filings.toolsItem 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations ("MD&A")
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations ("MD&A")
Non-GAAP Measures
Throughout MD&A, the company provides adjusted operating results from continuing operations exclusive of certain items such as cost reduction programs as well as Russia-Ukraine conflict and other charges, net gains or losses on sale of businesses, purchase accounting impacts of the Linde AG merger and pension settlement charges. Adjusted amounts are non-GAAP measures which are intended to supplement investors’ understanding of the company’s financial information by providing measures which investors, financial analysts and management find useful in evaluating the company’s operating performance. Items which the company does not believe to be indicative of on-going business performance are excluded from these calculations so that investors can better evaluate and analyze historical and future business trends on a consistent basis. In addition, operating results from continuing operations, excluding these items, is important to management's development of annual and long-term employee incentive compensation plans. Definitions of these non-GAAP measures may not be comparable to similar definitions used by other companies and are not a substitute for similar GAAP measures.
The non-GAAP measures and reconciliations are separately included in a later section in the MD&A titled "Non-GAAP Measures and Reconciliations."
Consolidated Results
The following table provides summary information for the quarter and nine months ended September 30, 2022 and 2021. The reported amounts are GAAP amounts from the Consolidated Statements of Income. The adjusted amounts are intended to supplement investors' understanding of the company's financial information and are not a substitute for GAAP measures:
| Quarter Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| (Millions of dollars, except per share data) | 2022 | 2021 | Variance | 2022 | 2021 | Variance | |||||||||||||||||||||||||||||||||||||||||||||||
| Sales | $ | 8,797 | $ | 7,668 | 15 | % | $ | 25,465 | $ | 22,495 | 13 | % | |||||||||||||||||||||||||||||||||||||||||
| Cost of sales, exclusive of depreciation and amortization | $ | 5,285 | $ | 4,368 | 21 | % | $ | 15,023 | $ | 12,616 | 19 | % | |||||||||||||||||||||||||||||||||||||||||
| As a percent of sales | 60.1 | % | 57.0 | % | 59.0 | % | 56.1 | % | |||||||||||||||||||||||||||||||||||||||||||||
| Selling, general and administrative | $ | 770 | $ | 793 | (3) | % | $ | 2,343 | $ | 2,402 | (2) | % | |||||||||||||||||||||||||||||||||||||||||
| As a percent of sales | 8.8 | % | 10.3 | % | 9.2 | % | 10.7 | % | |||||||||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization | $ | 1,045 | $ | 1,163 | (10) | % | $ | 3,248 | $ | 3,500 | (7) | % | |||||||||||||||||||||||||||||||||||||||||
| Russia-Ukraine conflict and other charges (b) | $ | 15 | $ | 26 | — | % | $ | 1,004 | $ | 222 | — | % | |||||||||||||||||||||||||||||||||||||||||
| Other income (expense) - net | $ | (34) | $ | 10 | — | % | $ | (58) | $ | (3) | — | % | |||||||||||||||||||||||||||||||||||||||||
| Operating profit | $ | 1,613 | $ | 1,292 | 25 | % | $ | 3,682 | $ | 3,647 | 1 | % | |||||||||||||||||||||||||||||||||||||||||
| Operating margin | 18.3 | % | 16.8 | % | 14.5 | % | 16.2 | % | |||||||||||||||||||||||||||||||||||||||||||||
| Interest expense - net | $ | 18 | $ | 8 | 125 | % | $ | 32 | $ | 46 | (30) | % | |||||||||||||||||||||||||||||||||||||||||
| Net pension and OPEB cost (benefit), excluding service cost | $ | (53) | $ | (45) | 18 | % | $ | (179) | $ | (143) | 25 | % | |||||||||||||||||||||||||||||||||||||||||
| Effective tax rate | 23.7 | % | 24.2 | % | 27.3 | % | 24.7 | % | |||||||||||||||||||||||||||||||||||||||||||||
| Income from equity investments | $ | 43 | $ | 1 | — | % | $ | 137 | $ | 81 | — | % | |||||||||||||||||||||||||||||||||||||||||
| Noncontrolling interests from continuing operations | $ | (27) | $ | (31) | (13) | % | $ | (101) | $ | (105) | (4) | % | |||||||||||||||||||||||||||||||||||||||||
| Income from continuing operations | $ | 1,273 | $ | 978 | 30 | % | $ | 2,819 | $ | 2,797 | 1 | % | |||||||||||||||||||||||||||||||||||||||||
| Diluted earnings per share from continuing operations | $ | 2.54 | $ | 1.88 | 35 | % | $ | 5.57 | $ | 5.34 | 4 | % | |||||||||||||||||||||||||||||||||||||||||
| Diluted shares outstanding | 501,151 | 520,079 | (4) | % | 506,012 | 523,662 | (3) | % | |||||||||||||||||||||||||||||||||||||||||||||
| Number of employees | 65,293 | 72,159 | (10) | % | 65,293 | 72,159 | (10) | % | |||||||||||||||||||||||||||||||||||||||||||||
| Adjusted Amounts (a) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Operating profit | $ | 2,010 | $ | 1,810 | 11 | % | $ | 5,903 | $ | 5,335 | 11 | % | |||||||||||||||||||||||||||||||||||||||||
| Operating margin | 22.8 | % | 23.6 | % | 23.2 | % | 23.7 | % | |||||||||||||||||||||||||||||||||||||||||||||
| Effective tax rate | 25.0 | % | 23.9 | % | 24.6 | % | 24.1 | % | |||||||||||||||||||||||||||||||||||||||||||||
| Income from continuing operations | $ | 1,555 | $ | 1,421 | 9 | % | $ | 4,621 | $ | 4,148 | 11 | % | |||||||||||||||||||||||||||||||||||||||||
| Diluted earnings per share from continuing operations | $ | 3.10 | $ | 2.73 | 14 | % | $ | 9.13 | $ | 7.92 | 15 | % | |||||||||||||||||||||||||||||||||||||||||
| Other Financial Data (a) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| EBITDA from continuing operations | $ | 2,701 | $ | 2,456 | 10 | % | $ | 7,067 | $ | 7,228 | (2) | % | |||||||||||||||||||||||||||||||||||||||||
| As percent of sales | 30.7 | % | 32.0 | % | 27.8 | % | 32.1 | % | |||||||||||||||||||||||||||||||||||||||||||||
| Adjusted EBITDA from continuing operations | $ | 2,739 | $ | 2,559 | 7 | % | $ | 8,148 | $ | 7,582 | 7 | % | |||||||||||||||||||||||||||||||||||||||||
| As percent of sales | 31.1 | % | 33.4 | % | 32.0 | % | 33.7 | % |
(a) Adjusted Amounts and Other Financial Data are non-GAAP performance measures. A reconciliation of reported amounts to adjusted amounts can be found in the "Non-GAAP Measures and Reconciliations" section of this MD&A.
(b) See Note 2 to the condensed consolidated financial statements.
Reported
In the third quarter of 2022, Linde's sales were $8,797 million, 15% above prior year, primarily driven by 8% price attainment and 3% higher volumes. Cost pass-through, representing the contractual billing of energy cost variances primarily to onsite customers, increased sales by 8% in the quarter, with minimal impact on operating profit. Engineering increased sales by 4% in the quarter. Currency translation decreased sales by 7% in the quarter. Divestitures, net of acquisitions, decreased sales by 1%, primarily in EMEA, in the third quarter of 2022 as compared to 2021.
