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Table of Contents                
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2021
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to
Commission file number 001-38730
LINDE PLC
(Exact name of registrant as specified in its charter)
Ireland
98-1448883
(State or other jurisdiction of incorporation) (I.R.S. Employer Identification No.)
The Priestley Centre
10 Riverview Dr., 10 Priestley Road,
Danbury, CT Surrey Research Park,
United States 06810 Guildford, Surrey  GU2 7XY
United Kingdom
(Address of principal executive offices) (Zip Code)
(203) 837-2000 +44 14 83 242200
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading symbol(s)   Name of each exchange on which registered
Ordinary shares (€0.001 nominal value per share) LIN   New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes       No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes       No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer   Accelerated filer  
Non-accelerated filer   Smaller reporting company  
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes       No 
At June 30, 2021, 516,411,320 ordinary shares (€0.001 par value) of the Registrant were outstanding.
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INDEX
PART I - FINANCIAL INFORMATION  
Item 1.
Financial Statements (unaudited)
4
5
6
7
8
9
10
Item 2.
27
Item 3.
43
Item 4.
43
Item 1.
44
Item 1A.
44
Item 2.
44
Item 3.
44
Item 4.
44
Item 5.
44
Item 6.
45
46
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Forward-looking Statements

This document contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are identified by terms and phrases such as: anticipate, believe, intend, estimate, expect, continue, should, could, may, plan, project, predict, will, potential, forecast, and similar expressions. They are based on management’s reasonable expectations and assumptions as of the date the statements are made but involve risks and uncertainties. These risks and uncertainties include, without limitation: the performance of stock markets generally; developments in worldwide and national economies and other international events and circumstances, including trade conflicts and tariffs; changes in foreign currencies and in interest rates; the cost and availability of electric power, natural gas and other raw materials; the ability to achieve price increases to offset cost increases; catastrophic events including natural disasters, epidemics, pandemics such as COVID-19, and acts of war and terrorism; the ability to attract, hire, and retain qualified personnel; the impact of changes in financial accounting standards; the impact of changes in pension plan liabilities; the impact of tax, environmental, healthcare and other legislation and government regulation in jurisdictions in which the company operates; the cost and outcomes of investigations, litigation and regulatory proceedings; the impact of potential unusual or non-recurring items; continued timely development and market acceptance of new products and applications; the impact of competitive products and pricing; future financial and operating performance of major customers and industries served; the impact of information technology system failures, network disruptions and breaches in data security; and the effectiveness and speed of integrating new acquisitions into the business. These risks and uncertainties may cause actual future results or circumstances to differ materially from accounting principles generally accepted in the United States of America, International Financial Reporting Standards or adjusted projections, estimates or other forward-looking statements.

Linde plc assumes no obligation to update or provide revisions to any forward-looking statement in response to changing circumstances. The above listed risks and uncertainties are further described in Item 1A. Risk Factors in Linde plc’s Form 10-K for the fiscal year ended December 31, 2020 filed with the SEC on March 1, 2021, which should be reviewed carefully. Please consider Linde plc’s forward-looking statements in light of those risks.









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LINDE PLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Millions of dollars, except per share data)
(UNAUDITED) 

  Quarter Ended June 30,
  2021 2020
Sales $ 7,584  $ 6,377 
Cost of sales, exclusive of depreciation and amortization 4,194  3,619 
Selling, general and administrative 822  760 
Depreciation and amortization 1,171  1,124 
Research and development 34  34 
Cost reduction programs and other charges 204  249 
Other income (expense) - net (17) — 
Operating Profit 1,142  591 
Interest expense - net 18  18 
Net pension and OPEB cost (benefit), excluding service cost (49) (45)
Income From Continuing Operations Before Income Taxes and Equity Investments 1,173  618 
Income taxes on continuing operations 334  164 
Income From Continuing Operations Before Equity Investments 839  454 
Income from equity investments 37  29 
Income From Continuing Operations (Including Noncontrolling Interests) 876  483 
Income from discontinued operations, net of tax — 
Net Income (Including Noncontrolling Interests) 877  483 
Less: noncontrolling interests from continuing operations (36) (25)
Less: noncontrolling interest from discontinued operations —  — 
Net Income – Linde plc $ 841  $ 458 
Net Income – Linde plc
Income from continuing operations $ 840  $ 458 
Income from discontinued operations $ $ — 
Per Share Data – Linde plc Shareholders
Basic earnings per share from continuing operations $ 1.62  $ 0.87 
Basic earnings per share from discontinued operations —  — 
Basic earnings per share $ 1.62  $ 0.87 
Diluted earnings per share from continuing operations $ 1.60  $ 0.87 
Diluted earnings per share from discontinued operations —  — 
Diluted earnings per share $ 1.60  $ 0.87 
Weighted Average Shares Outstanding (000’s):
Basic shares outstanding 518,950  525,510 
Diluted shares outstanding 523,723  529,054 

The accompanying notes are an integral part of these financial statements.

