Leases

3 Months Ended

Mar. 31, 2019

In the normal course of its business, Linde enters into various leases as the lessee, primarily involving manufacturing and distribution equipment and office space. Total lease and rental expenses related to operating lease right of use assets for the quarter ended March 31, 2019 was $94 million and the 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 quarter ended March 31, 2019 were $6 million and the costs are included in depreciation and amortization, and interest. Related assets and obligations are included in property, plant and equipment - net and debt, respectively. Linde includes renewal options that are reasonably certain to be exercised as part of the lease term.

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.

The operating lease expense for the quarter ended March 31, 2019, which exclude short-term and variable lease expenses, as those expenses are immaterial, was $84 million. Costs related to finance leases for this period were immaterial.

Gains and losses on sale and leaseback transactions were immaterial. Operating cash flows from operating leases for the three months ended March 31, 2019 were $85 million. Cash flows from finance leases for the same period were immaterial.

Supplemental balance sheet information related to leases is as follows:



(Millions of dollars)	March 31, 2019
Operating leases
Operating lease right-of-use assets	$	1,113

Other current liabilities	271
Other long-term liabilities	795
Total operating lease liabilities	$	1,066

Finance leases
Finance lease right-of-use assets	$	118

Current portion of long-term debt	30
Long-term debt	86
Total finance lease liabilities	$	116

Supplemental operating lease information:



	March 31, 2019
Weighted average lease term (years)	7 years
Weighted average discount rate	2.78	%

Future operating and financing lease payments as of March 31, 2019 are as follows (millions of dollars):



Period	Operating Leases			Finance Leases
Remaining 2019	$	261		$	22
2020	223			21
2021	176			17
2022	134			13
2023	90			7
Thereafter	244			66
Total future undiscounted lease payments	$	1,128		$	146
Less imputed interest	(62		)	(30		)
Total reported lease liability	$	1,066		$	116

Prior to the adoption of the new lease accounting standard, operating and finance lease commitments on an undiscounted basis were approximately $1.3 billion and $104 million, respectively, at December 31, 2018 under long-term non-cancelable leases. The amounts payable for operating leases were as follows:



(Millions of dollars)	Operating Leases
2019	$	305
2020	236
2021	186
2022	145
2023	102
Thereafter	326
	$	1,300

In limited instances Linde acts as a lessor, primarily for assets to provide industrial gas to specific customers. These leases are not significant to the condensed consolidated balance sheets or consolidated statements of income.

Leases

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.

Supplemental balance sheet information related to leases is as follows:



(Millions of dollars)	March 31, 2019
Operating leases
Operating lease right-of-use assets	$	1,113

Other current liabilities	271
Other long-term liabilities	795
Total operating lease liabilities	$	1,066

Finance leases
Finance lease right-of-use assets	$	118

Current portion of long-term debt	30
Long-term debt	86
Total finance lease liabilities	$	116

Supplemental operating lease information:



	March 31, 2019
Weighted average lease term (years)	7 years
Weighted average discount rate	2.78	%

Future operating and financing lease payments as of March 31, 2019 are as follows (millions of dollars):



Period	Operating Leases			Finance Leases
Remaining 2019	$	261		$	22
2020	223			21
2021	176			17
2022	134			13
2023	90			7
Thereafter	244			66
Total future undiscounted lease payments	$	1,128		$	146
Less imputed interest	(62		)	(30		)
Total reported lease liability	$	1,066		$	116



(Millions of dollars)	Operating Leases
2019	$	305
2020	236
2021	186
2022	145
2023	102
Thereafter	326
	$	1,300