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Cover and 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, 2022
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.) | |||||||
| 10 Riverview Drive, | Forge | |||||||
| Danbury, Connecticut | 43 Church Street West | |||||||
| United States 06810 | Woking, Surrey GU21 6HT | |||||||
| United Kingdom | ||||||||
| (Address of principal executive offices) (Zip Code) | ||||||||
| (203) 837 - 2000 | +44 14 83 242200 | |||||||
| (Registrant's telephone number, including area code) |
N/A
(Former name, former address and former fiscal year, if changed since last report
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol(s) | Name of each exchange on which registered | ||||||||||||
| Ordinary shares (€0.001 nominal value per share) | LIN | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☒ | Accelerated filer | ☐ | ||||||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ☐ | ||||||||||||||
| Emerging growth company | ☐ | ||||||||||||||||
| If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. | ☐ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
At June 30, 2022, 498,365,588 ordinary shares (€0.001 par value) of the Registrant were outstanding.
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 future results or circumstances to differ materially from 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, 2021 filed with the SEC on February 28, 2022, which should be reviewed carefully. Please consider Linde plc’s forward-looking statements in light of those risks.
LINDE PLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Millions of dollars, except per share data)
(UNAUDITED)
| Quarter Ended June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Sales | $ | 8,457 | $ | 7,584 | |||||||
| Cost of sales, exclusive of depreciation and amortization | 4,940 | 4,194 | |||||||||
| Selling, general and administrative | 771 | 822 | |||||||||
| Depreciation and amortization | 1,091 | 1,171 | |||||||||
| Research and development | 37 | 34 | |||||||||
| Russia-Ukraine conflict and other charges | 993 | 204 | |||||||||
| Other income (expense) - net | (36) | (17) | |||||||||
| Operating Profit | 589 | 1,142 | |||||||||
| Interest expense - net | 5 | 18 | |||||||||
| Net pension and OPEB cost (benefit), excluding service cost | (62) | (49) | |||||||||
| Income From Continuing Operations Before Income Taxes and Equity Investments | 646 | 1,173 | |||||||||
| Income taxes on continuing operations | 286 | 334 | |||||||||
| Income From Continuing Operations Before Equity Investments | 360 | 839 | |||||||||
| Income from equity investments | 50 | 37 | |||||||||
| Income From Continuing Operations (Including Noncontrolling Interests) | 410 | 876 | |||||||||
| Income from discontinued operations, net of tax | — | 1 | |||||||||
| Net Income (Including Noncontrolling Interests) | 410 | 877 | |||||||||
| Less: noncontrolling interests from continuing operations | (38) | (36) | |||||||||
| Net Income – Linde plc | $ | 372 | $ | 841 | |||||||
| Net Income – Linde plc | |||||||||||
| Income from continuing operations | $ | 372 | $ | 840 | |||||||
| Income from discontinued operations | $ | — | $ | 1 | |||||||
| Per Share Data – Linde plc Shareholders | |||||||||||
| Basic earnings per share from continuing operations | $ | 0.74 | $ | 1.62 | |||||||
| Basic earnings per share from discontinued operations | — | — | |||||||||
| Basic earnings per share | $ | 0.74 | $ | 1.62 | |||||||
| Diluted earnings per share from continuing operations | $ | 0.74 | $ | 1.60 | |||||||
| Diluted earnings per share from discontinued operations | — | — | |||||||||
| Diluted earnings per share | $ | 0.74 | $ | 1.60 | |||||||
| Weighted Average Shares Outstanding (000’s): | |||||||||||
| Basic shares outstanding | 501,034 | 518,950 | |||||||||
| Diluted shares outstanding | 505,269 | 523,723 |
The accompanying notes are an integral part of these financial statements.
LINDE PLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Millions of dollars, except per share data)
(UNAUDITED)
| Six Months Ended June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Sales | $ | 16,668 | $ | 14,827 | |||||||
| Cost of sales, exclusive of depreciation and amortization | 9,738 | 8,248 | |||||||||
| Selling, general and administrative | 1,573 | 1,609 | |||||||||
| Depreciation and amortization | 2,203 | 2,337 | |||||||||
| Research and development | 72 | 69 | |||||||||
| Russia-Ukraine conflict and other charges | 989 | 196 | |||||||||
| Other income (expense) - net | (24) | (13) | |||||||||
| Operating Profit | 2,069 | 2,355 | |||||||||
| Interest expense - net | 14 | 38 | |||||||||
| Net pension and OPEB cost (benefit), excluding service cost | (126) | (98) | |||||||||
| Income From Continuing Operations Before Income Taxes and Equity Investments | 2,181 | 2,415 | |||||||||
| Income taxes on continuing operations | 655 | 602 | |||||||||
| Income From Continuing Operations Before Equity Investments | 1,526 | 1,813 | |||||||||
| Income from equity investments | 94 | 80 | |||||||||
| Income From Continuing Operations (Including Noncontrolling Interests) | 1,620 | 1,893 | |||||||||
| Income from discontinued operations, net of tax | — | 2 | |||||||||
| Net Income (Including Noncontrolling Interests) | 1,620 | 1,895 | |||||||||
| Less: noncontrolling interests from continuing operations | (74) | (74) | |||||||||
| Net Income – Linde plc | $ | 1,546 | $ | 1,821 | |||||||
| Net Income – Linde plc | |||||||||||
| Income from continuing operations | $ | 1,546 | $ | 1,819 | |||||||
| Income from discontinued operations | $ | — | $ | 2 | |||||||
| Per Share Data – Linde plc Shareholders | |||||||||||
| Basic earnings per share from continuing operations | $ | 3.07 | $ | 3.49 | |||||||
| Basic earnings per share from discontinued operations | — | — | |||||||||
| Basic earnings per share | $ | 3.07 | $ | 3.49 | |||||||
| Diluted earnings per share from continuing operations | $ | 3.04 | $ | 3.46 | |||||||
| Diluted earnings per share from discontinued operations | — | — | |||||||||
| Diluted earnings per share | $ | 3.04 | $ | 3.46 | |||||||
| Weighted Average Shares Outstanding (000’s): | |||||||||||
| Basic shares outstanding | 504,093 | 520,691 | |||||||||
| Diluted shares outstanding | 508,432 | 525,380 |
The accompanying notes are an integral part of these financial statements.
LINDE PLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Millions of dollars)
(UNAUDITED)
| Quarter Ended June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| NET INCOME (INCLUDING NONCONTROLLING INTERESTS) | $ | 410 | $ | 877 | |||||||
| OTHER COMPREHENSIVE INCOME (LOSS) | |||||||||||
| Translation adjustments: | |||||||||||
| Foreign currency translation adjustments | (1,570) | 412 | |||||||||
| Reclassification to net income | (134) | — | |||||||||
| Income taxes | 5 | (2) | |||||||||
| Translation adjustments | (1,699) | 410 | |||||||||
| Funded status - retirement obligations (Note 8): | |||||||||||
| Retirement program remeasurements | 67 | (19) | |||||||||
| Reclassifications to net income | 19 | 44 | |||||||||
| Income taxes | (7) | (2) | |||||||||
| Funded status - retirement obligations | 79 | 23 | |||||||||
| Derivative instruments (Note 5): | |||||||||||
| Current unrealized gain (loss) | 92 | 19 | |||||||||
| Reclassifications to net income | 3 | (3) | |||||||||
| Income taxes | (20) | (3) | |||||||||
| Derivative instruments | 75 | 13 | |||||||||
| TOTAL OTHER COMPREHENSIVE INCOME (LOSS) | (1,545) | 446 | |||||||||
| COMPREHENSIVE INCOME (LOSS) (INCLUDING NONCONTROLLING INTERESTS) | (1,135) | 1,323 | |||||||||
| Less: noncontrolling interests | (21) | (45) | |||||||||
| COMPREHENSIVE INCOME (LOSS) - LINDE PLC | $ | (1,156) | $ | 1,278 |
The accompanying notes are an integral part of these financial statements.
