to hedge anticipated Brazilian net income and a portion of its net
investment. The net income hedges resulted in a non-recurring pre-tax gain of
$21 million, which is included in the South American operating profit for 1999.
25
<PAGE>
Management's Discussion and Analysis
Sales for 1999 decreased 28% as compared to 1998. This was primarily due to the
unfavorable currency translation effects, with price increases (5%) offset by
volume decreases. Excluding the currency effects, 1999 sales increased by 2%.
The devaluation of the Real in Brazil and a recessionary environment in South
America have contributed to volume decreases of approximately 4% for 1999 versus
1998.
Sales for 1998 were flat when compared to 1997, primarily because sales
volume growth of 5% and price increases of 2% were offset by negative currency
translation effects.
Operating profit for 1999 decreased 18% as compared to 1998. This decrease
was caused primarily by the 1999 currency devaluation in Brazil, the reduction
in sales and cost inflation; which offset productivity improvement initiatives
and the $21 million first quarter hedge gain. Excluding the impacts of currency
movements and the hedge gain, operating profit increased 1% in 1999 versus 1998.
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.
In December 1999, Praxair made a tender offer for the remaining 23.43% of
the shares of White Martins that it does not already own. If all shares are
tendered at the price offered, the total cost would be approximately $250
million (assuming an exchange rate of 1.80 Reais per U.S. Dollar). The impact on
Praxair's results of operations will be to increase interest expense and
decrease the minority interests' share of income and is not expected to be
significant. The tender offer process is expected to take about three to four
months to complete.
Europe
Praxair's European industrial gases business is primarily in Italy and Spain
with additional operations in Benelux, Germany, France, Israel and Poland.
Sales for 1999 were flat as compared to 1998. Volume growth (3%) and price
increases (1%) were offset primarily by unfavorable currency translation
effects. Most of this growth was reflected by good performance in Italy and
Spain.
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 8% as compared to 1997.
Operating profit for 1999 increased 13% as compared to 1998. This was due
primarily to the sales impacts previously described, cost improvement
initiatives, and net income hedge gains which helped to offset the impact of
currency movements. Excluding currency effects, operating profit increased 9% in
1999.
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.
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 1999 increased 9% as compared to 1998. This increase was due to
the impact of acquisitions, which added 11% to overall growth, partially offset
by pricing pressures in the aerospace and printing markets, and currency
impacts. Sales volumes remained flat, as increases related to new applications
were offset by decreases in the base aviation and computer disk polishing
markets.
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.
Operating profit for 1999 increased 1% as compared to 1998. Productivity
improvement initiatives and the impact of acquisitions were largely offset by
cost inflation.
Operating profit for 1998 increased 6% as compared to 1997, due to sales
growth and productivity improvements, partly offset by cost inflation.
26
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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, including procurement, global marketing and business
development. Praxair's operations in Asia are currently concentrated in China,
India, Korea and Thailand, with smaller operations in Japan and Taiwan.
Operations in China and India are also conducted through nonconsolidated joint
venture companies.
Sales for 1999 increased 5% as compared 1998. Asia experienced 43% sales
growth due primarily to strong volume growth of about 41%, particularly in Korea
and Thailand, new plants coming on stream in China and India, and favorable
currency translation effects (8%). Plant sales to third parties decreased 39% in
1999 versus 1998, as fewer plants were sold to customers. 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.
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. Excluding currency impacts, Asian sales were
up 18% versus 1997, reflecting the impact of sales volume growth and price
improvements, which added 12%, and acquisitions.
Operating profit for the segment is significantly influenced by third party
plant sales and by the costs associated with the globally managed functions, all
of which fluctuate from year to year. Operating profit for 1999 was down $11
million when compared to 1998. This was due to the decreases in the global
supply systems business and higher business development costs, partly offset by
a 57% improvement in Asia.
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.
Selling, General and Administrative Expenses
In 1999, selling, general and administrative expenses were $641 million, a $3
million decrease from the 1998 amount. This decrease is due to continuing
productivity improvement initiatives and currency impacts (primarily in Brazil);
partially offset by increased business development costs, acquisitions and cost
inflation. Selling, general and administrative expenses as a percentage of sales
was 13.8% in 1999 as compared to 13.3% in 1998.
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.
Other income -- net
Other income -- net was $77 million in 1999 versus $13 million in 1998 (see
Note 7 to the consolidated financial statements). This increase was primarily
due to the $21 million hedge gain in Brazil in 1999 and the $29 million special
charges in 1998. 1999 also includes income related to the redemption of
preference shares and the collection of a note receivable from earlier business
sales, and European net income hedge gains, which offset the currency
translation effects in the European segment; offset by costs incurred for
postemployment benefits and a third party plant sale.
Other income -- net was $13 million in 1998 versus $52 million in 1997 (see
Note 7 to the consolidated financial statements). The $39 million decrease is
due to the $29 million special charges in 1998 versus $10 million of special
charges in 1997, 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.
Interest Expense
Interest expense decreased $56 million or 22% for 1999 versus 1998 due primarily
to currency translation effects and lower consolidated debt levels, especially
in the South American segment, which had high interest rates.
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.
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Income Taxes
The effective tax rate for 1999 remained at 25%, excluding the impact of the
first quarter hedge gain in Brazil. Praxair currently expects the effective tax
rate to remain at the same level or improve slightly in 2000.
Minority Interests
On December 31, 1999, 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 1999). Minority shareholders' share
of income for 1999 was $45 million, a decrease of $10 million as compared to the
1998 amount of $55 million. This decrease is due primarily to currency impacts
in Brazil and the 1999 first quarter rights offering which increased Praxair's
ownership interest in White Martins (see Segment Discussion -- 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 remained constant at $11 million for 1999, 1998 and
1997.
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 1999 were approximately $7 million
of capital expenditures and $13 million of expenses. Included in the expenses
were approximately $2 million for remedial projects. Praxair anticipates that
future environmental protection expenditures will approximate the level of those
in 1999 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 12 to the consolidated financial statements for information concerning
commitments and contingencies.
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL DATA
Year Ended December 31, 1999 1998 1997
- ------------------------------------------------------------------------
Net Cash Provided by (Used for):
Operating Activities:
Net income plus depreciation
and amortization $ 876 $ 892 $ 849
Working capital 99 19 (119)
Other-- net (22) 25 22
- ------------------------------------------------------------------------
Total from operating activities $ 953 $ 936 $ 752
========================================================================
Investing Activities:
Capital expenditures $ (653) $ (781) $ (902)
Acquisitions (136) (241) (101)
Divestitures and asset sales 103 206 300
- ------------------------------------------------------------------------
Total used for investing $ (686) $ (816) $ (703)
========================================================================
Financing Activities:
Debt increases (reductions) $ (247) $ (36) $ 59
Minority transactions and other 78 (31) (31)
Issuances (purchases) of stock 32 20 (27)
Cash dividends (89) (79) (69)
- ------------------------------------------------------------------------
Total used for financing $ (226) $ (126) $ (68)
========================================================================
Debt-to-Capital Ratio,
at December 31:
Debt $ 2,995 $ 3,274 $ 3,305
Capital* $ 5,719 $ 6,168 $ 6,023
Debt-to-capital ratio 52.4% 53.1% 54.9%
========================================================================
(Millions of dollars)
*Includes debt, minority interests, preferred stock and shareholders' equity.
Cash Flow from Operations
Cash flow from operations increased to $953 million in 1999 from $936 million in
1998, or 2%. The increase is primarily related to the improvement in working
capital requirements; a direct result of Praxair's continuing work process
improvement initiatives.
