lin-20200930

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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 September 30, 2020


☐			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 Priestley Road,

Surrey Research Park,

Guildford,

Surrey

GU2 7XY

United Kingdom

(Address of principal executive offices) (Zip Code)

+44

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 RegulationS-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 September 30, 2020, 524,856,691 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)

	Consolidated Statements of Income - Quarters Ended September 30, 2020 and 2019	4

	Consolidated Statements of Income - Nine Months Ended September 30, 2020 and 2019	5

	Consolidated Statements of Comprehensive Income - Quarters Ended September 30, 2020 and 2019	6
	Consolidated Statements of Comprehensive Income - Nine Months Ended September 30, 2020 and 2019	7

	Condensed Consolidated Balance Sheets - September 30, 2020 and December 31, 2019	8

	Condensed Consolidated Statements of Cash Flows - Nine Months Ended September 30, 2020 and 2019	9

	Notes to Condensed Consolidated Financial Statements	10

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	45

Item 4.	Controls and Procedures	45

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	46

Item 1A.	Risk Factors	46

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	46

Item 3.	Defaults Upon Senior Securities	46

Item 4.	Mine Safety Disclosures	46

Item 5.	Other Information	46

Item 6.	Exhibits	47

Signature		48

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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, 2019 filed with the SEC on March 2, 2020 and in Item 1A. of Linde plc's Form 10-Q for the period ending March 31, 2020 filed with the SEC on May 7, 2020, 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 September 30,
	2020		2019
Sales	$	6,855	$	7,000
Cost of sales, exclusive of depreciation and amortization	3,835		4,061
Selling, general and administrative	770		850
Depreciation and amortization	1,168		1,095
Research and development	36		44
Cost reduction programs and other charges	48		125
Net gain on sale of businesses	—		164
Other income (expense) - net	(29)		11
Operating Profit	969		1,000
Interest expense - net	38		(3)
Net pension and OPEB cost (benefit), excluding service cost	(41)		2
Income From Continuing Operations Before Income Taxes and Equity Investments	972		1,001
Income taxes on continuing operations	265		298
Income From Continuing Operations Before Equity Investments	707		703
Income from equity investments	23		28
Income From Continuing Operations (Including Noncontrolling Interests)	730		731
Income from discontinued operations, net of tax	1		7
Net Income (Including Noncontrolling Interests)	731		738
Less: noncontrolling interests from continuing operations	(31)		(3)
Less: noncontrolling interest from discontinued operations	—		—
Net Income – Linde plc	$	700	$	735

Net Income – Linde plc
Income from continuing operations	$	699	$	728
Income from discontinued operations	$	1	$	7

Per Share Data – Linde plc Shareholders
Basic earnings per share from continuing operations	$	1.33	$	1.35
Basic earnings per share from discontinued operations	—		0.01
Basic earnings per share	$	1.33	$	1.36
Diluted earnings per share from continuing operations	$	1.32	$	1.34
Diluted earnings per share from discontinued operations	—		0.01
Diluted earnings per share	$	1.32	$	1.35

Weighted Average Shares Outstanding (000’s):
Basic shares outstanding	525,694		539,753
Diluted shares outstanding	530,415		543,616

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)


	Nine Months Ended September 30,
	2020		2019
Sales	$	19,971	$	21,148
Cost of sales, exclusive of depreciation and amortization	11,297		12,457
Selling, general and administrative	2,391		2,613
Depreciation and amortization	3,434		3,513
Research and development	114		135
Cost reduction programs and other charges	428		355
Net gain on sale of businesses	—		164
Other income (expense) - net	(14)		39
Operating Profit	2,293		2,278
Interest expense - net	80		30
Net pension and OPEB cost (benefit), excluding service cost	(131)		(7)
Income From Continuing Operations Before Income Taxes and Equity Investments	2,344		2,255
Income taxes on continuing operations	594		607
Income From Continuing Operations Before Equity Investments	1,750		1,648
Income from equity investments	69		90
Income From Continuing Operations (Including Noncontrolling Interests)	1,819		1,738
Income from discontinued operations, net of tax	3		105
Net Income (Including Noncontrolling Interests)	1,822		1,843
Less: noncontrolling interests from continuing operations	(91)		(62)
Less: noncontrolling interest from discontinued operations	—		(7)
Net Income – Linde plc	$	1,731	$	1,774