LINDE PLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Millions of dollars)
(UNAUDITED)
| Six Months Ended June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| NET INCOME (INCLUDING NONCONTROLLING INTERESTS) | $ | 1,620 | $ | 1,895 | |||||||
| OTHER COMPREHENSIVE INCOME (LOSS) | |||||||||||
| Translation adjustments: | |||||||||||
| Foreign currency translation adjustments | (1,510) | (245) | |||||||||
| Reclassification to net income | (134) | (52) | |||||||||
| Income taxes | (7) | (8) | |||||||||
| Translation adjustments | (1,651) | (305) | |||||||||
| Funded status - retirement obligations (Note 8): | |||||||||||
| Retirement program remeasurements | 122 | 1 | |||||||||
| Reclassifications to net income | 38 | 87 | |||||||||
| Income taxes | (28) | (25) | |||||||||
| Funded status - retirement obligations | 132 | 63 | |||||||||
| Derivative instruments (Note 5): | |||||||||||
| Current unrealized gain (loss) | 110 | 40 | |||||||||
| Reclassifications to net income | (20) | (5) | |||||||||
| Income taxes | (18) | (8) | |||||||||
| Derivative instruments | 72 | 27 | |||||||||
| TOTAL OTHER COMPREHENSIVE INCOME (LOSS) | (1,447) | (215) | |||||||||
| COMPREHENSIVE INCOME (LOSS) (INCLUDING NONCONTROLLING INTERESTS) | 173 | 1,680 | |||||||||
| Less: noncontrolling interests | (45) | (77) | |||||||||
| COMPREHENSIVE INCOME (LOSS) - LINDE PLC | $ | 128 | $ | 1,603 |
The accompanying notes are an integral part of these financial statements.
LINDE PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Millions of dollars)
(UNAUDITED)
| June 30, 2022 | December 31, 2021 | ||||||||||
| Assets | |||||||||||
| Cash and cash equivalents | $ | 3,655 | $ | 2,823 | |||||||
| Accounts receivable - net | 4,803 | 4,499 | |||||||||
| Contract assets | 78 | 134 | |||||||||
| Inventories | 1,786 | 1,733 | |||||||||
| Prepaid and other current assets | 950 | 970 | |||||||||
| Total Current Assets | 11,272 | 10,159 | |||||||||
| Property, plant and equipment - net | 23,993 | 26,003 | |||||||||
| Goodwill | 25,678 | 27,038 | |||||||||
| Other intangible assets - net | 12,634 | 13,802 | |||||||||
| Other long-term assets | 4,308 | 4,603 | |||||||||
| Total Assets | $ | 77,885 | $ | 81,605 | |||||||
| Liabilities and equity | |||||||||||
| Accounts payable | $ | 3,360 | $ | 3,503 | |||||||
| Short-term debt | 3,215 | 1,163 | |||||||||
| Current portion of long-term debt | 1,651 | 1,709 | |||||||||
| Contract liabilities | 2,933 | 2,940 | |||||||||
| Other current liabilities | 4,136 | 4,328 | |||||||||
| Total Current Liabilities | 15,295 | 13,643 | |||||||||
| Long-term debt | 11,177 | 11,335 | |||||||||
| Other long-term liabilities | 10,373 | 11,186 | |||||||||
| Total Liabilities | 36,845 | 36,164 | |||||||||
| Redeemable noncontrolling interests | 13 | 13 | |||||||||
| Linde plc Shareholders’ Equity: | |||||||||||
| Ordinary shares,€0.001 par value, authorized 1,750,000,000 shares, 2022 and 2021 issued: 552,012,862 ordinary shares | 1 | 1 | |||||||||
| Additional paid-in capital | 39,978 | 40,180 | |||||||||
| Retained earnings | 19,159 | 18,710 | |||||||||
| Accumulated other comprehensive income (loss) (Note 11) | (6,466) | (5,048) | |||||||||
| Less: Treasury shares, at cost (2022 – 53,647,274 shares and 2021 – 43,331,983 shares) | (12,998) | (9,808) | |||||||||
| Total Linde plc Shareholders’ Equity | 39,674 | 44,035 | |||||||||
| Noncontrolling interests | 1,353 | 1,393 | |||||||||
| Total Equity | 41,027 | 45,428 | |||||||||
| Total Liabilities and Equity | $ | 77,885 | $ | 81,605 |
The accompanying notes are an integral part of these financial statements.
LINDE PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Millions of dollars)
(UNAUDITED)
| Six Months Ended June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Increase (Decrease) in Cash and Cash Equivalents | |||||||||||
| Operations | |||||||||||
| Net income - Linde plc | $ | 1,546 | $ | 1,821 | |||||||
| Less: Income from discontinued operations, net of tax and noncontrolling interests | — | (2) | |||||||||
| Add: Noncontrolling interests from continuing operations | 74 | 74 | |||||||||
| Income from continuing operations (including noncontrolling interests) | 1,620 | 1,893 | |||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Russia-Ukraine conflict and other charges, net of payments | 922 | 95 | |||||||||
| Depreciation and amortization | 2,203 | 2,337 | |||||||||
| Deferred income taxes | (221) | (78) | |||||||||
| Share-based compensation | 51 | 63 | |||||||||
| Working capital: | |||||||||||
| Accounts receivable | (543) | (388) | |||||||||
| Inventory | (144) | (42) | |||||||||
| Prepaid and other current assets | (123) | (20) | |||||||||
| Payables and accruals | 70 | 39 | |||||||||
| Contract assets and liabilities, net | 243 | 51 | |||||||||
| Pension contributions | (19) | (28) | |||||||||
| Long-term assets, liabilities and other | 74 | 14 | |||||||||
| Net cash provided by operating activities | 4,133 | 3,936 | |||||||||
| Investing | |||||||||||
| Capital expenditures | (1,475) | (1,506) | |||||||||
| Acquisitions, net of cash acquired | (49) | (31) | |||||||||
| Divestitures and asset sales, net of cash divested | 17 | 77 | |||||||||
| Net cash provided by (used for) investing activities | (1,507) | (1,460) | |||||||||
| Financing | |||||||||||
| Short-term debt borrowings (repayments) - net | 2,172 | 1,081 | |||||||||
| Long-term debt borrowings | 2,291 | 51 | |||||||||
| Long-term debt repayments | (1,703) | (818) | |||||||||
| Issuances of ordinary shares | 22 | 32 | |||||||||
| Purchases of ordinary shares | (3,329) | (2,082) | |||||||||
| Cash dividends - Linde plc shareholders | (1,177) | (1,102) | |||||||||
| Noncontrolling interest transactions and other | (35) | (277) | |||||||||
| Net cash provided by (used for) financing activities | (1,759) | (3,115) | |||||||||
| Effect of exchange rate changes on cash and cash equivalents | (35) | 22 | |||||||||
| Change in cash and cash equivalents | 832 | (617) | |||||||||
| Cash and cash equivalents, beginning-of-period | 2,823 | 3,754 | |||||||||
| Cash and cash equivalents, end-of-period | $ | 3,655 | $ | 3,137 | |||||||
The accompanying notes are an integral part of these financial statements.
INDEX TO NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Notes to Condensed Consolidated Financial Statements - Linde plc and Subsidiaries (Unaudited)
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 2021 Annual Report on Form 10-K. There have been no material changes to the company’s significant accounting policies during 2022.
Reclassifications – Certain prior periods' amounts have been reclassified to conform to the current year’s presentation.
2. Russia-Ukraine conflict and Other Charges
2022 Charges
Russia-Ukraine conflict and other charges were $993 million and $989 million ($889 million and $888 million, after tax and noncontrolling interests) for the quarter and six months ended June 30, 2022, respectively.