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LINDE PLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Millions of dollars, except per share data)
(UNAUDITED) 
  Six Months Ended June 30,
  2021 2020
Sales $ 14,827  $ 13,116 
Cost of sales, exclusive of depreciation and amortization 8,248  7,462 
Selling, general and administrative 1,609  1,621 
Depreciation and amortization 2,337  2,266 
Research and development 69  78 
Cost reduction programs and other charges 196  380 
Other income (expense) - net (13) 15 
Operating Profit 2,355  1,324 
Interest expense - net 38  42 
Net pension and OPEB cost (benefit), excluding service cost (98) (90)
Income From Continuing Operations Before Income Taxes and Equity Investments 2,415  1,372 
Income taxes on continuing operations 602  329 
Income From Continuing Operations Before Equity Investments 1,813  1,043 
Income from equity investments 80  46 
Income From Continuing Operations (Including Noncontrolling Interests) 1,893  1,089 
Income from discontinued operations, net of tax
Net Income (Including Noncontrolling Interests) 1,895  1,091 
Less: noncontrolling interests from continuing operations (74) (60)
Less: noncontrolling interest from discontinued operations —  — 
Net Income – Linde plc $ 1,821  $ 1,031 
Net Income – Linde plc
Income from continuing operations $ 1,819  $ 1,029 
Income from discontinued operations $ $
Per Share Data – Linde plc Shareholders
Basic earnings per share from continuing operations $ 3.49  $ 1.95 
Basic earnings per share from discontinued operations —  — 
Basic earnings per share $ 3.49  $ 1.95 
Diluted earnings per share from continuing operations $ 3.46  $ 1.93 
Diluted earnings per share from discontinued operations —  — 
Diluted earnings per share $ 3.46  $ 1.93 
Weighted Average Shares Outstanding (000’s):
Basic shares outstanding 520,691  528,385 
Diluted shares outstanding 525,380  532,112 
The accompanying notes are an integral part of these financial statements.


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LINDE PLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Millions of dollars)
(UNAUDITED)
 
  Quarter Ended June 30,
  2021 2020
NET INCOME (INCLUDING NONCONTROLLING INTERESTS) $ 877  $ 483 
OTHER COMPREHENSIVE INCOME (LOSS)
Translation adjustments:
Foreign currency translation adjustments 412  745 
Reclassification to net income —  — 
Income taxes (2) (1)
Translation adjustments 410  744 
Funded status - retirement obligations (Note 8):
Retirement program remeasurements (19) (7)
Reclassifications to net income 44  21 
Income taxes (2) (9)
Funded status - retirement obligations 23 
Derivative instruments (Note 5):
Current unrealized gain (loss) 19  20 
Reclassifications to net income (3) 26 
Income taxes (3) (10)
Derivative instruments 13  36 
TOTAL OTHER COMPREHENSIVE INCOME (LOSS) 446  785 
COMPREHENSIVE INCOME (LOSS) (INCLUDING NONCONTROLLING INTERESTS) 1,323  1,268 
Less: noncontrolling interests (45) (43)
COMPREHENSIVE INCOME (LOSS) - LINDE PLC $ 1,278  $ 1,225 

The accompanying notes are an integral part of these financial statements.




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LINDE PLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Millions of dollars)
(UNAUDITED)
  Six Months Ended June 30,
  2021 2020
NET INCOME (INCLUDING NONCONTROLLING INTERESTS) $ 1,895  $ 1,091 
OTHER COMPREHENSIVE INCOME (LOSS)
Translation adjustments:
Foreign currency translation adjustments (245) (1,995)
Reclassification to net income (Note 13) (52) — 
Income taxes (8) 24 
Translation adjustments (305) (1,971)
Funded status - retirement obligations (Note 8):
Retirement program remeasurements 51 
Reclassifications to net income 87  43 
Income taxes (25) (24)
Funded status - retirement obligations 63  70 
Derivative instruments (Note 5):
Current period unrealized gain (loss) 40  (45)
Reclassifications to net income (5) 50 
Income taxes (8)
Derivative instruments 27 
TOTAL OTHER COMPREHENSIVE INCOME (LOSS) (215) (1,895)
COMPREHENSIVE INCOME (LOSS) (INCLUDING NONCONTROLLING INTERESTS) 1,680  (804)
Less: noncontrolling interests (77) 28 
COMPREHENSIVE INCOME (LOSS) - LINDE PLC $ 1,603  $ (776)
The accompanying notes are an integral part of these financial statements.


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LINDE PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Millions of dollars)
(UNAUDITED)
 