Reported operating profit for the third quarter of 2022 of $1,613 million, or 18.3% of sales, was 25% above prior year. The reported year-over-year increase was primarily due to higher pricing, volumes, productivity initiatives and lower depreciation and amortization driven by merger related intangible assets. The reported effective tax rate ("ETR") was 23.7% in the third quarter 2022 versus 24.2% in the third quarter 2021. Diluted earnings per share from continuing operations ("EPS") was $2.54,
or 35% above EPS of $1.88 in the third quarter of 2021 primarily due to higher income from continuing operations and lower diluted shares outstanding.
Adjusted
In the third quarter of 2022, adjusted operating profit of $2,010 million, or 22.8% of sales, was 11% higher as compared to 2021, driven by higher pricing, volumes and productivity initiatives, partially offset by inflation. The adjusted ETR was 25.0% in the third quarter 2022 versus 23.9% in the 2021 quarter, primarily due to lower tax benefits from share option exercises. On an adjusted basis, EPS was $3.10, 14% above the 2021 adjusted EPS of $2.73, driven by higher adjusted income from continuing operations and lower diluted shares outstanding.
Outlook
Linde provides quarterly updates on operating results, material trends that may affect financial performance, and financial guidance via quarterly earnings releases and investor teleconferences. These updates are available on the company’s website, www.linde.com, but are not incorporated herein.
Results of operations
The changes in consolidated sales compared to the prior year are attributable to the following:
| Quarter Ended September 30, 2022 vs. 2021 | Nine Months Ended September 30, 2022 vs. 2021 | ||||||||||
| % Change | % Change | ||||||||||
| Factors Contributing to Changes - Sales | |||||||||||
| Volume | 3 | % | 2 | % | |||||||
| Price/Mix | 8 | % | 7 | % | |||||||
| Cost pass-through | 8 | % | 7 | % | |||||||
| Currency | (7) | % | (5) | % | |||||||
| Acquisitions/divestitures | (1) | % | — | % | |||||||
| Engineering | 4 | % | 2 | % | |||||||
| 15 | % | 13 | % |
Sales
Sales increased $1,129 million, or 15%, for the third quarter of 2022 and increased $2,970 million, or 13% for the nine months ended September 30, 2022 versus the respective 2021 periods. Volume growth in all end markets, except healthcare, and project startups increased sales by 3% in the quarter and 2% in the year-to-date period. Higher pricing across all geographic segments contributed 8% to sales in the quarter and 7% in the year-to-date period. Cost pass-through increased sales by 8% in the quarter and 7% in the year-to-date period with minimal impact on operating profit. Currency translation decreased sales by 7% in the quarter and 5% in the year-to-date period, largely in EMEA, APAC and Engineering, driven by the weakening of the Euro, Chinese yuan, British pound and Australian dollar against the U.S. dollar. The impact of divestitures decreased sales by 1% in the quarter. Engineering increased sales by 4% in the quarter and 2% in the year-to-date period.
Cost of sales, exclusive of depreciation and amortization
Cost of sales, exclusive of depreciation and amortization increased $917 million, or 21%, for the third quarter of 2022 and increased $2,407 million, or 19% for the nine months ended September 30, 2022 primarily due to inflation and higher volumes, partially offset by productivity gains and currency effects. Cost of sales, exclusive of depreciation and amortization was 60.1% and 59.0% of sales, respectively, for the third quarter and nine months ended September 30, 2022 versus 57.0% and 56.1% of sales for the respective 2021 periods. The increase as a percentage of sales for the quarter and nine months ended September 30, 2022 was due primarily to higher cost pass-through to customers.
Selling, general and administrative expenses
Selling, general and administrative expense ("SG&A") decreased $23 million, or 3%, for the third quarter of 2022 and decreased $59 million, or 2%, for the nine months ended September 30, 2022. SG&A was 8.8% of third quarter sales and 9.2% of sales for the nine months ended September 30, 2022 versus 10.3% and 10.7% for the respective 2021 periods. Currency impacts decreased SG&A by approximately $42 million and $92 million for the quarter and nine months ended September 30, 2022, respectively. Excluding currency impacts, underlying SG&A increased in the third quarter and nine months ended September 30, 2022 primarily due to higher costs.
Depreciation and amortization
Reported depreciation and amortization expense decreased $118 million, or 10%, for the third quarter of 2022 and decreased $252 million, or 7%, for the nine months ended September 30, 2022. The decrease is related primarily to lower depreciation and amortization of intangible assets acquired in the merger and currency impacts.
On an adjusted basis, depreciation and amortization decreased $26 million, for the third quarter of 2022 and decreased $22 million, for the year-to-date period. Currency impacts decreased depreciation and amortization by $41 million and $86 million, for the quarter and nine months ended September 30, 2022, respectively. Excluding currency, underlying depreciation and amortization increased including new project start ups.
Russia-Ukraine conflict and other charges
Russia-Ukraine conflict and other charges were $15 million and $1,004 million for the third quarter and nine months ended September 30, 2022, respectively. The charge recorded in the third quarter of 2022 is primarily driven by the sale of the GIST business. The charge for the nine months ended September 30, 2022 relates primarily to the deconsolidation and impairment of Russian subsidiaries resulting from the ongoing war in Ukraine and related sanctions recorded as of June 30, 2022. 2021 charges of $26 million and $222 million, for the quarter and year-to-date periods respectively, relate to cost reduction program and other charges, primarily severance (see Note 2 to the condensed consolidated financial statements).
On an adjusted basis, these benefits and costs have been excluded in both periods.
Operating profit
On a reported basis, operating profit increased $321 million, or 25%, for the third quarter of 2022 and increased $35 million, or 1%, for the nine months ended September 30, 2022. The increase for the quarter and year-to-date periods was primarily due to higher pricing, volumes, savings from productivity initiatives, and lower depreciation and amortization driven by merger related intangible assets. These increases more than offset the adverse impacts of inflation and currency in the quarter and year-to-date periods as well as the Russia-Ukraine conflict and other charges recorded during the second quarter of 2022.
On an adjusted basis, which excludes the impacts of purchase accounting as well as Russia-Ukraine conflict and other charges, operating profit increased $200 million, or 11% in the 2022 quarter and increased $568 million, or 11%, for the nine months ended September 30, 2022. Operating profit growth was driven by higher pricing, volumes and productivity initiatives, which more than offset the effects of inflation and currency during the periods. A discussion of operating profit by segment is included in the segment discussion that follows.
Interest expense - net
Reported interest expense - net increased $10 million for the third quarter of 2022 and decreased $14 million for the nine months ended September 30, 2022. On an adjusted basis, interest expense increased $8 million for the third quarter of 2022 and decreased $30 million for the nine months ended September 30, 2022 versus the respective 2021 periods. The increase in the quarter-to-date period is driven primarily by higher borrowing costs on short-term debt and unfavorable foreign currency revaluation on unhedged intercompany exposures in the current year. In the year-to-date period, interest expense - net decreased as higher interest income on cash deposits more than offset these impacts.