The following tables summarize the company's pre-tax charges for the quarter and six months ended June 30, 2022:
| Quarter Ended June 30, 2022 | |||||||||||||||||||||||||||||
| (millions of dollars) | Russia deconsolidation charges | Other Russia related charges | Total Russia charges | Merger-related and other charges | Total | ||||||||||||||||||||||||
| Americas | $ | — | $ | — | $ | — | $ | 3 | $ | 3 | |||||||||||||||||||
| EMEA | 733 | 2 | 735 | 49 | 784 | ||||||||||||||||||||||||
| APAC | — | — | — | 28 | 28 | ||||||||||||||||||||||||
| Engineering | 54 | 112 | 166 | 166 | |||||||||||||||||||||||||
| Other | — | — | 12 | 12 | |||||||||||||||||||||||||
| Total | $ | 787 | $ | 114 | $ | 901 | $ | 92 | $ | 993 |
| Six Months Ended June 30, 2022 | |||||||||||||||||||||||||||||
| (millions of dollars) | Russia deconsolidation charges | Other Russia related charges | Total Russia charges | Merger-related and other charges | Total | ||||||||||||||||||||||||
| Americas | $ | — | $ | — | $ | — | $ | 3 | $ | 3 | |||||||||||||||||||
| EMEA | 733 | 2 | 735 | 49 | 784 | ||||||||||||||||||||||||
| APAC | — | — | — | 24 | 24 | ||||||||||||||||||||||||
| Engineering | 54 | 112 | 166 | — | 166 | ||||||||||||||||||||||||
| Other | — | — | 12 | 12 | |||||||||||||||||||||||||
| Total | $ | 787 | $ | 114 | $ | 901 | $ | 88 | $ | 989 |
Russia-Ukraine Conflict
Deconsolidation of Russian entities
In response to the Russian invasion of Ukraine, multiple jurisdictions, including Europe and the U.S., have imposed several tranches of economic sanctions on Russia. As a result, Linde has reassessed its ability to control its Russian subsidiaries and determined that as of June 30, 2022 it can no longer exercise control over these entities. As such, Linde has deconsolidated its Russian gas and engineering business entities as of June 30, 2022. The deconsolidation of the company's Russian gas and engineering business entities resulted in a loss of $787 million ($730 million after tax) for the quarter and six months ended June 30, 2022.
The fair value of Linde’s Russian subsidiaries was determined using a probability weighted discounted cash flow model, which resulted in the recognition of a $407 million loss on deconsolidation when compared to the carrying value of the entities. This loss is recorded within Russia-Ukraine conflict and other charges in the consolidated statements of income.
Upon deconsolidation an investment was recorded, which represents the fair value of net assets. The company did not receive any consideration, cash or otherwise, as part of the deconsolidation. Linde will maintain its interest in its Russian subsidiaries and will continue to comply with sanctions and government restrictions. The investment will be monitored for impairment in future periods.
Receivables, primarily loans receivable, with newly deconsolidated entities were reassessed for collectability resulting in a write-off of approximately $380 million.
Other Russia related charges
Other charges related specifically to the Russia-Ukraine conflict were $114 million ($84 million after tax) for the quarter and six months ended June 30, 2022, and are primarily comprised of impairments of assets which are maintained by international entities in support of the Russian business.
Merger-related and other charges
Merger related and other charges were $92 million and $88 million ($75 million and $74 million, after tax) for the quarter and six months ended June 30, 2022, respectively, primarily related to the impairment of an equity method investment in the EMEA segment.
Cash Requirements
The total cash requirements of the Russia-Ukraine conflict and other charges incurred during the six months ended June 30, 2022 are expected to be immaterial. Liabilities accrued from prior periods are expected to be paid through 2023. Russia-Ukraine conflict and other charges, net of payments in the condensed consolidated statements of cash flows for the six months ended June 30, 2022 also reflects the impact of cash payments of liabilities accrued as of December 31, 2021.
The following table summarizes the activities related to the company's Russia-Ukraine conflict and other charges for the six months ended June 30, 2022:
| (millions of dollars) | Total Russia charges | Severance costs | Other cost reduction charges | Total cost reduction program related charges | Merger-related and other charges | Total | ||||||||||||||||||||||||||
| Balance, December 31, 2021 | $ | — | $ | 384 | $ | 38 | $ | 422 | $ | 31 | $ | 453 | ||||||||||||||||||||
| 2022 Russia-Ukraine conflict and other charges | 901 | 24 | 14 | 38 | 50 | 989 | ||||||||||||||||||||||||||
| Less: Cash payments / receipts | — | (64) | (6) | (70) | 3 | (67) | ||||||||||||||||||||||||||
| Less: Non-cash charges | (901) | — | (7) | (7) | (54) | (962) | ||||||||||||||||||||||||||
| Foreign currency translation and other | — | (25) | (4) | (29) | (1) | (30) | ||||||||||||||||||||||||||
| Balance, June 30, 2022 | $ | — | $ | 319 | $ | 35 | $ | 354 | $ | 29 | $ | 383 |
2021 Charges
Cost reduction programs and other charges were $204 million and $196 million for the quarter and six months ended June 30, 2021, respectively ($198 million and $170 million after tax).
Total cost reduction program related charges were $204 million and $248 million ($150 million and $184 million after tax), for the quarter and six months ended June 30, 2021, respectively, which consisted primarily of severance charges of $182 million and $208 million and other charges of $22 million and $40 million for the quarter and six months ended June 30, 2021, respectively, related to the execution of the company's synergistic actions including location consolidations and business rationalization projects, process harmonization, and associated non-recurring costs.
Merger-related and other charges were flat during the quarter ended June 30, 2021 and a benefit of $52 million for the six months ended June 30, 2021 (charge of $48 million and a benefit of $14 million, after tax). The pre-tax benefit was primarily due to a $52 million gain triggered by a joint venture deconsolidation in the APAC segment.
In addition, the quarter and six months ended June 30, 2021 include net income tax charges of $48 million and $38 million, respectively, primarily related to (i) $81 million of expense due to the revaluation of a net deferred tax liability resulting from a tax rate increase in the United Kingdom enacted in the current quarter, and (ii) a tax settlement benefit of $33 million.
Classification in the condensed consolidated financial statements
The costs are shown within operating profit in a separate line item on the consolidated statements of income. On the condensed consolidated statements of cash flows, the impact of these costs, net of cash payments, is shown as an adjustment to reconcile net income to net cash provided by operating activities. In Note 10 Segments, Linde excluded these costs from its management definition of segment operating profit; a reconciliation of segment operating profit to consolidated operating profit is shown within the segment operating profit table.
3. Supplemental Information
Receivables
Linde applies loss rates that are lifetime expected credit losses at initial recognition of the receivables. These expected loss rates are based on an analysis of the actual historical default rates for each business, taking regional circumstances into account. If necessary, these historical default rates are adjusted to reflect the impact of current changes in the macroeconomic environment using forward-looking information. The loss rates are also evaluated based on the expectations of the responsible management team regarding the collectability of the receivables. Gross trade receivables aged less than one year were $4,809 million and $4,425 million at June 30, 2022 and December 31, 2021, respectively, and gross receivables aged greater than one year were $283 million and $329 million at June 30, 2022 and December 31, 2021, respectively. Other receivables were $107 million and $150 million at June 30, 2022 and December 31, 2021, 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 $4,803 million at June 30, 2022 and $4,499 million at December 31, 2021. Allowances for expected credit losses were $396 million at June 30, 2022 and $405 million at December 31, 2021. Provisions for expected credit losses were $67 million and $71 million for the six months ended June 30, 2022 and 2021, respectively. The allowance activity in the six months ended June 30, 2022 and 2021 related to write-offs of uncollectible amounts, net of recoveries and currency movements is not material.
