filings.toolsItem 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations ("MD&A")
63K characters. Original on sec.gov · Markdown
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 exclusive of certain items such as 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, 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 three months ended March 31, 2024 and 2023. 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 March 31, | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| (Millions of dollars, except per share data) | 2024 | 2023 | Variance | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Sales | $ | 8,100 | $ | 8,193 | (1) | % | |||||||||||||||||||||||||||||||||||||||||||||||
| Cost of sales, exclusive of depreciation and amortization | $ | 4,216 | $ | 4,431 | (5) | % | |||||||||||||||||||||||||||||||||||||||||||||||
| As a percent of sales | 52.0 | % | 54.1 | % | |||||||||||||||||||||||||||||||||||||||||||||||||
| Selling, general and administrative | $ | 860 | $ | 822 | 5 | % | |||||||||||||||||||||||||||||||||||||||||||||||
| As a percent of sales | 10.6 | % | 10.0 | % | |||||||||||||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization | $ | 949 | $ | 948 | — | % | |||||||||||||||||||||||||||||||||||||||||||||||
| Other charges | $ | — | $ | 18 | (100) | % | |||||||||||||||||||||||||||||||||||||||||||||||
| Other income (expense) - net | $ | 58 | $ | (5) | 1,260 | % | |||||||||||||||||||||||||||||||||||||||||||||||
| Operating profit | $ | 2,095 | $ | 1,933 | 8 | % | |||||||||||||||||||||||||||||||||||||||||||||||
| Operating margin | 25.9 | % | 23.6 | % | |||||||||||||||||||||||||||||||||||||||||||||||||
| Interest expense - net | $ | 65 | $ | 37 | 76 | % | |||||||||||||||||||||||||||||||||||||||||||||||
| Net pension and OPEB cost (benefit), excluding service cost | $ | (50) | $ | (45) | 11 | % | |||||||||||||||||||||||||||||||||||||||||||||||
| Effective tax rate | 22.3 | % | 22.2 | % | |||||||||||||||||||||||||||||||||||||||||||||||||
| Income from equity investments | $ | 48 | $ | 41 | 17 | % | |||||||||||||||||||||||||||||||||||||||||||||||
| Noncontrolling interests | $ | (38) | $ | (36) | 6 | % | |||||||||||||||||||||||||||||||||||||||||||||||
| Net Income – Linde plc | $ | 1,627 | $ | 1,516 | 7 | % | |||||||||||||||||||||||||||||||||||||||||||||||
| Diluted earnings per share | $ | 3.35 | $ | 3.06 | 9 | % | |||||||||||||||||||||||||||||||||||||||||||||||
| Diluted shares outstanding | 485,592 | 495,676 | (2) | % | |||||||||||||||||||||||||||||||||||||||||||||||||
| Number of employees | 66,195 | 65,381 | 1 | % | |||||||||||||||||||||||||||||||||||||||||||||||||
| Adjusted Amounts (a) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Operating profit | $ | 2,341 | $ | 2,206 | 6 | % | |||||||||||||||||||||||||||||||||||||||||||||||
| Operating margin | 28.9 | % | 26.9 | % | |||||||||||||||||||||||||||||||||||||||||||||||||
| Effective tax rate | 22.7 | % | 24.1 | % | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net Income – Linde plc | $ | 1,821 | $ | 1,693 | 8 | % | |||||||||||||||||||||||||||||||||||||||||||||||
| Diluted earnings per share | $ | 3.75 | $ | 3.42 | 10 | % | |||||||||||||||||||||||||||||||||||||||||||||||
| Other Financial Data (a) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| EBITDA | $ | 3,092 | $ | 2,922 | 6 | % | |||||||||||||||||||||||||||||||||||||||||||||||
| As percent of sales | 38.2 | % | 35.7 | % | |||||||||||||||||||||||||||||||||||||||||||||||||
| Adjusted EBITDA | $ | 3,116 | $ | 2,963 | 5 | % | |||||||||||||||||||||||||||||||||||||||||||||||
| As percent of sales | 38.5 | % | 36.2 | % |
(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.