Net pension and OPEB cost (benefit), excluding service cost
Reported net pension and OPEB cost (benefit), excluding service cost was a benefit of $53 million and $179 million for the quarter and nine months ended September 30, 2022, respectively, versus a benefit of $45 million and $143 million for the respective 2021 periods. The increase in benefit primarily relates to lower amortization of deferred losses, partially offset by higher interest cost reflective of the higher discount rate environment year-over-year.
Effective tax rate
The reported effective tax rate ("ETR") for the quarter and nine months ended September 30, 2022 was 23.7% and 27.3%, respectively, versus 24.2% and 24.7% for the respective 2021 periods. The decrease in the quarter rate is primarily related to a deferred tax benefit resulting from the divestiture of the GIST business, partially offset by lower tax benefits from share based compensation. The increase in the year-to-date rate is primarily related to the net tax expense resulting from the deconsolidation and impairment of the company’s business in Russia, partially offset by the reversal of a related deferred tax liability. For the quarter and nine months ended September 30, 2021, the ETR included net tax charges of $38 million primarily related to $81 million of expense due to a tax rate increase in the United Kingdom, partially offset by a tax settlement benefit of $33 million (see Note 2 to the condensed consolidated financial statements).
On an adjusted basis, the ETR for the quarter and nine months ended September 30, 2022 was 25.0% and 24.6%, respectively, versus 23.9% and 24.1% for the respective 2021 periods. The increase in both periods is primarily due to lower tax benefits from share option exercises.
Income from equity investments
Reported income from equity investments for the quarter and nine months ended September 30, 2022 was $43 million and $137 million, respectively, versus $1 million and $81 million for the respective 2021 periods. On an adjusted basis, income from equity investments for the quarter and nine months ended September 30, 2022 was $61 million and $194 million, respectively, versus $55 million and $173 million in the prior year respective periods.
On a reported basis, income from equity investments was higher in the third quarter of 2022 due primarily to a $35 million impairment charge taken in the third quarter of 2021 related to a joint venture in the APAC segment (see Note 2 to the condensed consolidated financial statements). On an adjusted basis, the increase year-over-year was primarily driven by the overall performance of investments in APAC.
Noncontrolling interests from continuing operations
At September 30, 2022, noncontrolling interests from continuing operations consisted primarily of non-controlling shareholders' investments in APAC (primarily China).
Reported noncontrolling interests from continuing operations decreased $4 million for both the quarter and nine months ended September 30, 2022 versus the respective 2021 periods.
Income from continuing operations
Reported income from continuing operations increased $295 million, or 30%, for the third quarter of 2022 and increased $22 million, or 1%, for the nine months ended September 30, 2022 versus the respective 2021 periods. On an adjusted basis, which excludes the impacts of purchase accounting and Russia-Ukraine conflict and other charges, income from continuing operations increased $134 million, or 9%, for the quarter and increased $473 million, or 11%, for the nine months ended September 30, 2022 versus the respective 2021 periods. On both a reported and adjusted basis, the increase was driven by higher operating profit.
Diluted earnings per share from continuing operations
Reported diluted earnings per share from continuing operations increased $0.66, or 35%, for the third quarter of 2022 and increased $0.23, or 4%, for the nine months ended September 30, 2022 versus the comparable 2021 periods. On an adjusted basis, diluted EPS increased $0.37, or 14%, for the third quarter of 2022 and increased $1.21, or 15%, for the nine months ended September 30, 2022 versus the respective 2021 periods. The increase on both a reported and adjusted basis is primarily due to higher income from continuing operations and lower diluted shares outstanding.
Employees
The number of employees at September 30, 2022 was 65,293, a decrease of 6,866 employees from September 30, 2021, driven primarily by the sale of the GIST business, cost reduction initiatives and the deconsolidation of Russian subsidiaries in the EMEA and Engineering segments.
Other Financial Data
EBITDA was $2,701 for the third quarter of 2022 as compared to $2,456 million in the respective 2021 period driven by higher income from continuing operations versus prior year. EBITDA was $7,067 million for the nine months ended September 30, 2022 as compared to $7,228 million in the respective 2021 period driven by lower income from continuing operations due to the impact of Russia-Ukraine conflict and other charges.
Adjusted EBITDA from continuing operations increased to $2,739 million for the third quarter 2022 from $2,559 million in the respective 2021 period. Adjusted EBITDA from continuing operations increased to $8,148 million from $7,582 million for the nine months ended September 30, 2022 as compared to the respective 2021 period. On both a quarter-to-date and year-to-date adjusted basis, higher EBITDA was primarily due to higher income from continuing operations versus the respective prior periods.
See the "Non-GAAP Measures and Reconciliations" section for definitions and reconciliations of these adjusted non-GAAP measures to reported GAAP amounts.
Other Comprehensive Income (Loss)
Other comprehensive losses for the third quarter of 2022 and nine months ended September 30, 2022 were $1,668 million and $3,115 million, respectively, resulting primarily from currency translation adjustments of $1,743 million and $3,394 million during the quarter and year-to-date periods, respectively. The translation adjustments reflect the impact of translating local currency foreign subsidiary financial statements to U.S. dollars, and are largely driven by the movement of the U.S. dollar against major currencies including the Euro, British pound and the Chinese yuan. See the "Currency" section of the MD&A for exchange rates used for translation purposes and Note 11 to the condensed consolidated financial statements for a summary of the currency translation adjustment component of accumulated other comprehensive income by segment.
Segment Discussion
The following summary of sales and operating profit by segment provides a basis for the discussion that follows. Linde plc evaluates the performance of its reportable segments based on operating profit, excluding items not indicative of ongoing business trends. The reported amounts are GAAP amounts from the Consolidated Statements of Income.
