-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SuHuDZtsDO5/2ZNEObKB2/IpW5pdjrSbBZYmTHLcw2JbfOD3W9fRi7LGXGs8gtP8 b+Ub7iP1fGIZiOqatc60ew== 0000884905-97-000004.txt : 19970317 0000884905-97-000004.hdr.sgml : 19970317 ACCESSION NUMBER: 0000884905-97-000004 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970314 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRAXAIR INC CENTRAL INDEX KEY: 0000884905 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL INORGANIC CHEMICALS [2810] IRS NUMBER: 061249050 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-11037 FILM NUMBER: 97557028 BUSINESS ADDRESS: STREET 1: 39 OLD RIDGEBURY RD CITY: DANBURY STATE: CT ZIP: 06810-5113 BUSINESS PHONE: 2038372000 MAIL ADDRESS: STREET 1: 39 OLD RIDGEBURY ROAD CITY: DANBURY STATE: CT ZIP: 06810-5113 FORMER COMPANY: FORMER CONFORMED NAME: UNION CARBIDE INDUSTRIAL GASES INC DATE OF NAME CHANGE: 19600201 10-K405 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1996 Commission file number 1-11037 PRAXAIR, INC. 1996 FORM 10-K Praxair, Inc. Tel. (203) 837-2000 39 Old Ridgebury Road State of incorporation: Delaware Danbury, Connecticut 06810-5113 IRS identification number: 06-124 9050 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: TITLE OF EACH CLASS: REGISTERED ON : Common Stock ($.01 per value) New York Stock Exchange Common Stock Purchase Rights New York Stock Exchange SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Security Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [X] At January 31, 1997, 157,630,505 shares of common stock of Praxair, Inc. were outstanding. The aggregate market value of common stock held by non-affiliates at January 31, 1997 was approximately $7,280 million. DOCUMENTS INCORPORATED BY REFERENCE: Portions of the 1996 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 7, 1997, are incorporated in Part III of this report. The Index to Exhibits is located on page 12 of this report. FORWARD-LOOKING STATEMENTS The forward-looking statements contained in this document concerning, among other things, projected earnings, capital spending, effective tax rates, and the timing, proceeds and other terms of the disposition of businesses and assets held for sale, involve risks and uncertainties, and are subject to change based on various factors, including the impact of changes in worldwide and national economies, achievement of synergies and cost reductions in the integration of the recently acquired Liquid Carbonic business of CBI Industries, Inc., the timing of divestments and the proceeds realized therefrom, pricing fluctuations in foreign currencies, changes in interest rates, the continued timely development and acceptance of new products and processes, the impact of competitive products and pricing, the ability to achieve tax synergies that will reduce the effective tax rate for the CBI businesses, and the impact of tax and other legislation and regulation in the jurisdictions in which the company operates. INDEX PART I Item 1: Business Item 2: Properties Item 3: Legal Proceedings Item 4: Submission of Matters to a Vote of Security Holders PART II Item 5: Market for Registrant's Common Equity and Related Shareholder Matters Item 6: Selected Financial Data Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations Item 8: Financial Statements and Supplementary Data Item 9: Changes in and Disagreements with Accountants on Accounting and Financial Disclosure PART III Item 10: Directors and Executive Officers of the Registrant Item 11: Executive Compensation Item 12: Security Ownership of Certain Beneficial Owners and Management Item 13: Certain Relationships and Related Transactions PART IV Item 14: Exhibits, Financial Statement Schedules, and Reports on Form 8-K Signatures Index to Exhibits PART I PRAXAIR, INC. AND SUBSIDIARIES ITEM 1. BUSINESS GENERAL - Praxair, Inc. (Praxair or Company) was founded in 1907 and became an independent publicly-traded company on June 30, 1992. Praxair was the first company in the United States to produce oxygen from air using a cryogenic process. Praxair has been, and continues to be, a major technological innovator in the industrial gases industry and has done much to create value for its customers by developing new applications for industrial gases and to open new markets by lowering the cost of supply. Praxair is the largest industrial gases company in North and South America and the third largest worldwide. The Company is the world's largest supplier of carbon dioxide. Praxair's primary products are atmospheric gases (oxygen, nitrogen, argon, rare gases) and process gases (carbon dioxide, helium, hydrogen, electronics gases, acetylene). The Company's coatings services business, operated through Praxair Surface Technologies, supplies wear-resistant and high-temperature corrosion-resistant metallic and ceramic coatings and powders. Sales for Praxair were $4,449, $3,146, and $2,711 million for 1996, 1995 and 1994, respectively, with industrial gases accounting for 91% of sales in 1996, 90% in 1995 and 91% in 1994, and coatings services/other accounting for the balance. During 1996, Praxair acquired the common stock of CBI Industries, Inc. (CBI) (See Note 2 to Consolidated Financial Statements). CBI operated in three major business segments: Industrial Gases (Liquid Carbonic), Contracting Services (Chicago Bridge & Iron Company) and Investments (primarily Statia Terminals). The Industrial Gases segment is the world's largest supplier of carbon dioxide in its various forms and produces, processes and markets a wide variety of other industrial/medical and specialty gases, and assembles and sells industrial gas-related equipment. Praxair determined that the Contracting Services and Investments segments of CBI are not strategic to the combined company and, during 1996, sold or took action to sell those businesses. Additionally, based on an agreement with the U. S. Federal Trade Commission, Praxair sold four air separation plants operated by Liquid Carbonic in the United States. The remaining businesses to be sold are accounted for as acquired assets held for sale. Gases produced by the Company find wide use in the aerospace, beverage, chemicals, electronics, environmental remediation, food processing and preservation, glass, medical, metal fabrication, oil and gas, primary metals, pulp and paper, and various other industries. By using the gases that Praxair produces and, in many cases, the proprietary processes that it invents, customer value is created through improved product quality, increased productivity, conservation of energy, and the attainment of environmental improvement objectives. The Company has been and continues to be a major technological innovator in the industrial gases industry and, working with customers, has done much to increase the use of its industrial gases to support the manufacture of other products and for many other uses. Historically, consumption of industrial gases has increased at approximately 1.5x-2.0x local GDP growth in countries in which the Company does business. INDUSTRIAL GASES PRODUCTS AND MANUFACTURING PROCESSES Atmospheric gases are the highest volume products produced by Praxair. Using air as its raw material, Praxair produces oxygen, nitrogen and argon through several air separation processes. As a pioneer in the industrial gases industry, Praxair has been a leader in developing a wide range of proprietary and patented applications and supply systems technology. In recent years, Praxair has developed and commercialized new air separation technologies for the production of industrial gases and is a recognized leader in this rapidly growing market segment. These technologies open important new markets and optimize production capacity for the Company by lowering the cost of supply of industrial gases. These new technologies include proprietary vacuum pressure swing adsorption ("VPSA") and membrane separation to produce gaseous oxygen and nitrogen, respectively. PART I (CONT.) PRAXAIR, INC. AND SUBSIDIARIES Process gases, including carbon dioxide, carbon monoxide, hydrogen, helium and acetylene, are produced by different methods than air separation. Most carbon dioxide is purchased from by-product sources, including chemical plants, refineries and industrial processes, or from carbon dioxide wells, and is processed in Praxair's own plants to produce commercial carbon dioxide. Most of the helium sold by Praxair is derived from certain helium-rich natural gas streams in the United States, with additional supplies being acquired from outside the United States. Hydrogen and carbon monoxide are produced by purifying hydrocarbon sources or by purifying by-product sources obtained from the chemical and petrochemical industries. Acetylene is typically produced from calcium carbide and water. INDUSTRIAL GASES DISTRIBUTION There are three basic distribution methods for industrial gases: (i) on-site or tonnage; (ii) merchant liquid; and (iii) packaged or cylinder gases. These distribution methods are often integrated, with products from all three supply modes coming from the same plant. The method of supply is generally determined by the lowest cost means of meeting the customer's needs, depending upon factors such as volume requirements, purity, pattern of usage, and the form in which the product is used (as a gas or as a cryogenic liquid). ON-SITE. Customers that require the largest volumes of product (typically oxygen, nitrogen and hydrogen) and that have a relatively constant demand pattern are supplied by cryogenic on-site plants. Praxair constructs plants on or adjacent to these customers' sites and supplies the product directly to customers. Because these are usually dedicated plants, the product supply contracts generally are total requirement contracts, typically having 10-20 year terms and containing minimum purchase requirements and price escalation provisions. Many of the cryogenic on-site plants also produce liquid products for the merchant market. New advanced air separation processes allow on-site delivery to customers with smaller volume requirements. Customers using these systems usually enter into requirement contracts with terms typically ranging from 5-15 years. MERCHANT. The merchant business is generally associated with distributable liquid oxygen, nitrogen, argon, carbon dioxide, hydrogen and helium. Atmospheric gases for the merchant business are produced by cryogenic processes whereas carbon dioxide, hydrogen and helium are produced by other processes as discussed earlier. The deliveries generally are made from Praxair's plants by tanker truck to storage containers owned and maintained by Praxair at the customer's site. Although merchant oxygen and nitrogen generally have a relatively small distribution radius from the plants at which they are produced, merchant argon, hydrogen and helium can be shipped much longer distances. The agreements used in the merchant business are usually three to five year requirement contracts except for carbon dioxide which typically has one year requirement contracts. PACKAGED GASES. Customers requiring small volumes are supplied products in metal containers called cylinders, usually at medium to high pressure. These so-called packaged gases include the atmospheric gases, carbon dioxide, hydrogen, helium and acetylene. Praxair also produces and distributes in cylinders a wide range of specialty gases and mixtures. Cylinders may be delivered to the customer's site or picked up by the customer at a packaging facility or retail store. Packaged gases are generally sold by purchase orders. In the United States, most cylinder products are sold along with welding equipment (hardgoods) by distributors that buy the merchant product from industrial gases producers and package the product at their own facilities. Praxair has a large network of independent distributors and owns equity interests in distributor operations in 26 states in the U.S. and Puerto Rico. Praxair has acquired independent distributors in various locations in the United States. PART I (CONT.) PRAXAIR, INC. AND SUBSIDIARIES SURFACE TECHNOLOGIES Praxair's surface technologies business provides metallic and ceramic coatings services for parts and equipment provided by customers. It also provides aircraft engine and airframe component overhaul services and sells a variety of specialty powders. The coatings extend wear life at high temperatures and under corrosive conditions. These coatings are applied at Praxair's facilities using a variety of thermal spray coatings processes. The coated parts are finished to the customer's precise specifications before shipment. Customers for Praxair's surface technologies products and services include the aircraft, electronics, metal finishing, paper, petrochemical, printing and textile industries. INVENTORIES- Praxair carries inventories of merchant and cylinder gases and coatings materials to supply products to its customers on a reasonable delivery schedule. On-site plants and pipeline complexes have limited inventory. Inventories, inventory obsolescence and backlogs are not material to Praxair's business. CUSTOMERS-Praxair is not dependent, to a significant extent, upon a single customer or a few customers. INTERNATIONAL-Praxair is a global enterprise with slightly over half of its 1996 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, Indonesia, India, Israel, Italy, Japan, Korea, Mexico, the Netherlands, the People's Republic of China, Paraguay, Peru, Poland, Portugal, Spain, Thailand, Turkey, Uruguay and Venezuela. S.I.A.D. (Societa Italiana Acetilene & Derivati S.p.A.), an Italian company carried at equity, also has established positions in Austria, Bulgaria, the Czech Republic and Slovenia. Praxair's surface technologies business has operations in Denmark, France, Germany, Italy, Japan, Singapore, 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" included in Praxair's 1996 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; Chicago, 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 and Okegawa, Japan. 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. PART I (CONT.) PRAXAIR, INC. AND SUBSIDIARIES RAW MATERIALS AND ENERGY-Energy is the largest single cost item in the production and distribution of industrial gases. Principal risks to Praxair's business and financial performance include shortage of electric power and natural gas, interruption of supply or increases in price which cannot be passed through to customers. Praxair has not, historically, experienced significant difficulties of this nature. Also, Praxair operates a large fleet of trucks, and any fuel shortage may adversely affect its distribution system. For carbon dioxide, carbon monoxide, helium, hydrogen, specialty gases and surface technologies, raw materials are largely purchased from outside sources. Praxair has contracts or commitments for, or readily available sources of, most of these raw materials; however, their long term availability and prices are subject to market conditions. COMPETITION-Praxair operates within a highly competitive environment. Some of its competitors are larger in size and capital base than Praxair. Competition is based on price, product quality, delivery, reliability, technology and service to customers. Major competitors in the industrial gases industry both in the United States and worldwide include The BOC Group p.l.c., L'Air Liquide S.A., Air Products and Chemicals, Inc., and AGA Aktiebolag. At a worldwide level, there are no congruent competitors for the surface technologies business. However, principal domestic competitors are Sermatech International, Inc., a subsidiary of Teleflex, Inc., and Chemtronics, Inc., a subsidiary of Interlake, Inc. International competitors in surface technologies vary from country to country. EMPLOYEES AND LABOR RELATIONS - As of December 31, 1996, Praxair had 25,271 employees worldwide, excluding employees related to assets held for sale. Of this number, 8,619 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 1996 Annual Report to Shareholders. PART I (CONT.) PRAXAIR, INC. AND SUBSIDIARIES ITEM 2. PROPERTIES Praxair's worldwide headquarters is located in leased office space in Danbury, Connecticut. Other principal administrative offices are owned in Tonawanda, New York and Rio de Janeiro, Brazil. Praxair designs, engineers, manufactures and operates facilities that produce and distribute industrial gases. These industrial gas production facilities and certain components are designed and/or manufactured at its facilities in Tonawanda, New York; Norwood, Massachusetts; 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 257 cryogenic air separation plants worldwide (148 in the United States); 84 by-product carbon dioxide plants worldwide (20 in the United States); and 23 hydrogen plants worldwide. No single production facility is material except for the following complexes: Number of SUPPLY SYSTEM CONNECTED PLANTS PRODUCTS PRODUCED Northern Indiana 10 Air Separation/ Hydrogen Houston 6 Air Separation Gulf Coast * 12 Hydrogen/ Carbon Monoxide Detroit 6 Air Separation/ Hydrogen Southern Brazil * 2 Air Separation Northern Spain 3 Air Separation/ Hydrogen * partially owned and partially leased. The surface technologies business operates 30 plants located near customers in Denmark, France, Germany, Italy, Japan, United Kingdom, the United States, Singapore and Switzerland. Generally, these facilities are fully utilized and sufficient to meet customer needs. With respect to CBI's assets held for sale, Chicago Bridge & Iron Company owns or leases the properties used to conduct its business. The capacities of these facilities depend upon the mix of products being manufactured. Its principal properties are located in California, Georgia, Illinois and Texas in the United States, and Australia and Canada internationally. ITEM 3. LEGAL PROCEEDINGS Information required by this item is incorporated herein by reference to the section captioned "Notes to Consolidated Financial Statements - Note 14 Commitments and Contingencies" in Praxair's 1996 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 1996. PART II PRAXAIR, INC. AND SUBSIDIARIES ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS Market, trading, shareholder and dividend information for Praxair's common stock is incorporated herein by reference to the section captioned "Information for Investors" in Praxair's 1996 Annual Report to Shareholders. Praxair's annual dividend on its common stock for 1996 was $0.38 per share. In January 1997, Praxair's Board of Directors declared a dividend of $0.11 per share for the first quarter of 1997, or $0.44 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, 1996 is incorporated herein by reference to the section captioned "Five-year Financial Summary" in Praxair's 1996 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 1996 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," and "Notes to Consolidated Financial Statements" in Praxair's 1996 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. PART III PRAXAIR, INC. AND SUBSIDIARIES ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information required by this item is incorporated herein by reference to the section captioned "Directors and Executive Officers" in Praxair's Proxy Statement for the Annual Meeting of Shareholders to be held on April 29, 1997. 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 29, 1997. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information required by this item is incorporated herein by reference to the section captioned "Voting Securities and Principal Holders" in Praxair's Proxy Statement for the Annual Meeting of Shareholders to be held April 29, 1997. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS There have been no transactions or relationships since the beginning of 1996 which are reportable under this item. PART IV PRAXAIR, INC. AND SUBSIDIARIES ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) Financial Statements and Schedules PAGE NO. IN PRAXAIR'S 1996 ANNUAL REPORT (AR)* FINANCIAL STATEMENTS Consolidated Statement of Income for the Years Ended December 31, 1996, 1995 and 1994 ......................... AR-25 Consolidated Balance Sheet at December 31, 1996 and 1995 .. AR-26 Consolidated Statement of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994 ......................... AR-27 Notes to Consolidated Financial Statements ................ AR-28 Report of Independent Accountants ......................... AR-43 * Incorporated by reference from the indicated pages of the 1996 Annual Report to Shareholders. FINANCIAL STATEMENT SCHEDULES All financial statement schedules have been omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. (b) Reports on Form 8-K On January 23, 1997, Praxair filed a Current Report on Form 8-K dated January 21, 1997 relating to the authorization of a share repurchase program and an increase in the quarterly dividend. (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. SIGNATURES PRAXAIR, INC. AND SUBSIDIARIES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PRAXAIR, INC. (Registrant) Date: March 14, 1997 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 25, 1997. John A. Clerico Alejandro Achaval Ronald L. Kuehn, Jr. VICE PRESIDENT, DIRECTOR DIRECTOR CHIEF FINANCIAL OFFICER AND DIRECTOR Edgar G. Hotard John J. Creedon Benjamin F. Payton PRESIDENT AND DIRECTOR DIRECTOR DIRECTOR H. William Lichtenberger C. Fred Fetterolf G. Jackson Ratcliffe, Jr. CHAIRMAN AND CHIEF DIRECTOR DIRECTOR EXECUTIVE OFFICER AND DIRECTOR Dale F. Frey H. Mitchell Watson, Jr. DIRECTOR DIRECTOR Claire W. Gargalli DIRECTOR INDEX TO EXHIBITS PRAXAIR, INC. AND SUBSIDIARIES EXHIBIT NO. DESCRIPTION 2.01 Agreement and Plan of Merger dated as of December 22, 1995 among Praxair, Inc., PX Acquisition Corp. and CBI Industries, Inc. (Filed as Exhibit 2 to the Company's Current Report on Form 8-K dated December 22, 1995, Filing No. 1-11037, and incorporated herein by reference). 3.01 Restated Certificate of Incorporation (Filed as Exhibit 3.01 to the Company's Registration Statement on Form 10, Filing No. 1-11037, and incorporated herein by reference). 3.02 Amended By Laws of Praxair, Inc. (Filed as Exhibit 3.02 to the Company's Registration Statement on Form 10, Filing No. 1-11037, and incorporated herein by reference). 3.03 Certificate of Designations for the 7.48% Cumulative Preferred Stock, Series A. (Filed on February 7, 1997 as Exhibit 3.3 to Amendment #1 to the Company's Registration Statement on Form S-3, Registration No. 333-18141). 3.04 Certificate of Designations for the 6.75% Cumulative Preferred Stock, Series B. (Filed on February 7, 1997 as Exhibit 3.4 to Amendment #1 to the Company's Registration Statement on Form S-3, Registration No. 333-18141). 4.01 Common Stock Certificate (Filed as Exhibit 4.01 to the Company's Registration Statement on Form 10, Filing No. 1-11037, and incorporated herein by reference). 4.02 Rights Agreement between the registrant and The Bank of New York as Rights Agent. (Filed as Exhibit 4.02 to the Company's Registration Statement on Form 10, Filing No. 1-11037, and incorporated herein by reference). 4.03 Indenture, dated as of July 15, 1992, between Praxair, Inc. and Fleet Bank of Connecticut as 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). INDEX TO EXHIBITS (CONT.) PRAXAIR, INC. AND SUBSIDIARIES EXHIBIT NO. DESCRIPTION *10.01b Second Amendment to the 1992 Long-Term Incentive Plan(Filed as Exhibit 10.01b to the Company's 1995 Annual Report on Form 10-K, Filing No. 1-11037, and incorporated herein by reference). *10.01c Third Amendment to the 1992 Long-Term Incentive Plan (Filed as Exhibit 10.01c to the Company's 1995 Annual Report on Form 10-K, Filing No. 1-11037, and incorporated herein by reference). *10.01d Fourth Amendment to the 1992 Long-Term Incentive Plan. *10.02 Severance Compensation Agreement (Filed as Exhibit 10.02 to the Company's Registration Statement on Form 10, 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 1995 Stock Option Plan for Non-Employee Directors (Filed as Exhibit 10.04 to the Company's Form 10-Q for the Quarter ended March 31, 1995, Filing No. 1-11037, and incorporated herein by reference). *10.05 Special Severance Protection Program (Filed as Exhibit 10.05 to the Company's Registration Statement on Form 10, Filing No. 1-11037, and incorporated herein by reference). *10.06 Restated Praxair, Inc. Directors' Fees Deferral Plan. *10.07 Amended and Restated 1993 Praxair Compensation Deferral Program 10.08 Transfer Agreement dated January 1, 1989, between Union Carbide Corporation and the registrant. (Filed as Exhibit 10.06 to the Company's Registration Statement on Form 10, Filing No. 1-11037, and incorporated herein by reference). 10.08a Amendment No. 1 dated as of December 31, 1989, to the Transfer Agreement (Filed as Exhibit 10.07 to the Company's Registration Statement on Form 10, Filing No. 1-11037, and incorporated herein by reference). 10.08b Amendment No. 2 dated as of July 2, 1990, to the Transfer Agreement (Filed as Exhibit 10.08 to the Company's Registration Statement on Form 10, Filing No. 1-11037, and incorporated herein by reference). 10.08c Amendment No. 3 dated as of January 2, 1991, to the Transfer Agreement (Filed as Exhibit 10.09 to the Company's Registration Statement on Form 10, Filing No. 1-11037, and incorporated herein by reference). INDEX TO EXHIBITS (CONT.) PRAXAIR, INC. AND SUBSIDIARIES EXHIBIT NO. DESCRIPTION 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). 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 Chemical Bank, as Administrative Agent and Auction 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). *10.18 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). 11.01 Computation of Earnings Per Share. 12.01 Computation of Ratio of Earnings to Fixed Charges. 13.01 Praxair's 1996 Annual Report to Shareholders (such report, except for those portions which are expressly referred to in this Form 10-K, is furnished for the information of the Commission and is not deemed "filed" as part of this Form 10-K). 