Note 1 Summary of Significant Accounting Policies cont'd

Patents, Trademarks And Goodwill-Amounts paid for patents and the excess of the purchase price over the fair value of the net assets of acquired operations (goodwill) are recorded as other long-term assets. Patents are amortized over their remaining useful lives, while trademarks and goodwill are amortized over the estimated period of benefit, up to forty years. Praxair periodically evaluates the recoverability of patents, trademarks and goodwill by assessing whether the unamortized balance can be recovered over its remaining life through cash flows generated by the underlying tangible assets. Should the expected undiscounted cash flows be less than the carrying amount of the intangible asset, an impairment loss would be recognized.

Research And Development-Research and development costs are charged to expense as incurred.

Income Taxes-Deferred income taxes are recorded for the temporary differences between the financial statement and tax bases of assets and liabilities using current tax rates.

Retirement Programs-Most Praxair employees worldwide are covered by various pension plans. The cost of pension benefits under these plans is determined using the "projected unit credit" actuarial cost method. Funding of pension plans varies and is in accordance with local laws and practices.

Praxair accrues the cost of retiree life and health insurance benefits during the employees' service period when such benefits are earned.

Postemployment Benefits-Praxair recognizes the estimated cost of future benefits provided to former and inactive employees after employment but before retirement on the accrual basis.

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, is included in Note 9.

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. Stock options for 6,662,005 and 4,604,610 shares were not included in the computation of diluted earnings per share for the years ended December 31, 2000 and December 31, 1999, respectively, because the exercise prices were greater than the average market price of the common stock. All references in the consolidated financial statements are to diluted earnings per share unless stated otherwise. 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.

Accounting Change-In accordance with the American Institute of Certified Public Accountants (AICPA) Statement of Position (SOP) 98-5, Reporting on the Costs of Start-Up Activities, Praxair recorded an after-tax-charge of $10 million in the first quarter of 1999 as the cumulative effect of an accounting change.

Recently Issued Accounting Standards- In June 1998, The Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities, and later amended by SFAS No. 137 and 138, and is effective January 1, 2001. SFAS No. 133 requires all derivatives to be recorded at their fair values. Changes in their fair values will be recognized in earnings as offsets to the changes in the fair values of the hedged assets, liabilities, and firm commitments; or, deferred as a separate component of accumulated other comprehensive income (loss) until the hedged transaction occurs and is recognized in earnings. The ineffective portion of a hedging derivative's change in fair value will be immediately recognized in earnings. As summarized in Note 5, at December 31, 2000, Praxair has interest rate swap or forward starting swap agreements outstanding with a notional value totaling $780 million. Of these, swaps with notional amounts totaling $700 million have been designated as, and are effective as, hedges of outstanding debt instruments or lease obligations. The Company also has currency exchange forward contracts outstanding with notional amounts totaling $248 million which are effective economic hedges but, are not designated as hedges for accounting purposes. For the quarter ended March 31, 2001, Praxair will record a one-time after-tax charge as a cumulative effect adjustment for the initial adoption of SFAS No. 133 totaling $2 million in its statement of operations, and an unrealized loss of $4 million in accumulated other comprehensive income (loss).

In accordance with Emerging Issues Task Force (EITF) Consensus No. 2000-15, Classification in the Statement of Cash Flows of the Income Tax Benefit Received by a Company Upon Exercise of a Nonqualified Employee Stock Option, Praxair has included the tax benefit associated with the exercise of stock options as cash flows from operations. Such tax benefits were previously reported as financing cash flows ($5 million in 2000, $16 million in 1999 and $8 million in 1998).

Reclassifications-Certain prior years' amounts have been reclassified to conform to the current year's presentation.