Reported
In the first quarter of 2024, Linde's sales were $8,100 million, $93 million below prior year. Cost pass-through, representing the contractual billing of energy cost variances primarily to onsite customers, decreased sales by 2% in the quarter, with minimal impact on operating profit. Volumes decreased sales by 1% in the quarter versus the 2023 respective period. The aforementioned drivers were partially offset by 2% higher price attainment.
Reported operating profit for the first quarter of 2024 of $2,095 million, or 25.9% of sales, was 8% above prior year. The reported year-over-year increase was primarily driven by higher pricing and productivity initiatives which more than offset adverse impacts from cost inflation and lower volumes. The reported effective tax rate ("ETR") was 22.3% in the first quarter 2024 versus 22.2% in the first quarter 2023. Diluted earnings per share ("EPS") was $3.35, or 9% above EPS of $3.06 in the first quarter of 2023, primarily due to higher net income - Linde plc and lower diluted shares outstanding.
Adjusted
In the first quarter of 2024, adjusted operating profit of $2,341, or 28.9% of sales, was 6% higher as compared to 2023, driven by higher pricing, and productivity initiatives, partially offset by cost inflation and lower volumes. The adjusted ETR was 22.7% in the first quarter 2024 versus 24.1% in the 2023 quarter, primarily due to higher tax benefits from share based
compensation. On an adjusted basis, EPS was $3.75, 10% above the 2023 adjusted EPS of $3.42, driven by higher adjusted net income - Linde plc 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 March 31, 2024 vs. 2023 | |||||||||||
| % Change | |||||||||||
| Factors Contributing to Changes - Sales | |||||||||||
| Volume | (1) | % | |||||||||
| Price/Mix | 2 | % | |||||||||
| Cost pass-through | (2) | % | |||||||||
| Currency | — | % | |||||||||
| Acquisitions/divestitures | — | % | |||||||||
| Engineering | — | % | |||||||||
| (1) | % |
Sales
Sales decreased $93 million or 1% for the first quarter of 2024 versus the respective 2023 period. Cost pass-through decreased sales by 2% in the quarter, with minimal impact on operating profit. Volumes decreased sales by 1% in the quarter versus the respective 2023 period, primarily driven by the manufacturing end market. Currency translation was flat in the quarter. Higher pricing across all geographic segments contributed 2% to sales in the quarter.
Cost of sales, exclusive of depreciation and amortization
Cost of sales, exclusive of depreciation and amortization decreased $215 million, or 5%, for the first quarter of 2024 primarily due to lower cost pass-through, lower volumes and productivity gains which more than offset cost inflation. Cost of sales, exclusive of depreciation and amortization was 52.0% of sales, respectively, for the first quarter versus 54.1% respective 2023 period. The decrease as a percentage of sales in the quarter was primarily due to higher pricing and lower cost pass-through.
Selling, general and administrative expenses
Selling, general and administrative expense ("SG&A") increased $38 million, or 5%, for the first quarter of 2024 driven by higher costs. SG&A was 10.6% of first quarter sales versus 10.0% for the respective 2023 period.
Depreciation and amortization
Reported depreciation and amortization expense increased $1 million for the first quarter of 2024.
On an adjusted basis, depreciation and amortization increased $11 million, for the first quarter of 2024 driven by new project start ups.
Other charges
There were no other charges during the first quarter of 2024 and other charges were $18 million for the first quarter of 2023, primarily due to the intercompany reorganization related to delisting from the Frankfurt Stock Exchange.
On an adjusted basis, these benefits and costs have been excluded in both periods.
Other income (expense) - net
Reported other income (expense) - net was a benefit of $58 million for the first quarter of 2024 driven by $43 million in insurance recoveries primarily within the Other segment.
Operating profit
On a reported basis, operating profit increased $162 million, or 8%, for the first quarter of 2024 . The increase in the quarter was primarily due to higher pricing, savings from productivity initiatives and lower other charges, which more than offset the adverse impacts of cost inflation and lower volumes in the first quarter of 2024.
On an adjusted basis, which excludes the impacts of merger-related purchase accounting as well as other charges, operating profit increased $135 million, or 6% in the first quarter of 2024. Operating profit growth was driven by higher pricing and productivity initiatives, which more than offset the effects of cost inflation and lower volumes during the period. A discussion of operating profit by segment is included in the segment discussion that follows.