June 30, 2021 December 31, 2020
Assets
Cash and cash equivalents $ 3,137  $ 3,754 
Accounts receivable - net 4,342  4,167 
Contract assets 173  162 
Inventories 1,692  1,729 
Prepaid and other current assets 1,102  1,112 
Total Current Assets 10,446  10,924 
Property, plant and equipment - net 26,917  28,711 
Goodwill 27,621  28,201 
Other intangible assets - net 14,493  16,184 
Other long-term assets 4,868  4,209 
Total Assets $ 84,345  $ 88,229 
Liabilities and equity
Accounts payable $ 3,143  $ 3,095 
Short-term debt 3,681  3,251 
Current portion of long-term debt 1,827  751 
Contract liabilities 1,787  1,769 
Other current liabilities 4,238  4,874 
Total Current Liabilities 14,676  13,740 
Long-term debt 9,984  12,152 
Other long-term liabilities 12,457  12,755 
Total Liabilities 37,117  38,647 
Redeemable noncontrolling interests 13  13 
Linde plc Shareholders’ Equity:
Ordinary shares,€0.001 par value, authorized 1,750,000,000 shares, 2021 issued: 552,012,862 ordinary shares; 2020 issued: 552,012,862 ordinary shares
Additional paid-in capital 40,200  40,202 
Retained earnings 17,820  17,178 
Accumulated other comprehensive income (loss) (Note 11)
(4,908) (4,690)
Less: Treasury shares, at cost (2021 – 35,601,542 shares and 2020 – 28,718,333 shares)
(7,336) (5,374)
Total Linde plc Shareholders’ Equity 45,777  47,317 
Noncontrolling interests 1,438  2,252 
Total Equity 47,215  49,569 
Total Liabilities and Equity $ 84,345  $ 88,229 

The accompanying notes are an integral part of these financial statements.
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LINDE PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Millions of dollars)
(UNAUDITED)
Six Months Ended June 30,
2021 2020
Increase (Decrease) in Cash and Cash Equivalents
Operations
Net income - Linde plc $ 1,821  $ 1,031 
Less: Income from discontinued operations, net of tax and noncontrolling interests (2) (2)
Add: Noncontrolling interests from continuing operations 74  60 
Income from continuing operations (including noncontrolling interests) 1,893  1,089 
Adjustments to reconcile net income to net cash provided by operating activities:
Cost reduction programs and other charges, net of payments 95  239 
Depreciation and amortization 2,337  2,266 
Deferred income taxes (78) (261)
Share-based compensation 63  75 
Working capital:
Accounts receivable (388) (118)
Inventory (42) (82)
Prepaid and other current assets (20) (48)
Payables and accruals 39  (27)
    Contract assets and liabilities, net 51  71 
Pension contributions (28) (41)
Long-term assets, liabilities and other 14  (52)
Net cash provided by operating activities 3,936  3,111 
Investing
Capital expenditures (1,506) (1,586)
Acquisitions, net of cash acquired (31) (41)
Divestitures and asset sales, net of cash divested 77  380 
Net cash provided by (used for) investing activities (1,460) (1,247)
Financing
Short-term debt borrowings (repayments) - net 1,081  1,945 
Long-term debt borrowings 51  1,656 
Long-term debt repayments (818) (78)
Issuances of ordinary shares 32  25 
Purchases of ordinary shares (2,082) (1,828)
Cash dividends - Linde plc shareholders (1,102) (1,017)
Noncontrolling interest transactions and other (277) (148)
Net cash provided by (used for) financing activities (3,115) 555 
Effect of exchange rate changes on cash and cash equivalents 22  (178)
Change in cash and cash equivalents (617) 2,241 
Cash and cash equivalents, beginning-of-period 3,754  2,700 
Cash and cash equivalents, end-of-period $ 3,137  $ 4,941 
The accompanying notes are an integral part of these financial statements.
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INDEX TO NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Notes to Condensed Consolidated Financial Statements - Linde plc and Subsidiaries (Unaudited)
 
11
11
14
15
16
18
19
20
20
21
22
23
26
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1. Summary of Significant Accounting Policies
Presentation of Condensed Consolidated Financial Statements - In the opinion of Linde management, the accompanying condensed consolidated financial statements include all adjustments necessary for a fair presentation of the results for the interim periods presented and such adjustments are of a normal recurring nature. The accompanying condensed consolidated financial statements should be read in conjunction with the notes to the consolidated financial statements of Linde plc and subsidiaries in Linde's 2020 Annual Report on Form 10-K. There have been no material changes to the company’s significant accounting policies during 2021.
Accounting Standards Implemented in 2021

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 adoption of this standard did not materially impact the company's consolidated financial statements.
Reference Rate Reform - In March 2020 with amendments in 2021, 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. The application of this guidance did not materially impact the company's consolidated financial statements.

Reclassifications – Certain prior periods' amounts have been reclassified to conform to the current year’s presentation.

2. Cost Reduction Programs and Other Charges

2021 Charges

Cost reduction programs and other charges were $204 million and $196 million for the quarter and six months ended June 30, 2021, respectively ($198 million and $170 million, after tax). The following table summarizes the activities related to the company's cost reduction charges for the quarter and six months ended June 30, 2021:
Quarter Ended June 30, 2021
(millions of dollars) Severance costs Other cost reduction charges Total cost reduction program related charges Merger-related and other charges Total
Americas $ —  $ —  $ —  $ —  $ — 
EMEA 169  14  183  —  183 
APAC —  — 
Engineering —  — 
Other 10  —  10 
Total $ 182  $ 22  $ 204  $ —  $ 204 
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Six Months Ended June 30, 2021
(millions of dollars) Severance costs Other cost reduction charges Total cost reduction program related charges Merger-related and other charges Total
Americas $ $ $ $ —  $
EMEA 182  21  203  —  203 
APAC (53) (44)
Engineering 13  —  13 
Other 18  19 
Total $ 208  $ 40  $ 248  $ (52) $ 196 

Cost Reduction Programs

Total cost reduction program related charges were $204 million for the quarter and $248 million for the six months ended June 30, 2021 ($150 million and $184 million, after tax).

