-----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, D5b2CxCNOahnsUsokGySPguiRW6cjY5MxoBChxsLHHTJmSabTQyugEdLdgtMjcQD 4SSSuXq2kSKXlE9JcJnUfQ== 0000950159-00-000090.txt : 20000316 0000950159-00-000090.hdr.sgml : 20000316 ACCESSION NUMBER: 0000950159-00-000090 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000315 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-K SEC ACT: SEC FILE NUMBER: 001-11037 FILM NUMBER: 570553 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-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 - -------------------------------------------------------------------------------- [] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1999 Commission file number 1-11037 Praxair, Inc. 1999 Form 10-K Praxair, Inc. Tel. (203) 837-2000 39 Old Ridgebury Road State of incorporation: Delaware Danbury, Connecticut 06810-5113 IRS identification number: 06-124 9050 Securities registered pursuant to Section 12(b) of the Act: - -------------------------------------------------------------------------------- Title of each class: Registered on : - -------------------------------------------------------------------------------- Common Stock ($.01 par 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 [v] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [ ] At January 31, 2000, 159,954,060 shares of common stock of Praxair, Inc. were outstanding. The aggregate market value of common stock held by non-affiliates at January 31, 2000 was approximately $6,491 million. Documents incorporated by reference: Portions of the 1999 Annual Report to Shareholders of the Registrant are incorporated in Parts I, II and IV of this report. Also, portions of the Proxy Statement of Praxair, Inc., dated March 1, 2000, are incorporated in Part III of this report. The Index to Exhibits is located on page 11 of this report. Forward-looking statements The forward-looking statements contained in this document concerning, among other things, projected capital and acquisition spending, sales and earnings growth, volume increases, the impact of new technology in the marketplace, tax planning initiatives and effective tax rates, the impact of economic conditions in Brazil, including currency movements and the change in functional currency, the impact of currency movements in other countries, management's assessment of the impact of the year 2000 Problem and Euro Conversion, and market risks and sensitivity analyses disclosures related to financial instruments involve risks and uncertainties, and are subject to change based on various factors, including the impact of changes in worldwide and national economies, foreign currency movements, pricing fluctuations for the Company's products, changes in interest rates, the continued timely development and acceptance of new products and processes, the impact of competitive products and pricing, the ability to continue to develop potential acquisition opportunities, and the impact of tax and other legislation and regulation in the jurisdictions in which the Company operates. INDEX Part I PAGE Item 1: Business...........................................................2 Item 2: Properties.........................................................6 Item 3: Legal Proceedings..................................................6 Item 4: Submission of Matters to a Vote of Security Holders................6 Part II Item 5: Market for Registrant's Common Equity and Related Shareholder Matters................................................7 Item 6: Selected Financial Data............................................7 Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations..............................................7 Item 7a: Quantitative and Qualitative Disclosures About Market Risk ........7 Item 8: Financial Statements and Supplementary Data........................7 Item 9: Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...........................................7 Part III Item 10: Directors and Executive Officers of the Registrant................8 Item 11: Executive Compensation............................................8 Item 12: Security Ownership of Certain Beneficial Owners and Management....8 Item 13: Certain Relationships and Related Transactions....................8 Part IV Item 14: Exhibits, Financial Statement Schedules, and Reports on Form 8-K..9 Signatures...................................................................10 Index to Exhibits............................................................11 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 in 1992. Praxair was the first company in the United States to produce oxygen from air using a cryogenic process. Praxair has been, and continues to be, a major technological innovator in the industrial gases industry and has done much to create value for its customers by developing new applications for industrial gases and to open new markets by lowering the cost of supply. Praxair is the largest industrial gases company in North and South America and the third largest worldwide. The Company is also the world's largest supplier of carbon dioxide. Praxair's primary products for its industrial gases business are atmospheric gases (oxygen, nitrogen, argon, rare gases) and process gases (carbon dioxide, helium, hydrogen, electronic gases, specialty gases, acetylene). The Company's surface technology segment, operated through Praxair Surface Technologies, Inc., supplies wear-resistant and high-temperature corrosion-resistant metallic and ceramic coatings and powders. The Company also designs, engineers and builds equipment that produces industrial gases (for internal use and external sale) through its global supply systems included in its All Other segment. Sales for Praxair were $4,639 million, $4,833 million, and $4,735 million for 1999, 1998 and 1997, respectively, with industrial gases accounting for 89% of sales in 1999 and 90% of sales in 1998 and 1997, and surface technologies and global supply systems accounting for the balance. Refer to Note 2 of the section captioned "Notes to Consolidated Financial Statements" in Praxair's 1999 Annual Report to Shareholders for information related to Praxair's segment information. Gases produced by the Company find wide use in the metal fabrication, chemicals & refining, primary metals, food & beverage, healthcare, semiconductor materials, aerospace, glass, pulp & paper, environmental remediation, and other industries. By using the gases that Praxair produces and, in many cases, the proprietary processes that it invents, customer value is created through improved product quality, increased productivity, conservation of energy, and the attainment of environmental improvement objectives. The Company has been and continues to be a major technological innovator in the industrial gases industry and, working with customers, has done much to increase the use of its industrial gases to support the manufacture of other products and for many other uses. Historically, consumption of industrial gases has increased at approximately 1.5 to 2.0 times local industrial production growth in countries in which the Company does business. Industrial Gases Products and Manufacturing Processes Atmospheric gases are the highest volume products produced by Praxair. Using air as its raw material, Praxair primarily produces oxygen, nitrogen and argon through several air separation processes. Cryogenic air separation, which is the primary process, compresses and cools air until it liquefies. As a pioneer in the industrial gases industry, Praxair has been a leader in developing a wide range of proprietary and patented applications and supply systems technology, including small cryogenic nitrogen plants. In recent years, Praxair has developed and commercialized air separation technologies for the production of industrial gases and is a recognized leader in this rapidly growing market segment. These technologies open important new markets and optimize production capacity for the Company by lowering the cost of supply of industrial gases. These technologies include proprietary vacuum pressure swing adsorption ("VPSA") and membrane separation to produce gaseous oxygen and nitrogen, respectively. 2 PART I (Cont.) Praxair, Inc. and Subsidiaries - -------------------------------------------------------------------------------- Process gases, including carbon dioxide, hydrogen, carbon monoxide, helium and acetylene, are produced by different methods than air separation. Most carbon dioxide is purchased from by-product sources, including chemical plants, refineries and industrial processes, or from carbon dioxide wells, and is processed in Praxair's own plants to produce commercial carbon dioxide. Hydrogen and carbon monoxide are produced by purifying hydrocarbon sources or by purifying by-product sources obtained from the chemical and petrochemical industries. Most of the helium sold by Praxair is derived from certain helium-rich natural gas streams in the United States, with additional supplies being acquired from outside the United States. Acetylene is typically produced from calcium carbide and water. Industrial Gases Distribution There are three basic distribution methods for industrial gases: (i) on-site or tonnage; (ii) merchant liquid; and (iii) packaged or cylinder gases. These distribution methods are often integrated, with products from all three supply modes coming from the same plant. The method of supply is generally determined by the lowest cost means of meeting the customer's needs, depending upon factors such as volume requirements, purity, pattern of usage, and the form in which the product is used (as a gas or as a cryogenic liquid). On-site. Customers that require the largest volumes of product (typically oxygen, nitrogen and hydrogen) and that have a relatively constant demand pattern are supplied by cryogenic and process gas on-site plants. Praxair constructs plants on or adjacent to these customers' sites and supplies the product directly to customers. Because these are usually dedicated plants, the product supply contracts generally are total requirement contracts, typically having 10-20 year terms and containing minimum purchase requirements and price escalation provisions. Many of the cryogenic on-site plants also produce liquid products for the merchant market. New advanced air separation processes allow on-site delivery to customers with smaller volume requirements. Customers using these systems usually enter into requirement contracts with terms typically ranging from 5-15 years. Merchant. The merchant business is generally associated with distributable liquid oxygen, nitrogen, argon, carbon dioxide, hydrogen and helium. Atmospheric gases for the merchant business are produced by cryogenic processes, whereas carbon dioxide, hydrogen and helium are produced by other processes as discussed earlier. The deliveries generally are made from Praxair's plants by tanker trucks to storage containers owned or leased and maintained by Praxair or the customer at the customer's site. Although merchant oxygen and nitrogen generally have a relatively small distribution radius from the plants at which they are produced, merchant argon, hydrogen and helium can be shipped much longer distances. The agreements used in the merchant business are usually three to five year requirement contracts except for carbon dioxide, which typically has one-year requirement contracts in the United States. Packaged Gases. Customers requiring small volumes are supplied products in metal containers called cylinders, usually at medium to high pressure. These so-called packaged gases include the atmospheric gases, carbon dioxide, hydrogen, helium and acetylene. Praxair also produces and distributes in cylinders a wide range of specialty gases and mixtures. Cylinders may be delivered to the customer's site or picked up by the customer at a packaging facility or retail store. Packaged gases are generally sold by purchase orders. A substantial amount of the cylinder gases sold in the United States is distributed by independent distributors that buy merchant gases in liquid form and repackage the products in their facilities. These businesses also distribute welding equipment purchased from manufacturers of such products. Praxair has acquired independent industrial gas and welding products distributors at various locations in the United States. Between distributors in which it owns an equity interest and independent distributors that resell its gases, Praxair is represented in 42 states, the District of Columbia and Puerto Rico. 3 PART I (Cont.) Praxair, Inc. and Subsidiaries - -------------------------------------------------------------------------------- Surface Technologies Praxair's surface technologies business supplies wear-resistant and high-temperature corrosion-resistant metallic and ceramic coatings and powders to the aircraft, electronics, printing, textile, plastics, primary metals, petrochemical, and other industries. It also provides aircraft engine and airframe component overhaul services. Additionally, Praxair Surface Technologies manufactures a complete line of electric arc, plasma, and high velocity oxygen fuel spray equipment as well as arc and flame wire equipment; including its patented Super D-Gun. This equipment is used for the application of thermal barrier wear resistant coatings. The coatings extend wear life at high temperatures and under corrosive conditions and are applied at Praxair's facilities using a variety of thermal spray coatings processes. The coated parts are finished to the customer's precise specifications before shipment. Resulting from a recent acquisition, Praxair Surface Technologies also manufactures precious metal and ceramic sputtering targets used principally in the production of semiconductors. Inventories - Praxair carries inventories of merchant and cylinder gases, hardgoods and coatings materials to supply products to its customers on a reasonable delivery schedule. On-site plants and pipeline complexes have limited inventory. Inventories, inventory obsolescence and backlogs are not material to Praxair's business. Customers - Praxair is not dependent, to a significant extent, upon a single customer or a few customers. International - Praxair is a global enterprise with 46% of its 1999 sales outside of the United States. It conducts industrial gases business through subsidiary and affiliated companies in Argentina, Australia, Belgium, Belize, Bolivia, Brazil, Canada, Chile, Colombia, Costa Rica, France, Germany, India, Israel, Italy, Japan, South Korea, Mexico, the Netherlands, the People's Republic of China, Paraguay, Peru, Poland, Portugal, Spain, Taiwan, Thailand, Turkey, Uruguay and Venezuela. S.I.A.D. (Societa Italiana Acetilene & Derivati S.p.A.), an Italian company carried at equity, also has established positions in Austria, Bulgaria, Croatia, the Czech Republic, Hungary, Romania and Slovenia. Praxair's surface technologies business has operations in Brazil, France, Germany, Italy, Japan, Singapore, South Korea, Taiwan, Spain, Switzerland and the United Kingdom. Praxair's international business is subject to risks customarily encountered in foreign operations, including fluctuations in foreign currency exchange rates and controls, import and export controls, and other economic, political and regulatory policies of local governments. Also, see Note 1 of the section captioned "Notes to Consolidated Financial Statements", and the section captioned "Management's Discussion and Analysis - Market Risk and Sensitivity Analyses" in Praxair's 1999 Annual Report to Shareholders. Seasonality - Praxair's business is generally not subject to seasonal fluctuations to any significant extent. Research and Development - Praxair's research and development is directed toward developing new and improved methods for the production and distribution of industrial gases and the development of new markets and applications for these gases. This results in the frequent introduction of new industrial gas applications. It has also led to the development of new advanced air separation process technologies. Research and development for industrial gases is principally conducted at Tonawanda and Tarrytown, New York; Burr Ridge, Illinois; Rio de Janeiro, Brazil; Mississauga, Canada and Norwood, Massachusetts. Praxair conducts research and development for its surface technologies to improve the quality and durability of coatings and the use of specialty powders for new applications and industries. Surface technologies research is conducted at Indianapolis, Indiana. Patents and Trademarks - Praxair owns or licenses a large number of United States and foreign patents that relate to a wide variety of products and processes. Praxair's patents expire at various times over the next 20 years. While these patents and licenses are considered important, Praxair does not consider its business as a whole to be materially dependent upon any one particular patent or patent license. Praxair also owns a large number of trademarks. 4 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., The Messer Group, Linde AG and AGA Aktiebolag. At a worldwide level, there are no congruent competitors for the surface technologies business. However, principal domestic competitors are Sermatech International, Inc., a subsidiary of Teleflex, Inc., Chemtronics, Inc., a subsidiary of GKN p.l.c. and Johnson Matthey Electronics, a subsidiary of Honeywell. International competitors in surface technologies vary from country to country. Employees and Labor Relations - As of December 31, 1999, Praxair had 24,102 employees worldwide. Of this number, 9,421 are employed in the United States. Praxair has collective bargaining agreements with unions at numerous locations throughout the world which expire at various dates. Praxair considers relations with its employees to be good. Environment - Information required by this item is incorporated herein by reference to the section captioned "Management's Discussion and Analysis - Costs Relating to the Protection of the Environment" in Praxair's 1999 Annual Report to Shareholders. 5 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; Burr Ridge, Illinois and Rio de Janeiro, Brazil. Praxair's Italian equity affiliate, Societa Italiana Acetilene & Derivati S.p.A. (S.I.A.D.) also has such capacity. Praxair owns 314 cryogenic air separation plants (196 in the United States); 89 by-product carbon dioxide plants (23 in the United States); 326 non-cryogenic plants, and 36 hydrogen plants. No single production facility is material except for the following complexes: Number of Supply System Connected Plants Products Produced - ------------- ---------------- ------------------- Northern Indiana 14 Air Separation/Hydrogen/Carbon Dioxide Houston 8 Air Separation Gulf Coast * 11 Hydrogen/ Carbon Monoxide Detroit 7 Air Separation/Hydrogen Louisiana* 4 Hydrogen/Carbon Monoxide Southern Brazil * 2 Air Separation Northern Spain 5 Air Separation/Hydrogen/Carbon Dioxide * partially owned and partially leased. The surface technologies business operates 50 plants located near customers in Brazil, France, Germany, Italy, Japan, Singapore, South Korea, Taiwan, Spain, Switzerland, the United Kingdom and the United States. Generally, these facilities are fully utilized and sufficient to meet customer needs. Item 3. Legal Proceedings Information required by this item is incorporated herein by reference to the section captioned "Notes to Consolidated Financial Statements - Note 12 Commitments and Contingencies" in Praxair's 1999 Annual Report to Shareholders. Item 4. Submission of Matters to a Vote of Security Holders Praxair did not submit any matters to a shareholder vote during the fourth quarter of 1999. 6 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 1999 Annual Report to Shareholders. Praxair's annual dividend on its common stock for 1999 was $0.56 per share. In January 2000, Praxair's Board of Directors declared a dividend of $0.15 1/2 per share for the first quarter of 2000, or $0.62 per share annualized, which may be changed as Praxair's earnings and business prospects warrant. The declaration of dividends is a business decision made by the Board of Directors based on Praxair's earnings and financial condition and other factors the Board of Directors considers relevant. Item 6. Selected Financial Data Selected financial data for the five years ended December 31, 1999 is incorporated herein by reference to the section captioned "Five-year Financial Summary" in Praxair's 1999 Annual Report to Shareholders. This summary should be read in conjunction with the Consolidated Financial Statements and related Notes to Consolidated Financial Statements. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Information required by this item is incorporated herein by reference to the section captioned "Management's Discussion and Analysis" in Praxair's 1999 Annual Report to Shareholders. Item 7a. Quantitative and Qualitative Disclosures About Market Risk Information required by this item is incorporated herein by reference to the section captioned "Management's Discussion and Analysis" in Praxair's 1999 Annual Report to Shareholders. Item 8. Financial Statements and Supplementary Data Information required by this item is incorporated herein by reference to the sections captioned "Consolidated Statement of Income," "Consolidated Balance Sheet," "Consolidated Statement of Cash Flows," "Consolidated Statement of Shareholders' Equity" and "Notes to Consolidated Financial Statements" in Praxair's 1999 Annual Report to Shareholders. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There have been no changes in or disagreements with accountants reportable under this item. 7 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" and "Section 16(a) Beneficial Ownership Reporting Compliance" in Praxair's Proxy Statement for the Annual Meeting of Shareholders to be held on April 25, 2000. Item 11. Executive Compensation Information required by this item is incorporated herein by reference to the section captioned "Executive Compensation" in Praxair's Proxy Statement for the Annual Meeting of Shareholders to be held on April 25, 2000. Item 12. Security Ownership of Certain Beneficial Owners and Management Information required by this item is incorporated herein by reference to the section captioned "Share Ownership" in Praxair's Proxy Statement for the Annual Meeting of Shareholders to be held April 25, 2000. Item 13. Certain Relationships and Related Transactions There have been no transactions or relationships since the beginning of 1999 which are reportable under this item. 8 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 1999 Annual Report (AR)* Financial Statements Consolidated Statement of Income for the Years Ended December 31, 1999, 1998 and 1997 ......................AR-19 Consolidated Balance Sheet at December 31, 1999 and 1998 ......AR-20 Consolidated Statement of Cash Flows for the Years Ended December 31, 1999, 1998 and 1997 .............................AR-21 Consolidated Statement of Shareholders' Equity for the Years Ended December 31, 1999, 1998 and 1997 .................AR-22 Notes to Consolidated Financial Statements ....................AR-32 Report of Independent Accountants ........................AR-48 * Incorporated by reference to the indicated pages of the 1999 Annual Report to Shareholders. With the exception of this information and the information incorporated in Items 5, 6, 7, 7A, 8 and 9, the 1999 Annual Report to Shareholders is not to be deemed filed as part of this Annual Report on Form 10-K. Financial Statement Schedules All financial statement schedules have been omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. (b) Reports on Form 8-K No reports on Form 8-K were filed during the fourth quarter of 1999. (c) Exhibits Exhibits filed as a part of this Annual Report on Form 10-K are listed in the Index to Exhibits located on page 11 of this Report. 9 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 15, 2000 /s/ J. Robert Vipond -------------------------------- J. Robert Vipond Vice President and Controller (On behalf of the Registrant and as Chief Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on February 22, 2000. /s/ John A. Clerico /s/ H. William Lichtenberger - ---------------------- ----------------------------- John A. Clerico H. William Lichtenberger Executive Vice President and Chairman and Chief Chief Financial Officer and Executive Officer and Director Director /s/ Alejandro Achaval /s/ C. Fred Fetterolf /s/ Dale F. Frey - ---------------------- ----------------------------- --------------------------- Alejandro Achaval C. Fred Fetterolf Dale F. Frey Director Director Director /s/ Claire W. Gargalli /s/ Ronald L. Kuehn, Jr. /s/ Raymond W. LeBoeuf - ---------------------- ----------------------------- --------------------------- Claire W. Gargalli Ronald L. Kuehn, Jr. Raymond W. LeBoeuf Director Director Director /s/ Benjamin F. Payton /s/ G. Jackson Ratcliffe, Jr. /s/ H. Mitchell Watson, Jr. - ---------------------- ----------------------------- --------------------------- Benjamin F. Payton G. Jackson Ratcliffe, Jr. H. Mitchell Watson, Jr Director Director Director