Inventories
The following is a summary of Linde's consolidated inventories:
| (Millions of dollars) | June 30, 2022 | December 31, 2021 | |||||||||
| Inventories | |||||||||||
| Raw materials and supplies | $ | 460 | $ | 399 | |||||||
| Work in process | 321 | 334 | |||||||||
| Finished goods | 1,005 | 1,000 | |||||||||
| Total inventories | $ | 1,786 | $ | 1,733 |
4. Debt
The following is a summary of Linde's outstanding debt at June 30, 2022 and December 31, 2021:
| (Millions of dollars) | June 30, 2022 | December 31, 2021 | |||||||||
| SHORT-TERM | |||||||||||
| Commercial paper | $ | 2,974 | $ | 278 | |||||||
| Other bank borrowings (primarily non U.S.) | 241 | 885 | |||||||||
| Total short-term debt | 3,215 | 1,163 | |||||||||
| LONG-TERM (a) | |||||||||||
| (U.S. dollar denominated unless otherwise noted) | |||||||||||
| 0.250% Euro denominated notes due 2022 (b) (c) | — | 1,137 | |||||||||
| 2.20% Notes due 2022 (e) | — | 500 | |||||||||
| 2.70% Notes due 2023 | 500 | 500 | |||||||||
| 2.00% Euro denominated notes due 2023 (b) | 691 | 759 | |||||||||
| 5.875% GBP denominated notes due 2023 (b) | 381 | 432 | |||||||||
| 1.20% Euro denominated notes due 2024 | 576 | 625 | |||||||||
| 1.875% Euro denominated notes due 2024 (b) | 322 | 356 | |||||||||
| 2.65% Notes due 2025 | 399 | 399 | |||||||||
| 1.625% Euro denominated notes due 2025 | 521 | 565 | |||||||||
| 0.00% Euro denominated notes due 2026 | 736 | 799 | |||||||||
| 3.20% Notes due 2026 | 725 | 725 | |||||||||
| 3.434% Notes due 2026 | 198 | 197 | |||||||||
| 1.652% Euro denominated notes due 2027 | 86 | 94 | |||||||||
| 0.250% Euro denominated notes due 2027 | 785 | 850 | |||||||||
| 1.00% Euro denominated notes due 2027 (d) | 522 | — | |||||||||
| 1.00% Euro denominated notes due 2028 (b) | 761 | 879 | |||||||||
| 1.10% Notes due 2030 | 696 | 696 | |||||||||
| 1.90% Euro denominated notes due 2030 | 109 | 118 | |||||||||
| 1.375% Euro denominated notes due 2031 (d) | 778 | — | |||||||||
| 0.550% Euro denominated notes due 2032 | 781 | 847 | |||||||||
| 0.375% Euro denominated notes due 2033 | 521 | 565 | |||||||||
| 1.625% Euro denominated notes due 2035 (d) | 828 | — | |||||||||
| 3.55% Notes due 2042 | 664 | 664 | |||||||||
| 2.00% Notes due 2050 | 296 | 296 | |||||||||
| 1.00% Euro denominated notes due 2051 | 726 | 788 | |||||||||
| Non U.S borrowings | 216 | 243 | |||||||||
| Other | 10 | 10 | |||||||||
| 12,828 | 13,044 | ||||||||||
| Less: current portion of long-term debt | (1,651) | (1,709) | |||||||||
| Total long-term debt | 11,177 | 11,335 | |||||||||
| Total debt | $ | 16,043 | $ | 14,207 |
(a)Amounts are net of unamortized discounts, premiums and/or debt issuance costs as applicable.
(b)June 30, 2022 and December 31, 2021 included a cumulative $19 million and $42 million adjustment to carrying value, respectively, related to hedge accounting of interest rate swaps. Refer to Note 5.
(c)In January 2022, Linde repaid €1.0 billion of 0.250% notes that became due.
(d)In March 2022, Linde issued €500 million of 1.000% notes due 2027, €750 million of 1.375% notes due 2031, and €800 million of 1.625% notes due 2035.
(e)In May 2022, Linde repaid $500 million of 2.20% notes due in August 2022. There was no impact to interest within the consolidated statements of income.
The company maintains a $5 billion unsecured revolving credit agreement with a syndicate of banking institutions that expires March 26, 2024. There are no financial maintenance covenants contained within the credit agreement. No borrowings were outstanding under the credit agreement as of June 30, 2022.
5. Financial Instruments
In its normal operations, Linde is exposed to market risks relating to fluctuations in interest rates, foreign currency exchange rates, and 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 its principal counterparties to minimize potential default risk and to mitigate counterparty risk. Under the CSAs, the fair values of derivatives for the purpose of interest rate and currency management are collateralized with cash on a regular basis. As of June 30, 2022, the impact of such collateral posting arrangements on the fair value of derivatives was insignificant. Management believes the risk of incurring losses on derivative contracts related to credit risk is remote and any losses would be immaterial.
The following table is a summary of the notional amount and fair value of derivatives outstanding at June 30, 2022 and December 31, 2021 for consolidated subsidiaries:
| Fair Value | |||||||||||||||||||||||||||||||||||
| Notional Amounts | Assets (a) | Liabilities (a) | |||||||||||||||||||||||||||||||||
| (Millions of dollars) | June 30, 2022 | December 31, 2021 | June 30, 2022 | December 31, 2021 | June 30, 2022 | December 31, 2021 | |||||||||||||||||||||||||||||
| Derivatives Not Designated as Hedging Instruments: | |||||||||||||||||||||||||||||||||||
| Currency contracts: | |||||||||||||||||||||||||||||||||||
| Balance sheet items | $ | 3,237 | $ | 4,427 | $ | 12 | $ | 22 | $ | 15 | $ | 17 | |||||||||||||||||||||||
| Forecasted transactions | 829 | 537 | 11 | 6 | 23 | 11 | |||||||||||||||||||||||||||||
| Cross-currency swaps | 66 | 148 | — | 21 | 2 | 4 | |||||||||||||||||||||||||||||
| Total | $ | 4,132 | $ | 5,112 | $ | 23 | $ | 49 | $ | 40 | $ | 32 | |||||||||||||||||||||||
| Derivatives Designated as Hedging Instruments: | |||||||||||||||||||||||||||||||||||
| Currency contracts: | |||||||||||||||||||||||||||||||||||
| Forecasted transactions | 335 | 758 | 6 | 14 | 3 | 3 | |||||||||||||||||||||||||||||
| Commodity contracts | N/A | N/A | 43 | 49 | — | — | |||||||||||||||||||||||||||||
| Interest rate swaps | 839 | 1,251 | — | 24 | 36 | — | |||||||||||||||||||||||||||||
| Total Hedges | $ | 1,174 | $ | 2,009 | $ | 49 | $ | 87 | $ | 39 | $ | 3 | |||||||||||||||||||||||
| Total Derivatives | $ | 5,306 | $ | 7,121 | $ | 72 | $ | 136 | $ | 79 | $ | 35 |
(a)Amounts as at June 30, 2022 and December 31, 2021 included current assets of $69 million and $101 million which are recorded in prepaid and other current assets; long-term assets of $3 million and $35 million which are recorded in other long-term assets; current liabilities of $32 million and $27 million which are recorded in other current liabilities; and long-term liabilities of $47 million and $8 million which are recorded in other long-term liabilities.
Balance Sheet Items
Foreign currency contracts related to balance sheet items consist of forward contracts entered into to manage the exposure to fluctuations in foreign-currency exchange rates on recorded balance sheet assets and liabilities denominated in currencies other than the functional currency of the related operating unit. Certain forward currency contracts are entered into to protect underlying monetary assets and liabilities denominated in foreign currencies from foreign exchange risk and are not designated as hedging instruments. For balance sheet items that are not designated as hedging instruments, the fair value adjustments on these contracts are offset by the fair value adjustments recorded on the underlying monetary assets and liabilities.
Forecasted Transactions
Foreign currency contracts related to forecasted transactions consist of forward contracts entered into to manage the exposure to fluctuations in foreign-currency exchange rates on (1) forecasted purchases of capital-related equipment and services, (2) forecasted sales, or (3) other forecasted cash flows denominated in currencies other than the functional currency of the related operating units. For forecasted transactions that are designated as cash flow hedges, fair value adjustments are recorded to accumulated other comprehensive income ("AOCI") with deferred amounts reclassified to earnings over the same time period as the income statement impact of the associated forecasted transaction. For forecasted transactions that do not qualify for cash flow hedging relationships, fair value adjustments are recorded directly to earnings.
Cross-Currency Swaps
Cross-currency interest rate swaps are entered into to limit the foreign currency risk of future principal and interest cash flows associated with intercompany loans denominated in non-functional currencies. The fair value adjustments on the cross-currency swaps are recorded to earnings, where they are offset by fair value adjustments on the underlying intercompany loan or bond.
Commodity Contracts
Commodity contracts are entered into to manage the exposure to fluctuations in commodity prices, which arise in the normal course of business from its procurement transactions. Commodity price fluctuations are largely covered through contractual pass through to customers. To reduce the extent of the remaining risk, Linde enters into a limited number of electricity, natural gas, and propane gas derivatives. For forecasted transactions that are designated as cash flow hedges, fair value adjustments are recorded to accumulated other comprehensive income ("AOCI") with deferred amounts reclassified to earnings over the same time period as the income statement impact of the associated purchase.