21.01 Subsidiaries of Praxair, Inc. 23.01 Consent of Independent Accountants. Copies of exhibits incorporated by reference can be obtained from the SEC and are located in SEC File No. 1-11037. * Indicates a management contract or compensatory plan or arrangement. EX-10.01D 2 FOURTH AMENDMENT TO THE 1992 L/T INCENTIVE PLAN FOURTH AMENDMENT TO THE 1992 PRAXAIR, INC. LONG TERM INCENTIVE PLAN - ---------------------------------------------------------- In accordance with Section 12 of the Praxair, Inc. Long Term Incentive Plan (the "Plan"), the Plan is hereby amended as follows: 1. Section 11.1 of the Plan is amended in its entirety as follows: "11.1 A 'Change in Control of the Corporation' shall be deemed to occur in the event that any of the following circumstances have occurred: (i) individuals who, on October 22, 1996, constitute the Board (the "Incumbent Directors") cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director subsequent to October 22, 1996, whose election or nomination for election was approved by a vote of at least two-thirds of the Incumbent Directors then on the Board (either by a specific vote or by approval of the proxy statement of the Corporation in which such person is named as a nominee for director, without objection to such nomination) shall be an Incumbent Director; provided, however, that no individual elected or nominated as a director of the Corporation initially as a result of an actual or threatened election contest with respect to directors or any other actual or threatened solicitation of proxies [or consents] by or on behalf of any person other than the Board shall be deemed an Incumbent Director; (ii) any "person" (as such term is defined in Section 3(a)(9) of the Securities Exchange Act of 1934 (the "Exchange Act") and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) is or becomes a "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Corporation representing 20% or more of the combined voting power of the Corporation's then outstanding securities eligible to vote for the election of the Board (the "Company Voting Securities"); provided, however, that the event described in this paragraph (ii) shall not be deemed to be a Change in Control by virtue of any of the following acquisitions: (A) by the Corporation or any Subsidiary, (B) by any employee benefit plan sponsored or maintained by the Corporation or Subsidiary, (C) by any underwriter temporarily holding securities pursuant to an offering of such securities, (D) pursuant to a Non-Qualifying Transaction (as defined in paragraph (iii)), or (E) pursuant to any acquisition by Executive or any group of persons including Executive (or any entity controlled by Executive or any group of persons including Executive); (iii) the consummation of a merger, consolidation, share exchange or similar form of corporate transaction involving the Corporation or any of its Subsidiaries that requires the approval of the Corporation's stockholders, whether for such transaction or the issuance of securities in the transaction (a "Business Combination"), unless immediately following such Business Combination: (A) more than 50% of the total voting power of (x) the corporation resulting from such Business Combination (the "Surviving Corporation"), or (y), if applicable, the ultimate parent corporation that directly or indirectly has beneficial ownership of 100% of the voting securities eligible to elect directors of the Surviving Corporation (the "Parent Corporation"), is represented by Company Voting Securities that were outstanding immediately prior to such Business Combination (or, if applicable, shares into which such Company Voting Securities were converted pursuant to such Business Combination), and such voting power among the holders thereof is in substantially the same proportion as the voting power of such Company Voting Securities among the holders thereof immediately prior to the Business Combination, (B) no person (other than any employee benefit plan sponsored or maintained by the Surviving Corporation or the Parent Corporation), is or becomes the beneficial owner, directly or indirectly, of 20% or more of the total voting power of the outstanding voting securities eligible to elect directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation) and (C) at least a majority of the members of the board of directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation) were Incumbent Directors at the time of the Board's approval of the execution of the initial agreement providing for such Business Combination (any Business Combination which satisfies all of the criteria specified in (A), (B) and (C) above shall be deemed to be a "Non-Qualifying Transaction"); or (iv) The stockholders of the Corporation approve a plan of complete liquidation or dissolution of the Corporation or a sale of all or substantially all of the Corporation's assets. Notwithstanding the foregoing, a Change in Control of the Corporation shall not be deemed to occur solely because any person acquires beneficial ownership of more than 20% of the Company Voting Securities as a result of the acquisition of Company Voting Securities by the Corporation which reduces the number of Company Voting Securities outstanding; provided, that if after such acquisition by the Corporation such person becomes the beneficial owner of additional Company Voting Securities that increases the percentage of outstanding Company Voting Securities beneficially owned by such person, a Change in Control of the Corporation shall then occur." 2. The provisions of this Fourth Amendment shall be effective as of December 13, 1996. Signed this _____ day of _________, 1997. PRAXAIR, INC. By: Barbara R. Harris Barbara R. Harris Vice President Human Resources EX-10.06 3 RESTATED PRAXAIR INC. DIRECTORS' FEE DEFERRAL PLAN PRAXAIR, INC. DIRECTOR'S FEES DEFERRAL PLAN RESTATED THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS COVERING SECURITIES THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. Originally adopted by the Board: December 2, 1993 Incorporates Amendment No. 1 Adopted: September 9, 1996 Effective: October 1, 1996 PRAXAIR, INC. DIRECTOR'S FEES DEFERRAL PLAN Section 1. Purpose, Participation - ---------------------------------- (a) Purpose: The purpose of this Director's Fees Deferral Plan (the "Plan") is to enable Praxair, Inc. (the "Corporation") to attract and retain Directors of outstanding ability by providing them with a mechanism to defer and accumulate Director's fees, meaning (1) the retainer, (2) fees for attendance at meetings of the Board of Directors and Board committees of the Corporation, (3) fees for additional or special services as Directors and (4) other compensatory payments made to Directors by the Corporation in connection with their service as Directors. (b) Participation: This Plan extends to Directors of the Corporation not employed by the Corporation or any subsidiary. Section 2. Payment of Deferred Amounts - --------------------------------------- (a) Deferral Election: At any time prior to the beginning of a calendar year, a Director may elect that all or any specified portion of the Director's fees to be earned during such calendar year be credited to a Director's Cash Account, a Director's Stock Unit Account and/or a Director's Discounted Stock Unit Account maintained on such Director's behalf in lieu of payment (a "Deferral Election"). A Director may also make a Deferral Election during the 30 days following the date on which a Director first becomes eligible to receive Director's fees, although any Deferral Election made pursuant to this sentence will apply only to all or any specified portion of the Director's fees earned thereafter. Each Deferral Election must be submitted to the Secretary of the Corporation in writing, and will be deemed to authorize deferral to only a Director's Cash Account except to the extent deferral to a Director's Stock Unit Account or a Director's Discounted Stock Unit Account is expressly specified. (b) Effect of Deferral Election: Pursuant to such Deferral Election, the Corporation (i) will not pay the Director's fees covered thereby and (ii) will make payments in accordance with the Deferral Election and this Section 2. (c) Payment Commencement Event: At the time of making the Deferral Election, a Director will designate as a "Payment Commencement Event" either (1) the termination of the Director's service as a Director of the Corporation (or any successor) or (2) the Director's attainment of an age, not to exceed 75, specified by the Director so long as, with respect to payment of a Director's Discounted Stock Unit Account, it does not result in payment prior to the Director's termination of service as a Director. A Director may also elect that notwithstanding any other election made by him pursuant to this Section 2, in the event that the Director terminates service as a Director of the Corporation within one year following a "Change of Control" (as defined in Section 5(h)), the Payment Commencement Event for payments from a deferral account will be the termination of the Director's service as a Director. (d) Payment: Payment of amounts deferred pursuant to the Deferral Election will commence on the last business day of the calendar quarter in which the Payment Commencement Event (either as originally designated or as deferred pursuant to clause (1) of Section 2(e)) occurs. Payments from a deferral account will be made in a lump sum (in cash or stock as provided in this Plan) unless a timely election of an installment payment schedule pursuant to clause (2) of Section 2(e) has been made. (e) Additional Deferrals: A Director may also (1) elect to defer the Payment Commencement Event to a later date specified by the Director (but not later than attainment of age 75), and/or (2), for Payment Commencement Events other than a Change of Control, elect that (i) payment from the Director's Cash Account be made in a number of approximately equal annual cash installments, and/or (ii) payment from the Director's Stock Unit Account and the Director's Discounted Stock Unit Account be made in a number of annual installments, each of an approximately equal number of Stock Units. Such installment payments shall be made over a period of time specified by the Director, but not to exceed 15 years. Such elections may be made at any time until 12 months before the Payment Commencement Event designated pursuant to Section 2(c) . Each such election must be submitted to the Secretary of the Corporation in writing. A Director may make no more than one election pursuant to clause (1) in any calendar year. An election of an installment payment schedule pursuant to clause (2) is irrevocable except as provided in Section 2(g). (f) Renewal of Elections: Once a Deferral Election and designation of a Payment Commencement Event has been made, it will be automatically applied to Director's fees earned in all subsequent calendar years unless the Director changes or revokes either such election or designation. Each such change or revocation must be submitted to the Secretary of the Corporation in writing. However, except as provided in Section 2(e), each Deferral Election and designation of Payment Commencement Event is irrevocable as to Director's fees earned prior to the calendar year next following any change or revocation. (g) Renewal of Installment Election: An election of an installment payment schedule will automatically apply to amounts credited to a deferral account in each succeeding calendar year unless, prior to the commencement of such calendar year, the Director elects to change or revoke such installment payment schedule election, in which case his/her new election will control only with respect to amounts credited during calendar years following such new election. (h) Disability: In the event a Director becomes disabled, the payment commencement date and/or payment schedule with respect to a balance in a deferral account may be accelerated by the Plan Committee, in its sole discretion. 'Disabled' means unable to engage in any substantial gainful activity because of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted, or can be expected to last, for a continuous period of six (6) months or longer. (i) Death: A Director may designate a beneficiary (and change such beneficiary, from time to time) for payment of any balance of the deferral account at the Director's death. Upon a Director's death, any balance in the deferral account (including amounts credited to such account as specified in Section 3(b) and Section 4(b)) will be paid to the deceased Director's beneficiary at the end of the first calendar quarter which ends at least 30 days after the Director dies. If no beneficiary has been designated, the Director's estate will be deemed the beneficiary, and any payments pursuant to this Section 2(i) will be paid, either at the end of the first calendar quarter which ends at least 30 days after appointment of the deceased Director's legal representative, or such earlier date as may be determined by the Plan Committee, in its sole discretion. (j) Mandatory Deferrals: The Board of Directors may, from time to time, determine that certain payments made to Directors shall be mandatorily deferred under this Plan. If, in conjunction with such determination, the Board specifies the deferral account(s) to which such payment shall be credited or the Payment Commencement Event applicable to such deferral, then such specifications shall be applied to the deferral as if the recipient Director had made a timely Deferral Election with respect to such payment under Section 2(a) and had designated a Payment Commencement Event under Section 2(c). With respect to any such mandatory deferral, the Board may also specify restrictions on changes or revocations of Deferral Elections (or deemed Deferral Elections) and Payment Commencement Event designations under Section 2(f), in which event Section 2(f) shall be inoperative as to such mandatory deferral to the extent of the specified restrictions. Section 3. Credits and Debits to Director's Cash Account - ----------------------------------------------------------- (a) Principal: The Corporation will create and maintain on its books a Director's Cash Account for each Director who has made a Deferral Election to such an account under Section 2(a). The Corporation will credit to such account the amount of any Director's fee which would have been paid to the Director, but which is not pursuant to such Deferral Election, as of the date the fee would have otherwise been payable. (b) Interest: At the end of each calendar quarter, regardless of whether any other credits are then made to the Director's Cash Account or whether the Director is then a Director, the Corporation will also credit to the Director's Cash Account a sum which is equal to the product of (i) the average daily balance in the Director's Cash Account for the quarter (without regard to any debits made at the end of such quarter), times (ii) one-fourth of the annual Base Rate (prime rate) for corporate borrowers quoted by Morgan Guaranty Trust Company of New York as of the first business day of the quarter. (c) Debits: At the end of each calendar quarter, the Corporation will make a payment if required under the payment schedule for such Director's Cash Account and will debit the Director's Cash Account for the amount thereof. Payment with respect to a Director's Cash Account will be in cash only. (d) Mid-quarter Payments: If Payment is to be made other than at the end of a calendar quarter in accordance with a determination pursuant to Section 2(h) or to Section 2(i), prior to such payment, the Corporation will credit to the Director's Cash Account an amount equal to the product of (i) the average daily balance In the Director's Cash Account for the period from the beginning of the calendar quarter to the date of payment (without regard to any debits to be made upon such payment), times (ii) a fraction of the annual Base Rate (prime rate) for corporate borrowers quoted by Morgan Guaranty Trust Company of New York as of the first business day of the quarter, the numerator of which is the number of days in the period described in clause (i), and the denominator of which is 365. Section 4. Credits and Debits to Director's Stock Unit Account - ----------------------------------------------------------- (a) Stock Units: The Corporation will create and maintain on its books a Director's Stock Unit Account for each Director who has made a Deferral Election under Section 2(a) and expressly specifies deferral to such an account. The Corporation will credit to such account the number of Stock Units equal to the number of shares of the Corporation's common stock that could be purchased with the amount of any Director's fee which would have been paid to the Director, but which is not pursuant to such Deferral Election, as of the date the fee would have otherwise been payable. The number of Stock Units will be calculated to three decimals by dividing the amount of the Director's fee as to which a Director's Stock Unit Account Deferral Election was made by the closing price of the Corporation's common stock as reported on the New York Stock Exchange as of the date the fee would have otherwise been payable. (b) Dividends: As of the date any dividend is paid to holders of shares of the Corporation's common stock, each Director's Stock Unit Account, regardless of whether the Director is then a Director, will be credited with additional Stock Units equal to the number of shares of the Corporation's common stock that could have been purchased with the amount which would have been paid as dividends on that number of shares (including fractions of a share to three decimals) of the Corporation's common stock equal to the number of Stock Units attributed to such Director's Stock Account as of the record date applicable to such dividend. The number of additional Stock Units to be credited will be calculated to three decimals by dividing the amount which would have been paid as dividends by the closing price of the Corporation's common stock as reported on the New York Stock Exchange as of the date the dividend would have been paid. In the case of dividends paid in property other than cash, the amount of the dividend shall be deemed to be the fair market value of the property at the time of the payment of the dividend, as determined in good faith by the Plan Committee. (c) Debits and Calculation of Payments: The Corporation will debit the Director's Stock Unit Account for Stock Units as required under the payment schedule for such Director's Stock Unit Account. Payment with respect to whole Stock Units will be in shares of the Corporation's common stock only, at the rate of one share of common stock per Stock Unit. With respect to fractional Stock Units, payment will be made in cash only, and calculated by multiplying the fractional number of the Stock Unit to be debited by the closing price of the Corporation's common stock as reported on the New York Stock Exchange as of the last business day of the week preceding the week of the date the Stock Units are payable. Should payment with respect to Stock Units be made after the record date, but before the payment date applicable to a dividend paid to holders of shares of the Corporation's common stock, Stock Units credited a Director's Stock Unit Account in consequence of such dividend payment will be calculated as cash payments and paid within thirty days of such credit. (d) Adjustment: If at any time the number of outstanding shares of the Corporation's common stock is increased as the result of any stock dividend, stock split, subdivision or reclassification of shares, the number of Stock Units with which each Director's Stock Unit Account is credited will be increased in the same proportion as the outstanding number of shares of the Corporation's common stock is increased. If the number of outstanding shares of common stock is decreased as the result of any combination, reverse stock split or reclassification of shares, the number of Stock Units with which each Director's Stock Unit Account is credited will be decreased in the same proportion as the outstanding number of shares of the Corporation's common stock is decreased. In the event the Corporation is consolidated with or merged into any other corporation and holders of shares of the Corporation's common stock receive shares of the capital stock of the resulting or surviving corporation, there shall be credited to each Director's Stock Unit Account, in lieu of the extant Stock Units, new Stock Units in an amount equal to the product of the number of shares of capital stock exchanged for one share of the Corporation's common stock upon such consolidation or merger, and the number of Stock Units with which such account then is credited. If, in such a consolidation or merger, holders of shares of the Corporation's common stock receive any consideration other than shares of the capital stock of the resulting or surviving corporation or its parent corporation, the Plan Committee will determine any appropriate change in Director's Stock Unit Accounts. Section 4A. Credits and Debits to Director's Discounted Stock Unit Account - ---------------------------------------------------------- Director's Discounted Stock Unit Accounts shall be established and administered in the same manner as Director's Stock Unit Accounts as set forth in Section 4 such that all references therein to a "Director's Stock Unit" may be substituted with "Director's Discounted Stock Unit Account"; provided, however, that, in the case of such substitution, the calculation of Stock Units to be credited upon deferral of a Director's fee pursuant to Section 4(a) and upon crediting of dividend equivalents pursuant to Section 4(b) and the last sentence of Section 4(c) shall be based on the applicable closing price of the Corporation's common stock less ten percent (10%). Section 5. Unfunded Arrangement - -------------------------------- (a) Neither this Plan nor any deferral account will be funded; a deferral account and all entries thereto constitute bookkeeping records only and do not relate to any specific funds or shares of the Corporation. Payments due with respect to balances in a deferral account will be made from the general assets of the Corporation, and the right of any participant to receive future payments under this Plan's provisions will be an unsecured claim against such assets. Section 6. Administration - -------------------------- (a) Plan Committee: The Plan will be administered by a Plan Committee, which will be the Public Policy and Nominating Committee of the Board of Directors of the Corporation, or such other Committee as may be appointed by the Board of Directors of the Corporation, and may include Directors who have elected to participate in the Plan. No member of the Plan Committee will be liable for any act done or determination made in good faith. (b) Committee Determination Final: The construction and interpretation of any provision of the Plan by the Plan Committee, and a determination by the Plan Committee of the amount of any deferral account, will be final and conclusive. (c) Amendments: The Corporation, subject to approval of its Board of Directors, reserves the right to terminate, modify or amend this Plan, effective prospectively as of the first day of any calendar quarter; provided, however, that the Plan will not be subject to termination, modification or amendment with respect to any balance of a deferral account and rights therein, including the right to future interest pursuant to Section 3(b) and future dividends pursuant to Section 4(b), unless the affected Director consents. (d) Non-Alienation: No Director (or estate of a Director) will have power to transfer, assign, anticipate, mortgage or otherwise encumber any rights or any amounts payable hereunder; nor will any such rights or payments be subject to seizure for the payment of any debts, judgments, alimony, or separate maintenance, or be transferable by operation of law in the event of bankruptcy, insolvency, or otherwise. (e) Expenses: The expenses of administering the Plan will be borne by the Corporation and not be charged against any deferral account. (f) Withholding: The Corporation may deduct from all cash payments any taxes required to be withheld with respect to such payments. In order to enable the Corporation to meet any applicable federal, state or local withholding tax requirements arising as a result of payments made hereunder in the form of stock, a Director shall pay the Corporation the amount of tax to be withheld or may elect to satisfy such obligation by having the Corporation withhold shares that otherwise would be delivered to the Director pursuant to the deferral account payment for which the tax is being withheld, by delivering to the Corporation other shares of common stock of the Corporation owned by the Director prior to the payment date, or by making a payment to the Corporation consisting of a combination of cash and such shares of common stock. Such an election shall be made prior to the date to be used to determine the tax to be withheld. The value of any share of common stock to be withheld by, or delivered to, the Corporation pursuant to this Section 6(f) shall be the closing price of the Corporation's common stock as reported on the New York Stock Exchange on the date to be used to determine the amount of tax to be withheld. (g) Effect of IRS Determination: If any amounts deferred pursuant to the Plan are found in a "determination" (within the meaning of Section 1313(a) of the Internal Revenue Code of 1986, as amended) to have been includible in gross income by a Director prior to payment of such amounts from his/her deferral account, such amounts will be immediately paid to such Director, notwithstanding elections pursuant to Section 2. (h) Change of Control: A "Change of Control" will be deemed to have occurred if: (i) a change in control of the Corporation would be required to be reported in response to Item 1 (a) of the Current Report on Form 8-K, as in effect on the date set forth below , pursuant to Sections 13 or 15 (d) of the Exchange Act, whether or not the Corporation is then subject to such reporting requirement; (ii) there is consummated (x) any consolidation or merger of the Corporation in which the Corporation is not the continuing or surviving company or pursuant to which shares of the Corporation's common stock would be converted into cash, securities or other property, other than a merger of the Corporation in which the holders of the Corporation's common stock immediately prior to the merger have the same proportion and ownership of common stock of the surviving company immediately after the merger; or (y) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Corporation, provided, that the divestiture of less than substantially all of the assets of the Corporation in one transaction or a series of related transactions, whether effected by sale, lease, exchange, spin-off, sale of the stock or merger of a subsidiary or otherwise, is not a Change in Control; (iii) any 'person' within the meaning of Sections 13(d)(3) and 14(d)(2) of the Securities Exchange Act of 1934, as in effect on the date set forth below, (x) becomes the 'beneficial owner' as defined in Rule 13d-3 of more than 20% of the then outstanding voting securities of the Corporation, otherwise than through a transaction or transactions arranged by, or consummated with the prior approval of, the Board; or (y) acquires by proxy or otherwise the right to vote for the election of directors, for any merger or consolidation of the Corporation or for any other matter or question, more than 20% of the then outstanding voting securities of the Corporation, otherwise than through an arrangement or arrangements consummated with the prior approval of the Board; (iv) if during any period of twenty-four consecutive months, Present Directors and New Directors cease for any reason to constitute a majority of the Board. For those purposes, 'Present Directors' means individuals who, at the beginning of such consecutive twenty-four month period, were members of the Board of Directors and 'New Directors' means any director whose election by the Board or whose nomination for election by the Corporation's stockholders was approved by a vote of at least two-thirds of the Directors then still in office who were Present Directors or New Directors; or (v) any 'person' within the meaning of Sections 13(d)(3) and 14(d)(2) of the Securities Exchange Act of 1934, as in effect on the date set forth below, that is the 'beneficial owner' as defined in Rule 13d-3 of 20% or more of the then outstanding voting securities of the Corporation commences soliciting proxies from the Corporation's shareholders. Notwithstanding the foregoing, Present Directors and New Directors may, by two-thirds vote of such Directors, declare that a given transaction is not a Change in Control of the Corporation for purposes of this Plan. (i) Stock Unit Status: Stock Units are not, and do not constitute, shares of the Corporation's common stock, and no right as a holder of shares of the Corporation's common stock devolves upon a Director by reason of participation in this Plan. IN WITNESS WHEREOF, Praxair, Inc. has caused this document to be executed as of the 1st day of October, 1996. PRAXAIR, INC. By: ____D. H. Chaifetz_______ D. H. Chaifetz Vice President, General Counsel and Secretary EX-10.07 4 AMENDED AND RESTATED 1993 PRAXAIR COMPEN DEF PROG 1993 PRAXAIR COMPENSATION DEFERRAL PROGRAM RESTATED THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS COVERING SECURITIES THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 Originally adopted by the Board: December 1, 1993 Incorporates Amendments Adopted: January 23, 1995 September 25, 1995 July 22, 1996 TABLE OF CONTENTS Section 1: Purpose Section 2: Definitions Section 3: Administration Section 4: Eligibility to Participate Section 5: Election to Participate Section 6: Payments to Participants and Beneficiaries Section 7: Beneficiaries Section 8: Earnings Accurals Section 9: General Provisions 1993 PRAXAIR COMPENSATION DEFERRAL PROGRAM SECTION 1: PURPOSE - ------------------- The purpose of the 1993 Praxair Compensation Deferral Program (the 'Program') is to provide (i) a procedure by which recipients may annually elect in advance to defer a portion or all of their cash awards granted pursuant to the Corporation's Variable Compensation Plans, the 1992 Praxair, Inc. Long Term Incentive Plan, the 1996 Praxair, Inc. Senior Executive Performance Award Plan, and successors to such plans, all as amended from time to time , (ii) a procedure by which Eligible Employees may defer all or a portion of their base salary and (iii) Eligible Employees with matching contributions lost under the Savings Program because of the limitations imposed under Section 401(a)(17) of the Code. The Program shall be effective for amounts payable on or after January 1, 1994; provided that base salary and cash awards under the 1992 Praxair, Inc. Long Term Incentive Plan and the 1996 Praxair, Inc. Senior Executive Performance Award Plan may not be deferred unless and until a determination is made by the Vice President-Human Resources to allow such deferrals in the applicable case. SECTION 2: DEFINITIONS - ------------------------ 2.1: "Beneficiary" means the person, persons or estate entitled (as determined under Section 7) to receive payment under the Program following a Participant's death. 2.2: "Change in Control of the Corporation" means the occurrence of any of the following circumstances: (1) If a change in control of the Corporation would be required to be reported in response to item 1(a) of the current report of Form 8-K, as in effect on the date hereof, pursuant to Sections 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), whether or not the Corporation is then subject to such reporting requirement; (2) there shall be consummated: (A) any consolidation or merger of the Corporation in which the Corporation is not the continuing or surviving corporation or pursuant to which shares of the Corporation's common stock would be converted into cash, securities or other property, other than a merger of the Corporation in which the holders of the Corporation's common stock immediately prior to the merger have the same proportion and ownership of common stock of the surviving corporation immediately after the merger, or (B) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Corporation, provided, that the divestiture of less than substantially all of the assets of the Corporation in one transaction or a series of related transactions, whether effected by sale, lease, exchange, spin-off, sale of the stock or merger of a subsidiary or otherwise, shall not constitute a Change in Control of the Corporation; (3) any "person" or "group" within the meaning of Sections 13(d) and 14(d) (2) of the Exchange Act (A) becomes the "beneficial owner" as defined in Rule 13d-3 under the Exchange Act of more than 20% of the then outstanding voting securities of the Corporation, otherwise than through a transaction or transactions arranged by, or consummated with the prior approval of, the Board of Directors of the Corporation, or (B) acquires by proxy or otherwise the right to vote for the election of directors, for any merger or consolidation of the Corporation or for any other matter or question more than 20% of the then outstanding voting securities of the Corporation, otherwise than through an arrangement or arrangements consummated with the prior approval of the Board of Directors of the Corporation; (4) if during any period of twenty-four consecutive months, Present Directors and/or New Directors cease for any reason to constitute a majority of the Board of Directors of the Corporation. For purposes of this Agreement, "Present Directors" shall mean individuals who at the beginning of such consecutive twenty-four month period were members of the Board and "New Directors" shall mean any director whose election by the Board of Directors of the Corporation or whose nomination for election by the Corporation's stockholders was approved by a vote of at least two-thirds of the Directors then still in office who were Present Directors or New Directors; or (5) any "person" or "group" within the meaning of Sections 13(d) and 14(d) of the Exchange Act that is a 'beneficial owner', as defined in Rule 13d-3 under the Exchange Act, of 20% or more of the then outstanding voting securities of the Corporation commences soliciting proxies. Notwithstanding the foregoing, Present Directors and/or New Directors may, by two-thirds vote of such Directors, declare that a given transaction shall not constitute a Change in Control of the Corporation for purposes of this Program. 2.3: "Code" means the Internal Revenue Code of 1986, as amended from time to time. 2.4: "Committee" means the Compensation and Management Development Committee of the Board of Directors of the Corporation. 2.5: "Corporation" means Praxair, Inc., and any successor thereof by merger, consolidation or otherwise. 2.6: "Date of Deferral" means (i) with respect to cash awards granted pursuant to Eligible Plans, the date on which the Corporation issues checks to recipients for such awards, (ii) with respect to salary deferral, the date on which the relevant salary would be paid and (iii) with respect to matching contributions made by the Corporation pursuant to Section 5.3 of this Program for a given Service Year, the day following the date that the Committee determines (for purposes of determining the Stock Value Rate in accordance with Section 2.18 ) the common stock value for the matching contribution deferral . 2.7: "Disability" means a Participant's total physical or mental inability to perform any work for compensation or profit in any occupation for which the Participant is reasonably qualified by reason of training, education or ability, and which inability is adjudged to be permanent, as determined by the Vice President-Human Resources or his or her designee. 2.8: "Discounted Stock Value Rate" means the Stock Value Rate except that the applicable value of the Corporation's common stock determined in accordance with Section 2.18, shall be reduced by ten (10%) percent 2.9 "Eligible Plan" means any of those incentive plans of the Corporation listed in clause (i) of Section 1 hereof. 2.10: "Employee" means a person who is an employee of the Corporation or one of its subsidiary corporations and "Eligible Employee" means a person who is a participant in one of the Variable Compensation Plans and whose compensation is included in the payroll accounts of the Corporation or any U.S. subsidiary thereof. 2.11: "Exchange Act" means the Securities Exchange Act of 1934. 2.12: "Fixed Income Rate" means the rate of interest for the Fixed Income Fund under the Corporation's Savings Program, in effect from time to time. 2.13: "Participant" means an Eligible Employee who (i) elects in advance under the Program to defer a portion or all of the Employee's base salary, (ii) elects in advance under the Program to defer a portion or all of any cash award that may granted to the Employee pursuant to an Eligible Plan in a calendar year, and who is in fact subsequently granted such an award which is payable during said year on the Date of Deferral or (iii) receives compensation (as defined in Section 1.12 of the Savings Program) for such calendar year in an amount which is in excess of such compensation which may be considered under Section 1.12 of the Savings Program because of the limitations imposed by Code Section 401(a)(17). 2.14: "Program" means this 1993 Praxair Compensation Deferral Program. 2.15: "Retirement" means termination of employment with the right to an immediate retirement benefit under the Corporation's Retirement Program (or under circumstances which would have allowed for such an immediate retirement benefit had the Participant been a participant in the Corporation's Retirement Program). 2.16 "Savings Program" means The Savings Program for Employees of Praxair, Inc. and Participating Subsidiary Companies, as amended from time to time. 2.17: "Service Year" means one of the calendar years on and after 1993, (i) with respect to which a Variable Compensation Award may be paid during the following year on the Date of Deferral or (ii) with respect to which a matching contribution pursuant to Section 5.3 of this Program may be made during the following year on the Date of Deferral. . 2.18: "Stock Value Rate" means the difference between the value of the Corporation's common stock (i) as of the date amounts credited to the Program are directed, by initial election or by reallocation, into the Stock Value Rate (or, in the case of initial deferrals of matching contributions or of Variable Compensation Awards, the common stock value determined by the Committee in accordance with the last sentence of this Article 2.18), and (ii) the relevant date of determination of the amount of earnings in accordance with Section 8 hereof. Such value shall include the value of any dividends paid on the stock during the period for which the Stock Value Rate is being determined, as if such dividends were reinvested, when payable, in additional shares of the Corporation's common stock purchased at the value less five percent (5%) of the Corporation's common stock on the dividend payable date. Except as provided in the next sentence, the value of the Corporation's common stock for purposes of this Section 2.18, shall mean the closing price of the stock on the New York Stock Exchange on the relevant date of determination. In January of each calendar year, the Committee shall determine the common stock value to be used in valuing deferrals of Variable Compensation Awards and matching contributions to be awarded in the calendar year for the previous Service Year. 2.19: "Unforeseen Emergency" means an event beyond the control of the Participant that would result in severe financial hardship to the Participant if early withdrawal of the Participant's cash awards, matching contributions or base salary deferrals and related earnings (as provided for in Section 6.1 (c)) were not permitted. Whether a Participant has an Unforeseen Emergency shall be determined by the Vice President-Human Resources or his or her designee. 2.20: "Variable Compensation Plans" means the 1992 Praxair, Inc. Variable Compensation Plan, the Praxair, Inc. Mid-Management Variable Compensation Plan, and successors to such plans, all as amended from time to time. 2.21: "Variable Compensation Award" means a variable compensation award under a Variable Compensation Plan or an Annual Performance Award under the 1996 Praxair, Inc. Senior Executive Performance Award Plan. 2.22: "Vice President-Human Resources" means the Vice President-Human Resources of the Corporation. SECTION 3: ADMINISTRATION - ------------------------- The Committee shall supervise the administration and interpretation of the Program, may establish administrative regulations to further the purpose of the Program and shall take any other action necessary to the proper operation of the Program. All decisions and acts of the Committee shall be final and binding upon all Participants, their Beneficiaries and all other persons. SECTION 4: ELIGIBILITY TO PARTICIPATE - ------------------------------------- To be eligible to participate in the Program for a given calendar year, a person must have become an Eligible Employee not later than the day on or before which Eligible Employees must make the election provided for in Section 5 for deferral of cash awards or base salary to be otherwise paid in that calendar year. SECTION 5: ELECTION TO PARTICIPATE - ---------------------------------- 5.1: Participation in Program: During each of the years the Program is in effect, Eligible Employees shall be informed of the opportunity to participate in the Program. An Eligible Employee choosing to participate with respect to deferral of cash awards or base salary must make an election to do so on or before the day designated by the Vice President-Human Resources and otherwise in accordance with such procedures as may be established. 5.2: Effective Date of Participation: (a) After the designated election date as provided in Section 5.1, a timely election to defer an award granted pursuant to an Eligible Plan shall be irrevocable with respect to the calendar year and plan for which it is made. Participation in this Program with respect to cash awards shall become effective only on the applicable Date of Deferral and only if, on such date, the Eligible Employee receives an award under one of the elected Eligible Plans (or would have received an award but for an election to defer under the Program). (b) An election to defer base salary must be made during the election period immediately preceding the calendar year in which services to the Corporation will be performed. Participation in this Program with respect to base salary shall become effective only on the first Date of Deferral in said calendar year and only if, and only so long as , the Eligible Employee remains employed with the Corporation. A Participant may suspend his or her election to defer his or her base salary at any time; provided, however, that such Eligible Employee may not resume deferrals of base salary until the following calendar year. 5.3: Corporation Matching Contribution: (a) Without requiring any election by the Eligible Employee to participate in the Program, the Corporation shall credit a Participant with an amount equal to 3.75 % of that portion of a Participant's previous calendar year compensation (as defined in Section 1.12 of the Savings Program without regard to Code Section 401(a)(17), and without regard to any deferrals under this Program) which exceeds $150,000. Such $150,000 shall be adjusted at the same time and in the same manner as the limitation described in Code Section 401(a)(17). (b) The Corporation shall credit each Participant with the amount determined pursuant to subsection (a) of this Section 5.3, in arrears, on the relevant Date of Deferral, provided that such Participant is employed by the Corporation on the Date of Deferral. Notwithstanding the foregoing, if the Participant terminates employment with the Corporation during the Service Year by reason of death, Disability, Retirement, or termination by the Corporation other than for cause, then the Corporation shall credit a Participant on the Date of Deferral with the amount determined pursuant to subsection (a) of this Section 5.3 even though such Participant is not employed by the Corporation on said Date of Deferral. SECTION 6: PAYMENTS TO PARTICIPANTS AND BENEFICIARIES - ----------------------------------------------------- 6.1: Time of Payment: (a) Subject to subsections (b), (c) and (d) of this Section 6.1, a Participant shall begin to receive payment of his or her deferrals, and any earnings accruals credited under Section 8 during the January next following his or her last day of work prior to Retirement, or, immediately upon his or her other termination of employment occuring prior to scheduled retirement. Participants shall be deemed to have elected to defer all amounts until termination of employment in accordance with this Article 6.1(a) unless a contrary election is made pursuant to Article 6.1(b) below. (b) Notwithstanding any provision in this Program to the contrary, a Participant may, at the time of an election to defer either base salary or cash awards granted pursuant to Eligible Plans, make an irrevocable election to commence payment of any such amounts deferred under this Program upon a specific future payment date which is at least one year after the relevant Date of Deferral or such shorter period as the Committee may approve. A Participant making such an election shall receive his or her payment in the January next following said future payment date. (c) A Participant who has not yet terminated employment, but has an Unforeseen Emergency, may receive payment of any or all of his or her deferred base salary, deferred matching contribution, deferred cash awards and earnings accruals credited to him or her pursuant to Section 8 of this Program; provided that the Participant may not receive an amount greater than the amount necessary to meet the Unforeseen Emergency plus any amounts necessary to pay federal, state and local income taxes or penalties reasonably anticipated to result from a withdrawal under this Section 6.1. (d) Notwithstanding any provision in this Program to the contrary, a Participant shall receive payment of his or her entire account balance under this Program at such time as (i) the Board of Directors of the Corporation determines that a Change in Control of the Corporation has occurred and (ii) the Chief Executive Officer of the Corporation provides written authorization for such payment. Such payment shall be made in full within 45 days after the Change in Control of the Corporation. 6.2 Form of Payments: (a) Subject to paragraphs (b) and (d) below, payments under this Program shall be made in full in a single payment. (b) A Participant may, in lieu of the form of payment described in paragraph (a), elect that all amounts which have been deferred to the Participant's termination of employment under Article 6.1(a) be paid in annual installments over a period designated by the Participant; provided that (i) such election is made only one time and is made in the calendar year of the Participant's date of Retirement; and (ii) the election receives the consent of the Vice President Human Resources. (c) If a Participant dies at any time before having received any portion of his or her account balance under this Program, payment of the remaining amounts shall be made in full to the Participant's Beneficiary in a single payment. (d) If any distribution otherwise payable under this Program would be disallowed in any part as a deduction to the Corporation in accordance with Section 162(m) (or a successor Section) of the Code, the Committee may determine to pay the amount of such distribution in installments such that the Participant or Beneficiary shall receive the maximum amount permissible in each installment and still preserve the Corporation's full tax deduction. 6.3: Payment in U.S. Dollars: All payments under this Program with respect to amounts which (i) at the time of such payment were accruing at the Fixed Income Rate, or (ii) at the time of such payment, if such payment is made before January 1, 1997, were accruing at either the Stock Value Rate or the Discounted Stock Value Rate, shall be made in U.S. dollars. Effective for any payment to be made on or after January 1, 1997, with respect to amounts which were accruing under either the Stock Value Rate or the Discounted Stock Value Rate, such payment shall be made in shares of the common stock of the Corporation. 6.4: Reduction of Payments: Share Withholding: (a) All payments under this Program shall be reduced by any and all amounts that the Corporation is required to withhold pursuant to applicable law. (b) In order to enable the Corporation to meet any applicable federal, state or local tax withholding requirements, a Participant (or Beneficiary) who is receiving payment in shares of common stock of the Corporation, may elect to have the Corporation withhold shares that would otherwise be delivered to such Participant, or may deliver to the Corporation other shares of common stock of the Corporation owned by the Participant. The value of any such shares of common stock so withheld or delivered shall be the mean of the high and low prices of the common stock of the Corporation as reported in the New York Stock Exchange - Composite Transactions on the date of said payment. 6.5: Additional Deferrals: Notwithstanding Section 6.1, a Participant who has made an election to defer a cash award or base salary in accordance with Section 5 hereof may make an election to further defer such amounts and a Participant may make an election to further defer corporation matching contributions credited purusant to Section 5.3; provided such additional elections are made in accordance with the following provisions: (a) The additional deferral election must be made no later than during the tax year immediately preceding the year the Participant would otherwise receive payments pursuant to Section 6.1 hereof; (b) For each original deferral election and for all corporation matching contributions credited, there may be only one additional deferral election made pursuant to this Section 6.5; and (c) The additional deferral must be for a period of at least two years. SECTION 7: BENEFICIARIES - ------------------------- A Participant may at any time and from time to time prior to death designate one or more Beneficiaries to receive any payments to be made following the Participant's death. If no such designation is on file with the Corporation at the time of a Participant's death, the Participant's Beneficiary shall be the beneficiary or beneficiaries named in the beneficiary designation most recently filed by the Participant with the Corporation under the Corporation's Savings Program. If the Participant has not effectively designated a beneficiary under the Savings Program, or if no beneficiary so designated has survived the Participant, the Participant's Beneficiary shall be the Participant's surviving spouse, or, if no spouse has survived the Participant, the estate of the deceased Participant. If an individual Beneficiary cannot be located for a period of one year following the Participant's death, despite mail notification to the Beneficiary's last known address, and if the Beneficiary has not made a written claim for benefits within such period to the Vice President-Human Resources, the Beneficiary shall be treated as having predeceased the Participant. The Vice President-Human Resources may require such proof of death and such evidence of the right of any person to receive all or part of the benefit of a deceased Participant as the Vice President-Human Resources may consider to be appropriate. The Vice President-Human Resources may rely upon any direction by the legal representatives of the estate of a deceased Participant, without liability to any other person. SECTION 8: EARNINGS ACCRUALS - ---------------------------- 8.1: General: Each Participant's account balance shall be credited with earnings from the Date of Deferral through the date such deferral is paid out, or withdrawn, pursuant to Section 6.1. Earnings under this Section 8.1 shall accrue at the rate elected in accordance with Section 8.2. 