Cash flow from operations increased to $936 million in 1998 from $752
million in 1997, or 24%. The increase is primarily due to the improvement in
working capital investment needs resulting from Praxair's work process
improvement initiatives and to lower payments for incentive compensation
programs.
[GRAPHIC OMITTED - WORKING CAPITAL AS A PERCENT OF SALES]
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<PAGE>
Investing
Cash flow used for investing in 1999 totaled $686 million, a decrease of $130
million from 1998. This decrease was due primarily to the net impact of lower
capital and acquisition expenditures, partly offset by lower proceeds from
divestitures and asset sales.
Capital expenditures for 1999 totaled $653 million, down $128 million from
1998. The lower level of capital expenditures reflects the Company's strategy to
seek higher returns from its capital spending program, and is primarily due to
decreased spending in South America, the United States and Europe, and currency
impacts in South America.
[GRAPHIC OMITTED - CAPITAL EXPENDITURES AND ACQUISITIONS]
Acquisition expenditures for 1999 totaled $136 million, a decrease of $105
million from 1998 but an increase of $35 million from 1997. Acquisition
expenditures in 1999 were primarily related to acquisitions in the Surface
Technologies' business, with other acquisitions in North America, China and
India. The increase in 1998 versus 1997 is primarily attributed to the 1998
purchase of the remaining shares outstanding of Gas Tech, Inc., a U.S. packaged
gases distributor (previously an equity investment), and other acquisitions in
the Praxair Distribution business.
Divestitures and asset sales in 1999 totaled $103 million, half the 1998
amount. This decrease is primarily attributed to the lower proceeds from
sale-leaseback transactions (see Note 11 to the consolidated financial
statements).
On a worldwide basis, capital and acquisition expenditures for the full
year 2000 are expected to remain at about the $800 million level. This estimate
excludes any impacts from the White Martins tender offer (see Segment Discussion
- -- South America).
Financing
At December 31, 1999, Praxair's total debt outstanding was $2,995 million, a
decrease of $279 million from 1998. As of December 31, 1999, 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 - DEBT-TO-CAPITAL]
At December 31, 1998, $627 million of short-term borrowings were classified
as long-term debt under the terms of the credit agreement. At December 31, 1999,
such borrowings were reclassified as short-term because the credit agreement
expires within one year (see Note 4 to the consolidated financial statements).
During 1999 and 1998, Praxair sold and leased back certain U.S. distribution and
liquid storage equipment for $80 million and $150 million, respectively. The
proceeds from the sale of the equipment were used to pay down debt.
Praxair's debt-to-capital ratio decreased to 52.4% at December 31, 1999
from 53.1% at December 31, 1998. This decrease is due to an increase in retained
earnings and lower debt levels, partially offset by the balance sheet impacts of
the currency devaluation in Brazil, and reduced minority interests (primarily
related to the rights offering in Brazil).
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. During 2000,
Praxair intends to enter into a new U.S. bank credit facility to replace the
existing facility which expires in December 2000. Praxair manages its exposure
to interest rate changes through the use of financial derivatives (see Note 4 to
the consolidated financial statements and the section titled "Market Risks and
Sensitivity Analyses").
29
<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, semiconductor materials, 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 other offerings.
YEAR 2000
During 1999, Praxair continued its company-wide program to prepare the Company's
operating systems, computer systems and infrastructure systems for year 2000
compliance. The "year 2000 problem" arose 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".
At the date of this report, Praxair has not experienced any significant
issues related to the year 2000 problem and there has been no disruption to the
Company's business operations related to the date change at the new year. In
addition, the Company has not become aware of any significant year 2000 issues
affecting its major customers or suppliers and has not received any complaints
regarding any year 2000 issues related to its products or equipment sold. It is
still possible that problems could surface throughout the year 2000; however,
the Company currently believes that these problems are unlikely and will not
have a material impact on consolidated results or cash flows.
Year 2000 readiness program related costs, including business continuity
costs, through the end of 1999 were approximately $25 million. Of this total
amount incurred, $11 million was expensed as incurred and the remainder was for
capital upgrades and replacements. The capital costs were planned for later
years independent of year 2000 issues, but were accelerated because those costs
were for projects that would also address year 2000 issues. Costs associated
with internal resources are not being accumulated separately and relate to
normal ongoing payroll costs.
To the extent 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 the contract or tariff.
EURO CONVERSION
Effective January 1, 1999, the euro became the new common currency for 11
European countries (including Belgium, France, Germany, Italy, and Spain; where
Praxair has most of its European operations). During the transition period,
payments can be made using both the euro and the national currencies at fixed
exchange rates. Praxair successfully implemented the systems and processes
necessary to conduct business in both the euro and the respective national
currency. 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 and timely conversion to a euro functional
currency by 2002.
The external costs associated with implementing systems to conduct business
in the euro have not been and 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.
30
<PAGE>
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 4 to the consolidated financial statements for a more
complete description of Praxair's accounting policies and use of such
instruments.
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, 1999. 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, 1999, Praxair has debt totaling $2,995 million ($3,274 million
at December 31, 1998) and interest rate swaps with a notional value of $80
million ($876 million in 1998). 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,
1999, 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, 1999 after adjusting for the effect of interest rate swap
agreements, Praxair has fixed rate debt of $2,114 million ($2,978 at December
31, 1998) and floating rate debt of $881 million ($296 million in 1998). 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 $89 million
($98 million in 1998). At December 31, 1999, 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 $6 million ($7 million at December 31,
1998), 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, 1999 Praxair had
$272 million notional amount ($406 million at December 31, 1998) of foreign
exchange contracts of which $235 million ($306 million in 1998) hedged recorded
balance sheet exposures or firm commitments and $37 million ($100 million in
1998) are to hedge anticipated future net income. During January 2000 an
additional $100 million of foreign exchange contracts were entered into to hedge
anticipated future net income. Praxair's net income hedges relate to its
subsidiaries in Europe, Canada and Asia.
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, 1999 would decrease by approximately $23
million ($39 million at December 31, 1998). Of this decrease, only about $3
million ($7 million at December 31, 1998) 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.
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 & refining, primary metals, food and
beverage, healthcare, semiconductor materials, 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 -- 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.
Revenue Recognition -- Revenue is recognized when product is shipped or services
are provided to customers. Revenues from long-term construction contracts are
recognized using the percentage-of-completion method. Under this method,
revenues for sales of major equipment, such as large air separation facilities,
are recognized primarily based on cost incurred to date compared with total
estimated cost. Changes to total estimated cost and anticipated losses, if any,
are recognized in the period determined.
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 (SA 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 (loss) (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
32
<PAGE>
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 -- 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 accumulated other comprehensive income (loss) (cumulative translation
adjustment) within shareholders' equity; and gains and losses on hedges of firm
commitments are recorded on the balance sheet and included in the basis of the
underlying transaction. Forward exchange contracts that cover exposures which do
not qualify for hedge accounting (e.g., net income hedges) are recorded in other
income -- 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 4).
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 the underlying tangible assets. Should the
expected undiscounted cash flows be less than the carrying amount of the
intangible asset, an impairment loss would be recognized.
Research And Development -- Research and development costs are charged to
expense as incurred.
Income Taxes -- Deferred income taxes are recorded for the temporary differences
between the financial statement and tax bases of assets and liabilities using
current tax rates.
Retirement Programs -- Most Praxair employees worldwide are covered by various
pension plans. The cost of pension benefits under these plans is determined
using the "projected unit credit" actuarial cost method. Funding of pension
plans varies and is in accordance with local laws and practices.