Net Income – Linde plc
Income from continuing operations	$	1,728	$	1,676
Income from discontinued operations	$	3	$	98

Per Share Data – Linde plc Shareholders
Basic earnings per share from continuing operations	$	3.28	$	3.09
Basic earnings per share from discontinued operations	0.01		0.18
Basic earnings per share	$	3.29	$	3.27
Diluted earnings per share from continuing operations	$	3.25	$	3.07
Diluted earnings per share from discontinued operations	0.01		0.18
Diluted earnings per share	$	3.26	$	3.25

Weighted Average Shares Outstanding (000’s):
Basic shares outstanding	527,501		542,589
Diluted shares outstanding	531,724		546,507

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 September 30,
	2020		2019
NET INCOME (INCLUDING NONCONTROLLING INTERESTS)	$	731	$	738

OTHER COMPREHENSIVE INCOME (LOSS)
Translation adjustments:
Foreign currency translation adjustments	696		(1,183)
Reclassification to net income	—		—
Income taxes	7		(6)
Translation adjustments	703		(1,189)
Funded status - retirement obligations (Note 8):
Retirement program remeasurements	(49)		(158)
Reclassifications to net income	28		55
Income taxes	(2)		23
Funded status - retirement obligations	(23)		(80)
Derivative instruments (Note 5):
Current unrealized gain (loss)	16		(4)
Reclassifications to net income	(5)		—
Income taxes	(3)		—
Derivative instruments	8		(4)
Securities:
Current unrealized gain (loss)	—		—


Securities	—		—
TOTAL OTHER COMPREHENSIVE INCOME (LOSS)	688		(1,273)

COMPREHENSIVE INCOME (LOSS) (INCLUDING NONCONTROLLING INTERESTS)	1,419		(535)
Less: noncontrolling interests	(71)		47
COMPREHENSIVE INCOME (LOSS) - LINDE PLC	$	1,348	$	(488)

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)


	Nine Months Ended September 30,
	2020		2019
NET INCOME (INCLUDING NONCONTROLLING INTERESTS)	$	1,822	$	1,843

OTHER COMPREHENSIVE INCOME (LOSS)
Translation adjustments:
Foreign currency translation adjustments	(1,299)		(1,230)

Reclassification to net income	—		12
Income taxes	31		(1)
Translation adjustments	(1,268)		(1,219)
Funded status - retirement obligations (Note 8):



Retirement program remeasurements	2		(192)


Reclassifications to net income	71		142
Income taxes	(26)		6
Funded status - retirement obligations	47		(44)
Derivative instruments (Note 5):
Current period unrealized gain (loss)	(29)		(24)
Reclassifications to net income	45		—
Income taxes	(2)		4
Derivative instruments	14		(20)
Securities:
Current year unrealized gain (loss)	—		1


Securities	—		1
TOTAL OTHER COMPREHENSIVE INCOME (LOSS)	(1,207)		(1,282)

COMPREHENSIVE INCOME (LOSS) (INCLUDING NONCONTROLLING INTERESTS)	615		561
Less: noncontrolling interests	(43)		69
COMPREHENSIVE INCOME (LOSS) - LINDE PLC	$	572	$	630

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)


	September 30, 2020		December 31, 2019
Assets
Cash and cash equivalents	$	5,199	$	2,700
Accounts receivable - net	4,033		4,322
Contract assets	170		368
Inventories	1,733		1,697
Assets held for sale	3		125
Prepaid and other current assets	1,127		1,140
Total Current Assets	12,265		10,352
Property, plant and equipment - net	27,945		29,064

Goodwill	27,239		27,019
Other intangible assets - net	15,731		16,137
Other long-term assets	4,029		4,040
Total Assets	$	87,209	$	86,612
Liabilities and equity
Accounts payable	$	2,903	$	3,266
Short-term debt	4,024		1,732
Current portion of long-term debt	1,820		1,531
Contract liabilities	1,714		1,758