Severance costs

Severance costs were $182 million and $208 million for the quarter and six months ended June 30, 2021. As of June 30, 2021, approximately half of the actions have been taken, with remaining actions planned to be completed by the first quarter of 2022.

Other cost reduction charges

Other cost reduction charges of $22 million and $40 million for the quarter and six months ended June 30, 2021, respectively, are primarily charges related to the execution of the company's synergistic actions including location consolidations and business rationalization projects, process harmonization, and associated non-recurring costs.

Merger-related Costs and Other Charges

Merger-related costs and other charges were flat during the quarter ended June 30, 2021 and a benefit of $52 million for the six months ended June 30, 2021 (charge of $48 million and benefit of $14 million, after tax). The pre-tax benefit was primarily due to a $52 million gain triggered by a joint venture deconsolidation in the APAC segment in the first quarter (see Note 13).

In addition, the quarter and six months ended June 30, 2021 include net income tax charges of $48 million and $38 million, respectively, primarily related to (i) $81 million of expense due to the revaluation of a net deferred tax liability resulting from a tax rate increase in the United Kingdom enacted in the current quarter, and (ii) a tax settlement benefit of $33 million.

Cash Requirements

The total cash requirements of the cost reduction program and other charges during the six months ended June 30, 2021 are estimated to be approximately $223 million and are expected to be paid through 2023. Total cost reduction programs and other charges, net of payments in the condensed consolidated statements of cash flows for the six months ended June 30, 2021 also reflects the impact of cash payments of liabilities, including merger-related tax liabilities, accrued as of December 31, 2020.

The following table summarizes the activities related to the company's cost reduction related charges for the six months ended June 30, 2021:
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(millions of dollars) Severance costs Other cost reduction charges Total cost reduction program related charges Merger-related and other charges Total
Balance, December 31, 2020 $ 283  $ 22  $ 305  $ 64  $ 369 
2021 Cost Reduction Programs and Other Charges 208  40  248  (52) 196 
Less: Cash payments (85) (5) (90) (6) (96)
Less: Non-cash charges / benefits —  (19) (19) 54  35 
Foreign currency translation and other (5) —  (5) (3) (8)
Balance, June 30, 2021 $ 401  $ 38  $ 439  $ 57  $ 496 

2020 Charges

Cost reduction programs and other charges were $249 million and $380 million for the quarter and six months ended June 30, 2020 ($187 million and $282 million, after tax).

Total cost reduction program related charges were $213 million and $291 million ($151 million and $207 million, respectively, after tax). for the quarter and six months ended June 30, 2020, respectively, which consisted primarily of severance charges of $192 million and $250 million, largely in the EMEA and Engineering segments. Merger-related and other charges were $36 million and $89 million for the quarter and six months ended June 30, 2020 ($36 million and $75 million, after tax).

Classification in the condensed consolidated financial statements

The costs are shown within operating profit in a separate line item on the consolidated statements of income. On the condensed consolidated statements of cash flows, the impact of these costs, net of cash payments, is shown as an adjustment to reconcile net income to net cash provided by operating activities. In Note 10 Segments, Linde excluded these costs 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.
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3. Supplemental Information
Receivables
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 $4,326 million and $4,169 million at June 30, 2021 and December 31, 2020 respectively and gross receivables aged greater than one year were $316 million and $358 million at June 30, 2021 and December 31, 2020 respectively. Other receivables were $130 million and $111 million at June 30, 2021 and December 31, 2020, respectively. Receivables aged greater than one year are generally fully reserved unless specific circumstances warrant exceptions, such as those backed by federal governments.
Accounts receivable net of reserves were $4,342 million at June 30, 2021 and $4,167 million at December 31, 2020. Allowances for expected credit losses were $430 million at June 30, 2021 and $471 million at December 31, 2020.  Provisions for expected credit losses were $71 million and $95 million for the six months ended June 30, 2021 and 2020, respectively. The allowance activity in the six months ended June 30, 2021 and 2020 related to write-offs of uncollectible amounts, net of recoveries and currency movements is not material.

Inventories
The following is a summary of Linde's consolidated inventories:
(Millions of dollars) June 30,
2021
December 31,
2020
Inventories
Raw materials and supplies $ 369  $ 411 
Work in process 358  337 
Finished goods 965  981 
Total inventories $ 1,692  $ 1,729 
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4. Debt
The following is a summary of Linde's outstanding debt at June 30, 2021 and December 31, 2020:
(Millions of dollars) June 30,
2021
December 31,
2020
SHORT-TERM
Commercial paper $ 2,808  $ 2,527 
Other borrowings (primarily non U.S.) 873  724 
Total short-term debt 3,681  3,251 
LONG-TERM (a)
(U.S. dollar denominated unless otherwise noted)
3.875% Euro denominated notes due 2021 (c)
—  748 
0.250% Euro denominated notes due 2022 (b)
1,188  1,226 
2.45% Notes due 2022
600  599 
2.20% Notes due 2022
499  499 
2.70% Notes due 2023
499  499 
2.00% Euro denominated notes due 2023 (b)
800  832 
5.875% GBP denominated notes due 2023 (b)
452  460 
1.20% Euro denominated notes due 2024
651  671 
1.875% Euro denominated notes due 2024 (b)
374  389 
2.65% Notes due 2025
399  398 
1.625% Euro denominated notes due 2025
589  607 
3.20% Notes due 2026
725  725 
3.434% Notes due 2026
197  196 
1.652% Euro denominated notes due 2027
98  100 
0.250% Euro denominated notes due 2027
887  914 
1.00% Euro denominated notes due 2028 (b)
925  966 
1.10% Notes due 2030
696  696 
1.90% Euro denominated notes due 2030
124  127 
0.550% Euro denominated notes due 2032
881  909 
3.55% Notes due 2042
664  664 
2.00% Notes due 2050
296  296 
Non U.S. borrowings 257  372 
Other 10  10 
11,811  12,903 
Less: current portion of long-term debt (1,827) (751)
Total long-term debt 9,984  12,152 
Total debt $ 15,492  $ 16,154 
 
