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Financial Instruments | 9 Months Ended
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Sep. 30, 2024
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Financial Instruments | 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 for certain entities with their principal counterparties to minimize potential default risk and to mitigate counterparty risk. Under the CSAs, the fair values of derivatives for the purpose of interest rate and currency management are collateralized with cash on a regular basis. As of September 30, 2024, 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, 2024 and December 31, 2023 for consolidated subsidiaries:
|  |  |  |  | Fair Value
| Notional Amounts |  | Assets (a) |  | Liabilities (a)
(Millions of dollars) | September 30, 2024 |  | December 31, 2023 |  | September 30, 2024 |  | December 31, 2023 |  | September 30, 2024 |  | December 31, 2023
Derivatives Not Designated as Hedging Instruments: |  |  |  |  |  |  |  |  |  |  |
Currency contracts: |  |  |  |  |  |  |  |  |  |  |
Balance sheet items | $ | 9,805 |  |  | $ | 4,567 |  |  | $ | 44 |  |  | $ | 46 |  |  | $ | 122 |  |  | $ | 26 |
Forecasted transactions | 200 |  |  | 335 |  |  | 5 |  |  | 11 |  |  | 4 |  |  | 6 |
Total | $ | 10,005 |  |  | $ | 4,902 |  |  | $ | 49 |  |  | $ | 57 |  |  | $ | 126 |  |  | $ | 32 |
Derivatives Designated as Hedging Instruments: |  |  |  |  |  |  |  |  |  |  |
Currency contracts: |  |  |  |  |  |  |  |  |  |  |
Forecasted transactions | $ | 578 |  |  | $ | 749 |  |  | $ | 11 |  |  | $ | 20 |  |  | $ | 5 |  |  | $ | 4 |
Commodity contracts | N/A |  | N/A |  | 9 |  |  | 3 |  |  | 18 |  |  | 7 |
Interest rate swaps | — |  |  | 1,214 |  |  | — |  |  | 1 |  |  | — |  |  | 4 |
Total Hedges | $ | 578 |  |  | $ | 1,963 |  |  | $ | 20 |  |  | $ | 24 |  |  | $ | 23 |  |  | $ | 15 |
Total Derivatives | $ | 10,583 |  |  | $ | 6,865 |  |  | $ | 69 |  |  | $ | 81 |  |  | $ | 149 |  |  | $ | 47 |
(a)Amounts as of September 30, 2024 and December 31, 2023 included current assets of $64 million and $73 million which are recorded in prepaid and other current assets; long-term assets of $5 million and $8 million which are recorded in other long-term assets; current liabilities of $142 million and $41 million which are recorded in other current liabilities; and long-term liabilities of $7 million and $6 million which are recorded in other long-term liabilities. In addition, during the third quarter of 2024, Linde issued credit default swaps (“CDS”) to a third-party financial institution. The CDS relate to a secured borrowing provided by the financial institution to a government customer in Mexico, that was utilized to pay certain of Linde’s outstanding receivables. The notional amount of the CDS, which was $229 million as of September 30, 2024, will reduce on a monthly basis over its 24-month term. As of September 30, 2024, the fair value of this derivative liability was not material. 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 (loss) with deferred amounts reclassified to earnings over the same time period as the income statement impact of the associated purchase. For forecasted transactions that do not qualify for cash flow hedging relationships, fair value adjustments are recorded directly to earnings. Linde is hedging forecasted transactions for a maximum period of three years. 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 (loss) with deferred amounts reclassified to earnings over the same time period as the income statement impact of the associated purchase. Linde is hedging commodity contracts for a maximum period of three years. Net Investment Hedges As of September 30, 2024, Linde has €18.4 billion ($20.3 billion) Euro-denominated notes and intercompany loans, ¥4.7 billion ($0.7 billion) CNY-denominated intercompany loans and C$1.4 billion ($1.0 billion) CAD-denominated intercompany loans that are designated as hedges of the net investment positions in certain foreign operations. Since hedge inception, the deferred loss recorded within the cumulative translation adjustment component of accumulated other comprehensive income (loss) in the consolidated balance sheet is $305 million (deferred loss of $758 million and $349 million in the consolidated statement of comprehensive income for the quarter and nine months ended September 30, 2024, respectively). As of September 30, 2024, exchange rate movements relating to previously designated hedges that remain in accumulated other comprehensive income (loss) is a gain of $56 million. These movements will remain in accumulated other comprehensive income (loss), until appropriate, such as upon sale or liquidation of the related foreign operations at which time amounts will be reclassified to the consolidated statements of income. Interest Rate Swaps Linde has historically used 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. When used, these interest rate swaps would effectively convert fixed-rate interest exposures to variable rates; fair value adjustments were 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 (See Note 3). In addition, as of December 31, 2023, Linde was using interest rate swaps with a notional value of €1 billion to hedge the variability of future cash flows of forecasted transactions due to interest rate risk and had designated this as a cash flow hedge. The interest rate swaps were terminated during the first quarter of 2024 with the February debt issuance and the settlement values were immaterial. 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 September 30, |  | Nine Months Ended September 30,
(Millions of dollars) | 2024 |  | 2023 |  | 2024 |  | 2023
Derivatives Not Designated as Hedging Instruments |  |  |  |  |  |  |
Currency contracts: |  |  |  |  |  |  |
Balance sheet items |  |  |  |  |  |  |
Debt-related | $ | (73) |  |  | $ | 33 |  |  | $ | (90) |  |  | $ | (50) |
Other balance sheet items | 4 |  |  | (3) |  |  | (1) |  |  | (5) |
Total | $ | (69) |  |  | $ | 30 |  |  | $ | (91) |  |  | $ | (55) |
* 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 accumulated other comprehensive income (loss) and reclassified to the consolidated statement of income was not material for the nine months ended September 30, 2024 and 2023, respectively. Net impacts expected to be reclassified to earnings during the next twelve months are also not material.

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 40 -Name Accounting Standards Codification -Section 50 -Paragraph 5 -Subparagraph (f) -Publisher FASB -URI https://asc.fasb.org/1943274/2147480237/815-40-50-5 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 5C -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org/1943274/2147480434/815-10-50-5C Reference 3: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 815 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org/815/tableOfContent + Details
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