Praxair accrues the cost of retiree life and health insurance benefits
during the employees' service period when such benefits are earned.
Postemployment Benefits -- Praxair recognizes the estimated cost of future
benefits provided to former and inactive employees after employment but before
retirement on the accrual basis.
Stock-Based Compensation -- 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
Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for
Stock-Based Compensation, is included in Note 8.
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 4,604,610 and 2,999,075
shares were not included in the computation of diluted earnings per share for
the years ended December 31, 1999 and December 31, 1998, respectively, 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.
Accounting Changes -- 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.
33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
Recently Issued Accounting Standard -- 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, 2001. Praxair is currently evaluating the impact on its financial
statements of adopting the standard and will comply as required.
Reclassifications -- Certain prior years' amounts have been reclassified to
conform to the current year's presentation.
NOTE 2
SEGMENT INFORMATION
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 procurement, global marketing and business
development. 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; and patents,
trademarks and goodwill.
The table below presents information about reported segments for the years
ended December 31, 1999, 1998 and 1997:
Segment Information 1999 1998 1997
- ----------------------------------------------------------------------
Sales:
North America $ 2,779 $ 2,752 $ 2,636
South America 697 964 964
Europe 516 515 493
Surface Technologies 456 420 381
All Other 191 182 261
- ----------------------------------------------------------------------
Total sales $ 4,639 $ 4,833 $ 4,735
======================================================================
Segment Operating Profit(a):
North America $ 514 $ 533 $ 493
South America(b) 163 199 197
Europe 123 109 93
Surface Technologies 74 73 69
All Other (17) (6) 19
Corporate (26) (23) (23)
- ----------------------------------------------------------------------
Total segment operating profit $ 831 $ 885 $ 848
======================================================================
Total Assets(c):
North America $ 3,987 $ 3,917 $ 3,821
South America 1,796 2,313 2,493
Europe 769 871 795
Surface Technologies 705 523 397
All Other 465 472 304
- ----------------------------------------------------------------------
Total assets $ 7,722 $ 8,096 $ 7,810
======================================================================
Depreciation & Amortization:
North America $ 260 $ 267 $ 254
South America 86 116 108
Europe 49 47 46
Surface Technologies 30 23 19
All Other 20 14 17
- ----------------------------------------------------------------------
Total depreciation
and amortization $ 445 $ 467 $ 444
======================================================================
Capital Expenditures
and Acquisitions:
North America $ 339 $ 501 $ 423
South America 128 180 288
Europe 52 87 76
Surface Technologies 198 130 94
All Other 72 124 122
- ----------------------------------------------------------------------
Total capital expenditures
and acquisitions $ 789 $ 1,022 $ 1,003
======================================================================
(continued)
34
<PAGE>
Segment Information 1999 1998 1997
- ----------------------------------------------------------------------
Sales by Major Country:
United States $ 2,518 $ 2,508 $ 2,411
Brazil 507 786 823
All Other Foreign 1,614 1,539 1,501
- ----------------------------------------------------------------------
Total sales $ 4,639 $ 4,833 $ 4,735
======================================================================
Long-Lived Assets by
Major Country:
United States $ 2,752 $ 2,707 $ 2,426
Brazil 1,037 1,505 1,588
All Other Foreign 2,044 1,935 1,806
- ----------------------------------------------------------------------
Total long-lived assets $ 5,833 $ 6,147 $ 5,820
======================================================================
(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 a pre-tax charge of $10 million related primarily to
profit improvement initiatives in the North American business. The
following are the operating profit impacts, by operating segment for these
special charges.
Special Charges 1999 1998 1997
- --------------------------------------------------------------
Segment operating profit $ 831 $ 885 $ 848
Less special charges:
North America -- -- (10)
All Other -- (29) --
- --------------------------------------------------------------
Consolidated operating profit $ 831 $ 856 $ 838
==============================================================
(Millions of dollars)
(b) 1999 includes $21 million income from net income hedges in Brazil that were
effectively closed out in the 1999 first quarter. 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 1999 1998 1997
- -----------------------------------------------
North America $ 71 $ 66 $ 69
Europe 77 101 88
Surface Technologies 1 -- --
All other (Asia) 85 84 53
- -----------------------------------------------
Total $234 $251 $210
===============================================
(Millions of dollars)
NOTE 3
INCOME TAXES
Pre-tax income applicable to U.S. and foreign operations is as follows:
Year Ended December 31, 1999 1998 1997
- -----------------------------------------------------------
United States $262 $277 $290
Foreign 365 319 332
- -----------------------------------------------------------
Total income before income taxes $627 $596 $622
===========================================================
(Millions of dollars)
The following is an analysis of the provision for income taxes:
Year Ended December 31, 1999 1998 1997
- ------------------------------------------------------
Current tax expense
U.S. Federal $ 39 $ 54 $ 23
State and local 11 12 12
Foreign 49 50 49
- ------------------------------------------------------
Total current 99 116 84
- ------------------------------------------------------
Deferred tax expense
U.S. Federal 49 29 65
Foreign 4 (18) 2
- ------------------------------------------------------
Total deferred 53 11 67
- ------------------------------------------------------
Total income taxes $ 152 $ 127 $ 151
======================================================
(Millions of dollars)
Net deferred tax liabilities are comprised of the following:
December 31, 1999 1998
- --------------------------------------------------
Deferred Tax Liabilities
Fixed assets $685 $611
State and local 10 10
Other 164 163
- --------------------------------------------------
Total deferred tax liabilities 859 784
- --------------------------------------------------
Deferred Tax Assets
Benefit plans and related 194 163
Inventory 22 19
Alternative minimum tax 58 42
Carryforwards-- gross 115 175
Other 72 70
- --------------------------------------------------
461 469
Less: Valuation allowances 5 6
- --------------------------------------------------
Total deferred tax assets 456 463
- --------------------------------------------------
Net deferred tax liabilities $403 $321
==================================================
(Millions of dollars)
35
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
An analysis of the difference between the provision for income taxes and the
amount computed by applying the U.S. statutory income tax rate to pre-tax income
follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1999 1998 1997
- ----------------------------------------------------------------------------------
$ % $ % $ %
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. statutory
income tax rate 219 35.0 208 35.0 218 35.0
State and local taxes 7 1.1 8 1.3 8 1.3
U.S. tax credits (4) (0.6) (3) (0.5) (1) (0.1)
Foreign taxes (72) (11.6) (80) (13.4) (65) (10.5)
Other-- net 2 0.3 (6) (1.0) (9) (1.4)
- ----------------------------------------------------------------------------------
Provision for
income tax 152 24.2 127 21.4 151 24.3
==================================================================================
(Dollar amounts in millions)
</TABLE>
The valuation allowances decreased $1 million in 1999 (decreased $4 million in
1998 and decreased $1 million in 1997) all relating to foreign net operating
loss carryforwards activity. At December 31, 1999, Praxair has approximately $17
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 1999, France, Japan and the United Kingdom decreased and Brazil
increased their top marginal tax rate. During 1997, Italy and the United Kingdom
decreased and France increased their 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, 1999 on $1,063 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 4
DEBT AND FINANCIAL INSTRUMENTS
Debt-- The following is a summary of Praxair's outstanding debt at December 31,
1999 and 1998:
Debt 1999 1998
- -------------------------------------------------------------
Short-Term
Commercial paper and U.S. borrowings $ 632 $ 2
Canadian borrowings 6 116
South American borrowings 65 95
Other International borrowings 53 82
- -------------------------------------------------------------
Total short-term debt 756 295
- -------------------------------------------------------------
Long-Term
U.S.:
Commercial paper and U.S. borrowings -- 627
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 250 250
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 50
Canadian borrowings 177 204
South American borrowings 80 123
Other International borrowings 43 54
Obligations under capital leases 8 21
- -------------------------------------------------------------
2,239 2,979
Less: current portion of long-term debt 128 84
- -------------------------------------------------------------
Total long-term debt 2,111 2,895
- -------------------------------------------------------------
Total debt $2,995 $3,274
=============================================================
(Millions of dollars)
Praxair has available a $1.5 billion credit agreement which expires in December
2000 and is used to support commercial paper and other short-term U.S. bank
borrowings. No borrowings were outstanding under this credit agreement at
December 31, 1999 or 1998. At December 31, 1998, $627 million of short-term
borrowings were 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. At December 31, 1999, such borrowings
were reclassified
36
<PAGE>
as short-term debt because the credit agreement expires within one year. At
December 31, 1999 and December 31, 1998, the weighted-average interest rate on
commercial paper and U.S bank borrowings was 5.5% and 5.8% respectively.
