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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, 2019
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 Priestley Road,
 
 
Surrey Research Park,
 
 
Guildford,
Surrey
 GU2 7XY
 
 
United Kingdom
 
 
(Address of principal executive offices) (Zip Code)

 
 
+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 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 July 31, 2019, 540,591,490 ordinary shares (€0.001 par value) of the Registrant were outstanding.
 


Table of Contents

INDEX
 
 
PART I - FINANCIAL INFORMATION
 
 
 
 
Item 1.
 
 
 
 
 


 
 
 
 
 
 
 
 

 
 
 
 
 
 
 
 
 

 
 
 
 

 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
Item 6.
 
 
 
 



Table of Contents

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 ability to successfully integrate the Praxair and Linde AG businesses; regulatory or other limitations and requirements imposed as a result of the business combination of Praxair and Linde AG that could reduce anticipated benefits of the transaction; the risk that Linde plc may be unable to achieve expected synergies or that it may take longer or be more costly than expected to achieve those synergies; 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 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, including the impact of the U.S. Tax Cuts and Jobs Act of 2017; 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 GAAP, IFRS 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, 2018 filed with the SEC on March 18, 2019 which should be reviewed carefully. Please consider Linde plc’s forward-looking statements in light of those risks.










3

Table of Contents


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

 
Quarter Ended June 30,
 
2019
 
2018
Sales
$
7,204

 
$
3,044

Cost of sales, exclusive of depreciation and amortization
4,280

 
1,706

Selling, general and administrative
884

 
307

Depreciation and amortization
1,195

 
311

Research and development
45

 
24

Cost reduction programs and other charges
141

 
24

Other income (expense) - net
10

 
17

Operating Profit
669

 
689

Interest expense - net
10

 
44

Net pension and OPEB cost (benefit), excluding service cost
(24
)
 
2

Income From Continuing Operations Before Income Taxes and Equity Investments
683

 
643

Income taxes on continuing operations
169

 
158

Income From Continuing Operations Before Equity Investments
514

 
485

Income from equity investments
28

 
14

Income From Continuing Operations (Including Noncontrolling Interests)
542

 
499

Income from discontinued operations, net of tax
9

 

Net Income (Including Noncontrolling Interests)
551

 
499

Less: noncontrolling interests from continuing operations
(29
)
 
(19
)
Net Income – Linde plc
$
522

 
$
480

 
 
 
 
Net Income – Linde plc
 
 
 
Income from continuing operations
$
513

 
$
480

Income from discontinued operations
$
9

 
$

 
 
 
 
Per Share Data – Linde plc Shareholders
 
 
 
Basic earnings per share from continuing operations
$
0.95

 
$
1.67

Basic earnings per share from discontinued operations
0.02

 

Basic earnings per share
$
0.97

 
$
1.67

Diluted earnings per share from continuing operations
$
0.94

 
$
1.65

Diluted earnings per share from discontinued operations
0.02

 

Diluted earnings per share
$
0.96

 
$
1.65

 
 
 
 
Weighted Average Shares Outstanding (000’s):
 
 
 
Basic shares outstanding
542,561

 
287,803

Diluted shares outstanding
546,488

 
290,908


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


4

Table of Contents

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

 
Six Months Ended June 30,
 
2019
 
2018
Sales
$
14,148

 
$
6,027

Cost of sales, exclusive of depreciation and amortization
8,396

 
3,367

Selling, general and administrative
1,763

 
617

Depreciation and amortization
2,418

 
622

Research and development
91

 
48

Cost reduction programs and other charges
230

 
43

Other income (expense) - net
28

 
12

Operating Profit
1,278

 
1,342

Interest expense - net
33

 
90

Net pension and OPEB cost (benefit), excluding service cost
(9
)
 
4

Income From Continuing Operations Before Income Taxes and Equity Investments
1,254

 
1,248

Income taxes on continuing operations
309

 
306

Income From Continuing Operations Before Equity Investments
945

 
942

Income from equity investments
62

 
29

Income From Continuing Operations (Including Noncontrolling Interests)
1,007

 
971

Income from discontinued operations, net of tax
98

 

Net Income (Including Noncontrolling Interests)
1,105

 
971

Less: noncontrolling interests from continuing operations
(59
)
 
