The company presents the following non-GAAP financial measures in the Financial Highlights and in the Chairman's Letter:

(Dollar amounts in millions, except per share data)  
YEAR ENDING DECEMBER 31,
2003
  
2002
  
2001
  
2000
  
1999
  
Adjusted operating profit
$ 922
  
$ 923
  
$ 908
  
$ 899
  
$ 863
  
Adjusted income before
accounting changes
$ 585
  
$ 548
  
$ 522
  
$ 509
  
$ 469
  
Adjusted diluted earnings per share
$1.77
  
$1.66
  
$1.59
  
$1.58
  
$1.45
  
After-tax return on capital
12.8
 %
13.4
 %
12.7
 %
12.5
 %
11.6
 %
Return on equity
21.6
 %
22.8
 %
21.6
 %
21.9
 %
21.8
 %

ADJUSTED AMOUNTS
Adjusted operating profit, adjusted income before accounting changes and adjusted diluted earnings per share exclude goodwill amortization and special items in 1999 to 2002. Praxair adopted SFAS 142, which eliminated the amortization of goodwill prospectively in 2002. Special items are defined in footnote (a) on the Five-Year Financial Summary. The company believes these non-GAAP financial measures help investors to understand underlying performance on a comparable basis. The tables below reconcile reported figures to the adjusted amounts (earnings per share amounts have been adjusted to reflect the December 15, 2003 two-for-one stock split):

(Dollar amounts in millions, except per share data)
YEAR ENDING DECEMBER 31,
2003
2002
2001
2000
1999
Reported operating profit
$ 922
$ 923
$ 800
$ 707
$ 831
Add back: goodwill amortization
—
—
38
33
32
Add back: special items
—
—
70
159
—
Adjusted operating profit
$ 922
$ 923
$ 908
$ 899
$ 863
Reported income before accounting changes
$ 585
$ 548
$ 432
$ 363
$ 441
Add back: goodwill amortization, net of tax
—
—
33
29
28
Add back: special items, net of tax
—
—
57
117
—
Adjusted income before accounting changes
$ 585
$ 548
$ 522
$ 509
$ 469
Reported diluted earnings per share
$1.77
$1.66
$1.32
$1.13
$1.36
Add back: goodwill amortization, net of tax
—
—
0.10
0.09
0.09
Add back: special items, net of tax
—
—
0.17
0.36
—
Adjusted diluted earnings per share
$1.77
$1.66
$1.59
$1.58
$1.45

AFTER-TAX RETURN ON CAPITAL
After-tax return on capital is defined as after-tax operating profit plus income from equity investments, divided by average capital, and excluding special items. Capital is comprised of total debt, minority interests, shareholders’ equity and preferred stock. Praxair’s definition of after-tax return on capital may not be comparable to similar definitions used by other companies. The company believes that its after-tax return on invested capital is an appropriate measure for judging performance as it reflects the approximate after-tax profit earned as a percentage of investments by all parties in the business (debt, minority interest, preferred stock, and shareholders’ equity).

(Dollar amounts in millions)
 
 
 
 
 
YEAR ENDING DECEMBER 31,
2003
  
2002
  
2001
  
2000
  
1999
  
Adjusted operating profit (see above)
$   922
  
$   923
  
$   908
  
$   899
  
$   863
  
Less: reported taxes
(174
 )
(158
 )
(135
 )
(103
 )
(152
 )
Less: tax benefit on
interest expense (a)
(36
 )
(46
 )
(50
 )
(50
 )
(49
 )
Less: tax benefit on
goodwill amortization
—
  
—
  
(5)
  
(4)
  
(4)
  
Less: tax benefit on special items
—
  
—
  
(13)
  
(44)
  
—
  
Add back: equity income
12
  
9
  
9
  
10
  
11
  
Add back: special items ­
equity income
—
  
—
  
—
  
2
  
—
  
Net operating profit after tax (NOPAT)
$   724
  
$   728
  
$   714
  
$   710
  
$   669
  
Beginning capital
$5,252
  
$5,627
  
$5,656
  
$5,719
  
$6,168
  

Adjustment for
January devaluation in Brazil
—
  
—
  
—
  
—
  
(318)
  
Beginning capital as adjusted
$5,252
  
$5,627
  
$5,656
  
$5,719
  
$5,850
  
Ending capital
$6,099
  
$5,252
  
$5,627
  
$5,656
  
$5,719
  
Average capital
$5,676
  
$5,440
  
$5,642
  
$5,688
  
$5,785
  
After-tax return on capital(b)
12.8
 %
13.4
 %
12.7
 %
12.5
 %
11.6
 %
(a) Tax benefit on interest expense is computed using the effective rate adjusted for non-recurring income tax benefits and charges. The effective rates used were as follows: 2003, 24%; 2002, 22%; 2001, 22%; 2000, 22%; and 1999, 24%.  
(b) 2003 ending capital includes the impact of the purchase of previously leased assets for $339 million (see Note 5 to the consolidated financial statements). Consequently, after-tax return on capital for 2003 was reduced by 0.4%.  

RETURN ON EQUITY
Return on equity is defined as income before accounting changes, excluding special items and goodwill amortization, divided by average shareholders’ equity. Praxair’s definition of return on equity may not be comparable to similar definitions used by other companies. The company believes that its return on equity is an appropriate measure for judging performance for shareholders.

(Dollar amounts in millions)
 
 
 
 
 
YEAR ENDING DECEMBER 31,
2003
  
2002
  
2001
  
2000
  
1999
  
Adjusted income before
accounting changes (see above)
$   585
  
$   548
  
$   522
  
$   509
  
$   469
  
Beginning shareholders’ equity
$2,340
  
$2,477
  
$2,357
  
$2,290
  
$2,332
  
Adjustment for
January devaluation in Brazil
—
  
—
  
—
  
—
  
(318
 )
Beginning shareholders’
equity as adjusted
$2,340
  
$2,477
  
$2,357
  
$2,290
  
$2,014
  
Ending shareholders’ equity
$3,088
  
$2,340
  
$2,477
  
$2,357
  
$2,290
  
Average shareholders’ equity
$2,714
  
$2,409
  
$2,417
  
$2,324
  
$2,152
  
Return on equity
21.6
 %
22.8
 %
21.6
 %
21.9
 %
21.8
 %