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, 1999, Praxair was in compliance with all such
covenants.
Excluding commercial paper and U.S. bank borrowings, scheduled maturities
on long-term debt are: 2000, $128 million; 2001, $337 million; 2002, $84
million; 2003, $696 million, 2004, $18 million and $976 million thereafter. At
December 31, 1999, $114 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, 1999, the estimated fair value of Praxair's long-term debt
portfolio was $2,207 million versus a carrying value of $2,239 million. At
December 31, 1998 the estimated fair value of long-term debt was $3,055 million
versus a carrying value of $2,979 million. These differences are attributable to
interest rate changes subsequent to when the debt was issued.
Financial Instruments -- Praxair has entered into various fixed rate
interest swap agreements that effectively convert floating rate debt into fixed
rate debt and are used to manage exposure to interest rate changes. At December
31, 1999 and 1998 the notional amount of fixed rate interest swap agreements was
$80 million and $876 million, respectively. The outstanding swap agreements
expire in 2001. The fair market value of these swaps approximated their carrying
amounts at December 31, 1999 and 1998.
Praxair is also a party to currency exchange forward contracts to manage
its exposure to changing currency exchange rates. At December 31, 1999 and 1998,
respectively, Praxair had $272 million and $406 million of currency exchange
forward contracts outstanding: $222 million to hedge recorded balance sheet
exposures ($280 million in 1998), $13 million to hedge firm commitments
generally for the purchase of equipment related to construction projects ($26
million in 1998) and $37 million to hedge future net income, accounted for on a
mark-to-market basis ($100 million in 1998). During January 2000 an additional
$100 million of currency exchange forward contracts were entered into to hedge
future net income. Additionally, at December 31, 1999 there was $56 million
notional value of currency exchange forward contracts that effectively offset
($34 million in 1998). At December 31, 1999 and 1998, 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 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 Brazilian net investment. The net income hedge contracts resulted
in a pre-tax gain of $21 million ($14 million after tax and minority interest)
and the net investment hedge contracts resulted 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. The cash proceeds
relating to the pre-tax gain on the net investment hedges (approximately $89
million) is shown in the financing section of the consolidated statement of cash
flows under the caption "Minority transactions and other", and the pre-tax gain
relating to the net income hedges is shown under the caption "net income" in
operating cash flows.
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.
37
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5
SHAREHOLDERS' EQUITY
At December 31, 1999 there were 500,000,000 shares of common stock authorized
(par value $.01 per share) of which 164,215,383 shares were issued and
159,047,582 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.
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 6
PREFERRED STOCK
At December 31, 1999 and 1998, 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.
38
<PAGE>
NOTE 7
SUPPLEMENTARY INCOME
STATEMENT INFORMATION
Year Ended December 31, 1999 1998 1997
- ----------------------------------------------------------------------
Selling, General and Administrative
Selling $ 314 $ 328 $ 333
General and administrative 327 316 329
- ----------------------------------------------------------------------
$ 641 $ 644 $ 662
======================================================================
Other Income -- Net
Investment income $ 9 $ 14 $ 13
Currency 38(a) 1 4
Partnership income 7 12 12
Special charges(b) -- (29) (10)
Other 23(c) 15 33(d)
- ----------------------------------------------------------------------
$ 77 $ 13 $ 52
======================================================================
Interest Expense
Interest incurred on debt $ 234 $ 296 $ 248
Interest capitalized (30) (36) (32)
- ----------------------------------------------------------------------
$ 204 $ 260 $ 216
======================================================================
Minority Interests
Minority interests $ (39)(e) $ (49) $ (58)
Preferred stock dividends (6) (6) (8)
- ----------------------------------------------------------------------
$ (45) $ (55) $ (66)
======================================================================
(Millions of dollars)
(a) Includes a $21 million gain related to net income hedges in Brazil (see Note
4) as well as gains from net income hedges, primarily in Europe.
(b) In the fourth quarter of 1998, Praxair recorded a 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 an air separation plant under
construction for a third party ($10 million or $7 million after tax). 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
America packaged gases business.
(c) Includes $50 million of income related to the redemption of preference
shares from an earlier business sale and $12 million of income related to the
collection of a note receivable from an earlier business sale, with offsetting
costs related to postemployment benefits and an anticipated loss on the sale of
an air separation plant under construction for a third party.
(d) Includes $11 million from a favorable judgement related to a dispute with
State public hospitals in Brazil.
(e) During the first quarter of 1999, Praxair's South American subsidiary, S.A.
White Martins, completed a rights offering resulting in Praxair's ownership
interest in White Martins increasing from 69.33% at December 31, 1998 to 76.57%
at December 31, 1999. As consideration for the additional shares it purchased
during the rights offering, Praxair used approximately $138 million of
intercompany loans it had previously made to White Martins. Approximately $15
million of the rights offering was purchased by minority shareholders.
NOTE 8
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 for Incentive Stock Options
must be 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 long-term
incentive program by granting performance share equivalents and stock options to
corporate officers and other key employees under the applicable Incentive Plan.
Because Praxair's average annual earnings per share growth for the three year
performance period was 10.7%
39
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
versus the 15% target established for this program, 71.1% of the performance
share equivalents or 652,421 share equivalents vested on January 1, 2000,
according to a pre-determined formula. Vested performance share equivalents are
payable primarily in shares of Praxair, Inc. common stock. Settlement is
scheduled for March 2000. Pre-tax compensation expense related to this plan was
$10 million in 1999, $8 million in 1998 and $15 million in 1997.
The following table summarizes the changes in outstanding shares under
option and performance share equivalents for 1999, 1998, and 1997 (options in
thousands):
Stock Options
-------------------------
Average Performance
Exercise Stock &
Activity Options Price Equivalents(a)
- -------------------------------------------------------------------------
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 11,972 $ 28.17 951
Granted 2,946 $ 40.98 --
Exercised (2,138) $ 19.48 --
Cancelled or expired (104) $ 44.78 (299)
- --------------------------------------------------------------------
Outstanding at
December 31, 1999(b) 12,676 $ 32.47 652
- --------------------------------------------------------------------
Options exercisable at:
December 31, 1997 7,167 $ 15.51
December 31, 1998 7,728 $ 18.95
December 31, 1999(b) 6,650 $ 23.86
====================================================================
(a) The weighted-average price per share on the date performance share
equivalents were granted was $50.26 in 1998 and $46.25 in 1997.