10 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 State Street Bank and Trust Company, successor trustee to Fleet Bank of Connecticut and the ultimate successor trustee to Bank of America Illinois (formerly Continental Bank, National Association) (Filed as Exhibit 4 to the Company's Form 10-Q for the quarter ended June 30, 1992, Filing No. 1-11307, and incorporated herein by reference). 4.04 Copies of the agreements relating to long-term debt which are not required to be filed as exhibits to this Annual Report on Form 10-K will be furnished to the Securities and Exchange Commission upon request. 4.05 Series A Preferred Stock Certificate. (Filed on February 7, 1997 as Exhibit 4.3 to Amendment #1 to the Company's Registration Statement on Form S-3, Registration No. 333-18141). 4.06 Series B Preferred Stock Certificate. (Filed on February 7, 1997 as Exhibit 4.4 to Amendment #1 to the Company's Registration Statement on Form S-3, Registration No. 333-18141). *10.01 1992 Long-Term Incentive Plan (Filed as Exhibit 10.01 to the Company's Registration Statement on Form 10, Filing No. 1-11037, and incorporated herein by reference). *10.01a First Amendment to the 1992 Long-Term Incentive Plan (Filed as Exhibit 10.01a to the Company's 1993 Annual Report on Form 10-K, Filing No. 1-11037, and incorporated herein by reference). 11 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 (Filed as Exhibit 10.01d to the Company's 1996 Annual Report on Form 10-K, Filing No. 1-11037, and incorporated herein by reference). *10.02 Form of Severance Compensation Agreement (Filed as Exhibit 10.02 to the Company's 1997 Annual Report on Form 10K, Filing No. 1-11037, and incorporated herein by reference). *10.03 1992 Variable Compensation Plan (Filed as Exhibit 10.03 to the Company's Registration Statement on Form 10, Filing No. 1-11037, and incorporated herein by reference). *10.03a First Amendment to the 1992 Variable Compensation Plan (Filed as Exhibit 10.03a to the Company's 1993 Annual Report on Form 10-K, Filing No. 1-11037, and incorporated herein by reference). *10.04 Amended and Restated 1995 Stock Option Plan for Non-Employee Directors (Filed as Exhibit 10.04 to the Company's 1998 Annual Report on Form 10-K, Filing No. 1-11037, and incorporated herein by reference). *10.05 Special Severance Protection Program (Filed as Exhibit 10.05 to the Company's Registration Statement on Form 10, Filing No. 1-11037, and incorporated herein by reference). *10.06 Restated Praxair, Inc. Directors' Fees Deferral Plan (Filed as Exhibit 10.06 to the Company's 1996 Annual Report on Form 10-K, Filing No. 1-11037, and incorporated herein by reference). *10.07 Amended and Restated 1993 Praxair Compensation Deferral Program (Filed as Exhibit 10.07 to the Company's 1996 Annual Report on Form 10-K, Filing No. 1-11037, and incorporated herein by reference). 10.08 Transfer Agreement dated January 1, 1989, between Union Carbide Corporation and the registrant. (Filed as Exhibit 10.06 to the Company's Registration Statement on Form 10, Filing No. 1-11037, and incorporated herein by reference). 10.08a Amendment No. 1 dated as of December 31, 1989, to the Transfer Agreement (Filed as Exhibit 10.07 to the Company's Registration Statement on Form 10, Filing No. 1-11037, and incorporated herein by reference). 10.08b Amendment No. 2 dated as of July 2, 1990, to the Transfer Agreement (Filed as Exhibit 10.08 to the Company's Registration Statement on Form 10, Filing No. 1-11037, and incorporated herein by reference). 12 INDEX TO EXHIBITS (Cont.) Praxair, Inc. and Subsidiaries - -------------------------------------------------------------------------------- Exhibit No. Description 10.08c Amendment No. 3 dated as of January 2, 1991, to the Transfer Agreement (Filed as Exhibit 10.09 to the Company's Registration Statement on Form 10, Filing No. 1-11037, and incorporated herein by reference). 10.09 Transfer Agreement dated January 1, 1989, between Union Carbide Corporation and Union Carbide Coatings Service Corporation (Filed as Exhibit 10.14 to the Company's Registration Statement on Form 10, Filing No. 1-11037, and incorporated herein by reference). 10.09a Amendment No. 1 dated as of December 31, 1989, to the Transfer Agreement (Filed as Exhibit 10.15 to the Company's Registration Statement on Form 10, Filing No. 1-11037, and incorporated herein by reference). 10.09b Amendment No. 2 dated as of July 2, 1990, to the Transfer Agreement (Filed as Exhibit 10.16 to the Company's Registration Statement on Form 10, Filing No. 1-11037, and incorporated herein by reference). 10.10 Additional Provisions Agreement dated as of June 4, 1992, (Filed as Exhibit 10.21 to the Company's Registration Statement on Form 10, Filing No. 1-11037, and incorporated herein by reference). 10.11 Amended and Restated Realignment Indemnification Agreement dated as of June 4, 1992 (Filed as Exhibit 10.23 to the Company's Registration Statement on Form 10, Filing No. 1-11037, and incorporated herein by reference). 10.12 Environmental Management, Services and Liabilities Allocation Agreement dated as of January 1, 1990 (Filed as Exhibit 10.13 to the Company's Registration Statement on Form 10, Filing No. 1-11037, and incorporated herein by reference). 10.12a Amendment No. 1 to the Environmental Management, Services and Liabilities Allocation Agreement dated as of June 4, 1992 (Filed as Exhibit 10.22 to the Company's Registration Statement on Form 10, Filing No. 1-11037, and incorporated herein by reference). 10.13 Danbury Lease-Related Services Agreement dated as of June 4, 1992 (Filed as Exhibit 10.24 to the Company's Registration Statement on Form 10, Filing No. 1-11037, and incorporated herein by reference). 10.13a First Amendment to Danbury Lease-Related Services Agreement (Filed as Exhibit 10.13a to the Company's 1994 Annual Report on Form 10-K, Filing No. 1-11037, and incorporated herein by reference). 10.14 Danbury Lease Agreements, as amended (Filed as Exhibit 10.26 to the Company's Registration Statement on Form 10, Filing No. 1-11037, and incorporated herein by reference). 10.14a Second Amendment to Linde Data Center Lease (Danbury) (Filed as Exhibit 10.14a to the Company's 1993 Annual Report on Form 10-K, Filing No. 1-11037, and incorporated herein by reference). 10.14b Fourth Amendment to Carbide Center Lease (Filed as Exhibit 10.14b to the Company's 1993 Annual Report on Form 10-K, Filing No. 1-11037, and incorporated herein by reference). 10.14c Third Amendment to Linde Data Center Lease (Filed as Exhibit 10.14c to the Company's 1994 Annual Report on Form 10-K, Filing No. 1-11037, and incorporated herein by reference). 13 INDEX TO EXHIBITS (Cont.) Praxair, Inc. and Subsidiaries - -------------------------------------------------------------------------------- Exhibit No. Description 10.14d Fifth Amendment to Carbide Center Lease (Filed as Exhibit 10.14d to the Company's 1994 Annual Report on Form 10-K, Filing No. 1-11037, and incorporated herein by reference). 10.15 Employee Benefits Agreement dated as of June 4, 1992 (Filed as Exhibit 10.25 to the Company's Registration Statement on Form 10, Filing No. 1-11037, and incorporated herein by reference). 10.15a First Amendatory Agreement to the Employee Benefits Agreement (Filed as Exhibit 10.15a to the Company's 1994 Annual Report on Form 10-K, Filing No. 1-11037, and incorporated herein by reference). 10.16 Tax Disaffiliation Agreement dated as of June 4, 1992 (Filed as Exhibit 10.20 to the Company's Registration Statement on Form 10, Filing No. 1-11037, and incorporated herein by reference). 10.17 Credit Agreement dated as of December 7, 1995, among Praxair, Inc., The Banks Party Thereto, Morgan Guaranty Trust Company of New York as Documentation Agent and The Chase Manhattan Bank (formerly known as Chemical Bank), as Administrative Agent (Filed as Exhibit 10.17 to the Company's 1995 Annual Report on Form 10-K, Filing No. 1-11037, and incorporated herein by reference). 10.17a Amendment No. 1 to Credit Agreement, dated as of December 22, 1997 (Filed as Exhibit 10.17a to the Company's 1997 Annual Report on Form 10-K, Filing No. 1-11037, and incorporated herein by reference). *10.18 1996 Praxair, Inc. Senior Executive Performance Award Plan (Filed as Exhibit 10.19 to the Company's Report on Form 10-Q for the Quarter ended March 31, 1996, Filing No. 1-11037, and incorporated herein by reference). 10.19 Form of Underwriting Agreement related to the sale of shares of Chicago Bridge & Iron Company N.V. (Filed as Exhibit 1 to the Registration Statement on Form S-1 of Chicago Bridge & Iron Company N.V., Registration No. 333-18065, and incorporated herein by reference). 12.01 Computation of Ratio of Earnings to Fixed Charges. 13.01 Praxair's 1999 Annual Report to Shareholders (such report, except for those portions which are expressly referred to in this Form 10-K, is furnished for the information of the Commission and is not deemed "filed" as part of this Form 10-K). 21.01 Subsidiaries of Praxair, Inc. 23.01 Consent of Independent Accountants. 27.01 Financial Data Schedule. Copies of exhibits incorporated by reference can be obtained from the SEC and are located in SEC File No. 1-11037. * Indicates a management contract or compensatory plan or arrangement. 14 EX-12.01 2 Praxair, Inc. and Subsidiaries - -------------------------------------------------------------------------------- EXHIBIT 12.01 PRAXAIR, INC. AND SUBSIDIARIES Ratio of Earnings to Fixed Charges (Millions of dollars, except ratios) Years Ended December 31, 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- EARNINGS - -------- Income of consolidated companies before provision for income taxes $627 $596 $622 $452 $432 Capitalized interest (30) (36) (32) (25) (9) Depreciation of capitalized interest 9 7 7 9 8 Dividends from less than 50%-owned companies carried at equity 1 2 1 1 1 Praxair share of income (loss) before provision for income taxes of 50%-owned companies carried at equity 5 1 3 16 15 Total earnings, net of fixed charges $612 $570 $601 $453 $447 FIXED CHARGES - ------------- Interest on long-term and short-term debt $204 $260 $216 $195 $116 Capitalized interest 30 36 32 25 9 Rental expenses representative of an interest factor 22 23 23 23 10 Praxair share of fixed charges of 50%-owned companies carried at equity 2 2 1 3 4 Total fixed charges $258 $321 $272 $246 $139 Total adjusted earnings available for payment of fixed charges $870 $891 $873 $699 $586 Preferred stock dividend requirements $ 8 $ 8 $ 8 $ 8 - RATIO OF EARNINGS TO FIXED CHARGES 3.4 2.8 3.2 2.8 4.2 RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS 3.3 2.7 3.1 2.7 4.2 EX-13.01 3 Audited Financial Statements Consolidated Statement of Income 19 Consolidated Balance Sheet 20 Consolidated Statement of Cash Flows 21 Consolidated Statement of Shareholders' Equity 22 Notes to Consolidated Financial Statements 32 Management's Discussion and Analysis 23 Consolidated Results 23 Segment Discussion 24 Liquidity, Capital Resources and Financial Data 28 Raw Materials and Markets 30 Year 2000 30 Euro Conversion 30 Market Risks and Sensitivity Analysis 31 Management's Statement of Responsibility for Financial Statements 47 Report of Independent Accountants 48 Five-Year Financial Summary 49 Information for Investors 52 [GRAPHICS OMITTED]
CONSOLIDATED STATEMENT OF INCOME Year Ended December 31, 1999 1998 1997 - ----------------------------------------------------------------------------------------------------- Sales $ 4,639 $ 4,833 $ 4,735 Cost of sales, exclusive of depreciation and amortization 2,732 2,807 2,764 Selling, general and administrative 641 644 662 Depreciation and amortization 445 467 444 Research and development 67 72 79 Other income-- net 77 13 52 - ----------------------------------------------------------------------------------------------------- Operating Profit 831 856 838 Interest expense 204 260 216 - ----------------------------------------------------------------------------------------------------- Income Before Taxes 627 596 622 Income taxes 152 127 151 - ----------------------------------------------------------------------------------------------------- Income of Consolidated Entities 475 469 471 Minority interests (45) (55) (66) Income from equity investments 11 11 11 - ----------------------------------------------------------------------------------------------------- Income Before Cumulative Effect of Accounting Changes 441 425 416 Cumulative effect of accounting changes (10) -- (11) - ----------------------------------------------------------------------------------------------------- Net Income $ 431 $ 425 $ 405 ===================================================================================================== Basic Earnings per Share: Income before cumulative effect of accounting changes $ 2.77 $ 2.68 $ 2.63 Cumulative effect of accounting changes (.06) -- (.07) Net income $ 2.71 $ 2.68 $ 2.56 Diluted Earnings per Share: Income before cumulative effect of accounting changes $ 2.72 $ 2.60 $ 2.53 Cumulative effect of accounting changes (.06) -- (.07) Net income $ 2.66 $ 2.60 $ 2.46 Weighted Average Shares Outstanding (000's): Basic shares outstanding 159,280 158,462 158,095 Diluted shares outstanding 162,222 163,356 164,053 - ----------------------------------------------------------------------------------------------------- The accompanying notes on pages 32 to 46 are (Dollar amounts in millions, except per share data) an integral part of these financial statements. 19
CONSOLIDATED BALANCE SHEET Year Ended December 31, 1999 1998 - --------------------------------------------------------------------------------------------- Assets Cash and cash equivalents $ 76 $ 34 Accounts receivable 848 919 Inventories 310 319 Prepaid and other current assets 101 122 - --------------------------------------------------------------------------------------------- Total Current Assets 1,335 1,394 Property, plant and equipment-- net 4,720 4,875 Equity investments 234 251 Other long-term assets 1,433 1,576 - --------------------------------------------------------------------------------------------- Total Assets $ 7,722 $ 8,096 ============================================================================================= Liabilities and Equity Accounts payable $ 361 $ 378 Short-term debt 756 295 Current portion of long-term debt 128 84 Accrued taxes 75 63 Other current liabilities 405 469 - --------------------------------------------------------------------------------------------- Total Current Liabilities 1,725 1,289 Long-term debt 2,111 2,895 Other long-term liabilities 562 553 Deferred credits 600 465 - --------------------------------------------------------------------------------------------- Total Liabilities 4,998 5,202 - --------------------------------------------------------------------------------------------- Minority interests 359 487 Preferred stock 75 75 Shareholders' equity: Common stock $.01 par value, authorized 500,000,000 shares, issued 164,215,383 shares in 1999 and 161,517,042 shares in 1998 2 2 Additional paid-in capital 1,613 1,528 Retained earnings 1,722 1,380 Accumulated other comprehensive income (loss) (828) (412) Less: Treasury stock, at cost (5,167,801 shares in 1999 and 3,945,843 shares in 1998) (219) (166) - --------------------------------------------------------------------------------------------- Total Shareholders' Equity 2,290 2,332 - --------------------------------------------------------------------------------------------- Total Liabilities and Equity $ 7,722 $ 8,096 ============================================================================================= The accompanying notes on pages 32 to 46 are (Millions of dollars) an integral part of these financial statements. 20
CONSOLIDATED STATEMENT OF CASH FLOWS Year Ended December 31, 1999 1998 1997 - -------------------------------------------------------------------------------------------- Increase (Decrease) in Cash and Cash Equivalents Operations Net income $ 431 $ 425 $ 405 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 445 467 444 Deferred income taxes 53 11 67 Other non-cash charges 19 38 22 Working capital: Accounts receivable 93 17 (54) Inventories 12 18 (14) Prepaid and other current assets 20 (2) (10) Payables and accruals (26) (14) (41) Long-term assets and liabilities (94) (24) (67) - -------------------------------------------------------------------------------------------- Net cash provided by operating activities 953 936 752 - -------------------------------------------------------------------------------------------- Investing Capital expenditures (653) (781) (902) Acquisitions (136) (241) (101) Divestitures and asset sales 103 206 300 - -------------------------------------------------------------------------------------------- Net cash used for investing activities (686) (816) (703) - -------------------------------------------------------------------------------------------- Financing Short-term debt repayments-- net (167) (93) (269) Long-term borrowings 29 388 438 Long-term debt repayments (109) (331) (110) Minority transactions and other 78 (31) (31) Issuances of common stock 105 117 110 Purchases of common stock (73) (97) (137) Dividends (89) (79) (69) - -------------------------------------------------------------------------------------------- Net cash used for financing activities (226) (126) (68) Effect of exchange rate changes on cash and cash equivalents 1 (3) (1) - -------------------------------------------------------------------------------------------- Change in cash and cash equivalents 42 (9) (20) Cash and cash equivalents, beginning-of-year 34 43 63 - -------------------------------------------------------------------------------------------- Cash and cash equivalents, end-of-year $ 76 $ 34 $ 43 ============================================================================================ Supplemental Data: Taxes paid $ 51 $ 66 $ 58 Interest paid $ 209 $ 265 $ 211 Debt reclassifications (Note 4) $ 627 $ -- $ 860 South American rights offering (Note 7) $ 138 $ -- $ -- Other liabilities reclassified to equity (Note 5) $ -- $ -- $ 19 Effect of functional currency change (Note 1) $ -- $ 81 $ -- Acquired debt from acquisitions $ -- $ 20 $ -- ============================================================================================ The accompanying notes on pages 32 to 46 are (Millions of dollars) an integral part of these financial statements. 21