Net Investment Hedges
As of June 30, 2022, Linde has €7.5 billion ($8.0 billion) Euro-denominated notes and intercompany loans that are designated as hedges of the net investment positions in foreign operations. Since hedge inception, the deferred gain recorded within the cumulative translation adjustment component of AOCI in the condensed consolidated balance sheets and the consolidated statements of comprehensive income is $679 million (deferred gain of $415 million and $539 million recorded for the quarter and six months ended June 30, 2022).
As of June 30, 2022, Linde has exchange rate movements relating to previously designated hedges that remain in AOCI at a loss of $42 million. These movements will remain in AOCI, until appropriate, such as upon sale or liquidation of the related foreign operations at which time amounts will be reclassified to the consolidated statement of income.
Interest Rate Swaps
Linde uses interest rate swaps to hedge the exposure to changes in the fair value of financial assets and financial liabilities as a result of interest rate changes. These interest rate swaps effectively convert fixed-rate interest exposures to variable rates; fair value adjustments are recognized in earnings along with an equally offsetting charge/benefit to earnings for the changes in the fair value of the underlying financial asset or financial liability (See Note 4).
Derivatives' Impact on Consolidated Statements of Income
The following table summarizes the impact of the company’s derivatives on the consolidated statements of income:
| Amount of Pre-Tax Gain (Loss) Recognized in Earnings * | |||||||||||||||||||||||
| Quarter Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| (Millions of dollars) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Derivatives Not Designated as Hedging Instruments | |||||||||||||||||||||||
| Currency contracts: | |||||||||||||||||||||||
| Balance sheet items | |||||||||||||||||||||||
| Debt-related | $ | (41) | $ | 10 | $ | 10 | $ | 29 | |||||||||||||||
| Other balance sheet items | 4 | 3 | (8) | 7 | |||||||||||||||||||
| Total | $ | (37) | $ | 13 | $ | 2 | $ | 36 |
- The gains (losses) on balance sheet items are offset by gains (losses) recorded on the underlying hedged assets and liabilities. Accordingly, the gains (losses) for the derivatives and the underlying hedged assets and liabilities related to debt items are recorded in the consolidated statements of income as interest expense-net. Other balance sheet items and anticipated net income gains (losses) are generally recorded in the consolidated statements of income as other income (expenses)-net.
The amounts of gain or loss recognized in AOCI and reclassified to the consolidated statement of income was not material for the quarter and six months ended June 30, 2022 and 2021, respectively. Net impacts expected to be reclassified to earnings during the next twelve months are also not material.
6. Fair Value Disclosures
The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels as follows:
Level 1 – quoted prices in active markets for identical assets or liabilities
Level 2 – quoted prices for similar assets and liabilities in active markets or inputs that are observable
Level 3 – inputs that are unobservable (for example cash flow modeling inputs based on assumptions)
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table summarizes assets and liabilities measured at fair value on a recurring basis:
| Fair Value Measurements Using | |||||||||||||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||||||||||||
| (Millions of dollars) | June 30, 2022 | December 31, 2021 | June 30, 2022 | December 31, 2021 | June 30, 2022 | December 31, 2021 | |||||||||||||||||||||||||||||
| Assets | |||||||||||||||||||||||||||||||||||
| Derivative assets | $ | — | $ | — | $ | 72 | $ | 136 | $ | — | $ | — | |||||||||||||||||||||||
| Investments and securities* | 26 | 42 | — | — | 15 | 20 | |||||||||||||||||||||||||||||
| Total | $ | 26 | $ | 42 | $ | 72 | $ | 136 | 15 | $ | 20 | ||||||||||||||||||||||||
| Liabilities | |||||||||||||||||||||||||||||||||||
| Derivative liabilities | $ | — | $ | — | $ | 79 | $ | 35 | $ | — | $ | — |
- Investments and securities are recorded in prepaid and other current assets and other long-term assets in the company's condensed consolidated balance sheets.
Level 1 investments and securities are marketable securities traded on an exchange. Level 2 investments are based on market prices obtained from independent brokers or determined using quantitative models that use as their basis readily observable market parameters that are actively quoted and can be validated through external sources, including third-party pricing services, brokers and market transactions. Level 3 investments and securities consist of a venture fund. For the valuation, Linde uses the net asset value received as part of the fund's quarterly reporting, which for the most part is not based on quoted prices in active markets. In order to reflect current market conditions, Linde proportionally adjusts these by observable market data (stock exchange prices) or current transaction prices.
Changes in level 3 investments and securities were immaterial.
The fair value of cash and cash equivalents, short-term debt, accounts receivable-net, and accounts payable approximate carrying value because of the short-term maturities of these instruments.
The fair value of long-term debt is estimated based on the quoted market prices for the same or similar issues. Long-term debt is categorized within either Level 1 or Level 2 of the fair value hierarchy depending on the trading volume of the issues and whether or not they are actively quoted in the market as opposed to traded through over-the-counter transactions. At June 30, 2022, the estimated fair value of Linde’s long-term debt portfolio was $11,344 million versus a carrying value of $12,828 million. At December 31, 2021, the estimated fair value of Linde’s long-term debt portfolio was $13,219 million versus a carrying value of $13,044 million. Differences between the carrying value and the fair value are attributable to fluctuations in interest rates subsequent to when the debt was issued and relative to stated coupon rates.
7. Earnings Per Share – Linde plc Shareholders
Basic and diluted earnings per share is computed by dividing Income from continuing operations, Income from discontinued operations and Net income – Linde plc for the period by the weighted average number of either basic or diluted shares outstanding, as follows:
| Quarter Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Numerator (Millions of dollars) | |||||||||||||||||||||||
| Income from continuing operations | $ | 372 | $ | 840 | $ | 1,546 | $ | 1,819 | |||||||||||||||
| Income from discontinued operations | — | 1 | $ | — | 2 | ||||||||||||||||||
| Net Income – Linde plc | $ | 372 | $ | 841 | $ | 1,546 | $ | 1,821 | |||||||||||||||
| Denominator (Thousands of shares) | |||||||||||||||||||||||
| Weighted average shares outstanding | 500,535 | 518,552 | 503,626 | 520,314 | |||||||||||||||||||
| Shares earned and issuable under compensation plans | 499 | 398 | 467 | 377 | |||||||||||||||||||
| Weighted average shares used in basic earnings per share | 501,034 | 518,950 | 504,093 | 520,691 | |||||||||||||||||||
| Effect of dilutive securities | |||||||||||||||||||||||
| Stock options and awards | 4,235 | 4,773 | 4,339 | 4,689 | |||||||||||||||||||
| Weighted average shares used in diluted earnings per share | 505,269 | 523,723 | 508,432 | 525,380 | |||||||||||||||||||
| Basic earnings per share from continuing operations | $ | 0.74 | $ | 1.62 | $ | 3.07 | $ | 3.49 | |||||||||||||||
| Basic earnings per share from discontinued operations | — | — | $ | — | $ | — | |||||||||||||||||
| Basic Earnings Per Share | $ | 0.74 | $ | 1.62 | $ | 3.07 | $ | 3.49 | |||||||||||||||
| Diluted earnings per share from continuing operations | $ | 0.74 | $ | 1.60 | $ | 3.04 | $ | 3.46 | |||||||||||||||
| Diluted earnings per share from discontinued operations | — | — | $ | — | $ | — | |||||||||||||||||
| Diluted Earnings Per Share | $ | 0.74 | $ | 1.60 | $ | 3.04 | $ | 3.46 |
There were no antidilutive shares for any period presented.
8. Retirement Programs
The components of net pension and postretirement benefits other than pensions (“OPEB”) costs for the quarter and six months ended June 30, 2022 and 2021 are shown below:
| Quarter Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| (Millions of dollars) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Amount recognized in Operating Profit | |||||||||||||||||||||||
| Service cost | $ | 32 | $ | 39 | $ | 65 | $ | 79 | |||||||||||||||
| Amount recognized in Net pension and OPEB cost (benefit), excluding service cost | |||||||||||||||||||||||
| Interest cost | 51 | 38 | 104 | 77 | |||||||||||||||||||
| Expected return on plan assets | (132) | (131) | (268) | (262) | |||||||||||||||||||
| Net amortization and deferral | 19 | 44 | 38 | 87 | |||||||||||||||||||
| (62) | (49) | (126) | (98) | ||||||||||||||||||||
| Net periodic benefit cost (benefit) | $ | (30) | $ | (10) | $ | (61) | $ | (19) |
Components of net periodic benefit expense for other post-retirement plans for the quarter and six months ended June 30, 2022 and 2021 were not material.
