Note 5 Debt and Financial Instruments

Debt-The following is a summary of Praxair's outstanding debt at December 31, 2000 and 1999:

In July 2000, Praxair entered into two new credit agreements, that expire through 2005, totaling $1.5 billion to support commercial paper and other short-term U.S. bank borrowings. These new agreements replaced the previous credit agreement that was due to expire in December 2000. The terms and financial covenants contained in the new credit agreements are not significantly different from the terms of its previous credit agreement. No borrowings were outstanding under these agreements at December 31, 2000 or 1999.

At December 31, 2000, $852 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 agreements. At December 31, 1999, such borrowings were reclassified as short-term debt because the existing credit agreement expired within one year. At December 31, 2000 and December 31, 1999, the weighted-average interest rate on commercial paper and U.S bank borrowings was 6.6% and 5.5%, 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 and net worth ratios. At December 31, 2000, Praxair was in compliance with all such covenants.

Excluding commercial paper and U.S. bank borrowings, scheduled maturities on long-term debt are: 2001, $341 million; 2002, $83 million; 2003, $686 million; 2004, $21 million; 2005, $159 million and $840 million thereafter. At December 31, 2000, $174 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, 2000, the estimated fair value of Praxair's long-term debt portfolio was $2,985 million versus a carrying value of $2,982 million. At December 31, 1999, the estimated fair value of long-term debt was $2,207 million versus a carrying value of $2,239 million. These differences are attributable to interest rate changes subsequent to when the debt was issued.

Financial Instruments-Praxair has entered into various fixed interest rate swap agreements that effectively convert variable rate interest and lease payments to fixed rate interest and lease payments. At December 31, 2000 and 1999 respectively, Praxair had $430 million and $80 million notional amount of interest rate swap agreements outstanding. The scheduled maturities of the swap agreements are: 2001, $330 million and 2002, $100 million. Additionally, at December 31, 2000, Praxair entered into $350 million notional amount of forward starting fixed interest rate swaps, effective January 2, 2001 and expiring in 2002. The fair market value of these swaps at December 31, 2000 was a loss of $7 million. At December 31, 1999, the fair market value of the swaps approximated their carrying amounts.

Praxair is also a party to currency exchange forward contracts to manage its exposure to changing currency exchange rates. At December 31, 2000 and 1999, respectively, Praxair had $248 million and $272 million of currency exchange forward contracts outstanding: $195 million to hedge recorded balance sheet exposures ($222 million in 1999), $4 million to hedge firm commitments generally for the purchase of equipment related to construction projects ($13 million in 1999) and $49 million to hedge future net income, accounted for on a fair market value basis ($37 million in 1999, accounted for on a mark-to-market basis). Additionally, at December 31, 2000, there was $6 million notional value of currency exchange forward contracts that effectively offset ($56 million in 1999). At December 31, 2000 and 1999, 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.