8.2: Earnings Accrual Rate: (a) Accrual Rates: Earnings accruing in accordance with Section 8.1 shall accrue at (i) the Fixed Income Rate, (ii) the Stock Value Rate, (iii) the Discounted Stock Value Rate, or a combination of the three Rates. An election to use the Discounted Stock Value Rate shall be effective for not less than five (5) years. In the case of an election to defer base salary for the following calendar year at the Discounted Stock Value Rate, the election shall be effective for a period ending no earlier than the fifth anniversary of the earliest of (i) July 1 of said calendar year, (ii) the effective date of the Participant's suspension of base salary deferral pursuant to Section 5.2(b) herein and (iii) the date of termination of the Participant's employment with the Corporation, if applicable, during said calendar year. Notwithstanding the foregoing, if (i) a Participant has elected under Section 6.1(a) to receive payment upon termination of employment, and such Participant's employment is terminated by the Corporation without cause, or such employment is terminated as a result of Retirement, or (ii) an Unforeseen Emergency occurs, or (iii) a Change in Control of the Corporation occurs, or (iv) the Participant dies, then such Participant may then receive a payout from a Discounted Stock Value Rate account on the payment date set forth in Sections 6.1(a), 6.1(c), 6.1(d) and 6.2(c) respectively (and all subject to Section 6.2(d)); even if the applicable minimum five (5) years period has not yet passed as of said payment date. (b) Initial Election: Subject to subparagraph (c), a Participant shall designate at the time of the election to defer base salary or cash awards granted pursuant to an Eligible Plan under Section 5, which accrual rate or rates shall apply to each deferral, provided that such elections must be in 10% increments. Such elections shall be effective as of the Date of Deferral. All matching contributions made to a Participant under Section 5.3 of this Program shall at all times be invested at the Stock Value Rate. (c) [Reserved] (d) Election Changes: A Participant may elect to change the accrual rate under this Section 8.2 with respect to any or all previous cash award deferrals or salary deferrals under the Program from Fixed Income Rate to the Stock Value Rate. Any election changes made pursuant to this subsection (d) shall be effective as of January 1st of the calendar year following the calendar year in which the election change is submitted to the Corporation in accordance with procedures established by the Vice President - Human Resources (e) Special Election Change of Previous Deferrals: Notwithstanding any provision in subsection (d) to the contrary (but in addition to any election change rights available under said subsection), on or before December 15, 1996, a Participant may, in accordance with the procedures established by the Vice President - Human Resources, make a one-time election to change to the Fixed Income Rate any contrary earnings accrual rate election under this Section 8.2 made with respect to any or all of his or her previous Variable Compensation Award deferrals under this Program. SECTION 9: GENERAL PROVISIONS - ------------------------------ 9.1: Prohibition of Assignment of Transfer: Any assignment, hypothecation, pledge or transfer of a Participant's or Beneficiary's right to receive payments under the Program shall be null and void and shall be disregarded. 9.2: Program Not To Be Funded: The Corporation is not required to, and will not, for the purpose of funding the Program, segregate any monies from its general funds, create any trusts, or make any special deposits, and the right of a Participant or Beneficiary to receive a payment under the Program shall be no greater than the right of an unsecured general creditor of the Corporation. 9.3: Effect of Participation: Neither selection as an Eligible Employee, nor an election to participate, nor participation, in the Program, shall entitle an Eligible Employee to receive a cash award under the any of the Eligible Plans, or affect the Corporation's right to discharge an Eligible Employee or a Participant. 9.4: Communications To Be in Writing: All elections, requests and communications to the Corporation from Participants and Beneficiaries, and all communications to such persons from the Corporation, shall be in writing, and in such form and manner, and within such time, as the Corporation shall determine. 9.5: Absence of Liability: No officer, director or employee of the Corporation shall be personally liable for any act or omission to act, under the Program, of any other person, or, except in circumstances involving bad faith, for such officer's, director's or employee's own act or omission to act. 9.6: Titles for Reference Only: The titles given herein to Sections and subsections are for reference only and are not to be used to interpret the provisions of the Program. 9.7: Connecticut Law To Govern: All questions pertaining to the construction, regulation, validity and effect of the provisions of the Program shall be determined in accordance with Connecticut law. 9.8: Amendment: The Committee may amend the Program at any time, but no amendment may be adopted which alters the payments due Participants or Beneficiaries, as of the date of the amendment, or the times at which payments are due, without the consent of each Participant affected by the amendment and of each Beneficiary (of a then deceased Participant) affected by the amendment. In addition, any amendment which does not significantly affect the amount of any past or future, benefits under the Program may be authorized by the Vice President-Human Resources. 9.9: Program Termination: The Committee may terminate the Program at any time. In the event of such termination, all amounts under this Program shall become immediately payable in accordance with Section 6.2, provided that the Committee, in its discretion, upon Program termination or at any time thereafter, may decide to make lump sum payments in lieu of annual payments. PRAXAIR, INC. By: Barbara R. Harris Vice President Human Resources EX-11.01 5 COMPUTATION OF EARNINGS PER SHARE PRAXAIR, INC. AND SUBSIDIARIES EXHIBIT 11.01 COMPUTATION OF EARNINGS PER SHARE (MILLIONS OF DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS) YEAR ENDED DECEMBER 31, ----------------------- 1996 1995 Net Income $282 $262 Weighted average common shares and common stock equivalents (stock options:): Weighted average common shares outstanding 152,653,827 138,817,512 Dilutive effect of stock options 6,383,889 5,329,957 159,037,716 144,147,469 Earnings per share $1.77 $1.82 EX-12.01 6 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES 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, -------------------------------- 1996 1995 1994 1993 1992 EARNINGS Income of consolidated companies before provision for income taxes $452 $432 $339 $236 $159 Capitalized interest (25) (9) (4) (3) (9) Depreciation of capitalized interest 9 8 8 9 9 Dividends from less than 50%-owned companies carried at equity 1 1 - 2 - Praxair share of income (loss) before provision for income taxes of 50%-owned companies carried at equity 16 15 8 10 8 Total earnings, net of fixed charges $453 $447 $351 $254 $167 FIXED CHARGES Interest on long-term and short-term debt $195 $116 $108 $105 $117 Capitalized interest 25 9 4 3 9 Rental expenses representative of an interest factor 23 10 11 12 11 Praxair share of fixed charges of 50%-owned companies carried at equity 3 4 2 7 7 Total fixed charges $246 $139 $125 $127 $144 Total adjusted earnings available for payment of fixed charges $699 $586 $476 $381 $311 RATIO OF EARNINGS TO FIXED CHARGES 2.8 4.2 3.8 3.0 2.2 EX-13.01 7 PRAXAIR'S 1996 ANNUAL REPORT TO SHAREHOLDERS INDEX TO FINANCIAL STATEMENTS AND INFORMATION Five-Year Financial Summary 18 Management's Discussion and Analysis 19 Consolidated Statement of Income 25 Consolidated Balance Sheet 26 Consolidated Statement of Cash Flows 27 Notes to Consolidated Financial Statements 28 NOTE 1. Summary of Significant Accounting Policies 28 NOTE 2. 1996 Acquisition of CBI Industries, Inc. (CBI) 29 NOTE 3. CBI Integration Charges 30 NOTE 4. Segment Data 31 NOTE 5. Income Taxes 31 NOTE 6. Debt and Financial Instruments 32 NOTE 7. Shareholders' Equity 34 NOTE 8. Preferred Stock 35 NOTE 9. Supplementary Income Statement Information 36 NOTE 10.Incentive Plans and Stock Options 36 NOTE 11.Supplementary Balance Sheet Information 38 NOTE 12.Retirement Programs 39 NOTE 13.Leases 40 NOTE 14.Commitments and Contingencies 41 NOTE 15.Quarterly Data (Unaudited) 41 Management's Statement of Responsibility for Financial Statements 42 Report of Independent Accountants 43 Information for Investors 44 Making Our Planet More Productive 17 FIVE-YEAR FINANCIAL SUMMARY
Year ended December 31, 1996(a) 1995 1994 1993(b) 1992 - ---------------------------------------------------------------------------------------------------------------------------------- FROM THE INCOME STATEMENT Sales $ 4,449 $ 3,146 $ 2,711 $ 2,438 $ 2,604 Cost of sales 2,564 1,777 1,507 1,387 1,450 Selling, general and administrative 688 496 409 392 407 Depreciation and amortization 420 279 273 262 257 Research and development 72 61 58 58 62 CBI integration charges 85 -- -- -- -- Other income (expenses) - net 27 15 (17) 2 (152) - ---------------------------------------------------------------------------------------------------------------------------------- Operating profit 647 548 447 341 276 Interest expense 195 116 108 105 117 - ---------------------------------------------------------------------------------------------------------------------------------- Income before income taxes 452 432 339 236 159 Income taxes 110 122 82 48 37 - ---------------------------------------------------------------------------------------------------------------------------------- Income of consolidated entities 342 310 257 188 122 Minority interests (68) (50) (61) (49) (45) Income from equity investments 8 2 7 4 7 - ---------------------------------------------------------------------------------------------------------------------------------- Income before cumulative effect of accounting changes 282 262 203 143 84 Cumulative effect of accounting changes(c) -- -- -- (25) (144) - ---------------------------------------------------------------------------------------------------------------------------------- Net income (loss) $ 282 $ 262 $ 203 $ 118 $ (60) Net income (loss) excluding CBI integration charges $ 335 $ 262 $ 203 $ 118 $ (60) ================================================================================================================================== Per share:(d) Income before cumulative effect of accounting changes $ 1.77 $ 1.82 $ 1.45 $ 1.06 $ .64 Cumulative effect of accounting changes(c) -- -- -- (.19) (1.10) - ---------------------------------------------------------------------------------------------------------------------------------- Net income (loss) $ 1.77 $ 1.82 $ 1.45 $ .87 $ (.46) Net income (loss) excluding CBI integration charges $ 2.11 $ 1.82 $ 1.45 $ .87 $ (.46) - ---------------------------------------------------------------------------------------------------------------------------------- Cash dividends(d) $ .38 $ .32 $ .28 $ .25 $ .125 Weighted average shares (000's)(d) 159,038 144,147 139,991 135,131 131,567 ================================================================================================================================== CAPITAL Total debt $ 3,265 $ 1,318 $ 1,265 $ 1,360 $ 1,452 Minority interests 493 408 371 345 401 Preferred stock 75 -- -- -- -- Shareholders' equity 1,924 1,121 839 635 544 - ---------------------------------------------------------------------------------------------------------------------------------- Total capital $ 5,757 $ 2,847 $ 2,475 $ 2,340 $ 2,397 ================================================================================================================================== OTHER INFORMATION AND RATIOS Operating profit as a percentage of sales 14.5% 17.4% 16.5% 14.0% 10.6% Return on average shareholders' equity(e) 22.0% 26.7% 27.6% 25.0% 16.0% Capital expenditures and investments $ 3,333 $ 802 $ 385 $ 350 $ 367 Total assets $ 7,538 $ 4,134 $ 3,520 $ 3,255 $ 3,344 Shares outstanding at year-end (000's) 157,489 140,536 137,863 134,450 131,060 Debt-to-capital ratio 56.7% 46.3% 51.1% 58.1% 60.6% Number of employees 25,271 18,222 17,780 16,766 18,592 - ---------------------------------------------------------------------------------------------------------------------------------- (Millions of dollars, except per share data) (a)Effective in 1996, results reflect the acquisition of CBI Industries, Inc (see note 2 to the financial statements). Capital expenditures and investments include $735 million of debt assumed in the CBI acquisition. Number of employees excludes assets held for sale. (b)1993 results reflect a revision in the accounting for translation effects in Brazil. The change reduces reported sales and certain operating expense line items. Prior years' financial statements have not been restated. (c)Required changes in accounting for postemployment benefits in 1993 and postretirement benefits and income taxes in 1992. (d)Share information and earnings per share prior to June 30, 1992 (the date Praxair became a public company) have been determined on a pro forma basis using the capital structure of Praxair's former parent. Cash dividends represent dividends paid after June 30, 1992. (e)1996 excludes non-recurring charges for the integration of CBI Industries, Inc. ($53 million after tax and minority interests). 1993 and 1992 are based on income before cumulative effect of accounting changes. Shareholders' equity and capital have been retroactively adjusted as of January 1, 1993 and 1992 for the cumulative effect of accounting changes.
18 Making Our Planet More Productive MANAGEMENT'S DISCUSSION AND ANALYSIS During 1996, Praxair acquired CBI Industries, Inc. (CBI) for $2.2 billion, including assumed debt of $735 million. The following discussion of Praxair's consolidated and geographic segment results as it relates to the comparison of 1996 to 1995 is based upon the unaudited pro forma consolidated results of operations reflecting the CBI acquisition as though it had occurred at January 1, 1995 (see note 2 to the financial statements). CONSOLIDATED RESULTS The following provides summary data for 1996, 1995 pro forma (unaudited) and actual, and 1994:
1995 ------------------- Pro Year Ended December 31, 1996 Forma Actual 1994 - --------------------------------------------------------------------------------- Sales $ 4,449 $ 4,109 $ 3,146 $ 2,711 Selling, general and administrative $ 688 $ 690 $ 496 $ 409 Depreciation and amortization $ 420 $ 395 $ 279 $ 273 Operating profit $ 647 $ 576 $ 548 $ 447 Interest expense $ 195 $ 219 $ 116 $ 108 Effective tax rate 24% 29% 28% 24% Net Income $ 282 $ 190 $ 262 $ 203 Net Income per share $ 1.77 $ 1.32 $ 1.82 $ 1.45 Number of employees 25,271* 25,562* 18,222 17,780 - --------------------------------------------------------------------------------- Excluding CBI special charges: Operating profit $ 732 $ 630 $ 548 $ 447 Net income $ 335 $ 223 $ 262 $ 203 Net Income per share $ 2.11 $ 1.55 $ 1.82 $ 1.45 - --------------------------------------------------------------------------------- (Millions of dollars, except per share data) * Excludes employees related to assets held for sale.
Praxair's 1996 results reflect strong product demand in our major markets and significant productivity improvements. Sales increased 8% versus the 1995 pro forma amount and operating profit increased 16%, excluding the 1996 and 1995 CBI special charges (see notes 2 and 3 to the financial statements). Net income was $335 million, excluding the 1996 CBI integration charges, or $2.11 per share, a 36% increase over the $223 million or $1.55 per share in 1995 on a pro forma basis. 1996 compared with 1995. The 1996 sales growth of 8%, as compared to the 1995 pro forma amount, was primarily due to increased sales volumes and the effect of newly acquired and recently consolidated packaged gases and Surface Technologies subsidiaries. Additionally, merchant, packaged gases and carbon dioxide prices were up in all geographic segments. Surface Technologies posted record sales, increasing 21% to $311 million, primarily due to volume growth and acquisitions. The sales growth along with productivity gains were primarily responsible for the 16% increase in Operating profit as compared to the 1995 pro forma amount (both excluding the CBI special charges). Increased depreciation and amortization reflected new projects coming on-stream which contributed to the sales growth, as well as goodwill associated with packaged gases and surface technologies acquisitions. Selling, general and administrative expenses decreased slightly primarily due to productivity improvements and cost synergies associated with the integration of the Liquid Carbonic business, mostly offset by the increases due to the newly acquired subsidiaries. Selling, general and administrative expenses as a percentage of sales, excluding the newly acquired subsidiaries, declined 8% as compared to the 1995 pro forma amount. Interest expense decreased in 1996 versus the 1995 pro forma amount, primarily due to lower interest rates and the issuance of 12.6 million shares of Praxair common stock at the end of the first quarter of 1996, the proceeds of which were used to lower debt levels. The 1996 effective tax rate was 24% (26% excluding the taxes associated with the 1996 CBI integration charges), a decrease of 5% from the effective tax rate of the 1995 pro forma period. The decrease is due primarily to tax planning initiatives which are expected to maintain Praxair's effective tax rate at approximately 26% for the next two years. Net Income excluding the CBI special charges increased 50% over the 1995 pro forma amount due principally to higher operating profit, lower interest expense and a lower effective tax rate. The number of employees at December 31, 1996 was 25,271 which, when adjusted for acquisitions other than CBI, reflects a decrease of approximately 1,250 from December 31, 1995. The decrease is principally the result of Praxair's worldwide productivity improvement initiatives and the integration of the Liquid Carbonic business, mainly in South America, the United States and Canada, partly offset by new acquisitions. 1995 compared with 1994. Strong industrial gases demand, new acquisitions, and recently consolidated subsidiaries contributed to the significant sales growth for 1995. Worldwide pricing improved by 2% and sales on higher volumes grew 8% for the year. Newly acquired and recently consolidated subsidiaries contributed 8% of the sales growth. Surface Technologies sales increased 28% to $258 million, primarily due to volume growth and the impact of acquisitions. Making Our Planet More Productive 19 MANAGEMENT'S DISCUSSION AND ANALYSIS The sales growth and productivity gains were primarily responsible for the 23% increase in operating profit. The operating margin comparisons for Surface Technologies remained strong. Net Income increased principally due to higher operating profit and lower minority share of income, partially offset by a higher effective tax rate and higher interest expense. The number of employees at December 31, 1995, when adjusted for acquisitions and a recently consolidated subsidiary, reflects a decrease of approximately 500 from December 31, 1994. The decrease is principally the result of Praxair's continuing worldwide productivity improvement initiatives primarily in Brazil. SEGMENT DISCUSSION This summary of Sales, Operating profit and Operating profit excluding CBI special charges by geographic segment provides a basis for the discussion that follows: 1995 ------------------- Pro Year Ended December 31, 1996 Forma Actual 1994 - ----------------------------------------------------------------------- SALES: United States $ 2,157 $ 1,929 $ 1,569 $ 1,242 South America 990 957 667 595 Europe 613 557 494 432 Canada, Mexico, Asia and Other 689 666 416 442 - ----------------------------------------------------------------------- Total $ 4,449 $ 4,109 $ 3,146 $ 2,711 ======================================================================= OPERATING PROFIT: United States $ 322 $ 239 $ 285 $ 206 South America 190 193 137 139 Europe 113 98 90 69 Canada, Mexico, Asia and Other 52 83 53 49 Corporate (30) (37) (17) (16) - ----------------------------------------------------------------------- Total $ 647 $ 576 $ 548 $ 447 ======================================================================= OPERATING PROFIT, EXCLUDING CBI SPECIAL CHARGES: United States $ 359 $ 288 $ 285 $ 206 South America 203 194 137 139 Europe 117 98 90 69 Canada, Mexico, Asia and Other 80 85 53 49 Corporate (27) (35) (17) (16) - ----------------------------------------------------------------------- Total $ 732 $ 630 $ 548 $ 447 ======================================================================= (Millions of dollars) UNITED STATES The sales increase for 1996 of 12%, as compared to the 1995 pro forma amounts, is primarily due to strong volume growth and the effect of newly acquired and recently consolidated packaged gases and Surface Technologies subsidiaries. U.S. industrial gases volumes increased 7%, while merchant liquid pricing increased 2% and carbon dioxide pricing increased 8%. Strong volume growth and the effect of new acquisitions and a recently consolidated subsidiary primarily accounted for the 26% sales increase for 1995 compared to 1994. Higher industrial gases volumes increased sales by 9%, while merchant pricing improved 2% for the year. New acquisitions and a recently consolidated subsidiary contributed 15% of the sales growth. Operating profit improved 25% for 1996 as compared to the 1995 pro forma amounts (both excluding the CBI special charges). The improvement is due primarily to the increased sales and the realization of synergies related to the integration of the Liquid Carbonic business. Operating margin for 1996 versus 1995 pro forma amounts increased to 16.6% from 14.9%. Operating profit improved $79 million or 38% for 1995 compared to 1994 due to the increased sales, continued productivity improvement efforts and the impact of a $15 million charge in 1994 related to productivity improvement programs, partly offset by higher Selling, general and administrative expenses (primarily due to newly acquired and recently consolidated subsidiaries) and increased profit sharing costs. Excluding the impact of the 1994 productivity improvement program charges, operating profit improvement was $64 million or 31%. Operating margin for 1995 versus 1994 increased to 18.2% from 17.8% after excluding the impact of the 1994 productivity improvement program charges. Also affecting the comparisons for both periods was an increase in the U.S. business portfolio of Packaged Gases businesses which are characterized by lower operating margins and higher capital turnover. Making Our Planet More Productive 20 MANAGEMENT'S DISCUSSION AND ANALYSIS U.S. Packaged Gases Business Praxair's strategy for its Packaged Gases business in the U.S. was advanced in 1996 with the creation of a separate organization to focus on the smaller volume, more service-intensive parts of the industrial gases business, including packaged, medical, specialty gases, and hardgoods (both consumables and equipment). The business strategy is focused on cash flow growth through efficient operations, selective acquisitions, and product and service extensions. Operational efficiencies are gained by systematically applying best practices throughout our network of Packaged Gases businesses. Praxair has made, and continues to pursue, acquisitions of independent distributors, primarily within or adjacent to territories currently served in the U.S. New products and services will extend the industrial gases and distribution capabilities of the business into related markets that bring additional value to customers. On a consolidated basis, Sales and Operating profit for 1996 were $441 million and $49 million, respectively, an increase of $190 million and $20 million, respectively, over the 1995 period. The increase is attributable to the acquisition of Liquid Carbonic, together with 16 other acquisitions of independent distributors nationwide and the consolidation of Jacksonville Welding Supply, Inc., previously accounted for as an equity investment. On a consolidated basis, Sales and Operating profit for 1995 were $251 million and $29 million, respectively, an increase of $171 million and $22 million, respectively, over the 1994 period. During 1995, Praxair acquired 9 distributors and began consolidating the results of its subsidiary, GenEx, Ltd. The consolidation and acquisitions are primarily responsible for the sales and operating profit increases. The following information presents unaudited historical operating results and other information for Praxair's U.S. Packaged Gases business for 1996, 1995, and 1994. Year ended December 31, 1996 1995 1994 - --------------------------------------------------------------------------- INCOME STATEMENT: Sales(a) $ 441 $ 251 $ 80 Selling, general and administrative $ 83 $ 55 $ 18 Depreciation and amortization $ 24 $ 10 $ 4 Operating profit $ 49 $ 29 $ 7 OTHER INFORMATION: Net cash provided by operating activities before interest expense $ 45 $ 26 $ 8 Capital expenditures $ 12 $ 13 $ 4 Investments (1996 excludes Liquid Carbonic) $ 115 $ 95 $ 21 Capital $ 395 $ 187 $ 116 Number of employees 2,470 1,445 1,037 - --------------------------------------------------------------------------- (Millions of dollars, except number of employees) (a) At December 31, 1996 the U.S. Packaged Gases business has an equity investment, Gas Tech Inc., which is located in the mid-western United States. For 1996, Gas Tech Inc. had Sales of approximately $80 million. SOUTH AMERICA Praxair's South American operations are conducted by its majority-owned subsidiary, S.A. White Martins (White Martins), which is the largest industrial gases company in Brazil. Historically, Brazil has been a hyperinflationary economy which can produce unusual results in the statement of income due principally to gaps between inflation and currency devaluation. The Company manages its Brazilian operations with a focus on U.S. dollar results. During the second half of 1994, the Brazilian government implemented a new economic plan which has significantly reduced inflation. These currency movements affect the comparability of 1995 and 1994 results. Sales for 1996 as compared to the 1995 pro forma results increased 3% primarily due to sales volume growth. The Sales increase for 1995 of 12% was primarily due to sales volume growth and overall pricing improvement. The Sales growth in 1995 as compared to 1994 is primarily due to the high levels of