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY Accumulated Other Com- Additional prehensive Common Stock Paid-In Treasury Stock Retained Income Activity Shares Amounts Capital Shares Amounts Earnings (Loss) Total - ----------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1996 157,501 $ 2 $ 1,350 12 $ -- $ 698 $ (126) $ 1,924 Net income 405 405 Translation adjustments (130) (130) ------- Comprehensive income 275 Dividends on common stock ($.44 per share) (69) (69) Issuances of common stock: For the dividend reinvestment and stock purchase plan 74 2 2 For employee savings and incentive plans 2,395 119 (157) 8 127 Purchases of common stock 2,742 (137) (137) - ----------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1997 159,970 $ 2 $ 1,471 2,597 $ (129) $ 1,034 $ (256) $ 2,122 - ----------------------------------------------------------------------------------------------------------------------------------- Net income 425 425 Translation adjustments (99) (99) Effect of functional currency change (Note 1) (57) (57) ------- Comprehensive income 269 Dividends on common stock ($.50 per share) (79) (79) Issuances of common stock: For the dividend reinvestment and stock purchase plan 80 1 1 For employee savings and incentive plans 1,467 56 (1,279) 60 116 Purchases of common stock 2,628 (97) (97) - ----------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1998 161,517 $ 2 $ 1,528 3,946 $ (166) $ 1,380 $ (412) $ 2,332 - ----------------------------------------------------------------------------------------------------------------------------------- Net income 431 431 Translation adjustments (416) (416) ------- Comprehensive income 15 Dividends on common stock ($.56 per share) (89) (89) Issuances of common stock: For the dividend reinvestment and stock purchase plan 64 1 1 For employee savings and incentive plans 2,634 84 (488) 20 104 Purchases of common stock 1,710 (73) (73) - ----------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1999 164,215 $ 2 $ 1,613 5,168 $ (219) $ 1,722 $ (828) $ 2,290 =================================================================================================================================== The accompanying notes on pages 32 to 46 are (Dollar amounts in millions, shares in thousands) an integral part of these financial statements. 22
MANAGEMENT'S DISCUSSION AND ANALYSIS Praxair's 1999 results versus 1998 reflect a 4% improvement in income before cumulative effect of accounting changes despite significant challenges in Brazil (Praxair's second largest market) resulting from a 32% devaluation and a recessionary economic environment. Lower debt levels and a resulting lower interest expense was a major contributor to the earnings growth. CONSOLIDATED RESULTS The following provides summary data for 1999, 1998 and 1997: Year Ended December 31, 1999(a) 1998 1997 - ------------------------------------------------------------------------ Sales $ 4,639 $ 4,833 $ 4,735 Selling, general and administrative $ 641 $ 644 $ 662 Depreciation and amortization $ 445 $ 467 $ 444 Operating profit $ 831 $ 856 $ 838 Interest expense $ 204 $ 260 $ 216 Effective tax rate 24% 21% 24% Income before cumulative effect of accounting changes $ 441 $ 425 $ 416 Number of employees 24,102 24,834 25,388 - ------------------------------------------------------------------------ Excluding special items(b): Operating profit $ 831 $ 885 $ 848 Effective tax rate 24% 25% 25% Income before cumulative effect of accounting changes $ 441 $ 425 $ 422 ======================================================================== (Dollar amounts in millions) (a) The results for 1999 versus 1998 were significantly impacted by the devaluation of the Brazilian currency (Real) from a rate of 1.21 Reais to the U.S. Dollar at December 31, 1998 to 1.79 at December 31, 1999 (1.81 average rate for 1999; versus a 1.16 average rate for 1998). Reported amounts from Brazil were all reduced in proportion to the exchange rate changes. Also, as described in Note 4 to the consolidated financial statements, in January 1999 Praxair entered into various currency exchange forward contracts to hedge anticipated Brazilian net income and a portion of its investment. The net income hedges were settled during 1999 resulting in a non-recurring pre-tax gain of $21 million ($14 million after taxes and minority interests). (b) During 1998, Praxair recorded pre-tax special charges totaling $29 million ($18 million after tax) for an impairment loss in Indonesia and a provision for an anticipated loss on the sale of an air separation plant to a third party. Additionally, in 1998 Praxair recorded non-recurring tax credits of $18 million related to the favorable settlement of various tax matters. During 1997, Praxair recorded a $10 million pre-tax special charge ($6 million after tax) related primarily to profit improvement initiatives in the North American packaged gases business (referred to as Praxair Distribution). These are collectively referred to as the 1998 and 1997 special items. Special Items Reported amounts for 1998 and 1997 include special items that affect period-to-period comparisons. The management's discussion and analysis that follows excludes the impact of these special items. 1999 compared with 1998 The sales decrease of 4% in 1999 as compared to 1998 was due primarily to unfavorable currency translation effects in South America. This was partially offset by the impact of price increases in North and South America, continued volume growth in Asia and Europe, and volume growth in North America. Excluding the impact of currency, sales grew 2%. Operating profit decreased 6% for 1999 as compared to 1998. This decrease was due to the sales decrease described above, cost inflation and currency translation impacts; partially offset by productivity improvements and the first quarter hedge gain in Brazil. Selling, general and administrative expenses for 1999 were slightly higher as a percentage of sales versus 1998 due primarily to long-term incentive plan costs, higher business development costs and cost inflation impacts; partially offset by productivity improvements. The decrease in depreciation and amortization expense for both periods reflects the impact of currency translation, primarily in Brazil, and the impact of the North American sale-leaseback transactions in 1999 and 1998; offset by new projects coming on-stream and packaged gases and Surface Technologies acquisitions. Interest expense decreased $56 million or 22% for 1999 versus 1998 due primarily to currency translation effects and lower consolidated debt levels, especially in the South American segment, which had high interest rates. Income before cumulative effect of accounting changes increased 4% in 1999 as compared to 1998. This increase was due primarily to the lower interest expense and minority interests impacts offset by the lower operating profit. Praxair's return on average capital was 11.2% in 1999 versus 11.1% in 1998. 23 MANAGEMENT'S DISCUSSION AND ANALYSIS The effective tax rate remained at 25%, excluding the impact of the first quarter hedge gain in Brazil, which is consistent with the effective tax rate before special charges in 1998 and 1997. The number of employees at December 31, 1999 decreased about 700 as compared to December 31, 1998 due primarily to Praxair's continued productivity improvement initiatives in North and South America and the divestiture of a business in Asia. The number of employees decreased despite the increase associated with about 500 employees added through acquisitions in Surface Technologies. 1998 compared with 1997 The sales growth of 2% in 1998 as compared to 1997 was due primarily to acquisitions in the U.S. and Canadian packaged gases (referred to as Praxair Distribution) and Surface Technologies businesses and sales volume increases in all major segments. These were partially offset by unfavorable currency translation impacts in all international segments. Overall, pricing was slightly positive as compared to 1997, with positive comparisons in Asia, South America and Mexico offset by negative comparisons in the United States industrial gases and Surface Technologies businesses worldwide. Operating profit grew 4% to $885 million. This was due primarily to the sales growth described above and productivity improvements (mostly in North and South America) offset by cost inflation and currency translation impacts. The productivity improvements and currency translation impacts resulted in an $18 million decrease in selling, general and administrative expenses despite the increase due to acquisitions. The increase in depreciation and amortization expense reflects new projects coming on-stream and acquisitions, partially offset by currency translation impacts. Interest expense increased $44 million due primarily to the functional currency change in Brazil (see Note 1 to the consolidated financial statements), higher interest rates in South America and higher average debt levels throughout the year. The effective tax rate for 1998 remained at 25%. Income before cumulative effect of accounting changes for 1998 increased 1% over 1997 due primarily to the higher operating profit, partially offset by increased interest expense. Praxair's return on average capital remained at 11.1% in 1998. The number of employees at December 31, 1998 decreased about 600 as compared to December 31, 1997 due primarily to Praxair's worldwide productivity improvement efforts, particularly in North and South America. The number of employees decreased despite the increase associated with acquisitions (about 1,100 employees) and the addition of employees to support volume growth. SEGMENT DISCUSSION The following summary of sales and operating profit by segment provides a basis for the discussion that follows: Year Ended December 31, 1999 1998 1997 - ------------------------------------------------------------------ Sales: North America $ 2,779 $ 2,752 $ 2,636 South America 697 964 964 Europe 516 515 493 Surface Technologies 456 420 381 All Other 191 182 261 - ------------------------------------------------------------------ Total $ 4,639 $ 4,833 $ 4,735 ================================================================== Segment Operating Profit(a): North America $ 514 $ 533 $ 493 South America 163 199 197 Europe 123 109 93 Surface Technologies 74 73 69 All Other (17) (6) 19 Corporate Overhead (26) (23) (23) - ------------------------------------------------------------------ Total $ 831 $ 885 $ 848 ================================================================== (Millions of dollars) (a) Excludes special charges in 1998 and 1997 (see Note 7 to the consolidated financial statements). North America The North America operating segment includes Praxair's industrial and packaged gases operations in the United States, Canada, and Mexico. Praxair's U.S. and Canadian packaged gases operations within the North American industrial gases business are collectively referred to as Praxair Distribution. Sales for 1999 increased 1% as compared to 1998. Sales increased 7% in Mexico, 1% in the U.S. and Canadian industrial gases operations, and Praxair Distribution's sales were essentially flat. [GRAPHIC OMITTED - 1999 OPERATING MARGIN] 24 Overall, this increase is due to price increases of about 1% with volume growth offsetting currency impacts. Pricing improved in both Mexico and Praxair Distribution, was generally flat in U.S. industrial gases, and decreased in the Canadian industrial gases business. U.S. industrial gases volumes improved about 1% and pricing was flat despite decreases during the first half of 1999. The Canadian industrial gases business had volume growth of 10% and price decreases of 3%. Praxair Distribution's sales increased slightly to $893 million reflecting improved pricing offset by lower sales volumes. Mexico's sales increase was driven by improved pricing (10%) and volume growth (3%), partially offset by currency impacts. Sales for 1998 increased 4% as compared to 1997. Sales were up 16% in Praxair Distribution and 9% in Mexico, and down 1% in the U.S. and Canadian industrial gases operations. Overall, this increase reflects the impact of acquisitions in Praxair Distribution and sales volume growth in all geographies, partly offset by currency translation effects in Canada and Mexico and overall lower pricing. Pricing improved in Mexico and in Praxair Distribution, but was down in the U.S. and Canadian industrial gases business, reflecting more intense competitive activity. In the U.S. and Canada, industrial gases volumes were up 2% while pricing decreased 3%. Praxair Distribution's sales increased to $892 million primarily reflecting the impact of acquisitions (19%) and improved pricing, somewhat offset by currency translation and slightly lower sales volumes. Mexico's sales increase was driven by volume growth (14%) and improved pricing, partially offset by currency impacts. Operating profit decreased 4% in 1999 versus 1998. The decrease was due primarily to cost inflation, higher costs associated with significant product dislocations resulting from higher than expected energy costs and supplier feedstock curtailments, partly offset by the benefits of productivity improvements and the improvement in sales in the second half of 1999. In the U.S. and Canadian industrial gases business, operating profit decreased about 6% due primarily to cost inflation and the higher costs associated with product dislocations, with offsets coming mostly from productivity improvements. Praxair Distribution's operating profit improved by about 4% and Mexico's operating profit improved 2% over 1998. Praxair Distribution's increase reflects the impact of productivity improvements. Mexico's increase reflects sales volume growth and productivity improvements, partially offset by currency impacts and cost inflation. Operating profit improved 8% in 1998 as compared to 1997, while operating margins remained about flat at 19% of sales. The sales increase including the impact of acquisitions, and continued strong productivity improvements were the main drivers behind the operating profit growth, partially offset by negative currency impacts in Canada and Mexico and cost inflation. In the U.S. and Canadian industrial gases business, operating profit increased 4% due primarily to productivity improvements which more than offset cost inflation. Praxair Distribution's and Mexico's operating profit each improved 21% over 1997. Praxair Distribution's increase reflects the impact of acquisitions while Mexico reflects strong sales volume growth, partially offset by currency impacts and cost inflation. South America Praxair's South American industrial gases operations are conducted by its majority owned subsidiary, S.A. White Martins (White Martins), which is the largest industrial gases company in Brazil. White Martins has operations throughout South America, including Argentina, Chile, Columbia, Peru and Venezuela. During the first quarter of 1999, White Martins completed a rights offering resulting in Praxair's ownership interest in White Martins increasing from 69.33% at December 31, 1998 to 76.57% at December 31, 1999. As consideration for the additional shares it purchased during the rights offering, Praxair used approximately $138 million of intercompany loans it had previously made to White Martins. Approximately $15 million of the rights offering was purchased by minority shareholders. As described above under the section on Consolidated Results, the results for 1999 were significantly impacted by the devaluation of the Brazilian currency (Real) and the resulting recessionary conditions for much of the year. The currency devaluation reduced sales by $284 million and reduced operating profit by $59 million as compared to 1998. The Brazilian economy has improved during 1999 and the currency has generally stabilized at about 1.8 Real per U.S. Dollar. Also, as described in Note 4 to the consolidated financial statements, in early January 1999 Praxair entered into various currency exchange forward contracts to hedge anticipated Brazilian net income and a portion of its net investment. The net income hedges resulted in a non-recurring pre-tax gain of $21 million, which is included in the South American operating profit for 1999. 25 Management's Discussion and Analysis Sales for 1999 decreased 28% as compared to 1998. This was primarily due to the unfavorable currency translation effects, with price increases (5%) offset by volume decreases. Excluding the currency effects, 1999 sales increased by 2%. The devaluation of the Real in Brazil and a recessionary environment in South America have contributed to volume decreases of approximately 4% for 1999 versus 1998. Sales for 1998 were flat when compared to 1997, primarily because sales volume growth of 5% and price increases of 2% were offset by negative currency translation effects. Operating profit for 1999 decreased 18% as compared to 1998. This decrease was caused primarily by the 1999 currency devaluation in Brazil, the reduction in sales and cost inflation; which offset productivity improvement initiatives and the $21 million first quarter hedge gain. Excluding the impacts of currency movements and the hedge gain, operating profit increased 1% in 1999 versus 1998. Operating profit for 1998 decreased $7 million as compared to the 1997 period after excluding the $20 million positive impact of the required functional currency change in Brazil (see Note 1 to the consolidated financial statements), and an $11 million benefit in 1997 from a favorable judgment related to a dispute with the Rio de Janeiro State public hospitals. The decrease was due primarily to the effects of currency movements throughout the year and cost inflation, partially offset by productivity improvements and sales volume growth. Excluding the impact of currency and the functional currency change in Brazil, operating profit was flat. In December 1999, Praxair made a tender offer for the remaining 23.43% of the shares of White Martins that it does not already own. If all shares are tendered at the price offered, the total cost would be approximately $250 million (assuming an exchange rate of 1.80 Reais per U.S. Dollar). The impact on Praxair's results of operations will be to increase interest expense and decrease the minority interests' share of income and is not expected to be significant. The tender offer process is expected to take about three to four months to complete. Europe Praxair's European industrial gases business is primarily in Italy and Spain with additional operations in Benelux, Germany, France, Israel and Poland. Sales for 1999 were flat as compared to 1998. Volume growth (3%) and price increases (1%) were offset primarily by unfavorable currency translation effects. Most of this growth was reflected by good performance in Italy and Spain. Sales increased 4% in 1998 as compared to 1997, primarily due to moderate volume increases that were partly offset by negative currency translation effects in the first three quarters of 1998. Excluding the negative currency translation effects, sales increased by 8% as compared to 1997. Operating profit for 1999 increased 13% as compared to 1998. This was due primarily to the sales impacts previously described, cost improvement initiatives, and net income hedge gains which helped to offset the impact of currency movements. Excluding currency effects, operating profit increased 9% in 1999. Operating profit increased a strong 17% in 1998 as compared to 1997 due primarily to the sales growth and the impact of productivity improvements, partly offset by cost inflation and unfavorable currency translation effects. Surface Technologies Praxair's worldwide Surface Technologies business primarily includes operations in the U.S. and Europe, with smaller operations in Asia and Brazil. Sales for 1999 increased 9% as compared to 1998. This increase was due to the impact of acquisitions, which added 11% to overall growth, partially offset by pricing pressures in the aerospace and printing markets, and currency impacts. Sales volumes remained flat, as increases related to new applications were offset by decreases in the base aviation and computer disk polishing markets. Sales for 1998 increased 10% as compared to 1997. This increase was primarily due to acquisitions and sales volume growth, which added 13% in total, partly offset by price decreases and unfavorable currency impacts. Operating profit for 1999 increased 1% as compared to 1998. Productivity improvement initiatives and the impact of acquisitions were largely offset by cost inflation. Operating profit for 1998 increased 6% as compared to 1997, due to sales growth and productivity improvements, partly offset by cost inflation. 26 All Other The All Other segment includes Praxair's industrial gases operations in Asia, its global supply systems business which designs, engineers and builds equipment that produces industrial gases (for internal use and external sale), and other globally managed functions, including procurement, global marketing and business development. Praxair's operations in Asia are currently concentrated in China, India, Korea and Thailand, with smaller operations in Japan and Taiwan. Operations in China and India are also conducted through nonconsolidated joint venture companies. Sales for 1999 increased 5% as compared 1998. Asia experienced 43% sales growth due primarily to strong volume growth of about 41%, particularly in Korea and Thailand, new plants coming on stream in China and India, and favorable currency translation effects (8%). Plant sales to third parties decreased 39% in 1999 versus 1998, as fewer plants were sold to customers. The level of activity for global supply systems is reflective of the overall capacity in the industry and local economic conditions, and is subject to fluctuation from one year to the next. Sales for the segment decreased 30% in 1998 as compared to 1997 due to a 42% lower level of third party plant sales in the global supply systems business and lower reported sales in Asia. Excluding currency impacts, Asian sales were up 18% versus 1997, reflecting the impact of sales volume growth and price improvements, which added 12%, and acquisitions. Operating profit for the segment is significantly influenced by third party plant sales and by the costs associated with the globally managed functions, all of which fluctuate from year to year. Operating profit for 1999 was down $11 million when compared to 1998. This was due to the decreases in the global supply systems business and higher business development costs, partly offset by a 57% improvement in Asia. In 1998, Asian operating profit decreased 22%, while global supply systems decreased 38% as compared to 1997. These decreases were due primarily to decreased sales in the global supply systems business and the impact of currency translation effects in Asia, partly offset by productivity improvements. The remaining operating profit reduction is related to increased costs for globally managed initiatives. Selling, General and Administrative Expenses In 1999, selling, general and administrative expenses were $641 million, a $3 million decrease from the 1998 amount. This decrease is due to continuing productivity improvement initiatives and currency impacts (primarily in Brazil); partially offset by increased business development costs, acquisitions and cost inflation. Selling, general and administrative expenses as a percentage of sales was 13.8% in 1999 as compared to 13.3% in 1998. In 1998, selling, general and administrative expenses were $644 million, an $18 million decrease from the 1997 amount. This decrease is due to the 1998 productivity improvement initiatives and positive currency impacts; partially offset by acquisitions and cost inflation. Selling, general and administrative expenses as a percentage of sales declined to 13.3% in 1998 from 14.0% in 1997. Other income -- net Other income -- net was $77 million in 1999 versus $13 million in 1998 (see Note 7 to the consolidated financial statements). This increase was primarily due to the $21 million hedge gain in Brazil in 1999 and the $29 million special charges in 1998. 