| Quarter Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||
| (Millions of dollars) | 2022 | 2021 | Variance | 2022 | 2021 | Variance | ||||||||||||||
| SALES | ||||||||||||||||||||
| Americas | $ | 3,694 | $ | 3,091 | 20 | % | $ | 10,453 | $ | 8,951 | 17 | % | ||||||||
| EMEA | 2,125 | 1,911 | 11 | % | 6,417 | 5,585 | 15 | % | ||||||||||||
| APAC | 1,660 | 1,564 | 6 | % | 4,913 | 4,544 | 8 | % | ||||||||||||
| Engineering | 828 | 601 | 38 | % | 2,200 | 1,921 | 15 | % | ||||||||||||
| Other | 490 | 501 | (2) | % | 1,482 | 1,494 | (1) | % | ||||||||||||
| Total sales | $ | 8,797 | $ | 7,668 | 15 | % | $ | 25,465 | $ | 22,495 | 13 | % | ||||||||
| SEGMENT OPERATING PROFIT | ||||||||||||||||||||
| Americas | $ | 974 | $ | 859 | 13 | % | $ | 2,788 | $ | 2,525 | 10 | % | ||||||||
| EMEA | 465 | 476 | (2) | % | 1,504 | 1,414 | 6 | % | ||||||||||||
| APAC | 429 | 382 | 12 | % | 1,254 | 1,122 | 12 | % | ||||||||||||
| Engineering | 150 | 106 | 42 | % | 398 | 323 | 23 | % | ||||||||||||
| Other | (8) | (13) | 38 | % | (41) | (49) | 16 | % | ||||||||||||
| Segment operating profit | $ | 2,010 | $ | 1,810 | 11 | % | $ | 5,903 | $ | 5,335 | 11 | % | ||||||||
| Reconciliation to reported operating profit: | ||||||||||||||||||||
| Russia-Ukraine conflict and other charges (Note 2) | (15) | (26) | (1,004) | (222) | ||||||||||||||||
| Purchase accounting impacts - Linde AG | (382) | (492) | (1,217) | (1,466) | ||||||||||||||||
| Total operating profit | $ | 1,613 | $ | 1,292 | $ | 3,682 | $ | 3,647 |
Americas
| Quarter Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||
| (Millions of dollars) | 2022 | 2021 | Variance | 2022 | 2021 | Variance | |||||||||||||||||||||||||||||
| Sales | $ | 3,694 | $ | 3,091 | 20 | % | $ | 10,453 | $ | 8,951 | 17 | % | |||||||||||||||||||||||
| Operating profit | $ | 974 | $ | 859 | 13 | % | $ | 2,788 | $ | 2,525 | 10 | % | |||||||||||||||||||||||
| As a percent of sales | 26.4 | % | 27.8 | % | 26.7 | % | 28.2 | % |
| Quarter Ended September 30, 2022 vs. 2021 | Nine Months Ended September 30, 2022 vs. 2021 | ||||||||||
| % Change | % Change | ||||||||||
| Factors Contributing to Changes - Sales | |||||||||||
| Volume | 7 | % | 4 | % | |||||||
| Price/Mix | 6 | % | 5 | % | |||||||
| Cost pass-through | 8 | % | 8 | % | |||||||
| Currency | (1) | % | — | % | |||||||
| Acquisitions/divestitures | — | % | — | % | |||||||
| 20 | % | 17 | % |
The Americas segment includes Linde's industrial gases operations in approximately 20 countries including the United States, Canada, Mexico, and Brazil.
Sales
Sales for the Americas segment increased $603 million, or 20%, in the third quarter and increased $1,502 million, or 17%, for the nine months ended September 30, 2022 versus the respective 2021 periods. Higher pricing contributed 6% to sales in the quarter and 5% in the year-to-date period. Higher volumes increased sales by 7% for the third quarter and increased 4% for the nine months ended September 30, 2022, driven by higher demand across all end markets except healthcare, led by chemicals and energy. Cost pass-through increased sales by 8% for the third quarter and the nine months ended September 30, 2022 with minimal impact on operating profit. Currency translation decreased sales by 1% for the third quarter and was not significant for the year-to-date period.
Operating profit
Operating profit in the Americas segment increased $115 million, or 13%, in the third quarter and increased $263 million, or 10%, for the nine months ended September 30, 2022 versus the respective 2021 periods, driven primarily by higher pricing, volumes and continued productivity initiatives which more than offset inflation during the quarter and year-to-date period.
EMEA
| Quarter Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||
| (Millions of dollars) | 2022 | 2021 | Variance | 2022 | 2021 | Variance | |||||||||||||||||||||||||||||
| Sales | $ | 2,125 | $ | 1,911 | 11 | % | $ | 6,417 | $ | 5,585 | 15 | % | |||||||||||||||||||||||
| Operating profit | $ | 465 | $ | 476 | (2) | % | $ | 1,504 | $ | 1,414 | 6 | % | |||||||||||||||||||||||
| As a percent of sales | 21.9 | % | 24.9 | % | 23.4 | % | 25.3 | % |
| Quarter Ended September 30, 2022 vs. 2021 | Nine Months Ended September 30, 2022 vs. 2021 | ||||||||||
| % Change | % Change | ||||||||||
| Factors Contributing to Changes - Sales | |||||||||||
| Volume | (3) | % | (2) | % | |||||||
| Price/Mix | 14 | % | 13 | % | |||||||
| Cost pass-through | 17 | % | 15 | % | |||||||
| Currency | (14) | % | (10) | % | |||||||
| Acquisitions/divestitures | (3) | % | (1) | % | |||||||
| 11 | % | 15 | % |
The EMEA segment includes Linde's industrial gases operations in approximately 45 European, Middle Eastern and African countries including Germany, France, Sweden, the Republic of South Africa, and the United Kingdom.
Sales
EMEA segment sales increased by $214 million, or 11%, in the third quarter and increased $832 million, or 15%, for the nine months ended September 30, 2022 as compared to the respective 2021 periods driven by higher sales across all end-markets except healthcare. Cost pass-through contributed 17% to sales in the quarter and 15% in the year-to-date period, with minimal impact on operating profit, while higher price attainment increased sales by 14% in the quarter and 13% in the year-to-date period. Volumes decreased sales by 3% in the quarter and 2% in the year to date period. Currency translation decreased sales by 14% in the quarter and 10% in the year-to-date period, due largely to the weakening of the Euro and British pound against the U.S. Dollar. The impact of net divestitures decreased sales by 3% in the quarter and 1% in the year-to-date period, primarily due to the deconsolidation of Russian subsidiaries as of June 30, 2022.
Operating Profit
Operating profit for the EMEA segment decreased by $11 million, or 2%, in the third quarter and increased $90 million, or 6%, for the nine months ended September 30, 2022 as compared to the respective 2021 periods. The decrease in operating profit in the quarter was driven primarily by currency translation, lower volumes and divestitures, partially offset by higher pricing and continued productivity initiatives. The increase in the year-to-date period was driven largely by higher pricing and continued productivity initiatives which more than offset currency, inflation and divestitures.
APAC
| Quarter Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||
| (Millions of dollars) | 2022 | 2021 | Variance | 2022 | 2021 | Variance | |||||||||||||||||||||||||||||
| Sales | $ | 1,660 | $ | 1,564 | 6 | % | $ | 4,913 | $ | 4,544 | 8 | % | |||||||||||||||||||||||
| Operating profit | $ | 429 | $ | 382 | 12 | % | $ | 1,254 | $ | 1,122 | 12 | % | |||||||||||||||||||||||
| As a percent of sales | 25.8 | % | 24.4 | % | 25.5 | % | 24.7 | % |
| Quarter Ended September 30, 2022 vs. 2021 | Nine Months Ended September 30, 2022 vs. 2021 | ||||||||||
| % Change | % Change | ||||||||||
| Factors Contributing to Changes - Sales | |||||||||||
| Volume/Equipment | 5 | % | 4 | % | |||||||
| Price/Mix | 7 | % | 5 | % | |||||||
| Cost pass-through | 2 | % | 4 | % | |||||||
| Currency | (8) | % | (5) | % | |||||||
| Acquisitions/divestitures | — | % | — | % | |||||||
| 6 | % | 8 | % |
The APAC segment includes Linde's industrial gases operations in approximately 20 Asian and South Pacific countries and regions including China, Australia, India, and South Korea.
Sales
Sales for the APAC segment increased $96 million, or 6%, for the third quarter and increased $369 million, or 8%, for the nine months ended September 30, 2022 versus the respective 2021 periods. Volumes increased 5% in the quarter and 4% in the year-to-date period including project start-ups in the electronics and chemicals and energy end markets. Higher pricing contributed 7% to sales in the quarter and 5% to sales in the year-to-date period. Cost pass-through contributed 2% to sales in the quarter and 4% in the year-to-date period with minimal impact on operating profit. Currency translation decreased sales by 8% in quarter and 5% in the year-to-date period driven primarily by the weakening of the Australian dollar, Korean won and Chinese Yuan against the U.S. Dollar.