(29
)
Less: noncontrolling interest from discontinued operations
(7
)
 

Net Income – Linde plc
$
1,039

 
$
942

 
 
 
 
Net Income – Linde plc
 
 
 
Income from continuing operations
$
948

 
$
942

Income from discontinued operations
$
91

 
$

 
 
 
 
Per Share Data – Linde plc Shareholders
 
 
 
Basic earnings per share from continuing operations
$
1.74

 
$
3.27

Basic earnings per share from discontinued operations
0.17

 

Basic earnings per share
$
1.91

 
$
3.27

Diluted earnings per share from continuing operations
$
1.73

 
$
3.24

Diluted earnings per share from discontinued operations
0.17

 

Diluted earnings per share
$
1.90

 
$
3.24

 
 
 
 
Weighted Average Shares Outstanding (000’s):
 
 
 
Basic shares outstanding
544,033

 
287,654

Diluted shares outstanding
547,771

 
290,926


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



5

Table of Contents

LINDE PLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Millions of dollars)
(UNAUDITED)
 
 
Quarter Ended June 30,
 
2019
 
2018
NET INCOME (INCLUDING NONCONTROLLING INTERESTS)
$
551

 
$
499

 
 
 
 
OTHER COMPREHENSIVE INCOME (LOSS)
 
 
 
Translation adjustments:
 
 
 
Foreign currency translation adjustments
(170
)
 
(640
)
Reclassification to net income (Note 17)

 

Income taxes
8

 
(3
)
Translation adjustments
(162
)
 
(643
)
Funded status - retirement obligations (Note 11):
 
 
 
Retirement program remeasurements
(32
)
 
(9
)
Reclassifications to net income
23

 
17

Income taxes
1

 
(2
)
Funded status - retirement obligations
(8
)
 
6

Derivative instruments (Note 7):
 
 
 
Current quarter unrealized gain (loss)
(3
)
 

Reclassifications to net income

 

Income taxes
1

 

Derivative instruments
(2
)
 

   Securities:
 
 
 
Current year unrealized gain (loss)
9

 

Reclassifications to net income

 

Income taxes

 

Securities
9

 

TOTAL OTHER COMPREHENSIVE INCOME (LOSS)
(163
)
 
(637
)
 
 
 
 
COMPREHENSIVE INCOME (LOSS) (INCLUDING NONCONTROLLING INTERESTS)
388

 
(138
)
Less: noncontrolling interests
(8
)
 
2

COMPREHENSIVE INCOME (LOSS) - LINDE PLC
$
380

 
$
(136
)

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,
 
2019
 
2018
NET INCOME (INCLUDING NONCONTROLLING INTERESTS)
$
1,105

 
$
971

 
 
 
 
OTHER COMPREHENSIVE INCOME (LOSS)
 
 
 
Translation adjustments:
 
 
 
Foreign currency translation adjustments
(47
)
 
(534
)
Reclassification to net income (Note 17)
12

 

Income taxes
5

 
6

Translation adjustments
(30
)
 
(528
)
Funded status - retirement obligations (Note 11):
 
 
 
Retirement program remeasurements
(34
)
 
(8
)
Reclassifications to net income
87

 
34

Income taxes
(17
)
 
(6
)
Funded status - retirement obligations
36

 
20

Derivative instruments (Note 7):
 
 
 
Current period unrealized gain (loss)
(20
)
 

Reclassifications to net income

 

Income taxes
4

 

Derivative instruments
(16
)
 

   Securities:
 
 
 
Current year unrealized gain (loss)
1

 

Reclassifications to net income

 

Income taxes

 

Securities
1

 

TOTAL OTHER COMPREHENSIVE INCOME (LOSS)
(9
)
 
(508
)
 
 
 
 
COMPREHENSIVE INCOME (LOSS) (INCLUDING NONCONTROLLING INTERESTS)
1,096

 
463

Less: noncontrolling interests
22

 
(19
)
COMPREHENSIVE INCOME (LOSS) - LINDE PLC
$
1,118

 
$
444


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, 2019
 
December 31, 2018
Assets
 
 
 