1999 also includes income related to the redemption of preference shares and the collection of a note receivable from earlier business sales, and European net income hedge gains, which offset the currency translation effects in the European segment; offset by costs incurred for postemployment benefits and a third party plant sale. Other income -- net was $13 million in 1998 versus $52 million in 1997 (see Note 7 to the consolidated financial statements). The $39 million decrease is due to the $29 million special charges in 1998 versus $10 million of special charges in 1997, an $11 million benefit from a favorable judgment related to a dispute with the Rio de Janeiro State public hospitals occurring in 1997, and increased severance expense in 1998 as compared to 1997. Interest Expense Interest expense decreased $56 million or 22% for 1999 versus 1998 due primarily to currency translation effects and lower consolidated debt levels, especially in the South American segment, which had high interest rates. The 1998 interest expense increased $44 million from the 1997 amount due primarily to the functional currency change in Brazil (see Note 1 to the consolidated financial statements), higher interest rates in South America and higher average debt levels throughout the year. 27 MANAGEMENT'S DISCUSSION AND ANALYSIS Income Taxes The effective tax rate for 1999 remained at 25%, excluding the impact of the first quarter hedge gain in Brazil. Praxair currently expects the effective tax rate to remain at the same level or improve slightly in 2000. Minority Interests On December 31, 1999, minority interests consisted primarily of minority shareholders' investments in two affiliates: S.A. White Martins (Brazil) and Rivoira S.p.A. (Italy). Additionally, Praxair records the dividends on preferred stock in minority interests ($6 million in 1999). Minority shareholders' share of income for 1999 was $45 million, a decrease of $10 million as compared to the 1998 amount of $55 million. This decrease is due primarily to currency impacts in Brazil and the 1999 first quarter rights offering which increased Praxair's ownership interest in White Martins (see Segment Discussion -- South America). Income from Equity Investments Praxair's more significant equity investments are in the United States, Belgium, China, India, Italy, Spain and Turkey. Praxair's share of net income from corporate equity investments remained constant at $11 million for 1999, 1998 and 1997. Costs Relating to the Protection of the Environment Praxair's principal operations relate to the production and distribution of atmospheric and other industrial gases, which historically have not had a significant impact on the environment. However, worldwide costs relating to environmental protection may continue to grow due both to increasingly stringent laws and regulations and to Praxair's ongoing commitment to rigorous internal standards. Environmental protection costs in 1999 were approximately $7 million of capital expenditures and $13 million of expenses. Included in the expenses were approximately $2 million for remedial projects. Praxair anticipates that future environmental protection expenditures will approximate the level of those in 1999 and will not have a material adverse effect on the consolidated financial position or on the consolidated results of operations or cash flows in a given year. Commitments and Contingencies See Note 12 to the consolidated financial statements for information concerning commitments and contingencies. LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL DATA Year Ended December 31, 1999 1998 1997 - ------------------------------------------------------------------------ Net Cash Provided by (Used for): Operating Activities: Net income plus depreciation and amortization $ 876 $ 892 $ 849 Working capital 99 19 (119) Other-- net (22) 25 22 - ------------------------------------------------------------------------ Total from operating activities $ 953 $ 936 $ 752 ======================================================================== Investing Activities: Capital expenditures $ (653) $ (781) $ (902) Acquisitions (136) (241) (101) Divestitures and asset sales 103 206 300 - ------------------------------------------------------------------------ Total used for investing $ (686) $ (816) $ (703) ======================================================================== Financing Activities: Debt increases (reductions) $ (247) $ (36) $ 59 Minority transactions and other 78 (31) (31) Issuances (purchases) of stock 32 20 (27) Cash dividends (89) (79) (69) - ------------------------------------------------------------------------ Total used for financing $ (226) $ (126) $ (68) ======================================================================== Debt-to-Capital Ratio, at December 31: Debt $ 2,995 $ 3,274 $ 3,305 Capital* $ 5,719 $ 6,168 $ 6,023 Debt-to-capital ratio 52.4% 53.1% 54.9% ======================================================================== (Millions of dollars) *Includes debt, minority interests, preferred stock and shareholders' equity. Cash Flow from Operations Cash flow from operations increased to $953 million in 1999 from $936 million in 1998, or 2%. The increase is primarily related to the improvement in working capital requirements; a direct result of Praxair's continuing work process improvement initiatives. Cash flow from operations increased to $936 million in 1998 from $752 million in 1997, or 24%. The increase is primarily due to the improvement in working capital investment needs resulting from Praxair's work process improvement initiatives and to lower payments for incentive compensation programs. [GRAPHIC OMITTED - WORKING CAPITAL AS A PERCENT OF SALES] 28 Investing Cash flow used for investing in 1999 totaled $686 million, a decrease of $130 million from 1998. This decrease was due primarily to the net impact of lower capital and acquisition expenditures, partly offset by lower proceeds from divestitures and asset sales. Capital expenditures for 1999 totaled $653 million, down $128 million from 1998. The lower level of capital expenditures reflects the Company's strategy to seek higher returns from its capital spending program, and is primarily due to decreased spending in South America, the United States and Europe, and currency impacts in South America. [GRAPHIC OMITTED - CAPITAL EXPENDITURES AND ACQUISITIONS] Acquisition expenditures for 1999 totaled $136 million, a decrease of $105 million from 1998 but an increase of $35 million from 1997. Acquisition expenditures in 1999 were primarily related to acquisitions in the Surface Technologies' business, with other acquisitions in North America, China and India. The increase in 1998 versus 1997 is primarily attributed to the 1998 purchase of the remaining shares outstanding of Gas Tech, Inc., a U.S. packaged gases distributor (previously an equity investment), and other acquisitions in the Praxair Distribution business. Divestitures and asset sales in 1999 totaled $103 million, half the 1998 amount. This decrease is primarily attributed to the lower proceeds from sale-leaseback transactions (see Note 11 to the consolidated financial statements). On a worldwide basis, capital and acquisition expenditures for the full year 2000 are expected to remain at about the $800 million level. This estimate excludes any impacts from the White Martins tender offer (see Segment Discussion - -- South America). Financing At December 31, 1999, Praxair's total debt outstanding was $2,995 million, a decrease of $279 million from 1998. As of December 31, 1999, there were no borrowings under Praxair's $1.5 billion U.S. bank credit facility and Praxair's investment grade credit rating for long-term debt was maintained at A3/BBB+. [GRAPHIC OMITTED - DEBT-TO-CAPITAL] At December 31, 1998, $627 million of short-term borrowings were classified as long-term debt under the terms of the credit agreement. At December 31, 1999, such borrowings were reclassified as short-term because the credit agreement expires within one year (see Note 4 to the consolidated financial statements). During 1999 and 1998, Praxair sold and leased back certain U.S. distribution and liquid storage equipment for $80 million and $150 million, respectively. The proceeds from the sale of the equipment were used to pay down debt. Praxair's debt-to-capital ratio decreased to 52.4% at December 31, 1999 from 53.1% at December 31, 1998. This decrease is due to an increase in retained earnings and lower debt levels, partially offset by the balance sheet impacts of the currency devaluation in Brazil, and reduced minority interests (primarily related to the rights offering in Brazil). Praxair's financing strategy is to secure sufficient funds to support its operations in the United States and around the world using a combination of local borrowing and intercompany lending in order to minimize the total cost of funds and to manage and centralize currency exchange exposures. During 2000, Praxair intends to enter into a new U.S. bank credit facility to replace the existing facility which expires in December 2000. Praxair manages its exposure to interest rate changes through the use of financial derivatives (see Note 4 to the consolidated financial statements and the section titled "Market Risks and Sensitivity Analyses"). 29 MANAGEMENT'S DISCUSSION AND ANALYSIS RAW MATERIALS AND MARKETS Energy is the single largest cost item in the production and distribution of industrial gases. For some products, such as carbon dioxide, helium, hydrogen, specialty gases and surface coatings and powders, raw materials are largely purchased from outside sources. Praxair generally has contracts or commitments for, or readily available sources of, these raw materials. Praxair's industrial gases are used by a diverse group of customers in a variety of industries including metal fabrication, primary metals, chemicals & refining, healthcare, food & beverage, semiconductor materials, aerospace, pulp and paper, glass, environmental remediation and numerous other markets. By using the gases Praxair produces and, in many cases, the proprietary processes that it invents, customers benefit through improved product quality, increased productivity, lower operating costs, conservation of energy and the attainment of environmental improvement objectives. Praxair has a large number of customers and no single customer accounts for a significant portion of Praxair's annual sales. Aircraft engines are Surface Technologies' primary market, but it also serves the printing, textile, chemical and primary metals markets. Aircraft engine and airframe component overhaul services are other offerings. YEAR 2000 During 1999, Praxair continued its company-wide program to prepare the Company's operating systems, computer systems and infrastructure systems for year 2000 compliance. The "year 2000 problem" arose because many existing computer programs or date-sensitive microprocessors embedded in operating equipment use only the last two digits to refer to a year. Therefore, these computer programs and operating systems may not properly recognize a year that begins with "20" instead of "19". At the date of this report, Praxair has not experienced any significant issues related to the year 2000 problem and there has been no disruption to the Company's business operations related to the date change at the new year. In addition, the Company has not become aware of any significant year 2000 issues affecting its major customers or suppliers and has not received any complaints regarding any year 2000 issues related to its products or equipment sold. It is still possible that problems could surface throughout the year 2000; however, the Company currently believes that these problems are unlikely and will not have a material impact on consolidated results or cash flows. Year 2000 readiness program related costs, including business continuity costs, through the end of 1999 were approximately $25 million. Of this total amount incurred, $11 million was expensed as incurred and the remainder was for capital upgrades and replacements. The capital costs were planned for later years independent of year 2000 issues, but were accelerated because those costs were for projects that would also address year 2000 issues. Costs associated with internal resources are not being accumulated separately and relate to normal ongoing payroll costs. To the extent any reader of this statement reviews it for the purpose of making any decision for the purchase of goods or services from Praxair or evaluating Praxair's Year 2000 readiness, such reader should construe this statement to be a Year 2000 readiness disclosure and that any statements made to such reader in the course of any sale are subject to the Year 2000 Information and Readiness Disclosure Act (15 USC 1 Note, P.L. 105-271, 112 Stat). Such reader should be further advised that, in the case of a dispute, this Act may reduce the reader's legal rights regarding the use of any such statements, unless otherwise specified in the contract or tariff. EURO CONVERSION Effective January 1, 1999, the euro became the new common currency for 11 European countries (including Belgium, France, Germany, Italy, and Spain; where Praxair has most of its European operations). During the transition period, payments can be made using both the euro and the national currencies at fixed exchange rates. Praxair successfully implemented the systems and processes necessary to conduct business in both the euro and the respective national currency. Management currently believes that Praxair has in place the appropriate programs and plans to make any required changes to its systems and processes to accommodate a complete and timely conversion to a euro functional currency by 2002. The external costs associated with implementing systems to conduct business in the euro have not been and are not expected to be material in any year. Also, management currently believes the business and market implications, if any, of the euro conversion will not be material. However, the competitive impact of increased cross-border price transparency is uncertain; both with respect to products sold by Praxair as well as products, utilities and services purchased by Praxair. 30 NEW ACCOUNTING STANDARDS See Note 1 to the consolidated financial statements for information concerning new accounting standards. MARKET RISKS AND SENSITIVITY ANALYSES Like other global companies, Praxair is exposed to market risks relating to fluctuations in interest rates and currency exchange rates. The objective of financial risk management at Praxair is to minimize the negative impact of interest rate and foreign exchange rate fluctuations on the Company's earnings, cash flows and equity. To manage these risks, Praxair uses various derivative financial instruments, including, interest rate swap, forward starting interest rate swap and currency swap, forward and option contracts. Praxair only uses commonly traded and non-leveraged instruments. These contracts are entered into with major financial institutions thereby minimizing the risk of credit loss. Also, refer to Notes 1 and 4 to the consolidated financial statements for a more complete description of Praxair's accounting policies and use of such instruments. As required by Securities and Exchange Commission rules, the following analyses present the sensitivity of the market value, earnings and cash flows of Praxair's financial instruments to hypothetical changes in interest and exchange rates as if these changes occurred at December 31, 1999. The range of changes chosen for these analyses reflect Praxair's view of changes which are reasonably possible over a one-year period. Market values are the present values of projected future cash flows based on the interest rate and exchange rate assumptions. These forward-looking disclosures are selective in nature and only address the potential impacts from financial instruments. They do not include other potential effects, which could impact Praxair's business as a result of these changes in interest and exchange rates. Interest Rate and Debt Sensitivity Analysis At December 31, 1999, Praxair has debt totaling $2,995 million ($3,274 million at December 31, 1998) and interest rate swaps with a notional value of $80 million ($876 million in 1998). Interest rate swaps are entered into as a hedge of underlying debt instruments to effectively change the characteristics of the interest rate without actually changing the debt instrument. At December 31, 1999, the interest rate swap agreements convert outstanding floating rate debt to fixed rate debt for a period of time. For fixed rate debt, interest rate changes affect the fair market value but do not impact earnings or cash flows. Conversely for floating rate debt, interest rate changes generally do not affect the fair market value but do impact future earnings and cash flows, assuming other factors are held constant. At December 31, 1999 after adjusting for the effect of interest rate swap agreements, Praxair has fixed rate debt of $2,114 million ($2,978 at December 31, 1998) and floating rate debt of $881 million ($296 million in 1998). Holding other variables constant (such as foreign exchange rates, swaps and debt levels), a one percentage point decrease in interest rates would increase the unrealized fair market value of the fixed rate debt by approximately $89 million ($98 million in 1998). At December 31, 1999, the after-tax earnings and cash flows impact for the next year resulting from a one percentage point increase in interest rates would be approximately $6 million ($7 million at December 31, 1998), holding other variables constant. Exchange Rate Sensitivity Analysis Praxair's exchange rate exposures result primarily from its investments and ongoing operations in South America (primarily Brazil), Europe (primarily Spain and Italy), Canada, Mexico, Asia (primarily China, India, Korea and Thailand) and certain other business transactions such as the procurement of equipment from foreign sources. Among other techniques, Praxair utilizes foreign exchange forward contracts to hedge these exposures. At December 31, 1999 Praxair had $272 million notional amount ($406 million at December 31, 1998) of foreign exchange contracts of which $235 million ($306 million in 1998) hedged recorded balance sheet exposures or firm commitments and $37 million ($100 million in 1998) are to hedge anticipated future net income. During January 2000 an additional $100 million of foreign exchange contracts were entered into to hedge anticipated future net income. Praxair's net income hedges relate to its subsidiaries in Europe, Canada and Asia. Holding other variables constant, if there were a ten percent adverse change in foreign currency exchange rates, the market value of foreign currency contracts outstanding at December 31, 1999 would decrease by approximately $23 million ($39 million at December 31, 1998). Of this decrease, only about $3 million ($7 million at December 31, 1998) would impact earnings since the gain (loss) on the majority of these contracts would be offset by an equal (gain) loss on the underlying exposure being hedged. 