(b) The following table summarizes information about options outstanding and
exercisable at December 31, 1999 (options in thousands, life in years):
Outstanding Exercisable
------------------ ------------------
Range of Average Number Average Number Average
Exercise Remaining of Exercise of Exercise
Prices Life Options Price Options Price
- ------------------------------------------------------------------
$ 9.80-$13.95 1.4 1,914 $11.96 1,914 $11.96
$15.50-$24.38 3.9 2,788 $18.08 2,788 $18.08
$26.25-$36.00 8.4 2,192 $33.92 485 $33.57
$36.06-$45.00 8.7 2,278 $42.15 473 $38.91
$45.06-$56.13 7.9 3,504 $47.93 990 $51.21
------ -----
$9.80-$56.13 6.3 12,676 $32.47 6,650 $23.86
==================================================================
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, 1999 1998 1997
- ------------------------------------------------------------------
Net Income:
As reported $ 431 $ 425 $ 405
Pro forma $ 411 $ 409 $ 391
Basic Earnings per Share:
As reported $ 2.71 $ 2.68 $ 2.56
Pro forma $ 2.58 $ 2.58 $ 2.47
Diluted Earnings per Share:
As reported $ 2.66 $ 2.60 $ 2.46
Pro forma $ 2.53 $ 2.50 $ 2.37
- ------------------------------------------------------------------
The weighted average fair value of options granted during 1999 was $13.80
($12.57 in 1998 and $16.54 in 1997). 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 1999, 1998, and 1997:
Year Ended December 31, 1999 1998 1997
- -------------------------------------------------------------
Dividend yield 1.0% 1.0% 1.0%
Volatility 31.0% 28.0% 27.0%
Risk-free interest rate 5.5% 5.2% 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 additional awards generally are
made each year.
40
<PAGE>
NOTE 9
SUPPLEMENTARY BALANCE SHEET INFORMATION
December 31, 1999 1998
- --------------------------------------------------------------------
Accounts Receivable
Trade $ 846 $ 904
Other 36 44
- --------------------------------------------------------------------
882 948
Less: allowance for doubtful accounts(a) 34 29
- --------------------------------------------------------------------
$ 848 $ 919
====================================================================
Inventories(b)
Raw materials and supplies $ 104 $ 115
Work in process 50 38
Finished goods 156 166
- --------------------------------------------------------------------
$ 310 $ 319
====================================================================
Property, Plant and Equipment-- Net
Land and improvements $ 190 $ 205
Buildings 562 536
Machinery and equipment 7,209 7,102
Construction in progress and other 620 835
Less: accumulated depreciation 3,861 3,803
- --------------------------------------------------------------------
$ 4,720 $ 4,875
====================================================================
Other Long-Term Assets
Patents, trademarks and goodwill(c) $ 1,113 $ 1,272
Deposits(d) 34 49
Other 286 255
- --------------------------------------------------------------------
$ 1,433 $ 1,576
====================================================================
Other Current Liabilities
Accrued accounts payable $ 132 $ 150
Payrolls 102 94
Employee benefits and related 41 45
Special charges(e) 5 7
Accrued interest payable 37 42
Other 88 131
- --------------------------------------------------------------------
$ 405 $ 469
====================================================================
Other Long-Term Liabilities
Employee benefits and related $ 462 $ 439
Special charges(e) 7 11
Other(d) 93 103
- --------------------------------------------------------------------
$ 562 $ 553
====================================================================
Deferred Credits
Income taxes(f) $ 434 $ 357
Deferred gain on sale leaseback (Note 11) 152 88
Other 14 20
- --------------------------------------------------------------------
$ 600 $ 465
====================================================================
(continued)
December 31, 1999 1998
- --------------------------------------------------------------------
Accumulated Other Comprehensive Income
(Loss) (cumulative translation adjustment)
North America $ (167) $ (181)
South America(g) (494) (138)
Europe (123) (51)
Surface Technologies (8) 1
All Other (36) (43)
- --------------------------------------------------------------------
$ (828) $ (412)
====================================================================
(Millions of dollars)
(a) Provisions to the allowance for doubtful accounts were $22 million, $13
million and $11 million in 1999, 1998 and 1997, respectively.
(b) Approximately 31% of total inventories were valued using the LIFO method at
December 31, 1999 and 1998. If inventories had been valued at current costs,
they would have been approximately $26 million and $25 million higher than
reported at December 31, 1999 and 1998, respectively.
(c) Net of accumulated amortization of $161 million in 1999 and $143 million in
1998.
(d) $24 million and $28 million of other long-term assets and other long-term
liabilities in Brazil have been offset in 1999 and 1998, respectively.
(e) The table below summarizes the activity (primarily cash payments) in the
1996 CBI integration accrual and the 1997 North American packaged gases' accrual
(see Note 7). The remaining other exit costs are primarily related to estimated
net costs associated with lease commitments for surplus office and production
space.
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
North American 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
1999 activity -- (6) (6)
- -----------------------------------------------------------------
Balance, December 31, 1999 $ -- $ 12 $ 12
=================================================================
(Millions of dollars)
*In the first quarter of 1996, Praxair recorded a charge of $85 million ($53
million after tax) for the integration of the Liquid Carbonic business of CBI
and Praxair.
(f) Deferred income taxes related to current items are included in prepaid and
other current assets in the amount of $31 million in 1999 and $36 million in
1998.
(g) 1999 consists primarily of currency translation adjustments in Brazil and is
net of a $60 million gain related to Brazilian net investment hedges (see Note
4). 1998 includes a cumulative adjustment of $57 million related to the
functional currency change in Brazil (see Note 1).
41
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10
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.
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 1999 and 1998, and $3 million in 1997(not
included in the tables that follow).
U.S. employees other than the packaged gas 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 1999 and 1998, and $9 million in 1997 (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, 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 1999, 1998 and 1997 are shown
below:
<TABLE>
<CAPTION>
PENSIONS OPEB
------------------------ ------------------------
Year Ended December 31, 1999 1998 1997 1999 1998 1997
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Benefit Cost
Service cost $ 35 $ 35 $ 33 $ 7 $ 7 $ 5
Interest cost 63 59 56 13 13 15
Expected return on assets (72) (67) (62) -- (1) (1)
Net amortization and deferral (1) -- 1 (7) (9) (8)
- ----------------------------------------------------------------------------------------
Net periodic benefit cost $ 25 $ 27 $ 28 $ 13 $ 10 $ 11
========================================================================================
(Millions of dollars)
</TABLE>
42
<PAGE>
The changes in benefit obligation and plan assets and the funded status
reconciliation as of December 31, 1999 and 1998 for Praxair's significant
pension and OPEB programs are shown below:
<TABLE>
<CAPTION>
PENSIONS
--------------------------------------
1999 1998 OPEB
---------------- ---------------- ----------------
Year Ended December 31, U.S. INT'L U.S. INT'L 1999 1998
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Change in Benefit Obligation
Benefit obligation, January 1 $ 678 $ 339 $ 617 $ 308 $ 227 $ 229
Service cost 24 11 22 13 7 7
Interest cost 46 18 42 18 14 14
Participant contributions -- -- -- 1 8 9
Plan amendments -- -- -- -- (12) (14)
Actuarial loss (gain) (60) (2) 20 20 2 14
Benefits paid (27) (15) (23) (16) (25) (30)
Curtailments -- -- -- (3) -- (1)
Currency translation -- (41) -- (2) (6) (1)
- ------------------------------------------------------------------------------------------------------------
Benefit obligation, December 31 $661 $ 310 $ 678 $ 339 $ 215 $ 227
- ------------------------------------------------------------------------------------------------------------
Change in Plan Assets
Fair value of plan assets, January 1 $ 643 $ 285 $ 589 $ 277 $ 7 $ 10
Actual return on plan assets 77 41 75 24 1 3
Participant contributions -- -- -- 1 -- --
Company contributions -- 7 -- 7 -- --
Benefits paid (24) (12) (21) (16) (3) (6)
Currency translation -- (22) -- (8) -- --
- ------------------------------------------------------------------------------------------------------------
Fair value of plan assets, December 31 $ 696 $ 299 $ 643 $ 285 $ 5 $ 7
- ------------------------------------------------------------------------------------------------------------
Funded Status Reconciliation
Funded status, December 31 $ 35 $ (11) $ (35) $ (54) $(210) $(220)
Unrecognized (gains) losses-- net (145) (29) (61) 1 (7) (6)
Unrecognized prior service cost 5 7 6 (2) (22) (16)
Unrecognized transition amount (2) -- (3) 5 -- --
- ------------------------------------------------------------------------------------------------------------
Prepaid (accrued) benefit cost, December 31 $(107) $ (33) $ (93) $ (50) $(239) $(242)
============================================================================================================
(Millions of dollars)
43
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 $192 million, $176 million, and $126 million,
respectively, as of December 31, 1999 ($172 million, $144 million and $81
million, respectively, as of December 31, 1998).
