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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549

FORM 10-Q

/X/   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2004

OR

/  /   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission File Number 1-11037

Praxair, Inc.
(Exact name of registrant as specified in its charter)

(203) 837-2000

Registrant’s telephone number, including area code

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  x     No

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes  x     No

At June 30, 2004, 324,934,711 shares of common stock ($0.01 par value) of the Registrant were outstanding.

Forward-Looking Statements

The forward-looking statements contained in this document concerning demand for products and services, the expected macroeconomic environment, sales and earnings growth, projected capital and acquisition spending, the impact of required changes in accounting, the impact of accounting and other estimates, and other financial goals involve risks and uncertainties, and are subject to change based on various factors. These risk factors include the impact of changes in worldwide and national economies, the performance of stock markets, the cost and availability of electric power, natural gas and other materials, and the ability to achieve price increases to offset such cost increases, inflation in wages and other compensation, development of operational efficiencies, changes in foreign currencies, changes in interest rates, the continued timely development and acceptance of new products and services, 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 as well as new accounting rules and practices.

INDEX

PART I — FINANCIAL INFORMATION

Praxair, Inc. and Subsidiaries

Item 1.   Financial Statements

PRAXAIR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Millions of dollars, except per share data)
(UNAUDITED)

The accompanying notes are an integral part of these financial statements.

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PRAXAIR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Millions of dollars, except per share data)
(UNAUDITED)

The accompanying notes are an integral part of these financial statements.

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PRAXAIR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Millions of dollars)
(UNAUDITED)

The accompanying notes are an integral part of these financial statements.

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PRAXAIR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Millions of dollars)
(UNAUDITED)

The accompanying notes are an integral part of these financial statements

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PRAXAIR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Dollar amounts in millions, except share data, shares in thousands)
(UNAUDITED)

The accompanying notes are an integral part of these financial statements

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PRAXAIR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1.   Summary of Significant Accounting Policies

Presentation of Condensed Consolidated Financial Statements — In the opinion of Praxair, Inc. (Praxair) management, the accompanying condensed consolidated financial statements include all adjustments necessary for a fair presentation of the results for the interim periods presented. The accompanying condensed consolidated financial statements should be read in conjunction with the Notes to the consolidated financial statements of Praxair, Inc. and subsidiaries in Praxair’s 2003 Annual Report.

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”, as amended by SFAS 148, requires Praxair to disclose pro forma net income and pro forma earnings per share amounts as if compensation expense was recognized. Pro forma net income and the related basic and diluted earnings per share amounts would be as follows:

These pro forma disclosures may not be representative of the effects for future years as options vest over several years and additional awards generally are made each year.

During the quarter and six months ended June 30, 2004, Praxair granted options for 79,000 and 3,905,100 shares (45,000 and 3,960,600 shares during the quarter and six months ended June 30, 2003), respectively, of common stock having option prices ranging from $36.58 to $37.26 per share ($26.43 to $28.76 per share in 2003) and a weighted average price of $36.59 ($26.46 in 2003), the closing market price of Praxair’s common stock on the day of the grants. At June 30, 2004, there were 23,538,025 shares under option at prices ranging from $10.25 to $37.26 per share (weighted average of $25.91) of which options for 15,437,095 shares were exercisable at prices ranging from $10.25 to $29.33 per share (weighted average of $22.92). During the quarter and six months ended June 30, 2004, options for 1,452,533 and 2,783,098 shares (2,490,022 and 3,440,308 in 2003) of common stock were exercised.

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2.   Recently Issued Accounting Standards

In December 2003, the Financial Accounting Standards Board (FASB) issued a revision to SFAS No. 132, “Employers’ Disclosures about Pensions and Other Postretirement Benefits” which requires new annual disclosures about the types of plan assets, investment strategy, measurement date, plan obligations, and cash flows as well as the components of the net periodic benefit cost recognized in interim periods. This statement is effective December 31, 2003 for Praxair except for the requirements to disclose future benefit payments and international plan asset information, which will be effective December 31, 2004. Praxair has included the required quarterly pension disclosures in Note 8.

In May 2004, the FASB issued FASB Staff Position (FSP) 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003” which superseded FSP 106-1 of the same name and provides guidance on how to account for future subsidies available beginning in 2006 to employers who provide prescription drug benefits that are “actuarially equivalent” to those that will be provided under Medicare. Employers that provide actuarially equivalent benefits must account for the subsidy as a reduction in the accumulated postretirement benefit obligation of the related plan, to be accounted for as an actuarial gain. Any reduction of the employer’s share of future costs under the plan should be reflected in service cost in the period of implementation of the FSP. Praxair is currently evaluating whether the drug benefit provided by its postretirement plans would be considered actuarially equivalent. If the Company determines its benefits are actuarially equivalent, the FSP will be applied during the quarter ended September 30, 2004 and any reduction of service cost will be recognized in that period.

