Note  1 -- Summary of Significant Accounting Policies Note  2 -- Accounting Changes Note  3 -- Special Charges Note  4 -- Segment Information Note  5 -- Leases Note  6 -- Supplementary Income Statement Information Note  7 -- Provision for Income Taxes Note  8 -- Earnings Per Share Note  9 -- Supplementary Balance Sheet Information Note 10 -- Property, Plant and Equipment - Net Note 11 -- Deferred Income Taxes Note 12 -- Goodwill Note 13 -- Other Intangible Assets Note 14 -- Debt Note 15 -- Financial Instruments Note 16 -- Shareholder's Equity Note 17 -- Preferred Stock Note 18 -- Incentive Plans and Stock Options Note 19 -- Retirement Programs Note 20 -- Commitments and Contingencies Note 21 -- Quarterly Data (Unaudited)
 

NOTE 3. 2001 SPECIAL CHARGES
In the third quarter of 2001, Praxair recorded pre-tax charges totaling $70 million, including $40 million for severance and $30 million for asset write-offs, plant closings and other costs. The special charges were recorded as follows: cost of goods sold, $7 million; selling, general and administrative, $5 million; other income (expenses) - net, $58 million and their income tax benefit was $13 million. The net impact of the charges was $57 million after taxes, or $0.17 per diluted share. The cash requirements of the after-tax charge were originally estimated to be approximately $32 million.

The severance costs, totaling $40 million, were for the elimination of approximately 950 positions in all segments in response to weaker economic conditions and an expected further slowdown in the aviation industry and new business strategies in South America. As of December 31, 2002, all personnel reductions related to these charges had been completed.

Other costs totaling $30 million included asset write-offs and plant closings, partially offset by gains on sales of assets and investments totaling $9 million, and a benefit policy change.

The North America actions related primarily to the elimination of 280 positions in the U.S. industrial and packaged gases business, with smaller reductions in Canada and Mexico. The actions also included certain asset write-offs, partially offset by a benefit policy change.

In South America, the implementation of new business strategies eliminated about 130 positions and certain assets were written down. The company placed greater emphasis on cash flow generation and focused sales growth on less capital-intensive technology and service initiatives.

Surface Technologies is a leading supplier of high-performance coatings and repair services for aircraft engines and parts. As a result of certain events during 2001, Surface Technologies anticipated a decline in commercial aircraft engine production and servicing, which expected to be only partially offset by an increase in military orders. As a result, Praxair downsized its aviation business, by reducing its workforce by about 310 positions and consolidated its service locations.

Corporate actions included the elimination of approximately 140 positions in plant engineering and construction, and corporate staff groups, consolidating and focusing its industrial gases research and development programs, including closing a research location, and certain asset write-offs. Asia actions included the elimination of approximately 50 positions. Partially offsetting these costs was a gain on a property sale and a gain on the sale of an equity investment. The charge also included the termination of about 40 positions in Europe.

The table below summarizes the activity in the accrual for special charges for 2001 and earlier years. The remaining accrual at December 31, 2003 contains $1 million related to the 2001 special charges and $15 million related to future lease payments from earlier programs.

(Millions of dollars)	SEVERANCE	OTHER CHARGES	TOTAL ACCRUAL
Balance, December 31, 2000	$45	$33	$78
Restructuring and other actions	40	30	70
Adjustments	(4)	4	—
2001 activity	(36)	(41)	(77)
Balance, December 31, 2001	45	26	71
Adjustments	(7)	(1)	(8)
2002 activity	(29)	(4)	(33)
Balance, December 31, 2002	9	21	30
Adjustments	(2)	(4)	(6)
2003 activity	(6)	(2)	(8)
Balance, December 31, 2003	$ 1	$15	$16