Cash and cash equivalents
$
2,686

 
$
4,466

Accounts receivable - net
4,483

 
4,297

Contract assets
405

 
283

Inventories
1,708

 
1,651

Assets held for sale
283

 
5,498

Prepaid and other current assets
1,116

 
1,077

Total Current Assets
10,681

 
17,272

Property, plant and equipment - net
29,540

 
29,717

Goodwill
26,947

 
26,874

Other intangible assets - net
15,804

 
16,223

Other long-term assets
4,217

 
3,300

Total Assets
$
87,189

 
$
93,386

Liabilities and equity
 
 
 
Accounts payable
$
3,358

 
$
3,219

Short-term debt
1,475

 
1,485

Current portion of long-term debt
227

 
1,523

Contract liabilities
1,682

 
1,546

Liabilities of assets held for sale
11

 
768

Other current liabilities
3,768

 
4,415

Total Current Liabilities
10,521

 
12,956

Long-term debt
12,255

 
12,288

Other long-term liabilities
11,519

 
11,046

Total Liabilities
34,295

 
36,290

Redeemable noncontrolling interests
15

 
16

Linde plc Shareholders’ Equity:
 
 
 
Ordinary shares, €0.001 par value, authorized 1,750,000,000 shares, 2019 issued: 552,012,862 ordinary shares; 2018 issued: 551,310,272 ordinary shares
1

 
1

Additional paid-in capital
40,157

 
40,151

Retained earnings
16,555

 
16,529

Accumulated other comprehensive income (loss) (Note 14)
(4,377
)
 
(4,456
)
Less: Treasury stock, at cost (2019 – 10,659,056 shares and 2018 – 4,068,642 shares)
(1,772
)
 
(629
)
Total Linde plc Shareholders’ Equity
50,564

 
51,596

Noncontrolling interests
2,315

 
5,484

Total Equity
52,879

 
57,080

Total Liabilities and Equity
$
87,189

 
$
93,386

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,
 
2019
 
2018
Increase (Decrease) in Cash and Cash Equivalents
 
 
 
Operations
 
 
 
Net income - Linde plc
$
1,039

 
$
942

Less: Income from discontinued operations, net of tax and noncontrolling interests
(91
)
 

Add: Noncontrolling interests from continuing operations
59

 
29

Income from continuing operations (including noncontrolling interests)
1,007

 
971

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Cost reduction programs and other charges, net of payments
(286
)
 
15

Amortization of merger-related inventory step-up
10

 

Depreciation and amortization
2,418

 
622

Deferred income taxes
(110
)
 
10

Share-based compensation
38

 
21

Working capital:
 
 
 
Accounts receivable
(188
)
 
(147
)
Inventory
(73
)
 
(10
)
Prepaid and other current assets
(76
)
 
25

Payables and accruals
(247
)
 
(6
)
    Contract assets and liabilities, net
(103
)
 

Pension contributions
(43
)
 
(10
)
Long-term assets, liabilities and other
(274
)
 
(13
)
Net cash provided by operating activities
2,073

 
1,478

Investing
 
 
 
Capital expenditures
(1,708
)
 
(676
)
Acquisitions, net of cash acquired
(140
)
 

Divestitures and asset sales, net of cash divested
4,689

 
69

Net cash provided by (used for) investing activities
2,841

 
(607
)
Financing
 
 
 
Short-term debt borrowings (repayments) - net
(11
)
 
13

Long-term debt borrowings
45

 

Long-term debt repayments
(1,311
)
 
(505
)
Issuances of ordinary shares
55

 
44

Purchases of ordinary shares
(1,250
)
 
(1
)
Cash dividends - Linde plc shareholders
(951
)
 
(474
)
Noncontrolling interest transactions and other
(3,222
)
 
(22
)
Net cash used for financing activities
(6,645
)
 
(945
)
Discontinued Operations
 
 
 
Cash provided by operating activities
70

 

Cash used for investing activities
(59
)
 

Cash provided by financing activities
5

 

Net cash provided by discontinued operations
16

 

Effect of exchange rate changes on cash and cash equivalents
(49
)
 
(64
)
Change in cash and cash equivalents
(1,764
)
 
(138
)
Cash and cash equivalents, beginning-of-period
4,466

 
617

Cash and cash equivalents, including discontinued operations
2,702

 
479

Cash and cash equivalents of discontinued operations
(16
)
 

