NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LINDE PLC AND SUBSIDIARIES
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Linde plc ("Linde" or "the company") is an incorporated public limited company formed under the laws of Ireland. Linde’s registered office is located at Ten Earlsfort Terrace, Dublin 2, D02 T380 Ireland. Linde’s principal executive offices are located at The Priestley Centre, 10 Priestley Road, Surrey Research Park, Guildford, Surrey GU2 7XY, United Kingdom. Linde trades on the New York Stock Exchange and on the Frankfurt Stock Exchange under the symbol LIN.
Principles of Consolidation – The consolidated financial statements were prepared in conformity with accounting principles generally accepted in the United States of America (" U.S. GAAP") and include the accounts of all significant subsidiaries where control exists and, in limited situations, variable-interest entities where the company is the primary beneficiary. Intercompany transactions and balances are eliminated in consolidation and any significant related-party transactions have been disclosed.
Equity investments generally consist of 20% to 50% owned operations where the company exercises significant influence, but does not have control. Equity income from equity investments in corporations is reported on an after-tax basis. Pre-tax income from equity investments that are partnerships or limited-liability corporations is included in other income (expenses) – net with related taxes included in Income taxes. Equity investments are reviewed for impairment whenever events or circumstances reflect that an impairment loss may have been incurred.
Changes in ownership interest that result either in consolidation or deconsolidation of an investment are recorded at fair value through earnings, including the retained ownership interest, while changes that do not result in either consolidation or deconsolidation of a subsidiary are treated as equity transactions.
Use of Estimates – The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. While actual results could differ, management believes such estimates to be reasonable.
Operations – Linde is the largest industrial gases company globally. The company produces, sells and distributes atmospheric, process and specialty gases to a diverse group of industries including aerospace, chemicals, food and beverage, electronics, energy, healthcare, manufacturing, and metals. Linde’s Engineering business offers its customers an extensive range of gas production and processing services including supplying plant components and services directly to customers.
Revenue Recognition – Revenue is recognized as control of goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled to receive in exchange for the goods or services. See Note 19 for additional details regarding Linde's revenue recognition policies.
Cash Equivalents – Cash equivalents are considered to be highly liquid securities with original maturities of three months or less.
Inventories – Inventories are stated at the lower of cost or net realizable value. Cost is determined using the average-cost method.
Property, Plant and Equipment – Net – Property, plant and equipment are carried at cost, net of accumulated depreciation. The company capitalizes labor, applicable overhead and interest as part of the cost of constructing major facilities. Expenditures for additions and improvements that extend the lives or increase the capacity of plant assets are also capitalized. Depreciation is calculated on the straight-line method based on the estimated useful lives of the assets, which range from 3 years to 40 years (see Note 8). Linde uses accelerated depreciation methods for tax purposes where appropriate. Maintenance of property, plant and equipment is generally expensed as incurred.
The company performs a test for impairment whenever events or changes in circumstances indicate that the carrying amount of an individual asset or asset group may not be recoverable. Should projected undiscounted future cash flows be less than the carrying amount of the asset or asset group, an impairment charge reducing the carrying amount to fair value is required. Fair value is determined based on the most appropriate valuation technique, including discounted cash flows.
Asset-Retirement Obligations – An asset-retirement obligation is recognized in the period in which sufficient information exists to determine the fair value of the liability with a corresponding increase to the carrying amount of the related property, plant and equipment which is then depreciated over its useful life. The liability is initially measured at fair value and then accretion expense is recorded in each subsequent period. The company’s asset-retirement obligations are
primarily associated with its on-site long-term supply arrangements where the company has built a facility on land leased from the customer and is obligated to remove the facility at the end of the contract term. The company's asset-retirement obligations are not material to its consolidated financial statements.
Foreign Currency Translation – For most foreign operations, the local currency is the functional currency and translation gains and losses are reported as part of the accumulated other comprehensive income (loss) component of equity as a cumulative translation adjustment (see Note 7).
Financial Instruments – Linde enters into various derivative financial instruments to manage its exposure to fluctuating interest rates, currency exchange rates, commodity pricing and energy costs. Such instruments primarily include interest-rate swap and treasury rate lock agreements; currency-swap agreements; forward contracts; currency options; and commodity-swap agreements. These instruments are not entered into for trading purposes. Linde only uses commonly traded and non-leveraged instruments.
There are three types of derivatives the company enters into: (i) those relating to fair-value exposures, (ii) those relating to cash-flow exposures, and (iii) those relating to foreign currency net investment exposures. Fair-value exposures relate to recognized assets or liabilities, and firm commitments; cash-flow exposures relate to the variability of future cash flows associated with recognized assets or liabilities, or forecasted transactions; and net investment exposures relate to the impact of foreign currency exchange rate changes on the carrying value of net assets denominated in foreign currencies.
When a derivative is executed and hedge accounting is appropriate, it is designated as either a fair-value hedge, cash-flow hedge, or a net investment hedge. Currently, Linde designates all interest-rate and treasury rate locks as hedges for accounting purposes; however, currency contracts are generally not designated as hedges for accounting purposes unless they are related to forecasted transactions. Whether designated as hedges for accounting purposes or not, all derivatives are linked to an appropriate underlying exposure. On an ongoing basis, the company assesses the hedge effectiveness of all derivatives designated as hedges for accounting purposes to determine if they continue to be highly effective in offsetting changes in fair values or cash flows of the underlying hedged items. If it is determined that the hedge is not highly effective, then hedge accounting will be discontinued prospectively.
Changes in the fair value of derivatives designated as fair-value hedges are recognized in earnings as an offset to the change in the fair values of the underlying exposures being hedged. The changes in fair value of derivatives that are designated as cash-flow hedges are deferred in accumulated other comprehensive income (loss) and are reclassified to earnings as the underlying hedged transaction affects earnings. Provided the hedge remains highly effective, any ineffectiveness is deferred in accumulated other comprehensive income (loss) and are reclassified to earnings as the underlying hedged transaction affects earnings. Hedges of net investments in foreign subsidiaries are recognized in the cumulative translation adjustment component of accumulated other comprehensive income (loss) on the consolidated balance sheets to offset translation gains and losses associated with the hedged net investment. Derivatives that are entered into for risk-management purposes and are not designated as hedges (primarily related to anticipated net income and currency derivatives other than for firm commitments) are recorded at their fair market values and recognized in current earnings.
See Note 12 for additional information relating to financial instruments.
Goodwill – Acquisitions are accounted for using the acquisition method which requires allocation of the purchase price to assets acquired and liabilities assumed based on estimated fair values. Any excess of the purchase price over the fair value of the assets and liabilities acquired is recorded as goodwill. Allocations of the purchase price are based on preliminary estimates and assumptions at the date of acquisition and are subject to revision based on final information received, including appraisals and other analyses which support underlying estimates.
The company performs a goodwill impairment test annually or more frequently if events or circumstances indicate that an impairment loss may have been incurred. During the fourth quarter of fiscal year 2019, the company changed the date of its annual goodwill impairment test from April 30 to October 1. The change was made to more closely align the impairment testing date with the company’s planning process.
The impairment test allows an entity to first assess qualitative factors to determine if it is more likely than not that the fair value of a reporting unit is less than carrying value. If it is determined that it is more likely than not that the fair value of a reporting unit is less than carrying value then the company will estimate and compare the fair value of its reporting units to their carrying value, including goodwill. Reporting units are determined based on one level below the operating segment level. The qualitative analysis of goodwill for the year ending December 31, 2020 showed the fair value of the reporting units substantially exceeded the carrying value, as such further analysis was not performed.
See Note 9 for additional information relating to goodwill.
Other Intangible Assets – Other intangible assets, primarily customer relationships, are amortized over the estimated period of benefit. The determination of the estimated period of benefit will be dependent upon the use and underlying characteristics of the intangible asset. Linde evaluates the recoverability of its intangible assets subject to amortization when facts and circumstances indicate that the carrying value of the asset may not be recoverable. If the carrying value is not recoverable, impairment is measured as the amount by which the carrying value exceeds its estimated fair value. Fair value is generally estimated based on either appraised value or other valuation techniques. Indefinite lived intangible assets related to the Linde brand are evaluated for impairment on an annual basis or more frequently if events or circumstances indicate an impairment loss may have occurred. During the fourth quarter of fiscal year 2019, the company changed the date of its annual impairment test from April 30 to October 1. The change was made to more closely align the impairment testing date with the company’s planning process.
See Note 10 for additional information relating to other intangible assets.
Assets Held for Sale and Discontinued Operations – Assets held for sale, as well as liabilities directly related to these assets, are classified separately in the consolidated balance sheets as held for sale if the requirements of the FASB’s Accounting Standards Codification (“ASC”) 360, Property, Plant and Equipment, are satisfied. The main requirements of ASC 360 are: (i) management having the authority to approve the action has committed to a plan to sell the assets and an active program to locate a buyer has been initiated, (ii) the assets are available for sale in their present condition at a reasonable market price, and (iii) a sale within the next twelve months is probable. Assets classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell. Amortization and depreciation has been discontinued. The process involved in determining the fair value less costs to sell involves estimates and assumptions that are subject to uncertainty.
Discontinued operations are reported as soon as a business is classified as held for sale, or has already been disposed of, and when the business to be disposed of represents a strategic shift that has (or will have) a major effect on the company’s operations and financial results. Businesses acquired with the intent of divesting are also required to be reported as discontinued operations. The profit/loss from discontinued operations is reported separately from the expenses and income from continuing operations in the consolidated statements of income. In the consolidated statement of cash flows, the cash flows from discontinued operations are shown separately from the cash flows from continuing operations. The information provided in the Notes relates to continuing operations. If the information relates exclusively to discontinued operations, this is highlighted accordingly.
Income Taxes – Deferred income taxes are recorded for the temporary differences between the financial statement and tax bases of assets and liabilities using currently enacted tax rates. Valuation allowances are established against deferred tax assets whenever circumstances indicate that it is more likely than not that such assets will not be realized in future periods.
Under the guidance for accounting for uncertainty in income taxes, the company can recognize the benefit of an income tax position only if it is more likely than not (greater than 50%) that the tax position will be sustained upon tax examination, based solely on the technical merits of the tax position. Otherwise, no benefit can be recognized. The tax benefits recognized are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Additionally, the company accrues interest and related penalties, if applicable, on all tax exposures for which reserves have been established consistent with jurisdictional tax laws. Interest and penalties are classified as income tax expense in the financial statements.
See Note 5 for additional information relating to income taxes.
Retirement Benefits – Most Linde employees participate in a form of defined benefit or contribution retirement plan, and additionally certain employees are eligible to participate in various post-employment health care and life insurance benefit plans. The cost of contribution plans is recognized in the year earned while the cost of other plans is recognized over the employees’ expected service period to the company, all in accordance with the applicable accounting standards. The funded status of the plans is recorded as an asset or liability in the consolidated balance sheets. Funding of retirement benefits varies and is in accordance with local laws and practices.
See Note 16 for additional information relating to retirement programs.
Share-based Compensation– The company has historically granted share-based awards which consist of stock options, restricted stock and performance-based stock. Share-based compensation expense is generally recognized on a straight-line basis over the stated vesting period. For stock awards granted to full-retirement-eligible employees, compensation expense is recognized over the period from the grant date to the date retirement eligibility is achieved. For performance-based awards, compensation expense is recognized only if it is probable that the performance condition will be achieved.
See Note 15 for additional disclosures relating to share-based compensation.
Reclassifications – Certain prior years’ amounts have been reclassified to conform to the current year’s presentation.
Recently Issued Accounting Standards
Accounting Standards Implemented in 2020
•Credit Losses on Financial Instruments –In June 2016, the FASB issued updated guidance on the measurement of credit losses. The guidance introduces a new accounting model for expected credit losses on financial instruments, including trade receivables, based on estimates of current expected credit losses. This guidance is effective for the company beginning in the first quarter 2020 and requires companies to apply the change in accounting on a modified retrospective basis. The adoption of the guidance had an immaterial impact on the consolidated financial statements.
•Simplifying the Test for Goodwill Impairment – In January 2017, the FASB issued updated guidance on the measurement of goodwill. The new guidance eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge. The guidance is effective for the company beginning in the first quarter 2020. The adoption of the guidance had no impact on the consolidated financial statements.
•Fair Value Measurement Disclosures - In August 2018, the FASB issued guidance that modifies the disclosure requirements for fair value measurements. The guidance is effective in fiscal year 2020, with early adoption permitted. Certain amendments must be applied prospectively while other amendments must be applied retrospectively. The adoption of the guidance had an immaterial impact on the consolidated financial statements.
•Retirement Benefit Disclosures - In August 2018, the FASB issued guidance that modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement benefit plans. The guidance is effective in fiscal year 2020, with early adoption permitted, and must be applied on a retrospective basis. The adoption of the guidance had an immaterial impact on the consolidated financial statements impacting disclosure only.
Accounting Standards to be Implemented
•Income Taxes - Simplifying the Accounting for Income Taxes - In December 2019, the FASB issued guidance which simplifies the accounting for income taxes by removing several exceptions in the current standard and adds guidance to reduce complexity in certain areas, such as requiring that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date, evaluating whether a step-up in tax basis of goodwill relates to a business combination or a separate transaction and allocating taxes to members of a consolidated group. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The company is currently assessing the impact that adopting this guidance will have on its consolidated financial statements and does not expect this guidance to have a material impact.
•Reference Rate Reform - In March 2020, the FASB issued guidance related to reference rate reform which provides practical expedients and exceptions for applying GAAP to contract modifications, hedging relationships and other transactions that the reference London Interbank Offered Rate (“LIBOR”) and other interbank offered rates. This update is applicable to our contracts and hedging relationships that reference LIBOR and other interbank offered rates. The amendments may be applied to impacted contracts and hedges prospectively through December 31, 2022. We are currently evaluating the impact of this guidance on our consolidated financial statements.
NOTE 2. Business Combination and Divestitures
Merger of Praxair, Inc. and Linde AG
On October 31, 2018 Praxair and Linde AG combined their respective businesses through an all-stock transaction and became subsidiaries of the company.
In connection with the business combination, each share of common stock of Praxair par value $0.01 per share, (excluding any shares held in treasury immediately prior to the effective time of the merger, which were automatically canceled and retired for no consideration) was converted into one ordinary share, par value €0.001 per share, of Linde plc. Additionally, each tendered share of common stock of Linde AG was converted into 1.54 ordinary shares of Linde plc.
As provided in the business combination agreement, at the effective time of the business combination outstanding Praxair stock options and other equity awards were generally converted into stock options and equity awards on a 1:1 basis with respect to Linde shares. Outstanding Linde AG share-based compensation awards were either settled in cash (for the portion vested), or were converted into similar stock options and equity awards with respect to Linde shares (for the portion unvested), after giving effect to the 1.54 exchange ratio.
Results of Linde AG Operations in 2018
The results of operations of Linde AG have been included in the company’s consolidated statements of income since the merger. The following table provides Linde AG “Sales” and “Income (loss) from continuing operations” included in the company's results for the period November 1 through December 31, 2018.
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|
|
|
|
|
|
|
|
|
|
Millions of dollars
|
|
|
|
Linde AG Results of Operations
|
|
November 1, - December 31, 2018
|
|
Sales
|
|
$
|
2,873
|
|
|
Income (loss) from continuing operations*
|
|
$
|
(385)
|
|
|
*Includes net charges of $451 million related to the impacts of purchase accounting.
|
Unaudited Pro Forma Information - 2018
Linde's unaudited pro forma results presented below were prepared pursuant to the requirements of ASC 805 and give effect to the merger as if it had been consummated on January 1, 2017. The pro forma results have been prepared for comparative purposes only, and do not necessarily represent what the revenue or results of operations would have been had the merger been completed on January 1, 2017. In addition, these results are not intended to be a projection of future operating results and do not reflect synergies that might be achieved.
The unaudited pro forma results include adjustments for the preliminary purchase accounting impact (including, but not limited to, depreciation and amortization associated with the acquired tangible and intangible assets, amortization of the fair value adjustment to investment in nonconsolidated affiliates, and reduction of interest expense related to the fair value adjustment to long-term debt along with the related tax and non-controlling interest impacts), the alignment of accounting policies, adjustments due to IFRS compliant reporting conversion to U.S. GAAP and the elimination of transactions between Praxair and Linde AG.
The unaudited pro forma results exclude the results of operations of the Linde AG merger-related divestitures as these divestitures are reflected as discontinued operations. The Praxair merger-related divestitures are included in the results from continuing operations, including the results from Praxair's European business through the disposition date of December 3, 2018, in the unaudited pro forma results presented below, for all periods presented, as these divestitures do not qualify for discontinued operations.
The unaudited pro forma results are summarized below:
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|
|
|
|
|
|
|
|
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Millions of dollars
|
|
2018
|
|
Sales (a)
|
|
$
|
29,774
|
|
|
Income from continuing operations
|
|
$
|
4,739
|
|
(a) Includes sales from Praxair's merger-related divestitures of $1,625 million for the year ended December 31, 2018.
Significant nonrecurring amounts reflected in the pro forma results are as follows:
A $3,294 million gain ($2,923 million after tax) was recorded in the fourth quarter 2018 as a result of the divestiture of Praxair's European industrial gases business and is included in the December 31, 2018 pro forma income from continuing operations.
From January 1, 2017 through December 31, 2018, Praxair, Inc. and Linde AG collectively incurred pre-tax costs of $736 million ($680 million after tax) to prepare for and close the merger. These merger costs were reflected within the results of operations in the pro forma results as if they were incurred on January 1, 2017. Any costs incurred related to merger-related divestitures and integration and to prepare for the intended business separations were reflected in the pro forma results in the period in which they were incurred.
The company incurred pre-tax charges of $368 million ( $279 million after tax) and $10 million ($8 million after tax) in 2018 related to the fair value step‑up of inventories acquired and sold as well as a pension settlement due to the payout to certain participants as a result of change in control provisions within a U.S. nonqualified pension plan, respectively. The 2018 pro forma results were adjusted to exclude these charges.
Merger-Related Divestitures
Praxair Merger-Related Divestitures - Primarily European Industrial Gases Business
As a condition of the EC regulatory approval of the merger transaction, Praxair agreed to sell the majority of its industrial gases business in Europe. The below transactions were completed in 2018, and the company recognized a net pre-tax gain of $3,294 million ($2,923 million after tax) in the consolidated statements of income.
•The Società Italiana Acetilene e Derivati S.p.A. ("SIAD") Sale and Purchase Agreement dated December 5, 2017 whereby Praxair agreed, inter alia, to sell its 34% non-controlling participation in its Italian joint venture SIAD to its joint venture partner Flow Fin in exchange for Flow Fin’s 40% non-controlling participation in Praxair’s majority-owned Italian joint venture, Rivoira S.p.A., and cash payment of a net purchase price of €90 million ($102 million as of October 31, 2018) by Praxair to Flow Fin. This transaction was completed on October 31, 2018, and;
•The Praxair Europe Sale and Purchase Agreement dated July 5, 2018 pursuant to which Praxair sold the majority of its European businesses to Taiyo Nippon Sanso Corporation for €5,000 million in cash consideration ($5,700 million at December 3, 2018), reduced by estimated normal closing adjustments of €86 million ($96 million). These transactions were completed on December 3, 2018.
Additionally, to satisfy regulatory requirements in other jurisdictions, Praxair agreed to sell certain operations in Chile, China, India and South Korea. The Chilean business was sold as part of the Linde AG Americas SPA (as defined below). The sale of the select Indian assets was completed on July 12, 2019 with a sale price of $218 million and resulted in a gain of $164 million recognized in "Net gain on sale of businesses" in the consolidated statements of income. The sale of select assets in South Korea and China were completed in 2019 and 2020, respectively. These businesses were evaluated for discontinued operations accounting treatment under U.S. GAAP and it was determined that they did not meet the definition of a discontinued operation as these transactions did not represent a strategic shift with a major effect, after considering the impact of the merger.