Liabilities of assets held for sale	1		2
Other current liabilities	4,330		3,871
Total Current Liabilities	14,792		12,160
Long-term debt	11,959		10,693
Other long-term liabilities	11,866		12,124

Total Liabilities	38,617		34,977
Redeemable noncontrolling interests	13		113
Linde plc Shareholders’ Equity:
Ordinary shares,€0.001 par value, authorized 1,750,000,000 shares, 2020 issued: 552,012,862 ordinary shares; 2019 issued: 552,012,862 ordinary shares	1		1
Additional paid-in capital	40,203		40,201
Retained earnings	16,927		16,842
Accumulated other comprehensive income (loss) (Note 11)	(5,973)		(4,814)
Less: Treasury stock, at cost (2020 – 27,156,171 shares and 2019 – 17,632,318 shares)	(4,983)		(3,156)
Total Linde plc Shareholders’ Equity	46,175		49,074
Noncontrolling interests	2,404		2,448
Total Equity	48,579		51,522
Total Liabilities and Equity	$	87,209	$	86,612

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)


	Nine Months Ended September 30,
	2020		2019
Increase (Decrease) in Cash and Cash Equivalents
Operations
Net income - Linde plc	$	1,731	$	1,774
Less: Income from discontinued operations, net of tax and noncontrolling interests	(3)		(98)
Add: Noncontrolling interests from continuing operations	91		62
Income from continuing operations (including noncontrolling interests)	1,819		1,738
Adjustments to reconcile net income to net cash provided by operating activities:
Cost reduction programs and other charges, net of payments	240		(356)
Amortization of merger-related inventory step-up	—		12

Depreciation and amortization	3,434		3,513
Deferred income taxes	(299)		(125)
Share-based compensation	104		64


Working capital:
Accounts receivable	(76)		(30)
Inventory	(101)		(61)
Prepaid and other current assets	1		(65)
Payables and accruals	(12)		(411)
Contract assets and liabilities, net	89		(35)
Pension contributions	(76)		(69)
Long-term assets, liabilities and other	(128)		(230)
Net cash provided by operating activities	4,995		3,945
Investing
Capital expenditures	(2,373)		(2,667)
Acquisitions, net of cash acquired	(41)		(161)
Divestitures and asset sales, net of cash divested	435		4,960
Net cash provided by (used for) investing activities	(1,979)		2,132
Financing
Short-term debt borrowings (repayments) - net	2,154		(231)
Long-term debt borrowings	2,763		55
Long-term debt repayments	(1,582)		(1,568)
Issuances of ordinary shares	41		60
Purchases of ordinary shares	(2,030)		(1,934)
Cash dividends - Linde plc shareholders	(1,523)		(1,422)

Noncontrolling interest transactions and other	(201)		(3,257)
Net cash provided by (used for) financing activities	(378)		(8,297)
Discontinued Operations
Cash provided by operating activities	—		67
Cash used for investing activities	—		(59)
Cash provided by financing activities	—		5
Net cash provided by discontinued operations	—		13
Effect of exchange rate changes on cash and cash equivalents	(139)		(126)
Change in cash and cash equivalents	2,499		(2,333)
Cash and cash equivalents, beginning-of-period	2,700		4,466
Cash and cash equivalents, including discontinued operations	5,199		2,133
Cash and cash equivalents of discontinued operations	—		(13)
Cash and cash equivalents, end-of-period	$	5,199	$	2,120

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)



Note 1. Summary of Significant Accounting Policies			11

Note 2. Cost Reduction Programs and Other Charges			12

Note 3. Supplemental Information			13

Note 4. Debt			15

Note 5. Financial Instruments			16

Note 6. Fair Value Disclosures			19

Note 7. Earnings Per Share – Linde plc Shareholders			20

Note 8. Retirement Programs			21

Note 9. Commitments and Contingencies			21

Note 10. Segments			22

Note 11. Equity			23

Note 12. Revenue Recognition			24

Note 13. Divestitures			27

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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 2019 Annual Report on Form 10-K. There have been no material changes to the company’s significant accounting policies during 2020.

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.

Accounting Standards to be Implemented

•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. For Linde, the guidance is effective for the year ending December 31, 2020 and must be applied on a retrospective basis. The company is evaluating the impact this guidance will have on the disclosures in the notes to the consolidated financial statements.