Cash and cash equivalents, end-of-period
$
2,686

 
$
479

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)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


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LINDE PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Formation of Linde plc and Business Combination of Praxair, Inc. and Linde AG

Formation of Linde plc

Linde plc ("Linde" or “the company”), a public limited company incorporated in Ireland, was formed in accordance with the requirements of the business combination agreement, dated as of June 1, 2017, as amended (the “business combination agreement”). Pursuant to the business combination agreement, among other things, Praxair, Inc., a Delaware corporation (“Praxair”), and Linde Aktiengesellschaft, a stock corporation incorporated under the laws of Germany (“Linde AG”), agreed to combine their respective businesses through an all-stock transaction, and become subsidiaries of the company (collectively referred to as “business combination” or “merger”). On October 31, 2018, Linde completed the business combination. Prior to the business combination, the company did not conduct any business activities other than those required for its formation and matters contemplated by the business combination agreement.

Business Combination of Praxair, Inc. and Linde AG

The business combination has been accounted for using the acquisition method of accounting in accordance with the provisions of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification ("ASC") 805, “Business Combinations”, with Praxair representing the accounting acquirer. Pursuant to Rule 12g-3(a) under the Exchange Act, as of October 31, 2018, the company became the successor issuer to Praxair. Also, the Linde shares are deemed to be registered under Section 12(b) of the Exchange Act, and the company is subject to the informational requirements of the Exchange Act and the rules and regulations promulgated thereunder. The Linde shares trade on the New York Stock Exchange and the Frankfurt Stock Exchange under the ticker symbol “LIN”. Prior to the business combination, the Praxair shares were registered pursuant to Section 12(b) of the Exchange Act and listed on the NYSE. In connection with the completion of the business combination, the Praxair shares were suspended from trading on the NYSE as of close of business (New York Time) on October 30, 2018. On November 1, 2018, Praxair filed a Form 25 to de-list and de-register its three series of Euro-denominated notes, including its 1.50% Notes due 2020, 1.20% Notes due 2024 and 1.625% Notes due 2025, that were listed on the NYSE. Trading of the Euro-denominated notes on the NYSE was suspended as of close of business (New York Time) on November 9, 2018, and Praxair filed a Form 15 with the SEC terminating the registration under the Exchange Act of its securities and suspending Praxair’s reporting obligations under Section 15(d) of the Exchange Act.
In connection with the business combination, the company, Praxair and Linde AG entered into various agreements with regulatory authorities to satisfy anti-trust requirements to secure approval to consummate the business combination. These agreements included the sale of the majority of Praxair’s European businesses (completed on December 3, 2018), the majority of Linde AG’s Americas business (completed on March 1, 2019), select assets of Linde AG's South Korean industrial gases business (completed April 30, 2019), select assets of Praxair's Indian industrial gases business (completed July 12, 2019), as well as certain divestitures of other Praxair and Linde AG businesses in Asia that are currently expected to be sold in 2019 (collectively, the “merger-related divestitures”). See Note 17 for additional information relating to merger-related divestitures.
To obtain merger approval in the United States, Linde, Praxair and Linde AG entered into an agreement with the U.S. Federal Trade Commission dated October 1, 2018 (“hold separate order” or “HSO”). Under the HSO, the company, Praxair and Linde AG agreed to (i) continue to operate Linde AG and Praxair as independent, ongoing, economically viable, competitive businesses held separate, distinct, and apart from each other’s operations; (ii) not coordinate any aspect of the operations of Linde AG and Praxair, including the marketing or sale of any products; and (iii) maintain separate financial ledgers, books, and records that report on a periodic basis, consistent with past practices, the assets, liabilities, expenses, revenues, and income of each, until certain divestitures in the United States have been completed. The restrictions under the hold separate order were lifted March 1, 2019, concurrent with the sale of the required merger-related divestitures in the United States.
Comparability of Financial Information
Because Praxair and Linde AG combined their respective businesses effective with the merger date of October 31, 2018 in accordance with ASC 805, the quarter and six months ended June 30, 2019 reflect the results and cash flows of the combined business, while the quarter and six months ended June 30, 2018 include only Praxair. Due to the size of Linde AG’s businesses prior to the merger, the reported results for 2019 and 2018 quarters are not comparable. The balance sheets at June 30, 2019 and December 31, 2018 are comparable because both periods reflect the merger.