Interest expense - net
Reported interest expense - net increased $28 million for the first quarter of 2024. On an adjusted basis, interest expense increased $21 million for the first quarter of 2024 versus the respective 2023 period. The increase in both periods was driven primarily by higher interest rates on debt.
Net pension and OPEB cost (benefit), excluding service cost
Reported net pension and OPEB cost (benefit), excluding service cost were benefits of $50 million versus $45 million for the respective 2023 period. The increase in the benefit primarily relates to higher expected return on assets and lower amortization of deferred losses year-over-year.
Effective tax rate
The reported effective tax rate ("ETR") for the quarter was 22.3% versus 22.2% for the respective 2023 period. While the rate is relatively flat year over year, 2024 included higher tax benefits from share based compensation and 2023 included a net decrease in uncertain tax positions. Effective January 1, 2024, Linde is subject to the 15% global minimum tax rate provisions of the OECD’s framework for Pillar Two, the implementation of which did not have a significant impact on the effective tax rate for the quarter.
On an adjusted basis, the ETR for the quarter was 22.7% versus 24.1% for the respective 2023 period. The decrease in the adjusted ETR is primarily due to higher tax benefits from share based compensation in 2024.
Income from equity investments
Reported income from equity investments for the first quarter of 2024 was $48 million versus $41 million for the respective 2023 period.
On an adjusted basis, income from equity investments for the first quarter was $66 million versus $59 million in the respective 2023 period.
Noncontrolling interests
At March 31, 2024, noncontrolling interests consisted primarily of non-controlling shareholders' investments in APAC (primarily China). Reported noncontrolling interests income increased $2 million for the first quarter of 2024 from the respective 2023 period.
Net Income – Linde plc
Reported net income - Linde plc increased $111 million, or 7%, for the first quarter of 2024 versus the respective 2023 period.
On an adjusted basis, which excludes the impacts of purchase accounting and other charges, net income - Linde plc increased $128 million, or 8%, for the first quarter of 2024 versus the respective 2023 period.
On both a reported and adjusted basis, the increase was driven by higher operating profit.
Diluted earnings per share
Reported diluted earnings per share increased $0.29, or 9%, for the first quarter of 2024 versus the comparable 2023 period.
On an adjusted basis, diluted EPS increased $0.33, or 10%, for the first quarter of 2024 versus the respective 2023 period.
The increase on both a reported and adjusted basis is primarily due to higher net income - Linde plc and lower diluted shares outstanding.
Employees
The number of employees at March 31, 2024 was 66,195, an increase of 814 employees from March 31, 2023 due primarily to acquisitions.
Other Financial Data
EBITDA was $3,092 million for the first quarter of 2024 as compared to $2,922 million in the respective 2023 period. The increase was driven by higher net income - Linde plc versus prior year.
Adjusted EBITDA increased to $3,116 million for the first quarter 2024 from $2,963 million in the respective 2023 period. The higher EBITDA was primarily due to higher net income - Linde plc versus the respective prior period.
