Note 2 Special Charges

2000 Repositioning and Special Charges-In the fourth quarter of 2000, Praxair recorded pre-tax charges totaling $159 million and $2 million of equity income charges ($117 million after tax, or $0.73 per diluted share) for severance and other costs associated with a repositioning program that will realign Praxair's resources with its target markets. The charge also includes costs related to asset write-downs associated with non-strategic activities and related working capital. The charges were determined based on formal plans approved by management using the best information available. Any differences with amounts ultimately incurred will be adjusted when determined.

The severance costs of $48 million are for the termination of 811 employees in connection with initiatives in North and South America, Northern Europe, Surface Technologies, Asia, global supply systems, and corporate. These initiatives involve a number of actions to reorganize Praxair's marketing, business support and administrative functions around the world in order to align the organization more closely with its customers and to improve productivity. In North America, the U.S. business is consolidating its operations into four geographic regions and the segment is taking other actions to streamline the organization and increase productivity. The South America and Europe initiatives are related to ongoing productivity improvements. Praxair's Surface Technologies' business is taking actions in the U.S., Europe and Asia to close or consolidate various operations and facilities, and to improve productivity. In the All Other segment, several actions have been initiated or are planned: (i) Praxair will consolidate certain packaged gases operations and facilities in India; (ii) Praxair has shutdown and written-off its investment in MetFabCity and e-business support activities in India; and, (iii) corporate and global supply systems will reduce staff as a result of continued productivity initiatives.

At December 31, 2000, approximately 200 positions were eliminated and the remaining actions are planned to be completed in 2001. In 2000, MetFabCity losses recorded in consolidated operating profit were $12 million.

Other costs include plant closures, consolidations, or cancellations (primarily in Asia and global supply systems), and product-line termination costs totaling $44 million; and, the write-off of other assets totaling an additional $67 million. Other assets include Praxair's investment in MetFabCity and other e-commerce initiatives ($22 million), future lease obligations for space that will no longer be used ($16 million), and various other assets and working capital write-offs or write-downs.

The cash requirements of the repositioning program are estimated to be approximately $68 million in total of which approximately $54 million is expected to be paid in 2001. Cash requirements in 2000 were minimal and remaining amounts beyond 2001, primarily for long-term lease obligations, will be paid primarily through 2006.

The repositioning and special charges are recorded as follows: $47 million in cost of sales, $21 million in selling, general and administrative and $91 million in other income (expenses)-net (see Note 7).

Additionally, in the first quarter of 2000 Praxair initiated a program to reposition the Surface Technologies operations as a result of adverse market conditions in the aerospace original equipment and computer disk drive markets. Praxair recorded a $5 million pre-tax charge to other income (expenses)-net, including approximately $4 million for employee severance costs and $1 million related to other exit costs. The program included the closure of two U.S. facilities and headcount reductions of 150 employees located at these facilities and others. As of December 31, 2000, the program is completed.

1998 Special Charges-In the fourth quarter of 1998, Praxair recorded a charge of $29 million ($18 million after tax, or $0.11 per diluted share) related to its investment in Indonesia ($19 million or $11 million after tax) and an anticipated loss on an air separation plant under construction for a third party ($10 million or $7 million after tax).

Refer to Note 10 for an analysis of the accrued liability balances related to these and previous special charges.