3.   Inventories

The following is a summary of Praxair's consolidated inventories:

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4.   Debt

The following is a summary of Praxair's outstanding debt at June 30, 2004 and December 31, 2003:

At June 30, 2004, $600 million of commercial paper, short-term borrowings and notes due within one year ($234 million commercial paper and notes due in 2004 at December 31, 2003) have been classified as long-term 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 its $1 billion credit agreement that expires July 12, 2005. The Company currently plans to renew the credit agreement before expiration. No borrowings were outstanding under the credit agreement at June 30, 2004.

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5.   Financial Instruments

The following table is a summary of the notional amount of currency derivatives outstanding at June 30, 2004 and December 31, 2003 (all maturities within one year):

Praxair enters into currency exchange forward contracts to manage its exposure to fluctuations in foreign currency exchange rates. Hedges of balance sheet items are related to recorded balance sheet exposures, including intercompany transactions. Hedges of firm commitments are for the purchase of equipment related to in-progress construction projects. Additionally, there was $6 million notional value of currency exchange contracts that effectively offset each other (none at December 31, 2003).

The net income hedges outstanding at June 30, 2004 are related to anticipated 2004 third quarter income in Europe and Canada. The net income hedges outstanding at December 31, 2003 were related to anticipated 2004 net income in Canada. Other income (expense) — net includes no gain or loss for the quarter and the six months ended June 30, 2004 as a result of recognizing these contracts at fair value. Other income (expense) – net includes a $9 million loss for the quarter and an $8 million loss for the six months ended June 30, 2003 of which $5 million and $2 million, respectively, related to anticipated second half year net income.

At June 30, 2004, the fair value of all derivative instruments has been recorded in the condensed consolidated balance sheet as follows: $2 million in current assets and $3 million in current liabilities ($4 million in current assets and $2 million in current liabilities at December 31, 2003).

6.   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. 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. Stock options for 79,000 and 1,765,192 shares for the six months ended June 30, 2004 and 2003, respectively, were excluded in the computation of diluted earnings per share because the exercise prices were greater than the average market price of the common stock. There was no exclusion for the quarters ended June 30, 2004 or 2003.

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7.   Goodwill and Other Intangible Assets

Praxair adopted SFAS 142, “Goodwill and Other Intangible Assets”, effective January 1, 2002. The standard required the Company to perform an initial assessment (see Note 2 on page 45 of the 2003 Annual Report) of whether there was an indication that the carrying value of goodwill was impaired and to conduct a new test at least annually at the reporting unit level. The annual impairment tests for 2003 and 2004 were performed during the second quarter of each year and no impairments were indicated.

Changes in the carrying amount of goodwill for the six months ended June 30, 2004 were as follows:

Changes in the carrying amount of other intangibles for the six months ended June 30, 2004 were as follows:

There are no expected residual values related to the other intangible assets. The weighted average amortization period for other intangible assets is approximately 9 years. Estimated annual amortization expense is $9 million for the remainder of 2004; $10 million, $9 million, $7 million and $4 million for the years ended December 31, 2005, 2006, 2007 and 2008, respectively; and $26 million thereafter.

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8.   Pension and OPEB

The components of net pension and postretirement benefits other than pensions (OPEB) costs for the quarters and six month periods ended June 30, 2004 and 2003 are shown below:

Praxair estimates that required 2004 contributions to its pension plans will be in the range of $100 million. As of June 30, 2004, $66 million of contributions have been made worldwide.

9.   Legal Proceedings

In the normal course of business, Praxair is involved in legal proceedings and claims with both private and governmental parties (see Note 20 on page 60 of the 2003 Annual Report). These arise from current and past operations or products and include product liability and environmental matters.

Among such matters are claims brought by welders alleging that exposure to manganese contained in welding fumes caused neurological injury. Praxair has never manufactured welding consumables. Such products were manufactured prior to 1985 by a predecessor company of Praxair. As of June 30, 2004, Praxair was a co-defendant with many other companies in 414 lawsuits alleging personal injury caused by manganese contained in welding fumes. The cases were pending in state and federal courts in Iowa, Illinois, Mississippi, Missouri, Texas, Louisiana, Georgia, West Virginia, Ohio, Arkansas, Indiana, Utah, Pennsylvania, Minnesota and Alabama. There were a total of 9,527 individual claimants in these cases. One case is a class action which has not been certified. All of the cases filed in or removed to federal courts have been (or