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2. 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 2018 Annual Report on Form 10-K. There have been no material changes to the company’s significant accounting policies during 2019.
Segment Presentation Change - As a result of the merger and effective with the lifting of the Hold Separate Order in March 2019, new reportable segments were implemented. The new segments are: Americas, EMEA (Europe/Middle East/Africa), APAC (Asia/Pacific); and Engineering. All periods presented were recast to conform to the new segment structure. See Notes 1 and 13.
Accounting Standards Implemented in 2019
Leases – In February 2016, the FASB issued updated guidance on the accounting and financial statement presentation of leases. The new guidance requires lessees to recognize a right-of-use asset and lease liability for all leases, except those that meet certain scope exceptions, and requires expanded quantitative and qualitative disclosures. This guidance is effective beginning in the first quarter of 2019 and requires companies to transition using a modified retrospective approach. Linde has applied the practical expedient which allows prospective transition to the new lease accounting standard on January 1, 2019. The company elected the package of practical expedients relating to the reassessment of the lease portfolio pertaining to (i) whether expiring or existing contracts contain lease components, (ii) lease classification under ASC 842 and (iii) whether initial direct costs were capitalized under ASC 840. The company further implemented internal controls and key system functionality to enable the preparation of financial information on adoption.
The standard had an immaterial impact on our condensed consolidated balance sheets and consolidated income statements. The most significant impact was the recognition of right of use ("ROU") assets and lease liabilities for operating leases, while the accounting for finance leases remained substantially unchanged. The company recognized both right of use assets and lease liabilities of $1.2 billion upon adoption. The adoption of the new lease accounting standard had no impact on retained earnings (See Note 16).
Derivatives and Hedging - In August 2017, the FASB issued updated guidance on accounting for hedging activities. The new guidance simplifies hedge effectiveness documentation requirements, changes both the designation and measurement for qualifying hedging relationships and the presentation of hedge results. This guidance was effective for the company beginning in the first quarter of 2019. The adoption of the standard had an immaterial impact on the consolidated financial statements.
Accounting Standards to be Implemented
Credit Losses on Financial Instruments In June 2016, the FASB issued an update 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 will be effective for the company beginning in the first quarter 2020 and requires companies to apply the change in accounting on a prospective basis. The company is currently evaluating the impact this update will have 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 will be effective for the company beginning in the first quarter 2020 with early adoption permitted. The company does not expect this guidance to have a material impact.
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 company is evaluating the impact this guidance will have on the disclosures in the notes to the consolidated financial statements.
Retirement Benefit Disclosures - In August 2018, the FASB issued guidance that modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement benefit plans. The guidance is effective in fiscal year 2021, with early adoption permitted, 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.

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

3. Cost Reduction Programs and Other Charges

2019 Charges

Cost reduction programs and other charges were $141 million and $230 million for the quarter and six months ended June 30, 2019, respectively ($113 million and $194 million, after-tax ). Following is a summary of the pre-tax charges by reportable segment for the quarter and six month periods ended June 30, 2019:
 
Quarter Ended June 30, 2019
(millions of dollars)
Severance costs
 
Other cost reduction charges
 
Transaction related charges
 
Total
Americas
$
20

 
$
6

 
3

 
$
29

EMEA
4

 
2

 
10

 
16

APAC
13

 
1

 
1

 
15

Engineering

 
4

 

 
4

Other
5

 
21

 
51

 
77

Total
$
42

 
$
34

 
$
65

 
$
141


 
Six Months Ended June 30, 2019
(millions of dollars)
Severance costs
 
Other cost reduction charges
 
Transaction related charges
 
Total
Americas
$
20

 
$
7

 
27

 
$
54

EMEA
4

 
9

 
2

 
15

APAC
22

 
2

 
1

 
25

Engineering

 
11

 

 
11

Other
5

 
29

 
91

 
125

Total
$
51

 
$
58

 
$
121

 
$
230




Cost Reduction Programs

Total cost reduction program related charges were $76 million and $109 million for the quarter and six months ended June 30, 2019, respectively ($61 million and $89 million after-tax).