(a)Amounts are net of unamortized discounts, premiums and/or debt issuance costs as applicable.
(b)June 30, 2021 and December 31, 2020 included a cumulative $58 million and $79 million adjustment to carrying value, respectively, related to hedge accounting of interest rate swaps. Refer to Note 5.
(c)In June 2021, the company repaid €600 million of 3.875% note that became due.

The company maintains a $5 billion unsecured revolving credit agreement with a syndicate of banking institutions that expires March 26, 2024. There are no financial maintenance covenants contained within the credit agreement. No borrowings were outstanding under the credit agreement as of June 30, 2021.

15    


5. Financial Instruments
In its normal operations, Linde is exposed to market risks relating to fluctuations in interest rates, foreign currency exchange rates, energy and commodity 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 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 through the use of a qualitative assessment, 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 with its 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 June 30, 2021, 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 June 30, 2021 and December 31, 2020 for consolidated subsidiaries:
      Fair Value
  Notional Amounts Assets (a) Liabilities (a)
(Millions of dollars) June 30,
2021
December 31,
2020
June 30,
2021
December 31,
2020
June 30,
2021
December 31,
2020
Derivatives Not Designated as Hedging Instruments:
Currency contracts:
Balance sheet items $ 4,972  $ 6,470  $ 32  $ 72  $ 24  $ 48 
Forecasted transactions 523  823  16  12 
Cross-currency swaps 174  260  25  24 
Commodity contracts N/A N/A —  — 
Total $ 5,669  $ 7,553  $ 68  $ 113  $ 35  $ 67 
Derivatives Designated as Hedging Instruments:
Currency contracts:
       Forecasted transactions 264  355  20  14 
Commodity contracts N/A N/A 36  —  — 
Interest rate swaps 1,304  1,923  34  64  —  — 
Total Hedges $ 1,568  $ 2,278  $ 74  $ 87  $ $ 14 
Total Derivatives $ 7,237  $ 9,831  $ 142  $ 200  $ 39  $ 81 
 
(a)June 30, 2021 and December 31, 2020 included current assets of $79 million and $110 million which are recorded in prepaid and other current assets; long-term assets of $63 million and $90 million which are recorded in other long-term assets; current liabilities of $32 million and $70 million which are recorded in other current liabilities; and long-term liabilities of $7 million and $11 million which are recorded in other long-term liabilities.
16    



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 forecasted transaction. 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 interest rate 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. 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 Hedge

As of June 30, 2021, Linde has €2.7 billion ($3.2 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, the deferred loss recorded within the cumulative translation adjustment component of AOCI in the condensed consolidated balance sheets and the consolidated statements of comprehensive income is $153 million (deferred loss of $16 million recorded during the quarter and a deferred gain of $58 million recorded for the six months ended June 30, 2021).

As of June 30, 2021, exchange rate movements relating to previously designated hedges that remain in AOCI is a gain of $73 million. These movements will remain in AOCI, until appropriate, such as upon sale or liquidation of the related foreign operations at which time amounts will be reclassified to the consolidated statement 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 2022 through 2028 was $1,304 million at June 30, 2021 and $1,923 million at December 31, 2020 (See Note 4).

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Terminated Treasury Rate Locks
The unrecognized aggregated losses related to terminated treasury rate lock contracts on the underlying $500 million 2.20% fixed-rate notes that mature in 2022 at June 30, 2021 and December 31, 2020 were 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.

Derivatives' Impact on Consolidated Statements of Income

The following table summarizes the impact of the company’s derivatives on the consolidated statements of income:
  Amount of Pre-Tax Gain (Loss)
Recognized in Earnings *
  Quarter Ended June 30, Six Months Ended June 30,
(Millions of dollars) 2021 2020 2021 2020
Derivatives Not Designated as Hedging Instruments
Currency contracts:
Balance sheet items
Debt-related $ 10  $ 37  $ 29  $ 32 
Other balance sheet items (29) (70)
Total $ 13  $ $ 36  $ (38)

* 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 generally 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 quarter and six months ended June 30, 2021 and 2020, respectively. Net losses expected to be reclassified to earnings during the next twelve months are also not material.