Operating profit
Operating profit in the APAC segment increased $47 million, or 12%, in the third quarter and increased $132 million , or 12%, for the nine months ended September 30, 2022 versus the respective 2021 periods driven by higher volumes and pricing and continued productivity initiatives which more than offset the impact of currency and inflation during the quarter and year-to-date period.
Engineering
| Quarter Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||
| (Millions of dollars) | 2022 | 2021 | Variance | 2022 | 2021 | Variance | |||||||||||||||||||||||||||||
| Sales | $ | 828 | $ | 601 | 38 | % | $ | 2,200 | $ | 1,921 | 15 | % | |||||||||||||||||||||||
| Operating profit | $ | 150 | $ | 106 | 42 | % | $ | 398 | $ | 323 | 23 | % | |||||||||||||||||||||||
| As a percent of sales | 18.1 | % | 17.6 | % | 18.1 | % | 16.8 | % |
| Quarter Ended September 30, 2022 vs. 2021 | Nine Months Ended September 30, 2022 vs. 2021 | ||||||||||
| % Change | % Change | ||||||||||
| Factors Contributing to Changes - Sales | |||||||||||
| Volume | 50 | % | 24 | % | |||||||
| Currency | (12) | % | (9) | % | |||||||
| 38 | % | 15 | % |
Sales
Engineering segment sales increased $227 million in the third quarter and increased $279 million, or 15%, in the nine months ended September 30, 2022 as compared to the respective 2021 periods. The increase was driven by a $321 million project progress recognition partially offset by other project timing and negative currency translation.
Projects for Russia that were sanctioned and have been wound down represented approximately $123 million and $773 million of the Engineering segment sales during the third quarter and nine months ended September 30, 2022.
Operating profit
Engineering segment operating profit increased, $44 million in the third quarter and increased $75 million for the nine months ended September 30, 2022 as compared to the respective 2021 periods driven by the aforementioned project partially offset by project timing and currency impacts.
Other
| Quarter Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||
| (Millions of dollars) | 2022 | 2021 | Variance | 2022 | 2021 | Variance | |||||||||||||||||||||||||||||
| Sales | $ | 490 | $ | 501 | (2) | % | $ | 1,482 | $ | 1,494 | (1) | % | |||||||||||||||||||||||
| Operating profit (loss) | $ | (8) | $ | (13) | 38 | % | $ | (41) | $ | (49) | 16 | % | |||||||||||||||||||||||
| As a percent of sales | (1.6) | % | (2.6) | % | (2.8) | % | (3.3) | % |
| Quarter Ended September 30, 2022 vs. 2021 | Nine Months Ended September 30, 2022 vs. 2021 | ||||||||||
| % Change | % Change | ||||||||||
| Factors Contributing to Changes - Sales | |||||||||||
| Volume/price | 6 | % | 3 | % | |||||||
| Cost pass-through | — | % | 1 | % | |||||||
| Currency | (8) | % | (5) | % | |||||||
| Acquisitions/divestitures | — | % | — | % | |||||||
| (2) | % | (1) | % | ||||||||
Other consists of corporate costs and a few smaller businesses including Surface Technologies, GIST and global helium wholesale, which individually do not meet the quantitative thresholds for separate presentation.
Sales
Sales for Other decreased $11 million for the third quarter and decreased $12 million for the nine months ended September 30, 2022 versus the respective 2021 periods. Currency translation decreased sales by 8% in the quarter and 5% in the year-to-date period. Underlying sales increased 6% in the quarter and 3% for the year-to-date period driven primarily by price and higher aviation and electronic sales in the coatings business. Cost pass-through increased sales by 1% in the year-to-date period.
Sales of the GIST business which was divested as of September 30, 2022 represented approximately $200 million and $630 million of Other sales during the third quarter and nine months ended September 30, 2022, respectively.
Operating profit
Operating profit in Other increased $5 million, or 38% in the third quarter and increased $8 million, or 16%, in the nine months ended September 30, 2022 versus the respective 2021 periods, due primarily to lower corporate costs in the quarter, partially offset by higher sourcing costs in the global helium business.
Currency
The results of Linde's non-U.S. operations are translated to the company’s reporting currency, the U.S. dollar, from the functional currencies. For most operations, Linde uses the local currency as its functional currency. There is inherent variability and unpredictability in the relationship of these functional currencies to the U.S. dollar and such currency movements may materially impact Linde's results of operations in any given period.
To help understand the reported results, the following is a summary of the significant currencies underlying Linde's consolidated results and the exchange rates used to translate the financial statements (rates of exchange expressed in units of local currency per U.S. dollar):
| Percentage of YTD 2022 Consolidated Sales | Exchange Rate for Income Statement | Exchange Rate for Balance Sheet | ||||||||||||||||||||||||||||||
| Year-To-Date Average | September 30, | December 31, | ||||||||||||||||||||||||||||||
| Currency | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||||||
| Euro | 21 | % | 0.94 | 0.84 | 1.02 | 0.88 | ||||||||||||||||||||||||||
| Chinese yuan | 8 | % | 6.59 | 6.47 | 7.12 | 6.36 | ||||||||||||||||||||||||||
| British pound | 6 | % | 0.79 | 0.72 | 0.90 | 0.74 | ||||||||||||||||||||||||||
| Australian dollar | 4 | % | 1.41 | 1.32 | 1.56 | 1.38 | ||||||||||||||||||||||||||
| Brazilian real | 4 | % | 5.12 | 5.33 | 5.41 | 5.58 | ||||||||||||||||||||||||||
| Canadian dollar | 3 | % | 1.28 | 1.25 | 1.38 | 1.26 | ||||||||||||||||||||||||||
| Korean won | 3 | % | 1,265 | 1,131 | 1,432 | 1,189 | ||||||||||||||||||||||||||
| Mexican peso | 2 | % | 20.25 | 20.13 | 20.14 | 20.53 | ||||||||||||||||||||||||||
| Indian rupee | 2 | % | 77.34 | 73.57 | 81.35 | 74.34 | ||||||||||||||||||||||||||
| South African rand | 2 | % | 15.90 | 14.56 | 18.09 | 15.94 | ||||||||||||||||||||||||||
| Swedish krona | 1 | % | 9.88 | 8.48 | 11.09 | 9.05 | ||||||||||||||||||||||||||
| Thailand bhat | 1 | % | 34.54 | 31.48 | 37.85 | 33.40 |
Liquidity, Capital Resources and Other Financial Data
The following selected cash flow information provides a basis for the discussion that follows:
| (Millions of dollars) | Nine months ended September 30, | ||||||||||
| 2022 | 2021 | ||||||||||
| NET CASH PROVIDED BY (USED FOR): | |||||||||||
| OPERATING ACTIVITIES | |||||||||||
| Net income (including noncontrolling interests) | $ | 2,920 | $ | 2,902 | |||||||
| Non-cash charges (credits): | |||||||||||
| Add: Depreciation and amortization | 3,248 | 3,500 | |||||||||
| Add: Deferred income taxes | (412) | (184) | |||||||||
| Add: Share-based compensation | 78 | 95 | |||||||||
| Add: Russia-Ukraine conflict and other charges, net of payments (a) | 909 | 83 | |||||||||
| Net income adjusted for non-cash charges | 6,743 | 6,396 | |||||||||
| Less: Working capital | (238) | 20 | |||||||||
| Less: Pension contributions | (44) | (32) | |||||||||
| Other | 308 | 108 | |||||||||
| Net cash provided by operating activities | $ | 6,769 | $ | 6,492 | |||||||
| INVESTING ACTIVITIES | |||||||||||
| Capital expenditures | (2,237) | (2,247) | |||||||||
| Acquisitions, net of cash acquired | (110) | (31) | |||||||||
| Divestitures, net of cash divested and asset sales | 140 | 147 | |||||||||
| Net cash provided by (used for) investing activities | $ | (2,207) | $ | (2,131) | |||||||
| FINANCING ACTIVITIES | |||||||||||
| Debt increase (decrease) - net | 2,795 | 1,808 | |||||||||
| Issuances (purchases) of common stock - net | (4,454) | (3,212) | |||||||||
| Cash dividends - Linde plc shareholders | (1,758) | (1,648) | |||||||||
| Noncontrolling interest transactions and other | (62) | (319) | |||||||||
| Net cash provided by (used for) financing activities | $ | (3,479) | $ | (3,371) | |||||||
| Effect of exchange rate changes on cash and cash equivalents | $ | (150) | $ | (44) | |||||||
| Cash and cash equivalents, end-of-period | $ | 3,756 | $ | 4,700 |
(a) See Note 2 to the condensed consolidated financial statements.