31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Operations -- Praxair, Inc. (Praxair or Company) was founded in 1907 and became an independent publicly traded company in 1992. Praxair is the largest industrial gases company in North and South America, and one of the largest worldwide. The Company is also the world's largest supplier of carbon dioxide. Praxair produces, sells and distributes atmospheric, process and specialty gases, and high-performance surface coatings to a diverse group of industries including metal fabrication, chemicals & refining, primary metals, food and beverage, healthcare, semiconductor materials, aerospace, glass, pulp and paper, and environmental remediation. Principles of Consolidation -- The consolidated financial statements include the accounts of all significant subsidiaries where control exists. Equity investments generally consist of 20-50% owned operations. Operations less than 20% owned are generally carried at cost. Pre-tax income from equity investments, which are partnerships, is included in other income -- net with related taxes included in income taxes. Partnership net assets are reported as equity investments in the balance sheet. Praxair does not allocate corporate costs to its equity investments. Significant intercompany transactions are eliminated. Use of Estimates -- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. While actual results could differ, management believes such estimates to be reasonable. Revenue Recognition -- Revenue is recognized when product is shipped or services are provided to customers. Revenues from long-term construction contracts are recognized using the percentage-of-completion method. Under this method, revenues for sales of major equipment, such as large air separation facilities, are recognized primarily based on cost incurred to date compared with total estimated cost. Changes to total estimated cost and anticipated losses, if any, are recognized in the period determined. Cash and Cash Equivalents -- Cash equivalents are considered to be highly liquid securities with original maturities of three months or less. Inventories-- Inventories are stated at the lower of cost or market. Cost is determined generally using the last-in, first-out (LIFO) method for certain U.S. operations and the average cost method for most other operations. Property, Plant and Equipment -- net -- Property, plant and equipment are carried at cost, net of accumulated depreciation. Depreciation is calculated on the straight-line method based on the estimated useful lives of the assets which range from 3 to 40 years. Praxair generally uses accelerated depreciation methods for tax purposes where appropriate. The Company periodically reviews the recoverability of long-lived assets based upon anticipated cash flows generated from such assets. Foreign Currency Translation -- For international subsidiaries where the local currency is the functional currency, translation gains and losses are accumulated as a separate component of shareholders' equity. For international subsidiaries operating in hyperinflationary economies, the U.S. dollar is the functional currency and translation gains and losses are included in income. Functional Currency Change in Brazil -- As required by accounting standards, effective January 1, 1998 Brazil is no longer a hyperinflationary economy. Accordingly, Praxair's majority owned subsidiary (SA White Martins) designated the Brazilian Real as its functional currency instead of the U.S. dollar. This change increased operating profit and interest expense by approximately $20 million for the year ended December 31, 1998. The impact on sales, taxes and net income was not significant. This change also required Praxair to record a one-time cumulative adjustment for additional deferred income taxes of $81 million with offsetting balance sheet adjustments to the accumulated other comprehensive income (loss) (cumulative translation adjustment) component of shareholders' equity, and minority interests of $57 million and $24 million, respectively. Financial Instruments -- Praxair enters into various derivative financial instruments to manage its exposure to fluctuating interest and currency exchange rates. Such instruments include interest rate swap and forward rate agreements, and currency swap, forward and option contracts. These instruments are not entered into for trading purposes. Praxair only uses commonly traded and non- leveraged instruments. Interest rate swap and forward rate agreements involve the exchange of fixed and floating interest payments without the exchange of the underlying principal amounts. The differential to be paid or received is recognized as an adjustment to interest expense. The notional amounts of interest rate swap and forward rate agreements do not exceed the underlying debt principal amounts. If an interest 32 rate swap or forward rate agreement is terminated before its maturity, any gain or loss is deferred and amortized as interest expense over the remaining life of the underlying debt or the remaining life of the swap, if shorter. Currency swap, forward and option contracts are generally entered into to hedge recorded balance sheet amounts related to international operations, firm commitments that create currency exposures and projected net income. Gains and losses on hedges of assets and liabilities are recorded in other income -- net as offsets to the gains and losses from the underlying hedged amounts; gains and losses on hedges of net investments are reported on the balance sheet as part of the accumulated other comprehensive income (loss) (cumulative translation adjustment) within shareholders' equity; and gains and losses on hedges of firm commitments are recorded on the balance sheet and included in the basis of the underlying transaction. Forward exchange contracts that cover exposures which do not qualify for hedge accounting (e.g., net income hedges) are recorded in other income -- net on a mark-to-market basis. Praxair uses the following methods and assumptions to estimate the fair value of each class of financial instrument. Due to their nature, the carrying value of cash, short-term investments and short-term debt, receivables and payables approximates fair value. The fair value of long-term debt is estimated based on the quoted market prices for the same or similar issues. The fair value of interest rate swaps and currency exchange contracts are estimated based on market prices obtained from dealer quotes. Such quotes represent the estimated amount Praxair would receive or pay to terminate the agreements taking into consideration current rates and the credit worthiness of the counterparties (See Note 4). Patents, Trademarks And Goodwill -- Amounts paid for patents and the excess of the purchase price over the fair value of the net assets of acquired operations (goodwill) are recorded as other long-term assets. Patents are amortized over their remaining useful lives, while trademarks and goodwill are amortized over the estimated period of benefit, up to forty years. Praxair periodically evaluates the recoverability of patents, trademarks and goodwill by assessing whether the unamortized balance can be recovered over its remaining life through cash flows generated by the underlying tangible assets. Should the expected undiscounted cash flows be less than the carrying amount of the intangible asset, an impairment loss would be recognized. Research And Development -- Research and development costs are charged to expense as incurred. Income Taxes -- Deferred income taxes are recorded for the temporary differences between the financial statement and tax bases of assets and liabilities using current tax rates. Retirement Programs -- Most Praxair employees worldwide are covered by various pension plans. The cost of pension benefits under these plans is determined using the "projected unit credit" actuarial cost method. Funding of pension plans varies and is in accordance with local laws and practices. Praxair accrues the cost of retiree life and health insurance benefits during the employees' service period when such benefits are earned. Postemployment Benefits -- Praxair recognizes the estimated cost of future benefits provided to former and inactive employees after employment but before retirement on the accrual basis. Stock-Based Compensation -- Praxair accounts for incentive plans and stock options using the provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees. Pro forma information required by Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, is included in Note 8. Earnings Per Share -- Basic earnings per share is computed by dividing net income for the period by the weighted average number of Praxair common shares outstanding. Diluted earnings per share is computed by dividing net income for the period by the weighted average number of Praxair common shares outstanding and dilutive common stock equivalents. Stock options for 4,604,610 and 2,999,075 shares were not included in the computation of diluted earnings per share for the years ended December 31, 1999 and December 31, 1998, respectively, because the exercise prices were greater than the average market price of the common stock. All references in the consolidated financial statements are to diluted earnings per share unless stated otherwise. The difference between the number of shares used in the basic earnings per share calculation compared to the diluted earnings per share calculation is due to the dilutive effect of outstanding stock options. Accounting Changes -- In accordance with the American Institute of Certified Public Accountants (AICPA) Statement of Position (SOP) 98-5, Reporting on the Costs of Start-Up Activities, Praxair recorded an after-tax-charge of $10 million in the first quarter of 1999 as the cumulative effect of an accounting change. 33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In accordance with Emerging Issues Task Force (EITF) Consensus No. 97-13, Praxair recorded an after-tax charge of $11 million in the fourth quarter of 1997 as the cumulative effect of an accounting change related to previously capitalized business process reengineering and information technology transformation costs. Recently Issued Accounting Standard -- In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities which Praxair is required to adopt effective beginning January 1, 2001. Praxair is currently evaluating the impact on its financial statements of adopting the standard and will comply as required. Reclassifications -- Certain prior years' amounts have been reclassified to conform to the current year's presentation. NOTE 2 SEGMENT INFORMATION Praxair operates principally in the industrial gases business through three reportable operating segments: North America, South America and Europe. In addition, Praxair operates its worldwide Surface Technologies business through its wholly-owned subsidiary, Praxair Surface Technologies, Inc. The All Other category is composed of Praxair's industrial gases business in Asia, Praxair's global supply systems business which designs, engineers and builds equipment that produces industrial gases (for internal use and external sale), and other globally managed functions including procurement, global marketing and business development. Corporate includes costs related to corporate functions. The accounting policies of the operating segments are the same as those described in Note 1. Praxair evaluates the performance of its operating segments based on operating profit, excluding intercompany royalties and other special charges. Sales are determined based on the country in which the legal subsidiary is domiciled and intersegment sales are not material. Research and development costs relating to Praxair's industrial gases business are managed globally and for purposes of segment reporting are allocated to operating segments based on sales. Long-lived assets includes property, plant and equipment; and patents, trademarks and goodwill. The table below presents information about reported segments for the years ended December 31, 1999, 1998 and 1997: Segment Information 1999 1998 1997 - ---------------------------------------------------------------------- Sales: North America $ 2,779 $ 2,752 $ 2,636 South America 697 964 964 Europe 516 515 493 Surface Technologies 456 420 381 All Other 191 182 261 - ---------------------------------------------------------------------- Total sales $ 4,639 $ 4,833 $ 4,735 ====================================================================== Segment Operating Profit(a): North America $ 514 $ 533 $ 493 South America(b) 163 199 197 Europe 123 109 93 Surface Technologies 74 73 69 All Other (17) (6) 19 Corporate (26) (23) (23) - ---------------------------------------------------------------------- Total segment operating profit $ 831 $ 885 $ 848 ====================================================================== Total Assets(c): North America $ 3,987 $ 3,917 $ 3,821 South America 1,796 2,313 2,493 Europe 769 871 795 Surface Technologies 705 523 397 All Other 465 472 304 - ---------------------------------------------------------------------- Total assets $ 7,722 $ 8,096 $ 7,810 ====================================================================== Depreciation & Amortization: North America $ 260 $ 267 $ 254 South America 86 116 108 Europe 49 47 46 Surface Technologies 30 23 19 All Other 20 14 17 - ---------------------------------------------------------------------- Total depreciation and amortization $ 445 $ 467 $ 444 ====================================================================== Capital Expenditures and Acquisitions: North America $ 339 $ 501 $ 423 South America 128 180 288 Europe 52 87 76 Surface Technologies 198 130 94 All Other 72 124 122 - ---------------------------------------------------------------------- Total capital expenditures and acquisitions $ 789 $ 1,022 $ 1,003 ====================================================================== (continued) 34 Segment Information 1999 1998 1997 - ---------------------------------------------------------------------- Sales by Major Country: United States $ 2,518 $ 2,508 $ 2,411 Brazil 507 786 823 All Other Foreign 1,614 1,539 1,501 - ---------------------------------------------------------------------- Total sales $ 4,639 $ 4,833 $ 4,735 ====================================================================== Long-Lived Assets by Major Country: United States $ 2,752 $ 2,707 $ 2,426 Brazil 1,037 1,505 1,588 All Other Foreign 2,044 1,935 1,806 - ---------------------------------------------------------------------- Total long-lived assets $ 5,833 $ 6,147 $ 5,820 ====================================================================== (Millions of dollars) (a) During 1998, Praxair recorded pre-tax special charges totaling $29 million for an impairment loss in Indonesia and a provision for an anticipated loss on the sale of an air separation plant to a third party. During 1997, Praxair recorded a pre-tax charge of $10 million related primarily to profit improvement initiatives in the North American business. The following are the operating profit impacts, by operating segment for these special charges. Special Charges 1999 1998 1997 - -------------------------------------------------------------- Segment operating profit $ 831 $ 885 $ 848 Less special charges: North America -- -- (10) All Other -- (29) -- - -------------------------------------------------------------- Consolidated operating profit $ 831 $ 856 $ 838 ============================================================== (Millions of dollars) (b) 1999 includes $21 million income from net income hedges in Brazil that were effectively closed out in the 1999 first quarter. As required by accounting standards, effective January 1, 1998 Brazil is no longer a hyperinflationary economy. This change increased the South American segment operating profit for 1998 by approximately $20 million versus 1997. The impact on sales was not significant. (c) Includes equity investments as follows: Equity Investments 1999 1998 1997 - ----------------------------------------------- North America $ 71 $ 66 $ 69 Europe 77 101 88 Surface Technologies 1 -- -- All other (Asia) 85 84 53 - ----------------------------------------------- Total $234 $251 $210 =============================================== (Millions of dollars) NOTE 3 INCOME TAXES Pre-tax income applicable to U.S. and foreign operations is as follows: Year Ended December 31, 1999 1998 1997 - ----------------------------------------------------------- United States $262 $277 $290 Foreign 365 319 332 - ----------------------------------------------------------- Total income before income taxes $627 $596 $622 =========================================================== (Millions of dollars) The following is an analysis of the provision for income taxes: Year Ended December 31, 1999 1998 1997 - ------------------------------------------------------ Current tax expense U.S. Federal $ 39 $ 54 $ 23 State and local 11 12 12 Foreign 49 50 49 - ------------------------------------------------------ Total current 99 116 84 - ------------------------------------------------------ Deferred tax expense U.S. Federal 49 29 65 Foreign 4 (18) 2 - ------------------------------------------------------ Total deferred 53 11 67 - ------------------------------------------------------ Total income taxes $ 152 $ 127 $ 151 ====================================================== (Millions of dollars) Net deferred tax liabilities are comprised of the following: December 31, 1999 1998 - -------------------------------------------------- Deferred Tax Liabilities Fixed assets $685 $611 State and local 10 10 Other 164 163 - -------------------------------------------------- Total deferred tax liabilities 859 784 - -------------------------------------------------- Deferred Tax Assets Benefit plans and related 194 163 Inventory 22 19 Alternative minimum tax 58 42 Carryforwards-- gross 115 175 Other 72 70 - -------------------------------------------------- 461 469 Less: Valuation allowances 5 6 - -------------------------------------------------- Total deferred tax assets 456 463 - -------------------------------------------------- Net deferred tax liabilities $403 $321 ================================================== (Millions of dollars) 35 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:
Year Ended December 31, 1999 1998 1997 - ---------------------------------------------------------------------------------- $ % $ % $ % - ---------------------------------------------------------------------------------- U.S. statutory income tax rate 219 35.0 208 35.0 218 35.0 State and local taxes 7 1.1 8 1.3 8 1.3 U.S. tax credits (4) (0.6) (3) (0.5) (1) (0.1) Foreign taxes (72) (11.6) (80) (13.4) (65) (10.5) Other-- net 2 0.3 (6) (1.0) (9) (1.4) - ---------------------------------------------------------------------------------- Provision for income tax 152 24.2 127 21.4 151 24.3 ================================================================================== (Dollar amounts in millions)
The valuation allowances decreased $1 million in 1999 (decreased $4 million in 1998 and decreased $1 million in 1997) all relating to foreign net operating loss carryforwards activity. At December 31, 1999, Praxair has approximately $17 million of foreign net operating loss carryforwards that expire principally through 2005, for which the deferred tax asset has been fully reserved by valuation allowances. During 1999, France, Japan and the United Kingdom decreased and Brazil increased their top marginal tax rate. During 1997, Italy and the United Kingdom decreased and France increased their top marginal tax rate. The effects of these tax rate changes were immaterial. Provision has not been made for additional Federal or foreign taxes at December 31, 1999 on $1,063 million of undistributed earnings of foreign subsidiaries that are planned to be reinvested indefinitely. These earnings could become subject to additional tax if they were remitted as dividends, loaned to Praxair, or upon sale of the subsidiary's stock. It is not practicable to estimate the amount or timing of the additional tax, if any, that might eventually be payable on the foreign earnings. NOTE 4 DEBT AND FINANCIAL INSTRUMENTS Debt-- The following is a summary of Praxair's outstanding debt at December 31, 1999 and 1998: Debt 1999 1998 - ------------------------------------------------------------- Short-Term Commercial paper and U.S. borrowings $ 632 $ 2 Canadian borrowings 6 116 South American borrowings 65 95 Other International borrowings 53 82 - ------------------------------------------------------------- Total short-term debt 756 295 - ------------------------------------------------------------- Long-Term U.S.: Commercial paper and U.S. borrowings -- 627 6.25% Notes due 2000 75 75 6.70% Notes due 2001 250 250 6.625% Notes due 2003 75 75 6.75% Notes due 2003 300 300 6.15% Notes due 2003 250 250 6.85% Notes due 2005 150 150 6.90% Notes due 2006 250 250 6.625% Notes due 2007 250 250 8.70% Debentures due 2022 (Redeemable after 2002) 300 300 Other borrowings 31 50 Canadian borrowings 177 204 South American borrowings 80 123 Other International borrowings 43 54 Obligations under capital leases 8 21 - ------------------------------------------------------------- 2,239 2,979 Less: current portion of long-term debt 128 84 - ------------------------------------------------------------- Total long-term debt 2,111 2,895 - ------------------------------------------------------------- Total debt $2,995 $3,274 ============================================================= (Millions of dollars) Praxair has available a $1.5 billion credit agreement which expires in December 2000 and is used to support commercial paper and other short-term U.S. bank borrowings. No borrowings were outstanding under this credit agreement at December 31, 1999 or 1998. At December 31, 1998, $627 million of short-term borrowings were classified as long-term debt because of the Company's intent to refinance this debt on a long-term basis and the availability of such financing under the terms of the credit agreement. At December 31, 1999, such borrowings were reclassified 36 as short-term debt because the credit agreement expires within one year. At December 31, 1999 and December 31, 1998, the weighted-average interest rate on commercial paper and U.S bank borrowings was 5.5% and 5.8% respectively. Praxair's major bank credit and long-term debt agreements contain various covenants which may, among other things, restrict the ability of Praxair to merge with another entity, incur or guarantee debt, sell or transfer certain assets, create liens against assets, enter into sale and leaseback agreements, or pay dividends and make other distributions beyond certain limits. These agreements also require Praxair to meet leverage, net worth and interest coverage ratios. At December 31, 1999, Praxair was in compliance with all such covenants. Excluding commercial paper and U.S. bank borrowings, scheduled maturities on long-term debt are: 2000, $128 million; 2001, $337 million; 2002, $84 million; 2003, $696 million, 2004, $18 million and $976 million thereafter. At December 31, 1999, $114 million of Praxair's assets (principally international fixed assets) were pledged as security for long-term debt including the current portion of long-term debt. At December 31, 1999, the estimated fair value of Praxair's long-term debt portfolio was $2,207 million versus a carrying value of $2,239 million. At December 31, 1998 the estimated fair value of long-term debt was $3,055 million versus a carrying value of $2,979 million. These differences are attributable to interest rate changes subsequent to when the debt was issued. Financial Instruments -- Praxair has entered into various fixed rate interest swap agreements that effectively convert floating rate debt into fixed rate debt and are used to manage exposure to interest rate changes. At December 31, 1999 and 1998 the notional amount of fixed rate interest swap agreements was $80 million and $876 million, respectively. The outstanding swap agreements expire in 2001. The fair market value of these swaps approximated their carrying amounts at December 31, 1999 and 1998. Praxair is also a party to currency exchange forward contracts to manage its exposure to changing currency exchange rates. At December 31, 1999 and 1998, respectively, Praxair had $272 million and $406 million of currency exchange forward contracts outstanding: $222 million to hedge recorded balance sheet exposures ($280 million in 1998), $13 million to hedge firm commitments generally for the purchase of equipment related to construction projects ($26 million in 1998) and $37 million to hedge future net income, accounted for on a mark-to-market basis ($100 million in 1998). During January 2000 an additional $100 million of currency exchange forward contracts were entered into to hedge future net income. Additionally, at December 31, 1999 there was $56 million notional value of currency exchange forward contracts that effectively offset ($34 million in 1998). At December 31, 1999 and 1998, the fair market value of currency exchange contracts approximated their carrying amounts and the deferred gains and losses on these contracts were not material. In January 1999 Praxair entered into currency exchange forward contracts totaling $325 million for estimated Brazilian net income in 1999 and to hedge a portion of its Brazilian net investment. The net income hedge contracts resulted in a pre-tax gain of $21 million ($14 million after tax and minority interest) and the net investment hedge contracts resulted in a gain of approximately $60 million (after tax and minority interest) which was recognized on the balance sheet in the accumulated other comprehensive income (loss) (cumulative translation adjustment) component of shareholders' equity. The cash proceeds relating to the pre-tax gain on the net investment hedges (approximately $89 million) is shown in the financing section of the consolidated statement of cash flows under the caption "Minority transactions and other", and the pre-tax gain relating to the net income hedges is shown under the caption "net income" in operating cash flows. Counterparties to interest rate derivative contracts and currency exchange forward contracts are major financial institutions with credit ratings of investment grade or better and no collateral is required. There are no significant risk concentrations. Management believes the risk of incurring losses related to credit risk is remote and any losses would be immaterial. 