Linde estimates that 2022 required contributions to its pension plans will be in the range of $40 million to $50 million, of which $19 million have been made through June 30, 2022.
9. Commitments and Contingencies
Contingent Liabilities
Linde is subject to various lawsuits and government investigations that arise from time to time in the ordinary course of business. These actions are based upon alleged environmental, tax, antitrust and personal injury claims, among others. Linde has strong defenses in these cases and intends to defend itself vigorously. It is possible that the company may incur losses in connection with some of these actions in excess of accrued liabilities. Management does not anticipate that in the aggregate such losses would have a material adverse effect on the company’s consolidated financial position or liquidity; however, it is possible that the final outcomes could have a significant impact on the company’s reported results of operations in any given period (see Note 17 to the consolidated financial statements of Linde's 2021 Annual Report on Form 10-K).
Significant matters are:
-
During 2009, the Brazilian government published Law 11941/2009 instituting a new voluntary amnesty program (“Refis Program”) which allowed Brazilian companies to settle certain federal tax disputes at reduced amounts. During 2009, the company decided that it was economically beneficial to settle many of its outstanding federal tax disputes and such disputes were enrolled in the Refis Program, subject to final calculation and review by the Brazilian federal government. The company recorded estimated liabilities based on the terms of the Refis Program. Since 2009, Linde has been unable to reach final agreement on the calculations and initiated litigation against the government in an attempt to resolve certain items. Open issues relate to the following matters: (i) application of cash deposits and net operating loss carryforwards to satisfy obligations and (ii) the amount of tax reductions available under the Refis Program. It is difficult to estimate the timing of resolution of legal matters in Brazil.
-
At June 30, 2022 the most significant non-income and income tax claims in Brazil, after enrollment in the Refis Program, relate to state VAT tax matters and a federal income tax matter where the taxing authorities are challenging the tax rate that should be applied to income generated by a subsidiary company. The total estimated exposure relating to such claims, including interest and penalties, as appropriate, is approximately $215 million. Linde has not recorded any liabilities related to such claims based on management judgments, after considering judgments and opinions of outside counsel. Because litigation in Brazil historically takes many years to resolve, it is very difficult to estimate the timing of resolution of these matters; however, it is possible that certain of these matters may be resolved within the near term. The company is vigorously defending against the proceedings.
-
On September 1, 2010, CADE (Brazilian Administrative Council for Economic Defense) announced alleged anticompetitive activity on the part of five industrial gas companies in Brazil and imposed fines. Originally, CADE imposed a civil fine of $2.2 billion Brazilian reais ($419 million) on White Martins, the Brazil-based subsidiary of Linde Inc. The fine was reduced to $1.7 billion Brazilian reais ($323 million) due to a calculation error made by CADE.
The fine against White Martins was overturned by the Ninth Federal Court of Brasilia. CADE appealed this decision, and the Federal Court of Appeals rejected CADE's appeal and confirmed the decision of the Ninth Federal Court of Brasilia. CADE has filed an appeal with the Superior Court of Justice and a decision is pending.
Similarly, on September 1, 2010, CADE imposed a civil fine of $237 million Brazilian reais ($45 million) on Linde Gases Ltda., the former Brazil-based subsidiary of Linde AG, which was divested to MG Industries GmbH on March 1, 2019 and with respect to which Linde provided a contractual indemnity. The fine was reduced to $188 million Brazilian reais ($36 million) due to a calculation error made by CADE. The fine against Linde Gases Ltda. was overturned by the Seventh Federal Court in Brasilia. CADE appealed this decision, and the Federal Court of Appeals rejected CADE's appeal and confirmed the decision of the Seventh Federal Court of Brasilia. CADE filed an appeal with the Superior Court of Justice which was denied. In parallel, CADE filed (i) an appeal with the Supreme Court of Justice, which was denied, and (ii) a subsequent appeal to a panel of the Supreme Court of Justice where a final decision is pending.
Linde has strong defenses and is confident that it will prevail on appeal and have the fines overturned. Linde strongly believes that the allegations of anticompetitive activity against our current and former Brazilian subsidiaries are not supported by valid and sufficient evidence. Linde believes that this decision will not stand up to judicial review and deems the possibility of cash outflows to be extremely unlikely. As a result, no reserves have been recorded as management does not believe that a loss from this case is probable.
- On and after April 23, 2019 former shareholders of Linde AG filed appraisal proceedings at the District Court (Landgericht) Munich I (Germany), seeking an increase of the cash consideration paid in connection with the previously completed cash merger squeeze-out of all of Linde AG’s minority shareholders for €189.46 per share. Any such increase would apply to all 14,763,113 Linde AG shares that were outstanding on April 8, 2019, when the cash merger squeeze-out was completed. The period for plaintiffs to file claims expired on July 9, 2019. The company believes the consideration paid was fair and that the claims lack merit, and no reserve has been established. We cannot estimate the timing of resolution.
10. Segments
For a description of Linde plc's operating segments, refer to Note 18 to the consolidated financial statements on Linde plc's 2021 Annual Report on Form 10-K.
The table below presents sales and operating profit information about reportable segments and Other for the quarter and six months ended June 30, 2022 and 2021.
| Quarter Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| (Millions of dollars) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| SALES(a) | |||||||||||||||||||||||
| Americas | $ | 3,518 | $ | 3,020 | $ | 6,759 | $ | 5,860 | |||||||||||||||
| EMEA | 2,144 | 1,875 | 4,292 | 3,674 | |||||||||||||||||||
| APAC | 1,651 | 1,544 | 3,253 | 2,980 | |||||||||||||||||||
| Engineering | 644 | 646 | 1,372 | 1,320 | |||||||||||||||||||
| Other | 500 | 499 | 992 | 993 | |||||||||||||||||||
| Total sales | $ | 8,457 | $ | 7,584 | $ | 16,668 | $ | 14,827 |
| Quarter Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| (Millions of dollars) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| SEGMENT OPERATING PROFIT | |||||||||||||||||||||||
| Americas | $ | 910 | $ | 871 | $ | 1,814 | $ | 1,666 | |||||||||||||||
| EMEA | 536 | 487 | 1,039 | 938 | |||||||||||||||||||
| APAC | 426 | 389 | 825 | 740 | |||||||||||||||||||
| Engineering | 105 | 108 | 248 | 217 | |||||||||||||||||||
| Other | 11 | (18) | (33) | (36) | |||||||||||||||||||
| Segment operating profit | 1,988 | 1,837 | 3,893 | 3,525 | |||||||||||||||||||
| Russia-Ukraine conflict and other charges (Note 2) | (993) | (204) | (989) | (196) | |||||||||||||||||||
| Purchase accounting impacts - Linde AG | (406) | (491) | (835) | (974) | |||||||||||||||||||
| Total operating profit | $ | 589 | $ | 1,142 | $ | 2,069 | $ | 2,355 |
(a)Sales reflect external sales only. Intersegment sales, primarily from Engineering to the industrial gases segments, were $246 million and $477 million for the quarter and six months ended June 30, 2022, respectively, and $234 million and $423 million for the respective 2021 periods.