Linde AG Merger-Related Divestitures - Primarily Americas Industrial Gases Business
As a condition of the U.S. regulatory approval of the merger, Linde AG agreed to sell the majority of its industrial gases business in the Americas, as described below:
•The Linde AG Americas Sales and Purchase Agreement, dated July 16, 2018, as and further amended on September 22, 2018, October 19, 2018, and February 20, 2019 whereby Linde AG and Praxair, Inc. entered into an agreement with a consortium comprising companies of the German industrial gases manufacturer Messer Group and CVC Capital Partners Fund VII to sell the majority of Linde AG’s industrial gases business in North America and certain industrial gases business activities of Linde AG's in South America for $2.9 billion in cash consideration after purchase price adjustments for certain items relating to assets and liabilities of the sold
businesses. In addition, divestitures include $0.5 billion of proceeds for incremental plant sales within the Americas under other agreements. These transactions were completed on March 1, 2019.
•On April 30, 2019, Linde completed the sale of select assets of Linde South Korea with the sale price of $1.2 billion to IMM Private Equity Inc., to satisfy requirements of the Korea Fair Trade Commission. The assets divested include bulk and on-site business in Giheung, Pohang and Seosansites as well as oxygen and nitrogen on-site generators.
•On December 16, 2019, Linde completed the sale of select assets of Linde India with a sale price of $193 million.
•In March 2020, Linde completed the sale of select assets of Linde China with a sale price of $98 million.
Discontinued Operations
Only the sales of the Linde AG merger-related divestitures meet the criteria for discontinued operations, Praxair merger-related divestitures do not qualify as discontinued operations. As such, operations related to the Linde AG merger-related divestitures are included within Income from discontinued operations, net of tax for periods subsequent to the merger, as summarized below:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of dollars
|
|
2020
|
|
2019
|
|
November 1, - December 31, 2018
|
|
Net sales
|
|
$
|
7
|
|
|
$
|
449
|
|
|
$
|
388
|
|
|
Cost of sales
|
|
3
|
|
|
251
|
|
|
173
|
|
|
Other operating costs
|
|
1
|
|
|
43
|
|
|
90
|
|
|
Operating profit
|
|
$
|
3
|
|
|
$
|
155
|
|
|
$
|
125
|
|
|
Income from equity investments
|
|
1
|
|
|
8
|
|
|
1
|
|
|
Income taxes
|
|
—
|
|
|
54
|
|
|
9
|
|
|
Income from discontinued operations, net of tax
|
|
$
|
4
|
|
|
$
|
109
|
|
|
$
|
117
|
|
|
Noncontrolling interests
|
|
—
|
|
|
(7)
|
|
|
(9)
|
|
|
Income from continuing operations, net of tax and noncontrolling interests
|
|
$
|
4
|
|
|
$
|
102
|
|
|
$
|
108
|
|
For the years ended December 31, 2020, 2019 and 2018 there were no material amounts of capital expenditures or significant operating or investing non-cash items related to discontinued operations.
Non-Merger Related Acquisitions
Non-merger related acquisitions of $68 million, $225 million and $25 million for the years ended December 31, 2020, 2019 and 2018, respectively, were primarily related to the Americas and are not material, individually or in the aggregate.
NOTE 3. COST REDUCTION PROGRAMS AND OTHER CHARGES
Cost reduction programs and other charges were $506 million, $567 million, and $309 million for the 12 months ended December 31, 2020, 2019, and 2018, respectively. After tax and noncontrolling interests, charges were $372 million, $444 million, and $306 million for the same respective periods.
The following tables provide a summary of the pre-tax charges by reportable segment for the years ended December 31, 2020 and December 31, 2019.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2020
|
|
(millions of dollars)
|
Severance costs
|
|
Other cost reduction charges
|
|
Total cost reduction program related charges
|
|
Merger related and other charges
|
|
Total
|
|
Americas
|
$
|
35
|
|
|
$
|
24
|
|
|
59
|
|
|
13
|
|
|
$
|
72
|
|
|
EMEA
|
131
|
|
|
21
|
|
|
152
|
|
|
3
|
|
|
155
|
|
|
APAC
|
7
|
|
|
2
|
|
|
9
|
|
|
3
|
|
|
12
|
|
|
Engineering
|
38
|
|
|
28
|
|
|
66
|
|
|
4
|
|
|
70
|
|
|
Other
|
87
|
|
|
18
|
|
|
105
|
|
|
92
|
|
|
197
|
|
|
Total
|
$
|
298
|
|
|
$
|
93
|
|
|
$
|
391
|
|
|
$
|
115
|
|
|
$
|
506
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2019
|
|
(millions of dollars)
|
Severance costs
|
|
Other cost reduction charges
|
|
Total cost reduction program related charges
|
|
Merger related and other charges
|
|
Total
|
|
Americas
|
$
|
36
|
|
|
$
|
20
|
|
|
56
|
|
|
34
|
|
|
$
|
90
|
|
|
EMEA
|
105
|
|
|
16
|
|
|
121
|
|
|
21
|
|
|
142
|
|
|
APAC
|
40
|
|
|
10
|
|
|
50
|
|
|
72
|
|
|
122
|
|
|
Engineering
|
1
|
|
|
12
|
|
|
13
|
|
|
(9)
|
|
|
4
|
|
|
Other
|
22
|
|
|
42
|
|
|
64
|
|
|
145
|
|
|
209
|
|
|
Total
|
$
|
204
|
|
|
$
|
100
|
|
|
$
|
304
|
|
|
$
|
263
|
|
|
$
|
567
|
|
Cost Reduction Programs
In 2019, Linde initiated a cost reduction program, which represents charges of achieving synergies and cost efficiencies expected from the merger of Praxair and Linde AG (see Note 2). Total charges related to the cost reduction programs were $391 million ($277 million, after tax and noncontrolling interests) and $304 million ($233 million, after tax) for the years ended December 31, 2020 and December 31, 2019, respectively.
Severance costs
During the year ended December 31, 2020, severance costs of $298 million were recorded for the elimination of approximately 3,100 positions. Severance costs of $204 million for the year ended December 31, 2019 were recorded for the elimination of approximately 2,400 positions. As of December 31, 2020, the majority of the actions have been taken, with the remaining actions anticipated to be completed within the next 12 months.
Other cost reduction charges
Other cost reduction charges were $93 million and $100 million for the years ended December 31, 2020 and December 31, 2019, respectively. These amounts primarily represent charges related to the execution of the company's synergistic actions including location consolidations and business rationalization projects, software and process harmonization, and associated non-recurring costs.
Merger-Related Costs and Other Charges
Merger-related costs and other charges were $115 million ($95 million, after tax), $263 million ($211 million, after tax and noncontrolling interests), and $309 million ($306 million, after tax and noncontrolling interests) for the years ended December 31, 2020, 2019, and 2018, respectively. 2019 includes other charges for an asset impairment related to a joint venture in APAC of approximately $73 million ($42 million, after tax and noncontrolling interests) resulting from an unfavorable arbitration ruling. 2018 includes other charges of $73 million comprised of the following; (i) a $40 million charge ($40 million, after-tax) related to an unfavorable development related to a supplier contract in China, (ii) restructuring charges of $21 million ($18 million, after-tax) and (iii) a $12 million charge ($12 million, after-tax) associated with the transition to hyper-inflationary accounting in Argentina.
Cash Requirements
Total cash requirements of the cost reduction program and other charges during the twelve months ended December 31, 2020 are estimated to be approximately $390 million, of which $221 million was paid through December 31, 2020.
Remaining cash requirements are expected to be paid through 2023. Total cost reduction programs and other charges, net of payments in the consolidated statements of cash flows for the twelve months ended December 31, 2020 and 2019 also reflect the impact of cash payments of liabilities, including merger-related tax liabilities, accrued as of December 31, 2019 and 2018, respectively.
The following table summarizes the activities related to the company's cost reduction programs and other charges during 2019 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(millions of dollars)
|
Severance costs
|
|
Other cost reduction charges
|
|
Total cost reduction program related charges
|
|
Merger related and other charges
|
|
Total
|
|
2019 Cost Reduction Programs and Other Charges
|
$
|
204
|
|
|
$
|
100
|
|
|
304
|
|
|
$
|
263
|
|
|
$
|
567
|
|
|
Less: Cash payments
|
(91)
|
|
|
(57)
|
|
|
(148)
|
|
|
(112)
|
|
|
(260)
|
|
|
Less: Non-cash charges
|
—
|
|
|
(21)
|
|
|
(21)
|
|
|
(78)
|
|
|
(99)
|
|
|
Foreign currency translation and other
|
4
|
|
|
(6)
|
|
|
(2)
|
|
|
(6)
|
|
|
(8)
|
|
|
Balance, December 31, 2019
|
$
|
117
|
|
|
$
|
16
|
|
|
$
|
133
|
|
|
$
|
67
|
|
|
$
|
200
|
|
|
2020 Cost Reduction Programs and Other Charges
|
298
|
|
|
93
|
|
|
391
|
|
|
115
|
|
|
506
|
|
|
Less: Cash payments
|
(156)
|
|
|
(20)
|
|
|
(176)
|
|
|
(45)
|
|
|
(221)
|
|
|
Less: Non-cash charges
|
—
|
|
|
(68)
|
|
|
(68)
|
|
|
(82)
|
|
|
(150)
|
|
|
Foreign currency translation and other
|
24
|
|
|
1
|
|
|
25
|
|
|
9
|
|
|
34
|
|
|
Balance, December 31, 2020
|
$
|
283
|
|
|
$
|
22
|
|
|
$
|
305
|
|
|
$
|
64
|
|
|
$
|
369
|
|
Classification in the consolidated financial statements
The pre-tax charges for each year are shown within operating profit in a separate line item on the consolidated statements of income. In the consolidated balance sheets, reductions in assets are recorded against the carrying value of the related assets and unpaid amounts are recorded as other current or long-term liabilities (see Note 7). On the consolidated statements of cash flows, the pre-tax impact of these charges, net of cash payments, is shown as an adjustment to reconcile net income to net cash provided by operating activities. In Note 18 Segment Information, Linde excluded these charges from its management definition of segment operating profit; a reconciliation of segment operating profit to consolidated operating profit is shown within the segment operating profit table.
NOTE 4. LEASES
In the normal course of its business, Linde enters into various leases as the lessee, primarily involving manufacturing and distribution equipment and office space. Linde determines whether a contract is or contains a lease at contract inception. Total lease and rental expenses related to operating lease right of use assets for the twelve months ended December 31, 2020 and 2019 was $341 million, and $364 million respectively. Operating leases costs are included in selling, general and administrative expenses and cost of sales, exclusive of depreciation and amortization. The related assets and obligations are included in other long term assets and other current liabilities and other long term liabilities, respectively. Total lease and rental expenses related to finance lease right of use assets for the twelve months ended December 31, 2020 and 2019 was $44 million and $31 million, respectively, and the costs are included in depreciation and amortization and interest. Related assets and obligations are included in other long term assets and other current liabilities and other long term liabilities, respectively. Linde includes renewal options that are reasonably certain to be exercised as part of the lease term. Operating and financing lease expenses above include short term and variable lease costs which are immaterial.
As most leases do not provide an implicit rate, Linde uses the applicable incremental borrowing rate at lease commencement to measure lease liabilities and right-of-use assets. Linde determines incremental borrowing rates through market sources.
The company has elected to apply the short-term lease exception for all underlying asset classes. Short-term leases are leases that, at the commencement date, have a lease term of twelve months or less and do not include a purchase option that the lessee is reasonably certain to exercise. Leases that meet the short-term lease definition are not recognized on the balance sheet, but rather expensed on a straight-line basis over the lease term.
Some leasing arrangements require variable payments that are dependent on usage, output, or may vary for other reasons, such as insurance. The company does not have material variable lease payments.
Gains and losses on sale and leaseback transactions were immaterial. Operating cash flows used for operating leases for the twelve months ended December 31, 2020 and 2019 were $317 million and $341 million, respectively. Cash flows used for finance leases for the same period were immaterial.
Supplemental balance sheet information related to leases is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions of dollars)
|
|
December 31, 2020
|
December 31, 2019
|
|
Operating Leases
|
|
|
|
|
Operating lease right-of-use assets
|
|
$
|
935
|
|
$
|
1,025
|
|
|
|
|
|
|
|
Other current liabilities
|
|
237
|
|
260
|
|
|
Other long-term liabilities
|
|
669
|
|
716
|
|
|
Total operating lease liabilities
|
|
906
|
|
976
|
|
|
|
|
|
|
|
Finance Leases
|
|
|
|
|
Finance lease right-of-use assets*
|
|
155
|
|
140
|
|
|
|
|
|
|
|
Other current liabilities*
|
|
38
|
|
32
|
|
|
Other long-term liabilities*
|
|
125
|
|
117
|
|
|
Total finance lease liabilities
|
|
$
|
163
|
|
$
|
149
|
|
* Finance right of use assets at December 31, 2019 are recorded within property plant and equipment. Current and long-term finance lease liabilities at December 31, 2019 are recorded within current portion long-term debt and long-term debt, respectively.
Supplemental operating lease information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
December 31, 2019
|
|
Weighted average lease term (years)
|
|
9
|
7
|
|
Weighted average discount rate
|
|
2.83
|
%
|
2.97
|
%
|
Future operating and finance lease payments as of December 31, 2020 are as follows (millions of dollars):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period
|
|
Operating Leases
|
|
Financing Leases
|
|
2021
|
|
$
|
251
|
|
|
$
|
41
|
|
|
2022
|
|
187
|
|
|
37
|
|
|
2023
|
|
131
|
|
|
27
|
|
|
2024
|
|
89
|
|
|
17
|
|
|
2025
|
|
62
|
|
|
12
|
|
|
Thereafter
|
|
257
|
|
|
71
|
|
|
Total future undiscounted lease payments
|
|
977
|
|
|
205
|
|
|
Less imputed interest
|
|
(71)
|
|
|
(42)
|
|
|
Total reported lease liability
|
|
$
|
906
|
|
|
$
|
163
|
|
NOTE 5. INCOME TAXES
The years ended December 31, 2020 and 2019 reflect a full year of Linde plc; the year ended December 31, 2018 reflects Praxair for the entire year and Linde AG for the period beginning October 31, 2018 (the merger date).
Pre-tax income applicable to U.S. and foreign operations is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions of dollars)
Year Ended December 31,
|
2020
|
|
2019
|
|
2018
|
|
United States
|
$
|
1,253
|
|
|
$
|
1,161
|
|
|
$
|
931
|
|
|
Foreign (a)
|
2,131
|
|
|
1,766
|
|
|
4,118
|
|
|
Total income before income taxes
|
$
|
3,384
|
|
|
$
|
2,927
|
|
|
$
|
5,049
|
|
(a) 2019 includes a $164 million gain related to the Praxair India divestiture and 2018 includes a $3,294 million gain related to the Praxair Europe divestiture (See Note 2).
Provision for Income Taxes
The following is an analysis of the provision for income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions of dollars)
Year Ended December 31,
|
2020
|
|
2019 (a)
|
|
2018(b)
|
|
Current tax expense (benefit)
|
|
|
|
|
|
|
U.S. federal
|
$
|
185
|
|
|
$
|
64
|
|
|
$
|
390
|
|
|
State and local
|
17
|
|
|
39
|
|
|
(7)
|
|
|
Foreign
|
1,013
|
|
|
969
|
|
|
620
|
|
|
|
1,215
|
|
|
1,072
|
|
|
1,003
|
|
|
Deferred tax expense (benefit)
|
|
|
|
|
|
|
U.S. federal
|
20
|
|
|
85
|
|
|
8
|
|
|
State and local
|
7
|
|
|
—
|
|
|
15
|
|
|
Foreign
|
(395)
|
|
|
(388)
|
|
|
(209)
|
|
|
|
(368)
|
|
|
(303)
|
|
|
(186)
|
|
|
Total income taxes
|
$
|
847
|
|
|
$
|
769
|
|
|
$
|
817
|
|
(a)2019 includes $70 million related to divestitures, foreign current tax expense of $48 million and foreign deferred tax expense of $22 million.
(b)2018 includes a benefit of $61 million related to the Tax Act (See below) and a charge of $371 million ($252 million U.S., $4 million state, $114 million foreign current tax expense and $1 million of U.S. deferred income tax expense) related to divestitures (See Note 2).
U.S. Tax Cuts and Jobs Act (Tax Act) 2018
Following the enactment of the Tax Cuts and Jobs Act (“Tax Act”) in 2017, the company completed its accounting and updated its provisional estimates in accordance with SAB 118 in the fourth quarter of 2018, resulting in a net reduction to tax expense of $61 million, $41 million U.S. federal and $20 million of state income tax (net of federal tax benefit).
As of December 31, 2020 and 2019, the tax payable related to the deemed repatriation tax is $230 million and $261 million, respectively, of which $204 million and $235 million is classified as other long-term liabilities on the consolidated balance sheet (See Note 7), respectively. The company is required to fund the balance in annual installments through 2025.
Effective Tax Rate Reconciliation
For purposes of the effective tax rate reconciliation, the company utilizes the U.S. statutory income tax rate of 21%. An analysis of the difference between the provision for income taxes and the amount computed by applying the U.S. statutory income tax rate to pre-tax income follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollar amounts in millions)
Year Ended December 31,
|
2020
|
|
2019
|
|
2018
|
|
U.S. statutory income tax
|
$
|
711
|
|
|
21.0
|
%
|
|
$
|
615
|
|
|
21.0
|
%
|
|
$
|
1,060
|
|
|
21.0
|
%
|
|
State and local taxes – net of federal benefit
|
21
|
|
|
0.6
|
%
|
|
31
|
|
|
1.1
|
%
|
|
30
|
|
|
0.6
|
%
|
|
U.S. tax credits and deductions (a)
|
(8)
|
|
|
(0.2)
|
%
|
|
(31)
|
|
|
(1.1)
|
%
|
|
(12)
|
|
|
(0.2)
|
%
|
|
Foreign tax differentials (b)
|
167
|
|
|
4.9
|
%
|
|
113
|
|
|
3.9
|
%
|
|
57
|
|
|
1.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-Based compensation
|
(53)
|
|
|
(1.6)
|
%
|
|
(41)
|
|
|
(1.4)
|
%
|
|
(22)
|
|
|
(0.4)
|
%
|
|
Tax Act
|
—
|
|
|
—
|
%
|
|
—
|
|
|
—
|
%
|
|
(61)
|
|
|
(1.2)
|
%
|
|
Divestitures (c)
|
—
|
|
|
—
|
%
|
|
36
|
|
|
1.2
|
%
|
|
(321)
|
|
|
(6.4)
|
%
|
|
Other – net (d)
|
9
|
|
|
0.3
|
%
|
|
46
|
|
|
1.6
|
%
|
|
86
|
|
|
1.7
|
%
|
|
Provision for income taxes
|
$
|
847
|
|
|
25.0
|
%
|
|
$
|
769
|
|
|
26.3
|
%
|
|
$
|
817
|
|
|
16.2
|
%
|
________________________
(a)U.S. tax credits and deductions relate to foreign derived intangible income and the research and experimentation tax credit in 2020, 2019 and 2018.
(b)Primarily related to differences between the U.S. tax rate and the statutory tax rate in the countries where the company operates. Other permanent items and tax rate changes were not significant.
(c)Divestitures primarily relate to the sale of the company’s Indian business in 2019 and European business in 2018 (See Note 2).