Severance costs

Severance costs of $42 million and $51 million for the quarter and six months ended June 30, 2019, respectively, are for the elimination of approximately 1,100 positions, largely in the Americas and APAC, of which approximately 700 have terminated employment. The majority of actions are anticipated to be completed in 2019.

Other cost reduction charges

Other cost reduction charges of $34 million and $58 million for the quarter and six months ended June 30, 2019, respectively, are primarily related to actions taken to execute the company's synergistic actions including location consolidations and rationalization, software and process harmonization, and associated non-recurring costs.






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Transaction Related Charges

On October 31, 2018, Praxair and Linde AG combined under Linde plc, as contemplated by the business combination agreement (see Note 1). In connection with the business combination, Linde incurred merger-related costs which totaled $65 million and $121 million ($52 million and $105 million after-tax) for the quarter and six months ended June 30, 2019, respectively.

Cash Requirements

The total cash requirements of the cost reduction program and other charges during the six months ended June 30, 2019 are estimated to be approximately $225 million, of which $135 million was paid through June 30, 2019. 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, 2019 also reflect the impact of cash payments of liabilities accrued as of December 31, 2018.

The following table summarizes the activities related to the company's cost reduction related charges for the six months ended June 30, 2019:
(millions of dollars)
Severance costs
 
Other cost reduction charges
 
Transaction related charges
 
Total
2019 Cost Reduction Programs and Other Charges
$
51

 
$
58

 
$
121

 
$
230

Less: Cash payments
(37
)
 
(21
)
 
(77
)
 
(135
)
Less: Non-cash charges

 
(4
)
 

 
(4
)
Foreign currency translation and other

 

 
(1
)
 
(1
)
Balance, June 30, 2019
$
14

 
$
33

 
$
43

 
$
90



2018 Charges

Transaction costs and other charges were $24 million million and $43 million for the quarter and six months ended June 30, 2018, respectively ($21 million and $39 million after-tax and noncontrolling interests).

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 13 - Segments, Linde excluded these costs from its management definition of segment operating profit; a reconciliation of segments operating profit to consolidated operating profit is shown within the segment operating profit table.

4. Merger of Praxair, Inc. and Linde AG

On October 31, 2018 Praxair and Linde AG combined their respective businesses through an all-stock transaction and became subsidiaries of the company.
In connection with the business combination, each share of common stock of Praxair par value $0.01 per share, (excluding any shares held in treasury immediately prior to the effective time of the merger, which were automatically canceled and retired for no consideration) was converted into one ordinary share, par value 0.001 per share, of Linde plc. Additionally, each tendered share of common stock of Linde AG was converted into 1.54 ordinary shares of Linde plc.
Preliminary Allocation of Purchase Price

In accordance with the FASB’s ASC 805, "Business Combinations", Praxair was determined to be the accounting acquirer. As such, the company has applied the acquisition method of accounting with respect to the identifiable assets and liabilities of Linde AG, which have been measured at estimated fair value as of the date of the business combination.
In accordance with the business combination agreement, Linde AG shareholders that accepted the exchange offer received Linde shares in exchange for Linde AG shares at an exchange ratio of 1.54 Linde shares for each Linde AG share. Because Praxair is the accounting acquirer, the fair value of the equity issued by Linde plc to Linde AG shareholders in the exchange transaction was determined by reference to the market price of Praxair shares. Accordingly, the purchase consideration below reflects the estimated fair value of the 92% of Linde AG shares tendered and Linde shares issued in exchange for those Linde AG shares, which is based on the final closing price of Praxair shares prior to the effective time of the merger on October 31, 2018 of $164.50 per share.

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The purchase price and estimated fair value of Linde AG’s net assets acquired as of the merger date on October 31, 2018 is presented as follows:
(in thousands, except value per share data, Linde AG exchange ratio, and purchase price)
Linde AG common stock tendered as of October 31, 2018 (i)
170,875 Shares
Business combination agreement exchange ratio (ii)
1.54 : 1
Linde plc ordinary shares issued in exchange for Linde AG
263,148 Shares
Per share price of Praxair, Inc. common stock (iii)
$164.50
Purchase price (millions of dollars)
$43,288
 
(i)
Number of Linde AG shares tendered in the 2017 Exchange Offer.
 