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, 1999 1998 1999 1998
- --------------------------------------------------------------------------------
Discount rate 7.75% 6.75% 4-9% 4-9%
Rate of increase in
compensation levels 4.75% 4.0% 2-7% 2-7%
Expected long-term rate
of return on plan assets 9.5% 9.5% 5.5-10% 5-9%
- --------------------------------------------------------------------------------
For measurement purposes, a 6.5% annual rate of increase in the per capita cost
of covered health care benefits was assumed for 2000, gradually reducing to 5.5%
in 2002 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 $ (2)
Effect on OPEB benefit
obligation $ 10 $(10)
- --------------------------------------------------------------------
(Millions of dollars)
NOTE 11
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,
1999:
Lease Payments
- ----------------------------------------------------
2000 $ 87 2003 $ 43
2001 $ 71 2004 $ 39
2002 $ 54 after 2004 $170
- ----------------------------------------------------
(Millions of dollars)
Included in these totals are $53 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 $14 million ($21
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 $94 million in
1999, and $80 million in 1998 and $70 million in 1997. The present value of the
future lease payments under operating leases is approximately $346 million at
December 31, 1999.
During 1999 and 1998, Praxair sold and leased back certain U.S.
distribution and liquid storage equipment for $80 million and $150 million,
respectively. These operating leases have an initial two-year term with purchase
and lease renewal options at projected future fair market values beginning in
2001 and 2000, respectively.
44
<PAGE>
NOTE 12
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 contained allegations of conversion, fraud and
quantum meruit. On July 1, 1999 a Philadelphia Court of Common Pleas jury
returned a verdict in favor of Praxair on all counts. No appeal was taken, and
the case is now closed.
In 1992, Praxair's 60%-owned Italian subsidiary entered into an
unconditional long-term purchase agreement for oxygen and nitrogen to be used to
supply existing merchant liquid customers. Obligations in connection with
financing under this agreement total $16 million ($13 million on a present value
basis), with annual obligations of $2 million over the next 5 years, and $4
million thereafter. Total purchases of product in 1999, 1998 and 1997, including
other amounts purchased under this agreement, were $3 million annually.
Praxair has entered into operating leases on distribution and liquid
storage equipment which include residual value guarantees not to exceed $195
million. Management expects any losses under these guarantees to be remote.
At December 31, 1999, the estimated cost of completing authorized
construction projects in the normal course of business is $201 million.
45
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13
QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPTION>
1999 1Q 2Q 3Q 4Q Year
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales $ 1,118 $ 1,149 $ 1,169 $ 1,203 $ 4,639
Cost of sales $ 652 673 691 716 $ 2,732
Depreciation and amortization $ 113 111 111 110 $ 445
Operating profit(a) $ 211 201 208 211 $ 831
- ---------------------------------------------------------------------------------------------------------------------------------
Income before cumulative effect of an accounting change(a) $ 108 $ 107 $ 112 $ 114 $ 441
Cumulative effect of an accounting change(b) (10) -- -- -- (10)
Net income(a) $ 98 $ 107 $ 112 $ 114 $ 431
- ---------------------------------------------------------------------------------------------------------------------------------
Basic per Share Data:(a)
Income before cumulative effect of an accounting change $ .68 $ .67 $ .70 $ .71 $ 2.77
Cumulative effect of an accounting change(b) (.06) -- -- -- (.06)
Net income $ .62 $ .67 $ .70 $ .71 $ 2.71
Weighted average shares (000's) 158,138 159,363 159,704 159,915 159,280
- ---------------------------------------------------------------------------------------------------------------------------------
Diluted per Share Data:(a)
Income before cumulative effect of an accounting change $ .67 $ .66 $ .69 $ .70 $ 2.72
Cumulative effect of an accounting change(b) (.06) -- -- -- (.06)
Net income $ .61 $ .66 $ .69 $ .70 $ 2.66
Weighted average shares (000's) 161,819 162,641 162,564 162,566 162,222
- ---------------------------------------------------------------------------------------------------------------------------------
(Dollar amounts in millions, except per share data)
1998 1Q 2Q 3Q 4Q Year
- ---------------------------------------------------------------------------------------------------------------------------------
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(c) $ 214 227 225 190 $ 856
- ---------------------------------------------------------------------------------------------------------------------------------
Net income(c) $ 102 $ 108 $ 108 $ 107 $ 425
- ---------------------------------------------------------------------------------------------------------------------------------
Basic per Share Data:(c)
Net income $ .65 $ .68 $ .68 $ .68 $ 2.68
Weighted average shares (000's) 158,058 158,623 158,893 157,297 158,462
- ---------------------------------------------------------------------------------------------------------------------------------
Diluted per Share Data:(c)
Net income $ .62 $ .66 $ .66 $ .66 $ 2.60
Weighted average shares (000's) 164,236 164,057 163,417 162,341 163,356
- ---------------------------------------------------------------------------------------------------------------------------------
(Dollar amounts in millions, except per share data)
<FN>
(a) Operating profit, net income and per share amounts for the 1999 first quarter and year include income of $21
million, $14 million and $.09 per share, respectively related to net income hedges in Brazil (see Note 4).
(b) Related to a required accounting change for start-up costs (see Note 1).
(c) 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 7). 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.