(d)Other - net includes $11 million, $26 million and $34 million of U.S tax related to Global Intangible Low-Taxed Income in 2020, 2019 and 2018, respectively and an increase in unrecognized tax benefits in Europe of $44 million in 2018.
Net Deferred Tax Liabilities
Net deferred tax liabilities included in the consolidated balance sheets are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions of dollars)
December 31,
|
2020
|
|
2019
|
|
Deferred tax liabilities
|
|
|
|
|
Fixed assets
|
$
|
3,430
|
|
|
$
|
3,539
|
|
|
Goodwill
|
173
|
|
|
145
|
|
|
Other intangible assets
|
3,703
|
|
|
3,688
|
|
|
Subsidiary/equity investments
|
609
|
|
|
664
|
|
|
Other (a)
|
791
|
|
|
789
|
|
|
|
$
|
8,706
|
|
|
$
|
8,825
|
|
|
Deferred tax assets
|
|
|
|
|
Carryforwards
|
$
|
386
|
|
|
$
|
441
|
|
|
Benefit plans and related (b)
|
814
|
|
|
721
|
|
|
Inventory
|
70
|
|
|
72
|
|
|
Accruals and other (c)
|
1,243
|
|
|
1,167
|
|
|
|
$
|
2,513
|
|
|
$
|
2,401
|
|
|
Less: Valuation allowances (d)
|
(243)
|
|
|
(222)
|
|
|
|
$
|
2,270
|
|
|
$
|
2,179
|
|
|
Net deferred tax liabilities
|
$
|
6,436
|
|
|
$
|
6,646
|
|
|
Recorded in the consolidated balance sheets as (Note 7):
|
|
|
|
|
Other long-term assets
|
268
|
|
|
243
|
|
|
Deferred credits
|
6,704
|
|
|
6,889
|
|
|
|
$
|
6,436
|
|
|
$
|
6,646
|
|
________________________
(a)Includes $255 million in 2020 and 2019 related to right-of-use lease assets.
(b)Includes deferred taxes of $560 million and $446 million in 2020 and 2019, respectively, related to pension / OPEB funded status (See Notes 7 and 16).
(c)Includes $255 million in 2020 and 2019 related to lease liabilities and $63 million and $81 million in 2020 and 2019, respectively, related to research and development costs.
(d)Summary of valuation allowances relating to deferred tax assets follows (millions of dollars):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
Balance, January 1,
|
$
|
(222)
|
|
|
$
|
(237)
|
|
|
$
|
(76)
|
|
|
Income tax (charge) benefit
|
(21)
|
|
|
(31)
|
|
|
(51)
|
|
|
Merger with Linde AG
|
—
|
|
|
18
|
|
|
(121)
|
|
|
Other, including write-offs (i)
|
2
|
|
|
26
|
|
|
7
|
|
|
Translation adjustments
|
(2)
|
|
|
2
|
|
|
4
|
|
|
Balance, December 31,
|
$
|
(243)
|
|
|
$
|
(222)
|
|
|
$
|
(237)
|
|
(i)2019 includes $26 million related to the squeeze out of Linde AG (See Note 14).
The company evaluates deferred tax assets quarterly to ensure that estimated future taxable income will be sufficient in character (e.g., capital gain versus ordinary income treatment), amount and timing to result in their recovery. After considering the positive and negative evidence, a valuation allowance is established to reduce the assets to their realizable value when management determines that it is more likely than not (i.e., greater than 50% likelihood) that a deferred tax asset will not be realized. Considerable judgment is required in establishing deferred tax valuation allowances.
As of December 31, 2020, the company had $386 million of deferred tax assets relating to net operating losses (“NOLs”) and tax credits and $243 million of valuation allowances. These deferred tax assets include $276 million relating to NOLs of which $34 million expire within 5 years, $110 million expire after 5 years and $132 million have no expiration. The
deferred tax assets also include $110 million related to credits of which $9 million expire within 5 years, $93 million expire after 5 years, and $8 million have no expiration. The valuation allowances of $243 million primarily relate to NOLs and are required because management has determined, based on financial projections and available tax strategies, that it is unlikely that the NOLs will be utilized before they expire. If events or circumstances change, valuation allowances are adjusted at that time resulting in an income tax benefit or charge.
The company has $609 million of foreign income taxes accrued related to its investments in subsidiaries and equity investments as of December 31, 2020. A provision has not been made for any additional foreign income tax at December 31, 2020 on approximately $32 billion related to its investments in subsidiaries because the company intends to remain indefinitely reinvested. While the $32 billion could become subject to additional foreign income tax if there is a sale of a subsidiary, or earnings are remitted as dividends, it is not practicable to estimate the unrecognized deferred tax liability.
Uncertain Tax Positions
Unrecognized income tax benefits represent income tax positions taken on income tax returns but not yet recognized in the consolidated financial statements. The company has unrecognized income tax benefits totaling $452 million, $472 million and $319 million as of December 31, 2020, 2019 and 2018, respectively. If recognized, essentially all of the unrecognized tax benefits and related interest and penalties would be recorded as a benefit to income tax expense on the consolidated statements of income.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions of dollars)
|
2020
|
|
2019
|
|
2018
|
|
Unrecognized income tax benefits, January 1
|
$
|
472
|
|
|
$
|
319
|
|
|
$
|
54
|
|
|
Additions for tax positions of prior years (a)
|
35
|
|
|
151
|
|
|
104
|
|
|
Reductions for tax positions of prior years
|
(34)
|
|
|
(3)
|
|
|
(7)
|
|
|
Additions for current year tax positions (b)
|
11
|
|
|
33
|
|
|
179
|
|
|
Reductions for settlements with taxing authorities (c)
|
(39)
|
|
|
(26)
|
|
|
(3)
|
|
|
Foreign currency translation and other
|
7
|
|
|
(2)
|
|
|
(8)
|
|
|
Unrecognized income tax benefits, December 31
|
$
|
452
|
|
|
$
|
472
|
|
|
$
|
319
|
|
________________________
(a)Increase primarily relates to tax positions in the United States and Europe, $66 million in 2019 related to the merger with Linde AG.
(b)2018 includes $167 million related to the merger with Linde AG.
(c)Settlements are uncertain tax positions that were effectively settled with the taxing authorities, including positions where the company has agreed to amend its tax returns to eliminate the uncertainty.
The company classifies interest income and expense related to income taxes as tax expense in the consolidated statements of income. The company recognized net interest expense of $29 million, $1 million and $32 million for the years ended December 31, 2020, December 31, 2019 and December 31, 2018, respectively. The company had $99 million and $65 million of accrued interest and penalties as of December 31, 2020 and December 31, 2019, respectively which were recorded in other long-term liabilities in the consolidated balance sheets (See Note 7).
As of December 31, 2020, the company remained subject to examination in the following major tax jurisdictions for the tax years as indicated below:
|
|
|
|
|
|
|
|
|
|
|
Major tax jurisdictions
|
Open Years
|
|
North and South America
|
|
|
United States
|
2017 through 2020
|
|
Canada
|
2013 through 2020
|
|
Mexico
|
2014 through 2020
|
|
Brazil
|
2003 through 2020
|
|
|
|
|
Europe and Africa
|
|
|
France
|
2014 through 2020
|
|
Germany
|
2015 through 2020
|
|
Netherlands
|
2015 through 2020
|
|
Republic of South Africa
|
2017 through 2020
|
|
Spain
|
2006 through 2020
|
|
United Kingdom
|
2015 through 2020
|
|
|
|
|
Asia and Australia
|
|
|
Australia
|
2016 through 2020
|
|
China
|
2015 through 2020
|
|
India
|
2006 through 2020
|
|
South Korea
|
2015 through 2020
|
|
Taiwan
|
2015 through 2020
|
The company is currently under audit in a number of jurisdictions. As a result, it is reasonably possible that some of these matters will conclude or reach the stage where a change in unrecognized income tax benefits may occur within the next twelve months. At the time new information becomes available, the company will record any adjustment to income tax expense as required. Final determinations, if any, are not expected to be material to the consolidated financial statements. The company is also subject to income taxes in many hundreds of state and local taxing jurisdictions that are open to tax examinations.
NOTE 6. EARNINGS PER SHARE – LINDE PLC SHAREHOLDERS
Basic and Diluted earnings per share - Linde plc shareholders is computed by dividing Income from continuing operations, Income from discontinued operations, net of tax, and Net income – Linde plc for the period by the weighted average number of either basic or diluted shares outstanding, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
Numerator (Millions of dollars)
|
|
|
|
|
|
|
Income from continuing operations
|
$
|
2,497
|
|
|
$
|
2,183
|
|
|
$
|
4,273
|
|
|
Income from discontinued operations, net of tax
|
4
|
|
|
102
|
|
|
108
|
|
|
Net Income – Linde plc
|
$
|
2,501
|
|
|
$
|
2,285
|
|
|
$
|
4,381
|
|
|
Denominator (Thousands of shares)
|
|
|
|
|
|
|
Weighted average shares outstanding
|
526,404
|
|
|
540,859
|
|
|
330,088
|
|
|
Shares earned and issuable under compensation plans
|
332
|
|
|
235
|
|
|
313
|
|
|
Weighted average shares used in basic earnings per share *
|
526,736
|
|
|
541,094
|
|
|
330,401
|
|
|
Effect of dilutive securities
|
|
|
|
|
|
|
Stock options and awards
|
4,421
|
|
|
4,076
|
|
|
3,726
|
|
|
Weighted average shares used in diluted earnings per share *
|
531,157
|
|
|
545,170
|
|
|
334,127
|
|
|
Basic earnings per share from continuing operations
|
$
|
4.74
|
|
|
$
|
4.03
|
|
|
$
|
12.93
|
|
|
Basic earnings per share from discontinued operations
|
0.01
|
|
|
0.19
|
|
|
0.33
|
|
|
Basic Earnings Per Share
|
$
|
4.75
|
|
|
$
|
4.22
|
|
|
$
|
13.26
|
|
|
Diluted earnings per share from continuing operations
|
$
|
4.70
|
|
|
$
|
4.00
|
|
|
$
|
12.79
|
|
|
Diluted earnings per share from discontinued operations
|
0.01
|
|
|
0.19
|
|
|
0.32
|
|
|
Diluted Earnings Per Share
|
$
|
4.71
|
|
|
$
|
4.19
|
|
|
$
|
13.11
|
|
* As a result of the merger, share amounts for the year ended December 31, 2018 reflect a weighted average effect of Praxair shares outstanding prior to October 31, 2018 and Linde plc shares outstanding on and after October 31, 2018.
There were no antidilutive shares for the years ended December 31, 2020, 2019 or 2018.
NOTE 7. SUPPLEMENTAL INFORMATION
The years ended December 31, 2020 and 2019 reflect the combined business. December 31, 2018 reflects Praxair for the entire year and the Linde AG for the period beginning after October 31, 2018 (the merger date), including the impacts of purchase accounting.
Income Statement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions of dollars)
Year Ended December 31,
|
2020
|
|
2019
|
|
2018
|
|
Selling, General and Administrative
|
|
|
|
|
|
|
Selling
|
$
|
1,303
|
|
|
$
|
1,600
|
|
|
$
|
757
|
|
|
General and administrative
|
1,890
|
|
|
1,857
|
|
|
872
|
|
|
|
$
|
3,193
|
|
|
$
|
3,457
|
|
|
$
|
1,629
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
2020
|
|
2019
|
|
2018
|
|
Depreciation and Amortization (a)
|
|
|
|
|
|
|
Depreciation
|
$
|
3,861
|
|
|
$
|
3,940
|
|
|
$
|
1,615
|
|
|
Amortization of intangibles (Note 10)
|
765
|
|
|
735
|
|
|
215
|
|
|
Depreciation and Amortization
|
$
|
4,626
|
|
|
$
|
4,675
|
|
|
$
|
1,830
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
2020
|
|
2019
|
|
2018
|
|
Other Income (Expenses) – Net
|
|
|
|
|
|
|
Currency related net gains (losses)
|
$
|
(28)
|
|
|
$
|
(11)
|
|
|
$
|
4
|
|
|
Partnership income
|
10
|
|
|
8
|
|
|
8
|
|
|
|
|
|
|
|
|
|
Severance expense
|
(5)
|
|
|
(7)
|
|
|
(7)
|
|
|
Asset divestiture gains (losses) – net
|
(78)
|
|
|
10
|
|
|
6
|
|
|
Other – net
|
40
|
|
|
68
|
|
|
7
|
|
|
|
$
|
(61)
|
|
|
$
|
68
|
|
|
$
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
2020
|
|
2019
|
|
2018
|
|
Interest Expense – Net
|
|
|
|
|
|
|
Interest incurred on debt and other
|
$
|
277
|
|
|
$
|
284
|
|
|
$
|
297
|
|
|
Interest income
|
(55)
|
|
|
(112)
|
|
|
(80)
|
|
|
Amortization on acquired debt
|
(85)
|
|
|
(96)
|
|
|
(21)
|
|
|
Interest capitalized
|
(38)
|
|
|
(38)
|
|
|
(20)
|
|
|
Bond redemption (b)
|
16
|
|
|
—
|
|
|
26
|
|
|
|
$
|
115
|
|
|
$
|
38
|
|
|
$
|
202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
2020
|
|
2019
|
|
2018
|
|
Income Attributable to Noncontrolling Interests
|
|
|
|
|
|
|
Noncontrolling interests' operations (c)
|
$
|
125
|
|
|
$
|
87
|
|
|
$
|
12
|
|
|
|
|
|
|
|
|
|
Redeemable noncontrolling interests' operations (Note 14)
|
—
|
|
|
2
|
|
|
3
|
|
|
Noncontrolling interests from continuing operations
|
$
|
125
|
|
|
$
|
89
|
|
|
$
|
15
|
|
|
Noncontrolling interests from discontinued operations
|
—
|
|
|
$
|
7
|
|
|
$
|
9
|
|
Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions of dollars)
December 31,
|
2020
|
|
2019
|
|
Accounts Receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade and Other receivables
|
$
|
4,638
|
|
|
$
|
4,628
|
|
|
Less: allowance for expected credit losses
|
(471)
|
|
|
(306)
|
|
|
|
$
|
4,167
|
|
|
$
|
4,322
|
|
Receivables
For trade receivables an expected credit loss approach was adopted as of January 1, 2020. Linde applies loss rates that are lifetime expected credit losses at initial recognition of the receivables. These expected loss rates are based on an analysis of the actual historical default rates for each business, taking regional circumstances into account. If necessary, these historical default rates are adjusted to reflect the impact of current changes in the macroeconomic environment using forward-looking information. The loss rates are also evaluated based on the expectations of the responsible management team regarding the collectability of the receivables. Gross trade receivables aged less than one year were $4,169 million and $4,075 million at December 31, 2020 and December 31, 2019, respectively, and gross receivables aged greater than one year were $358 million and $249 million at December 31, 2020 and December 31, 2019, respectively. Gross other receivables were $111 million and $304 million at December 31, 2020 and December 31, 2019, respectively. Receivables aged greater than one year are generally fully reserved unless specific circumstances warrant exceptions, such as those backed by federal governments.
Provisions for expected credit losses were $182 million, $170 million and $25 million for the twelve months ended December 31, 2020, 2019 and 2018, respectively. The allowance activity in the twelve months ended December 31, 2020 related to write-offs of uncollectible amounts, net of recoveries and currency movements is not material.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2020
|
|
2019
|
|
Inventories
|
|
|
|
|
|
|
Raw materials and supplies
|
|
|
$
|
411
|
|
|
$
|
396
|
|
|
Work in process
|
|
|
337
|
|
|
331
|
|
|
Finished goods
|
|
|
981
|
|
|
970
|
|
|
|
|
|
$
|
1,729
|
|
|
$
|
1,697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
2020
|
|
2019
|
|
Prepaid and Other Current Assets
|
|
|
|
|
|
|
|
|
|
Prepaid and other deferred charges (d)
|
$
|
516
|
|
|
$
|
516
|
|
|
VAT recoverable
|
261
|
|
|
275
|
|
|
Unrealized gains on derivatives (Note 12)
|
110
|
|
|
85
|
|
|
Assets held for sale (Note 2)
|
4
|
|
|
125
|
|
|
Other
|
221
|
|
|
264
|
|
|
|
$
|
1,112
|
|
|
$
|
1,265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
2020
|
|
2019
|
|
Other Long-term Assets
|
|
|
|
|
Pension assets (Note 16)
|
$
|
55
|
|
|
$
|
78
|
|
|
Insurance contracts (e)
|
61
|
|
|
75
|
|
|
Long-term receivables, net (f)
|
201
|
|
|
150
|
|
|
Lease assets (Note 4)
|
1,090
|
|
|
1,025
|
|
|
Deposits
|
47
|
|
|
56
|
|
|
Investments carried at cost
|
23
|
|
|
40
|
|
|
Deferred charges
|
96
|
|
|
90
|
|
|
Deferred income taxes (Note 5)
|
268
|
|
|
243
|
|
|
Unrealized gains on derivatives (Note 12)
|
90
|
|
|
82
|
|
|
Other
|
217
|
|
|
174
|
|
|
|
$
|
2,148
|
|
|
$
|
2,013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
2020
|
|
2019
|
|
Other Current Liabilities
|
|
|
|
|
Accrued expenses
|
$
|
1,226
|
|
|
$
|
1,079
|
|
|
Payroll
|
653
|
|
|
619
|
|
|
VAT payable
|
336
|
|
|
268
|
|
|
Pension and postretirement (Note 16)
|
34
|
|
|
27
|
|
|
Interest payable
|
135
|
|
|
127
|
|
|
Lease liability (Note 4)
|
275
|
|
|
260
|
|
|
Insurance reserves
|
38
|
|
|
38
|
|
|
Unrealized losses on derivatives (Note 12)
|
70
|
|
|
54
|
|
|
Noncontrolling interest redemption and dividend (Note 14)
|
231
|
|
|
—
|
|
|
Synergy cost accruals (Note 3)
|
199
|
|
|
140
|
|
|
Other
|
1,135
|
|
|
891
|
|
|
|
$
|
4,332
|
|
|
$
|
3,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
2020
|
|
2019
|
|
Other Long-term Liabilities
|
|
|
|
|
Pension and postretirement (Note 16)
|
$
|
2,963
|
|
|
$
|
2,548
|
|
|
Tax liabilities for uncertain tax positions (Note 5)
|
355
|
|
|
342
|
|
|
Tax Act liabilities for deemed repatriation (Note 5)
|
204
|
|
|
235
|
|
|
|
|
|
|
|
Lease liability (Note 4)
|
794
|
|
|
716
|
|
|
Interest and penalties for uncertain tax positions (Note 5)
|
99
|
|
|
65
|
|
|
Insurance reserves
|
33
|
|
|
28
|
|
|
Asset retirement obligation
|
302
|
|
|
293
|
|
|
Unrealized losses on derivatives (Note 12)
|
11
|
|
|
45
|
|
|
Synergy cost accruals (Note 3)
|
170
|
|
|
60
|
|
|
Other
|
588
|
|
|
556
|
|
|
|
$
|
5,519
|
|
|
$
|
4,888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
2020
|
|
2019
|
|
Deferred Credits
|
|
|
|
|
Deferred income taxes (Note 5)
|
$
|
6,704
|
|
|
$
|
6,889
|
|
|
Other
|
532
|
|
|
347
|
|
|
|
$
|
7,236
|
|
|
$
|
7,236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
2020
|
|
2019
|
|
Accumulated Other Comprehensive Income (Loss)
|
|
|
|
|
Cumulative translation adjustment - net of taxes:
|
|
|
|
|
Americas (g)
|
$
|
(3,788)
|
|
|
$
|
(3,357)
|
|
|
EMEA (g)
|
1,020
|
|
|
(136)
|
|
|
APAC (g)
|
616
|
|
|
(140)
|
|
|
Engineering
|
354
|
|
|
(29)
|
|
|
Other
|
(1,020)
|
|
|
282
|
|
|
|
(2,818)
|
|
|
(3,380)
|
|
|
Derivatives – net of taxes
|
4
|
|
|
(27)
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension/OPEB funded status obligation (net of $560 million and $446 million tax benefit in 2020 and 2019) (Note 16)
|
(1,876)
|
|
|
(1,407)
|
|
|
|
$
|
(4,690)
|
|
|
$
|
(4,814)
|
|
(a)Depreciation and amortization expense in 2020 include $1,267 million and $653 million, respectively, of Linde AG purchase accounting impacts. In 2019, depreciation and amortization expense include $1,298 million and $642 million, respectively, of Linde AG purchase accounting impacts.