6. 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:
  Fair Value Measurements Using
  Level 1 Level 2 Level 3
(Millions of dollars) June 30,
2021
December 31,
2020
June 30,
2021
December 31,
2020
June 30,
2021
December 31,
2020
Assets
Derivative assets $ —  $ —  $ 142  $ 200  $ —  $ — 
Investments and securities* 19  21  —  —  46  47 
                 Total
$ 19  $ 21  $ 142  $ 200  46  $ 47 
Liabilities
Derivative liabilities $ —  $ —  $ 39  $ 81  $ —  $ — 
* Investments and securities are recorded in prepaid and other current assets and other long-term assets in the company's condensed 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
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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 within the Americas. 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.

Changes in level 3 investments and securities were immaterial.

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 June 30, 2021, the estimated fair value of Linde’s long-term debt portfolio was $12,160 million versus a carrying value of $11,811 million. 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. Differences between the carrying value and the fair value are attributable to fluctuations in interest rates subsequent to when the debt was issued and relative to stated coupon rates.

7. Earnings Per Share – Linde plc Shareholders
Basic and diluted earnings per share is computed by dividing Income from continuing operations, Income from discontinued operations and Net income – Linde plc for the period by the weighted average number of either basic or diluted shares outstanding, as follows:
  Quarter Ended June 30, Six Months Ended June 30,
  2021 2020 2021 2020
Numerator (Millions of dollars)
Income from continuing operations $ 840  $ 458  $ 1,819  $ 1,029 
Income from discontinued operations — 
Net Income – Linde plc $ 841  $ 458  $ 1,821  $ 1,031 
Denominator (Thousands of shares)
Weighted average shares outstanding 518,552  525,238  520,314  528,118 
Shares earned and issuable under compensation plans 398  272  377  267 
Weighted average shares used in basic earnings per share 518,950  525,510  520,691  528,385 
Effect of dilutive securities
Stock options and awards 4,773  3,544  4,689  3,727 
Weighted average shares used in diluted earnings per share
523,723  529,054  525,380  532,112 
Basic earnings per share from continuing operations $ 1.62  $ 0.87  $ 3.49  $ 1.95 
Basic earnings per share from discontinued operations —  —  —  — 
Basic Earnings Per Share $ 1.62  $ 0.87  $ 3.49  $ 1.95 
Diluted earnings per share from continuing operations $ 1.60  $ 0.87  $ 3.46  $ 1.93 
Diluted earnings per share from discontinued operations —  —  —  — 
Diluted Earnings Per Share $ 1.60  $ 0.87  $ 3.46  $ 1.93 
There were no antidilutive shares for any period presented.

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8. Retirement Programs
The components of net pension and postretirement benefits other than pensions (“OPEB”) costs for the quarter and six months ended June 30, 2021 and 2020 are shown below:
  Quarter Ended June 30, Six Months Ended June 30,
  Pensions OPEB Pensions OPEB
(Millions of dollars) 2021 2020 2021 2020 2021 2020 2021 2020
Amount recognized in Operating Profit
Service cost $ 38  $ 36  $ $ —  $ 78  $ 73  $ $
Amount recognized in Net pension and OPEB cost (benefit), excluding service cost
Interest cost 38  50  —  76  102 
Expected return on plan assets (131) (118) —  —  (262) (238) —  — 
Net amortization and deferral 45  22  (1) (1) 89  45  (2) (2)
(48) (46) (1) (97) (91) (1)
 Net periodic benefit cost (benefit) $ (10) $ (10) $ —  $ $ (19) $ (18) $ —  $
Linde estimates that 2021 required contributions to its pension plans will be in the range of $50 million to $60 million, of which $28 million have been made through June 30, 2021.
9. Commitments and Contingencies
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 (see Note 17 to the consolidated financial statements of Linde's 2020 Annual Report on Form 10-K).
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 June 30, 2021 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 $220 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 ($440 million) on White Martins, the Brazil-based subsidiary of Praxair, Inc. The fine was reduced to R$1.7 billion Brazilian reais ($340 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
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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 ($47 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 ($38 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.
10. Segments

For a description of Linde plc's operating segments, refer to Note 18 to the consolidated financial statements on Linde plc's 2020 Annual Report on Form 10-K.
The table below presents sales and operating profit information about reportable segments and Other for the quarters and six months ended June 30, 2021 and 2020.
  
Quarter Ended June 30, Six Months Ended June 30,
(Millions of dollars) 2021 2020 2021 2020
SALES(a)
Americas $ 3,020  $ 2,417  $ 5,860  $ 5,094 
EMEA 1,875  1,448  3,674  3,081 
APAC 1,544  1,295  2,980  2,631 
Engineering 646  810  1,320  1,418 
Other 499  407  993  892 
Total sales $ 7,584  $ 6,377  $ 14,827  $ 13,116 

  
Quarter Ended June 30, Six Months Ended June 30,
(Millions of dollars) 2021 2020 2021 2020
SEGMENT OPERATING PROFIT
Americas $ 871  $ 622  $ 1,666  $ 1,283 
EMEA 487  303  938  658 
APAC 389  294  740  575 
Engineering 108  138  217  229 
Other (18) (40) (36) (76)
Segment operating profit 1,837  1,317  3,525  2,669 
Cost reduction programs and other charges (Note 2)
(204) (249) (196) (380)
Purchase accounting impacts - Linde AG (491) (477) (974) (965)
Total operating profit $ 1,142  $ 591  $ 2,355  $ 1,324 
 
