PRAXAIR Lehman Brothers Twenty-first Annual Industrial Select Conference February 6th, 2004 James S. Sawyer Senior Vice President and Chief Financial Officer www.praxair.com
Forward Looking Statements The forward-looking statements contained in this announcement concerning demand for products and services, the expected macroeconomic environment, sales and earnings growth, and other financial goals involve risks and uncertainties, and are subject to change based on various factors. These include the impact of changes in worldwide and national economies, the cost and availability of electric power, natural gas and other materials, development of operational efficiencies, changes in foreign currencies, changes in interest rates, the continued timely development and acceptance of new products and processes, the impact of competitive products and pricing, and the impact of tax and other legislation and regulation in the jurisdictions in which the company operates. -2-
Operating Model Drives Growth and ROC Applications Technology Customer Value Growth Return on Capital Praxair S&P 500 Sales 8% 7% (10 year CAGR) Earnings Growth 12% 6% (10 year CAGR) ROE 1 20% 15% (10 year average) TSR 14% 10% (10 year annualized) Commercial Terms Capture Value Efficient/Reliable Low Cost Supplier Shareholder performance exceeds S&P 500 1. ROE = Net income before accounting changes/shareholders Equity -3-
Commercial Terms Drive ROC Sales by Distribution Method On-Site 23% Take or pay contracts Escalation for: energy, inflation and currency Merchant 30% Requirements contracts Switching costs Other 14% Packaged Gases 33% Annual contracts Cylinder rentals Service level Price is a fraction of customer value Terms capture above average ROC -4-
Applications Technology Drives Growth Praxair End Markets Aerospace 4% Healthcare 11% Manufacturing 22% Productivity Cycle Time Yield Energy 8% Electronics 8% Food and Beverage 9% Other 12% Chemicals 11% Metals 15% Energy Oxyfuel Combustion Hydrogen Environmental Air Quality Water Treatment -5-
Global Hydrogen Demand is Expected to Grow 10-15% 2300 +10-15%/yr. CAGR* 4500 Refining Growth Heavy/Sour Crudes Refinery Operations & Conversion Capacity Environmental Regulations for Gasoline & Diesel Outsourcing Production 2001 2006 MMSCFD Fuel Grade Specifications 2004-30 ppm Sulfur in Gas 2006-15 ppm Sulfur in Diesel 2010-15 ppm Sulfur in off-road Diesel *Source: SRI International -6-
Best-Positioned For Gulf Coast Refinery Hydrogen TEXAS LOUISIANA BATON ROUGE ExxonMobil LAKE CHARLES HOUSTON LCR Valero DEER PARK LAPORTE MONT BELVIEU BAYTOWN ExxonMobil PORT ARTHUR Motiva Citgo Conoco GEISMAR To New Orleans Refineries BP Amoco Valero TEXAS CITY GALVESTON GULF OF MEXICO HYDROGEN PIPELINE REFINERIES HYDROGEN PRODUCTION NEW HYDROGEN PRODUCTION INDUSTRIAL AREA -7-
Praxair Gulf Coast Hydrogen Growth 900 800 Initial Motiva Full Motiva 700 600 Full BP Signed/ Anticipated MMSCFD 500 400 Initial BP Other 300 200 100 0 2002 2003 2004 2005 2006 2007 300 MMSCFD Signed - 200 MMSCFD Anticipated -8-
PHS Homecare Branches- US and Canada Hospital customers Homecare branches Homecare 106 Branches 16 Acquisitions since 2000 Institutional 2,000 Hospital Customers 20% Estimated Market Share Global Sales $590 N.A. Sales $360 Medicare Sales $48-9-
Healthcare: Multiple Growth Opportunities North American Sales $600 $500 $400 $300 $200 $100 $360MM Selective Acquisitions? 10% CAGR 3% new starts 7% organic Expected Growth Rates: Organic Growth 7% Institutional Homecare New Starts 3% Acquisitions 0-20% Total 10% + Acquisition Discipline High % respiratory $0 2003 2007 Institutional Homecare Geographic overlap Valuation inclusive of rate cuts -10-