(b)In December 2018, Linde repaid $600 million of 4.50% notes due 2019 and €600 million of 1.50% notes due 2020 resulting in a $26 million interest charge. In December 2020, the company repaid $500 million of 4.05% notes and $500 million of 3.00% notes that were due in 2021 resulting in a $16 million interest charge.
(c)Noncontrolling interests from continuing operations includes a $1 million benefit in 2019 and a $35 million charge in 2018 related to the 8% of Linde AG Shares which were not tendered in the Exchange Offer. Linde AG completed the cash merger squeeze-out of all its minority shares on April 8, 2019 (see Note 2).
In addition, 2020, 2019 and 2018 noncontrolling interests from continuing operations includes $57 million, $54 million and $24 million, respectively, of Linde AG purchase accounting impacts.
(d) Includes estimated income tax payments of $115 million in both 2020 and 2019.
(e) Consists primarily of insurance contracts and other investments to be utilized for non-qualified pension and OPEB obligations.
(f) The balances at December 31, 2020 and 2019 are net of reserves of $34 million and $44 million, respectively. The amounts in both years relate primarily to long-term notes receivable from customers in APAC and EMEA and government receivables in Brazil.
(g) Americas consists of currency translation adjustments primarily in Canada, Mexico, and Brazil. EMEA relates primarily to Germany, the U.K. and Sweden. APAC relates primarily to China, South Korea, India and Australia.
NOTE 8. PROPERTY, PLANT AND EQUIPMENT – NET
Significant classes of property, plant and equipment are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions of dollars)
December 31,
|
|
Depreciable Lives (Yrs)
|
|
2020
|
|
2019
|
|
Production plants (primarily 15-year life) (a)
|
|
10-20
|
|
$
|
28,226
|
|
|
$
|
25,493
|
|
|
Storage tanks
|
|
15-20
|
|
4,461
|
|
|
4,295
|
|
|
Transportation equipment and other
|
|
3-15
|
|
2,978
|
|
|
2,809
|
|
|
Cylinders
|
|
10-30
|
|
4,491
|
|
|
4,184
|
|
|
Buildings
|
|
25-40
|
|
3,327
|
|
|
3,162
|
|
|
Land and improvements (b)
|
|
0-20
|
|
1,259
|
|
|
1,229
|
|
|
Construction in progress
|
|
|
|
3,257
|
|
|
3,146
|
|
|
|
|
|
|
47,999
|
|
|
44,318
|
|
|
Less: accumulated depreciation
|
|
|
|
(19,288)
|
|
|
(15,254)
|
|
|
|
|
|
|
$
|
28,711
|
|
|
$
|
29,064
|
|
(a) - Depreciable lives of production plants related to long-term customer supply contracts are generally consistent with the contract lives.
(b) - Land is not depreciated.
NOTE 9. GOODWILL
Changes in the carrying amount of goodwill for the years ended December 31, 2020 and 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions of dollars)
|
Americas
|
|
EMEA
|
|
APAC
|
|
Engineering
|
|
Other
|
|
Total
|
|
Balance, December 31, 2018
|
$
|
9,174
|
|
|
$
|
10,960
|
|
|
$
|
5,295
|
|
|
$
|
1,075
|
|
|
$
|
370
|
|
|
$
|
26,874
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions (Note 2)
|
135
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
135
|
|
|
Measurement period adjustments (Note 2)
|
(255)
|
|
|
(636)
|
|
|
(323)
|
|
|
1,410
|
|
|
(42)
|
|
|
154
|
|
|
Foreign currency translation and other
|
(12)
|
|
|
(81)
|
|
|
(15)
|
|
|
(15)
|
|
|
(21)
|
|
|
(144)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2019
|
9,042
|
|
|
10,243
|
|
|
4,957
|
|
|
2,470
|
|
|
307
|
|
|
27,019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions (Note 2)
|
13
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
13
|
|
|
Foreign currency translation and other
|
35
|
|
|
643
|
|
|
305
|
|
|
212
|
|
|
23
|
|
|
1,218
|
|
|
Disposals
|
(7)
|
|
|
(42)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(49)
|
|
|
Balance, December 31, 2020
|
$
|
9,083
|
|
|
$
|
10,844
|
|
|
$
|
5,262
|
|
|
$
|
2,682
|
|
|
$
|
330
|
|
|
$
|
28,201
|
|
Linde has performed its goodwill impairment tests annually during the fourth quarter of each year and has determined that the fair value of each of its reporting units was substantially in excess of its carrying value. For the 2020 test, the company applied the FASB's accounting guidance which allows the company to first assess qualitative factors to determine the extent of additional quantitative analysis, if any, that may be required to test goodwill for impairment. Based on the qualitative assessments performed, the company concluded that it was more likely than not that the fair value of each reporting unit substantially exceeded its carrying value and therefore, further quantitative analysis was not required. As a result, no impairment was recorded. There were no indicators of impairment through December 31, 2020.
NOTE 10. OTHER INTANGIBLE ASSETS
The following is a summary of Linde’s other intangible assets at December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions of dollars) For the year ended December 31, 2020
|
Customer Relationships
|
|
Brands/Tradenames
|
|
Other Intangible Assets
|
|
Total
|
|
Cost:
|
|
|
|
|
|
|
|
|
Balance, December 31, 2019
|
$
|
13,205
|
|
|
$
|
2,764
|
|
|
$
|
1,612
|
|
|
$
|
17,581
|
|
|
Additions
|
5
|
|
|
—
|
|
|
56
|
|
|
61
|
|
|
Foreign currency translation
|
632
|
|
|
134
|
|
|
47
|
|
|
813
|
|
|
Disposals
|
(2)
|
|
|
—
|
|
|
(20)
|
|
|
(22)
|
|
|
Other *
|
(64)
|
|
|
(3)
|
|
|
2
|
|
|
(65)
|
|
|
Balance, December 31, 2020
|
13,776
|
|
|
2,895
|
|
|
1,697
|
|
|
18,368
|
|
|
Less: accumulated amortization:
|
|
|
|
|
|
|
|
|
Balance, December 31, 2019
|
(885)
|
|
|
(69)
|
|
|
(490)
|
|
|
(1,444)
|
|
|
Amortization expense (Note 7)
|
(589)
|
|
|
(45)
|
|
|
(131)
|
|
|
(765)
|
|
|
Foreign currency translation
|
(53)
|
|
|
(3)
|
|
|
1
|
|
|
(55)
|
|
|
Disposals
|
1
|
|
|
—
|
|
|
20
|
|
|
21
|
|
|
Other *
|
56
|
|
|
(1)
|
|
|
4
|
|
|
59
|
|
|
Balance, December 31, 2020
|
(1,470)
|
|
|
(118)
|
|
|
(596)
|
|
|
(2,184)
|
|
|
Net intangible asset balance at December 31, 2020
|
$
|
12,306
|
|
|
$
|
2,777
|
|
|
$
|
1,101
|
|
|
$
|
16,184
|
|
|
|
|
|
|
|
|
|
|
|
(Millions of dollars) For the year ended December 31, 2019
|
Customer Relationships
|
|
Brands/Tradenames
|
|
Other Intangible Assets
|
|
Total
|
|
Cost:
|
|
|
|
|
|
|
|
|
Balance, December 31, 2018
|
$
|
13,288
|
|
|
$
|
2,288
|
|
|
$
|
1,366
|
|
|
$
|
16,942
|
|
|
Additions
|
30
|
|
|
6
|
|
|
51
|
|
|
87
|
|
|
Foreign currency translation
|
(59)
|
|
|
(21)
|
|
|
(11)
|
|
|
(91)
|
|
|
Measurement period adjustments
|
(8)
|
|
|
492
|
|
|
178
|
|
|
662
|
|
|
|
|
|
|
|
|
|
|
|
Other *
|
(46)
|
|
|
(1)
|
|
|
28
|
|
|
(19)
|
|
|
Balance, December 31, 2019
|
13,205
|
|
|
2,764
|
|
|
1,612
|
|
|
17,581
|
|
|
Less: accumulated amortization:
|
|
|
|
|
|
|
|
|
Balance, December 31, 2018
|
(317)
|
|
|
(22)
|
|
|
(380)
|
|
|
(719)
|
|
|
Amortization expense (Note 7)
|
(584)
|
|
|
(47)
|
|
|
(104)
|
|
|
(735)
|
|
|
Foreign currency translation
|
—
|
|
|
—
|
|
|
2
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
Other *
|
16
|
|
|
—
|
|
|
(8)
|
|
|
8
|
|
|
Balance, December 31, 2019
|
(885)
|
|
|
(69)
|
|
|
(490)
|
|
|
(1,444)
|
|
|
Net balance at December 31, 2019
|
$
|
12,320
|
|
|
$
|
2,695
|
|
|
$
|
1,122
|
|
|
$
|
16,137
|
|
*Other primarily relates to the write-off of fully amortized assets and reclassifications.
There are no expected residual values related to these intangible assets. Amortization expense for the years ended December 31, 2020, 2019 and 2018 was $765 million, $735 million and $215 million, respectively. The remaining weighted-average amortization period for intangible assets is approximately 26 years.
Total estimated annual amortization expense related to finite-lived intangibles is as follows:
|
|
|
|
|
|
|
|
(Millions of dollars)
|
|
|
2021
|
$
|
729
|
|
|
2022
|
608
|
|
|
2023
|
581
|
|
|
2024
|
572
|
|
|
2025
|
529
|
|
|
Thereafter
|
11,173
|
|
|
Total amortization related to finite-lived intangible assets
|
14,192
|
|
|
Indefinite-lived intangible assets at December 31, 2020
|
1,992
|
|
|
Net intangible assets at December 31, 2020
|
$
|
16,184
|
|
NOTE 11. DEBT
The following is a summary of Linde’s outstanding debt at December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions of dollars)
|
2020
|
|
2019
|
|
Short-term
|
|
|
|
|
Commercial paper
|
$
|
2,527
|
|
|
$
|
996
|
|
|
Other borrowings (primarily international)
|
724
|
|
|
736
|
|
|
Total short-term debt
|
3,251
|
|
|
1,732
|
|
|
Long-term (a)
|
|
|
|
|
(U.S. dollar denominated unless otherwise noted)
|
|
|
|
|
2.25% Notes due 2020 (b)
|
—
|
|
|
300
|
|
|
1.75% Euro denominated notes due 2020 (b, c)
|
—
|
|
|
1,137
|
|
|
0.634% Euro denominated notes due 2020
|
—
|
|
|
56
|
|
|
4.05% Notes due 2021 (d)
|
—
|
|
|
499
|
|
|
3.875% Euro denominated notes due 2021 (c)
|
748
|
|
|
711
|
|
|
3.00% Notes due 2021 (d)
|
—
|
|
|
499
|
|
|
0.250% Euro denominated notes due 2022 (c)
|
1,226
|
|
|
1,129
|
|
|
2.45% Notes due 2022
|
599
|
|
|
599
|
|
|
2.20% Notes due 2022
|
499
|
|
|
499
|
|
|
2.70% Notes due 2023
|
499
|
|
|
499
|
|
|
2.00% Euro denominated notes due 2023 (c)
|
832
|
|
|
776
|
|
|
5.875% GBP denominated notes due 2023 (c)
|
460
|
|
|
456
|
|
|
1.20% Euro denominated notes due 2024
|
671
|
|
|
615
|
|
|
1.875% Euro denominated notes due 2024 (c)
|
389
|
|
|
361
|
|
|
2.65% Notes due 2025
|
398
|
|
|
398
|
|
|
1.625% Euro denominated notes due 2025
|
607
|
|
|
556
|
|
|
3.20% Notes due 2026
|
725
|
|
|
725
|
|
|
3.434% Notes due 2026
|
196
|
|
|
196
|
|
|
1.652% Euro denominated notes due 2027
|
100
|
|
|
93
|
|
|
0.250% Euro denominated notes due 2027 (e)
|
914
|
|
|
—
|
|
|
1.00% Euro denominated notes due 2028 (c)
|
966
|
|
|
872
|
|
|
1.10% Notes due 2030 (f)
|
696
|
|
|
—
|
|
|
1.90% Euro denominated notes due 2030
|
127
|
|
|
118
|
|
|
0.550% Euro denominated notes due 2032 (e)
|
909
|
|
|
—
|
|
|
3.55% Notes due 2042
|
664
|
|
|
662
|
|
|
2.00% Notes due 2050 (f)
|
296
|
|
|
—
|
|
|
International borrowings
|
372
|
|
|
309
|
|
|
Other
|
10
|
|
|
159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,903
|
|
|
12,224
|
|
|
Less: current portion of long-term debt
|
(751)
|
|
|
(1,531)
|
|
|
Total long-term debt
|
12,152
|
|
|
10,693
|
|
|
Total debt
|
$
|
16,154
|
|
|
$
|
13,956
|
|
________________________
(a)Amounts are net of unamortized discounts, premiums and/or debt issuance costs as applicable.
(b)In September 2020, the company repaid €1,000 million of 1.75% notes and $300 million of 2.25% notes that became due.
(c)December 31, 2020 and 2019 included a cumulative $79 million and $38 million adjustment to carrying value, respectively, related to hedge accounting of interest rate swaps.
(d)In December 2020, the company repaid $500 million of 4.05% notes and $500 million of 3.00% notes that were due in 2021 resulting in a $16 million interest charge.
(e)In May 2020, Linde issued €750 million of 0.250% notes due 2027 and €750 million of 0.550% notes due 2032.
(f)In August 2020, Linde issued $700 million of 1.100% notes due 2030 and $300 million of 2.000% notes due 2050.
Credit Facilities
On March 26, 2019 the company and certain of its subsidiaries entered into an unsecured revolving credit agreement ("the Credit Agreement") with a syndicate of banking institutions, which became effective on March 29, 2019. The Credit Agreement provides for total commitments of $5.0 billion, which may be increased up to $6.5 billion, subject to receipt of additional commitments and satisfaction of customary conditions. There are no financial maintenance covenants contained within the Credit Agreement. The revolving credit facility expires on March 26, 2024 with the option to request two one-year extensions of the expiration date. In connection with the effectiveness of the Credit Agreement, Praxair and Linde AG terminated their major respective existing revolving credit facilities. No borrowings were outstanding under the Credit Agreement as of December 31, 2020.
On September 3, 2019 Linde and the company’s subsidiaries Linde, Inc. and Linde GmbH entered into a series of parent and subsidiary guarantees related to currently outstanding notes as well as the $5 billion Credit Agreement.
Other Debt Information
As of December 31, 2020 and 2019, the weighted-average interest rate of short-term borrowings outstanding was 0.0% and 0.6%, respectively.
Expected maturities of long-term debt are as follows:
|
|
|
|
|
|
|
|
|
(Millions of dollars)
|
|
|
|
2021
|
$
|
751
|
|
|
|
2022
|
2,440
|
|
|
|
2023
|
1,853
|
|
|
|
2024
|
1,067
|
|
|
|
2025
|
1,083
|
|
|
|
Thereafter
|
5,709
|
|
|
|
|
$
|
12,903
|
|
|
As of December 31, 2020, the amount of Linde's assets pledged as collateral was immaterial.
See Note 13 for the fair value information related to debt.
NOTE 12. FINANCIAL INSTRUMENTS
In its normal operations, Linde is exposed to market risks relating to fluctuations in interest rates, foreign currency exchange rates and energy costs. The objective of financial risk management at Linde is to minimize the negative impact of such fluctuations on the company’s earnings and cash flows. To manage these risks, among other strategies, Linde routinely enters into various derivative financial instruments (“derivatives”) including interest-rate swap and treasury rate lock agreements, currency-swap agreements, forward contracts, currency options, and commodity-swap agreements. These instruments are not entered into for trading purposes and Linde only uses commonly traded and non-leveraged instruments.
There are three types of derivatives that the company enters into: (i) those relating to fair-value exposures, (ii) those relating to cash-flow exposures, and (iii) those relating to foreign currency net investment exposures. Fair-value exposures relate to recognized assets or liabilities, and firm commitments; cash-flow exposures relate to the variability of future cash flows associated with recognized assets or liabilities, or forecasted transactions; and net investment exposures relate to the impact of foreign currency exchange rate changes on the carrying value of net assets denominated in foreign currencies.
When a derivative is executed and hedge accounting is appropriate, it is designated as either a fair-value hedge, cash-flow hedge, or a net investment hedge. Currently, Linde designates all interest-rate and treasury-rate locks as hedges for accounting purposes; however, cross-currency interest rate contracts are generally not designated as hedges for accounting purposes. Certain currency contracts related to forecasted transactions are designated as hedges for accounting purposes. Whether designated as hedges for accounting purposes or not, all derivatives are linked to an appropriate underlying exposure. On an ongoing basis, the company assesses the hedge effectiveness of all derivatives designated as hedges for accounting purposes to determine if they continue to be highly effective in offsetting changes in fair values or cash flows of the underlying hedged items. If it is determined that the hedge is not highly effective, then hedge accounting will be discontinued prospectively.
Counterparties to Linde’s derivatives are major banking institutions with credit ratings of investment grade or better. The company has Credit Support Annexes ("CSAs") in place for certain entities with their principal counterparties to minimize potential default risk and to mitigate counterparty risk. Under the CSAs, the fair values of derivatives for the purpose of interest rate and currency management are collateralized with cash on a regular basis. As of December 31, 2020, the impact of such collateral posting arrangements on the fair value of derivatives was insignificant. Management believes the risk of incurring losses on derivative contracts related to credit risk is remote and any losses would be immaterial.
The following table is a summary of the notional amount and fair value of derivatives outstanding at December 31, 2020 and 2019 for consolidated subsidiaries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
(Millions of dollars)
|
Notional Amounts
|
|
Assets (a)
|
|
Liabilities (a)
|
|
December 31,
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Derivatives Not Designated as Hedging Instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance sheet items
|
$
|
6,470
|
|
|
$
|
7,936
|
|
|
$
|
72
|
|
|
$
|
62
|
|
|
$
|
48
|
|
|
$
|
37
|
|
|
Forecasted transactions
|
823
|
|
|
748
|
|
|
16
|
|
|
14
|
|
|
12
|
|
|
15
|
|
|
Cross-currency swaps
|
260
|
|
|
1,029
|
|
|
24
|
|
|
35
|
|
|
7
|
|
|
40
|
|
|
Commodity contracts
|
N/A
|
|
N/A
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total
|
$
|
7,553
|
|
|
$
|
9,713
|
|
|
$
|
113
|
|
|
$
|
111
|
|
|
$
|
67
|
|
|
$
|
92
|
|
|
Derivatives Designated as Hedging Instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance sheet items
|
$
|
—
|
|
|
$
|
27
|
|
|
$
|
—
|
|
|
$
|
2
|
|
|
$
|
—
|
|
|
$
|
3
|
|
|
Forecasted transactions
|
355
|
|
|
464
|
|
|
20
|
|
|
9
|
|
|
14
|
|
|
3
|
|
|
Commodity contracts
|
N/A
|
|
N/A
|
|
3
|
|
|
6
|
|
|
—
|
|
|
1
|
|
|
Interest rate swaps
|
1,923
|
|
|
1,908
|
|
|
64
|
|
|
39
|
|
|
—
|
|
|
—
|
|
|
Total Hedges
|
$
|
2,278
|
|
|
$
|
2,399
|
|
|
$
|
87
|
|
|
$
|
56
|
|
|
$
|
14
|
|
|
$
|
7
|
|
|
Total Derivatives
|
$
|
9,831
|
|
|
$
|
12,112
|
|
|
$
|
200
|
|
|
$
|
167
|
|
|
$
|
81
|
|
|
$
|
99
|
|
(a) Current assets of $110 million are recorded in prepaid and other current assets; long-term assets of $90 million are recorded in other long-term assets; current liabilities of $70 million are recorded in other current liabilities; and long-term liabilities of $11 million are recorded in other long-term liabilities.