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 first quarter were $738 million. The loss in the quarter resulted primarily from currency translation adjustments of $744 million. 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 10 to the condensed consolidated financial statements for a summary of the currency translation adjustment component of accumulated other comprehensive income (loss) 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 March 31, | ||||||||||||||||||||
| (Millions of dollars) | 2024 | 2023 | Variance | |||||||||||||||||
| SALES | ||||||||||||||||||||
| Americas | $ | 3,560 | $ | 3,551 | — | % | ||||||||||||||
| EMEA | 2,091 | 2,177 | (4) | % | ||||||||||||||||
| APAC | 1,591 | 1,598 | — | % | ||||||||||||||||
| Engineering | 539 | 540 | — | % | ||||||||||||||||
| Other | 319 | 327 | (2) | % | ||||||||||||||||
| Total sales | $ | 8,100 | $ | 8,193 | (1) | % | ||||||||||||||
| SEGMENT OPERATING PROFIT | ||||||||||||||||||||
| Americas | $ | 1,088 | $ | 1,025 | 6 | % | ||||||||||||||
| EMEA | 687 | 607 | 13 | % | ||||||||||||||||
| APAC | 447 | 423 | 6 | % | ||||||||||||||||
| Engineering | 100 | 149 | (33) | % | ||||||||||||||||
| Other | 19 | 2 | 850 | % | ||||||||||||||||
| Segment operating profit | $ | 2,341 | $ | 2,206 | 6 | % | ||||||||||||||
| Reconciliation to reported operating profit: | ||||||||||||||||||||
| Other charges | — | (18) | ||||||||||||||||||
| Purchase accounting impacts - Linde AG | (246) | (255) | ||||||||||||||||||
| Total operating profit | $ | 2,095 | $ | 1,933 |
Americas
| Quarter Ended March 31, | |||||||||||||||||||||||||||||||||||
| (Millions of dollars) | 2024 | 2023 | Variance | ||||||||||||||||||||||||||||||||
| Sales | $ | 3,560 | $ | 3,551 | — | % | |||||||||||||||||||||||||||||
| Operating profit | $ | 1,088 | $ | 1,025 | 6 | % | |||||||||||||||||||||||||||||
| As a percent of sales | 30.6 | % | 28.9 | % |
| Quarter Ended March 31, 2024 vs. 2023 | |||||||||||
| % Change | |||||||||||
| Factors Contributing to Changes - Sales | |||||||||||
| Volume | (1) | % | |||||||||
| Price/Mix | 3 | % | |||||||||
| Cost pass-through | (2) | % | |||||||||
| Currency | — | % | |||||||||
| Acquisitions/divestitures | — | % | |||||||||
| — | % |
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 $9 million in the first quarter versus the respective 2023 period. Higher pricing contributed 3% to sales in the quarter. Cost pass-through decreased sales by 2% for the first quarter with minimal impact on operating profit. Volumes decreased sales by 1% for the first quarter driven primarily by the manufacturing and healthcare end markets.
Operating profit
Operating profit in the Americas segment increased $63 million, or 6%, in the first quarter versus the respective 2023 period, driven primarily by higher pricing and continued productivity initiatives which more than offset cost inflation and lower volumes during the quarter.
EMEA
| Quarter Ended March 31, | |||||||||||||||||||||||||||||||||||
| (Millions of dollars) | 2024 | 2023 | Variance | ||||||||||||||||||||||||||||||||
| Sales | $ | 2,091 | $ | 2,177 | (4) | % | |||||||||||||||||||||||||||||
| Operating profit | $ | 687 | $ | 607 | 13 | % | |||||||||||||||||||||||||||||
| As a percent of sales | 32.9 | % | 27.9 | % |
| Quarter Ended March 31, 2024 vs. 2023 | |||||||||||
| % Change | |||||||||||
| Factors Contributing to Changes - Sales | |||||||||||
| Volume | (2) | % | |||||||||
| Price/Mix | 3 | % | |||||||||
| Cost pass-through | (5) | % | |||||||||
| Currency | — | % | |||||||||
| Acquisitions/divestitures | — | % | |||||||||
| (4) | % |
The EMEA segment includes Linde's industrial gases operations in approximately 45 European, Middle Eastern and African countries including Germany, United Kingdom, France, the Republic of South Africa and Sweden.
Sales
EMEA segment sales decreased by $86 million, or 4%, in the first quarter compared to the respective 2023 period. Higher price attainment increased sales by 3% in the quarter . Volumes decreased sales by 2% in the quarter led by the manufacturing end market. Cost pass-through decreased sales by 5% in the quarter with minimal impact on operating profit. Currency translation was flat in the quarter.
Operating Profit
Operating profit for the EMEA segment increased by $80 million, or 13%, in the first quarter compared to the respective 2023 periods. The increase in operating profit in the first quarter was driven primarily by higher pricing and continued productivity initiatives, partially offset by cost inflation and lower volumes.