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

Other Developments

While the events surrounding the COVID-19 pandemic continued to evolve during the first nine months of 2020, Linde's primary focus was, and continues to be, the health and safety of its employees and the needs of its customers. The spread of COVID-19 has caused the company to modify its business practices (including employee travel, employee work locations, and cancellation of physical participation in meetings and events), and the company may take further actions if required by government authorities or that it determines are in the best interests of the company's employees, customers, suppliers and other stakeholders. The ultimate magnitude of COVID-19, including the extent of its impact on the company’s operational results, will be determined by the length of time that such circumstances continue, measures taken to prevent its spread, and the demand for the company’s products and services, as well as the effect of governmental and public actions taken in response.

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2. Cost Reduction Programs and Other Charges

2020 Charges

Cost reduction programs and other charges were $48 million and $428 million for the quarter and nine months ended September 30, 2020, respectively ($36 million and $318 million, after tax). The following table summarizes the activities related to the company's cost reduction charges for the quarter and nine months ended September 30, 2020:


	Quarter Ended September 30, 2020
(millions of dollars)	Severance costs		Other cost reduction charges		Total cost reduction program related charges		Merger-related and other charges		Total
Americas	$	2	$	—	$	2	$	6	$	8
EMEA	17		4		21		5		26
APAC	2		—		2		—		2
Engineering	1		(1)		—		—		—
Other	9		5		14		(2)		12
Total	$	31	$	8	$	39	$	9	$	48

	Nine Months Ended September 30, 2020
(millions of dollars)	Severance costs		Other cost reduction charges		Total cost reduction program related charges		Merger-related and other charges		Total
Americas	$	33	$	23	$	56	$	12	$	68
EMEA	155		8		163		5		168
APAC	5		2		7		3		10
Engineering	22		6		28		8		36
Other	66		10		76		70		146
Total	$	281	$	49	$	330	$	98	$	428

Cost Reduction Programs

Total cost reduction program related charges were $39 million and $330 million for the quarter and nine months ended September 30, 2020, respectively ($29 million and $236 million, after tax).

Severance costs

Severance costs were $31 million and $281 million for the quarter and nine months ended September 30, 2020, respectively. As of September 30, 2020 these actions were substantially complete, with the remainder anticipated to be completed during 2021.

Other cost reduction charges

Other cost reduction charges of $8 million and $49 million for the quarter and nine months ended September 30, 2020, respectively, are primarily 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

Linde incurred merger-related costs and other charges which totaled $9 million and $98 million ($7 million and $82 million, after tax) for the quarter and nine months ended September 30, 2020, respectively.

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Cash Requirements

The total cash requirements of the cost reduction program and other charges during the nine months ended September 30, 2020 are estimated to be approximately $338 million and are expected to be paid through 2022. Total cost reduction programs and other charges, net of payments in the condensed consolidated statements of cash flows for the nine months ended September 30, 2020 also reflects the impact of cash payments of liabilities, including merger-related tax liabilities, accrued as of December 31, 2019.

The following table summarizes the activities related to the company's cost reduction related charges for the nine months ended September 30, 2020:


(millions of dollars)	Severance costs		Other cost reduction charges		Total cost reduction program related charges		Merger-related and other charges		Total




Balance, December 31, 2019	$	117	$	16	$	133	$	67	$	200
2020 Cost Reduction Programs and Other Charges	281		49		330		98		428
Less: Cash payments	(103)		(13)		(116)		(45)		(161)
Less: Non-cash charges	—		(32)		(32)		(71)		(103)
Foreign currency translation and other	8		1		9		4		13
Balance, September 30, 2020	$	303	$	21	$	324	$	53	$	377

2019 Charges

Cost reduction programs and other charges were $125 million and $355 million for the quarter and nine months ended September 30, 2019, respectively ($90 million and $284 million, after tax), including merger-related and other charges of $92 million and $213 million for the quarter and nine months ended September 30, 2019, respectively ($64 million and $169 million, after tax and noncontrolling interest) and synergy-related charges, primarily severance, of $33 million and $142 million for the quarter and nine months ended September 30, 2019, respectively ($26 million and $115 million, after tax). Merger-related and other charges for the third quarter and nine month period include 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.