Balance Sheet Items
Foreign currency contracts related to balance sheet items consist of forward contracts entered into to manage the exposure to fluctuations in foreign-currency exchange rates on recorded balance sheet assets and liabilities denominated in currencies other than the functional currency of the related operating unit. Certain forward currency contracts are entered into to protect underlying monetary assets and liabilities denominated in foreign currencies from foreign exchange risk and are not designated as hedging instruments. For balance sheet items that are not designated as hedging instruments, the fair value adjustments on these contracts are offset by the fair value adjustments recorded on the underlying monetary assets and liabilities.
Forecasted Transactions
Foreign currency contracts related to forecasted transactions consist of forward contracts entered into to manage the exposure to fluctuations in foreign-currency exchange rates on (1) forecasted purchases of capital-related equipment and services, (2) forecasted sales, or (3) other forecasted cash flows denominated in currencies other than the functional currency of the related operating units. For forecasted transactions that are designated as cash flow hedges, fair value adjustments are recorded to accumulated other comprehensive income ("AOCI") with deferred amounts reclassified to earnings over the same time period as the income statement impact of the associated purchase. For forecasted transactions that do not qualify for cash flow hedging relationships, fair value adjustments are recorded directly to earnings.
Cross-Currency Swaps
Cross-currency swaps are entered into to limit the foreign currency risk of future principal and interest cash flows associated with intercompany loans, and to a more limited extent bonds, denominated in non-functional currencies. The fair value adjustments on the cross-currency swaps are recorded to earnings, where they are offset by fair value adjustments on the underlying intercompany loan or bond.
Commodity Contracts
Commodity contracts are entered into to manage the exposure to fluctuations in commodity prices, which arise in the normal course of business from its procurement transactions. To reduce the extent of this risk, Linde enters into a limited number of electricity, natural gas, and propane gas derivatives. The fair value adjustments for the majority of these contracts are recorded to AOCI and are eventually offset by the income statement impact of the underlying commodity purchase. For forecasted transactions that are designated as cash flow hedges, fair value adjustments are recorded to accumulated other comprehensive income ("AOCI") with deferred amounts reclassified to earnings over the same time period as the income statement impact of the associated purchase.
Net investment hedges
As of December 31, 2020, Linde has €1.7 billion ($2.1 billion) intercompany Euro-denominated credit facility loans and intercompany loans which are designated as hedges of the net investment positions in foreign operations. Since hedge inception, exchange rate movements have increased the credit facility loan and intercompany loans by $344 million, with the offsetting loss shown within the cumulative translation component of AOCI in the consolidated balance sheets and the consolidated statements of comprehensive income.
Linde had previously designated Euro-denominated debt instruments as net investment hedges to reduce the company's exposure to changes in the currency exchange rate on investments in foreign subsidiaries with Euro functional currencies. Exchange rate movements of $206 million relating to the previously denominated Euro-denominated debt incurred in the financial periods prior to de-designation will remain in AOCI, until appropriate, such as upon sale or liquidation of the foreign operations at which time amounts will be reclassified to the consolidated statements of income. Exchange rate movements related to the Euro-denominated debt occurring after de-designation are shown in the consolidated statements of income.
Interest Rate Swaps
Linde uses interest rate swaps to hedge the exposure to changes in the fair value of financial assets and financial liabilities as a result of interest rate changes. These interest rate swaps effectively convert fixed-rate interest exposures to variable rates; fair value adjustments are recognized in earnings along with an equally offsetting charge/benefit to earnings for the changes in the fair value of the underlying financial asset or financial liability. The notional value of outstanding interest rate swaps of Linde with maturity dates from 2021 through 2028 was $1,923 million at December 31, 2020 and $1,908 million at December 31, 2019 (see Note 11 for further information).
Terminated Treasury Rate Locks
The unrecognized aggregate losses related to terminated treasury rate lock contracts on the underlying $500 million 2.20% fixed-rate notes that mature in 2022 at December 31, 2020 and December 31, 2019 was immaterial in both periods. The unrecognized gains/(losses) for the treasury rate locks are shown in AOCI and are being recognized on a straight line basis to interest expense - net over the term of the underlying debt agreements.
Impact of derivative instruments on earnings and AOCI
The following table summarizes the impact of the company's derivatives on the consolidated statements of income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions of dollars)
|
Amount of Pre-Tax Gain (Loss)
Recognized in Earnings *
|
|
December 31,
|
2020
|
|
2019
|
|
2018
|
|
Derivatives Not Designated as Hedging Instruments
|
|
|
|
|
|
|
Currency contracts:
|
|
|
|
|
|
|
Balance sheet items:
|
|
|
|
|
|
|
Debt-related
|
$
|
(125)
|
|
|
$
|
253
|
|
|
$
|
(118)
|
|
|
Other balance sheet items
|
(40)
|
|
|
65
|
|
|
3
|
|
|
Total
|
$
|
(165)
|
|
|
$
|
318
|
|
|
$
|
(115)
|
|
* The gains (losses) on balance sheet items are offset by gains (losses) recorded on the underlying hedged assets and liabilities. Accordingly, the gains (losses) for the derivatives and the underlying hedged assets and liabilities related to debt items are recorded in the consolidated statements of income as interest expense-net. Other balance sheet items and anticipated net income gains (losses) are recorded in the consolidated statements of income as other income (expenses)-net.
The amounts of gain or loss recognized in AOCI and reclassified to the consolidated statement of income was immaterial for the year ended December 31, 2020. Net losses expected to be reclassified to earnings during the next twelve months are also not material.
The gains (losses) on net investment hedges are recorded as a component of AOCI within foreign currency translation adjustments in the consolidated balance sheets and the consolidated statements of comprehensive income. The gains (losses) on treasury rate locks are recorded as a component of AOCI within derivative instruments in the consolidated balance sheets and the consolidated statements of comprehensive income. The gains (losses) on net investment hedges are reclassified to earnings only when the related currency translation adjustments are required to be reclassified, usually upon sale or liquidation of the investment. The gains (losses) for interest rate contracts are reclassified to earnings as interest expense –net on a straight-line basis over the remaining maturity of the underlying debt.
NOTE 13. FAIR VALUE DISCLOSURES
The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels as follows:
Level 1 – quoted prices in active markets for identical assets or liabilities
Level 2 – quoted prices for similar assets and liabilities in active markets or inputs that are observable
Level 3 – inputs that are unobservable (for example cash flow modeling inputs based on assumptions)
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table summarizes assets and liabilities measured at fair value on a recurring basis at December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
(Millions of dollars)
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative assets
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
200
|
|
|
$
|
167
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Investments and securities *
|
21
|
|
|
18
|
|
|
—
|
|
|
—
|
|
|
47
|
|
|
28
|
|
|
Total
|
$
|
21
|
|
|
$
|
18
|
|
|
$
|
200
|
|
|
$
|
167
|
|
|
$
|
47
|
|
|
$
|
28
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
81
|
|
|
$
|
99
|
|
|
$
|
—
|
|
|
$
|
—
|
|
*Investments and securities are recorded in prepaid and other current assets and other long-term assets in the company's consolidated balance sheets.
Level 1 investments and securities are marketable securities traded on an exchange. Level 2 investments are based on market prices obtained from independent brokers or determined using quantitative models that use as their basis readily observable market parameters that are actively quoted and can be validated through external sources, including third-party pricing services, brokers and market transactions. Level 3 investments and securities consist of a venture fund. For the valuation, Linde uses the net asset value received as part of the fund's quarterly reporting, which for the most part is not
based on quoted prices in active markets. In order to reflect current market conditions, Linde proportionally adjusts these by observable market data (stock exchange prices) or current transaction prices.
The level 3 investments and securities as of January 1, 2020 was $28 million. During the year ended December 31, 2020 there was approximately $3 million of foreign currency movement and $16 million in gains recognized in interest expense - net in the company's consolidated statements of income. The balance as of December 31, 2020 was $47 million.
The fair value of cash and cash equivalents, short-term debt, accounts receivable-net, and accounts payable approximate carrying value because of the short-term maturities of these instruments.
The fair value of long-term debt is estimated based on the quoted market prices for the same or similar issues. Long-term debt is categorized within either Level 1 or Level 2 of the fair value hierarchy depending on the trading volume of the issues and whether or not they are actively quoted in the market as opposed to traded through over-the-counter transactions. At December 31, 2020, the estimated fair value of Linde’s long-term debt portfolio was $13,611 million versus a carrying value of $12,903 million. At December 31, 2019 the estimated fair value of Linde’s long-term debt portfolio was $12,375 million versus a carrying value of $12,224 million. As Linde AG's assets and liabilities were measured at estimated fair value as of the merger date, differences between the carrying value and the fair value are not significant; remaining differences are attributable to interest rate increases subsequent to when the debt was issued and relative to stated coupon rates.
NOTE 14. EQUITY AND NONCONTROLLING INTERESTS
Linde plc Shareholders’ Equity
At December 31, 2020 and 2019, Linde has total authorized share capital of €1,825,000 divided into 1,750,000,000 ordinary shares of €0.001 each, 25,000 A ordinary shares of €1.00 each, 25,000 deferred shares of €1.00 each and 25,000,000 preferred shares of €0.001 each.
At December 31, 2020 there were 552,012,862 and 523,294,529 of Linde plc ordinary shares issued and outstanding, respectively. At December 31, 2020 there were no shares of A ordinary shares, deferred shares or preferred shares issued or outstanding.
At December 31, 2019 there were 552,012,862 and 534,380,544 of Linde plc ordinary shares issued and outstanding, respectively. At December 31, 2019, there were no shares of A ordinary shares, deferred shares or preferred shares issued or outstanding.
Linde’s Board of Directors may from time to time authorize the issuance of one or more series of preferred stock and, in connection with the creation of such series, determine the characteristics of each such series including, without limitation, the preference and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions of the series.
Other Linde plc Ordinary Share and Treasury Stock Transactions
Linde may issue new ordinary shares for dividend reinvestment and stock purchase plans and employee savings and incentive plans. The number of new Linde ordinary shares issued from the merger date through December 31, 2019 was 958,293 shares. No new ordinary shares were issued in 2020.
On December 10, 2018 the Linde board of directors approved the repurchase of $1.0 billion of its ordinary shares under which Linde had repurchased 6,385,887 shares through December 31, 2019 (4,068,642 shares were repurchased through December 31, 2018). Linde completed the repurchases under this program in the first quarter of 2019.
On January 22, 2019 the company’s board of directors approved the additional repurchase of $6.0 billion of its ordinary shares under which Linde had repurchased 24,310,534 shares through December 31, 2020 (12,016,083 shares were repurchased through December 31, 2019). This program expired on February 1, 2021.
On January 25, 2021 the Linde board of directors authorized a new share repurchase program for up to $5.0 billion of its ordinary shares expiring on July 31, 2023.
Noncontrolling Interests
Noncontrolling interest ownership changes are presented within the consolidated statements of equity. The decrease during 2020 primarily relates to the initiated buyout of minority interests in the Republic of South Africa. As of December 31, 2020, the conditions of the buyout were met obligating the company to execute in January 2021. Therefore, the company
reclassified $196 million from non-controlling interest to other current liabilities reflecting the transaction price. An additional $35 million of dividends declared to the minority owners, reflected on the Dividends and other capital reductions line, was also reclassified to other current liabilities at December 31, 2020 and was paid in January 2021.
The $2,921 million decrease during 2019 was primarily driven by completion of the cash merger squeeze-out of the 8% of Linde AG shares which were not tendered in the Exchange Offer related to the merger (See Note 2).
The $186 million decrease during 2018 primarily relates to the sale of Praxair's industrial gases business in Europe (see Note 2). The "Impact of Merger" line item of the consolidated statements of equity includes the fair value of the noncontrolling interests acquired from Linde AG, including the 8% of Linde AG shares which were not tendered in the Exchange Offer that were the subject of a cash-merger squeeze-out completed in 2019 (See Note 2).
Redeemable Noncontrolling Interests
Noncontrolling interests with redemption features, such as put/sell options, that are not solely within the company’s control (“redeemable noncontrolling interests”) are reported separately in the consolidated balance sheets at the greater of carrying value or redemption value. For redeemable noncontrolling interests that are not yet exercisable, Linde calculates the redemption value by accreting the carrying value to the redemption value over the period until exercisable. If the redemption value is greater than the carrying value, any increase is adjusted directly to retained earnings and does not impact net income. At December 31, 2020, the redeemable noncontrolling interest balance includes an industrial gas business in EMEA where the noncontrolling shareholders have put options. The decrease of $100 million during 2020 relates to the full redemption of the industrial gas business in the Americas and redemption of the majority of the redeemable noncontrolling interest in the industrial gas business in EMEA.
NOTE 15. SHARE-BASED COMPENSATION
Share-based compensation expense was $133 million in 2020 ($95 million and $62 million in 2019 and 2018, respectively). The related income tax benefit recognized was $79 million in 2020 ($42 million and $30 million in 2019 and 2018, respectively). The expense was primarily recorded in selling, general and administrative expenses and no share-based compensation expense was capitalized.
Summary of Plans
The Amended and Restated 2009 Linde Long-Term Incentive Plan was initially adopted by the board of directors and shareholders of Praxair, Inc. on April 28, 2009 and has been amended since its initial adoption ("the 2009 Plan"). Upon completion of the business combination of Praxair, Inc. with Linde AG on October 31, 2018, the 2009 Plan was assumed by the company. The 2009 Plan permits awards of stock options, stock appreciation rights, restricted stock and restricted stock units, performance-based stock units and other equity awards to eligible officer and non-officer employees and non-employee directors of the company and its affiliates. As of December 31, 2020, 5,117,443 shares remained available for equity grants under the 2009 Plan, of which 1,406,647 shares may be granted as awards other than options or stock appreciation rights.
Upon the completion of the business combination, all options outstanding under the 2009 Plan were converted into options to acquire the same number of shares of the company and at the same exercise price per share that applied prior to the business combination.
Exercise prices for options granted under the 2009 Plan may not be less than the closing market price of the company’s ordinary shares on the date of grant and granted options may not be re-priced or exchanged without shareholder approval. Options granted under the 2009 Plan subject only to time vesting requirements may become partially exercisable after a minimum of one year after the date of grant but may not become fully exercisable until at least three years have elapsed from the date of grant, and all options have a maximum duration of ten years.
In connection with the business combination, on October 31, 2018 the company's Board of Directors adopted the Long Term Incentive Plan 2018 of Linde plc (“the LTIP 2018”), the purpose of which was to replace certain outstanding Linde AG equity based awards that were terminated. Under the LTIP 2018, the aggregate number of shares available for replacement option rights and replacement restricted share units was set at 473,128. As of December 31, 2020, 277,553 shares remained available for grant, and since the company was obligated to make these replacement awards only in 2019, it does not anticipate any further grants under this plan.
Exercise prices for the replacement option rights that were granted in 2019 under the LTIP 2018 were equal to EUR 1.67 ($1.92 as converted at an exchange rate from the time the exchange offer was completed as the option rights are exercisable in U.S. dollars on the NYSE) as prescribed in the business combination agreement. Each replacement option right granted under the LTIP 2018 is subject to vesting based on continued service until the end of the four-year waiting period applicable to the relevant Linde AG award that had been granted before the business combination. After vesting, each option right will be exercisable for one year.
In order to satisfy option exercises and other equity grants, the company may issue authorized but previously unissued shares or it may issue treasury shares.
Stock Option Fair Value
The company utilizes the Black-Scholes Options-Pricing Model to determine the fair value of stock options consistent with that used in prior years. Management is required to make certain assumptions with respect to selected model inputs, including anticipated changes in the underlying stock price (i.e., expected volatility) and option exercise activity (i.e., expected life). Expected volatility is based on the historical volatility of the company’s stock over the most recent period commensurate with the estimated expected life of the company’s stock options and other factors. The expected life of options granted, which represents the period of time that the options are expected to be outstanding, is based primarily on historical exercise experience. The expected dividend yield is based on the company’s most recent history and expectation of dividend payouts. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for a period commensurate with the estimated expected life. If factors change and result in different assumptions in future periods, the stock option expense that the company records for future grants may differ significantly from what the company has recorded in the current period.
The weighted-average fair value of options granted during 2020 was $17.37 ($23.38 in 2019 and $19.29 in 2018) based on the Black-Scholes Options-Pricing model. The decrease in grant date fair value year-over-year is primarily attributable to
the reduction in the risk-free interest rate. The weighted-average fair value of replacement option rights granted in 2019 was $160.08 based on intrinsic value method.
The following weighted-average assumptions were used to value the grants in 2020, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
2020
|
|
2019
|
|
2018
|
|
Dividend yield
|
2.2
|
%
|
|
2.0
|
%
|
|
2.1
|
%
|
|
Volatility
|
15.8
|
%
|
|
14.3
|
%
|
|
14.4
|
%
|
|
Risk-free interest rate
|
0.60
|
%
|
|
2.38
|
%
|
|
2.67
|
%
|
|
Expected term years
|
6
|
|
6
|
|
5
|
|
|
|
|
|
|
|
The following table summarizes option activity under the plans as of December 31, 2020 and changes during the period then ended (averages are calculated on a weighted basis; life in years; intrinsic value expressed in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Activity
|
Number of
Options
(000’s)
|
|
Average
Exercise
Price
|
|
Average
Remaining
Life
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding at January 1, 2020
|
9,297
|
|
|
$
|
127.04
|
|
|
|
|
|
|
Granted
|
1,155
|
|
|
173.16
|
|
|
|
|
|
|
Exercised
|
(2,205)
|
|
|
115.34
|
|
|
|
|
|
|
Cancelled or expired
|
(180)
|
|
|
162.97
|
|
|
|
|
|
|
Outstanding at December 31, 2020
|
8,067
|
|
|
$
|
136.05
|
|
|
6.0
|
|
$
|
1,028
|
|
|
Exercisable at December 31, 2020
|
5,707
|
|
|
$
|
123.93
|
|
|
5.0
|
|
$
|
797
|
|
The aggregate intrinsic value represents the difference between the company’s closing stock price of $263.51 as of December 31, 2020 and the exercise price multiplied by the number of in the money options outstanding as of that date. The total intrinsic value of stock options exercised during 2020 was $264 million ($219 million and $113 million in 2019 and 2018, respectively).
Cash received from option exercises under all share-based payment arrangements for 2020 was $36 million ($64 million and $66 million in 2019 and 2018, respectively). The cash tax benefit realized from share-based compensation totaled $70 million for 2020 ($56 million and $30 million cash tax benefit in 2019 and 2018, respectively).
As of December 31, 2020, $17 million of unrecognized compensation cost related to non-vested stock options is expected to be recognized over a weighted-average period of approximately 1 year.