APAC
| Quarter Ended March 31, | |||||||||||||||||||||||||||||||||||
| (Millions of dollars) | 2024 | 2023 | Variance | ||||||||||||||||||||||||||||||||
| Sales | $ | 1,591 | $ | 1,598 | — | % | |||||||||||||||||||||||||||||
| Operating profit | $ | 447 | $ | 423 | 6 | % | |||||||||||||||||||||||||||||
| As a percent of sales | 28.1 | % | 26.5 | % |
| Quarter Ended March 31, 2024 vs. 2023 | |||||||||||
| % Change | |||||||||||
| Factors Contributing to Changes - Sales | |||||||||||
| Volume/Equipment | 3 | % | |||||||||
| Price/Mix | 1 | % | |||||||||
| Cost pass-through | — | % | |||||||||
| Currency | (4) | % | |||||||||
| Acquisitions/divestitures | — | % | |||||||||
| — | % |
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 decreased $7 million in the first quarter versus the respective 2023 period. Higher pricing contributed 1% to sales in the quarter. Volumes increased 3% in the quarter including project start-ups in the electronics and chemicals and energy end markets. Currency translation decreased sales by 4%, 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 $24 million, or 6%, in the first quarter versus the respective 2023 period, driven by continued productivity initiatives which more than offset the impact of currency and cost inflation during the first quarter.
Engineering
| Quarter Ended March 31, | |||||||||||||||||||||||||||||||||||
| (Millions of dollars) | 2024 | 2023 | Variance | ||||||||||||||||||||||||||||||||
| Sales | $ | 539 | $ | 540 | — | % | |||||||||||||||||||||||||||||
| Operating profit | $ | 100 | $ | 149 | (33) | % | |||||||||||||||||||||||||||||
| As a percent of sales | 18.6 | % | 27.6 | % |
| Quarter Ended March 31, 2024 vs. 2023 | |||||||||||
| % Change | |||||||||||
| Factors Contributing to Changes - Sales | |||||||||||
| Currency | — | % | |||||||||
| Other | — | % | |||||||||
| — | % |
Sales
Engineering segment sales were flat in the first quarter as compared to the respective 2023 periods.
Operating profit
Engineering segment operating profit decreased $49 million, or 33%, in the first quarter compared to the respective 2023 period due to prior year's benefit from higher margin on lawful wind down of projects subject to sanctions in Russia.
Other
| Quarter Ended March 31, | |||||||||||||||||||||||||||||||||||
| (Millions of dollars) | 2024 | 2023 | Variance | ||||||||||||||||||||||||||||||||
| Sales | $ | 319 | $ | 327 | (2) | % | |||||||||||||||||||||||||||||
| Operating profit (loss) | $ | 19 | $ | 2 | 850 | % | |||||||||||||||||||||||||||||
| As a percent of sales | 6.0 | % | 0.6 | % |
| Quarter Ended March 31, 2024 vs. 2023 | |||||||||||
| % Change | |||||||||||
| Factors Contributing to Changes - Sales | |||||||||||
| Volume/price | (2) | % | |||||||||
| Currency | — | % | |||||||||
| Acquisitions/divestitures | — | % | |||||||||
| (2) | % | ||||||||||
Other consists of corporate costs and a few smaller businesses including Linde Advanced Material Technologies (LAMT) and global helium wholesale, which individually do not meet the quantitative thresholds for separate presentation.
Sales
Sales for Other decreased $8 million for the first quarter versus the respective 2023 period. Sales decreased 2% due to lower volumes in the helium business partially offset by higher pricing in the coatings business.
Operating profit
Operating profit in Other increased $17 million in the first quarter versus the respective 2023 period. The increase in the quarter was driven primarily by an insurance recovery in the period for the coatings business partially offset by higher costs due to helium and corporate.
