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 15. FINANCIAL INSTRUMENTS
The following table is a summary of the notional amount of interest rate and currency derivatives outstanding at December 31, 2003 and 2002 (all maturities within one year):

(Millions of dollars)	2003	2002
INTEREST RATE SWAPS
Floating to fixed	$—	$100
	$—	$100
CURRENCY CONTRACTS
Balance sheet items	$501	$222
Firm commitments	1	1
Anticipated net income	10	210
	$512	$433

At December 31, 2003 and 2002, the fair value of all derivative contracts has been recorded in the consolidated balance sheet as $4 million in current assets and $2 million in current liabilities.

INTEREST RATE SWAPS
During 2003, Praxair’s $100 million notional amount interest rate swap agreement outstanding at December 31, 2002, that converted variable rate lease payments to fixed rate lease payments, matured with an immaterial loss recognized in earnings. Until maturity, this swap agreement was designated as, and was effective as, a cash flow hedge of outstanding lease obligations.

During 2002, Praxair entered into and terminated $500 million notional amount of interest rate swap agreements that effectively converted fixed rate interest to variable rate interest on the $500 million 6.375% notes that mature in April 2012. The termination resulted in a cash gain of $47 million, which Praxair recognized in earnings and was equally offset with a charge to earnings for the changes in fair value of the underlying debt instrument. The fair value increase to the $500 million 6.375% notes of $47 million is being recognized in earnings as a reduction to interest expense over the remaining original term of the underlying debt, or about ten years. The $47 million cash payment received upon termination of the swap is shown in minority transactions and other in the financing section in the 2002 consolidated statement of cash flows. For the year ended December 31, 2003, $5 million was recognized in earnings as a reduction to interest expense ($2 million during the year ended December 31, 2002) and $40 million remains unrecognized at December 31, 2003 ($45 million at December 31, 2002) (see Note 14).

CURRENCY CONTRACTS
Praxair is a party to currency exchange forward contracts to manage its exposure to fluctuations in foreign currency exchange rates. Hedges of balance sheet items are related to recorded balance sheet exposures, including intercompany transactions, and hedges of firm commitments are for the purchase of equipment related to construction projects. Additionally, at December 31, 2002, there were $39 million of notional value of currency exchange contracts that effectively offset each other (none at December 31, 2003).

The net income hedges outstanding at December 31, 2003 are related to anticipated 2004 net income in Canada. The net income hedges outstanding at December 31, 2002 were related to anticipated 2003 net income for the full year in China, Peru, Colombia, India, Thailand and Korea; for nine months in Brazil, and; for six months in Europe. The amounts recorded in other income (expenses) - net as a result of net income hedging contracts includes a loss of $9 million in 2003, a gain of $17 million in December 31, 2002, and a loss of $8 million in 2001 (see Note 6).

COMMODITY SWAPS
At December 31, 2003, Praxair had four (three at December 31, 2002) outstanding commodity swap agreements to hedge its exposure to the variability in future cash flows for forecasted purchases of natural gas. The 2003 outstanding commodity swap agreements settle in 2004 and their impact will not be significant.

Counterparties to interest rate derivative contracts and currency exchange forward contracts are primarily major banking institutions with credit ratings of investment grade or better and no collateral is required. There are no significant risk concentrations. Management believes the risk of incurring losses on derivative contracts related to credit risk is remote and any losses would be immaterial.