(a)Sales reflect external sales only. Intersegment sales, primarily from Engineering to the industrial gases segments, were not material.
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11. Equity
Equity
A summary of the changes in total equity for the quarter and six months ended June 30, 2021 and 2020 is provided below:
Quarter Ended June 30,
(Millions of dollars) 2021 2020
Activity Linde plc
Shareholders’
Equity
Noncontrolling
Interests
Total
Equity
Linde plc
Shareholders’
Equity
Noncontrolling
Interests
Total
Equity
Balance, beginning of period $ 46,210  $ 1,410  $ 47,620  $ 44,776  $ 2,375  $ 47,151 
Net income (a) 841  36  877  458  25  483 
Other comprehensive income (loss) 437  446  767  18  785 
Noncontrolling interests:
Additions (reductions) —  —  13  13 
Dividends and other capital changes —  (24) (24) —  (44) (44)
Dividends to Linde plc ordinary share holders ($1.060 per share in 2021 and $0.963 per share in 2020)
(549) —  (549) (506) —  (506)
Issuances of ordinary shares:
For employee savings and incentive plans (9) —  (9) 10  —  10 
Purchases of ordinary shares (1,187) —  (1,187) —  —  — 
Share-based compensation 34  —  34  32  —  32 
Balance, end of period $ 45,777  $ 1,438  $ 47,215  $ 45,537  $ 2,387  $ 47,924 

Six Months Ended June 30,
(Millions of dollars) 2021 2020
Activity Linde plc Shareholders’ Equity Noncontrolling Interests Total Equity Linde plc Shareholders’ Equity Noncontrolling Interests (a) Total Equity
Balance, beginning of period $ 47,317  $ 2,252  $ 49,569  $ 49,074  $ 2,448  $ 51,522 
Net income (a) 1,821  74  1,895  1,031  60  1,091 
Other comprehensive income (loss) (218) (215) (1,807) (88) (1,895)
Noncontrolling interests:
Additions (reductions) (b) —  (846) (846) —  15  15 
Dividends and other capital changes —  (45) (45) —  (48) (48)
Dividends to Linde plc ordinary share holders ($2.120 per share in 2021 and $1.926 per share in 2020)
(1,102) —  (1,102) (1,017) —  (1,017)
Issuances of ordinary shares:
For employee savings and incentive plans (11) —  (11) (8) —  (8)
Purchases of ordinary shares (2,093) —  (2,093) (1,811) —  (1,811)
Share-based compensation 63  —  63  75  —  75 
Balance, end of period $ 45,777  $ 1,438  $ 47,215  $ 45,537  $ 2,387  $ 47,924 
(a) Net income for noncontrolling interests excludes net income related to redeemable noncontrolling interests which is not significant for quarters and the six months ended June 30, 2021 and 2020 and which is not part of total equity.
(b) Additions (reductions) for noncontrolling interests as of the six month period ended June 30, 2021, includes the impact from the deconsolidation of a joint venture with operations in APAC (see Note 13).
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The components of AOCI are as follows:
June 30, December 31,
(Millions of dollars) 2021 2020
Cumulative translation adjustment - net of taxes:
Americas $ (3,729) $ (3,788)
EMEA 912  1,020 
APAC 330  616 
Engineering 215  354 
Other (854) (1,020)
(3,126) (2,818)
Derivatives - net of taxes 31 
Pension / OPEB (net of $535 million and $560 million tax benefit in June 30, 2021 and December 31, 2020, respectively)
(1,813) (1,876)
$ (4,908) $ (4,690)