Performance-Based and Restricted Stock Awards
In 2020, the company granted 224,045 performance-based stock awards under the 2009 Plan to senior management that vest, subject to the attainment of pre-established minimum performance criteria, principally on the third anniversary of their date of grant. These awards are tied to either after tax return on capital ("ROC") performance or relative total shareholder return ("TSR") performance versus that of the S&P 500 (weighted 67%) and Eurofirst 300 (weighted 33%). The actual number of shares issued in settlement of a vested award can range from zero to 200 percent of the target number of shares granted based upon the company’s attainment of specified performance targets at the end of a three-year period. Compensation expense related to these awards is recognized over the three-year performance period based on the fair value of the closing market price of the company’s ordinary shares on the date of the grant and the estimated performance that will be achieved. Compensation expense for ROC awards will be adjusted during the three-year performance period based upon the estimated performance levels that will be achieved. TSR awards are measured at their grant date fair value and not subsequently re-measured.
The weighted-average fair value of ROC performance-based stock awards granted in 2020 was $161.56, and during 2019 was $168.47. These fair values are based on the closing market price of Linde's ordinary shares on the grant date adjusted for dividends that will not be paid during the vesting period. There were no ROC performance-based stock awards granted in 2018.
The weighted-average fair value of performance-based stock tied to relative TSR performance granted in 2020 was $198.61, and during 2019 was $215.85, and was estimated using a Monte Carlo simulation performed as of the grant date. There were no performance-based stock tied to relative TSR performance granted in 2018.
There were 185,973 restricted stock units granted to employees by Linde during 2020. The weighted-average fair value of restricted stock units granted during 2020 was $174.95 ($165.04 in 2019 and $144.86 in 2018). These fair values are based
on the closing market price of Linde's ordinary shares on the grant date adjusted for dividends that will not be paid during the vesting period. Compensation expense related to the restricted stock units is recognized over the vesting period.
The following table summarizes non-vested performance-based and restricted stock award activity as of December 31, 2020 and changes during the period then ended (shares based on target amounts, averages are calculated on a weighted basis):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance-Based
|
|
Restricted Stock
|
|
|
Number of
Shares
(000’s)
|
|
Average
Grant Date
Fair Value
|
|
Number of
Shares
(000’s)
|
|
Average
Grant Date
Fair Value
|
|
Non-vested at January 1, 2020
|
246
|
|
|
$
|
184.29
|
|
|
884
|
|
|
$
|
129.43
|
|
|
Granted
|
224
|
|
|
174.70
|
|
|
186
|
|
|
174.95
|
|
|
Vested
|
—
|
|
|
—
|
|
|
(355)
|
|
|
117.62
|
|
|
Cancelled and Forfeited
|
(33)
|
|
|
178.27
|
|
|
(27)
|
|
|
160.90
|
|
|
Non-vested at December 31, 2020
|
437
|
|
|
$
|
179.76
|
|
|
688
|
|
|
$
|
148.56
|
|
There are approximately 10 thousand performance-based shares and 12 thousand restricted stock shares that are non-vested at December 31, 2020 which will be settled in cash due to foreign regulatory limitations. The liability related to these grants reflects the current estimate of performance that will be achieved and the current share price.
As of December 31, 2020, $42 million of unrecognized compensation cost related to performance-based awards and $21 million of unrecognized compensation cost related to the restricted stock awards is expected to be recognized primarily through the first quarter of 2023.
NOTE 16. RETIREMENT PROGRAMS
Defined Benefit Pension Plans - U.S.
Linde has two main U.S. retirement programs which are non-contributory defined benefit plans: the Linde U.S. Pension Plan and the CBI Pension Plan. The latter program benefits primarily former employees of CBI Industries, Inc. which Linde acquired in 1996. Effective July 1, 2002, the Linde U.S. Pension Plan 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 after April 30, 2002 into businesses adopting this plan. The U.S. and non-U.S. pension plan assets are comprised of a diversified mix of investments, including U.S. and non-U.S. corporate equities, government securities and corporate debt securities. Linde has several plans that provide supplementary retirement benefits primarily to higher level employees that are unfunded and are nonqualified for federal tax purposes. Pension coverage for employees of certain of Linde’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.
Defined Benefit Pension Plans - International
Linde has international, defined benefit commitments primarily in Germany and the U.K. The defined benefit commitments in Germany relate to old age pensions, invalidity pensions and surviving dependents pensions. These commitments also take into account vested rights for periods of service prior to January 1, 2002 based on earlier final-salary pension plan rules. In addition, there are direct commitments in respect of the salary conversion scheme for the form of cash balance plans. The resulting pension payments are calculated on the basis of an interest guarantee and the performance of the corresponding investment. There are no minimum funding requirements. The pension obligations in Germany are partly funded by a Contractual Trust Agreement (CTA). Defined benefit commitments in the U.K. prior to July 1, 2003 are earnings-related and dependent on the period of service. Such commitments relate to old age pensions, invalidity pensions and surviving dependents pensions. Beginning in April 1, 2011, the amount of future increases in inflation-linked pensions and of increases in pensionable emoluments was restricted.
Multi-employer Pension Plans
In the United States Linde participates in eight multi-employer defined benefit pension plans ("MEPs"), pursuant to the terms of collective bargaining agreements, that cover approximately 200 union-represented employees. The collective bargaining agreements expire on different dates through 2026. In connection with such agreements, the company is required to make periodic contributions to the MEPs in accordance with the terms of the respective collective bargaining agreements. Linde’s participation in these plans is not material either at the plan level or in the aggregate. Linde’s contributions to these plans were $2 million in 2020, 2019, and 2018 (these costs are not included in the tables that follow). For all MEPs, Linde’s contributions were significantly less than 1% of the total contributions to each plan for 2019 and 2018. Total 2020 contributions were not yet available from the MEPs.
Linde has obtained the most recently available Pension Protection Act ("PPA") annual funding notices from the Trustees of the MEPs. The PPA classifies MEPs as either Red, Yellow or Green Zone plans. Among other factors, plans in the Red Zone are generally less than 65 percent funded with a projected insolvency date within the next twenty years; plans in the Yellow Zone are generally 65 to 80 percent funded; and plans in the Green Zone are generally at least 80 percent funded. Red Zone plans are considered to be in "critical" or "critical and declining" status, while Yellow Zone plans are considered to be in "endangered" status. Plans that are in neither "critical" nor "endangered" status are considered to have Green Zone status. According to the most recent data available, four of the MEPs that the company participates in are in a Red Zone status and four are in a Green Zone status. As of December 31, 2020, the four Red Zone plans have pending or have implemented financial improvement or rehabilitation plans. Linde does not currently anticipate significant future obligations due to the funding status of these plans. If Linde determined it was probable that it would withdraw from an MEP, the company would record a liability for its portion of the MEP’s unfunded pension obligations, as calculated at that time. Historically, such withdrawal payments have not been significant.
Defined Contribution Plans
Linde’s U.S. business employees are eligible to participate in the Linde defined contribution savings plan. Employees may contribute up to 40% of their compensation, subject to the maximum allowable by IRS regulations. For the U.S. packaged gases business, company contributions to this plan are calculated as a percentage of salary based on age plus service. U.S. employees other than those in the packaged gases business have company contributions to this plan calculated on a graduated scale based on employee contributions to the plan. The cost for these defined contribution plans was $46 million in 2020, $47 million in 2019 and $33 million in 2018 (these costs are not included in the tables that follow).
The defined contribution plans include a non-leveraged employee stock ownership plan ("ESOP") which covers all employees participating in this plan. The collective number of shares of Linde ordinary shares in the ESOP totaled 1,872,450 at December 31, 2020.
Certain international subsidiaries of the company also sponsor defined contribution plans where contributions are determined under various formulas. The expense for these plans was $106 million in 2020, $95 million in 2019 and $32 million in 2018 (these expenses are not included in the tables that follow).
Postretirement Benefits Other Than Pensions (OPEB)
Linde provides health care and life insurance benefits to certain eligible retired employees. These benefits are provided through various insurance companies and healthcare providers. The company does not currently fund its postretirement benefits obligations. Linde’s retiree plans may be changed or terminated by Linde at any time for any reason with no liability to current or future retirees.
Linde uses a measurement date of December 31 for its pension and other post-retirement benefit plans.
Pension and Postretirement Benefit Costs
The components of net pension and postretirement benefits other than pension ("OPEB") costs for 2020, 2019 and 2018 are shown in the table below (2018 reflects the impact of the Linde AG merger on October 31, 2018 and the divestiture of Praxair's European industrial gases business on December 3, 2018 (see Note 2)):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions of dollars)
Year Ended December 31,
|
Pensions
|
|
OPEB
|
|
2020
|
|
2019
|
|
2018
|
|
2020
|
|
2019
|
|
2018
|
|
Amount recognized in Operating Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
$
|
150
|
|
|
$
|
142
|
|
|
$
|
74
|
|
|
$
|
2
|
|
|
$
|
2
|
|
|
$
|
2
|
|
|
Amount recognized in Net pension and OPEB cost (benefit), excluding service cost
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest cost
|
208
|
|
|
261
|
|
|
128
|
|
|
5
|
|
|
7
|
|
|
5
|
|
|
Expected return on plan assets
|
(482)
|
|
|
(462)
|
|
|
(219)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Net amortization and deferral
|
90
|
|
|
61
|
|
|
71
|
|
|
(4)
|
|
|
(4)
|
|
|
(3)
|
|
|
Curtailment and termination benefits (a)
|
—
|
|
|
8
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Settlement charges (b)
|
6
|
|
|
97
|
|
|
14
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
$
|
(178)
|
|
|
$
|
(35)
|
|
|
$
|
(6)
|
|
|
$
|
1
|
|
|
$
|
3
|
|
|
$
|
2
|
|
|
Amount recognized in Net gain on sale of businesses
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement gains from divestitures (c)
|
—
|
|
|
—
|
|
|
(44)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Net periodic benefit cost (benefit)
|
$
|
(28)
|
|
|
$
|
107
|
|
|
$
|
24
|
|
|
$
|
3
|
|
|
$
|
5
|
|
|
$
|
4
|
|
(a) In 2019, Linde recorded curtailment gains of $9 million and a charge of $17 million for termination benefits, primarily in connection with a defined benefit pension plan freeze.
(b) In the third quarter of 2020, Linde recorded a pension settlement charge of $6 million triggered by lump sum benefit payments made from a U.S. non-qualified plan.
In the first quarter of 2019, benefits of $91 million were paid related to the settlement of a U.S. non-qualified plan. Such benefits were triggered by a change in control provision and resulted in a settlement charge of $51 million. In the third and fourth quarters of 2019, Linde recorded pension settlement charges of $40 million and $6 million, respectively, related to lump sum payments made from a U.S. qualified plan. These payments were triggered by merger-related divestitures.
2018 includes the impact of a $4 million charge and a $10 million charge recorded in the third and fourth quarters, respectively. In the third quarter, a series of lump sum benefit payments made from the U.S. supplemental pension plan triggered a settlement of the related pension obligation. In the fourth quarter, a change in control provision triggered the settlement of a U.S. non-qualified plan.
(c) In connection with Praxair merger-related divestitures, primarily the European industrial gases business, certain European pension plan obligations were settled. This resulted in the recognition of associated pension benefit obligations and deferred losses in accumulated other comprehensive income (loss) within operating profit in the "Net gain on sale of businesses" line item.
Funded Status
Changes in the benefit obligation and plan assets for Linde’s pension and OPEB programs, including reconciliation of the funded status of the plans to amounts recorded in the consolidated balance sheet, as of December 31, 2020 and 2019 are shown below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions of dollars)
Year Ended December 31,
|
Pensions
|
|
|
|
2020
|
|
2019
|
|
OPEB
|
|
U.S.
|
|
International
|
|
U.S.
|
|
International
|
|
2020
|
|
2019
|
|
Change in Benefit Obligation ("PBO")
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation, January 1
|
$
|
2,552
|
|
|
$
|
8,689
|
|
|
$
|
2,508
|
|
|
$
|
7,533
|
|
|
$
|
192
|
|
|
$
|
184
|
|
|
Service cost
|
37
|
|
|
113
|
|
|
38
|
|
|
104
|
|
|
2
|
|
|
2
|
|
|
Interest cost
|
68
|
|
|
140
|
|
|
81
|
|
|
180
|
|
|
5
|
|
|
7
|
|
|
Divestitures
|
—
|
|
|
—
|
|
|
(1)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Participant contributions
|
—
|
|
|
18
|
|
|
—
|
|
|
20
|
|
|
11
|
|
|
8
|
|
|
Plan amendment
|
—
|
|
|
7
|
|
|
—
|
|
|
13
|
|
|
(13)
|
|
|
—
|
|
|
Actuarial loss (gain)
|
250
|
|
|
893
|
|
|
266
|
|
|
1,045
|
|
|
(2)
|
|
|
8
|
|
|
Benefits paid
|
(152)
|
|
|
(320)
|
|
|
(105)
|
|
|
(333)
|
|
|
(22)
|
|
|
(20)
|
|
|
Plan settlement
|
(9)
|
|
|
(14)
|
|
|
(235)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Plan curtailment
|
—
|
|
|
(1)
|
|
|
—
|
|
|
(9)
|
|
|
—
|
|
|
2
|
|
|
Foreign currency translation and other changes
|
—
|
|
|
462
|
|
|
—
|
|
|
136
|
|
|
(1)
|
|
|
1
|
|
|
Benefit obligation, December 31
|
$
|
2,746
|
|
|
$
|
9,987
|
|
|
$
|
2,552
|
|
|
$
|
8,689
|
|
|
$
|
172
|
|
|
$
|
192
|
|
|
Accumulated benefit obligation ("ABO")
|
$
|
2,646
|
|
|
$
|
9,830
|
|
|
$
|
2,464
|
|
|
$
|
8,553
|
|
|
|
|
|
|
Change in Plan Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets, January 1
|
$
|
2,048
|
|
|
$
|
6,888
|
|
|
$
|
1,952
|
|
|
$
|
6,292
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Actual return on plan assets
|
386
|
|
|
641
|
|
|
341
|
|
|
598
|
|
|
—
|
|
|
—
|
|
|
Company contributions
|
25
|
|
|
66
|
|
|
—
|
|
|
94
|
|
|
—
|
|
|
—
|
|
|
Participant contributions
|
—
|
|
|
18
|
|
|
—
|
|
|
20
|
|
|
—
|
|
|
—
|
|
|
Benefits paid from plan assets
|
(149)
|
|
|
(267)
|
|
|
(244)
|
|
|
(268)
|
|
|
—
|
|
|
—
|
|
|
Divestitures
|
—
|
|
|
—
|
|
|
(1)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Foreign currency translation and other changes
|
—
|
|
|
307
|
|
|
—
|
|
|
152
|
|
|
—
|
|
|
—
|
|
|
Fair value of plan assets, December 31
|
$
|
2,310
|
|
|
$
|
7,653
|
|
|
$
|
2,048
|
|
|
$
|
6,888
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Funded Status, End of Year
|
$
|
(436)
|
|
|
$
|
(2,334)
|
|
|
$
|
(504)
|
|
|
$
|
(1,801)
|
|
|
$
|
(172)
|
|
|
$
|
(192)
|
|
|
Recorded in the Balance Sheet (Note 7)
|
|
|
|
|
|
|
|
|
|
|
|
|
Other long-term assets
|
$
|
2
|
|
|
$
|
53
|
|
|
$
|
—
|
|
|
$
|
78
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Other current liabilities
|
(9)
|
|
|
(13)
|
|
|
(6)
|
|
|
(10)
|
|
|
(12)
|
|
|
(11)
|
|
|
Other long-term liabilities
|
(429)
|
|
|
(2,374)
|
|
|
(498)
|
|
|
(1,869)
|
|
|
(160)
|
|
|
(181)
|
|
|
Net amount recognized, December 31
|
$
|
(436)
|
|
|
$
|
(2,334)
|
|
|
$
|
(504)
|
|
|
$
|
(1,801)
|
|
|
$
|
(172)
|
|
|
$
|
(192)
|
|
|
Amounts recognized in accumulated other comprehensive income (loss) consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial loss (gain)
|
$
|
687
|
|
|
$
|
1,766
|
|
|
$
|
753
|
|
|
$
|
1,110
|
|
|
$
|
(11)
|
|
|
$
|
(10)
|
|
|
Prior service cost (credit)
|
—
|
|
|
9
|
|
|
—
|
|
|
4
|
|
|
(15)
|
|
|
(4)
|
|
|
Deferred tax benefit (Note 7)
|
(182)
|
|
|
(383)
|
|
|
(190)
|
|
|
(251)
|
|
|
5
|
|
|
(5)
|
|
|
Amount recognized in accumulated other comprehensive income (loss) (Note 7)
|
$
|
505
|
|
|
$
|
1,392
|
|
|
$
|
563
|
|
|
$
|
863
|
|
|
$
|
(21)
|
|
|
$
|
(19)
|
|
Comparative funded status information as of December 31, 2020 and 2019 for select international pension plans is presented in the table below as the benefit obligations of these plans are considered to be significant relative to the total benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United Kingdom
|
|
Germany
|
|
Other International
|
|
Total International
|
|
(Millions of dollars)
|
2020
|
|
2020
|
|
2020
|
|
2020
|
|
Benefit obligation, December 31
|
$
|
6,012
|
|
|
$
|
2,582
|
|
|
$
|
1,393
|
|
|
$
|
9,987
|
|
|
Fair value of plan assets, December 31
|
5,355
|
|
|
1,258
|
|
|
1,040
|
|
|
7,653
|
|
|
Funded Status, End of Year
|
$
|
(657)
|
|
|
$
|
(1,324)
|
|
|
$
|
(353)
|
|
|
$
|
(2,334)
|
|
|
|
|
|
|
|
|
|
|
|
|
United Kingdom
|
|
Germany
|
|
Other International
|
|
Total International
|
|
(Millions of dollars)
|
2019
|
|
2019
|
|
2019
|
|
2019
|
|
Benefit obligation, December 31
|
$
|
5,221
|
|
|
$
|
2,180
|
|
|
$
|
1,288
|
|
|
$
|
8,689
|
|
|
Fair value of plan assets, December 31
|
4,777
|
|
|
1,119
|
|
|
992
|
|
|
6,888
|
|
|
Funded Status, End of Year
|
$
|
(444)
|
|
|
$
|
(1,061)
|
|
|
$
|
(296)
|
|
|
$
|
(1,801)
|
|
The changes in plan assets and benefit obligations recognized in other comprehensive income in 2020 and 2019 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pensions
|
|
OPEB
|
|
(Millions of dollars)
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Current year net actuarial losses (gains)*
|
$
|
598
|
|
|
$
|
834
|
|
|
$
|
(2)
|
|
|
$
|
8
|
|
|
Amortization of net actuarial gains (losses)
|
(89)
|
|
|
(59)
|
|
|
2
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
Plan amendment
|
7
|
|
|
(4)
|
|
|
(13)
|
|
|
—
|
|
|
Amortization of prior service credits (costs)
|
(1)
|
|
|
(2)
|
|
|
2
|
|
|
1
|
|
|
Pension settlements
|
(6)
|
|
|
(97)
|
|
|
—
|
|
|
—
|
|
|
Curtailments
|
(1)
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
Foreign currency translation and other changes
|
87
|
|
|
12
|
|
|
(1)
|
|
|
—
|
|
|
Total recognized in other comprehensive income
|
$
|
595
|
|
|
$
|
684
|
|
|
$
|
(12)
|
|
|
$
|
14
|
|
________________________
* Pension net actuarial losses in 2020 and 2019 are largely driven by lower discount rates across all significant pension plans. In the U.S., the benefit from the actual return on assets in both 2020 and 2019 largely offset the actuarial loss generated from a higher PBO, resulting from the low discount rate environment. For the international plans, the unfavorable impact of lower discount rates outweighed favorable plan asset experience in both years. OPEB net actuarial gains in 2020 relate to the favorable impact of liability experience and demographic assumptions, which more than outweighed the adverse impact of lower year-over-year discount rates. OPEB net actuarial losses in 2019 relate to the low interest rate environment, which was partially offset by favorable actual benefit payment experience.