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 statement 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.

3. Supplemental Information

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 $4,044 million and $4,390 million at September 30, 2020 and December 31, 2019 respectively and gross receivables aged greater than one year were $337 million and $249 million at September 30, 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.

Accounts receivable net of reserves were $4,033 million at September 30, 2020 and $4,322 million at December 31, 2019. Allowances for expected credit losses were $452 million at September 30, 2020 and $306 million at December 31, 2019. Provisions for expected credit losses were $136 million and $146 million for the nine months ended September 30, 2020 and 2019, respectively. The allowance activity in the nine months ended September 30, 2020 related to write-offs of uncollectible amounts, net of recoveries and currency movements is not material.

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Inventories

The following is a summary of Linde's consolidated inventories:


(Millions of dollars)	September 30, 2020		December 31, 2019
Inventories
Raw materials and supplies	$	400	$	396
Work in process	374		331
Finished goods	959		970
Total inventories	$	1,733	$	1,697

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4. Debt

The following is a summary of Linde's outstanding debt at September 30, 2020 and December 31, 2019:


(Millions of dollars)	September 30, 2020		December 31, 2019
SHORT-TERM
Commercial paper and U.S. bank borrowings	$	3,230	$	996
Other bank borrowings (primarily international)	794		736
Total short-term debt	4,024		1,732
LONG-TERM (a)
(U.S. dollar denominated unless otherwise noted)
2.25% Notes due 2020 (e)	—		300
1.75% Euro denominated notes due 2020 (e),(b)	—		1,137
0.634% Euro denominated notes due 2020	59		56
4.05% Notes due 2021	500		499
3.875% Euro denominated notes due 2021 (b)	723		711
3.00% Notes due 2021	499		499
0.250% Euro denominated notes due 2022 (b)	1,178		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 (b)	802		776
5.875% GBP denominated notes due 2023 (b)	437		456
1.20% Euro denominated notes due 2024	643		615
1.875% Euro denominated notes due 2024 (b)	375		361
2.65% Notes due 2025	398		398
1.625% Euro denominated notes due 2025	582		556
3.20% Notes due 2026	725		725
3.434% Notes due 2026	196		196
1.652% Euro denominated notes due 2027	97		93
0.250% Euro denominated notes due 2027 (c)	877		—
1.00% Euro denominated notes due 2028 (b)	927		872
1.10% Notes due 2030 (d)	695		—
1.90% Euro denominated notes due 2030	122		118
0.550% Euro denominated notes due 2032 (c)	872		—
3.55% Notes due 2042	664		662
2.00% Notes due 2050 (d)	296		—
Other	10		10
International bank borrowings	355		309
Obligations under finance leases	150		149
	13,779		12,224
Less: current portion of long-term debt	(1,820)		(1,531)
Total long-term debt	11,959		10,693
Total debt	$	17,803	$	13,956

(a)Amounts are net of unamortized discounts, premiums and/or debt issuance costs as applicable.

(b)September 30, 2020 and December 31, 2019 included a cumulative $22 million and $38 million adjustment to carrying value, respectively, related to hedge accounting of interest rate swaps. Refer to Note 5 for additional information.

(c)In May 2020, Linde issued €750 million of 0.250% notes due 2027 and €750 million of 0.550% notes due 2032.

(d)In August 2020, Linde issued $700 million of 1.100% notes due 2030 and $300 million of 2.000% notes due 2050.

(e)In September 2020, the company repaid €1,000 million of 1.75% notes and $300 million of 2.25% notes that became due.

Table of Contents

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 September 30, 2020.

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 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 September 30, 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 September 30, 2020 and December 31, 2019 for consolidated subsidiaries:


					Fair Value
	Notional Amounts				Assets (a)				Liabilities (a)
(Millions of dollars)	September 30, 2020		December 31, 2019		September 30, 2020		December 31, 2019		September 30, 2020		December 31, 2019
Derivatives Not Designated as Hedging Instruments:
Currency contracts:
Balance sheet items	$	6,714	$	7,936	$	30	$	62	$	97	$	37
Forecasted transactions	952		748		6