If the true test of an organization is how well it performs in tough times, the Praxair team did very well in 2003. Although they might sound like old-fashioned concepts in the vernacular of today’s business world, the primary factors that led to this performance were innovation and an acute focus on disciplined execution.

Innovation is often the result of a passionate belief that there really is a better, easier, cheaper or faster way to achieve a particular goal. And, although these breakthroughs are frequently buried deep in arcane processes or technologies, they can make a real difference to a customer’s performance as well as to our environment. That is good for everyone: it is good for business and, during 2003, it was very good for Praxair.

Partnering with customers, we developed and commercialized several new products to improve semiconductor production; we introduced new technology to reduce the release of environmental pollutants by electric utilities; and we developed a process for oil refiners to significantly increase efficiency and reduce emissions. These innovations and others will be discussed in the pages that follow.

When it came to executing our business plans, the Praxair team concentrated on four key areas: operational discipline, capital discipline, customers’ needs and safety.

Operational discipline ensured the consistent, reliable, cost-efficient operation of our plants and facilities all day, everyday. From capital discipline came carefully selected first-class projects and investments that provided returns far in excess of the cost of capital. And providing valued service to customers in a safe and efficient manner continued to be the underpinning of our successful enterprise.

What we did not  do last year was almost as important for our business as what we actually did. Strategic acquisitions can certainly play a role in growing our business, but we resisted the prohibitive prices that were being asked in several markets, such as home healthcare. And we remained prudent in the authorization of capital expenditures for organic growth in order to avoid over-investment in capacity additions.

These management principles were important in our 2003 performance. And, I believe they will be a major factor in continuing to drive us in the right direction in the years ahead.

In 2003, Praxair led the industrial gases industry in earnings growth and return on capital. Net income was up 7% excluding the impact of an accounting change in 2002, and after-tax return on capital was 12.8%. Reflecting our strong cash flow and capital discipline, our debt-to-capital ratio fell to 46.2% at year-end, the lowest level since 1995. Praxair’s total return to shareholders of 34% outperformed that of its competitors and the Standard and Poor’s 500.