The following table provides information for pension plans where the accumulated benefit obligation exceeds the fair value of plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions of dollars)
Year Ended December 31,
|
Pensions
|
|
2020
|
|
2019
|
|
U.S.
|
|
International
|
|
U.S.
|
|
International
|
|
Accumulated benefit obligation ("ABO")
|
$
|
2,518
|
|
|
$
|
8,694
|
|
|
$
|
2,464
|
|
|
$
|
7,664
|
|
|
Fair value of plan assets
|
$
|
2,180
|
|
|
$
|
6,254
|
|
|
$
|
2,048
|
|
|
$
|
5,849
|
|
The following table provides information for pension plans where the projected benefit obligation exceeds the fair value of plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions of dollars)
Year Ended December 31,
|
Pensions
|
|
2020
|
|
2019
|
|
U.S.
|
|
International
|
|
U.S.
|
|
International
|
|
Projected benefit obligation ("PBO")
|
$
|
2,618
|
|
|
$
|
8,845
|
|
|
$
|
2,552
|
|
|
$
|
7,810
|
|
|
Fair value of plan assets
|
$
|
2,180
|
|
|
$
|
6,282
|
|
|
$
|
2,048
|
|
|
$
|
5,872
|
|
Assumptions
The assumptions used to determine benefit obligations are as of the respective balance sheet dates and the assumptions used to determine net benefit cost are as of the previous year-end, as shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pensions
|
|
|
|
|
|
|
U.S.
|
|
International
|
|
OPEB
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Weighted average assumptions used to determine benefit obligations at December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
2.40
|
%
|
|
3.20
|
%
|
|
1.36
|
%
|
|
1.91
|
%
|
|
2.39
|
%
|
|
3.19
|
%
|
|
Interest crediting rate
|
1.57
|
%
|
|
2.19
|
%
|
|
1.01
|
%
|
|
1.08
|
%
|
|
N/A
|
|
N/A
|
|
Rate of increase in compensation levels
|
3.25
|
%
|
|
3.25
|
%
|
|
2.55
|
%
|
|
2.46
|
%
|
|
N/A
|
|
N/A
|
|
Weighted average assumptions used to determine net periodic benefit cost for years ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
3.20
|
%
|
|
4.20
|
%
|
|
1.91
|
%
|
|
2.72
|
%
|
|
3.19
|
%
|
|
4.16
|
%
|
|
Interest crediting rate
|
2.19
|
%
|
|
3.34
|
%
|
|
1.08
|
%
|
|
1.23
|
%
|
|
N/A
|
|
N/A
|
|
Rate of increase in compensation levels
|
3.25
|
%
|
|
3.25
|
%
|
|
2.46
|
%
|
|
2.38
|
%
|
|
N/A
|
|
N/A
|
|
Expected long-term rate of return on plan assets (1)
|
7.00
|
%
|
|
7.27
|
%
|
|
5.31
|
%
|
|
5.15
|
%
|
|
N/A
|
|
N/A
|
________________________
(1) The expected long term rate of return on the U.S. and international plan assets is estimated based on the plans' investment strategy and asset allocation, historical capital market performance and, to a lesser extent, historical plan performance. For the U.S. plans, the expected rate of return of 7.00% was derived based on the target asset allocation of 40%-60% equity securities (approximately 7.7% expected return), 30%-50% fixed income securities (approximately 5.4% expected return) and 5%-15% alternative investments (approximately 6.3% expected return). For the international plans, the expected rate of return was derived based on the weighted average target asset allocation of 15%-25% equity securities (approximately 6.4% expected return), 30%-50% fixed income securities (approximately 4.8% expected return), and 30%-50% alternative investments (approximately 5% expected return). For the U.S. plan assets, the actual annualized total return for the most recent 10-year period ended December 31, 2020 was approximately 9.5%. For the international plan assets, the actual annualized total return for the same period was approximately 7.9%. Changes to plan asset allocations and investment strategy over this time period limit the value of historical plan performance as factor in estimating the expected long term rate of return. For 2021, the expected long-term rate of return on plan assets will be 7.00% for the U.S. plans. For 2021, the expected weighted average long-term rate of return for international plans will be 5.27%.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPEB
|
|
Assumed healthcare cost trend rates
|
2020
|
|
2019
|
|
Historical Praxair, Inc. plans
|
|
|
|
|
Healthcare cost trend assumed
|
6.50
|
%
|
|
7.00
|
%
|
|
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
|
2027
|
|
2027
|
|
Historical Linde AG plans
|
|
|
|
|
Healthcare cost trend assumed
|
6.50
|
%
|
|
5.49
|
%
|
|
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)
|
5.00
|
%
|
|
4.50
|
%
|
|
Year that the rate reaches the ultimate trend rate
|
2027
|
|
2038
|
Pension Plan Assets
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. Investment strategies are reviewed by management and investment performance is tracked against appropriate benchmarks. There are no concentrations of risk as it relates to the assets within the plans. The international pension plans are managed individually based on diversified investment portfolios, with different target asset allocations that vary for each plan. Weighted-average asset allocations at December 31, 2020 and 2019 for Linde’s U.S. and international pension plans, as well as respective asset allocation ranges by major asset category, are generally as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
International
|
|
Asset Category
|
Target 2020
|
|
Target 2019
|
|
2020
|
|
2019
|
|
Target 2020
|
|
Target 2019
|
|
2020
|
|
2019
|
|
Equity securities
|
40%-60%
|
|
40%-60%
|
|
66
|
%
|
|
55
|
%
|
|
15%-25%
|
|
15%-25%
|
|
27
|
%
|
|
23
|
%
|
|
Fixed income securities
|
30%-50%
|
|
30%-50%
|
|
27
|
%
|
|
30
|
%
|
|
30%-50%
|
|
30%-50%
|
|
34
|
%
|
|
41
|
%
|
|
Other
|
5%-15%
|
|
5%-15%
|
|
7
|
%
|
|
15
|
%
|
|
30%-50%
|
|
30%-50%
|
|
39
|
%
|
|
36
|
%
|
The following table summarizes pension assets measured at fair value by asset category at December 31, 2020 and 2019. For the twelve months ended December 31, 2020, transfers of assets of $15 million into Level 3 include insurance contract and real estate investments of $11 million and $4 million, respectively, which were reclassified as there is no active market quotation available. See Note 13 for the definition of levels within the fair value hierarchy:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3 **
|
|
Total
|
|
(Millions of dollars)
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Cash and cash equivalents
|
$
|
524
|
|
|
$
|
436
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
524
|
|
|
$
|
436
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global equities
|
1,974
|
|
|
1,395
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,974
|
|
|
1,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds
|
324
|
|
|
110
|
|
|
—
|
|
|
52
|
|
|
—
|
|
|
—
|
|
|
324
|
|
|
162
|
|
|
Fixed income securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government bonds
|
—
|
|
|
—
|
|
|
1,545
|
|
|
1,642
|
|
|
—
|
|
|
—
|
|
|
1,545
|
|
|
1,642
|
|
|
Emerging market debt
|
—
|
|
|
—
|
|
|
520
|
|
|
459
|
|
|
—
|
|
|
—
|
|
|
520
|
|
|
459
|
|
|
Mutual funds
|
123
|
|
|
225
|
|
|
12
|
|
|
14
|
|
|
—
|
|
|
—
|
|
|
135
|
|
|
239
|
|
|
Corporate bonds
|
—
|
|
|
—
|
|
|
573
|
|
|
401
|
|
|
—
|
|
|
—
|
|
|
573
|
|
|
401
|
|
|
Bank loans
|
—
|
|
|
—
|
|
|
242
|
|
|
210
|
|
|
—
|
|
|
—
|
|
|
242
|
|
|
210
|
|
|
Alternative investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate funds
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
335
|
|
|
316
|
|
|
335
|
|
|
316
|
|
|
Private debt
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,120
|
|
|
1,003
|
|
|
1,120
|
|
|
1,003
|
|
|
Insurance contracts
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
11
|
|
|
—
|
|
|
11
|
|
|
—
|
|
|
Liquid alternative
|
—
|
|
|
—
|
|
|
1,083
|
|
|
1,087
|
|
|
—
|
|
|
—
|
|
|
1,083
|
|
|
1,087
|
|
|
Other investments
|
—
|
|
|
—
|
|
|
60
|
|
|
33
|
|
|
—
|
|
|
—
|
|
|
60
|
|
|
33
|
|
Total plan assets at fair value,
December 31,
|
$
|
2,945
|
|
|
$
|
2,166
|
|
|
$
|
4,035
|
|
|
$
|
3,898
|
|
|
$
|
1,466
|
|
|
$
|
1,319
|
|
|
$
|
8,446
|
|
|
$
|
7,383
|
|
|
Pooled funds *
|
|
|
|
|
|
|
|
|
|
|
|
|
1,517
|
|
|
1,553
|
|
Total fair value plan assets
December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
9,963
|
|
|
$
|
8,936
|
|
* Pooled funds are measured using the net asset value ("NAV") as a practical expedient for fair value as permissible under the accounting standard for fair value measurements and have not been categorized in the fair value hierarchy.
** The following table summarizes changes in fair value of the pension plan assets classified as level 3 for the periods ended December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions of dollars)
|
Insurance Contracts
|
|
Real Estate Funds
|
|
Private Debt
|
|
Total
|
|
Balance, December 31, 2018
|
$
|
—
|
|
|
$
|
298
|
|
|
$
|
671
|
|
|
$
|
969
|
|
|
Gain/(Loss) for the period
|
—
|
|
|
24
|
|
|
30
|
|
|
54
|
|
|
Acquisitions
|
—
|
|
|
—
|
|
|
14
|
|
|
14
|
|
|
Purchases
|
—
|
|
|
26
|
|
|
304
|
|
|
330
|
|
|
Sales
|
—
|
|
|
(22)
|
|
|
(33)
|
|
|
(55)
|
|
|
Transfer into/ (out of) Level 3
|
—
|
|
|
(10)
|
|
|
—
|
|
|
(10)
|
|
|
Foreign currency translation
|
—
|
|
|
—
|
|
|
17
|
|
|
17
|
|
|
Balance, December 31, 2019
|
$
|
—
|
|
|
$
|
316
|
|
|
$
|
1,003
|
|
|
$
|
1,319
|
|
|
Gain/(Loss) for the period
|
—
|
|
|
(10)
|
|
|
4
|
|
|
(6)
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
|
—
|
|
|
21
|
|
|
137
|
|
|
158
|
|
|
Sales
|
—
|
|
|
(10)
|
|
|
(69)
|
|
|
(79)
|
|
|
Transfer into / (out of) Level 3
|
11
|
|
|
4
|
|
|
—
|
|
|
15
|
|
|
Foreign currency translation
|
—
|
|
|
14
|
|
|
45
|
|
|
59
|
|
|
Balance, December 31, 2020
|
$
|
11
|
|
|
$
|
335
|
|
|
$
|
1,120
|
|
|
$
|
1,466
|
|
The descriptions and fair value methodologies for the company's pension plan assets are as follows:
Cash and Cash Equivalents – This category includes cash and short-term interest bearing investments with maturities of three months or less. Investments are valued at cost plus accrued interest. Cash and cash equivalents are classified within level 1 of the valuation hierarchy.
Equity Securities – This category is comprised of shares of common stock in U.S. and international companies from a diverse set of industries and size. Common stock is valued at the closing market price reported on a U.S. or international exchange where the security is actively traded. Equity securities are classified within level 1 of the valuation hierarchy.
Mutual Funds – These categories consist of publicly and privately managed funds that invest primarily in marketable equity and fixed income securities. The fair value of these investments is determined by reference to the net asset value of the underlying securities of the fund. Shares of publicly traded mutual funds are valued at the net asset value quoted on the exchange where the fund is traded and are primarily classified as level 1 within the valuation hierarchy.
U.S. and International Government Bonds – This category includes U.S. treasuries, U.S. federal agency obligations and international government debt. The majority of these investments do not have quoted market prices available for a specific government security and so the fair value is determined using quoted prices of similar securities in active markets and is classified as level 2 within the valuation hierarchy.
Corporate Bonds – This category is comprised of corporate bonds of U.S. and international companies from a diverse set of industries and size. The fair values for U.S. and international corporate bonds are determined using quoted prices of similar securities in active markets and observable data or broker or dealer quotations. The fair values for these investments are classified as level 2 within the valuation hierarchy.
Pooled Funds - Pooled fund NAVs are provided by the trustee and are determined by reference to the fair value of the underlying securities of the trust, less its liabilities, which are valued primarily through the use of directly or indirectly observable inputs. Depending on the pooled fund, underlying securities may include marketable equity securities or fixed income securities.
Bank Loans - This category is comprised of traded syndicated loans of larger corporate borrowers. Such loans are issued by sub-investment grade rated companies both in the U.S. and internationally and are syndicated by investment banks to institutional investors. They are regularly traded in an active dealer market comprised of large investment banks, which supply bid and offer quotes and are therefore classified within level 2 of the valuation hierarchy.
Liquid Alternative Investments - This category is comprised of investments in alternative mutual funds whose holdings include liquid securities, cash, and derivatives. Such funds focus on diversification and employ a variety of investing strategies including long/short equity, multi-strategy, and global macro. The fair value of these investments is determined by reference to the net asset value of the underlying holdings of the fund, which can be determined using observable data (e.g., indices, yield curves, quoted prices of similar securities), and is classified within level 2 of the valuation hierarchy.
Insurance Contracts – This category is comprised of purchased annuity insurance contracts (annuity contract buy-ins) and is intended to mitigate the Company's exposure to certain risks, such as longevity risk. The fair value is calculated based on the cash surrender value of the purchased annuity insurance contract, which is determined based on such factors as the fair value of the underlying assets and discounted cash flows. These contracts are with highly rated insurance companies. Insurance contracts are classified within level 3 of the valuation hierarchy.
Real Estate Funds – This category includes real estate properties, partnership equities and investments in operating companies. The fair value of the assets is determined using discounted cash flows by estimating an income stream for the property plus a reversion into a present value at a risk adjusted rate. Yield rates and growth assumptions utilized are derived from market transactions as well as other financial and industry data. The fair value for these investments are classified within level 3 of the valuation hierarchy.
Private Debt - This category includes non-traded, privately-arranged loans between one or a small group of private debt investment managers and corporate borrowers, which are typically too small to access the syndicated market and have no credit rating. This category also includes similar loans to real estate companies or individual properties. Loans included in this category are valued at par value, are held to maturity or to call, and are classified within level 3 of the valuation hierarchy.
Contributions
At a minimum, Linde contributes to its pension plans to comply with local regulatory requirements (e.g., ERISA in the United States). Discretionary contributions in excess of the local minimum requirements are made based on many factors, including long-term projections of the plans' funded status, the economic environment, potential risk of overfunding,
pension insurance costs and alternative uses of the cash. Changes to these factors can impact the timing of discretionary contributions from year to year. Pension contributions were $91 million in 2020, $94 million in 2019 and $87 million in 2018. Estimated required contributions for 2021 are currently expected to be in the range of $70 million to $80 million.
Estimated Future Benefit Payments
The following table presents estimated future benefit payments, net of participant contributions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions of dollars)
|
Pensions
|
|
|
|
Year Ended December 31,
|
U.S.
|
|
International
|
|
OPEB
|
|
2021
|
$
|
175
|
|
|
$
|
360
|
|
|
$
|
13
|
|
|
2022
|
146
|
|
|
360
|
|
|
12
|
|
|
2023
|
148
|
|
|
371
|
|
|
12
|
|
|
2024
|
151
|
|
|
380
|
|
|
11
|
|
|
2025
|
155
|
|
|
389
|
|
|
10
|
|
|
2026-2030
|
771
|
|
|
1,046
|
|
|
44
|
|
NOTE 17. COMMITMENTS AND CONTINGENCIES
The company accrues non income-tax liabilities for contingencies when management believes that a loss is probable and the amounts can be reasonably estimated, while contingent gains are recognized only when realized. In the event any losses are sustained in excess of accruals, they will be charged against income at that time. Attorney fees are recorded as incurred. Commitments represent obligations, such as those for future purchases of goods or services, that are not yet recorded on the company’s balance sheet as liabilities. The company records liabilities for commitments when incurred (i.e., when the goods or services are received).
Contingent Liabilities
Linde is subject to various lawsuits and government investigations that arise from time to time in the ordinary course of business. These actions are based upon alleged environmental, tax, antitrust and personal injury claims, among others. Linde has strong defenses in these cases and intends to defend itself vigorously. It is possible that the company may incur losses in connection with some of these actions in excess of accrued liabilities. Management does not anticipate that in the aggregate such losses would have a material adverse effect on the company’s consolidated financial position or liquidity; however, it is possible that the final outcomes could have a significant impact on the company’s reported results of operations in any given period.
Significant matters are:
•During 2009, the Brazilian government published Law 11941/2009 instituting a new voluntary amnesty program (“Refis Program”) which allowed Brazilian companies to settle certain federal tax disputes at reduced amounts. During 2009, the company decided that it was economically beneficial to settle many of its outstanding federal tax disputes and such disputes were enrolled in the Refis Program, subject to final calculation and review by the Brazilian federal government. The company recorded estimated liabilities based on the terms of the Refis Program. Since 2009, Linde has been unable to reach final agreement on the calculations and initiated litigation against the government in an attempt to resolve certain items. Open issues relate to the following matters: (i) application of cash deposits and net operating loss carryforwards to satisfy obligations and (ii) the amount of tax reductions available under the Refis Program. It is difficult to estimate the timing of resolution of legal matters in Brazil.
•At December 31, 2020 the most significant non-income and income tax claims in Brazil, after enrollment in the Refis Program, relate to state VAT tax matters and a federal income tax matter where the taxing authorities are challenging the tax rate that should be applied to income generated by a subsidiary company. The total estimated exposure relating to such claims, including interest and penalties, as appropriate, is approximately $205 million. Linde has not recorded any liabilities related to such claims based on management judgments, after considering judgments and opinions of outside counsel. Because litigation in Brazil historically takes many years to resolve, it is very difficult to estimate the timing of resolution of these matters; however, it is possible that certain of these matters may be resolved within the near term. The company is vigorously defending against the proceedings.
•On September 1, 2010, CADE (Brazilian Administrative Council for Economic Defense) announced alleged anticompetitive activity on the part of five industrial gas companies in Brazil and imposed fines. Originally, CADE imposed a civil fine of R$2.2 billion Brazilian reais ($423 million) on White Martins, the Brazil-based subsidiary of Praxair, Inc. The fine was reduced to R$1.7 billion Brazilian reais ($327 million) due to a calculation error made by CADE. The fine against White Martins was overturned by the Ninth Federal Court of Brasilia. CADE appealed this decision, and the Federal Court of Appeals rejected CADE's appeal and confirmed the decision of the Ninth Federal Court of Brasilia. CADE has filed an appeal with the Superior Court of Justice and a decision is pending.
Similarly, on September 1, 2010, CADE imposed a civil fine of R$237 million Brazilian reais ($46 million) on Linde Gases Ltda., the former Brazil-based subsidiary of Linde AG, which was divested to MG Industries GmbH on March 1, 2019 and with respect to which Linde provided a contractual indemnity. The fine was reduced to R$188 million Brazilian reais ($36 million) due to a calculation error made by CADE. The fine against Linde Gases Ltda. was overturned by the Seventh Federal Court in Brasilia. CADE appealed this decision, and the Federal Court of Appeals rejected CADE's appeal and confirmed the decision of the Seventh Federal Court of Brasilia. CADE filed an appeal with the Superior Court of Justice, and a final decision is pending.