(ii)
Exchange ratio for Linde AG shares as set forth in the business combination agreement.
 
(iii)
Closing price of Praxair shares on the New York Stock Exchange prior to the effective time of the business combination on October 31, 2018.


In accordance with ASC 805, Linde AG's assets and liabilities were measured at estimated fair values at October 31, 2018, primarily using Level 3 inputs except debt which was Level 1. Estimates of fair value represent management's best estimate of assumptions about future events and uncertainties, including significant judgments related to future cash flows (sales, costs, customer attrition rates, and contributory asset charges), discount rates, competitive trends, market comparables, and others. Inputs used were generally obtained from historical data supplemented by current and anticipated market conditions and growth rates.
The following table summarizes the preliminary allocation of purchase price to the identifiable assets acquired and liabilities assumed by Linde, with the excess of the purchase price over the fair value of Linde AG’s net assets recorded as goodwill. Due to the timing of the business combination, the magnitude and multi-national nature of the net assets acquired, and the hold separate order which deferred integration of the two merged companies until March 1, 2019, at June 30, 2019 the valuation process to determine the fair values was not complete and further adjustments are expected in 2019. The company has estimated the preliminary fair value of net assets acquired based on information currently available and will continue to adjust those estimates as additional information becomes available, analysis is able to be performed, refinement of market participant assumptions, finalization of tax returns in the pre-merger period and the application of push-down accounting at the subsidiary level. The areas where the fair value assessments are not finalized and, therefore, subject to adjustment during the measurement period relate primarily to identifiable intangible assets, property, plant and equipment, net assets held for sale, equity investments, income taxes, noncontrolling interests, contingencies and goodwill. The more significant measurement period adjustments made by Linde during the six months ended June 30, 2019 reflect: the agreed upon sale price of Linde AG’s Korean business resulting in an increase to assets held for sale and corresponding decrease to goodwill of $324 million, and an adjustment to the sale value of the Linde AG Americas businesses resulting in a decrease to assets held for sale and corresponding increase to goodwill of $296 million. As the company finalizes the fair value of assets acquired and liabilities assumed, additional purchase price allocation adjustments will likely be recorded during the measurement period, but no later than one year from the date of the acquisition. The company will reflect measurement period adjustments in the period in which the adjustments are determined.
The table below reflects the impact of measurement period adjustments made through June 30, 2019. The final determination of the fair values will likely result in further adjustments to the values presented in the following table:

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Table of Contents

Millions of dollars
Estimated Fair Value
Assets
 
Cash and cash equivalents
$
1,363

Accounts receivable – net
2,859

Inventories
1,452

Assets held for sale
5,208

Prepaid and other current assets
1,251

Property, plant and equipment
19,366

Equity investments
1,395

Goodwill
24,193

Other intangible assets
15,592

Other long-term assets
978

Total Assets Acquired
$
73,657

Less: Liabilities Assumed
 
Accounts payable
$
3,360

Short-term debt
1,177

Current portion of long-term debt
1,864

Accrued taxes
159

Liabilities of assets held for sale
676

Other current liabilities
3,032

Long-term debt
6,295

Other long-term liabilities
1,908

Deferred credits, including deferred income taxes
6,752

Total Liabilities Assumed
$
25,223

Less: Noncontrolling Interests
5,146

Purchase Price (i)
$
43,288

 
(i)
See above for the calculation of the purchase price.

Summary of Significant Fair Value Methods
The methods used to determine the fair value of significant identifiable assets and liabilities included in the preliminary allocation of purchase price are included in Note 3 to the consolidated financial statements in the company’s Annual Report on Form 10-K for the year ended December 31, 2018. The excess of the consideration for the merger over the preliminary fair value of net assets acquired was recorded as goodwill. The merger resulted in the recognition of $24,193 million of goodwill, which is not deductible for tax purposes. The goodwill balance is primarily attributed to the assembled workforce, expanded market opportunities and cost and other operating synergies anticipated upon the integration of the operations of Praxair and Linde AG. The push down of goodwill to reporting units is not final and may differ from this preliminary determination.