37 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 5 SHAREHOLDERS' EQUITY At December 31, 1999 there were 500,000,000 shares of common stock authorized (par value $.01 per share) of which 164,215,383 shares were issued and 159,047,582 were outstanding. During 1997, Praxair reclassified $19 million to additional paid-in capital from other liabilities for deferred compensation that will be paid in common stock. The Board of Directors of Praxair declared a dividend distribution of one common stock purchase right (a "Right") for each share of Praxair's common stock outstanding at the close of business on June 30, 1992. The holders of any additional shares of Praxair's common stock issued after June 30, 1992 and before the redemption or expiration of the Rights are also entitled to one Right for each such additional share. Each Right entitles the registered holders, under certain circumstances, to purchase from Praxair one share of Praxair's common stock at $47.33 (subject to adjustment). At no time will the Rights have any voting power. The Rights may not be exercised until 10 days after a person or group acquires 15 percent or more of Praxair's common stock, or announces a tender offer that, if consummated, would result in 15 percent or more ownership of Praxair's common stock. Separate Rights certificates will not be issued and the Rights will not be traded separately from the stock until then. Should an acquirer become the beneficial owner of 15 percent or more of Praxair's common stock (other than as approved by Praxair's Board of Directors) and under certain additional circumstances, Praxair Rightholders (other than the acquirer) would have the right to buy common stock in Praxair, or in the surviving enterprise if Praxair is acquired, having a value of two times the exercise price then in effect. Also, Praxair's Board of Directors may exchange the Rights (other than the acquirer's Rights which will have become void), in whole or in part, at an exchange ratio of one share of Praxair common stock (and/or other securities, cash or other assets having equal value) per Right (subject to adjustment). The Rights will expire on June 30, 2002, unless exchanged or redeemed prior to that date. The redemption price is $.001 per Right. Praxair's Board of Directors may redeem the Rights by a majority vote at any time prior to the 20th day following public announcement that a person or group has acquired 15 percent of Praxair's common stock. Under certain circumstances, the decision to redeem requires the concurrence of a majority of the independent directors. NOTE 6 PREFERRED STOCK At December 31, 1999 and 1998, there were 25,000,000 shares of preferred stock (par value $.01 per share) authorized, of which, 750,000 shares were issued and outstanding. Each series of preferred stock ranks on parity with the other, and no dividends may be paid on Praxair common stock unless preferred stock dividends have been paid. The preferred stock has limited voting rights. Dividends are included in minority interests on the consolidated statement of income. Following is a summary of each series of preferred stock outstanding. Series A Preferred Stock -- There are 550,000 outstanding shares of Praxair 7.48% Cumulative Preferred Stock, Series A which are entitled to receive cumulative annual dividends of $7.48 per share, payable quarterly. The Series A Preferred Stock is mandatorily redeemable on, but not prior to, April 1, 2000 at a price of $100 per share and has a liquidation preference of $100 per share. Series B Preferred Stock -- There are 200,000 outstanding shares of Praxair 6.75% Cumulative Preferred Stock, Series B which are entitled to receive cumulative annual dividends of $6.75 per share, payable quarterly. The Series B Preferred Stock is mandatorily redeemable on, but not prior to, September 5, 2002 at a price of $100 per share and has a liquidation preference of $100 per share. 38 NOTE 7 SUPPLEMENTARY INCOME STATEMENT INFORMATION Year Ended December 31, 1999 1998 1997 - ---------------------------------------------------------------------- Selling, General and Administrative Selling $ 314 $ 328 $ 333 General and administrative 327 316 329 - ---------------------------------------------------------------------- $ 641 $ 644 $ 662 ====================================================================== Other Income -- Net Investment income $ 9 $ 14 $ 13 Currency 38(a) 1 4 Partnership income 7 12 12 Special charges(b) -- (29) (10) Other 23(c) 15 33(d) - ---------------------------------------------------------------------- $ 77 $ 13 $ 52 ====================================================================== Interest Expense Interest incurred on debt $ 234 $ 296 $ 248 Interest capitalized (30) (36) (32) - ---------------------------------------------------------------------- $ 204 $ 260 $ 216 ====================================================================== Minority Interests Minority interests $ (39)(e) $ (49) $ (58) Preferred stock dividends (6) (6) (8) - ---------------------------------------------------------------------- $ (45) $ (55) $ (66) ====================================================================== (Millions of dollars) (a) Includes a $21 million gain related to net income hedges in Brazil (see Note 4) as well as gains from net income hedges, primarily in Europe. (b) In the fourth quarter of 1998, Praxair recorded a charge of $29 million ($18 million after tax) related to its investment in Indonesia ($19 million or $11 million after tax) and an anticipated loss on an air separation plant under construction for a third party ($10 million or $7 million after tax). In the fourth quarter of 1997, Praxair recorded a charge of $10 million ($6 million after tax) related primarily to profit improvement initiatives in its North America packaged gases business. (c) Includes $50 million of income related to the redemption of preference shares from an earlier business sale and $12 million of income related to the collection of a note receivable from an earlier business sale, with offsetting costs related to postemployment benefits and an anticipated loss on the sale of an air separation plant under construction for a third party. (d) Includes $11 million from a favorable judgement related to a dispute with State public hospitals in Brazil. (e) During the first quarter of 1999, Praxair's South American subsidiary, S.A. White Martins, completed a rights offering resulting in Praxair's ownership interest in White Martins increasing from 69.33% at December 31, 1998 to 76.57% at December 31, 1999. As consideration for the additional shares it purchased during the rights offering, Praxair used approximately $138 million of intercompany loans it had previously made to White Martins. Approximately $15 million of the rights offering was purchased by minority shareholders. NOTE 8 INCENTIVE PLANS AND STOCK OPTIONS The 1992 Praxair Long-Term Incentive Plan (the "1992 Plan") provides for granting nonqualified or incentive stock options, stock grants, performance awards, and other stock-related incentives for key employees. Awards may be made under the 1992 Plan through the year 2001. Under the 1992 Plan, the total number of shares available for options or stock grants shall not exceed one percent of the number of shares outstanding on the first day of each year, plus any shares that were available but not used in a prior year up to two percent of the total number of shares outstanding on the first day of the year of the grant. Option prices for Incentive Stock Options must be equal to the closing price of Praxair's common stock on the date of the grant. The options issued under the 1992 Plan become exercisable only after one or more years, and the option term can be no more than ten years. In 1996, the Board of Directors approved the 1996 Praxair, Inc. Performance Incentive Plan (the "1996 Plan") that provides for granting nonqualified or incentive stock options, stock grants, performance awards and other stock-related incentives for Praxair employees other than officers and directors, employees subject to Section 16 of the Securities Exchange Act of 1934 and employees subject to Section 162(m) of the Internal Revenue Code. Under the 1996 Plan, the number of shares of stock available for options or grants in each calendar year is limited to two percent of the total number of shares of common stock outstanding as of the first day of the year plus any carryover shares from prior years that were not granted up to a maximum of four percent of the shares of common stock that were outstanding on the first day of the year. Options granted under the 1996 Plan have terms and conditions identical to those that may be granted under the 1992 Plan. Effective January 1, 1997, Praxair initiated a three-year long-term incentive program by granting performance share equivalents and stock options to corporate officers and other key employees under the applicable Incentive Plan. Because Praxair's average annual earnings per share growth for the three year performance period was 10.7% 39 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS versus the 15% target established for this program, 71.1% of the performance share equivalents or 652,421 share equivalents vested on January 1, 2000, according to a pre-determined formula. Vested performance share equivalents are payable primarily in shares of Praxair, Inc. common stock. Settlement is scheduled for March 2000. Pre-tax compensation expense related to this plan was $10 million in 1999, $8 million in 1998 and $15 million in 1997. The following table summarizes the changes in outstanding shares under option and performance share equivalents for 1999, 1998, and 1997 (options in thousands): Stock Options ------------------------- Average Performance Exercise Stock & Activity Options Price Equivalents(a) - ------------------------------------------------------------------------- Outstanding at December 31, 1996 11,477 $ 21.03 639 Granted 1,232 $ 50.63 992 Exercised (1,737) $ 15.11 -- Vested -- -- (639) Cancelled or expired (73) $ 40.19 (24) - -------------------------------------------------------------------- Outstanding at December 31, 1997 10,899 $ 25.20 968 Granted 2,022 $ 40.98 14 Exercised (889) $ 19.63 -- Cancelled or expired (60) $ 46.00 (31) - -------------------------------------------------------------------- Outstanding at December 31, 1998 11,972 $ 28.17 951 Granted 2,946 $ 40.98 -- Exercised (2,138) $ 19.48 -- Cancelled or expired (104) $ 44.78 (299) - -------------------------------------------------------------------- Outstanding at December 31, 1999(b) 12,676 $ 32.47 652 - -------------------------------------------------------------------- Options exercisable at: December 31, 1997 7,167 $ 15.51 December 31, 1998 7,728 $ 18.95 December 31, 1999(b) 6,650 $ 23.86 ==================================================================== (a) The weighted-average price per share on the date performance share equivalents were granted was $50.26 in 1998 and $46.25 in 1997. (b) The following table summarizes information about options outstanding and exercisable at December 31, 1999 (options in thousands, life in years): Outstanding Exercisable ------------------ ------------------ Range of Average Number Average Number Average Exercise Remaining of Exercise of Exercise Prices Life Options Price Options Price - ------------------------------------------------------------------ $ 9.80-$13.95 1.4 1,914 $11.96 1,914 $11.96 $15.50-$24.38 3.9 2,788 $18.08 2,788 $18.08 $26.25-$36.00 8.4 2,192 $33.92 485 $33.57 $36.06-$45.00 8.7 2,278 $42.15 473 $38.91 $45.06-$56.13 7.9 3,504 $47.93 990 $51.21 ------ ----- $9.80-$56.13 6.3 12,676 $32.47 6,650 $23.86 ================================================================== Pro forma information: SFAS No. 123 requires Praxair to disclose pro forma net income and pro forma earnings per share amounts as if compensation expense was recognized for options granted after 1994. Using this approach, pro forma net income and the related basic and diluted earnings per share amounts would be as follows: Year Ended December 31, 1999 1998 1997 - ------------------------------------------------------------------ Net Income: As reported $ 431 $ 425 $ 405 Pro forma $ 411 $ 409 $ 391 Basic Earnings per Share: As reported $ 2.71 $ 2.68 $ 2.56 Pro forma $ 2.58 $ 2.58 $ 2.47 Diluted Earnings per Share: As reported $ 2.66 $ 2.60 $ 2.46 Pro forma $ 2.53 $ 2.50 $ 2.37 - ------------------------------------------------------------------ The weighted average fair value of options granted during 1999 was $13.80 ($12.57 in 1998 and $16.54 in 1997). These values, which were used as a basis for the pro forma disclosures, were estimated using the Black-Scholes Options-Pricing Model with the following weighted average assumptions used for grants in 1999, 1998, and 1997: Year Ended December 31, 1999 1998 1997 - ------------------------------------------------------------- Dividend yield 1.0% 1.0% 1.0% Volatility 31.0% 28.0% 27.0% Risk-free interest rate 5.5% 5.2% 6.1% Expected term -- years 5.0 5.0 5.0 - ------------------------------------------------------------- These pro forma disclosures may not be representative of the effects for future years since options vest over several years, and additional awards generally are made each year. 40 NOTE 9 SUPPLEMENTARY BALANCE SHEET INFORMATION December 31, 1999 1998 - -------------------------------------------------------------------- Accounts Receivable Trade $ 846 $ 904 Other 36 44 - -------------------------------------------------------------------- 882 948 Less: allowance for doubtful accounts(a) 34 29 - -------------------------------------------------------------------- $ 848 $ 919 ==================================================================== Inventories(b) Raw materials and supplies $ 104 $ 115 Work in process 50 38 Finished goods 156 166 - -------------------------------------------------------------------- $ 310 $ 319 ==================================================================== Property, Plant and Equipment-- Net Land and improvements $ 190 $ 205 Buildings 562 536 Machinery and equipment 7,209 7,102 Construction in progress and other 620 835 Less: accumulated depreciation 3,861 3,803 - -------------------------------------------------------------------- $ 4,720 $ 4,875 ==================================================================== Other Long-Term Assets Patents, trademarks and goodwill(c) $ 1,113 $ 1,272 Deposits(d) 34 49 Other 286 255 - -------------------------------------------------------------------- $ 1,433 $ 1,576 ==================================================================== Other Current Liabilities Accrued accounts payable $ 132 $ 150 Payrolls 102 94 Employee benefits and related 41 45 Special charges(e) 5 7 Accrued interest payable 37 42 Other 88 131 - -------------------------------------------------------------------- $ 405 $ 469 ==================================================================== Other Long-Term Liabilities Employee benefits and related $ 462 $ 439 Special charges(e) 7 11 Other(d) 93 103 - -------------------------------------------------------------------- $ 562 $ 553 ==================================================================== Deferred Credits Income taxes(f) $ 434 $ 357 Deferred gain on sale leaseback (Note 11) 152 88 Other 14 20 - -------------------------------------------------------------------- $ 600 $ 465 ==================================================================== (continued) December 31, 1999 1998 - -------------------------------------------------------------------- Accumulated Other Comprehensive Income (Loss) (cumulative translation adjustment) North America $ (167) $ (181) South America(g) (494) (138) Europe (123) (51) Surface Technologies (8) 1 All Other (36) (43) - -------------------------------------------------------------------- $ (828) $ (412) ==================================================================== (Millions of dollars) (a) Provisions to the allowance for doubtful accounts were $22 million, $13 million and $11 million in 1999, 1998 and 1997, respectively. (b) Approximately 31% of total inventories were valued using the LIFO method at December 31, 1999 and 1998. If inventories had been valued at current costs, they would have been approximately $26 million and $25 million higher than reported at December 31, 1999 and 1998, respectively. (c) Net of accumulated amortization of $161 million in 1999 and $143 million in 1998. (d) $24 million and $28 million of other long-term assets and other long-term liabilities in Brazil have been offset in 1999 and 1998, respectively. (e) The table below summarizes the activity (primarily cash payments) in the 1996 CBI integration accrual and the 1997 North American packaged gases' accrual (see Note 7). The remaining other exit costs are primarily related to estimated net costs associated with lease commitments for surplus office and production space. Other Total Accrual-- Special Charges Severance Exit Costs Accrual - ----------------------------------------------------------------- Balance, January 1, 1996 $ -- $ -- $ -- CBI integration* 50 35 85 1996 activity (29) (10) (39) - ----------------------------------------------------------------- Balance, December 31, 1996 $ 21 $ 25 $ 46 North American packaged gases -- 10 10 1997 activity (21) (9) (30) - ----------------------------------------------------------------- Balance, December 31, 1997 $ -- $ 26 $ 26 1998 activity -- (8) (8) - ----------------------------------------------------------------- Balance, December 31, 1998 $ -- $ 18 $ 18 1999 activity -- (6) (6) - ----------------------------------------------------------------- Balance, December 31, 1999 $ -- $ 12 $ 12 ================================================================= (Millions of dollars) *In the first quarter of 1996, Praxair recorded a charge of $85 million ($53 million after tax) for the integration of the Liquid Carbonic business of CBI and Praxair. (f) Deferred income taxes related to current items are included in prepaid and other current assets in the amount of $31 million in 1999 and $36 million in 1998. (g) 1999 consists primarily of currency translation adjustments in Brazil and is net of a $60 million gain related to Brazilian net investment hedges (see Note 4). 1998 includes a cumulative adjustment of $57 million related to the functional currency change in Brazil (see Note 1). 41 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 10 RETIREMENT PROGRAMS Pensions -- Praxair has two main U.S. retirement programs which are non-contributory defined benefit plans, the Praxair Retirement Program and the CBI Retirement Program. Pension benefits for both are based predominantly on years of service, age and compensation levels prior to retirement. Pension coverage for employees of Praxair's international subsidiaries generally is provided by those companies through separate plans. Obligations under such plans are typically provided for by depositing funds with trustees, under insurance policies, or by book reserves. Praxair's North American packaged gases business has two defined contribution plans. Company contributions to these plans are calculated as a percentage of salary based on age plus service. U.S. employees may supplement the Company contributions up to the maximum allowable by IRS regulations. The cost for these plans was $4 million in 1999 and 1998, and $3 million in 1997(not included in the tables that follow). U.S. employees other than the packaged gas business are eligible to participate in a defined contribution savings plan. Employees may contribute up to 18% of their compensation, subject to the maximum allowable by IRS regulations. Company contributions to this plan are calculated on a graduated scale based on employee contributions to the plan. The cost for this plan was $10 million in 1999 and 1998, and $9 million in 1997 (not included in the tables that follow). Postretirement Benefits Other Than Pensions (OPEB) -- Praxair provides health care and life insurance benefits to certain eligible retired employees. These benefits are provided through various insurance companies and health care providers. Praxair is obligated to make payments for a portion of postretirement benefits related to retirees of Praxair's former parent. As part of the CBI acquisition in 1996, Praxair assumed responsibility for health care and life insurance benefit obligations for CBI's retired employees. Praxair does not currently fund its postretirement benefits obligations. The retiree plans may be changed or terminated by Praxair at any time for any reason with no liability to current or future retirees. Pension and Postretirement Benefit Costs The components of net pension and OPEB costs for 1999, 1998 and 1997 are shown below:
PENSIONS OPEB ------------------------ ------------------------ Year Ended December 31, 1999 1998 1997 1999 1998 1997 - ---------------------------------------------------------------------------------------- Net Benefit Cost Service cost $ 35 $ 35 $ 33 $ 7 $ 7 $ 5 Interest cost 63 59 56 13 13 15 Expected return on assets (72) (67) (62) -- (1) (1) Net amortization and deferral (1) -- 1 (7) (9) (8) - ---------------------------------------------------------------------------------------- Net periodic benefit cost $ 25 $ 27 $ 28 $ 13 $ 10 $ 11 ======================================================================================== (Millions of dollars)
42 The changes in benefit obligation and plan assets and the funded status reconciliation as of December 31, 1999 and 1998 for Praxair's significant pension and OPEB programs are shown below:
PENSIONS -------------------------------------- 1999 1998 OPEB ---------------- ---------------- ---------------- Year Ended December 31, U.S. INT'L U.S. INT'L 1999 1998 - ------------------------------------------------------------------------------------------------------------ Change in Benefit Obligation Benefit obligation, January 1 $ 678 $ 339 $ 617 $ 308 $ 227 $ 229 Service cost 24 11 22 13 7 7 Interest cost 46 18 42 18 14 14 Participant contributions -- -- -- 1 8 9 Plan amendments -- -- -- -- (12) (14) Actuarial loss (gain) (60) (2) 20 20 2 14 Benefits paid (27) (15) (23) (16) (25) (30) Curtailments -- -- -- (3) -- (1) Currency translation -- (41) -- (2) (6) (1) - ------------------------------------------------------------------------------------------------------------ Benefit obligation, December 31 $661 $ 310 $ 678 $ 339 $ 215 $ 227 - ------------------------------------------------------------------------------------------------------------ Change in Plan Assets Fair value of plan assets, January 1 $ 643 $ 285 $ 589 $ 277 $ 7 $ 10 Actual return on plan assets 77 41 75 24 1 3 Participant contributions -- -- -- 1 -- -- Company contributions -- 7 -- 7 -- -- Benefits paid (24) (12) (21) (16) (3) (6) Currency translation -- (22) -- (8) -- -- - ------------------------------------------------------------------------------------------------------------ Fair value of plan assets, December 31 $ 696 $ 299 $ 643 $ 285 $ 5 $ 7 - ------------------------------------------------------------------------------------------------------------ Funded Status Reconciliation Funded status, December 31 $ 35 $ (11) $ (35) $ (54) $(210) $(220) Unrecognized (gains) losses-- net (145) (29) (61) 1 (7) (6) Unrecognized prior service cost 5 7 6 (2) (22) (16) Unrecognized transition amount (2) -- (3) 5 -- -- - ------------------------------------------------------------------------------------------------------------ Prepaid (accrued) benefit cost, December 31 $(107) $ (33) $ (93) $ (50) $(239) $(242) ============================================================================================================ (Millions of dollars) 43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for the pension plans with accumulated benefit obligations in excess of plan assets were $192 million, $176 million, and $126 million, respectively, as of December 31, 1999 ($172 million, $144 million and $81 million, respectively, as of December 31, 1998). The weighted average or range of assumptions for the Company's pension and OPEB benefit plans were as follows: International U.S. Plans Plans ------------------ -------------------- Year Ended December 31, 1999 1998 1999 1998 - -------------------------------------------------------------------------------- Discount rate 7.75% 6.75% 4-9% 4-9% Rate of increase in compensation levels 4.75% 4.0% 2-7% 2-7% Expected long-term rate of return on plan assets 9.5% 9.5% 5.5-10% 5-9% - -------------------------------------------------------------------------------- For measurement purposes, a 6.5% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2000, gradually reducing to 5.5% in 2002 and thereafter. These health care cost trend rate assumptions have an impact on the amounts reported. To illustrate the effect, a one-percentage point change in assumed health care cost trend rates would have the following effects: One-Percentage One-Percentage Sensitivity Point Increase Point Decrease - -------------------------------------------------------------------- Effect on the total of service and interest cost components of net OPEB benefit cost $ 2 $ (2) Effect on OPEB benefit obligation $ 10 $(10) - -------------------------------------------------------------------- (Millions of dollars) NOTE 11 LEASES For operating leases, primarily involving manufacturing and distribution equipment and office space, noncancelable commitments extending for more than one year will require the following future minimum payments at December 31, 1999: Lease Payments - ---------------------------------------------------- 2000 $ 87 2003 $ 43 2001 $ 71 2004 $ 39 2002 $ 54 after 2004 $170 - ---------------------------------------------------- (Millions of dollars) Included in these totals are $53 million of lease commitments to Praxair's former parent company, principally for office space. Praxair is also contingently required to pay certain Canadian lease obligations of the former parent company in the event of a default totaling approximately $14 million ($21 million Canadian). If such payment is required, Praxair has a legal right to set off any such amounts paid against other amounts it owes to the former parent company for lease commitments. Total lease and rental expenses under operating leases were $94 million in 1999, and $80 million in 1998 and $70 million in 1997. The present value of the future lease payments under operating leases is approximately $346 million at December 31, 1999. During 1999 and 1998, Praxair sold and leased back certain U.S. distribution and liquid storage equipment for $80 million and $150 million, respectively. These operating leases have an initial two-year term with purchase and lease renewal options at projected future fair market values beginning in 2001 and 2000, respectively. 44 NOTE 12 COMMITMENTS AND CONTINGENCIES In the normal course of business, Praxair is involved in legal proceedings and claims with both private and governmental parties. These cover a variety of items, including product liability and environmental matters. In some of these cases, the remedies that may be sought or damages claimed are substantial. While it is impossible at this time to determine with certainty the ultimate outcome of any of these cases, in the opinion of management, they will not have a material adverse effect on the consolidated financial position of Praxair or on the consolidated results of operations or cash flows in a given year. Should any losses be sustained in connection with any of these cases in excess of provisions therefore, they will be charged to income in the future. In September 1996, Praxair was named as a defendant in a four count lawsuit filed by Airgas, Inc., a competitor, in the Philadelphia Court of Common Pleas alleging essentially that Praxair breached an oral contract with Airgas by acquiring CBI Industries, Inc. without allowing Airgas to participate in the acquisition. The complaint also contained allegations of conversion, fraud and quantum meruit. On July 1, 1999 a Philadelphia Court of Common Pleas jury returned a verdict in favor of Praxair on all counts. No appeal was taken, and the case is now closed. In 1992, Praxair's 60%-owned Italian subsidiary entered into an unconditional long-term purchase agreement for oxygen and nitrogen to be used to supply existing merchant liquid customers. Obligations in connection with financing under this agreement total $16 million ($13 million on a present value basis), with annual obligations of $2 million over the next 5 years, and $4 million thereafter. Total purchases of product in 1999, 1998 and 1997, including other amounts purchased under this agreement, were $3 million annually. Praxair has entered into operating leases on distribution and liquid storage equipment which include residual value guarantees not to exceed $195 million. Management expects any losses under these guarantees to be remote. At December 31, 1999, the estimated cost of completing authorized construction projects in the normal course of business is $201 million. 45 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 13 QUARTERLY DATA (UNAUDITED)
1999 1Q 2Q 3Q 4Q Year - --------------------------------------------------------------------------------------------------------------------------------- Sales $ 1,118 $ 1,149 $ 1,169 $ 1,203 $ 4,639 Cost of sales $ 652 673 691 716 $ 2,732 Depreciation and amortization $ 113 111 111 110 $ 445 Operating profit(a) $ 211 201 208 211 $ 831 - --------------------------------------------------------------------------------------------------------------------------------- Income before cumulative effect of an accounting change(a) $ 108 $ 107 $ 112 $ 114 $ 441 Cumulative effect of an accounting change(b) (10) -- -- -- (10) Net income(a) $ 98 $ 107 $ 112 $ 114 $ 431 - --------------------------------------------------------------------------------------------------------------------------------- Basic per Share Data:(a) Income before cumulative effect of an accounting change $ .68 $ .67 $ .70 $ .71 $ 2.77 Cumulative effect of an accounting change(b) (.06) -- -- -- (.06) Net income $ .62 $ .67 $ .70 $ .71 $ 2.71 Weighted average shares (000's) 158,138 159,363 159,704 159,915 159,280 - --------------------------------------------------------------------------------------------------------------------------------- Diluted per Share Data:(a) Income before cumulative effect of an accounting change $ .67 $ .66 $ .69 $ .70 $ 2.72 Cumulative effect of an accounting change(b) (.06) -- -- -- (.06) Net income $ .61 $ .66 $ .69 $ .70 $ 2.66 Weighted average shares (000's) 161,819 162,641 162,564 162,566 162,222 - --------------------------------------------------------------------------------------------------------------------------------- (Dollar amounts in millions, except per share data) 1998 1Q 2Q 3Q 4Q Year - --------------------------------------------------------------------------------------------------------------------------------- Sales $ 1,201 $ 1,234 $ 1,201 $ 1,197 $ 4,833 Cost of sales $ 697 711 697 702 $ 2,807 Depreciation and amortization $ 115 119 118 115 $ 467 Operating profit(c) $ 214 227 225 190 $ 856 - --------------------------------------------------------------------------------------------------------------------------------- Net income(c) $ 102 $ 108 $ 108 $ 107 $ 425 - --------------------------------------------------------------------------------------------------------------------------------- Basic per Share Data:(c) Net income $ .65 $ .68 $ .68 $ .68 $ 2.68 Weighted average shares (000's) 158,058 158,623 158,893 157,297 158,462 - --------------------------------------------------------------------------------------------------------------------------------- Diluted per Share Data:(c) Net income $ .62 $ .66 $ .66 $ .66 $ 2.60 Weighted average shares (000's) 164,236 164,057 163,417 162,341 163,356 - --------------------------------------------------------------------------------------------------------------------------------- (Dollar amounts in millions, except per share data) (a) Operating profit, net income and per share amounts for the 1999 first quarter and year include income of $21 million, $14 million and $.09 per share, respectively related to net income hedges in Brazil (see Note 4). (b) Related to a required accounting change for start-up costs (see Note 1). (c) Operating profit and net income for the 1998 fourth quarter and year include special charges of $29 million and $18 million, respectively, related primarily to an impairment loss in Indonesia and a provision for an anticipated loss on the sale of an air separation plant to a third party (see Note 7). Net income includes non-recurring tax credits totaling $18 million related to the favorable settlement of certain tax matters for the 1998 fourth quarter and year.
46 MANAGEMENT'S STATEMENT OF RESPONSIBILITY FOR FINANCIAL STATEMENTS Praxair's consolidated financial statements are prepared by management, which is responsible for their fairness, integrity and objectivity. The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States applied on a consistent basis except for accounting changes as disclosed and include amounts that are estimates and judgments. All historical financial information in this annual report is consistent with the accompanying financial statements. Praxair maintains accounting systems, including internal accounting controls monitored by a staff of internal auditors, that are designed to provide reasonable assurance of the reliability of financial records and the protection of assets. The concept of reasonable assurance is based on recognition that the cost of a system should not exceed the related benefits. The effectiveness of those systems depends primarily upon the careful selection of financial and other managers, clear delegation of authority and assignment of accountability, inculcation of high business ethics and conflict-of-interest standards, policies and procedures for coordinating the management of corporate resources and the leadership and commitment of top management. Praxair's consolidated financial statements are audited by PricewaterhouseCoopers LLP, independent accountants, in accordance with auditing standards generally accepted in the United States. These standards provide for a review of Praxair's internal accounting controls to the extent they deem appropriate in order to issue their opinion on the financial statements. The Audit Committee of the Board of Directors, which consists solely of non-employee directors, is responsible for overseeing the functioning of the accounting system and related controls and the preparation of annual financial statements. The Audit Committee periodically meets with management, internal auditors and the independent accountants to review and evaluate their accounting, auditing and financial reporting activities and responsibilities. The independent accountants and internal auditors have full and free access to the Audit Committee and meet with the Committee, with and without management present. /s/ H. William Lichtenberger /s/ John A. Clerico H. William Lichtenberger John A. Clerico Chairman & Chief Executive Officer Executive Vice President & Chief Financial Officer /s/ J. Robert Vipond J. Robert Vipond Vice President & Controller Danbury, Connecticut February 8, 2000 47 REPORT OF INDEPENDENT ACCOUNTANTS [PricewaterhouseCoopers LOGO] To the Board of Directors and Shareholders of Praxair, Inc. In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of income, of cash flows and of shareholders' equity present fairly, in all material respects, the financial position of Praxair, Inc. and its subsidiaries at December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999 in conformity with accounting principles generally accepted in the United States. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ PricewaterhouseCoopers LLP Stamford, Connecticut February 8, 2000 48 FIVE-YEAR FINANCIAL SUMMARY
Year Ended December 31, 1999 1998 1997 1996(a) 1995 - ----------------------------------------------------------------------------------------------------------------------------- From the Income Statement Sales $ 4,639 $ 4,833 $ 4,735 $ 4,449 $ 3,146 Cost of sales 2,732 2,807 2,764 2,564 1,777 Selling, general and administrative 641 644 662 688 496 Depreciation and amortization 445 467 444 420 279 Research and development 67 72 79 72 61 Other income (expenses)-- net(b) 77 13 52 (58) 15 - ----------------------------------------------------------------------------------------------------------------------------- Operating profit 831 856 838 647 548 Interest expense 204 260 216 195 116 - ----------------------------------------------------------------------------------------------------------------------------- Income before taxes 627 596 622 452 432 Income taxes(b) 152 127 151 110 122 - ----------------------------------------------------------------------------------------------------------------------------- Income of consolidated entities 475 469 471 342 310 Minority interests (45) (55) (66) (68) (50) Income from equity investments 11 11 11 8 2 - ----------------------------------------------------------------------------------------------------------------------------- Income before cumulative effect of accounting changes 441 425 416 282 262 Cumulative effect of accounting changes(c) (10) -- (11) -- -- - ----------------------------------------------------------------------------------------------------------------------------- Net income $ 431 $ 425 $ 405 $ 282 $ 262 ============================================================================================================================= Per Share Data(c) Basic earnings per share: Income before cumulative effect of accounting changes $ 2.77 $ 2.68 $ 2.63 $ 1.85 $ 1.89 Net income $ 2.71 $ 2.68 $ 2.56 $ 1.85 $ 1.89 Diluted earnings per share: Income before cumulative effect of accounting changes $ 2.72 $ 2.60 $ 2.53 $ 1.77 $ 1.82 Net income $ 2.66 $ 2.60 $ 2.46 $ 1.77 $ 1.82 Cash dividends per share $ .56 $ .50 $ .44 $ .38 $ .32 - ----------------------------------------------------------------------------------------------------------------------------- Weighted Average Shares Outstanding (000's) Basic shares outstanding 159,280 158,462 158,095 152,654 138,818 Diluted shares outstanding 162,222 163,356 164,053 159,038 144,147 - ----------------------------------------------------------------------------------------------------------------------------- Capital Total debt $ 2,995 $ 3,274 $ 3,305 $ 3,265 $ 1,318 Minority interests 359 487 521 493 408 Preferred stock 75 75 75 75 -- Shareholders' equity 2,290 2,332 2,122 1,924 1,121 - ----------------------------------------------------------------------------------------------------------------------------- Total capital $ 5,719 $ 6,168 $ 6,023 $ 5,757 $ 2,847 ============================================================================================================================= Other Information and Ratios Operating profit as a percentage of sales(b) 17.9% 18.3% 17.9% 16.5% 17.4% Return on average shareholders' equity(b) 19.1% 19.1% 20.9% 22.0% 26.7% Capital expenditures and acquisitions $ 789 $ 1,022 $ 1,003 $ 3,333 $ 802 Total assets $ 7,722 $ 8,096 $ 7,810 $ 7,538 $ 4,134 Shares outstanding at year-end (000's) 159,048 157,571 157,373 157,489 140,536 Debt-to-capital ratio 52.4% 53.1% 54.9% 56.7% 46.3% Number of employees 24,102 24,834 25,388 25,271 18,222 - ----------------------------------------------------------------------------------------------------------------------------- (Dollar amounts in millions, except per share data) (a) Effective in 1996, results reflect the acquisition of CBI Industries, Inc. Capital expenditures and acquisitions include $2.2 billion associated with the CBI acquisition (including $735 million of debt assumed). Number of employees excludes those at facilities held for sale. (b) Other income (expenses) -- net includes special charges of $29 million and $10 million in 1998 and 1997, respectively (see Note 7 to the consolidated financial statements). 1998 income taxes include $18 million special tax credits. 1996 other income (expenses) -- net includes an $85 million special charge related to CBI integration activities. Operating profit as a percentage of sales excludes the impact of these special charges. The return on average shareholders' equity excludes these special items and is based on income before cumulative effect of accounting changes. (c) 1999 net income includes the cumulative effect of a change in accounting for previously capitalized start-up costs of $10 million or $0.06 per share for both basic and diluted earnings per share. 1997 net income includes the cumulative effect of a change in accounting for previously capitalized business process reengineering and information technology transformation costs of $11 million or $0.07 per share for both basic and diluted earnings per share.
