Chairman's Letter cont'd

Reviewing the business by region, our U.S. business achieved record sales in 2000, but experienced the beginnings of an economic slowdown and unprecedented increases in electricity, fuel and natural gas prices. In response, we launched an aggressive pricing program, which offset some of the energy cost increases. In addition, we strengthened our energy-management program for purchased power, and are implementing new customer contract terms and conditions that will provide more flexibility in a period of uncertain energy prices.

Other steps to strengthen the performance of the U.S. industrial gases business included the formation of four new regional organizations designed to bring management closer to customers and enable better coordination of customer-support activities at the local level. At the same time, we eliminated duplicate overhead and launched a Six-Sigma initiative to stimulate new and sustainable levels of productivity.

Other segments of our North American industrial gases business in Canada and Mexico turned in a strong performance during the year. Praxair Distribution, our North American packaged-gases business, has achieved seven consecutive quarters of same-store sales growth.

In South America, the strong economic recovery underway in Brazil contributed to improved performance. Sales increased 10% and operating profit was up 28%, excluding currency effects and a divestiture. We completed a tender offer, initiated in December 1999, for the outstanding shares of White Martins, Praxair's Brazilian subsidiary. By increasing ownership from 76.6% prior to the tender offer to 98.6%, Praxair is benefiting from increased cash flow and earnings.

Praxair's businesses in Spain and Italy had excellent operating performance during the year. Although the weak Euro affected U.S. dollar results, net income was largely protected by currency hedges.