</FN>
</TABLE>
46
<PAGE>
MANAGEMENT'S STATEMENT OF RESPONSIBILITY FOR FINANCIAL STATEMENTS
Praxair's consolidated 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 accounting principles
generally accepted in the United States 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 consolidated financial statements are audited by
PricewaterhouseCoopers LLP, independent accountants, in accordance with auditing
standards generally accepted in the United States. 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 /s/ John A. Clerico
H. William Lichtenberger John A. Clerico
Chairman & Chief Executive Officer Executive Vice President
& Chief Financial Officer
/s/ J. Robert Vipond
J. Robert Vipond
Vice President & Controller
Danbury, Connecticut
February 8, 2000
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, 1999 and 1998, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1999 in conformity with accounting principles generally
accepted in the United States. 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 auditing standards generally accepted in the
United States, 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 8, 2000
48
<PAGE>
FIVE-YEAR FINANCIAL SUMMARY
<TABLE>
<CAPTION>
Year Ended December 31, 1999 1998 1997 1996(a) 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
From the Income Statement
Sales $ 4,639 $ 4,833 $ 4,735 $ 4,449 $ 3,146
Cost of sales 2,732 2,807 2,764 2,564 1,777
Selling, general and administrative 641 644 662 688 496
Depreciation and amortization 445 467 444 420 279
Research and development 67 72 79 72 61
Other income (expenses)-- net(b) 77 13 52 (58) 15
- -----------------------------------------------------------------------------------------------------------------------------
Operating profit 831 856 838 647 548
Interest expense 204 260 216 195 116
- -----------------------------------------------------------------------------------------------------------------------------
Income before taxes 627 596 622 452 432
Income taxes(b) 152 127 151 110 122
- -----------------------------------------------------------------------------------------------------------------------------
Income of consolidated entities 475 469 471 342 310
Minority interests (45) (55) (66) (68) (50)
Income from equity investments 11 11 11 8 2
- -----------------------------------------------------------------------------------------------------------------------------
Income before cumulative effect of accounting changes 441 425 416 282 262
Cumulative effect of accounting changes(c) (10) -- (11) -- --
- -----------------------------------------------------------------------------------------------------------------------------
Net income $ 431 $ 425 $ 405 $ 282 $ 262
=============================================================================================================================
Per Share Data(c)
Basic earnings per share:
Income before cumulative effect of accounting changes $ 2.77 $ 2.68 $ 2.63 $ 1.85 $ 1.89
Net income $ 2.71 $ 2.68 $ 2.56 $ 1.85 $ 1.89
Diluted earnings per share:
Income before cumulative effect of accounting changes $ 2.72 $ 2.60 $ 2.53 $ 1.77 $ 1.82
Net income $ 2.66 $ 2.60 $ 2.46 $ 1.77 $ 1.82
Cash dividends per share $ .56 $ .50 $ .44 $ .38 $ .32
- -----------------------------------------------------------------------------------------------------------------------------
Weighted Average Shares Outstanding (000's)
Basic shares outstanding 159,280 158,462 158,095 152,654 138,818
Diluted shares outstanding 162,222 163,356 164,053 159,038 144,147
- -----------------------------------------------------------------------------------------------------------------------------
Capital
Total debt $ 2,995 $ 3,274 $ 3,305 $ 3,265 $ 1,318
Minority interests 359 487 521 493 408
Preferred stock 75 75 75 75 --
Shareholders' equity 2,290 2,332 2,122 1,924 1,121
- -----------------------------------------------------------------------------------------------------------------------------
Total capital $ 5,719 $ 6,168 $ 6,023 $ 5,757 $ 2,847
=============================================================================================================================
Other Information and Ratios
Operating profit as a percentage of sales(b) 17.9% 18.3% 17.9% 16.5% 17.4%
Return on average shareholders' equity(b) 19.1% 19.1% 20.9% 22.0% 26.7%
Capital expenditures and acquisitions $ 789 $ 1,022 $ 1,003 $ 3,333 $ 802
Total assets $ 7,722 $ 8,096 $ 7,810 $ 7,538 $ 4,134
Shares outstanding at year-end (000's) 159,048 157,571 157,373 157,489 140,536
Debt-to-capital ratio 52.4% 53.1% 54.9% 56.7% 46.3%
Number of employees 24,102 24,834 25,388 25,271 18,222
- -----------------------------------------------------------------------------------------------------------------------------
(Dollar amounts in millions, except per share data)
<FN>
(a) Effective in 1996, results reflect the acquisition of CBI Industries, Inc.
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) Other income (expenses) -- net includes special charges of $29 million and
$10 million in 1998 and 1997, respectively (see Note 7 to the consolidated
financial statements). 1998 income taxes include $18 million special tax
credits. 1996 other income (expenses) -- net includes an $85 million special
charge related to CBI integration activities. Operating profit as a percentage
of sales excludes the impact of these special charges. The return on average
shareholders' equity excludes these special items and is based on income before
cumulative effect of accounting changes.
(c) 1999 net income includes the cumulative effect of a change in accounting for
previously capitalized start-up costs of $10 million or $0.06 per share for both
basic and diluted earnings per share. 1997 net income includes the cumulative
effect of a change in accounting for previously capitalized business process
reengineering and information technology transformation costs of $11 million or
$0.07 per share for both basic and diluted earnings per share.
</FN>
</TABLE>
49
<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, El Paso Energy Corporation
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
50
<PAGE>
Officers, Regional Management and Advisory Council
Office of the Chairman
H. William Lichtenberger
Chairman & Chief Executive Officer
Dennis H. Reilley
President & Chief Executive Officer
effective 3/15/00
Paul J. Bilek
Executive Vice President
John A. Clerico
Executive Vice President & Chief Financial Officer
Thomas W. von Krannichfeldt
Executive Vice President
Officers
Bal Agrawal
Vice President, E-Business & Services
Leonard M. Baker
Vice President, Technology
David H. Chaifetz
Vice President, General Counsel & Secretary
Frank J. Crespo
Vice President, Semiconductor Materials Business
Michael E. DeDomenico
President, Praxair Distribution, Inc.
Theodore W. Dougher
Vice President, Engineering and Supply Systems
Michael J. Douglas
Vice President, Primary Metals Market
James J. Fuchs
President, Praxair Asia
Ivan Ferreira Garcia
Chief Executive Officer, S.A. White Martins
Barbara R. Harris
Vice President, Human Resources
John F. Hill
Chief Information Officer
Randy S. Kramer
Vice President, Carbon Dioxide Product and Services
Michael R. Lutz
Vice President, Safety and Production Excellence
Ricardo Malfitano
President, North American Industrial Gases & President, Praxair Canada
Sunil Mattoo
Vice President, Strategic Planning & Marketing
Nigel D. Muir
Vice President, Communications & Public Relations
John S. Pirretti
Vice President, Metal Fabrication Market
Frank L. Ridding
President, Praxair Surface Technologies, Inc.
Scott K. Sanderude
Vice President, Food & Beverage Market
Sally A. Savoia
Vice President, Healthcare Market
James S. Sawyer
Vice President & Treasurer
J. Robert Vipond
Vice President & Controller
Alan J. Westendorf
President, Praxair Europe
Daniel H. Yankowski
Vice President, Chemicals and Refining Business
Regional Management
North America
Murray G. Covello
Managing Director, Praxair Canada
Cesar Guajardo
Managing Director, Praxair Mexico
Eduardo Menezes
President, Praxair Puerto Rico
South America
Domingos Bulus
Assistant Director, Andean Treaty Countries
Albino Carneiro
Assistant Director, South Cone Countries
Marcelo Pereira Quintaes
Vice President, Industrial Gases, Brazil
Europe
Miguel Martinez Astola
Managing Director, Spain and Portugal
Robert Matthe
General Manager, Poland
Franco Mazzali
Managing Director, Italy and Middle East
Jean-Michel Tiard
Managing Director, Western Europe
Asia
V. Thad Evans
Managing Director, Praxair Japan, and President, Praxair Iwatani
Electronics Gases
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 Counsultant, Paraguay
Carlos Langone
Consultant, Brazil
Agostino Rocca
President for Latin America, Organizacion Techint, Argentina
Paolo Rocca
President, Organizacion Techint, Argentina
Benjamin Steinbruch
Chairman, Companhia Siderugica Nacional, Brazil
51
<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 24,519
shareholders of record as of December 31, 1999.
Shareholder Returns
Closing high and low stock prices and dividends, as reported by the New York
Stock Exchange, are presented below:
Stock Prices and Dividends
- --------------------------------------------------------------
High Low Dividends
1999
Fourth quarter $51.125 $43.188 $0.14
Third quarter $50.938 $41.500 $0.14
Second quarter $58.125 $35.250 $0.14
First quarter $37.563 $32.313 $0.14
- --------------------------------------------------------------
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
- --------------------------------------------------------------
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.