49 Board of Directors Alejandro Achaval Chairman, Chief Executive Officer and Controlling Partner of IMEXTRADE S.A. and TRINIDAD S.C.A. Audit; Finance & Pension Committees John A. Clerico Executive Vice President & Chief Financial Officer, Praxair, Inc. Finance & Pension Committee C. Fred Fetterolf Director of various corporations; former President & Chief Operating Officer, Aluminum Company of America Audit (Chairman); Public Policy & Nominating Committees Dale F. Frey Director of various corporations; former Vice President, General Electric Company and Chairman & President, General Electric Investment Corporation Finance & Pension (Chairman); Public Policy & Nominating Committees Claire W. Gargalli Director of various corporations; former Vice Chairman, Diversified Search Companies Finance & Pension; Compensation & Management Development Committees Ronald L. Kuehn, Jr. Chairman, El Paso Energy Corporation Audit; Compensation & Management Development (Chairman) Committees Raymond W. LeBoeuf Chairman & Chief Executive Officer, PPG Industries, Inc. Finance & Pension; Compensation & Management Development Committees H. William Lichtenberger Chairman & Chief Executive Officer, Praxair, Inc. Public Policy & Nominating Committee Benjamin F. Payton President, Tuskegee University Audit; Public Policy & Nominating Committees G. Jackson Ratcliffe, Jr. Chairman, President & Chief Executive Officer, Hubbell Incorporated Compensation & Management Development; Public Policy & Nominating (Chairman) Committees H. Mitchell Watson, Jr. President, Sigma Group of America Audit; Compensation & Management Development Committees 50 Officers, Regional Management and Advisory Council Office of the Chairman H. William Lichtenberger Chairman & Chief Executive Officer Dennis H. Reilley President & Chief Executive Officer effective 3/15/00 Paul J. Bilek Executive Vice President John A. Clerico Executive Vice President & Chief Financial Officer Thomas W. von Krannichfeldt Executive Vice President Officers Bal Agrawal Vice President, E-Business & Services Leonard M. Baker Vice President, Technology David H. Chaifetz Vice President, General Counsel & Secretary Frank J. Crespo Vice President, Semiconductor Materials Business Michael E. DeDomenico President, Praxair Distribution, Inc. Theodore W. Dougher Vice President, Engineering and Supply Systems Michael J. Douglas Vice President, Primary Metals Market James J. Fuchs President, Praxair Asia Ivan Ferreira Garcia Chief Executive Officer, S.A. White Martins Barbara R. Harris Vice President, Human Resources John F. Hill Chief Information Officer Randy S. Kramer Vice President, Carbon Dioxide Product and Services Michael R. Lutz Vice President, Safety and Production Excellence Ricardo Malfitano President, North American Industrial Gases & President, Praxair Canada Sunil Mattoo Vice President, Strategic Planning & Marketing Nigel D. Muir Vice President, Communications & Public Relations John S. Pirretti Vice President, Metal Fabrication Market Frank L. Ridding President, Praxair Surface Technologies, Inc. Scott K. Sanderude Vice President, Food & Beverage Market Sally A. Savoia Vice President, Healthcare Market James S. Sawyer Vice President & Treasurer J. Robert Vipond Vice President & Controller Alan J. Westendorf President, Praxair Europe Daniel H. Yankowski Vice President, Chemicals and Refining Business Regional Management North America Murray G. Covello Managing Director, Praxair Canada Cesar Guajardo Managing Director, Praxair Mexico Eduardo Menezes President, Praxair Puerto Rico South America Domingos Bulus Assistant Director, Andean Treaty Countries Albino Carneiro Assistant Director, South Cone Countries Marcelo Pereira Quintaes Vice President, Industrial Gases, Brazil Europe Miguel Martinez Astola Managing Director, Spain and Portugal Robert Matthe General Manager, Poland Franco Mazzali Managing Director, Italy and Middle East Jean-Michel Tiard Managing Director, Western Europe Asia V. Thad Evans Managing Director, Praxair Japan, and President, Praxair Iwatani Electronics Gases K.H. Lee President, Praxair Korea Brent Lok President, Praxair Greater China Indrajit Mookerjee Managing Director, Praxair India Kitti Prapasuchart Managing Director, Praxair Thailand South American Advisory Council H. William Lichtenberger Chairman Ivan Ferreira Garcia Deputy Chairman Ricardo Cillioniz President, Aceros Arequipa, Peru Enzo Debernardi Senior Counsultant, Paraguay Carlos Langone Consultant, Brazil Agostino Rocca President for Latin America, Organizacion Techint, Argentina Paolo Rocca President, Organizacion Techint, Argentina Benjamin Steinbruch Chairman, Companhia Siderugica Nacional, Brazil 51 Information for Investors Common Stock Information Praxair lists its common stock for trading on the New York Stock Exchange under the stock symbol, "PX." Unlisted trading privileges also have been granted by the Pacific, Cincinnati and Midwest Stock Exchanges. There were 24,519 shareholders of record as of December 31, 1999. Shareholder Returns Closing high and low stock prices and dividends, as reported by the New York Stock Exchange, are presented below: Stock Prices and Dividends - -------------------------------------------------------------- High Low Dividends 1999 Fourth quarter $51.125 $43.188 $0.14 Third quarter $50.938 $41.500 $0.14 Second quarter $58.125 $35.250 $0.14 First quarter $37.563 $32.313 $0.14 - -------------------------------------------------------------- 1998 Fourth quarter $40.938 $32.000 $0.125 Third quarter $50.125 $31.250 $0.125 Second quarter $53.563 $44.438 $0.125 First quarter $51.438 $40.563 $0.125 - -------------------------------------------------------------- 1997 Fourth quarter $49.313 $40.875 $0.11 Third quarter $57.563 $50.313 $0.11 Second quarter $57.125 $43.500 $0.11 First quarter $51.875 $44.250 $0.11 - -------------------------------------------------------------- Dividend Policy Dividends on Praxair's common stock are declared by the Board of Directors and, when declared, usually will be paid in March, June, September and December. It is the company's objective to pay dividends consistent with the reinvestment of earnings necessary for long-term growth. Investor Information Praxair makes available a full range of financial information in the financial section of its web site, www.praxair.com. Investors may obtain stock quotes, quarterly earnings and other press releases, as well as investor presentations, annual reports, proxy statement and SEC filings. Links also are available for requesting additional investor information. Praxair Investor Relations is responsible for shareholder communications and welcomes shareholder inquiries about Praxair. Contact Scott S. Cunningham, Director, (203) 837-2073 or by e-mail to: scott_cunningham@praxair.com Stock Transfer Agent and Stock Record Keeping The Bank of New York is Praxair's stock transfer agent and registrar, and maintains shareholder records. Shareholders needing information about account records, stock certificates, change of address and dividend payments should contact: The Bank of New York 1-800-432-0140 or, outside the U.S., (610)312-5303 e-mail address: Shareowner-svcs@bankofny.com website address: http://stock.bankofny.com Address shareholder inquiries to: Shareholder Relations, Department 11E P.O. Box 11258 Church Street Station New York, New York 10286 Send certificates for transfer and address changes to: Receive and Deliver Department 11W P.O. Box 11002 Church Street Station New York, New York 10286 The annual report, proxy statement and filings with the U.S. Securities and Exchange Commission can be obtained upon request to The Bank of New York or: Investor Relations, Praxair, Inc., 39 Old Ridgebury Road, Danbury, Connecticut 06810-5113, (203) 837-2210 e-mail: tami_whitlock@praxair.com Dividend Reinvestment and Stock Purchase Plan Shareholders holding shares registered in their name may increase their investment in Praxair shares through the Dividend Reinvestment and Stock Purchase Plan without payment of any brokerage commission. Full details concerning this plan may be obtained from The Bank of New York. Annual Meeting of Shareholders The 2000 annual meeting of shareholders of Praxair, Inc. will be held at 9:30 a.m. on Tuesday, April 25, 2000 at Hilton Inn and Towers, 18 Old Ridgebury Road, Danbury, Connecticut. General Corporate Information For general information about Praxair, its products and services, write or call: Corporate Communications, Praxair, Inc., 39 Old Ridgebury Road, Danbury, Connecticut 06810-5113. 1-800-PRAXAIR or, outside the U.S., (716) 879-4077, or visit Praxair online at: www.praxair.com. Praxair Locations Worldwide World Headquarters - ------------------ Praxair, Inc. 39 Old Ridgebury Road Danbury, CT 06810-5113 USA 1-800-PRAXAIR (716) 879-4077 (from outside the U.S.) Praxair Surface Technologies, Inc. Indianapolis, IN, USA (317) 240-2500 (affiliates in Brazil, France, Germany, Italy, Japan, Singapore, Spain, Switzerland, United Kingdom) North America - ------------- Praxair, Inc. Danbury, CT, USA 1-800-PRAXAIR (716)879-4077 Praxair Mexico S.A. de C.V. Mexico City, Mexico 52 (5) 627-9500 Praxair Canada Inc. Mississauga, Ontario (905) 803-1600 South America - ------------- S.A. White Martins Rio de Janeiro, Brazil 55 (21) 588-6622 Argentina, Bolivia, Chile, Colombia, Paraguay, Peru, Uruguay, Venezuela Central America/Caribbean - ------------------------- Praxair Puerto Rico Gurabo, PR (787) 258-7200 Belize, Costa Rica Europe - ------ Praxair Europe Madrid, Spain 34 91 556-1100 Austria, Belgium, Croatia, Czech Republic, France, Germany, Israel, Italy, The Netherlands, Poland, Portugal, Slovenia, Turkey Asia - ---- Praxair Asia, Inc. Singapore (65) 736-3800 Australia, India, Japan, People's Republic of China, South Korea, Taiwan, Thailand The forward-looking statements contained in this document concerning, among other things, projected capital and acquisition spending, sales and earnings growth, volume increases, the impact of new technology in the marketplace, tax planning initiatives and effective tax rates, the impact of economic conditions in Brazil, including currency movements and the change in functional currency, the impact of currency movements in other countries, management's assessment of the impact of the year 2000 problem and Euro conversion, and market risks and sensitivity analyses disclosures related to financial instruments involve risks and uncertainties, and are subject to change based on various factors, including the impact of changes in worldwide and national economies, foreign currency movements, pricing fluctuations for the company's products, changes in interest rates, the continued timely development and acceptance of new products and processes, the impact of competitive products and pricing, the ability to continue to develop potential acquisition opportunities, and the impact of tax and other legislation and regulation in the jurisdictions in which the company operates. (c) Copyright 2000 Praxair Technology, Inc. Praxair and the flowing airstream design, and CoJet, Grab `n Go, and Point One are trademarks, service marks or registered trademarks of Praxair Technology, Inc. in the United States and/or other countries. This report is printed on recycled paper EX-21.01 4 Praxair, Inc. and Subsidiaries - -------------------------------------------------------------------------------- EXHIBIT 21.01 Place of Incorporation ------------- Accent Cay Holdings Inc. British Virgin Island Adirondack Insurance Company Vermont Agas Servizi S.r.l Italy Amko Service Company Ohio Asian Surface Technologies Pte. Ltd. Singapore Beijing Praxair Huashi Carbon Dioxide Co., Ltd. China Carbonatos Andinos S.A Argentina Carborio Industria E. Comercio Ltda Brazil CBI Comercio e Participacoes Ltda Brazil CBI Investments, Inc. Delaware CBI Terminal Company Delaware Chameleon Finance Company B.V The Netherlands CILBRAS - Empresa Brasileira de Cilindros Ltda Brazil Coatec Gesellschaft Fur Oberflachentechnik GmbH Germany Companhia Nacional de Carbureto Brazil Concical S.r.l Italy Cryo Teruel S.A Portugal Domolife S.r.l Italy Dryce Italia S.r.l Italy Emigas Servizi S.r.l Italy Eutecic + Castolin Technology Hldings, Inc. Italy Euro Cantley S.A Colombia Flametal Sp.A Italy Fushion Inc. Texas Gases de Ensenada S/A Argentina Gas Tech, Incorporated Illinois Groupo Praxair S.A. de C.V Mexico Hielo Secco S.A Bolivia Igas Servizi S.r.l Italy Indugas S.A France Industria Paraguaya de Gases Paraguay Innovative Membrane Systems, Inc. Delaware International Cryogenic Equipment Corporation Delaware Julio Pastafiglia & Cia. S.A Argentina Kelvin Finance Company Ireland Korea Liquid Carbonic Co., Ltd. Korea Kushan Praxair Co., Ltd. China L. Clausen & CIA. SRL Uruguay Liquid Carbonic Corporation Delaware Liquid Carbonic del Paraguay S.A Paraguay Liquid Carbonic do Nordeste, S.A Brazil Liquid Carboinc Industrias S.A Brazil Liquid Carbonic LNG International, Inc. Delaware Liquid Carbonic of Oklahoma, Inc. Oklahoma Liquid Carbonico Colombiana S.A Colombia Liquid Quimica Mexicana, S.A. de C.V Mexico Liquid Quimica S.A Brazil Material Research S.A France Maxima Air Separation Center Limited Israel Medigas Iberica S.L Spain MetFabCity Inc. Delaware Nitropet, S.A Mexico Oak Brook International Insurance Co. Ltd. Bermuda Old Danford S.A Uruguay Operadora Perinorte, S.A. de C.V Mexico Praxair, Inc. and Subsidiaries - -------------------------------------------------------------------------------- EXHIBIT 21.01 (cont'd.) Place of Incorporation ------------- Oxigenos de Colombia Efese S.A Colombia Oxigenus S.L Spain Oximesa S.L Spain Oximinas Ltda Brazil Plainfield, Inc. Delaware Praxair (China) Invesment Co., Ltd. China Praxair (Nanjing) Carbon Dioxide Co. Ltd. China Praxair (Shanghai) Co., Ltd. China Praxair (Thailand) Company, Ltd. Thailand Praxair (Yueyang) Co., Ltd. China praxair.com inc Delaware Praxair & M.I.Services, S.r.l Italy Praxair Asia, Inc. Delaware Praxair Argentina, S.A Argentina Praxair Australia Pty. Ltd. Australia Praxair B.V The Netherlands Praxair Barqisimeto S.A Venezuela Praxair Belize, Ltd. Belize Praxair Bolivia, S.A Bolivia Praxair Canada Inc. Canada Praxair Carbondioxide Private Limited India Praxair Chemax Semiconductor Materials Co. Taiwan Praxair Chile S.A Chile Praxair Comercio e Participacos Ltda Brazil Praxair e Companhia - Comercio e Servicos Portugal Praxair Costa Rica, S.A Costa Rica Praxair Deer Park Cogen, Inc. Delaware Praxair Distribution, Inc. Delaware Praxair Distribution Southeast, LLC Delaware Praxair Energy Resources, Inc. Delaware Praxair Energy Services, Inc. Delaware Praxair Espana, S.L Spain Praxair Foreign Sales Corporation Virgin Islands Praxair G.m.b.H Germany Praxair Gmbh & Co., KG Germany Praxair Holding Company Canada Praxair Holding Espana S.L Spain Praxair Holding N.V Belgium Praxair Holdings International, Inc. Delaware Praxair Hydrogen Supply, Inc. Delaware Praxair Iberica, S.A Spain Praxair India Private Limited India Praxair Iwatani Electronics Gases Co. Japan Praxair K.K Japan Praxair Korea Company Limited Republic South Korea Praxair Management Services, Inc. Delaware Praxair Mexico, S.A. de C.V Mexico Praxair Martime Company Canada Praxair-Ozone,Inc Delaware Praxair N.V Belgium Praxair Pacific Limited Mauritius Praxair Partnership Delaware Praxair PC Partnership Canada Praxair Polska, SP. z o.o Poland Praxair, Inc. and Subsidiaries - -------------------------------------------------------------------------------- EXHIBIT 21.01 (cont'd.) Place of Incorporation ------------- Praxair Paraguay S.R.L Paraguay Praxair Peru S.A Peru Praxair Portugal Gases S.A Portugal Praxair Produccion Espana, S.L Spain Praxair Production N.V Belgium Praxair Puerto Rico, Inc. Delaware Praxair S.A France Praxair S.p.A Italy Praxair S. T. Technology, Inc. Delaware Praxair Services et Systemes S.A France Praxair Services G.m.b.H Germany Praxair Shanghai Meishan Inc. China Praxair Soldadura S.L Spain Praxair Surface Holdings SARL France Praxair Surface Technologies A/S Denmark Praxair Surface Technologies Co., Ltd. Korea Praxair Surface Technologies do Brazil Ltda Brazil Praxair Surface Technologies Espana S.A Spain Praxair Surface Technologies (Europe) S.A Switzerland Praxair Surface Technologies G.m.b.H Germany Praxair Surface Technologies, Inc. Delaware Praxair Surface Technologies K.K Japan Praxair Surface Technologies Limited United Kingdom Praxair Surface Technologies Mexico, S.A. de C.V Mexico Praxair Surface Technologies Pte. Ltd. Singapore Praxair Surface Technologies S.A France Praxair Surface Technologies S.p.A Italy Praxair Technology, Inc. Delaware Praxair Uruguay S.A Uruguay Praxair Venezuela, S.A Venezuela Production Praxair Canada Inc. Canada Products Especiales Quimicos, S.A Mexico PST Fluoropolymer S.p.A Italy Quimica Industrial Bara Do Pirai S.A Brazil Rapidox Gases Industriais Ltda Brazil Rimet S.r.l Italy Rivoira S.p.A Italy S. A. White Martins Brazil Servicios Energeticos S.A Chile Shanghai Praxair-Yidian, Inc. China Susano Carbonato De Calcio Ltda Brazil TAFA Incorporated Delaware TAFA Material Technologies, Inc. Delaware Tianjin Praxair Inc. China Topaz Consultoria S.A Uruguay Transportes Flamingo S/A Peru Treffers Precision, Inc. Arizona UCISCO Canada Inc. Canada UCISCO, Inc. Texas Unigases Comercial Ltda Brazil VTE-Verschlelbtechnik und Engineering GmbH Germany Wall Chemicals, Inc. Illinois Westair Cryogenics Company Delaware Praxair, Inc. and Subsidiaries - -------------------------------------------------------------------------------- EXHIBIT 21.01 (cont'd.) Place of Incorporation ------------- White Martins & White Martins Comercio e Servicos Portugal White Martins Administracao e Investimentos Ltda Brazil White Martins de Camacari S.A Bahia White Martins e Companhia Comercio e Servicos Portugal White Martins Gases Industriais do Nordeste S.A Brazil White Martins Gases Industriais do Norte S.A Brazil White Martins Gases Industriais S.A Brazil White Martins Soldagem Ltda Brazil EX-23.01 5 Praxair, Inc. and Subsidiaries - -------------------------------------------------------------------------------- EXHIBIT 23.01 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statement on Form S-3 (Nos. 333-40003, 333-18141, 333-304, 33-93444, and 33-48480) and in the Registration Statement on Form S-8 (Nos. 333-18111, 333-18113, 33-92868, 33-87274, 33-48479, and 33-48478) of Praxair, Inc. of our report dated February 8, 2000 relating to the financial statements, which appears in the Annual Report to Shareholders, which is incorporated in this Annual Report on Form 10-K. /s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Stamford, Connecticut March 15, 2000 EX-27 6
5 FINANCIAL DATA SCHEDULE - EXHIBIT 27 1,000,000 YEAR DEC-31-1999 DEC-31-1999 76 0 882 34 310 1335 8581 3861 7722 1725 2111 75 0 2 2288 7722 4639 4639 2732 2732 445 0 204 627 152 441 0 0 (10) 431 2.71 2.66 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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