Unaudited Pro Forma Information

Linde's unaudited pro forma results presented below were prepared pursuant to the requirements of ASC 805 and give effect to the merger as if it had been consummated on January 1, 2017. The pro forma results have been prepared for comparative purposes only, and do not necessarily represent what the revenue or results of operations would have been had the merger been completed on January 1, 2017. In addition, these results are not intended to be a projection of future operating results and do not reflect synergies that might be achieved.

The unaudited pro forma results include adjustments for the preliminary purchase accounting impact (including, but not limited to, depreciation and amortization associated with the acquired tangible and intangible assets, amortization of the fair value adjustment to investment in nonconsolidated affiliates, and reduction of interest expense related to the fair value adjustment to long-term debt along with the related tax and non-controlling interest impacts), the alignment of accounting policies, adjustments due to IFRS compliant reporting conversion to U.S. GAAP and the elimination of transactions between Praxair and Linde AG.

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The unaudited pro forma results presented below exclude the results of operations of the Linde AG merger-related divestitures (see Note 17) as these divestitures are reflected as discontinued operations. The Praxair merger-related divestitures (see Note 17) are included in the results from continuing operations, including the results from Praxair's European business through the disposition date of December 3, 2018, in the unaudited pro forma results presented below, for all periods presented, as these divestitures do not qualify for discontinued operations.

The unaudited pro forma results for the quarter and six months ended June 30, 2019 and 2018, prepared in accordance with ASC 805, are summarized below:
 
*Quarter Ended June 30,
 
**Six Months Ended June 30,
Millions of dollars
2019
 
2018
 
2019
 
2018
Sales
$
7,204

 
$
7,660

 
$
14,148

 
$
15,061

Income from continuing operations
$
513

 
$
657

 
$
996

 
$
1,256

Diluted earnings per share from continuing operations
$
0.94

 
$
1.18

 
$
1.82

 
$
2.26

* The quarter ended June 30, 2019 includes sales and income from continuing operations from the company's merger-related divestitures of $25 million and $4 million, respectively (2018 includes $456 million and $100 million, respectively).
**The six months ended June 30, 2019 includes sales and income from continuing operations from the company's merger-related divestitures of $55 million and $9 million, respectively (2018 includes $891 million and $191 million, respectively).
Significant nonrecurring amounts reflected in the pro forma results are as follows:
For the quarter and six month periods ended June 30, 2018, Praxair Inc., and Linde AG collectively incurred pre-tax costs of $69 million and $129 million, respectively, to prepare for and close the merger. These costs were reflected within the results of operations in the pro forma results as if they were incurred on January 1, 2017. Any costs incurred related to merger-related divestitures and integration and to prepare for the intended business separations were reflected in the pro-forma results in the period in which they were incurred.
The company incurred pre-tax charges of $10 million ($8 million after tax) and $51 million ($40 million after tax) in the first quarter of 2019 related to the amortization of the fair value step-up of inventories acquired and sold, as well as a pension settlement due to payments to certain participants as a result of change in control provisions within a U.S. nonqualified pension plan, respectively. The six month period ended June 30, 2019 pro forma results were adjusted to exclude these charges as these costs were reflected within the results of operations in the pro formas results as if they were incurred on January 1, 2017.
Non-Merger Related Acquisitions
Acquisitions were $140 million, net of cash acquired, during the six months ended June 30, 2019, largely in the Americas. Acquisition activity was immaterial for the same period in 2018.
5. Supplemental Information
Inventories
The following is a summary of Linde's consolidated inventories:
(Millions of dollars)
June 30,
2019
 
December 31,
2018
Inventories
 
 
 
Raw materials and supplies
$
362

 
$
339

Work in process
337

 
321

Finished goods
1,009

 
991

Total inventories
$
1,708

 
$
1,651




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6. Debt
The following is a summary of Linde's outstanding debt at June 30, 2019 and December 31, 2018:
(Millions of dollars)
June 30,
2019
 
December 31,
2018
SHORT-TERM
 
 
 
Commercial paper and U.S. bank borrowings
$
785

 
$
829

Other bank borrowings (primarily international)
690

 
656

Total short-term debt
1,475

 
1,485

LONG-TERM (a)
 
 
 
(U.S. dollar denominated unless otherwise noted)
 
 
 
1.90% Notes due 2019 (b)

 
500

Variable rate notes due 2019 (b)