Cash Flow from Operations
Cash provided by operations of $6,769 million for the nine months ended September 30, 2022 increased $277 million, or 4%, versus 2021. The increase was driven primarily by higher net income adjusted for non-cash charges, partially offset by higher working capital requirements. Russia-Ukraine conflict and other charges were $1,004 million and $222 million, respectively, for the nine months ended September 30, 2022 and 2021. Related cash outflows were $95 million and $139 million for the same respective periods.
Linde estimates that total 2022 required contributions to its pension plans will be approximately $50 million, of which $44 million has been made through September 30, 2022.
As of September 30, 2022, Linde has approximately $1.8 billion recorded in contract liabilities within the condensed consolidated balance sheet related to engineering projects in Russia. Any obligation to satisfy the related residual contract liabilities may have an adverse effect on Linde’s cash flows.
Investing
Net cash used for investing of $2,207 million for the nine months ended September 30, 2022 increased $76 million versus 2021, as higher acquisition and lower proceeds from divestitures, net of cash divested and asset sales more than offset lower capital expenditures.
Capital expenditures for the nine months ended September 30, 2022 were $2,237 million, $10 million lower than the prior year.
At September 30, 2022, Linde's sale of gas backlog of large projects under construction was approximately $3.7 billion. This represents the total estimated capital cost of large plants under construction.
Acquisitions, net of cash acquired for the nine months ended September 30, 2022 and 2021 were $110 million and $31 million, respectively, and related primarily to acquisitions in EMEA and the Americas. Divestitures, net of cash divested and asset sales for the nine months ended September 30, 2022 and 2021 were $140 million and $147 million, respectively. Divestiture proceeds for the nine months ended September 30, 2022 include cash received from the sale of the company's GIST business of $184 million, net of cash divested of $75 million, for net proceeds of $109 million (see Note 2 to the condensed consolidated financial statements).
Financing
Cash used for financing activities was $3,479 million for the nine months ended September 30, 2022 as compared to cash used for financing activities of $3,371 million for the nine months ended September 30, 2021. Cash provided by debt was $2,795 million versus $1,808 million in 2021 driven by higher commercial paper borrowings and debt issuances in 2022. In January 2022, Linde repaid €1.0 billion of 0.250% notes that became due. 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. In May 2022, Linde repaid $500 million of 2.20% notes due in August 2022.
Net purchases of ordinary shares were $4,454 million in 2022 versus $3,212 million in 2021. On February 28, 2022, the company’s Board of Directors approved the additional repurchase of $10.0 billion of its ordinary shares. For additional information related to the share repurchase programs, see Part II Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Cash dividends of $1,758 million increased $110 million from 2021 driven primarily by a 10% increase in quarterly dividends per share from $1.06 per share to $1.17 per share, partially offset by lower shares outstanding. Cash used for Noncontrolling interest transactions and other was $62 million for the nine months ended September 30, 2022 versus cash used of $319 million for the respective 2021 period due to the settlement of the buyout of minority interests in the Republic of South Africa in January of 2021.
The company continues to believe it has sufficient operating flexibility, cash, and funding sources to meet its business needs around the world. The company had $3.8 billion of cash as of September 30, 2022, and has a $5 billion unsecured and undrawn revolving credit agreement with no associated financial covenants. No borrowings were outstanding under the credit agreement as of September 30, 2022. The company does not anticipate any limitations on its ability to access the debt capital markets and/or other external funding sources and remains committed to its strong ratings from Moody’s and Standard & Poor’s.
Legal Proceedings
See Note 9 to the condensed consolidated financial statements.
NON-GAAP MEASURES AND RECONCILIATIONS
(Millions of dollars, except per share data)
(UNAUDITED)
The following non-GAAP measures are intended to supplement investors’ understanding of the company’s financial information by providing measures which investors, financial analysts and management use to help evaluate the company’s operating performance and liquidity. Items which the company does not believe to be indicative of on-going business trends are excluded from these calculations so that investors can better evaluate and analyze historical and future business trends on a consistent basis. Definitions of these non-GAAP measures may not be comparable to similar definitions used by other companies and are not a substitute for similar GAAP measures.