economic activity in the first half of 1995 coupled with the contribution from important new on-site supply contracts, partly offset by lower economic activity and unfavorable currency translation effects in the second half of the year. Operating profit for 1996 as compared to the 1995 pro forma results, excluding the CBI special charges, increased slightly and 1995 was essentially unchanged as compared to 1994. EUROPE Sales for 1996 increased 10% as compared to the 1995 pro forma amounts due primarily to volume growth, the effect of newly acquired subsidiaries, improved merchant and packaged gases pricing in Southern Europe and improved Surface Technologies results. Sales for 1995 increased 14% primarily due to 4% volume growth and improved merchant and packaged gases pricing in Southern Europe. Operating profit (excluding the CBI special charges) increased 19% as compared to the 1995 pro forma period due primarily to the sales growth and continued productivity improvements. Operating profit for 1995 increased 30% reflective of the sales growth and continued productivity improvements. Making Our Planet More Productive 21 MANAGEMENT'S DISCUSSION AND ANALYSIS CANADA, MEXICO, ASIA AND OTHER Sales increased 3% in 1996 as compared to the 1995 pro forma amounts due to volume growth in Mexico and Asia. The comparability of Sales for 1995 versus 1994 is impacted by the 1994 sale of an air separation plant to a customer in Canada for $23 million, and unfavorable currency translation effects in Mexico. Excluding these, sales increased $66 million in 1995 due to improved pricing in Mexico, sales volume growth and new acquisitions. Operating Profit for 1996 compared to the 1995 pro forma amounts (excluding the CBI special charges) decreased $5 million primarily due to higher business development expenses in Asia and an increase in technology costs, which more than offset the sales growth. Operating Profit for 1995 versus 1994 increased primarily due to the volume growth. Selling, General and Administrative Expenses In 1996, selling, general and administrative expenses were $688 million, a $2 million decrease from the 1995 pro forma amount. The decrease is primarily due to cost improvements associated with the integration of the Liquid Carbonic business, largely offset by newly acquired and recently consolidated subsidiaries. Selling, general and administrative expenses as a percentage of sales declined to 15.5% in 1996 from 16.8% in 1995 on a pro forma basis. In 1995, selling, general and administrative expenses were $496 million, an $87 million increase from 1994. The increase is primarily due to newly acquired and recently consolidated subsidiaries along with higher profit sharing and other performance-based incentive compensation costs partially offset by worldwide productivity improvement efforts. Excluding the newly acquired and recently consolidated subsidiaries, selling, general and administrative expenses would have increased $41 million from 1994. Other income (expenses) - net In 1996, Other income (expenses) - net improved $5 million over the 1995 pro forma amount of $22 million due primarily to currency and the 1995 productivity improvement charges partly offset by non-recurring credits in 1995. In 1995, other income (expenses) - net improved significantly from 1994 due principally to income from the sale of the Linde name trademark and a favorable settlement of a social contribution tax issue in Brazil, partly offset by an accrual for future lease payments on excess office space in the U.S. Interest Expense The 1996 interest expense decreased $24 million from the 1995 pro forma amounts due primarily to lower interest rates and the issuance of 12.6 million shares of Praxair common stock at the end of the first quarter of 1996, the proceeds of which were used to lower debt levels. Interest expense increased $8 million in 1995 to $116 million principally due to higher effective interest rates and higher debt levels. Income Taxes The effective tax rate was 24% (26% excluding the tax benefit associated with the 1996 CBI integration charges), a decrease of 5% from the effective tax rate of the 1995 pro forma period. The decrease is due primarily to tax planning initiatives. The effective tax rate for 1995 was 28% which includes a $6 million charge relating to the revaluation of deferred tax assets due to a reduction in the Brazilian statutory tax rate. Excluding the $6 million charge, the effective tax rate for 1995 is 27% which is consistent with the 1994 annual effective tax rate, after excluding an $8 million non-recurring tax benefit in Brazil. Minority Interests On December 31, 1996, minority interests consisted primarily of minority shareholders' investments in three affiliates: S. A. White Martins (Brazil), Rivoira S.p.A. (Italy) and Praxair Korea. Additionally, Praxair records the dividends on preferred stock in minority interests. Minority shareholders' share of income for 1996 was $68 million, an increase of $3 million as compared to the 1995 pro forma amount of $65 million. This increase was primarily due to the recording of $6 million of preferred stock dividends and the increased results in South America mostly offset by the decreased minority position in White Martins (see note 2 to the financial statements). In January 1995, Praxair acquired most of the remaining shares of its Mexican affiliate that it did not already own. Minority shareholders' share of income for 1995 was $50 million, down from $61 million in 1994 due primarily to a decrease in net income in South America and the reduced minority position in Mexico. 22 Making Our Planet More Productive MANAGEMENT'S DISCUSSION AND ANALYSIS Income from Equity Investments Praxair's more significant equity investments are in the United States, Belgium, India, Italy, Spain, Turkey and China. Praxair's share of net income from corporate equity investments increased $3 million from $5 million in the 1995 pro forma results primarily due to improved equity company results in the United States and Europe. Praxair's share of net income from equity investments decreased $5 million in 1995 from $7 million in 1994, due to the consolidation of GenEx Ltd., a U.S. packaged gases company previously held as an equity company. Costs Relating to the Protection of the Environment Praxair's principal operations relate to the production and distribution of atmospheric and other industrial gases which historically have not had a significant impact on the environment. However, worldwide costs relating to environmental protection may continue to grow due both to increasingly stringent laws and regulations and to Praxair's ongoing commitment to rigorous internal standards. Environmental protection costs for Praxair in 1996 were approximately $8 million of capital expenditures and $19 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 1996 and will not have a material adverse effect on the consolidated financial position of Praxair or on the consolidated results of operations in a given year. Commitments and Contingencies See Note 14 to the financial statements for information concerning commitments and contingencies. LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL DATA Cash Flow from Operations Cash flow from operations decreased slightly in 1996 versus 1995 from $611 million to $606 million. The decrease reflects one-time after-tax cash payments made in 1996 related to the acquisition of CBI for integration charges, antitrust litigation settlements and other non-recurring payments totaling $75 million. Excluding these charges, operating cash flow increased $70 million due to increased net income, depreciation and amortization expense, deferred taxes and other non-cash charges, partly offset by cash outflows from long-term assets and liabilities and working capital. Cash flow from operations in 1995 was $611 million, an increase of $63 million from 1994. This increase reflects cash inflows from higher net income, deferred taxes and lower working capital requirements, partly offset by increased long-term assets and liabilities and other non-cash charges. Working capital decreased slightly over the 1994 period primarily due to lower scheduled payments on accounts payable and other current liabilities mostly offset by higher receivables and inventory required to support the sales growth. Investing Cash flow used for investing in 1996 totaled $2,334 million (excluding $735 million of debt assumed in the CBI acquisition), an increase of $1,614 million from 1995. This increase was due primarily to the acquisition of CBI and higher construction expenditures partly offset by proceeds from the sale of businesses held for sale (see note 2 to the financial statements). Construction expenditures for 1996 totaled $893 million, up $293 million from 1995. The increase is primarily in the United States and South America with additional growth taking place in Europe and Asia. In the United States, Praxair com-pleted construction of a liquid nitrogen facility in Alabama and large air separation plants in Texas, South Carolina, Iowa, Illinois, Louisiana, Indiana and Ohio. Internationally, capital expenditures increased in South America primarily from new growth, while the increase in Asia was primarily due to an air separation plant being completed and placed into operation in Yeochun, Korea and the addition of Thailand operations. In Europe, construction continued on several plants in Spain and an air separation plant was completed in Obernkirchen, Germany. Approximately 50% of capital expenditures over the last three years were in the United States and, in 1996, more than two-thirds of capital expenditures went for business growth, with the balance tied to maintaining current strong market positions and improving operating efficiency. Investment expenditures for 1996 totaled $1,705 million predominately due to the acquisition of CBI ($260 million excluding CBI). Also included are minority share purchases in South America, acquisitions of 18 independent packaged gases distributors in the United States and Canada, Surface Technologies companies in the United States and Germany, and other investments in Europe (Israel, Germany and Italy). Additionally, Asian partnerships expanded in India, China, Indonesia and Japan. On a worldwide basis, construction and investment expenditures for the full year 1997 are expected to be approximately $1 billion primarily from new growth opportunities in the United States, South America, Europe, and Asia and the continuation of Praxair's packaged gases and Surface Technologies acquisition strategies. Making Our Planet More Productive 23 MANAGEMENT'S DISCUSSION AND ANALYSIS Financing At December 31, 1996, Praxair's total debt outstanding was $3,265 million, an increase of $1,947 million over 1995. This increase is due primarily to the CBI acquisition and increased capital expenditures, partially offset by the sale of common stock and proceeds from the sale of certain acquired CBI assets that were not strategic to Praxair. Praxair's debt-to-capital ratio increased from 46.3% at December 31, 1995 to 56.7% as of December 31, 1996 due to the CBI acquisition. During 1996, Praxair terminated CBI's $300 million revolving credit facility, reduced the commitments under its U.S. credit facility from $2.5 billion to $1.5 billion and consolidated Praxair's and CBI's Canadian credit facilities. At December 31, 1996, there were no borrowings under Praxair's $1.5 billion U.S. bank credit facility. Praxair's investment grade credit rating for long-term debt was maintained at A3/BBB+. As described in Note 2 to the financial statements, Praxair acquired the common stock of CBI Industries, Inc. for $2.2 billion, including assumed debt of $735 million. The funds used to consummate the acquisition initially came from short-term borrowings of Praxair, primarily commercial paper. During 1996 and as a result of the increased acquisition debt, Praxair undertook a program to adjust its capital structure and short-term/long-term debt mix to appropriate levels. In March, Praxair issued 12.6 million shares of common stock and used the proceeds of $462 million to repay short-term borrowings. In June, Praxair terminated CBI's ESOP and the ESOP redeemed $80 million of Senior ESOP Notes which were due through 2002. During April, Praxair issued $250 million of 6.70% non-redeemable Notes due 2001 and in November, issued an additional $250 million of 6.90% non-redeemable Notes due 2006. The proceeds from the Notes were primarily used to repay outstanding commercial paper and other short-term debt, and for general corporate purposes. As discussed in Note 2 to the financial statements, during 1996 Praxair sold four air separation plants in the United States, the CBI terminals business, and another small business acquired from CBI for $191 million (after-tax and repayment of debt and lease obligations) and has filed a registration statement with the Securities and Exchange Commission (SEC) for the initial public offering of Chicago Bridge & Iron Company which is expected to be completed in early 1997. The proceeds from the completed transactions were used by Praxair to repay outstanding commercial paper and other short-term debt. Praxair's financing strategy is to secure sufficient funds to support its operations in the United States and around the world. Praxair sources the funding through a combination of local borrowing and intercompany lending in order to minimize the total cost of funds and to manage and centralize currency exchange exposures. Praxair manages its exposure to interest rate changes through the use of financial derivatives (see Note 6 to the financial statements). RAW MATERIALS AND MARKETS Energy is the single largest cost item in the production and distribution of industrial gases. For some products, such as carbon dioxide, helium, hydrogen, specialty gases and surface coatings and powders, raw materials are largely purchased from outside sources. Praxair generally has contracts or commitments for, or readily available sources of, these raw materials. Praxair's industrial gases are used by a diverse group of customers in a variety of industries including metal fabrication, primary metals, chemicals, medical, food processing, electronics, beverage, aerospace, petroleum refining, pulp and paper, oil and gas, glass, and numerous other markets. By using the gases Praxair produces and, in many cases, the proprietary processes that it invents, customers benefit through improved product quality, increased productivity, lower operating costs, conservation of energy and the attainment of environmental improvement objectives. Praxair has a large number of customers and no single customer accounts for a significant portion of Praxair's annual sales. Aircraft engines are Surface Technologies' primary market, but it also serves the printing, textile, chemical and primary metals markets. Aircraft-engine and airframe-component overhaul services are another offering. 24 Making Our Planet More Productive CONSOLIDATED STATEMENT OF INCOME
Year Ended December 31, 1996 1995 1994 - ------------------------------------------------------------------------------------------ SALES $ 4,449 $ 3,146 $ 2,711 Cost of sales, exclusive of depreciation and amortization 2,564 1,777 1,507 Selling, general and administrative 688 496 409 Depreciation and amortization 420 279 273 Research and development 72 61 58 CBI integration charges 85 -- -- Other income (expenses) - net 27 15 (17) ========================================================================================== OPERATING PROFIT 647 548 447 Interest expense 195 116 108 - ------------------------------------------------------------------------------------------ INCOME BEFORE TAXES 452 432 339 Income taxes 110 122 82 - ------------------------------------------------------------------------------------------ INCOME OF CONSOLIDATED ENTITIES 342 310 257 Minority interests (68) (50) (61) Income from equity investments 8 2 7 - ------------------------------------------------------------------------------------------ NET INCOME $ 282 $ 262 $ 203 ========================================================================================== NET INCOME PER SHARE $ 1.77 $ 1.82 $ 1.45 ========================================================================================== (Millions of dollars, except per share data) The accompanying notes are an integral part of these financial statements.
Making Our Planet More Productive 25 CONSOLIDATED BALANCE SHEET
Year Ended December 31, 1996 1995 - --------------------------------------------------------------------------------------------------------- ASSETS Cash and cash equivalents $ 63 $ 15 Accounts receivable 914 617 Inventories 312 228 Assets held for sale - net 287 -- Prepaid and other current assets 90 70 - --------------------------------------------------------------------------------------------------------- TOTAL CURRENT ASSETS 1,666 930 Property, plant and equipment - net 4,269 2,737 Equity investments 195 152 Other assets 1,408 315 - --------------------------------------------------------------------------------------------------------- TOTAL ASSETS $ 7,538 $ 4,134 ========================================================================================================= LIABILITIES AND EQUITY Accounts payable $ 408 $ 272 Short-term debt 1,520 349 Current portion of long-term debt 42 36 Accrued taxes 69 64 Other current liabilities 511 308 - --------------------------------------------------------------------------------------------------------- TOTAL CURRENT LIABILITIES 2,550 1,029 Long-term debt 1,703 933 Other long-term obligations 535 381 Deferred credits 258 262 - --------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES 5,046 2,605 ========================================================================================================= Minority interests 493 408 Preferred stock 75 -- Shareholders' equity: Common stock $.01 par value, authorized 500,000,000 shares, issued 157,501,453 shares in 1996 and 140,624,292 shares in 1995 2 1 Additional paid-in capital 1,350 752 Retained earnings 698 474 Translation and other (126) (105) Less: Treasury stock, at cost (12,496 shares in 1996 and 88,723 shares in 1995) -- (1) - --------------------------------------------------------------------------------------------------------- TOTAL SHAREHOLDERS' EQUITY 1,924 1,121 - --------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND EQUITY $ 7,538 $ 4,134 ========================================================================================================= The accompanying notes are an integral part of these financial statements. (Millions of dollars)
26 Making Our Planet More Productive CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended December 31, 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------ INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS OPERATIONS Net income $ 282 $ 262 $ 203 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 420 279 273 CBI integration charges 37 -- -- Deferred income taxes 48 42 27 Gain on sale of fixed assets (4) 1 -- Working capital: Accounts receivable (121) (48) (66) Inventories (4) (52) (11) Prepaid and other 25 (12) (13) Payables and accruals 9 118 63 CBI acquisition payments (75) -- -- Long-term assets and liabilities (60) (18) 28 Other non-cash charges 49 39 44 - ------------------------------------------------------------------------------------------------------------------------ Net cash provided by operating activities 606 611 548 - ------------------------------------------------------------------------------------------------------------------------ INVESTING Capital expenditures (893) (600) (326) Investments (1,705) (202) (59) Divestitures and asset sales 264 82 23 - ------------------------------------------------------------------------------------------------------------------------ Net cash used for investing activities (2,334) (720) (362) - ------------------------------------------------------------------------------------------------------------------------ FINANCING Short-term borrowings (repayments) - net 1,114 3 (36) Long-term borrowings 602 201 130 Long-term debt repayments (489) (154) (247) Minority transactions and other 4 (10) (22) Issuances of common stock 611 111 71 Purchases of common stock (7) (45) (8) Dividends (58) (45) (37) - ------------------------------------------------------------------------------------------------------------------------ Net cash (used for) provided by financing activities 1,777 61 (149) - ------------------------------------------------------------------------------------------------------------------------ Effect of exchange rate changes on cash and cash equivalents (1) -- (8) - ------------------------------------------------------------------------------------------------------------------------ Change in cash and cash equivalents 48 (48) 29 Cash and cash equivalents, beginning-of-year 15 63 34 - ------------------------------------------------------------------------------------------------------------------------ Cash and cash equivalents, end-of-year $ 63 $ 15 $ 63 ======================================================================================================================== SUPPLEMENTAL DATA: Acquired debt from CBI Industries, Inc. $ 735 $ -- $ -- Taxes paid $ 59 $ 74 $ 44 Interest paid $ 241 $ 120 $ 92 ======================================================================================================================== The accompanying notes are an integral part of these financial statements. (Millions of dollars)
Making Our Planet More Productive 27 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Operations Praxair, Inc. (Praxair or Company) was founded in 1907 and became an independent publicly traded company on June 30, 1992. Praxair is the largest industrial gases company in North and South America, and one of the largest worldwide. The Company is also the world's largest supplier of carbon dioxide. Praxair produces, sells and distributes atmospheric, process and specialty gases, and high-performance surface coatings to a diverse group of industries including metal fabrication, primary metals, chemicals, medical, electronics, oil and gas, aerospace, food processing, glass, and pulp and paper. Principles of Consolidation The consolidated financial statements include the accounts of all significant subsidiaries where control exists. Equity investments generally consist of 20-50% owned operations. Operations less than 20% owned are generally carried at cost. Pre-tax income from equity investments which are partnerships is included in Other income (expenses) - net with related taxes included in Income taxes. Partnership net assets are reported as equity investments in the balance sheet. Praxair does not allocate corporate costs to its equity investments. Significant intercompany transactions are eliminated. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. While actual results could differ, management believes such estimates to be reasonable. Cash and Cash Equivalents Cash equivalents are considered to be highly liquid securities with original maturities of three months or less. Inventories Inventories are stated at the lower of cost or market. Cost is determined generally using the last-in, first-out (LIFO) method for certain U.S. operations and the average cost method for most other operations. Property, Plant and Equipment - net Property, plant and equipment are carried at cost, net of accumulated depreciation. Depreciation is calculated on the straight-line method over the estimated useful lives of the assets. Praxair generally uses accelerated depreciation methods for tax purposes where appropriate. Effective January 1, 1996, Praxair adopted Statement of Accounting Standards (SFAS) No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of. The adoption produced no effect on the Company's financial position or results of operations. Foreign Currency Translation For international subsidiaries where the local currency is the functional currency, translation gains and losses are accumulated as a separate component of shareholders' equity. For international subsidiaries operating in hyperinflationary economies, the U.S. dollar is the functional currency and translation gains and losses are included in income. Financial Instruments Praxair enters into various derivative financial instruments to manage its exposure to fluctuating interest and currency exchange rates. Such instruments include interest rate swap, forward rate and cap agreements, and currency exchange forward and option contracts. These instruments are not entered into for trading purposes and are generally held to maturity. Praxair only uses commonly traded and non-leveraged instruments. Interest rate swap agreements involve the exchange of fixed and floating interest payments without the exchange of the underlying principal amounts. The differential to be paid or received is recognized as an adjustment to interest expense. Interest rate cap agreements are purchased to reduce the impact of interest rate changes on floating rate debt. The premiums paid are amortized to interest expense over the terms of the agreements. The notional amounts of interest rate swap and cap agreements do not exceed the underlying debt principal amounts. Currency exchange forward and option contracts are generally entered into to hedge recorded balance sheet amounts related to international operations and firm commitments that create currency exposures. Gains and losses on hedges of assets and liabilities are recognized in income as offsets to the gains and losses from the underlying hedged amounts; gains and losses on hedges of net investments are reported on the balance sheet as part of the cumulative translation adjustment to equity; and gains and losses on hedges of firm commitments are recorded on the balance sheet and included in the basis of the underlying transaction. Forward exchange contracts that cover exposures which do not qualify as hedges are recorded in income on a mark-to-market basis. 