Investor Information
Praxair makes available a full range of financial information in the financial
section of its web site, www.praxair.com. Investors may obtain stock quotes,
quarterly earnings and other press releases, as well as investor presentations,
annual reports, proxy statement and SEC filings. Links also are available for
requesting additional investor information. Praxair Investor Relations is
responsible for shareholder communications and welcomes shareholder inquiries
about Praxair. Contact Scott S. Cunningham, Director, (203) 837-2073 or by
e-mail to: [email protected]
Stock Transfer Agent and Stock Record Keeping
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., (610)312-5303
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
e-mail: [email protected]
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.
Annual Meeting of Shareholders
The 2000 annual meeting of shareholders of Praxair, Inc. will be held at 9:30
a.m. on Tuesday, April 25, 2000 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, or
visit Praxair online at: www.praxair.com.
<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, 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
34 91 556-1100
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, Japan, People's Republic of China,
South Korea, Taiwan, Thailand
The forward-looking statements contained in this document concerning, among
other things, projected capital and acquisition spending, sales and earnings
growth, volume increases, the impact of new technology in the marketplace, tax
planning initiatives and effective tax rates, the impact of economic conditions
in Brazil, including currency movements and the change in functional currency,
the impact of currency movements in other countries, management's assessment of
the impact 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.
(c) Copyright 2000 Praxair Technology, Inc.
Praxair and the flowing airstream design, and CoJet, Grab `n Go, and Point One
are trademarks, service marks or registered trademarks of Praxair Technology,
Inc. in the United States and/or other countries.
This report is printed on recycled paper
Praxair, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
EXHIBIT 21.01
Place of
Incorporation
-------------
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
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
Concical S.r.l Italy
Cryo Teruel S.A Portugal
Domolife S.r.l Italy
Dryce Italia S.r.l Italy
Emigas Servizi S.r.l Italy
Eutecic + Castolin Technology Hldings, Inc. Italy
Euro Cantley S.A Colombia
Flametal Sp.A Italy
Fushion Inc. Texas
Gases de Ensenada S/A Argentina
Gas Tech, Incorporated Illinois
Groupo Praxair S.A. de C.V Mexico
Hielo Secco S.A Bolivia
Igas Servizi S.r.l Italy
Indugas S.A France
Industria Paraguaya de Gases Paraguay
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
Kushan Praxair Co., Ltd. China
L. Clausen & CIA. SRL Uruguay
Liquid Carbonic Corporation Delaware
Liquid Carbonic del Paraguay S.A Paraguay
Liquid Carbonic do Nordeste, S.A Brazil
Liquid Carboinc Industrias S.A Brazil
Liquid Carbonic LNG International, Inc. Delaware
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
Material Research S.A France
Maxima Air Separation Center Limited Israel
Medigas Iberica S.L Spain
MetFabCity Inc. Delaware
Nitropet, S.A Mexico
Oak Brook International Insurance Co. Ltd. Bermuda
Old Danford S.A Uruguay
Operadora Perinorte, S.A. de C.V Mexico
<PAGE>
Praxair, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
EXHIBIT 21.01
(cont'd.)
Place of
Incorporation
-------------
Oxigenos de Colombia Efese S.A Colombia
Oxigenus S.L Spain
Oximesa S.L Spain
Oximinas Ltda Brazil
Plainfield, Inc. Delaware
Praxair (China) Invesment Co., Ltd. China
Praxair (Nanjing) Carbon Dioxide Co. Ltd. China
Praxair (Shanghai) Co., Ltd. China
Praxair (Thailand) Company, Ltd. Thailand
Praxair (Yueyang) Co., Ltd. China
praxair.com inc Delaware
Praxair & M.I.Services, S.r.l Italy
Praxair Asia, Inc. Delaware
Praxair Argentina, S.A Argentina
Praxair Australia Pty. Ltd. Australia
Praxair B.V The Netherlands
Praxair Barqisimeto S.A Venezuela
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 e Companhia - Comercio e Servicos Portugal
Praxair Costa Rica, S.A Costa Rica
Praxair Deer Park Cogen, Inc. Delaware
Praxair Distribution, Inc. Delaware
Praxair Distribution Southeast, LLC Delaware
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 Company Canada
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 Management Services, Inc. Delaware
Praxair Mexico, S.A. de C.V Mexico
Praxair Martime Company Canada
Praxair-Ozone,Inc Delaware
Praxair N.V Belgium
Praxair Pacific Limited Mauritius
Praxair Partnership Delaware
Praxair PC Partnership Canada
Praxair Polska, SP. z o.o Poland
<PAGE>
Praxair, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
EXHIBIT 21.01
(cont'd.)
Place of
Incorporation
-------------
Praxair Paraguay S.R.L Paraguay
Praxair Peru S.A Peru
Praxair Portugal Gases S.A Portugal
Praxair Produccion Espana, S.L 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 Soldadura S.L Spain
Praxair Surface Holdings SARL France
Praxair Surface Technologies A/S Denmark
Praxair Surface Technologies Co., Ltd. Korea
Praxair Surface Technologies do Brazil Ltda Brazil
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 Uruguay S.A Uruguay
Praxair Venezuela, S.A Venezuela
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
Rimet S.r.l Italy
Rivoira S.p.A Italy
S. A. White Martins Brazil
Servicios Energeticos S.A Chile
Shanghai Praxair-Yidian, Inc. China
Susano Carbonato De Calcio Ltda Brazil
TAFA Incorporated Delaware
TAFA Material Technologies, Inc. Delaware
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
VTE-Verschlelbtechnik und Engineering GmbH Germany
Wall Chemicals, Inc. Illinois
Westair Cryogenics Company Delaware
<PAGE>
Praxair, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
EXHIBIT 21.01
(cont'd.)
Place of
Incorporation
-------------
White Martins & White Martins Comercio e Servicos Portugal
White Martins Administracao e Investimentos Ltda Brazil
White Martins de Camacari S.A Bahia
White Martins e Companhia Comercio e Servicos Portugal
White Martins Gases Industriais do Nordeste S.A Brazil
White Martins Gases Industriais do Norte S.A Brazil
White Martins Gases Industriais S.A Brazil
White Martins Soldagem Ltda Brazil
Praxair, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
EXHIBIT 23.01
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in 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 8, 2000 relating to the financial statements, which
appears in the Annual Report to Shareholders, which is incorporated in this
Annual Report on Form 10-K.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Stamford, Connecticut
March 15, 2000
<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-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 76
<SECURITIES> 0
<RECEIVABLES> 882
<ALLOWANCES> 34
<INVENTORY> 310
<CURRENT-ASSETS> 1335
<PP&E> 8581
<DEPRECIATION> 3861
<TOTAL-ASSETS> 7722
<CURRENT-LIABILITIES> 1725
<BONDS> 2111
75
0
<COMMON> 2
<OTHER-SE> 2288
<TOTAL-LIABILITY-AND-EQUITY> 7722
<SALES> 4639
<TOTAL-REVENUES> 4639
<CGS> 2732<F1>
<TOTAL-COSTS> 2732<F1>
<OTHER-EXPENSES> 445<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 204
<INCOME-PRETAX> 627
<INCOME-TAX> 152
<INCOME-CONTINUING> 441
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (10)
<NET-INCOME> 431
<EPS-BASIC> 2.71
<EPS-DILUTED> 2.66
<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.
</FN>
</TABLE>