11. Equity
Equity
A summary of the changes in total equity for the quarter and six months ended June 30, 2022 and 2021 is provided below:
| Quarter Ended June 30, | |||||||||||||||||||||||||||||||||||
| (Millions of dollars) | 2022 | 2021 | |||||||||||||||||||||||||||||||||
| Activity | Linde plc Shareholders’ Equity | Noncontrolling Interests | Total Equity | Linde plc Shareholders’ Equity | Noncontrolling Interests | Total Equity | |||||||||||||||||||||||||||||
| Balance, beginning of period | $ | 42,963 | $ | 1,414 | $ | 44,377 | $ | 46,210 | $ | 1,410 | $ | 47,620 | |||||||||||||||||||||||
| Net income (a) | 372 | 38 | 410 | 841 | 36 | 877 | |||||||||||||||||||||||||||||
| Other comprehensive income (loss) | (1,528) | (17) | (1,545) | 437 | 9 | 446 | |||||||||||||||||||||||||||||
| Noncontrolling interests: | |||||||||||||||||||||||||||||||||||
| Additions (reductions) (b) | — | (53) | (53) | — | 7 | 7 | |||||||||||||||||||||||||||||
| Dividends and other capital changes | — | (29) | (29) | — | (24) | (24) | |||||||||||||||||||||||||||||
| Dividends to Linde plc ordinary share holders ($1.17 per share in 2022 and $1.06 per share in 2021) | (585) | — | (585) | (549) | — | (549) | |||||||||||||||||||||||||||||
| Issuances of ordinary shares: | |||||||||||||||||||||||||||||||||||
| For employee savings and incentive plans | 7 | — | 7 | (9) | — | (9) | |||||||||||||||||||||||||||||
| Purchases of ordinary shares | (1,572) | — | (1,572) | (1,187) | — | (1,187) | |||||||||||||||||||||||||||||
| Share-based compensation | 17 | — | 17 | 34 | — | 34 | |||||||||||||||||||||||||||||
| Balance, end of period | $ | 39,674 | $ | 1,353 | $ | 41,027 | $ | 45,777 | $ | 1,438 | $ | 47,215 |
| Six Months Ended June 30, | |||||||||||||||||||||||||||||||||||
| (Millions of dollars) | 2022 | 2021 | |||||||||||||||||||||||||||||||||
| Activity | Linde plc Shareholders’ Equity | Noncontrolling Interests | Total Equity | Linde plc Shareholders’ Equity | Noncontrolling Interests | Total Equity | |||||||||||||||||||||||||||||
| Balance, beginning of period | $ | 44,035 | $ | 1,393 | $ | 45,428 | $ | 47,317 | $ | 2,252 | $ | 49,569 | |||||||||||||||||||||||
| Net income (a) | 1,546 | 74 | 1,620 | 1,821 | 74 | 1,895 | |||||||||||||||||||||||||||||
| Other comprehensive income (loss) | (1,418) | (29) | (1,447) | (218) | 3 | (215) | |||||||||||||||||||||||||||||
| Noncontrolling interests: | |||||||||||||||||||||||||||||||||||
| Additions (reductions) (b) | — | (49) | (49) | — | (846) | (846) | |||||||||||||||||||||||||||||
| Dividends and other capital changes | — | (36) | (36) | — | (45) | (45) | |||||||||||||||||||||||||||||
| Dividends to Linde plc ordinary share holders ($2.34 per share in 2022 and $2.12 per share in 2021) | (1,177) | — | (1,177) | (1,102) | — | (1,102) | |||||||||||||||||||||||||||||
| Issuances of ordinary shares: | |||||||||||||||||||||||||||||||||||
| For employee savings and incentive plans | (39) | — | (39) | (11) | — | (11) | |||||||||||||||||||||||||||||
| Purchases of ordinary shares | (3,324) | — | (3,324) | (2,093) | — | (2,093) | |||||||||||||||||||||||||||||
| Share-based compensation | 51 | — | 51 | 63 | — | 63 | |||||||||||||||||||||||||||||
| Balance, end of period | $ | 39,674 | $ | 1,353 | $ | 41,027 | $ | 45,777 | $ | 1,438 | $ | 47,215 |
(a) Net income for noncontrolling interests excludes net income related to redeemable noncontrolling interests which is not significant for the quarter and six months ended June 30, 2022 and 2021 and which is not part of total equity.
(b) Additions (reductions) for noncontrolling interests for the quarter and six months ended June 30, 2022 includes the impact of deconsolidating the company's Russian gas and engineering business entities (refer to Note 2). Additions (reductions) for noncontrolling interests for the six months ended June 30, 2021 includes the impact from the deconsolidation of a joint venture with operations in APAC.
The components of AOCI are as follows:
| June 30, | December 31, | ||||||||||
| (Millions of dollars) | 2022 | 2021 | |||||||||
| Cumulative translation adjustment - net of taxes: | |||||||||||
| Americas | $ | (3,928) | $ | (3,985) | |||||||
| EMEA | (1,384) | 94 | |||||||||
| APAC | (683) | 154 | |||||||||
| Engineering | (338) | 24 | |||||||||
| Other | 718 | (280) | |||||||||
| (5,615) | (3,993) | ||||||||||
| Derivatives - net of taxes | 147 | 75 | |||||||||
| Pension / OPEB (net of $276 million and $305 million tax benefit in June 30, 2022 and December 31, 2021, respectively) | (998) | (1,130) | |||||||||
| $ | (6,466) | $ | (5,048) |
12. Revenue Recognition
Revenue is accounted for in accordance with ASC 606. Revenue is recognized as control of goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled to receive in exchange for the goods or services.
Contracts with Customers
Linde serves a diverse group of industries including healthcare, chemicals and energy, manufacturing, metals and mining, food and beverage, and electronics.
Industrial Gases
Within each of the company’s geographic segments for industrial gases, there are three basic distribution methods: (i) on-site or tonnage; (ii) merchant or bulk liquid; and (iii) packaged or cylinder gases. The distribution method used by Linde to supply a customer is determined by many factors, including the customer’s volume requirements and location. The distribution method generally determines the contract terms with the customer and, accordingly, the revenue recognition accounting practices. Linde's primary products in its industrial gases business are atmospheric gases (oxygen, nitrogen, argon, rare gases) and process gases (carbon dioxide, helium, hydrogen, electronic gases, specialty gases, acetylene). These products are generally sold through one of the three distribution methods.
Following is a description of each of the three industrial gases distribution methods and the respective revenue recognition policies:
On-site. Customers that require the largest volumes of product and that have a relatively constant demand pattern are supplied by cryogenic and process gas on-site plants. Linde constructs plants on or adjacent to these customers’ sites and supplies the product directly to customers by pipeline. Where there are large concentrations of customers, a single pipeline may be connected to several plants and customers. On-site product supply contracts generally are total requirement contracts with terms typically ranging from 10-20 years and contain minimum purchase requirements and price escalation provisions. Many of the cryogenic on-site plants also produce liquid products for the merchant market. Therefore, plants are typically not dedicated to a single customer. Additionally, Linde is responsible for the design, construction, operations and maintenance of the plants and our customers typically have no involvement in these activities. Advanced air separation processes also allow on-site delivery to customers with smaller volume requirements.
The company’s performance obligations related to on-site customers are satisfied over time as customers receive and obtain control of the product. Linde has elected to apply the practical expedient for measuring progress towards the completion of a performance obligation and recognizes revenue as the company has the right to invoice each customer, which generally corresponds with product delivery. Accordingly, revenue is recognized when product is delivered to the customer and the company has the right to invoice the customer in accordance with the contract terms. Consideration in these contracts is generally based on pricing which fluctuates with various price indices. Variable components of consideration exist within on-site contracts but are considered constrained.
Merchant. Merchant deliveries generally are made from Linde's plants by tanker trucks to storage containers at the customer's site. Due to the relatively high distribution cost, merchant oxygen and nitrogen generally have a relatively small distribution
radius from the plants at which they are produced. Merchant argon, hydrogen and helium can be shipped much longer distances. The customer agreements used in the merchant business are usually three-to seven-year supply agreements based on the requirements of the customer. These contracts generally do not contain minimum purchase requirements or volume commitments.
The company’s performance obligations related to merchant customers are generally satisfied at a point in time as the customers receive and obtain control of the product. Revenue is recognized when product is delivered to the customer and the company has the right to invoice the customer in accordance with the contract terms. Any variable components of consideration within merchant contracts are constrained; however, this consideration is not significant.
Packaged Gases. Customers requiring small volumes are supplied products in containers called cylinders, under medium to high pressure. Linde distributes merchant gases from its production plants to company-owned cylinder filling plants where cylinders are then filled for distribution to customers. Cylinders may be delivered to the customer’s site or picked up by the customer at a packaging facility or retail store. Linde invoices the customer for the industrial gases and the use of the cylinder container(s). The company also sells hardgoods and welding equipment purchased from independent manufacturers. Packaged gases are generally sold under one to three-year supply contracts and purchase orders and do not contain minimum purchase requirements or volume commitments.