28 Making Our Planet More Productive NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Praxair uses the following methods and assumptions to estimate the fair value of each class of financial instrument. Due to their nature, the carrying value of cash, short-term investments and short-term debt, receivables and payables approximates fair value. The fair value of long-term debt is estimated based on the quoted market prices for the same or similar issues. The fair value of interest rate swaps and currency exchange contracts are estimated based on market prices obtained from dealer quotes. Such quotes represent the estimated amount Praxair would receive or pay to terminate the agreements taking into consideration current rates and the credit worthiness of the counterparties. (See Note 6). Patents, Trademarks And Goodwill Amounts paid for patents and the excess of the purchase price over the fair value of the net assets of acquired operations (goodwill) are recorded as Other assets. Patents are amortized over their remaining useful lives, while trademarks and goodwill are amortized over the estimated period of benefit, up to forty years. Praxair periodically evaluates the recoverability of patents, trademarks and goodwill by assessing whether the unamortized balance can be recovered over its remaining life through cash flows generated by underlying tangible assets. Research And Development Research and development costs are charged to expense as incurred. Income Taxes Deferred income taxes are recorded for the temporary differences between the financial statement and tax bases of assets and liabilities using current tax rates. Retirement Programs Most Praxair employees worldwide are covered by various pension plans. The cost of pension benefits under these plans is determined using the "projected unit credit" actuarial cost method. Funding of pension plans varies and is in accordance with local laws and practices. Praxair accrues the cost of retiree life and health insurance benefits during the employees' service period when such benefits are earned. Postemployment Benefits Praxair recognizes the estimated cost of future benefits provided to former and inactive employees after employment but before retirement in accordance with SFAS No. 112, Employers' Accounting for Postemployment Benefits. Stock-Based Compensation Effective in 1996, Praxair adopted SFAS No. 123, Accounting for Stock-Based Compensation, and continues to account for incentive plans and stock options using the provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees. Pro forma information required by SFAS No. 123 is included in Note 10. Earnings Per Share Earnings per share is computed by dividing net income for the period by the weighted average number of Praxair common shares outstanding and common stock equivalents. Weighted average shares and common stock equivalents used to compute earnings per share amounts were 159,037,716, 144,147,469, and 139,991,371 shares in 1996, 1995, and 1994, respectively. Reclassifications Certain prior years' amounts have been reclassified to conform to the current year's presentation. NOTE 2 1996 ACQUISITION OF CBI INDUSTRIES, INC. (CBI) Acquisition On January 12, 1996, Praxair acquired approximately 94% of the outstanding shares of CBI common stock and on March 13, 1996 acquired the remaining common stock outstanding. The total purchase price for CBI's common stock was $2.2 billion including assumed debt of $735 million, amounts paid or to be paid in respect of executive compensation agreements, CBI's outstanding stock options and ESOP debt, and transaction expenses. The funds used to consummate the acquisition initially came from short-term borrowings of Praxair, primarily commercial paper. Historically, CBI operated in three major business segments: Industrial Gases (Liquid Carbonic), Contracting Services (Chicago Bridge & Iron Company) and Investments (primarily Statia Terminals). CBI's Industrial Gases segment is the world's largest supplier of carbon dioxide in its various forms and produces, processes and markets a wide variety of other industrial/medical and specialty gases, and assembles and sells industrial gas-related equipment. During 1996, Liquid Carbonic was completely integrated with Praxair's operations. Praxair determined that the Contracting Services and Investments segments of CBI were not strategic to the combined company and, during 1996, sold or took actions to sell these businesses (see below for a summary of Assets held for sale). The purchase price for the common stock of CBI has been allocated to the assets and liabilities of Liquid Carbonic based on appraisals, valuations and other studies; and to assets held for sale based on estimated net realizable values, as adjusted. These allocations will continue to be adjusted in early 1997 to reflect the amounts of actual proceeds, earnings and carrying Making Our Planet More Productive 29 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS costs for businesses held for sale; and appraisals, valuations and other studies. The goodwill associated with the CBI acquisition, representing the costs in excess of the fair value of net assets acquired (shown on the balance sheet in Other assets), is being amortized on a straight line basis over forty years. The results of Liquid Carbonic's operations have been included in the consolidated financial statements effective January 1, 1996. Pro forma information The following table provides the unaudited pro forma consolidated results of operations for the year ended December 31, 1995, reflecting the acquisition as though it had occurred at January 1, 1995. The 1995 pro forma amounts are based upon the historical consolidated financial statements of Praxair and CBI combined and adjusted to give effect to the acquisition using the purchase method of accounting and to eliminate the operations and interest carrying costs related to acquired businesses to be sold. This unaudited pro forma financial information is not necessarily indicative of the results of the combined company that would have occurred had the acquisition occurred at the beginning of 1995 nor are they necessarily indicative of future operating results. 1995 Pro Forma Results (unaudited)* - --------------------------------------------------------- Sales $4,109 Operating profit $ 576 Net income $ 190 Net income per share $ 1.32 - --------------------------------------------------------- (Millions of dollars, except per share data) * Pro forma results include an operating profit charge of $54 million ($33 million after tax or $.23 per share) principally relating to legal, environmental and other matters of CBI's Liquid Carbonic business. In order to align Praxair's South American operations after the CBI acquisition, effective April 1, 1996, Praxair merged its Liquid Carbonic South American subsidiaries into Praxair's 54%-owned subsidiary, S.A. White Martins, in exchange for additional common shares in White Martins. The transaction, valued at $728 million, increased Praxair's ownership in White Martins to 69.3%. This transaction did not significantly impact Praxair's consolidated results of operations or financial position. Assets Held for Sale The operations related to assets held for sale have been eliminated from Praxair's consolidated financial statements and the remaining assets and liabilities to be sold are shown in the consolidated balance sheet at December 31, 1996 as Assets held for sale - net at amounts equal to estimated net realizable values adjusted for anticipated earnings, interest and other carrying costs until sale. During 1996, Praxair sold four of Liquid Carbonic's air separation plants (based on an agreement with the U.S. Federal Trade Commission), Statia Terminals, Inc. and a small business that was part of CBI's Investments segment. The remaining Assets held for sale at December 31, 1996 relate primarily to Chicago Bridge & Iron Company and three businesses that were part of CBI's Contracting segment. A registration statement has been filed with the SEC for the initial public offering of Chicago Bridge & Iron Company which is expected to be completed in early 1997. The sale of the other businesses is expected to be completed in early 1997. Upon sale, any difference between the actual after-tax proceeds received and the carrying value of the assets sold will be recorded as an adjustment to the original purchase price allocation. The following table provides summary data for activity during 1996 related to these businesses: Assets Held for Sale - Net - -------------------------------------------------------------------------------- Assets held for sale - net, date of acquisition $ 476 Add: Interest carrying costs 17 Less: Net income of operations held for sale (15) After-tax proceeds from sale of businesses (191) - -------------------------------------------------------------------------------- Assets held for sale - net, December 31, 1996 $ 287 ================================================================================ (Millions of dollars) NOTE 3 CBI INTEGRATION CHARGES In March 1996, Praxair recorded a charge of $85 million pre-tax ($53 million after tax benefits of $30 million and minority interests of $2 million) for severance-related and other exit costs, primarily lease termination costs, associated with the integration of the Liquid Carbonic business of CBI and Praxair. The severance-related costs are for payments for the termination of Praxair and CBI employees due to synergies related to integrating the operations of the two companies, primarily manufacturing and product distribution, sales and marketing, and administrative functions. The original integration plan called for the termination of approximately 1,600 employees, of which 1,465 separations have occurred as of December 31, 1996. The other exit costs are primarily related to estimated net costs associated with lease commitments for surplus office and production space. The following table summarizes 1996 charges against the accrual: Initial 1996 Remaining CBI Integration Accrual Accrual Charges Accrual - -------------------------------------------------------------- Severance $50 $29 $21 Other exit costs 35 10 25 - -------------------------------------------------------------- $85 $39 $46 ============================================================= (Millions of dollars) 30 Making Our Planet More Productive NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 4 SEGMENT DATA Praxair operates principally in the industrial gases business. The following is a summary of sales, operating profit and total assets by geographic segment. Transfers between geographic segments were not significant. Year Ended December 31, 1996 1995 1994 - ------------------------------------------------------------------------ SALES: United States $ 2,157 $ 1,569 $ 1,242 South America 990 667 595 Europe 613 494 432 Canada, Mexico, Asia and Other 689 416 442 - ------------------------------------------------------------------------ Total Sales $ 4,449 $ 3,146 $ 2,711 ======================================================================== OPERATING PROFIT:(a) United States $ 322 $ 285 $ 206 South America 190 137 139 Europe 113 90 69 Canada, Mexico, Asia and Other 52 53 49 Corporate (30) (17) (16) - ------------------------------------------------------------------------ Total Operating Profit $ 647 $ 548 $ 447 ======================================================================== TOTAL ASSETS: United States $ 3,102 $ 1,869 $ 1,548 South America 2,177 993 831 Europe 955 741 631 Canada, Mexico, Asia and Other 1,304(b) 531 510 - ------------------------------------------------------------------------ Total Assets $ 7,538 $ 4,134 $ 3,520 ======================================================================== (Millions of dollars) (a)During 1996, Praxair recorded an operating profit charge of $85 million related to CBI integration costs. The following are the operating profit impacts, by geographic segment for this charge. - -------------------------------------------------- United States $37 South America 13 Europe 4 Canada, Mexico, Asia and Other 28 Corporate 3 - -------------------------------------------------- Total Operating Profit $85 ================================================== (Millions of dollars) (b) Includes $287 million related to Assets held for sale - net. NOTE 5 INCOME TAXES Pre-tax income applicable to U.S. and foreign operations is as follows: Year Ended December 31, 1996 1995 1994 - --------------------------------------------------------------------------- United States $154 $188 $107 Foreign 298 244 232 - --------------------------------------------------------------------------- Total income before income taxes $452 $432 $339 =========================================================================== (Millions of dollars) The following is an analysis of the provision for income taxes: Year Ended December 31, 1996 1995 1994 - ------------------------------------------------------------------------- CURRENT TAX EXPENSE U.S. Federal $ 15 $ 48 $ 32 State and local 5 9 7 Foreign 42 23 16 - ------------------------------------------------------------------------- Total current 62 80 55 - ------------------------------------------------------------------------- DEFERRED TAX EXPENSE U.S. Federal 39 14 (2) State and Local -- -- (1) Foreign 9 28 30 - ------------------------------------------------------------------------- Total deferred 48 42 27 - ------------------------------------------------------------------------- Total income taxes $ 110 $ 122 $ 82 ========================================================================= (Millions of dollars) Net deferred tax liabilities are comprised of the following: December 31, 1996 1995 - ------------------------------------------------------------------- DEFERRED TAX LIABILITIES Fixed assets $405 $257 State and local 9 11 Other 156 132 - ------------------------------------------------------------------- Total deferred tax liabilities 570 400 - ------------------------------------------------------------------- DEFERRED TAX ASSETS Benefit plans and related 160 115 Inventory 15 13 Alternative minimum tax 18 4 Loss carryforwards - gross 40 32 Other 138 68 - ------------------------------------------------------------------- 371 232 - ------------------------------------------------------------------- Less: Valuation allowances 11 10 - ------------------------------------------------------------------- Total deferred tax assets 360 222 - ------------------------------------------------------------------- NET DEFERRED TAX LIABILITIES $210 $178 =================================================================== (Millions of dollars) Making Our Planet More Productive 31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS An analysis of the difference between the provision for income taxes and the amount computed by applying the U.S. statutory income tax rate to pre-tax income follows (amounts are in millions of dollars and percentages are of pre-tax income):
Year Ended December 31, 1996 1995 1994 - -------------------------------------------------------------------------------------------- $ % $ % $ % - -------------------------------------------------------------------------------------------- U.S. statutory income tax rate 158 35.0 151 35.0 119 35.0 State and local taxes 3 0.7 5 1.2 4 1.2 U.S. tax credits (1) (0.2) (1) (0.2) (1) (0.3) Foreign taxes (51) (11.4) (30) (6.9) (38) (11.2) Other - net 1 0.2 (3) (0.9) (2) (0.5) - -------------------------------------------------------------------------------------------- Provision for income tax 110 24.3 122 28.2 82 24.2 ============================================================================================
The valuation allowances increased $1 million during 1996 and 1995, and decreased $6 million during 1994, all relating to foreign net operating loss carryforwards activity. At December 31, 1996, Praxair has approximately $29 million of foreign net operating loss carryforwards that expire principally through 2000, for which the deferred tax asset has been fully reserved by valuation allowances. In December 1996, the top marginal tax rate in Brazil was increased from 30.6% to 33%, effective for 1997 and beyond. The effect of this tax rate change was immaterial. In 1995, income taxes include a $6 million charge related to the decrease in Brazil's top marginal income tax rate from 43% to 30.6%. In 1994, income taxes include a $2 million credit related to the effect of the change increasing the top marginal income tax rate in Brazil from 35% to 43%. Provision has not been made for additional Federal or foreign taxes on $1,188 million of undistributed earnings of foreign subsidiaries that are planned to be reinvested indefinitely. These earnings could become subject to additional tax if they were remitted as dividends, loaned to Praxair, or upon sale of the subsidiary's stock. It is not practicable to estimate the amount or timing of the additional tax, if any, that might eventually be payable on the foreign earnings. NOTE 6 DEBT AND FINANCIAL INSTRUMENTS Debt The following is a summary of Praxair's outstanding debt at December 31, 1996 and 1995: Debt 1996 1995 - ----------------------------------------------------------------------- SHORT-TERM Commercial paper $ 880 $ 118 Other U.S. bank borrowings 318 106 Canadian borrowings 167 64 South American borrowings 106 29 Other International borrowings 49 32 - ----------------------------------------------------------------------- Total Short-term Debt 1,520 349 - ----------------------------------------------------------------------- LONG-TERM U.S.: 6.75% Notes due 2003 300 300 8.70% Debentures due 2022 (Redeemable after 2002) 300 300 6.70% Notes due 2001 250 -- 6.90% Notes due 2006 250 -- 6.85% Notes due 2005 150 150 6.25% Notes due 2000 75 -- 6.625% Notes due 2003 75 -- Other borrowings 65 26 Canadian subsidiary borrowings 90 90 South American subsidiary borrowings 109 35 Other International borrowings 36 46 Obligations under capital leases 45 22 - ----------------------------------------------------------------------- 1,745 969 Less: Current portion of long-term debt 42 36 - ----------------------------------------------------------------------- Total Long-term Debt 1,703 933 - ----------------------------------------------------------------------- Total Debt $3,265 $1,318 ======================================================================= (Millions of dollars) 32 Making Our Planet More Productive NOTES TO CONSOLIDATED FINANCIAL STATEMENTS At December 31,1996, Praxair has available a 5-year, $1.5 billion credit agreement used to support commercial paper borrowings. No borrowings were outstanding under this credit agreement at December 31, 1996 and 1995. The average interest rate on commercial paper and other U.S. bank borrowings was 5.6% during 1996 and 6.1% during 1995. Praxair's worldwide average short-term interest rate was 5.8% during 1996 and 9.0% during 1995. 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, 1996, Praxair was in compliance with all such covenants. Payments due on long-term debt in the five years following 1996 are: 1997, $42 million; 1998, $39 million; 1999, $94 million; 2000, $102 million and 2001, $334 million. At December 31, 1996, $30 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, 1996, the estimated fair value of Praxair's long-term debt portfolio was $1,760 million ($1,023 million at December 31, 1995) versus a carrying value of $1,745 million ($969 million at December 31, 1995). These differences are attributable to interest rates changes subsequent to when the debt was issued. Financial Instruments Praxair has entered into various interest rate swap and cap agreements that are used to manage exposure to interest rate changes. Fixed rate swaps are used to convert floating rate debt into fixed rate debt. Forward starting fixed rate swaps are generally used to extend coverage of existing swaps and increase the period for which floating rate debt is converted to fixed rate debt. Floating rate swaps are used to convert fixed rate debt into floating rate debt. Interest rate caps are used to limit the impact of rising interest rates on short-term floating rate debt. The fair market value of these swaps and caps approximated their carrying amounts at December 31, 1996 and 1995. The following table is a summary of the notional amount of interest rate swap and cap agreements at December 31, 1996 and 1995: December 31, 1996 1995 - -------------------------------------------------------- MATURING WITHIN ONE YEAR Fixed Rate Swaps $950* $200 Floating Rate Swaps $ 15 -- Caps $200 -- MATURING BETWEEN 1-3 YEARS: Fixed Rate Swaps $ 20 -- Caps -- $200 Floating Rate Swaps $150 $165 MATURING BETWEEN 3-5 YEARS: Fixed Rate Swaps $ 80 -- - -------------------------------------------------------- (Millions of dollars) * Also, the expiration dates for $600 million of these swaps have effectively been extended to later dates within the one-year maturity period through the use of forward starting fixed rate swaps. Praxair is also a party to currency exchange forward contracts to manage its exposure to changing currency exchange rates. At December 31, 1996 and 1995, respectively, Praxair had $262 million and $284 million of currency exchange forward contracts outstanding: $239 million to hedge recorded balance sheet exposures ($214 million in 1995), $23 million to hedge firm commitments generally for the purchase of equipment related to construction projects ($13 million in 1995) and in 1995 only, $57 million to hedge other operating exposures that are accounted for on a mark-to-market basis. These contracts mature within 1 year. At December 31, 1996 and 1995, the fair market value of currency exchange contracts approximated their carrying amounts and the deferred gains and losses on these contracts were not material. Counterparties to interest rate derivative contracts, and currency exchange forward contracts are major financial institutions with credit ratings of investment grade or better and no collateral is required. There are no significant risk concentrations. Management believes the risk of incurring losses related to credit risk is remote and any losses would be immaterial. Making Our Planet More Productive 33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 7 SHAREHOLDERS' EQUITY Changes in Shareholders' equity were as follows:
Unearned Additional Perfor- Cumulative Common Stock Paid-In Retained mance Translation Treasury Stock Shareholders' Equity Shares Amounts Capital Earnings Stock Adjustment Shares Amounts Total BALANCE, DECEMBER 31, 1993 134,450 $ 1 $ 625 $ 91 $ (8) $ (74) -- $ -- 635 Net income 203 203 Dividends on common stock ($.28 per share) (37) (37) Issuances of common stock: For the Dividend Reinvestment and Stock Purchase plan 110 1 1 For employee savings and incentive plans 3,677 67 3 70 Purchases of common stock 374 (8) (8) Translation adjustments (25) (25) - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE, DECEMBER 31, 1994 138,237 $ 1 $ 693 $ 257 $ (5) $ (99) 374 $ (8) $ 839 - ------------------------------------------------------------------------------------------------------------------------------------ Net income 262 262 Dividends on common stock ($.32 per share) (45) (45) Issuances of common stock: For the Dividend Reinvestment and Stock Purchase plan 107 1 1 For employee savings and incentive plans 2,280 58 1 (2,284) 52 111 Purchases of common stock 1,999 (45) (45) Translation adjustments (2) (2) - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE, DECEMBER 31, 1995 140,624 $ 1 $ 752 $ 474 $ (4) $ (101) 89 $ (1) $ 1,121 - ------------------------------------------------------------------------------------------------------------------------------------ Net income 282 282 Dividends on common stock ($.38 per share) (58) (58) Issuances of common stock: Public Offering 12,650 1 461 462 For the Dividend Reinvestment and Stock Purchase plan 83 2 2 For employee savings and incentive plans 4,144 135 4 (264) 8 147 Purchases of common stock 187 (7) (7) Translation adjustments (25) (25) - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE, DECEMBER 31, 1996 157,501 $ 2 $ 1,350 $ 698 $ -- $ (126) 12 $ -- $ 1,924 ==================================================================================================================================== (Millions of dollars, shares in thousands)
