SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) June 13, 2002
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PRAXAIR, INC.
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(Exact Name of Registrant as Specified in Its Charter)
DELAWARE
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(State or Other Jurisdiction of Incorporation)
1-11037 06-124-9050
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(Commission File Number) (IRS Employer Identification No.)
39 OLD RIDGEBURY ROAD, DANBURY, CT 06810-5113
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(Address of Principal Executive Offices) (Zip Code)
(203)837-2000
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(Registrant's Telephone Number, Including Area Code)
N/A
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(Former Name or Former Address, if Changed Since Last Report)
Item 5. Other Events
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SFAS 142 GOODWILL IMPAIRMENT
Praxair has adopted Financial Accounting Standards Board (FASB) Statement of
Financial Accounting Standards (SFAS) 142, "Goodwill and Other Intangible
Assets", effective January 1, 2002. Under the new rule, companies no longer
amortize goodwill or indefinite life intangible assets. In addition, the rule
provides a six-month transitional period from the effective date of adoption for
the company to perform an initial assessment of whether there is an indication
that the carrying value of goodwill is impaired. This assessment is made by
comparing the fair value of each reporting unit, as determined in accordance
with the new rule, to its book value. To the extent that an impairment is
indicated (fair value is less than book value), the company must perform a
second test to measure the amount of the impairment. The rule requires that any
initial impairment be taken as a charge to net income as a cumulative effect of
accounting change retroactive to January 1, 2002. In future years, this
assessment must be conducted at least annually at the reporting unit level, and
any such impairment must be recorded as a charge to operating earnings.
Praxair has completed the initial impairment test and has concluded that certain
of its goodwill was impaired, resulting in a non-cash after-tax charge of $139
million or approximately $0.84 per share on a diluted basis. The charge will be
recorded as a cumulative effect of an accounting change, retroactive to January
1, 2002, in accordance with the rule.
In determining this charge, our process was the following: First, in accordance
with the specific requirements of SFAS 142, Praxair determined that it had 15
reporting units, which are sub-units of its reporting segments, for which
goodwill should be tested for impairment. Second, we calculated the fair value
of each reporting unit using a combination of several valuation approaches
including discounted cash flows; multiples of sales and earnings before
interest, taxes, depreciation, and amortization (EBITDA); and, comparisons of
historical transactions where appropriate. We weighted the valuation approaches
based on the individual characteristics of the reporting unit. Third, we
compared the fair value of each reporting unit to its respective book value. For
nine of the reporting units the calculated fair values exceeded the book values,
and no impairment was indicated. For six reporting units where the fair values
were less than the book values, we proceeded to step 2, which is to calculate
the fair value of goodwill. Because goodwill is defined as the excess of the
cost of an acquired entity over the fair value of all identifiable tangible and
intangible assets acquired and liabilities assumed, we were required to
calculate the fair value of such assets and liabilities for the six reporting
units. Through this process, we determined the amount of goodwill that was
impaired for each reporting unit.
The following is a summary of the impairment charge by business segment, net of
a $7 million tax benefit (millions of dollars):
Segment Reporting Unit Charge
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South America Southern Cone, Andean Region $ 80
Europe* Poland, Israel $ 20
Asia India $ 17
Surface Technologies Aviation Services $ 22
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$139
*Includes $2 million related to a non-consolidated equity investment
The goodwill in Poland, and the majority of the goodwill in the Southern Cone
(primarily Argentina) and the Andean Region (Venezuela, Colombia and Peru) of
South America was related to the 1996 acquisition of CBI Industries. Market and
economic conditions have resulted in an impairment to the goodwill allocated to
these reporting units. Local market and economic conditions have also affected
the value of acquisitions made in Israel and India primarily in 1996 through
1998. Goodwill for Surface Technologies Aviation Services business was related
to several acquisitions made in 1995 through 1998 in the aviation coatings and
repair business. This business has been significantly impacted by the general
downturn in the aviation industry, especially due to the events of September 11,
2001.
As noted above the charge will be recorded as a cumulative effect of an
accounting change retroactive to January 1, 2002. The following table reflects
the impact of this accounting change on selected financial data for the quarter
ended March 31, 2002(millions of dollars, except per share data):
`
As Reported As Adjusted
From the income statement:
Operating profit $ 217 $ 217
Income before accounting change 127 127
Accounting Change - (139)
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Net income (loss) $ 127 $ (12)
Per Share Data:
Diluted Earnings Per Share:
Income before accounting change $ 0.77 $ 0.77
Accounting Change $ - $(0.84)
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Net income (loss) $ 0.77 $(0.07)
Capital:
Shareholders' equity $ 2,567 $ 2,428
Total debt $ 3,009 $ 3,009
Capital $ 5,744 $ 5,605
Debt-to-Capital 52.4% 53.7%
After-tax return on capital 12.0% 12.2%
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PRAXAIR, INC.
Registrant
Date: June 13, 2002 By: /s/ George P. Ristevski
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George P. Ristevski
Vice President and Controller