The company’s performance obligations related to packaged gases are satisfied at a point in time. Accordingly, revenue is recognized when product is delivered to the customer or when the customer picks up product from a packaged gas facility or retail store and the company has the right to payment from the customer in accordance with the contract terms. Any variable consideration is constrained and will be recognized when the uncertainty related to the consideration is resolved.
Linde Engineering
The company designs and manufactures equipment for air separation and other industrial gas applications manufactured specifically for end customers. Sale of equipment contracts are generally comprised of a single performance obligation. Revenue from sale of equipment is generally recognized over time as Linde has an enforceable right to payment for performance completed to date and performance does not create an asset with alternative use. For contracts recognized over time, revenue is recognized primarily using a cost incurred input method. Costs incurred to date relative to total estimated costs at completion are used to measure progress toward satisfying performance obligations. Costs incurred include material, labor, and overhead costs and represent work contributing and proportionate to the transfer of control to the customer. Contract modifications are typically accounted for as part of the existing contract and are recognized as a cumulative adjustment for the inception-to-date effect of such change.
Contract Assets and Liabilities
Contract assets and liabilities result from differences in timing of revenue recognition and customer invoicing. Contract assets primarily relate to sale of equipment contracts for which revenue is recognized over time. The balance represents unbilled revenue which occurs when revenue recognized under the measure of progress exceeds amounts invoiced to customers. Customer invoices may be based on the passage of time, the achievement of certain contractual milestones or a combination of both criteria. Contract liabilities include advance payments or right to consideration prior to performance under the contract. Contract liabilities are recognized as revenue as performance obligations are satisfied under contract terms. Linde has contract assets of $78 million and $134 million at June 30, 2022 and December 31, 2021, respectively. Total contract liabilities are $3,806 million at June 30, 2022 (current of $2,933 million and $873 million within other long-term liabilities in the condensed consolidated balance sheets). As of June 30, 2022 Linde has approximately $1.9 billion recorded in contract liabilities related to engineering projects subject to sanctions in Russia. Total contract liabilities were $3,699 million at December 31, 2021 (current contract liabilities of $2,940 million and $759 million in other long-term liabilities in the condensed consolidated balance sheets). Revenue recognized for the six months ended June 30, 2022 that was included in the contract liability at December 31, 2021 was $913 million. Contract assets and liabilities primarily relate to the Linde Engineering business.
Payment Terms and Other
Linde generally receives payment after performance obligations are satisfied, and customer prepayments are not typical for the industrial gases business. Payment terms vary based on the country where sales originate and local customary payment practices. Linde does not offer extended financing outside of customary payment terms. Amounts billed for sales and use taxes, value-added taxes, and certain excise and other specific transactional taxes imposed on revenue producing transactions are presented on a net basis and are not included in sales within the consolidated statement of income. Additionally, sales returns and allowances are not a normal practice in the industry and are not significant.
Disaggregated Revenue Information
As described above and in Note 18 to Linde plc's 2021 Annual Report on Form 10-K, the company manages its industrial gases business on a geographic basis, while the Engineering and Other businesses are generally managed on a global basis.
Furthermore, the company believes that reporting sales by distribution method by reportable geographic segment best illustrates the nature, timing, type of customer, and contract terms for its revenues, including terms and pricing.
The following tables show sales by distribution method at the consolidated level and for each reportable segment and Other for the six months ended June 30, 2022 and June 30, 2021.
| (Millions of dollars) | Quarter Ended June 30, 2022 | ||||||||||||||||||||||
| Sales | Americas | EMEA | APAC | Engineering | Other | Total | % | ||||||||||||||||
| Merchant | $ | 941 | $ | 634 | $ | 562 | $ | — | $ | 40 | $ | 2,177 | 26 | % | |||||||||
| On-Site | 1,049 | 610 | 631 | — | — | 2,290 | 27 | % | |||||||||||||||
| Packaged Gas | 1,473 | 884 | 389 | — | 9 | 2,755 | 33 | % | |||||||||||||||
| Other | 55 | 16 | 69 | 644 | 451 | 1,235 | 15 | % | |||||||||||||||
| Total | $ | 3,518 | $ | 2,144 | $ | 1,651 | $ | 644 | $ | 500 | $ | 8,457 | 100 | % | |||||||||
| (Millions of dollars) | Quarter Ended June 30, 2021 | ||||||||||||||||||||||
| Sales | Americas | EMEA | APAC | Engineering | Other | Total | % | ||||||||||||||||
| Merchant | $ | 821 | $ | 556 | $ | 551 | $ | — | $ | 43 | $ | 1,971 | 26 | % | |||||||||
| On-Site | 774 | 396 | 582 | — | — | 1,752 | 23 | % | |||||||||||||||
| Packaged Gas | 1,369 | 912 | 392 | — | 6 | 2,679 | 35 | % | |||||||||||||||
| Other | 56 | 11 | 19 | 646 | 450 | 1,182 | 16 | % | |||||||||||||||
| Total | $ | 3,020 | $ | 1,875 | $ | 1,544 | $ | 646 | $ | 499 | $ | 7,584 | 100 | % | |||||||||
| (Millions of dollars) | Six Months Ended June 30, 2022 | ||||||||||||||||||||||
| Sales | Americas | EMEA | APAC | Engineering | Other | Total | % | ||||||||||||||||
| Merchant | $ | 1,815 | $ | 1,248 | $ | 1,078 | $ | — | $ | 79 | $ | 4,220 | 25 | % | |||||||||
| On-Site | 1,931 | 1,241 | 1,286 | — | — | 4,458 | 27 | % | |||||||||||||||
| Packaged Gas | 2,906 | 1,775 | 750 | — | 16 | 5,447 | 33 | % | |||||||||||||||
| Other | 107 | 28 | 139 | 1,372 | 897 | 2,543 | 15 | % | |||||||||||||||
| Total | $ | 6,759 | $ | 4,292 | $ | 3,253 | $ | 1,372 | $ | 992 | $ | 16,668 | 100 | % | |||||||||
| (Millions of dollars) | Six Months Ended June 30, 2021 | ||||||||||||||||||||||
| Sales | Americas | EMEA | APAC | Engineering | Other | Total | % | ||||||||||||||||
| Merchant | $ | 1,592 | $ | 1,087 | $ | 1,035 | $ | — | $ | 95 | $ | 3,809 | 26 | % | |||||||||
| On-Site | 1,463 | 788 | 1,134 | — | — | 3,385 | 23 | % | |||||||||||||||
| Packaged Gas | 2,701 | 1,772 | 753 | — | 12 | 5,238 | 35 | % | |||||||||||||||
| Other | 104 | 27 | 58 | 1,320 | 886 | 2,395 | 16 | % | |||||||||||||||
| Total | $ | 5,860 | $ | 3,674 | $ | 2,980 | $ | 1,320 | $ | 993 | $ | 14,827 | 100 | % | |||||||||
Remaining Performance Obligations
As described above, Linde's contracts with on-site customers are under long-term supply arrangements which generally require the customer to purchase their requirements from Linde and also have minimum purchase requirements. Additionally, plant sales from the Linde Engineering business are primarily contracted on a fixed price basis. The company estimates the consideration related to future minimum purchase requirements and plant sales was approximately $51 billion (excludes Russian projects which are impacted by sanctions, refer to footnote 2). This amount excludes all on-site sales above minimum purchase requirements, which can be significant depending on customer needs. In the future, actual amounts will be different due to impacts from several factors, many of which are beyond the company’s control including, but not limited to, timing of newly signed, terminated and renewed contracts, inflationary price escalations, currency exchange rates, and pass-through costs related to natural gas and electricity. The actual duration of long-term supply contracts ranges up to twenty years. The company estimates that approximately half of the revenue related to minimum purchase requirements will be earned in the next five years
and the remaining thereafter.
13. Subsequent Events
In July 2022 Linde signed an agreement for the sale of its GIST business. Under the terms of the agreement, the agreed sale price is approximately $275 million, plus potential additional earnouts. The divestment of this non-core business is expected to be completed in the second half of 2022, pending regulatory approvals.