34 Making Our Planet More Productive NOTES TO CONSOLIDATED FINANCIAL STATEMENTS At December 31, 1996 there were 500,000,000 shares of common stock authorized (par value $.01 per share) of which 157,501,453 shares were issued and 157,488,957 were outstanding. During 1996, Praxair sold 12,650,000 shares of common stock in a public offering. The Board of Directors of Praxair declared a dividend distribution of one common stock purchase right (a "Right") for each share of Praxair's Common Stock outstanding at the close of business on June 30, 1992. The holders of any additional shares of Praxair's common stock issued after June 30, 1992 and before the redemption or expiration of the Rights are also entitled to one Right for each such additional share. Each Right entitles the registered holders, under certain circumstances, to purchase from Praxair one share of Praxair's common stock at $47.33 (subject to adjustment). At no time will the Rights have any voting power. The Rights may not be exercised until 10 days after a person or group acquires 15 percent or more of Praxair's common stock, or announces a tender offer that, if consummated, would result in 15 percent or more ownership of Praxair's common stock. Separate Rights certificates will not be issued and the Rights will not be traded separately from the stock until then. Should an acquirer become the beneficial owner of 15 percent or more of Praxair's common stock (other than as approved by Praxair's Board of Directors) and under certain additional circumstances, Praxair Rightholders (other than the acquirer) would have the right to buy common stock in Praxair, or in the surviving enterprise if Praxair is acquired, having a value of two times the exercise price then in effect. Also, Praxair's Board of Directors may exchange the Rights (other than the acquirer's Rights which will have become void), in whole or in part, at an exchange ratio of one share of Praxair common stock (and/or other securities, cash or other assets having equal value) per Right (subject to adjustment). The Rights will expire on June 30, 2002, unless exchanged or redeemed prior to that date. The redemption price is $.001 per Right. Praxair's Board of Directors may redeem the Rights by a majority vote at any time prior to the 20th day following public announcement that a person or group has acquired 15 percent of Praxair's common stock. Under certain circumstances, the decision to redeem requires the concurrence of a majority of the independent directors. NOTE 8 PREFERRED STOCK At December 31, 1996, there were 25,000,000 shares of preferred stock (par value $.01 per share) authorized, of which, 750,000 shares were issued and outstanding. The outstanding preferred shares were issued in December 1996 when PX Merger Corp. was merged into CBI. At that time, each outstanding share of CBI preferred stock was exchanged for a share of Praxair preferred stock having the same terms. Each series of preferred stock ranks on parity with the other, and no dividends may be paid on Praxair common stock unless preferred stock dividends have been paid. The preferred stock has limited voting rights. Following is a summary of each series of preferred stock outstanding: Series A Preferred Stock There are 550,000 outstanding shares of Praxair 7.48% Cumulative Preferred Stock, Series A which are entitled to receive cumulative annual dividends of $7.48 per share, payable quarterly. The Series A Preferred Stock is mandatorily redeemable on, but not prior to, April 1, 2000 at a price of $100 per share and has a liquidation preference of $100 per share. Series B Preferred Stock There are 200,000 outstanding shares of Praxair 6.75% Cumulative Preferred Stock, Series B which are entitled to receive cumulative annual dividends of $6.75 per share, payable quarterly. The Series B Preferred Stock is mandatorily redeemable on, but not prior to, September 5, 2002 at a price of $100 per share and has a liquidation preference of $100 per share. Making Our Planet More Productive 35 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 9 SUPPLEMENTARY INCOME STATEMENT INFORMATION Year Ended December 31, 1996 1995 1994 - ------------------------------------------------------------- SELLING, GENERAL AND ADMINISTRATIVE Selling $ 331 $ 236 $ 203 General and administrative 357 260 206 - ------------------------------------------------------------- $ 688 $ 496 $ 409 ============================================================= OTHER INCOME (EXPENSES) - NET Investment income $ 6 $ 4 $ 6 Currency 3 (4) -- Partnership income 8 10 9 Productivity improvement programs(a) -- (14) (16) Other 10 19(b) (16) - ------------------------------------------------------------- $ 27 $ 15 $ (17) ============================================================= INTEREST EXPENSE Interest incurred on debt $ 220 $ 125 $ 112 Interest capitalized (25) (9) (4) - ------------------------------------------------------------- $ 195 $ 116 $ 108 ============================================================= MINORITY INTERESTS Minority interests $ (62) $ (50) $ (61) Preferred stock dividends (6) -- -- - ------------------------------------------------------------- $ (68) $ (50) $ (61) ============================================================= (Millions of dollars) (a)Relates primarily to employee severance costs in Brazil in 1995 and in the U.S. and Europe in 1994. (b)Includes income from the Linde name sale and a favorable settlement of a social contribution tax issue in Brazil; partly offset by an accrual for future lease payments on excess office space in the U.S. NOTE 10 INCENTIVE PLANS AND STOCK OPTIONS The 1992 Praxair Long-Term Incentive Plan (the "1992 Plan") provides for granting nonqualified or incentive stock options, stock grants, performance awards, and other stock-related incentives for key employees. Awards may be made under the 1992 Plan through the year 2001. Under the 1992 Plan, the total number of shares available for options or stock grants shall not exceed one percent of the number of shares outstanding on the first day of each year, plus any shares that were available but not used in a prior year up to two percent of the total number of shares outstanding on the first day of the year of the grant. Option prices are equal to the closing price of Praxair's common stock on the date of the grant. The options issued under the 1992 Plan become exercisable only after one or more years, and the option term can be no more than ten years. In 1996, the Board of Directors approved the 1996 Praxair, Inc. Performance Incentive Plan (the "1996 Plan") that provides for granting nonqualified or incentive stock options, stock grants, performance awards and other stock-related incentives for Praxair employees other than officers and directors, employees subject to Section 16 of the Securities Exchange Act of 1934 and employees subject to Section 162(m) of the Internal Revenue Code. Under the 1996 Plan, the number of shares of stock available for options or grants in each calendar year is limited to two percent of the total number of shares of common stock outstanding as of the first day of the year plus any carryover shares from prior years that were not granted up to a maximum of four percent of the shares of common stock that were outstanding on the first day of the year. Options granted under the 1996 Plan have terms and conditions identical to those that may be granted under the 1992 Plan. In 1992, Praxair issued performance stock to corporate officers and other key employees which become fully vested on February 1, 1997 since the cumulative 15 percent per year net income growth target for the five-year period was achieved. During 1994 the performance stock plan was modified to provide incentive for management to achieve net income growth beyond the original 15% per year target. Under the modification, participants earned additional cash payments equal to 87% of the value of the original performance stock grant. The pre-tax compensation expense related to this performance stock plan was $23 million in 1996 ($19 million in 1995 and $5 million in 1994). Effective January 1, 1997, Praxair initiated a new three-year executive compensation plan by granting 932,000 performance share equivalents (payable in Praxair common stock) and 1,108,000 stock options (the stock options were granted on October 22, 1996 with an exercise price of $46.125 per share) to corporate officers and other key employees. The performance share equivalents will fully vest on January 1, 2000, provided 36 Making Our Planet More Productive NOTES TO CONSOLIDATED FINANCIAL STATEMENTS that Praxair meets its three-year cumulative 15 percent per year earnings per share growth target for the period. The number of actual performance share equivalents that vest is governed by a sliding scale based on cumulative earnings per share achieved over the three-year period with no maximum. The stock options become exercisable on January 1, 2000. The plan will be accounted for as a variable plan under APB Opinion No. 25. The following table summarizes the changes in outstanding shares under option and performance stock grants and performance stock equivalents for 1996, 1995 and 1994 (Shares in thousands):
Stock Options Average Perfor- Exercise mance Activity Options Price Stock(a) - ---------------------------------------------------------------- Outstanding at December 31, 1993 13,149 $ 13.96 653 - ---------------------------------------------------------------- Granted 959 19.45 51 Exercised (1,706) 13.39 -- Cancelled or expired (117) 16.25 (73) - ---------------------------------------------------------------- Outstanding at December 31, 1994 12,285 14.45 631 - ---------------------------------------------------------------- Granted 1,422 21.14 9 Exercised (2,224) 13.94 -- Cancelled or expired (54) 18.68 (4) - ---------------------------------------------------------------- Outstanding at December 31, 1995 11,429 15.36 636 - ---------------------------------------------------------------- Granted 2,615 40.52 6 Exercised (2,478) 14.99 -- Cancelled or expired (89) 33.19 (3) - ---------------------------------------------------------------- Outstanding at December 31, 1996(b) 11,477 21.03 639 - ---------------------------------------------------------------- Options exercisable at: December 31, 1994 9,969 13.75 December 31, 1995 8,671 13.99 December 31, 1996(b) 7,275 14.20 ================================================================ (a)The weighted-average price per share on the date the performance stock was granted was $41.83 in 1996 and ($25.18 in 1995 and $19.76 in 1994). (b)The following table summarizes information about options outstanding and exercisable at December 31, 1996 (shares in thousands, life in years):
Outstanding Exercisable -------------------------------------- ------------------------------------- Average Range of Average Average Year of Remain- Exercise Exercise Exercise Grant ing Life Options Prices Price Options Price ---------------------------------------------------------------------------------------------------- To 6/92* 3.3 4,891 $ 9.80-16.63 $13.06 4,891 $13.06 7/92-12/93 5.9 1,876 $15.50-17.13 $15.84 1,876 $15.84 1994 7.4 743 $17.88-23.63 $19.43 498 $18.88 1995 8.1 1,420 $20.25-29.88 $21.14 10 $29.63 1996 9.5 2,547 $34.13-47.75 $40.59 0 0 ---------------------------------------------------------------------------------------------------- 6.0 11,477 $ 9.80-47.75 $21.03 7,275 $14.20 ==================================================================================================== * Options issued at 6/30/92, the day Praxair became a public company.
Pro forma information: SFAS No. 123 requires Praxair to disclose pro forma net income and pro forma earnings per share amounts as if compensation expense was recognized for options granted after 1994. Using this approach, pro forma net income and earnings per share in 1996 would be $8 million and $.05 lower, respectively versus reported amounts ($3 million and $.02 lower, respectively in 1995). The weighted average fair value of options granted during 1996 was $13.52 ($7.26 in 1995). These values, which were used as a basis for the pro forma disclosures, were estimated using the Black-Scholes Options-Pricing Model with the following assumptions used for grants in 1996 and 1995, respectively; dividend yield of 1.0% and 1.3%, volatility of 30% in both years; risk-free interest rate of 6.1% and 7.7%; and an expected term of 5 years for both years. These pro forma disclosures may not be representative of the effects for future years since options vest over several years and options granted prior to 1995 are not considered in these disclosures. Also, additional awards generally are made each year. Making Our Planet More Productive 37 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 11 SUPPLEMENTARY BALANCE SHEET INFORMATION December 31, 1996 1995 - ------------------------------------------------------------------ ACCOUNTS RECEIVABLE Trade $ 835 $ 568 Other 110 71 - ------------------------------------------------------------------ 945 639 Less: Allowance for doubtful accounts(a) 31 22 - ------------------------------------------------------------------ $ 914 $ 617 ================================================================== INVENTORIES(b) Raw materials and supplies $ 118 $ 86 Work in process 40 54 Finished goods 154 88 - ------------------------------------------------------------------ $ 312 $ 228 ================================================================== PROPERTY, PLANT AND EQUIPMENT - NET Land and improvements $ 183 $ 142 Buildings 477 360 Machinery and equipment 6,126 4,711 Construction in progress and other 722 445 - ------------------------------------------------------------------ 7,508 5,658 Less: Accumulated depreciation 3,239 2,921 - ------------------------------------------------------------------ $ 4,269 $ 2,737 ================================================================== OTHER ASSETS Patents, trademarks and goodwill(c) $ 1,173 $ 174 Deposits(d) 40 30 Investments at cost 4 6 Other 191 105 - ------------------------------------------------------------------ $ 1,408 $ 315 ================================================================== OTHER CURRENT LIABILITIES Accrued accounts payable $ 160 $ 122 Payrolls 125 82 Employee benefits and related 72 23 CBI Integration charges 24 -- Accrued interest payable 41 35 Other 89 46 - ------------------------------------------------------------------ $ 511 $ 308 ================================================================== OTHER LONG-TERM OBLIGATIONS Employee benefits and related $ 463 $ 358 CBI Integration charges 22 -- Other(d) 50 23 - ------------------------------------------------------------------ $ 535 $ 381 ================================================================== DEFERRED CREDITS Income taxes(e) $ 213 $ 195 Other 45 67 - ------------------------------------------------------------------ $ 258 $ 262 ================================================================== CUMULATIVE FOREIGN CURRENCY TRANSLATION ADJUSTMENT Europe $ (10) $ 2 Canada, Mexico, Asia and Other (116) (103) - ------------------------------------------------------------------ $ (126) $ (101) ================================================================== (Millions of dollars) (a) Provisions to the allowance for doubtful accounts were $6 million, $5 million and $2 million in 1996, 1995 and 1994 respectively. (b) Approximately 31% and 37% of total inventories were valued using the LIFO method at December 31, 1996 and 1995, respectively. If inventories had been valued at current costs, they would have been approximately $23 million and $21 million higher than reported at December 31, 1996 and 1995. (c) Net of accumulated amortization of $73 million in 1996 and $39 million in 1995. (d) $79 million and $84 million of Other assets and Other long-term obligations in Brazil have been offset in 1996 and 1995, respectively. (e) Deferred income taxes related to current items are included in Prepaid and other current assets in the amount of $3 million in 1996 and $17 million in 1995. 38 Making Our Planet More Productive NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 12 RETIREMENT PROGRAMS Pensions Praxair has two main U.S. retirement programs which are non-contributory defined benefit plans, the Praxair Retirement Program and the CBI Retirement Program (see Note 2). Pension benefits for both are based predominantly on years of service, age and compensation levels prior to retirement. Pension coverage for employees of Praxair's international subsidiaries generally is provided by those companies through separate plans. Obligations under such plans are typically provided for by depositing funds with trustees, under insurance policies, or by book reserves. The components of net pension cost for 1996, 1995 and 1994 and the funded status as of December 31, 1996 and 1995 for Praxair's domestic retirement programs and significant international plans are shown to the right. Year Ended December 31, 1996 1995 1994 - --------------------------------------------------------------- NET PENSION COST Service cost - benefits earned during the period $ 36 $ 26 $ 24 Interest on projected benefit obligation 53 43 35 Actual (return) loss on plan assets (80) (134) 6 Net amortization and deferral 25 92 (46) - --------------------------------------------------------------- $ 34 $ 27 $ 19 =============================================================== (Millions of dollars)
U.S. Plans International Plans ---------------------------- ------------------------------------- Overfunded Underfunded Overfunded Underfunded --------------- ----------- --------------- --------------- December 31, 1996 1995 1996(a) 1996 1995 1996 1995 - ---------------------------------------------------------------------------------------------------------------------------- FUNDED STATUS Accumulated benefit obligation: Vested benefits $(301) $(290) $ (90) $(123) $(103) $ (59) $ (44) Non-vested benefits (37) (38) (6) (3) (2) (39) (35) - ---------------------------------------------------------------------------------------------------------------------------- $(338) $(328) $ (96) $(126) $(105) $ (98) $ (79) ============================================================================================================================ Projected benefit obligation $(431) $(414) $(108) $(145) $(125) $(147) $(120) - ---------------------------------------------------------------------------------------------------------------------------- Plan assets at fair value, primarily common stocks and fixed income securities 415 377 93 194 153 64 49 - ---------------------------------------------------------------------------------------------------------------------------- Projected benefit obligation (in excess of) less than plan assets (16) (37) (15) 49 28 (83) (71) Unamortized net (asset) obligation at transition (5) (7) -- (11) (11) 10 8 Unamortized prior service cost 9 11 -- 3 4 10 10 Unrecognized (gains) losses - net (28) (1) (12) (26) (7) -- 2 - ---------------------------------------------------------------------------------------------------------------------------- Prepaid (accrued) pension obligation $ (40) $ (34) $ (27) $ 15 $ 14 $ (63) $ (51) ============================================================================================================================ (Millions of dollars) (a) Related to the CBI Retirement Program.
The significant actuarial assumptions used, were as follows:
U.S. Plans International Plans --------------------------- ----------------------------- Year Ended December 31, 1996 1995 1994 1996 1995 1994 - ----------------------------------------------------------------------------------------------------------------------------- Discount rate for determining the projected benefit obligation 7.5% 7% 8.5% 4-9% 4-8.5% 5.5-9% Rate of increase in compensation levels 4.75% 4.25% 5.75% 3-7% 3-6.5% 3.5-7% Expected long-term rate of return on plan assets 9.5% 9.5% 9.5% 5.5-9.5% 5.5-9.5% 6-10% - -----------------------------------------------------------------------------------------------------------------------------
Making Our Planet More Productive 39 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Postretirement Benefits Other Than Pensions Praxair provides health care and life insurance benefits to certain eligible retired employees. These benefits are provided through various insurance companies and health care providers. Praxair is obligated to make payments for a portion of postretirement benefits related to retirees of Praxair's former parent. As part of the CBI acquisition (see Note 2), Praxair assumed responsibility for health care and life insurance benefit obligations for CBI's retired employees. Praxair does not currently fund its postretirement benefits obligations. The components of net periodic postretirement benefit cost for 1996, 1995 and 1994 and the funded status as of December 31, 1996 and 1995 were as follows: Year Ended December 31, 1996 1995 1994 - --------------------------------------------------------------- NET PERIODIC POST-RETIREMENT BENEFIT COST Service cost - benefits earned during the year $ 7 $ 5 $ 6 Interest on accumulated post- retirement benefit obligation 14 14 13 Actual return on plan asset (1) (2) -- Net amortization and deferral (9) (7) (9) - -------------------------------------------------------------- $ 11 $ 10 $ 10 ============================================================== (Millions of dollars) December 31, 1996 1995 - ------------------------------------------------------------------------- FUNDED STATUS Accumulated postretirement benefit obligation attributed to: Retirees $(185) $(150) Fully eligible active plan participants (30) (24) Other active plan participants (15) (23) - ------------------------------------------------------------------------- (230)(a) (197) Plan assets at fair value, primarily common stocks and fixed income securities 9 10 Unrecognized prior service cost (19) (30) Unrecognized (gains) losses - net (3) -- - ------------------------------------------------------------------------- Accrued postretirement benefit obligation $(243) $(217) ========================================================================= (Millions of dollars) (a) Includes $28 million related to the CBI Plan at the acquisition date. For 1996 measurement purposes, an 8.5% annual rate of increase in the per capita cost of covered health care benefits was assumed for 1996, gradually reducing to 5.0% in 2004 and thereafter. For 1995 and 1994 measurement purposes, the annual rate of increase was gradually reducing to 4.5% and 6.0%, respectively. This health care cost trend rate assumption has a significant effect on the amounts reported. To illustrate the effect, increasing the assumed health care cost trend rates by one percentage point would increase the accumulated postretirement benefit obligation by $11 million as of December 31, 1996 ($11 million and $6 million as of December 31, 1995 and 1994), and the aggregate of the service and interest cost components of net periodic postretirement benefit cost by $1 million in 1996, 1995 and 1994. Under the CBI plan, retiree health care benefits are provided under an established formula which limits costs based on prior years of service of retired employees. Other significant actuarial assumptions used to calculate the accumulated postretirement benefit obligation were the same as those used for the U.S. pension plan (see above). NOTE 13 LEASES For operating leases, primarily involving manufacturing and distribution equipment and office space, noncancelable commitments extending for more than one year will require the following future minimum payments at December 31, 1996: Lease Payments - ---------------------------------------------------------------- 1997 $59 2000 $32 - ---------------------------------------------------------------- 1998 $46 2001 $35 - ---------------------------------------------------------------- 1999 $38 After 2001 $230 - ---------------------------------------------------------------- (Millions of dollars) Included in these totals are $70 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 $20 million ($27 million Canadian). If such payment is required, Praxair has a legal right to set off any such amounts paid against other amounts it owes to the former parent company for lease commitments. Total lease and rental expenses under operating leases were $70 million in 1996, $37 million in 1995 and $34 million in 1994. The present value of the future lease payments under operating leases, is approximately $256 million at December 31, 1996. 40 Making Our Planet More Productive NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 14 COMMITMENTS AND CONTINGENCIES In the normal course of business, Praxair is involved in legal proceedings and claims with both private and governmental parties. These cover a variety of items, including product liability and environmental matters. In some of these cases, the remedies that may be sought or damages claimed are substantial. While it is impossible at this time to determine with certainty the ultimate outcome of any of these cases, in the opinion of management, they will not have a material adverse effect on the consolidated financial position of Praxair or on the consolidated results of operations in a given year. Should any losses be sustained in connection with any of these cases in excess of provisions therefore, they will be charged to income in the future. In September 1996, Praxair was named as a defendant in a four count lawsuit filed by Airgas, Inc., a competitor, in the Philadelphia Court of Common Pleas alleging essentially that Praxair breached an oral contract with Airgas by acquiring CBI Industries, Inc. without allowing Airgas to participate in the acquisition. The complaint also contains allegations of conversion, fraud and quantum meruit. Praxair believes that the complaint is totally without merit and intends to defend itself vigorously. Praxair's 60%-owned Italian subsidiary has entered into two unconditional long-term purchase agreements, signed in 1989 and 1992, for oxygen and nitrogen to be used to supply existing merchant liquid customers. Obligations in connection with financing under these agreements total $39 million ($25 million on a present value basis), with annual obligations of $5 million over the next three years and $3 million over the succeeding two years. Total purchases of product in 1996, 1995 and 1994, including other amounts purchased under these agreements, were $9 million, $9 million and $8 million, respectively. At December 31, 1996, the estimated cost of completing authorized construction projects in the normal course of business is approximately $310 million. NOTE 15 QUARTERLY DATA (UNAUDITED)
1996 1Q 2Q 3Q 4Q Year - ---------------------------------------------------------------------------------------------------- Sales $ 1,090 1,093 1,115 1,151 $ 4,449 Cost of sales $ 629 631 637 667 $ 2,564 Depreciation and amortization $ 101 105 107 107 $ 420 Operating profit $ 82(a) 177 190 198 $ 647(a) - ---------------------------------------------------------------------------------------------------- Net income $ 17(a) 81 88 96 $ 282(a) - ---------------------------------------------------------------------------------------------------- Net Income per share $ .11 $ .50 $ .54 $ .59 $ 1.77 Weighted average shares (000's) 148,438 161,680 162,316 163,473 159,038 ==================================================================================================== (Millions of dollars, except per share data) 1995 1Q 2Q 3Q 4Q Year - ---------------------------------------------------------------------------------------------------- Sales $ 756 788 795 807 $ 3,146 Cost of sales $ 422 439 456 460 $ 1,777 Depreciation and amortization $ 70 71 70 68 $ 279 Operating profit $ 134 141 136 137 $ 548 - ---------------------------------------------------------------------------------------------------- Net income $ 65 67 64 66 $ 262 - ---------------------------------------------------------------------------------------------------- Net Income per share $ .46 $ .47 $ .44 $ .45 $ 1.82 Weighted average shares (000's) 141,941 142,517 144,832 145,988 144,147 ==================================================================================================== (Millions of dollars, except per share data) (a) Operating profit and Net income for the first quarter and year of 1996 include a charge of $85 million and $53 million, respectively, for severance-related, lease termination and other exit costs associated with the integration of the industrial gases businesses of CBI and Praxair (see Note 3).