Electronics - Gases and Materials Science Industrial Gases On-site high purity gases Specialty gases supplier Materials Science for 300 mm Ceramic chucks CMP polishing materials Thin film metal deposition Supply Chain Services Components Parts management 500 400 300 200 100 0 Worldwide Electronics Sales $150 MM 99% $420 MM 42% 58% 1995 2003 Industrial Gases Material Science and Services Profitable business model with substantial growth -11-
Electronics - Asian Position China N 2 supply to new 300mm fabs 46% of contracted N 2 Capacity Korea N 2 supply at Samsung s 300mm fab in Geihung N2, H2 & He supply at Samsung s new flat panel display complex 41% of contracted N 2 Capacity Contracted Chinese N 2 Market Share* (200mm and 300mm fabs) 46% 6% 32% 16% Praxair Competitor A Competitor B Competitor C *Praxair Estimate -12-
China - Profitable Growth Investment and Return on Major Projects 350 300 14% 12% Investment ($MM) 250 200 150 100 50 10% 8% 6% 4% 2% 0% -2% ROC Cumulative Investment ROC 0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003-4% Improving return on capital -13-
Capital Investment 2004F: About $700 MM Growth 60% - Maint. 30% - Cost Reduction 10% Growth CAPEX By Segment Growth CAPEX By Market 5% 15% 10% 25% 20% 50% 15% 5% 15% 5% 10% 25% North America Europe PST/Other South America Asia Chemicals Energy Manufacturing Other Electronics Food &Beverage/ Healthcare Metals -14-
Capturing Value from Technology Licensing Productivity Applications Industry credibility licensing metals technologies Success with penetrating AOD Stainless Steel and EAF CoJet markets BOF CoJet market opportunity 500 MM tons 4 operating, 6 by the end of Q104 Environmental Solutions Reduced NOx emissions from coal fired utilities EPA mandate in 19 states Controlled oxygen injection is low cost solution Commercialized at Northeast Utilities, Holyoke, Ma -15-
Robust Free Cash Flow Generation Operating cash flow 11% CAGR Capital spending discipline - increased hurdle rates Uses of free cash flow Dividends Debt reduction Selective acquisitions Share repurchases $1,200 $1,100 $1,000 $900 $800 $700 $600 $500 $400 Free Cash Flow 1996-2003 ($MM) 1996 1997 1998 1999 2000 2001 2002 2003 Operating Cash Flow Free Cash Flow (1) CAPEX (2) (1) Non-GAAP measure. Free cash flow equals operating cash flow minus capital expenditures. (2) Excludes Leased Asset Purchase -16-
North American Indexed Industrial Gas Volume 102 100 98 96 94 92 90 88 86 84 CAPACITY UTILIZATION Peak Q3 2000: 85% Trough Q2 2003: 72% Current Q4 2003: 75% 3Q00 4Q00 1Q01 Combined On-site and Merchant Volume 2Q01 3Q01 4Q01 1Q02 2Q02 3Q02 4Q02 1Q03 2Q03 3Q03 4Q03 Praxair has substantial operating leverage to improving U.S. manufacturing conditions -17-
2004 Earnings Guidance First Quarter 2004 Full Year 2004 Sales growth of 8% to 12% Operating profit growth of 10% to 14% Diluted EPS in the range of $0.43 to $0.47 ( growth of 10% - 20% YOY) Effective tax rate of 25% Sales growth of 6% to 10% Operating profit growth of 8% to 14% Diluted EPS in the range of $1.90 to $2.05 (growth of 8% - 15%) Effective tax rate of 25% CAPEX of about $700MM Assumes Euro and Real stable at current levels -18-
PRAXAIR Lehman Brothers Twenty-first Annual Industrial Select Conference February 6th, 2004 James S. Sawyer Senior Vice President and Chief Financial Officer www.praxair.com