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 19. RETIREMENT PROGRAMS
Pensions — Praxair has two main U.S. retirement programs which are non-contributory defined benefit plans: the Praxair Pension Plan (formerly, the Retirement Program Plan for Employees of Praxair, Inc. and Participating Subsidiary Companies) and the CBI Pension Plan. The latter program primarily benefits former employees of CBI Industries, Inc. which Praxair acquired in 1996. Effective July 1, 2002, the Praxair Retirement Program was amended to give participating employees a one-time choice to remain covered by the old formula or to elect coverage under a new formula. The old formula is based predominantly on years of service, age and compensation levels prior to retirement, while the new formula provides for an annual contribution to an individual account which grows with interest each year at a predetermined rate. Also, this new formula applies to all new employees hired into businesses adopting this plan. U.S. pension plan assets are comprised of a diversified mix of investments, including domestic and international corporate equities, government securities and corporate debt securities. Pension coverage for employees of certain of Praxair’s international subsidiaries generally is provided by those companies through separate plans. Obligations under such plans are primarily provided for through diversified investment portfolios, with some smaller plans provided for under insurance policies or by book reserves.

Praxair’s U.S. packaged gases business has a defined contribution plan. Company contributions to this plan are calculated as a percentage of salary based on age plus service. Praxair’s U.S. healthcare business sponsors a defined contribution plan which provides for a matching contribution as well as a company contribution that is not dependent on employee contributions. In both plans, U.S. employees may supplement the company contributions up to the maximum allowable by IRS regulations. Certain international subsidiaries of the company also sponsor defined contribution plans where contributions are determined under various formulas. The cost for all defined contribution plans was $8 million in 2003 and $7 million in both 2002 and 2001 (not included in the tables that follow).

U.S. employees other than those in the packaged gases and healthcare businesses are eligible to participate in a defined contribution savings plan. Employees may contribute up to 40% of their compensation, subject to the maximum allowable by IRS regulations. Company contributions to this plan are calculated on a graduated scale based on employee contributions to the plan. The cost for this plan was $12 million, $11 million and $10 million in 2003, 2002 and 2001, respectively (not included in the tables that follow).

Postretirement Benefits Other Than Pensions (OPEB) — Praxair provides health care and life insurance benefits to certain eligible retired employees. These benefits are provided through various insurance companies and health care providers. Praxair is also obligated to make payments for a portion of postretirement benefits related to retirees of Praxair’s former parent. Additionally, as part of the CBI acquisition in 1996, Praxair assumed responsibility for health care and life insurance benefit obligations for CBI’s retired employees. All postretirement health care programs have cost caps that limit the company’s exposure to future cost increases. In addition, as part of the election made for July 1, 2002, all current employees were given the choice of maintaining coverage in retirement under the current plan, or to move to a plan whereby coverage would be provided, but with no Praxair subsidy whatsoever. Praxair does not currently fund its postretirement benefits obligations. Praxair retiree plans may be changed or terminated by Praxair at any time for any reason with no liability to current or future retirees.

Praxair uses a measurement date of December 31 for the majority of its pension and other postretirement benefit plans.

PENSION AND POST RETIREMENT BENEFITS COSTS
The components of net pension and OPEB costs for 2003, 2002 and 2001 are shown below:

(Millions of dollars)	PENSIONS					OPEB
YEAR ENDED DECEMBER 31,	2003	2002	2001	2003		2002	2001
NET BENEFIT COST
Service cost	$30	$30	$26	$  6		$  4	$  5
Interest cost	79	73	67	18		16	14
Expected return on assets	(82)	(86)	(81)	—		—	—
Net amortization and deferral	(1)	(2)	(3)	(5)		(3)	(4)
Net periodic benefit cost	$26	$15	$  9	$19		$17	$15

The changes in projected benefit obligation (PBO) and plan assets and the funded status reconciliation as of December 31, 2003 and 2002 for Praxair’s significant pension and OPEB programs are shown below:

	PENSIONS
(Millions of dollars)	2003		2002			OPEB
YEAR END DECEMBER 31,	U.S.	INTL	U.S.	INTL		2003	2002
CHANGE IN BENEFIT OBLIGATION (PBO)
Benefit obligation, January 1	$ 901	$ 246	$ 759	$236		$ 254	$224
Service cost	21	8	21	9		5	4
Interest cost	61	17	58	15		17	16
Participant contributions	—	—	—	1		7	7
Actuarial loss (gain)	54	23	85	—		2	26
Benefits paid	(43)	(15)	(40)	(15)		(26)	(26)
Curtailment / settlement (gains)	—	(1)	—	(1)		—	—
Currency translation	—	40	—	1		6	(4)
Other changes	—	—	18	—		—	7
Benefit obligation, December 31	$ 994	$ 318	$ 901	$246		$ 265	$254
CHANGE IN PLAN ASSETS
Fair value of plan assets, January 1	$ 518	$ 230	$ 605	$241		$     —	$    —
Actual return on plan assets	138	58	(54)	(5)		—	—
Company contributions	25	9	—	7		—	—
Participant contributions	—	—	—	1		—	—
Benefits paid	(37)	(14)	(33)	(15)		—	—
Currency translation	—	36	—	1		—	—
Fair value of plan assets, December 31	$ 644	$ 319	$ 518	$230		$     —	$     —
FUNDED STATUS RECONCILIATION
Funded status, December 31	$(350)	$     1	$(383)	$ (16)		$(265)	$(254)
Unrecognized (gains) losses — net	220	11	247	11		28	24
Unrecognized prior service cost	(5)	4	(6)	2		(4)	(9)
Unrecognized transition amount	—	1	—	1		—	—
Net amount recognized, December 31	$(135)	$   17	$(142)	$  (2)		$(241)	$(239)
AMOUNTS IN THE BALANCE SHEET
Prepaid benefit cost	$     —	$   67	$     —	$    4		$     —	$    —
Accrued benefit liability	(282)	(55)	(305)	(9)		(241)	(239)
Intangible assets	—	—	—	1		—	—
Accumulated other comprehensive income (loss)	147	5	163	2		—	—
Net amount recognized, December 31	$(135)	$   17	$(142)	$  (2)		$(241)	$(239)
PENSION PLANS WITH AN ACCUMULATED BENEFIT
OBLIGATION IN EXCESS OF PLAN ASSETS
Projected benefit obligation	$ 994	$200	$ 901	$161		N/A	N/A
Accumulated benefit obligation (ABO)	$ 927	$180	$ 823	$138		N/A	N/A
Fair value of plan assets	$ 644	$117	$ 518	$  86		N/A	N/A
OTHER INFORMATION
Increase/(decrease) in minimum liability
included in other comprehensive income	$  (16)	$    3	$ 145	$    2		$     —	$    —
Accumulated benefit obligation (ABO)	$ 927	$284	$ 823	$211		N/A	N/A

ASSUMPTIONS

	PENSIONS
	U.S.		INTL			OPEB
	2003	2002	2003	2002		2003	2002
Weighted average assumptions used to determine benefit obligations at December 31,
Discount rate	6.25%	6.75%	6.00%	6.25%		6.25%	6.75%
Rate of increase in compensation levels	3.25%	3.75%	3.25%	3.25%		3.25%	3.75%
Weighted average assumptions used to determine net periodic benefit cost for years ended December 31,
Discount rate	6.75%	7.25%	6.25%	7.25%		6.75%	7.25%
Rate of increase in compensation levels	3.75%	4.25%	3.25%	4.25%		3.75%	4.25%
Expected long-term rate of return on plan assets*	8.50%	9.25%	8.00%	8.75%
* For 2004, the expected long-term rate of return on plan assets will be 8.50% for the U.S. plans. Expected weighted average returns for international plans will vary. These rates are determined annually by management based on a weighted average of current and historical market trends, historical performance and the portfolio mix of investments.

	OPEB
ASSUMED HEALTH CARE TREND RATES AT DECEMBER 31,	2004	2003
Health care cost trend assumed	10.00%	11.00%
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)	5.00%	5.00%
Year that the rate reaches the ultimate trend rate	2008	2008

These health care cost trend rate assumptions have an impact on the amounts reported; however, cost caps limit the impact on the net OPEB benefit cost. To illustrate the effect, a one-percentage point change in assumed health care cost trend rates would have the following effects:

	ONE-PERCENTAGE POINT
(Millions of dollars)	INCREASE	DECREASE
Effect on the total of service and interest cost components of net OPEB benefit cost	$—	$—
Effect on OPEB benefit obligation	$1	$(1)

PLAN ASSETS
Praxair’s U.S. pension plan weighted-average asset allocations at December 31, 2003 and 2002, and the target allocation for 2003, by asset category are as follows:

			PLAN ASSETS
	2003		AT DECEMBER 31
	TARGET
	ALLOCATIONS		2003		2002
ASSET CATEGORY
Equity securities*	60%-80	%	69	%	66	%
Debt securities	20%-40	%	31	%	33	%
Real estate	—		—		—
Other	—		—		1	%
Total	100	%	100	%	100	%
* Equity securities do not include any Praxair common stock.

The investments of the U.S. pension plan are managed to meet the future expected benefit liabilities of the Plan over the long term by investing in diversified portfolios consistent with prudent diversification and historical and expected capital market returns. When Praxair became an independent publicly traded company in 1992, its former parent retained all liabilities for its term-vested and retired employees. Praxair’s plan received assets and retained pension liabilities for its own active employee base. Therefore, the liabilities under the Praxair U.S. pension plan mature at a later date compared to pension funds of other similar companies. Investment strategies are reviewed and approved by the board of directors and investment performance is tracked against appropriate benchmarks.

CONTRIBUTIONS
Pension contributions were $34 million in 2003 and $7 million in 2002. The U.S. Congress is still in the process of reviewing and updating legislation relating to the appropriate interest rate for companies to utilize for pension funding purposes. Estimates of required 2004 contributions are in the range of $80 million assuming that interest rate relief will become law. If interest rate relief legislation is not enacted, then our estimates of the 2004 contributions are in the range of $130 million. In February 2004, contributions of $60 million were paid.