| Quarter Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||
| Adjusted Operating Profit and Operating Margin | |||||||||||||||||
| Reported operating profit | $ | 1,613 | $ | 1,292 | $ | 3,682 | $ | 3,647 | |||||||||
| Add: Russia-Ukraine conflict and other charges | 15 | 26 | 1,004 | 222 | |||||||||||||
| Add: Purchase accounting impacts - Linde AG (c) | 382 | 492 | 1,217 | 1,466 | |||||||||||||
| Total adjustments | 397 | 518 | 2,221 | 1,688 | |||||||||||||
| Adjusted operating profit | $ | 2,010 | $ | 1,810 | $ | 5,903 | $ | 5,335 | |||||||||
| Reported percentage change | 25 | % | 1 | % | |||||||||||||
| Adjusted percentage change | 11 | % | 11 | % | |||||||||||||
| Reported sales | $ | 8,797 | $ | 7,668 | $ | 25,465 | $ | 22,495 | |||||||||
| Reported operating margin | 18.3 | % | 16.8 | % | 14.5 | % | 16.2 | % | |||||||||
| Adjusted operating margin | 22.8 | % | 23.6 | % | 23.2 | % | 23.7 | % | |||||||||
| Adjusted Depreciation and amortization | |||||||||||||||||
| Reported depreciation and amortization | $ | 1,045 | $ | 1,163 | $ | 3,248 | $ | 3,500 | |||||||||
| Less: Purchase accounting impacts - Linde AG (c) | (377) | (469) | (1,196) | (1,426) | |||||||||||||
| Adjusted depreciation and amortization | $ | 668 | $ | 694 | $ | 2,052 | $ | 2,074 | |||||||||
| Adjusted Other Income (Expense) - net | |||||||||||||||||
| Reported Other Income (Expense) - net | $ | (34) | $ | 10 | $ | (58) | $ | (3) | |||||||||
| Less: Purchase accounting impacts - Linde AG (c) | (5) | (23) | (21) | (40) | |||||||||||||
| Adjusted Other Income (Expense) - net | $ | (29) | $ | 33 | $ | (37) | $ | 37 | |||||||||
| Adjusted Net Pension and OPEB Cost (Benefit), Excluding Service Cost | |||||||||||||||||
| Reported net pension and OPEB cost (benefit), excluding service cost | $ | (53) | $ | (45) | $ | (179) | $ | (143) | |||||||||
| Add: Pension settlement charges | (6) | (4) | (6) | (4) | |||||||||||||
| Adjusted Net Pension and OPEB cost (benefit), excluding service costs | $ | (59) | $ | (49) | $ | (185) | $ | (147) | |||||||||
| Adjusted Interest Expense - Net | |||||||||||||||||
| Reported interest expense - net | $ | 18 | $ | 8 | $ | 32 | $ | 46 | |||||||||
| Add: Purchase accounting impacts - Linde AG (c) | 8 | 10 | 27 | 43 | |||||||||||||
| Adjusted interest expense - net | $ | 26 | $ | 18 | $ | 59 | $ | 89 | |||||||||
| Adjusted Income Taxes (a) | |||||||||||||||||
| Reported income taxes | $ | 391 | $ | 321 | $ | 1,046 | $ | 923 | |||||||||
| Add: Purchase accounting impacts - Linde AG (c) | 92 | 115 | 308 | 349 | |||||||||||||
| Add: Pension settlement charges | 1 | 1 | 1 | 1 | |||||||||||||
| Add: Russia-Ukraine conflict and other charges | 26 | 3 | 127 | 29 | |||||||||||||
| Total adjustments | 119 | 119 | 436 | 379 | |||||||||||||
| Adjusted income taxes | $ | 510 | $ | 440 | $ | 1,482 | $ | 1,302 | |||||||||
| Adjusted Effective Tax Rate (a) | |||||||||||||||||
| Reported income before income taxes and equity investments | $ | 1,648 | $ | 1,329 | $ | 3,829 | $ | 3,744 | |||||||||
| Add: Pension settlement charge | 6 | 4 | 6 | 4 | |||||||||||||
| Add: Purchase accounting impacts - Linde AG (c) | 374 | 482 | 1,190 | 1,423 | |||||||||||||
| Add: Russia-Ukraine conflict and other charges | 15 | 26 | 1,004 | 222 | |||||||||||||
| Total adjustments | 395 | 512 | 2,200 | 1,649 | |||||||||||||
| Adjusted income before income taxes and equity investments | $ | 2,043 | $ | 1,841 | $ | 6,029 | $ | 5,393 | |||||||||
| Reported Income taxes | $ | 391 | $ | 321 | $ | 1,046 | $ | 923 | |||||||||
| Reported effective tax rate | 23.7 | % | 24.2 | % | 27.3 | % | 24.7 | % | |||||||||
| Adjusted income taxes | $ | 510 | $ | 440 | $ | 1,482 | $ | 1,302 | |||||||||
| Adjusted effective tax rate | 25.0 | % | 23.9 | % | 24.6 | % | 24.1 | % | |||||||||
| Income from Equity Investments | |||||||||||||||||
| Reported income from equity investments | $ | 43 | $ | 1 | $ | 137 | $ | 81 | |||||||||
| Add: Purchase accounting impacts - Linde AG (c) | 18 | 19 | 57 | 57 | |||||||||||||
| Add: Russia-Ukraine conflict and other charges (d) | — | 35 | — | 35 | |||||||||||||
| Adjusted income from equity investments | $ | 61 | $ | 55 | $ | 194 | $ | 173 | |||||||||
| Adjusted Noncontrolling Interests from Continuing Operations | |||||||||||||||||
| Reported noncontrolling interests from continuing operations | $ | (27) | $ | (31) | $ | (101) | $ | (105) | |||||||||
| Add: Purchase accounting impacts - Linde AG (c) | (12) | (4) | (19) | (11) | |||||||||||||
| Adjusted noncontrolling interests from continuing operations | $ | (39) | $ | (35) | $ | (120) | $ | (116) | |||||||||
| Adjusted Income from Continuing Operations (b) | |||||||||||||||||
| Reported income from continuing operations | $ | 1,273 | $ | 978 | $ | 2,819 | $ | 2,797 | |||||||||
| Add: Pension settlement charge | 5 | 3 | 5 | 3 | |||||||||||||
| Add: Russia-Ukraine conflict and other charges | (11) | 58 | 877 | 228 | |||||||||||||
| Add: Purchase accounting impacts - Linde AG (c) | 288 | 382 | 920 | 1,120 | |||||||||||||
| Total adjustments | 282 | 443 | 1,802 | 1,351 | |||||||||||||
| Adjusted income from continuing operations | $ | 1,555 | $ | 1,421 | $ | 4,621 | $ | 4,148 | |||||||||
| Adjusted Diluted EPS from Continuing Operations (b) | |||||||||||||||||
| Reported diluted EPS from continuing operations | $ | 2.54 | $ | 1.88 | $ | 5.57 | $ | 5.34 | |||||||||
| Add: Pension settlement charge | 0.01 | 0.01 | 0.01 | 0.01 | |||||||||||||
| Add: Russia-Ukraine conflict and other charges | (0.02) | 0.11 | 1.73 | 0.44 | |||||||||||||
| Add: Purchase accounting impacts - Linde AG (c) | 0.57 | 0.73 | 1.82 | 2.13 | |||||||||||||
| Total adjustments | 0.56 | 0.85 | 3.56 | 2.58 | |||||||||||||
| Adjusted diluted EPS from continuing operations | $ | 3.10 | $ | 2.73 | $ | 9.13 | $ | 7.92 | |||||||||
| Reported percentage change | 35 | % | 4 | % | |||||||||||||
| Adjusted percentage change | 14 | % | 15 | % | |||||||||||||
| Adjusted EBITDA and % of Sales | |||||||||||||||||
| Income from continuing operations | $ | 1,273 | $ | 978 | $ | 2,819 | $ | 2,797 | |||||||||
| Add: Noncontrolling interests related to continuing operations | 27 | 31 | 101 | 105 | |||||||||||||
| Add: Net pension and OPEB cost (benefit), excluding service cost | (53) | (45) | (179) | (143) | |||||||||||||
| Add: Interest expense | 18 | 8 | 32 | 46 | |||||||||||||
| Add: Income taxes | 391 | 321 | 1,046 | 923 | |||||||||||||
| Add: Depreciation and amortization | 1,045 | 1,163 | 3,248 | 3,500 | |||||||||||||
| EBITDA from continuing operations | $ | 2,701 | $ | 2,456 | $ | 7,067 | $ | 7,228 | |||||||||
| Add: Russia-Ukraine conflict and other charges | 15 | 61 | 1,004 | 257 | |||||||||||||
| Add: Purchase accounting impacts - Linde AG (c) | 23 | 42 | 77 | 97 | |||||||||||||
| Total adjustments | 38 | 103 | 1,081 | 354 | |||||||||||||
| Adjusted EBITDA from continuing operations | $ | 2,739 | $ | 2,559 | $ | 8,148 | $ | 7,582 | |||||||||
| Reported sales | $ | 8,797 | $ | 7,668 | $ | 25,465 | $ | 22,495 | |||||||||
| % of sales | |||||||||||||||||
| EBITDA from continuing operations | 30.7 | % | 32.0 | % | 27.8 | % | 32.1 | % | |||||||||
| Adjusted EBITDA from continuing operations | 31.1 | % | 33.4 | % | 32.0 | % | 33.7 | % |