Linde has strong defenses and is confident that it will prevail on appeal and have the fines overturned. Linde strongly believes that the allegations of anticompetitive activity against our current and former Brazilian
subsidiaries are not supported by valid and sufficient evidence. Linde believes that this decision will not stand up to judicial review and deems the possibility of cash outflows to be extremely unlikely. As a result, no reserves have been recorded as management does not believe that a loss from this case is probable.
•On and after April 23, 2019 former shareholders of Linde AG filed appraisal proceedings at the District Court (Landgericht) Munich I (Germany), seeking an increase of the cash consideration paid in connection with the previously completed cash merger squeeze-out of all of Linde AG’s minority shareholders for €189.46 per share. Any such increase would apply to all 14,763,113 Linde AG shares that were outstanding on April 8, 2019, when the cash merger squeeze-out was completed. The period for plaintiffs to file claims expired on July 9, 2019. The company believes the consideration paid was fair and that the claims lack merit, and no reserve has been established. We cannot estimate the timing of resolution.
Commitments
At December 31, 2020, Linde had undrawn outstanding letters of credit, bank guarantees and surety bonds valued at approximately $2,905 million from financial institutions. These relate primarily to customer contract performance guarantees (including plant construction in connection with certain on-site contracts), self-insurance claims and other commercial and governmental requirements, including non-U.S. litigation matters.
Other commitments related to leases, tax liabilities for uncertain tax positions, long-term debt, other post retirement and pension obligations are summarized elsewhere in the financial statements (see Notes 4, 5, 11, and 16).
NOTE 18. SEGMENT INFORMATION
Linde’s operations consist of two major product lines: industrial gases and engineering. As further described in the following paragraph, Linde’s industrial gases operations are managed on a geographic basis, which represent three of the company's reportable segments - Americas, EMEA (Europe/Middle East/Africa), and APAC (Asia/South Pacific); a fourth reportable segment which represents the company's Engineering business, designs and manufactures equipment for air separation and other industrial gas applications specifically for end customers and is managed on a worldwide basis operating in all three geographic segments. Other consists of corporate costs and a few smaller businesses which individually do not meet the quantitative thresholds for separate presentation.
The industrial gases product line centers on the manufacturing and distribution of atmospheric gases (oxygen, nitrogen, argon, rare gases) and process gases (carbon dioxide, helium, hydrogen, electronic gases, specialty gases, acetylene). Many of these products are co-products of the same manufacturing process. Linde manufactures and distributes nearly all of its products and manages its customer relationships on a regional basis. Linde’s industrial gases are distributed to various end-markets within a regional segment through one of three basic distribution methods: on-site or tonnage; merchant or bulk; and packaged or cylinder gases. The distribution methods are generally integrated in order to best meet the customer’s needs and very few of its products can be economically transported outside of a region. Therefore, the distribution economics are specific to the various geographies in which the company operates and are consistent with how management assesses performance.
The company’s measure of profit/loss for segment reporting is segment operating profit. Segment operating profit is defined as operating profit excluding purchase accounting impacts of the Linde AG merger, intercompany royalties, and items not indicative of ongoing business trends. This is the manner in which the company’s CODM assesses performance and allocates resources. Similarly, total assets have not been included as this is not provided to the CODM for their assessment.
The table below presents information about reportable segments for the years ended December 31, 2020, 2019 and 2018. The years ended December 31, 2020 and 2019 reflect the results of the combined business for the entire year. The year ended December 31, 2018 reflects the results of Praxair for the entire year and the results of Linde AG for the period beginning after October 31, 2018 (the merger date).
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions of dollars)
|
2020
|
|
2019
|
|
2018
|
|
Sales (a)
|
|
|
|
|
|
|
Americas
|
$
|
10,459
|
|
|
$
|
10,989
|
|
|
$
|
8,017
|
|
|
EMEA
|
6,449
|
|
|
6,643
|
|
|
2,644
|
|
|
APAC
|
5,687
|
|
|
5,779
|
|
|
2,446
|
|
|
Engineering
|
2,851
|
|
|
2,799
|
|
|
459
|
|
|
Other
|
1,797
|
|
|
1,953
|
|
|
1,270
|
|
|
Total Segment Sales
|
27,243
|
|
|
28,163
|
|
|
14,836
|
|
|
Merger-related divestitures
|
—
|
|
|
65
|
|
|
—
|
|
|
Total Sales
|
$
|
27,243
|
|
|
$
|
28,228
|
|
|
$
|
14,836
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
Segment Operating Profit
|
|
|
|
|
|
|
Americas
|
$
|
2,773
|
|
|
$
|
2,577
|
|
|
$
|
2,053
|
|
|
EMEA
|
1,465
|
|
|
1,367
|
|
|
481
|
|
|
APAC
|
1,277
|
|
|
1,184
|
|
|
465
|
|
|
Engineering
|
435
|
|
|
390
|
|
|
14
|
|
|
Other
|
(153)
|
|
|
(246)
|
|
|
(37)
|
|
|
|
|
|
|
|
|
|
Reported Segment operating profit
|
5,797
|
|
|
5,272
|
|
|
2,976
|
|
|
Cost reduction programs and other charges (Note 3)
|
(506)
|
|
|
(567)
|
|
|
(309)
|
|
|
Net gain on sale of business
|
—
|
|
|
164
|
|
|
3,294
|
|
|
Purchase accounting impacts - Linde AG
|
(1,969)
|
|
|
(1,952)
|
|
|
(714)
|
|
|
Merger-related divestitures
|
—
|
|
|
16
|
|
|
—
|
|
|
Total operating profit
|
$
|
3,322
|
|
|
$
|
2,933
|
|
|
$
|
5,247
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
Depreciation and Amortization
|
|
|
|
|
|
|
Americas
|
$
|
1,196
|
|
|
$
|
1,195
|
|
|
$
|
860
|
|
|
EMEA
|
723
|
|
|
749
|
|
|
269
|
|
|
APAC
|
619
|
|
|
613
|
|
|
271
|
|
|
Engineering
|
36
|
|
|
35
|
|
|
5
|
|
|
Other
|
132
|
|
|
143
|
|
|
79
|
|
|
|
|
|
|
|
|
|
Segment depreciation and amortization
|
2,706
|
|
|
2,735
|
|
|
1,484
|
|
|
Purchase accounting impacts - Linde AG
|
1,920
|
|
|
1,940
|
|
|
346
|
|
|
Total depreciation and amortization
|
$
|
4,626
|
|
|
$
|
4,675
|
|
|
$
|
1,830
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
Capital Expenditures and Acquisitions
|
|
|
|
|
|
|
Americas
|
$
|
1,425
|
|
|
$
|
1,814
|
|
|
$
|
1,068
|
|
|
EMEA
|
670
|
|
|
738
|
|
|
329
|
|
|
APAC
|
1,214
|
|
|
1,231
|
|
|
372
|
|
|
Engineering
|
13
|
|
|
79
|
|
|
27
|
|
|
Other
|
146
|
|
|
45
|
|
|
112
|
|
|
|
|
|
|
|
|
|
Total Capital Expenditures and Acquisitions
|
$
|
3,468
|
|
|
$
|
3,907
|
|
|
$
|
1,908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
Sales by Major Country
|
|
|
|
|
|
|
United States
|
$
|
8,475
|
|
|
$
|
8,604
|
|
|
$
|
5,942
|
|
|
Germany
|
3,740
|
|
|
3,630
|
|
|
868
|
|
|
China
|
2,061
|
|
|
2,005
|
|
|
1,032
|
|
|
United Kingdom
|
1,595
|
|
|
1,653
|
|
|
398
|
|
|
Australia
|
1,071
|
|
|
1,127
|
|
|
183
|
|
|
Brazil
|
822
|
|
|
994
|
|
|
1,003
|
|
|
Other – International
|
9,479
|
|
|
10,215
|
|
|
5,410
|
|
|
Total sales
|
$
|
27,243
|
|
|
$
|
28,228
|
|
|
$
|
14,836
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
Long-lived Assets by Major Country (b)
|
|
|
|
|
|
|
United States
|
$
|
7,777
|
|
|
$
|
7,498
|
|
|
$
|
7,189
|
|
|
Germany
|
2,394
|
|
|
2,429
|
|
|
2,411
|
|
|
China
|
2,413
|
|
|
2,254
|
|
|
2,237
|
|
|
United Kingdom
|
1,313
|
|
|
1,479
|
|
|
1,582
|
|
|
Australia
|
1,105
|
|
|
1,214
|
|
|
1,476
|
|
|
Brazil
|
734
|
|
|
956
|
|
|
1,012
|
|
|
Other – International
|
12,976
|
|
|
13,234
|
|
|
13,810
|
|
|
Total long-lived assets
|
$
|
28,711
|
|
|
$
|
29,064
|
|
|
$
|
29,717
|
|
________________________
(a)Sales reflect external sales only and include Linde AG sales from the merger date of October 31, 2018 forward. Intersegment sales, primarily from Engineering to the industrial gases segments, were not material.
(b)Long-lived assets include property, plant and equipment - net.
19. REVENUE RECOGNITION
Revenue is accounted for in accordance with ASC 606. Revenue is recognized as control of goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled to receive in exchange for the goods or services.
Contracts with Customers
Approximately 83% of Linde's consolidated sales are generated from industrial gases and related products in three geographic segments (Americas, EMEA, and APAC) and the remaining 17% is related primarily to the Engineering segment, and to a lesser extent Other (see Note 18 for operating segment details). Linde serves a diverse group of industries including healthcare, energy, manufacturing, food, beverage carbonation, fiber-optics, steel making, aerospace, chemicals and water treatment.
Industrial Gases
Within each of the company’s geographic segments for industrial gases, there are three basic distribution methods: (i) on-site or tonnage; (ii) merchant or bulk liquid; and (iii) packaged or cylinder gases. The distribution method used by Linde to supply a customer is determined by many factors, including the customer’s volume requirements and location. The distribution method generally determines the contract terms with the customer and, accordingly, the revenue recognition accounting practices. Linde's primary products in its industrial gases business are atmospheric gases (oxygen, nitrogen, argon, rare gases) and process gases (carbon dioxide, helium, hydrogen, electronic gases, specialty gases, acetylene). These products are generally sold through one of the three distribution methods.
Following is a description of each of the three industrial gases distribution methods and the respective revenue recognition policies:
On-site. Customers that require the largest volumes of product and that have a relatively constant demand pattern are supplied by cryogenic and process gas on-site plants. Linde constructs plants on or adjacent to these customers’ sites and supplies the product directly to customers by pipeline. Where there are large concentrations of customers, a single pipeline may be connected to several plants and customers. On-site product supply contracts generally are total requirement contracts with terms typically ranging from 10-20 years and contain minimum purchase requirements and price escalation provisions. Many of the cryogenic on-site plants also produce liquid products for the merchant market. Therefore, plants are typically not dedicated to a single customer. Additionally, Linde is responsible for the design, construction, operations and maintenance of the plants and our customers typically have no involvement in these activities. Advanced air separation processes also allow on-site delivery to customers with smaller volume requirements.
The company’s performance obligations related to on-site customers are satisfied over time as customers receive and obtain control of the product. Linde has elected to apply the practical expedient for measuring progress towards the completion of a performance obligation and recognizes revenue as the company has the right to invoice each customer, which generally corresponds with product delivery. Accordingly, revenue is recognized when product is delivered to the customer and the company has the right to invoice the customer in accordance with the contract terms. Consideration in these contracts is generally based on pricing which fluctuates with various price indices. Variable components of consideration exist within on-site contracts but are considered constrained.
Merchant. Merchant deliveries generally are made from Linde's plants by tanker trucks to storage containers at the customer's site. Due to the relatively high distribution cost, merchant oxygen and nitrogen generally have a relatively small distribution radius from the plants at which they are produced. Merchant argon, hydrogen and helium can be shipped much longer distances. The customer agreements used in the merchant business are usually three to seven year supply agreements based on the requirements of the customer. These contracts generally do not contain minimum purchase requirements or volume commitments.
The company’s performance obligations related to merchant customers are generally satisfied at a point in time as the customers receive and obtain control of the product. Revenue is recognized when product is delivered to the customer and the company has the right to invoice the customer in accordance with the contract terms. Any variable components of consideration within merchant contracts are constrained however this consideration is not significant.
Packaged Gases. Customers requiring small volumes are supplied products in containers called cylinders, under medium to high pressure. Linde distributes merchant gases from its production plants to company-owned cylinder filling plants where cylinders are then filled for distribution to customers. Cylinders may be delivered to the customer’s site or picked up by the customer at a packaging facility or retail store. Linde invoices the customer for the industrial gases and the use of the cylinder container(s). The company also sells hardgoods and welding equipment purchased from independent manufacturers. Packaged gases are generally sold under one to three-year supply contracts and purchase orders and do not contain minimum purchase requirements or volume commitments.
The company’s performance obligations related to packaged gases are satisfied at a point in time. Accordingly, revenue is recognized when product is delivered to the customer or when the customer picks up product from a packaged gas facility or retail store, and the company has the right to payment from the customer in accordance with the contract terms. Any variable consideration is constrained and will be recognized when the uncertainty related to the consideration is resolved.
Linde Engineering
The company designs and manufactures equipment for air separation and other industrial gas applications manufactured specifically for end customers. Sale of equipment contracts are generally comprised of a single performance obligation. Revenue from sale of equipment is generally recognized over time as Linde has an enforceable right to payment for performance completed to date and performance does not create an asset with alternative use. For contracts recognized over time, revenue is recognized primarily using a cost incurred input method. Costs incurred to date relative to total estimated costs at completion are used to measure progress toward satisfying performance obligations. Costs incurred include material, labor, and overhead costs and represent work contributing and proportionate to the transfer of control to the customer. Contract modifications are typically accounted for as part of the existing contract and are recognized as a cumulative adjustment for the inception-to-date effect of such change.
Contract Assets and Liabilities
Contract assets and liabilities result from differences in timing of revenue recognition and customer invoicing. Contract assets primarily relate to sale of equipment contracts for which revenue is recognized over time. The balance represents unbilled revenue which occurs when revenue recognized under the measure of progress exceeds amounts invoiced to customers. Customer invoices may be based on the passage of time, the achievement of certain contractual milestones or a combination of both criteria. Contract liabilities include advance payments or right to consideration prior to performance
under the contract. Contract liabilities are recognized as revenue as performance obligations are satisfied under contract terms. Linde has contract assets of $162 million at December 31, 2020 and $368 million at December 31, 2019. Total contract liabilities are $2,301 million at December 31, 2020 (current of $1,769 million and $532 million within other long-term liabilities in the consolidated balance sheets). Total contract liabilities were $2,106 million at December 31, 2019 (current contract liabilities of $1,758 million and $348 million within other long-term liabilities in the consolidated balance sheets). Revenue recognized for the twelve months ended December 31, 2020 that was included in the contract liability at December 31, 2019 was $1,283 million. Contract assets and liabilities primarily relate to the Linde Engineering business acquired in the merger. The industrial gases business does not typically have material contract assets or liabilities.
Payment Terms and Other
Linde generally receives payment after performance obligations are satisfied, and customer prepayments are not typical for the industrial gases business. Payment terms vary based on the country where sales originate and local customary payment practices. Linde does not offer extended financing outside of customary payment terms. Amounts billed for sales and use taxes, value-added taxes, and certain excise and other specific transactional taxes imposed on revenue producing transactions are presented on a net basis and are not included in sales within the consolidated statement of income. Additionally, sales returns and allowances are not a normal practice in the industry and are not significant.
Disaggregated Revenue Information
As described above and in Note 18, the company manages its industrial gases business on a geographic basis, while the Engineering and Other businesses are generally managed on a global basis. Furthermore, the company believes that reporting sales by distribution method by reportable geographic segment best illustrates the nature, timing, type of customer, and contract terms for its revenues, including terms and pricing.
The following tables show sales by distribution method at the consolidated level and for each reportable segment and Other for the years ended December 31, 2020, 2019 and 2018. The years ended December 31, 2020 and 2019 reflect the results of the combined business for the entire year. The year ended December 31, 2018 reflects the results of Praxair for the entire year and the results of Linde AG for the period beginning after October 31, 2018 (the merger date).
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(Millions of dollars)
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Year Ended December 31, 2020
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Sales
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Americas
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EMEA
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APAC
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Engineering
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Other
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Total
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%
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Merchant
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$
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2,839
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$
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1,870
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$
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2,005
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$
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—
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$
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145
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$
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6,859
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25
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%
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On-Site
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2,513
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1,354
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2,049
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—
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—
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5,916
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22
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%
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Packaged Gas
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5,034
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3,175
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1,559
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—
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22
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9,790
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36
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%
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Other
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73
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50
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74
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2,851
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1,630
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4,678
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17
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%
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$
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10,459
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$
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6,449
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$
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5,687
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$
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2,851
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$
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1,797
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$
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27,243
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100
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%
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(Millions of dollars)
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Year Ended December 31, 2019
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Sales
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Americas
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EMEA
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APAC
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Engineering
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Other (a)
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Total
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%
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Merchant
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$
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2,945
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$
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1,856
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$
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2,080
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$
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—
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$
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184
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$
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7,065
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25
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%
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On-Site
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2,757
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1,434
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2,020
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—
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—
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6,211
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22
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%
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Packaged Gas
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5,183
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3,347
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1,542
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—
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19
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10,091
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36
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%
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Other
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104
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6
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137
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2,799
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1,815
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4,861
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17
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%
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$
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10,989
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$
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6,643
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$
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5,779
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$
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2,799
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$
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2,018
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$
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28,228
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100
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%
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(Millions of dollars)
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Year Ended December 31, 2018
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Sales
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Americas
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EMEA
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APAC
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Engineering
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Other
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Total
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%
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Merchant
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$
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2,775
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$
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832
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$
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826
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$
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—
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$
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119
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$
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4,552
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31
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%
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On-Site
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2,405
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536
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1,156
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—
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—
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4,097
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28
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%
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Packaged Gas
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2,800
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1,271
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443
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—
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3
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4,517
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30
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%
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Other
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37
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5
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21
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459
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1,148
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1,670
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11
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%
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$
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8,017
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$
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2,644
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$
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2,446
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$
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459
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$
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1,270
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$
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14,836
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100
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%
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(a) Other/Other includes $65 million for the year ended December 31, 2019 of merger-related divestitures that have been excluded from segment sales.
Remaining Performance Obligations
As described above, Linde's contracts with on-site customers are under long-term supply arrangements which generally require the customer to purchase their requirements from Linde and also have minimum purchase requirements. The company estimates the consideration related to minimum purchase requirements is approximately $46 billion. This amount excludes all sales above minimum purchase requirements, which can be significant depending on customer needs. In the future, actual amounts will be different due to impacts from several factors, many of which are beyond the company’s control including, but not limited to, timing of newly signed, terminated and renewed contracts, inflationary price escalations, currency exchange rates, and pass-through costs related to natural gas and electricity. The actual duration of long-term supply contracts ranges up to twenty years. The company estimates that approximately half of the revenue related to minimum purchase requirements will be earned in the next five years and the remaining thereafter.
NOTE 20. SUBSEQUENT EVENTS
Effective January 1, 2021, Linde deconsolidated a joint venture with operations in Taiwan, due to the expiration of certain contractual rights that the parties mutually agreed not to renew. The joint venture contributed sales of approximately $600 million in 2020. From the effective date, the joint venture will be reflected as an equity investment on Linde's consolidated balance sheet with the corresponding results reflected in income from equity investments on the consolidated statement of income. The deconsolidation will not have an impact on earnings per share as the ownership percent remains the same.