Making Our Planet More Productive 41 MANAGEMENT'S STATEMENT OF RESPONSIBILITY FOR FINANCIAL STATEMENTS Praxair's financial statements are prepared by management, which is responsible for their fairness, integrity and objectivity. The accompanying financial statements have been prepared in conformity with generally accepted accounting principles applied on a consistent basis except for accounting changes as disclosed and, accordingly, include amounts that are estimates and judgments. All historical financial information in this annual report is consistent with the accompanying financial statements. Praxair maintains accounting systems, including internal accounting controls monitored by a staff of internal auditors, that are designed to provide reasonable assurance of the reliability of financial records and the protection of assets. The concept of reasonable assurance is based on recognition that the cost of a system should not exceed the related benefits. The effectiveness of those systems depends primarily upon the careful selection of financial and other managers, clear delegation of authority and assignment of accountability, inculcation of high business ethics and conflict-of-interest standards, policies and procedures for coordinating the management of corporate resources and the leadership and commitment of top management. Praxair's financial statements are audited by Price Waterhouse LLP, independent accountants, in accordance with generally accepted auditing standards. These standards provide for a review of Praxair's internal accounting controls to the extent they deem appropriate in order to issue their opinion on the financial statements. The Audit Committee of the Board of Directors, which consists solely of non-employee directors, is responsible for overseeing the functioning of the accounting system and related controls and the preparation of annual financial statements. The Audit Committee periodically meets with management, internal auditors and the independent accountants to review and evaluate their accounting, auditing and financial reporting activities and responsibilities. The independent accountants and internal auditors have full and free access to the Audit Committee and meet with the Committee, with and without management present. /s/ H. William Lichtenberger /s/ John A. Clerico /s/ J. Robert Vipond H. William Lichtenberger John A. Clerico J. Robert Vipond Chairman and Vice President and Vice President Chief Executive Officer Chief Financial Officer and Controller Danbury, Connecticut February 7, 1997 42 Making Our Planet More Productive REPORT OF INDEPENDENT ACCOUNTANTS Price Waterhouse LLP 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 and of cash flows present fairly, in all material respects, the financial position of Praxair, Inc. and its subsidiaries at December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ Price Waterhouse LLP Stamford, Connecticut February 7, 1997 Making Our Planet More Productive 43 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 38,901 shareholders of record as of December 31, 1996. SHAREHOLDER RETURNS Closing high and low stock prices and dividends are presented below: High Low Dividends - ---------------------------------------------------------- 1996 Fourth quarter $ 49.375 $ 43.125 $ 0.095 Third quarter $ 43.375 $ 36.500 $ 0.095 Second quarter $ 42.250 $ 37.125 $ 0.095 First quarter $ 39.875 $ 31.750 $ 0.095 - ---------------------------------------------------------- 1995 Fourth quarter $ 33.875 $ 24.375 $ 0.08 Third quarter $ 28.750 $ 24.875 $ 0.08 Second quarter $ 25.250 $ 22.250 $ 0.08 First quarter $ 23.250 $ 19.875 $ 0.08 - ---------------------------------------------------------- 1994 Fourth quarter $ 24.250 $ 19.125 $ 0.07 Third quarter $ 24.375 $ 19.250 $ 0.07 Second quarter $ 20.750 $ 17.250 $ 0.07 First quarter $ 19.250 $ 16.375 $ 0.07 - ---------------------------------------------------------- DIVIDEND POLICY Dividends on Praxair's common stock are declared by the Board of Directors and, when declared, usually will be paid during the sixth week after the close of the fiscal quarter. It is the company's objective to pay dividends consistent with the reinvestment of earnings necessary for long-term growth. DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN Shareholders holding shares registered in their name may increase their investment in Praxair shares through the Dividend Reinvestment and Stock Purchase Plan without payment of any brokerage commission. Full details concerning this plan may be obtained from The Bank of New York. Earnings per share* - --------------------------------- 1996 $ 2.11+ 1995 $ 1.82 1994 $ 1.45 1993 $ 1.06 1992 $ 0.64 - --------------------------------- * Before cumulative effect of accounting changes + Before CBI integration charges SHAREHOLDER INFORMATION The annual report is the principal means of communicating Praxair's business strategies and financial performance to its shareholders. Additional information on corporate governance matters is provided in the proxy statement prepared in conjunction with Praxair's annual meeting. Also, Praxair's 1996 annual report on Form 10-K, which incorporates parts of this annual report by reference and is filed with the U.S. Securities and Exchange Commission, provides certain additional information. Praxair Investor Relations is responsible for shareholder communications and welcomes shareholder inquiries about Praxair, either by telephone or in writing. The Bank of New York is Praxair's stock transfer agent and registrar, and maintains shareholder records. Shareholders needing information about account records, stock certificates, change of address and dividend payments should contact: The Bank of New York Shareholder Relations, Department 11E P.O. Box 11258 Church Street Station New York, NY 10286-1258 800-524-4458 or, outside the U.S., (212) 815-5800 The annual report, proxy statement and filings with the U.S. Securities and Exchange Commission can be obtained upon request to The Bank of New York or: Investor Relations Praxair, Inc. 39 Old Ridgebury Road Danbury, CT 06810-5113 (203) 837-2210 ANNUAL MEETING OF SHAREHOLDERS The 1997 annual meeting of shareholders of Praxair, Inc. will be held at 9:30 a.m. on Tuesday, April 29, 1997 at Hilton Inn and Towers, 18 Old Ridgebury Road, Danbury, Connecticut. GENERAL CORPORATE INFORMATION For general information about Praxair, its products and services, write or call: Corporate Communications Praxair, Inc. 39 Old Ridgebury Road Danbury, CT 06810-5113 800-PRAXAIR or, outside the U.S., (716) 879-4077 Visit Praxair Online on the World Wide Web: http://www.praxair.com 44 Making Our Planet More Productive BOARD OF DIRECTORS [GRAPHICS OMITTED] From Left: Alejandro Achaval, John A. Clerico, John J. Creedon, C. Fred Fetterolf, Dale F. Frey, Claire W. Gargalli, Edgar G. Hotard, Ronald L. Kuehn, Jr., H. William Lichtenberger, Benjamin F. Payton, G. Jackson Ratcliffe, Jr., H. Mitchell Watson, Jr. Alejandro Achaval Director, Argentine National Institute of Technology; former Vice Chairman & Chief Executive Officer, IPAKO Industrias Petroquimicas Argentinas S.A. Audit; Finance & Pension Committees John A. Clerico Vice President & Chief Financial Officer, Praxair, Inc. Finance & Pension Committee John J. Creedon Consultant and Director of various corporations; former President & Chief Executive Officer, Metropolitan Life Insurance Company Finance & Pension (Chairman); Compensation & Management Development Committees C. Fred Fetterolf Director of various corporations; former President & Chief Operating Officer, Aluminum Company of America Audit (Chairman); Public Policy & Nominating Committees Dale F. Frey Director of various corporations; former Vice President, General Electric Company; former Chairman & President, General Electric Investment Corporation Finance & Pension; Public Policy & Nominating Committees Claire W. Gargalli Vice Chairman, Diversified Search Companies Finance & Pension; Compensation & Management Development Committees Edgar G. Hotard President, Praxair, Inc. Finance & Pension Committee Ronald L. Kuehn, Jr. Chairman, President & Chief Executive Officer, Sonat Inc. Audit; Compensation & Management Development (Chairman) Committees H. William Lichtenberger Chairman & Chief Executive Officer, Praxair, Inc. Public Policy & Nominating Committee Benjamin F. Payton President, Tuskegee University Audit; Public Policy & Nominating Committees G. Jackson Ratcliffe, Jr. Chairman, President & Chief Executive Officer, Hubbell Incorporated Compensation & Management Development; Public Policy & Nominating (Chairman) Committees H. Mitchell Watson, Jr. President, Sigma Group of America Audit; Compensation & Management Development Committees Making Our Planet More Productive 45 OFFICERS, REGIONAL MANAGEMENT AND ADVISORY COUNCIL OFFICERS Leonard M. Baker Vice President, Technology Paul J. Bilek President, North American Industrial Gases, and President, Praxair Canada Felix de Bulhoes Chairman, S.A. White Martins David H. Chaifetz Vice President, General Counsel & Secretary John A. Clerico Vice President & Chief Financial Officer Michael E. DeDomenico President, Praxair Europe Ivan Garcia Chief Executive Officer, S.A. White Martins Jesus E. Gonzalez Vice President, North American On-Site Gases, and President, Praxair Mexico Barbara R. Harris Vice President, Human Resources Bradley J. Holcomb Vice President, Global Procurement & Materials Management Edgar G. Hotard President Thomas W. von Krannichfeldt President, Praxair Surface Technologies, Inc. H. William Lichtenberger Chairman & Chief Executive Officer Sunil Mattoo Vice President, Marketing Nigel D. Muir Vice President, Communications & Public Relations Jose R. Rivero President, Praxair Distribution, Inc. (North American Packaged Gases) James S. Sawyer Vice President & Treasurer Donald W. Terry Vice President, Carbon Dioxide Product & Services William M. Therrien Vice President, Engineering & Supply Systems J. Robert Vipond Vice President & Controller REGIONAL MANAGEMENT SOUTH AMERICA Domingos Bulus Assistant Director, Andean Treaty Countries Albino Carneiro Assistant Director, South Cone Countries Ricardo Malfitano Officer, Industrial Gases, Brazil EUROPE & MIDDLE EAST Franco Mazzali Managing Director, Italy and Middle East Jean-Michel Tiard Managing Director, Western Europe and Poland Gabriel Toledo Managing Director, Spain and Turkey CANADA Michael J. Douglas Managing Director, Praxair Canada MEXICO Cesar Guajardo Managing Director, Praxair Mexico PUERTO RICO Robert P. Sheehan President, Praxair Puerto Rico ASIA James F. Fuchs Vice President, Asia V. Thad Evans Managing Director, Praxair Japan, and President, Praxair Iwatani Electronics Gases Brian Evison Managing Director, Praxair Indonesia and Praxair Australia K.H. Lee President, Praxair Korea Brent Lok President, Praxair Greater China Indrajit Mookerjee Managing Director, Praxair India Kitti Prapasuchart Managing Director, Praxair Thailand SOUTH AMERICAN ADVISORY COUNCIL H. William Lichtenberger Chairman Felix de Bulhoes Deputy Chairman Ricardo Cilliones President, Grupo Mayaguez, Peru Enzo Debernardi Senior Consultant and Advisor, Paraguay Ivan Garcia Chief Executive Officer, S.A. White Martins, Brazil Isaac Gilinski President, Bancol SA, Colombia Agostino Rocca President and CEO, Organizacion Techint, Argentina Paolo Rocca Executive Vice President, Siderca, Argentina Mario Henrique Simonsen Vice President, Fundacao Getulio Vargas, Brazil Benjamin Steinbruch Chairman, Companhia Siderurgica Nacional, Brazil 46 Making Our Planet More Productive PRAXAIR LOCATIONS WORLDWIDE WORLD HEADQUARTERS Praxair, Inc. 39 Old Ridgebury Road Danbury, CT 06810-5113 1-800-PRAXAIR (716) 879-4077 (from outside the U.S.) Praxair Surface Technologies, Inc. Indianapolis, IN (317) 240-2500 (affiliates in Denmark, France, Germany, Italy, Switzerland, United Kingdom, Japan and Singapore) NORTH AMERICA Praxair, Inc. Danbury, CT, USA 1-800-PRAXAIR (716) 879-4077 (from outside the U.S.) 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) 211.6232 Argentina, Bolivia, Chile, Colombia, Ecuador, Paraguay, Peru, Uruguay, Venezuela CENTRAL AMERICA/CARIBBEAN Praxair Puerto Rico Gurabo, PR (787) 258-7200 Belize, Costa Rica EUROPE Praxair N.V. Zaventem (Brussels), Belgium 32 (2) 716.0580 Austria, Croatia, Czech Republic, France, Germany, Israel, Italy, The Netherlands, Poland, Portugal, Slovenia, Spain, Turkey ASIA Praxair Asia, Inc. Singapore (65) 224.1355 Australia, India, Indonesia, Japan, People's Republic of China, South Korea, Thailand The forward-looking statements contained in this document concerning, among other things, projected earnings, capital spending, effective tax rates, and the timing, proceeds and other terms of the disposition of businesses and assets held for sale, involve risks and uncertainties, and are subject to change based on various factors, including the impact of changes in worldwide and national economies, achievement of synergies and cost reductions in the integration of the recently acquired Liquid Carbonic business of CBI Industries, Inc., the timing of divestments and the proceeds realized therefrom, pricing fluctuations in foreign currencies, changes in interest rates, the continued timely development and acceptance of new products and processes, the impact of competitive products and pricing, the ability to achieve tax synergies that will reduce the effective tax rate for the CBI businesses, and the impact of tax and other legislation and regulation in the jurisdictions in which the company operates. Design: R.L. Marciniak, Inc. Photography: Location - David Mendelsohn Portraits - Wendy Barrows Typography: Ginny Doyle Printing: The Hennegan Company This annual report is printed on recycled paper. EX-21.01 8 SUBSIDIARIES OF PRAXAIR, INC. EXHIBIT 21.01 ------------- Place of Incorporation ---------------------- Accent Cay Holdings Inc. British Virgin Island Adirondack Insurance Company Vermont Altair Gases and Equipment, Inc. Delaware Amko Service Company Ohio Arabian CBI Tank Manufacturing Co. Ltd. Saudi Arabia Arfin, S.A. Argentina Agro-Forest, S.A. Chile Asian Surface Technologies Pte. Ltd. Singapore Carbonatos Andinos S.A. Argentina Carborio Industria E. Comercio, Lta. Brazil Catalana de Gases Medicinales S.L. Spain CBI Company Ltd. Delaware CBI Constructors Limited United Kingdom CBI Constructors Pty. Ltd. Australia CBI Constructors Pty. Ltd. (PNG) New Guinea CBI Constructors S.A. (PTY.) Ltd. South Africa CBI Eastern Anstalt Liechtenstein CBI Holdings U.K. Limited United Kingdom CBI Investments, Inc. Delaware CBI (Malaisia) Sdn. Bhd. Malaysia CBI Na-Con, Inc. Texas CBI Overseas, Inc. Delaware CBI (Philippines) Inc. Philippines CBI Services, Inc. Delaware CBI Venezolana, S.A. Venezuela Chameleon Finance Company B.V. The Netherlands Chi Bridge Holdings, Inc. Delaware Chicago Bridge & Iron Company Delaware Chicago Bridge & Iron Company (1) Illinois Chicago Bridge & Iron Company N.V. The Netherlands CILBRAS - Empresa Brasileira de Cilindros Ltda. Brazil Coatec Gesellschaft Fur Oberflachentechnik GmbH Germany Companhia Nacional de Calcareos e Derivados - CONCAL Brazil Companhia Nacional de Carbureto Brazil Companhia Nacional de Oxigenio S.A. Portugal Cooperheat, Inc. New Jersey Corfinar S.A. Argentina Cryo Teruel S.A. Portugal Cumnock Properties, Inc. Delaware Derivados Quimicos Naturales S.A. De c.v. Mexico Distribudora Mexicana de Criogenicos S.A. de C.V. Mexico (1) In addition, Chicago Bridge & Iron Company has multiple other consolidated subsidiaries providing similar contracting services outside the United States, the number of which changes from time to time depending upon business opportunities and work locations. None of these other multiple consolidated subsidiaries constitutes a significant subsidiary. EXHIBIT 21.01 (cont'd.) Place of Incorporation ---------------------- Empresa De Mineracao Marium Ltda. Brazil Ershigs, Inc. Washington Euro Cantley S.A. Colombia Euro Silver S/A Uruguay Euro Vitoria S/A Uruguay Fabrica de Oxigeno Miller Hermanos, S.A. Costa Rica Fairmac Realty Corp. Delaware Fibre Making Processes, Inc. Illinois Frios Industrias Argentinas S.A. Argentina Gas Carbonico S.A. de C.V. Mexico Gases de Ensenada S/A Argentina Gases International, Inc. Delaware Gases Tachira, C.A. Venezuela GASOX - Goias Oxigenio Ltda. Brazil Gisapar Participacoes e Empreendimentos Ltda. Brazil Groupo Praxair S.A. de C.V. Mexico Hielo Secco Bolivia Bolivia Horton CBI Limited Canada Horton Services, Inc. Canada Ibis Investments, Inc. Delaware IMOX Industria E Comercio Ltda. Brazil Industrial Gases, Inc. Delaware Innovative Membrane Systems, Inc. Delaware Intercorp Mexico S.A. de C.V. Mexico International Cryogenic Equipment Corporation Delaware Jacksonville Welding Supply, Inc. Florida Julio Pastafiglia & Cia. S.A. Argentina Kelvin Finance Company Ireland L C Industries, Inc. Delaware Liquid Carbonic Company, Ltd. United Kingdom Liquid Carbonic Argentina S.A.I.C. Argentina Liquid Carbonic Corporation Delaware Liquid Carbonic de Chile, S.A. Chile Liquid Carbonic Del Norte, S.A. Mexico Liquid Carbonic Del Paraguay S.A. Paraguay Liquid Carbonic do Ceara Ltd. Brazil Liquid Carbonic Do Nordeste, S.A. Brazil Liquid Carbonic Industries Corporation Delaware Liquid Carboinc Industrias S.A. Brazil Liquid Carbonic LNG International, Inc. Delaware Liquid Carbonic Noroeste Ltda. Brazil Liquid Carbonic of Oklahoma, Inc. Oklahoma Liquid Carbonico Colombiana S.A. Colombia Liquid Carbonico Pucallpa Peru Liquidgas S.A. Colombia Liquid Natural Gas de Mexico S.A. de C.V. Mexico Liquid Quimica Mexicana, S.A. de C.V. Mexico Liquid Quimica S.A. Brazil EXHIBIT 21.01 (cont'd.) Place of Incorporation ---------------------- Maxima Air Separation Center Limited Israel Med-O-Gen Inc. Canada Medigas Iberica S.A. Spain Miller Hermanos S.A. Costa Rica Mineracao Mira Serra Ltda Brazil Minerosul Industria e Comercio Ltda. Brazil Monte Bravo S.A. Uruguay MQS Inspection, Inc. Delaware Nitropet, S.A. Mexico Oak Brook International Insurance Co. Ltd. Bermuda Operadora Perinorte, S.A. de C.V. Mexico Organoquimica, S.A. Colombia Oxiacet Ltda. Colombia Oxiazuay Ltda. Ecuador Oxiambato Ltda. Ecuador Oxigenos de Colombia Efese S.A. Colombia Oxigenus S.A. Spain Oximesa S.A. Spain Oximinas Ltda. Brazil P. T. Praxair Indonesia Indonesia Praxair Asia, Inc. Delaware Praxair Argentina, S.A. Argentina Praxair Australia Pty. Ltd. Australia Praxair B.V. The Netherlands Praxair BCEEP Carbon Dioxide, Inc. China Praxair Belize, Ltd. Belize Praxair Bolivia, S.A. Bolivia Praxair Canada Inc. Canada Praxair Comercio e Participacos Ltda. Brazil Praxair Costa Rica, S.A. Costa Rica Praxair Deer Park Cogen, Inc. Delaware Praxair Distribution, Inc. Delaware Praxair Energy Resources, Inc. Delaware Praxair Energy Services, Inc. Delaware Praxair Espana, S.A. Spain Praxair Foreign Sales Corporation Virgin Islands Praxair G.m.b.H. Germany Praxair Gmbh & Co., KG Germany Praxair Holding N.V. Belgium Praxair Hydrogen Supply, Inc. Delaware Praxair Iberica, S.A. Spain Praxair India Private Limited India Praxair Iwatani Electronics Gases Co. Japan Praxair K.K. Japan Praxair Korea Company Limited Republic South Korea Praxair Mexico, S.A. de C.V. Mexico Praxair N.V. Belgium EXHIBIT 21.01 (cont'd.) Place of Incorporation ----------------------- Praxair Pacific Limited Mauritius Praxair Polska, SP. Z O.O Poland Praxair Paraguay S.R.L. Paraguay Praxair Peru S.A. Peru Praxair Produccion, S.A. Spain Praxair Production N.V. Belgium Praxair Products Inc. Canada Praxair Puerto Rico, Inc. Delaware Praxair (Shanghai) Co., Ltd. China Praxair S.A. Argentina Praxair S.A. France Praxair S.p.A. Italy Praxair S. T. Technology, Inc. Delaware Praxair Services et Systemes S.A. France Praxair Services G.m.b.H. Germany Praxair Shanghai Meishan Inc. China Praxair Surface Technologies A/S Denmark Praxair Surface Technologies (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 Pte. Ltd. Singapore Praxair Surface Technologies S.A. France Praxair Surface Technologies S.p.A. Italy Praxair Technology, Inc. Delaware Praxair (Thailand) Company, Ltd. Thailand Praxair Uruguay S/A Uruguay Praxair Venezuela, S.A. Venezuela Precigas Gases Industriais S.A. Brazil Products Especiales Quimicos, S.A. Mexico Pulver do Nordeste Ltda. Brazil Pyromet Group, Inc. Indiana Pyromet Corporation Oklahoma Pyromet Enterprises, Inc. Ohio Pyromet, Inc. California Quimica Industrial Bara Do Pirai S.A. Brazil Rapidox Gases Industriais Ltda. Brazil Rivoira S.p.A. Italy S.A. Juan B. Pezza Limitada Argentina S. A. White Martins Brazil Servicios Ejecutivos Linde, S.A. de C.V. Mexico Specialty International Chemicals, Inc. Delaware Tetimpar Empreedimentos e Participacoes S.A. Brazil Tianjin Praxair Inc. China Transportes Flamingo S/A Peru UCISCO Canada Inc. Canada UCISCO, Inc. Texas Unigases Comercial Ltda. Brazil Wall Chemicals, Inc. Illinois Westair Cryogenics Company Delaware White Martins Administracao, Investimentos e Fomento Comercial Ltda. Brazil White Martins de Columbia S.A. Colombia White Martins e Companhia Comercio e Servicos Brazil White Martins Gases Industriais do Nordeste S.A. Brazil White Martins Gases Industriais do Norte S.A. Brazil White Martins Gases Industriais S.A. Brazil White Martins Soldagem Ltda. Brazil EX-23.01 9 CONSENT OF INDEPENDENT ACCOUNTANTS EXHIBIT 23.01 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectus constituting part of the Registration Statement on Form S-3 (Nos. 333-18141, 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 7, 1997 appearing on page 43 of the Annual Report to Shareholders which is incorporated in this Annual Report on Form 10-K. PRICE WATERHOUSE LLP Stamford, Connecticut March 10, 1997 EX-27.01 10 FINANCIAL DATA SCHEDULE
5 1,000,000 12-MOS DEC-31-1996 DEC-31-1996 63 0 945 31 312 1666 7508 3239 7538 2550 1703 75 0 2 1922 7538 4449 4449 2564 2564 420 0 195 452 110 342 0 0 0 282 1.77 0 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.
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