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 2024 Consolidated Sales | Exchange Rate for Income Statement | Exchange Rate for Balance Sheet | ||||||||||||||||||||||||||||||
| Year-To-Date Average | March 31, | December 31, | ||||||||||||||||||||||||||||||
| Currency | 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||||||||||
| Euro | 18 | % | 0.92 | 0.93 | 0.93 | 0.92 | ||||||||||||||||||||||||||
| Chinese yuan | 7 | % | 7.19 | 6.84 | 7.22 | 7.10 | ||||||||||||||||||||||||||
| British pound | 5 | % | 0.79 | 0.82 | 0.79 | 0.79 | ||||||||||||||||||||||||||
| Australian dollar | 4 | % | 1.52 | 1.46 | 1.53 | 1.47 | ||||||||||||||||||||||||||
| Brazilian real | 4 | % | 4.95 | 5.19 | 5.01 | 4.86 | ||||||||||||||||||||||||||
| Canadian dollar | 3 | % | 1.35 | 1.35 | 1.35 | 1.32 | ||||||||||||||||||||||||||
| Korean won | 3 | % | 1,329 | 1,275 | 1,347 | 1,288 | ||||||||||||||||||||||||||
| Mexican peso | 3 | % | 16.97 | 18.66 | 16.56 | 16.97 | ||||||||||||||||||||||||||
| Indian rupee | 2 | % | 83.04 | 82.24 | 83.40 | 83.21 | ||||||||||||||||||||||||||
| South African rand | 1 | % | 18.89 | 17.74 | 18.88 | 18.36 | ||||||||||||||||||||||||||
| Swedish krona | 1 | % | 10.40 | 10.45 | 10.66 | 10.07 | ||||||||||||||||||||||||||
| Thailand bhat | 1 | % | 35.66 | 33.94 | 36.39 | 34.14 |
Liquidity, Capital Resources and Other Financial Data
The following selected cash flow information provides a basis for the discussion that follows:
| (Millions of dollars) | Three months ended March 31, | ||||||||||
| 2024 | 2023 | ||||||||||
| NET CASH PROVIDED BY (USED FOR): | |||||||||||
| OPERATING ACTIVITIES | |||||||||||
| Net income (including noncontrolling interests) | $ | 1,665 | $ | 1,552 | |||||||
| Non-cash charges (credits): | |||||||||||
| Add: Depreciation and amortization | 949 | 948 | |||||||||
| Add: Deferred income taxes | (35) | 4 | |||||||||
| Add: Share-based compensation | 38 | 30 | |||||||||
| Add: Other charges, net of payments | (55) | (61) | |||||||||
| Net income adjusted for non-cash charges | 2,562 | 2,473 | |||||||||
| Less: Working capital | (553) | (325) | |||||||||
| Less: Pension contributions | (11) | (10) | |||||||||
| Other | (44) | (230) | |||||||||
| Net cash provided by (used for) operating activities | $ | 1,954 | $ | 1,908 | |||||||
| INVESTING ACTIVITIES | |||||||||||
| Capital expenditures | (1,048) | (829) | |||||||||
| Acquisitions, net of cash acquired | — | (808) | |||||||||
| Divestitures, net of cash divested and asset sales | 7 | 3 | |||||||||
| Net cash provided by (used for) investing activities | $ | (1,041) | $ | (1,634) | |||||||
| FINANCING ACTIVITIES | |||||||||||
| Debt increase (decrease) - net | 1,215 | 717 | |||||||||
| Issuances (purchases) of common stock - net | (1,025) | (846) | |||||||||
| Cash dividends - Linde plc shareholders | (669) | (623) | |||||||||
| Noncontrolling interest transactions and other | (189) | (12) | |||||||||
| Net cash provided by (used for) financing activities | $ | (668) | $ | (764) | |||||||
| Effect of exchange rate changes on cash and cash equivalents | $ | (61) | $ | 16 | |||||||
| Cash and cash equivalents, end-of-period | $ | 4,848 | $ | 4,962 |
Cash Flow from Operations
Cash provided by operations of $1,954 million for the three months ended March 31, 2024 increased $46 million, or 2%, versus 2023. The increase was driven primarily by higher net income adjusted for non-cash charges, partially offset by higher net working capital and other cash requirements.
Linde estimates that total 2024 required contributions to its pension plans will be in the range of approximately $30 million to $40 million, of which $11 million has been made through March 31, 2024.
Investing
Net cash used for investing of $1,041 million for the three months ended March 31, 2024 decreased $593 million versus 2023, due to lower acquisitions, net of cash acquired partially offset by higher capital expenditures.
Capital expenditures for the three months ended March 31, 2024 were $1,048 million, $219 million higher than the prior year due primarily to investments in new plant and production equipment for backlog growth requirements.
At March 31, 2024, Linde's sale of gas backlog of large projects under construction was approximately $4.9 billion. This represents the total estimated capital cost of large plants under construction.