12. 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
Linde serves a diverse group of industries including healthcare, petroleum refining, 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
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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  $173 million and $162 million at June 30, 2021 and December 31, 2020, respectively. Total contract liabilities are $2,477 million at June 30, 2021 (current of $1,787 million and $690 million within other long-term liabilities in the condensed consolidated balance sheets). Total contract liabilities were $2,301 million at December 31, 2020 (current contract liabilities of $1,769 million and $532 million in other long-term liabilities in the condensed consolidated balance sheets). Revenue recognized for the six months ended June 30, 2021 that was included in the contract liability at December 31, 2020 was $791 million. Contract assets and liabilities primarily relate to the Linde Engineering business.
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 to Linde's 2020 Form 10-K, 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,
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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 quarter and six months ended June 30, 2021 and June 30, 2020.
(Millions of dollars) Quarter Ended June 30, 2021
Sales Americas EMEA APAC Engineering Other Total %
Merchant $ 821  $ 556  $ 551  $ —  $ 43  $ 1,971  26  %
On-Site 774  396  582  —  —  1,752  23  %
Packaged Gas 1,369  912  392  —  2,679  35  %
Other 56  11  19  646  450  1,182  16  %
Total $ 3,020  $ 1,875  $ 1,544  $ 646  $ 499  $ 7,584  100  %
(Millions of dollars) Quarter Ended June 30, 2020
Sales Americas EMEA APAC Engineering Other Total %
Merchant $ 634  $ 415  $ 459  $ —  $ 29  $ 1,537  24  %
On-Site 559  304  466  —  —  1,329  21  %
Packaged Gas 1,210  719  362  —  2,297  36  %
Other 14  10  810  372  1,214  19  %
Total $ 2,417  $ 1,448  $ 1,295  $ 810  $ 407  $ 6,377  100  %
(Millions of dollars) Six Months Ended June 30, 2021
Sales Americas EMEA APAC Engineering Other (a) Total %
Merchant $ 1,592  $ 1,087  $ 1,035  $ —  $ 95  $ 3,809  26  %
On-Site 1,463  788  1,134  —  —  3,385  23  %
Packaged Gas 2,701  1,772  753  —  12  5,238  35  %
Other 104  27  58  1,320  886  2,395  16  %
Total $ 5,860  $ 3,674  $ 2,980  $ 1,320  $ 993  $ 14,827  100  %
(Millions of dollars) Six Months Ended June 30, 2020
Sales Americas EMEA APAC Engineering Other (a) Total %
Merchant $ 1,360  $ 885  $ 918  $ —  $ 76  $ 3,239  25  %
On-Site 1,209  647  958  —  —  2,814  21  %
Packaged Gas 2,485  1,530  722  —  11  4,748  36  %
Other 40  19  33  1,418  805  2,315  18  %
Total $ 5,094  $ 3,081  $ 2,631  $ 1,418  $ 892  $ 13,116  100  %
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.
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13. Divestitures

Effective January 1, 2021, Linde deconsolidated a joint venture with operations in APAC, due to the expiration of certain contractual rights that the parties mutually agreed not to renew. From the effective date, the joint venture is 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 fair value of the joint venture at January 1, 2021 was determined using a discounted cash flow model and approximated the carrying amount of its net assets. The net carrying value of $852 million was mainly comprised of assets of approximately $1.9 billion (primarily Other intangibles and Property plant and equipment - net), net of liabilities of approximately $1.0 billion. Upon deconsolidation an equity investment was recorded representing Linde's share of the joint venture's net assets. The deconsolidation resulted in a gain of $52 million recorded within cost reduction programs and other charges (see Note 2) related to the release of the CTA balance recorded within AOCI. The company did not receive any consideration, cash or otherwise, as part of the deconsolidation.

The joint venture contributed sales of approximately $600 million in 2020. Future earnings per share will not be affected as the ownership percent remains the same.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations ("MD&A")
Non-GAAP Measures
Throughout MD&A, the company provides adjusted operating results from continuing operations exclusive of certain items such as cost reduction programs and other charges, net gains on sale of businesses, purchase accounting impacts of the Linde AG merger and pension settlement charges. Adjusted amounts are non-GAAP measures which are intended to supplement investors’ understanding of the company’s financial information by providing measures which investors, financial analysts and management find useful in evaluating the company’s operating performance. Items which the company does not believe to be indicative of on-going business performance are excluded from these calculations so that investors can better evaluate and analyze historical and future business trends on a consistent basis. In addition, operating results from continuing operations, excluding these items, is important to management's development of annual and long-term employee incentive compensation plans. Definitions of these non-GAAP measures may not be comparable to similar definitions used by other companies and are not a substitute for similar GAAP measures.

The non-GAAP measures and reconciliations are separately included in a later section in the MD&A titled "Non-GAAP Measures and Reconciliations."
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    Consolidated Results
The following table provides summary information for the quarters and six months ended June 30, 2021 and 2020. The reported amounts are GAAP amounts from the Consolidated Statements of Income. The adjusted amounts are intended to supplement investors' understanding of the company's financial information and are not a substitute for GAAP measures:
  
Quarter Ended June 30, Six Months Ended June 30,
(Millions of dollars, except per share data) 2021 2020 Variance 2021 2020 Variance
Sales $ 7,584  $ 6,377  19  % $ 14,827  $ 13,116  13  %
Cost of sales, exclusive of depreciation and amortization $ 4,194  $ 3,619  16  % $ 8,248  $ 7,462  11  %
As a percent of sales 55.3  % 56.8  % 55.6  % 56.9  %
Selling, general and administrative $ 822  $ 760  % $ 1,609  $ 1,621  (1) %
As a percent of sales 10.8  % 11.9  % 10.9  % 12.4  %
Depreciation and amortization $ 1,171  $ 1,124  % $ 2,337  $ 2,266  %
Cost reduction programs and other charges (b) $ 204  $ 249  (18) % $ 196  $ 380  (48) %
Other income (expense) - net $ (17) $ —  (100%) $ (13) $ 15  (187) %
Operating profit $ 1,142  $ 591  93  % $ 2,355  $ 1,324  78  %
Operating margin 15.1  % 9.3  % 15.9  % 10.1  %
Interest expense - net $ 18  $ 18  —  % $ 38  $ 42  (10) %
Net pension and OPEB cost (benefit), excluding service cost $ (49) $ (45) % $ (98) $ (90) %
Effective tax rate 28.5  % 26.5  % 24.9  % 24.0  %
Income from equity investments $ 37  $ 29  28  % $ 80  $ 46  74  %
Noncontrolling interests from continuing operations $ (36) $