| (a) The income tax expense (benefit) on the non-GAAP pre-tax adjustments was determined using the applicable tax rates for the jurisdictions that were utilized in calculating the GAAP income tax expense (benefit) and included both current and deferred income tax amounts. | |||||||||||||||||||||||||||||||||||||||||
| (b) Net of income taxes which are shown separately in “Adjusted Income Taxes and Adjusted Effective Tax Rate”. | |||||||||||||||||||||||||||||||||||||||||
| (c) The company believes that its non-GAAP measures excluding Purchase accounting impacts - Linde AG are useful to investors because: (i) the business combination was a merger of equals in an all-stock merger transaction, with no cash consideration, (ii) the company is managed on a geographic basis and the results of certain geographies are more heavily impacted by purchase accounting than others, causing results that are not comparable at the reportable segment level, therefore, the impacts of purchase accounting adjustments to each segment vary and are not comparable within the company and when compared to other companies in similar regions, (iii) business management is evaluated and variable compensation is determined based on results excluding purchase accounting impacts, and; (iv) it is important to investors and analysts to understand the purchase accounting impacts to the financial statements. A summary of each of the adjustments made for Purchase accounting impacts - Linde AG are as follows: Adjusted Operating Profit and Margin: The purchase accounting adjustments for the periods presented relate primarily to depreciation and amortization related to the fair value step up of fixed assets and intangible assets (primarily customer related) acquired in the merger and the allocation of fair value step-up for ongoing Linde AG asset disposals (reflected in Other Income/(Expense)). Adjusted Interest Expense - Net: Relates to the amortization of the fair value of debt acquired in the merger. Adjusted Income Taxes and Effective Tax Rate: Relates to the current and deferred income tax impact on the adjustments discussed above. The income tax expense (benefit) on the non-GAAP pre-tax adjustments was determined using the applicable tax rates for the jurisdictions that were utilized in calculating the GAAP income tax expense (benefit) and included both current and deferred income tax amounts. Adjusted Income from Equity Investments: Represents the amortization of increased fair value on equity investments related to depreciable and amortizable assets. Adjusted Noncontrolling Interests from Continuing Operations: Represents the noncontrolling interests’ ownership portion of the adjustments described above determined on an entity by entity basis. | |||||||||||||||||||||||||||||||||||||||||
| (d) Impairment charge related to a joint venture in the APAC segment. |
Net Debt and Adjusted Net Debt
Net debt is a financial liquidity measure used by investors, financial analysts and management to evaluate the ability of a company to repay its debt. Purchase accounting impacts have been excluded as they are non-cash and do not have an impact on liquidity.
| September 30, 2022 | December 31, 2021 | ||||||||||
| (Millions of dollars) | |||||||||||
| Debt | $ | 15,338 | $ | 14,207 | |||||||
| Less: cash and cash equivalents | (3,756) | (2,823) | |||||||||
| Net debt | 11,582 | 11,384 | |||||||||
| Less: purchase accounting impacts - Linde AG | (28) | (61) | |||||||||
| Adjusted net debt | $ | 11,554 | $ | 11,323 |
Supplemental Guarantee Information
On June 6, 2020, the company filed a Form S-3 Registration Statement with the SEC ("the Registration Statement").
Linde plc may offer debt securities, preferred shares, depositary shares and ordinary shares under the Registration Statement, and debt securities exchangeable for or convertible into preferred shares, ordinary shares or other debt securities. Debt securities of Linde plc may be guaranteed by Linde Inc and/or Linde GmbH. Linde plc may provide guarantees of debt securities offered by its wholly owned subsidiaries Linde Inc. or Linde Finance under the Registration Statement.
Linde Inc. is a wholly owned subsidiary of Linde plc. Linde Inc. may offer debt securities under the Registration Statement. Debt securities of Linde Inc. will be guaranteed by Linde plc, and such guarantees by Linde plc may be guaranteed by Linde GmbH. Linde Inc. may also provide (i) guarantees of debt securities offered by Linde plc under the Registration Statement and (ii) guarantees of the guarantees provided by Linde plc of debt securities of Linde Finance offered under the Registration Statement.
Linde Finance B.V. is a wholly owned subsidiary of Linde plc. Linde Finance may offer debt securities under the Registration Statement. Linde plc will guarantee debt securities of Linde Finance offered under the Registration Statement. Linde GmbH and Linde Inc. may guarantee Linde plc’s obligations under its downstream guarantee.
Linde GmbH is a wholly owned subsidiary of Linde plc. Linde GmbH may provide (i) guarantees of debt securities offered by Linde plc under the Registration Statement and (ii) upstream guarantees of downstream guarantees provided by Linde plc of debt securities of Linde Inc. or Linde Finance offered under the Registration Statement.
In September 2019, Linde plc provided downstream guarantees of all of the pre-business combination Linde Inc. and Linde Finance notes, and Linde GmbH and Linde Inc., respectively, provided upstream guarantees of Linde plc’s downstream guarantees.
For further information about the guarantees of the debt securities registered under the Registration Statement (including the ranking of such guarantees, limitations on enforceability of such guarantees and the circumstances under which such guarantees may be released), see “Description of Debt Securities – Guarantees” and “Description of Debt Securities – Ranking” in the Registration Statement, which subsections are incorporated herein by reference.
The following tables present summarized financial information for Linde plc, Linde Inc., Linde GmbH and Linde Finance on a combined basis, after eliminating intercompany transactions and balances between them and excluding investments in and equity in earnings from non-guarantor subsidiaries.
| (Millions of dollars) | |||||||||||
| Statement of Income Data | Nine Months Ended September 30, 2022 | Twelve Months Ended December 31, 2021 | |||||||||
| Sales | $ | 6,650 | $ | 7,767 | |||||||
| Operating profit | 347 | 973 | |||||||||
| Net income | (26) | 721 | |||||||||
| Transactions with non-guarantor subsidiaries | 1,231 | 2,067 | |||||||||
| Balance Sheet Data (at period end) | |||||||||||
| Current assets (a) | $ | 8,284 | $ | 5,826 | |||||||
| Long-term assets (b) | 13,123 | 15,928 | |||||||||
| Current liabilities (c) | 10,747 | 8,853 | |||||||||
| Long-term liabilities (d) | 44,508 | 42,860 | |||||||||
| (a) From current assets above, amount due from non-guarantor subsidiaries | $ | 5,392 | $ | 4,209 | |||||||
| (b) From long-term assets above, amount due from non-guarantor subsidiaries | 1,719 | 3,257 | |||||||||
| (c) From current liabilities above, amount due to non-guarantor subsidiaries | 1,492 | 1,304 | |||||||||
| (d) From long-term liabilities above, amount due to non-guarantor subsidiaries | 30,868 | 28,142 |
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