There were no acquisitions for the three months ended March 31, 2024. Acquisitions, net of cash acquired were $808 million, for the three months ended March 31, 2023 and related primarily to the acquisition of nexAir in the Americas.
Divestitures, net of cash divested and asset sales for the three months ended March 31, 2024 and 2023 were $7 million and $3 million, respectively.
Financing
Cash used for financing activities was $668 million for the three months ended March 31, 2024 as compared to $764 million for the three months ended March 31, 2023. Cash provided by debt was $1,215 million in 2024 versus cash provided by debt of $717 million in 2023, driven primarily by higher net debt issuances. In the first quarter of 2024 Linde issued €700 million of 3.00% notes due in 2028, €850 million of 3.20% notes due in 2031 and €700 million of 3.40% notes due in 2036. In February 2024, Linde repaid €550 million of 1.20% notes that became due.
Net purchases of ordinary shares were $1,025 million in 2024 versus $846 million in 2023. 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 $669 million increased $46 million from 2023 driven primarily by a 9% increase in quarterly dividends per share from $1.275 per share to $1.39 per share, partially offset by lower shares outstanding. Cash used for Noncontrolling interest transactions and other was $189 million for the three months ended March 31, 2024 versus cash used of $12 million for the respective 2023 period.
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 $4.8 billion of cash as of March 31, 2024, and has a $5 billion and a $1.5 billion unsecured and undrawn revolving credit agreement with no associated financial covenants. No borrowings were outstanding under the credit agreements as of March 31, 2024. 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 8 to the condensed consolidated financial statements.
NON-GAAP MEASURES AND RECONCILIATIONS
(Millions of dollars, except per share data)
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 March 31, | |||||||||||||||||
| 2024 | 2023 | ||||||||||||||||
| Adjusted Operating Profit and Operating Margin | |||||||||||||||||
| Reported operating profit | $ | 2,095 | $ | 1,933 | |||||||||||||
| Add: Other charges | — | 18 | |||||||||||||||
| Add: Purchase accounting impacts - Linde AG (c) | 246 | 255 | |||||||||||||||
| Total adjustments | 246 | 273 | |||||||||||||||
| Adjusted operating profit | $ | 2,341 | $ | 2,206 | |||||||||||||
| Reported percentage change | 8 | % | |||||||||||||||
| Adjusted percentage change | 6 | % | |||||||||||||||
| Reported sales | $ | 8,100 | $ | 8,193 | |||||||||||||
| Reported operating margin | 25.9 | % | 23.6 | % | |||||||||||||
| Adjusted operating margin | 28.9 | % | 26.9 | % | |||||||||||||
| Adjusted Depreciation and amortization | |||||||||||||||||
| Reported depreciation and amortization | $ | 949 | $ | 948 | |||||||||||||
| Less: Purchase accounting impacts - Linde AG (c) | (240) | (250) | |||||||||||||||
| Adjusted depreciation and amortization | $ | 709 | $ | 698 | |||||||||||||
| Adjusted Other Income (Expense) - net | |||||||||||||||||
| Reported Other Income (Expense) - net | $ | 58 | $ | (5) | |||||||||||||
| Less: Purchase accounting impacts - Linde AG (c) | (6) | (5) | |||||||||||||||
| Adjusted Other Income (Expense) - net | $ | 64 | $ | — | |||||||||||||
| Adjusted Interest Expense - Net | |||||||||||||||||
| Reported interest expense - net | $ | 65 | $ | 37 | |||||||||||||
| Add: Purchase accounting impacts - Linde AG (c) | 2 | 9 | |||||||||||||||
| Adjusted interest expense - net | $ | 67 | $ | 46 | |||||||||||||
| Adjusted Income Taxes (a) | |||||||||||||||||
| Reported income taxes | $ | 463 | $ | 430 | |||||||||||||
| Add: Purchase accounting impacts - Linde AG (c) | 60 | 57 | |||||||||||||||
| Add: Other charges | 5 | 45 | |||||||||||||||
| Total adjustments | 65 | 102 | |||||||||||||||
| Adjusted income taxes | $ | 528 | $ | 532 | |||||||||||||
| Adjusted Effective Tax Rate (a) | |||||||||||||||||
| Reported income before income taxes and equity investments | $ | 2,080 | $ | 1,941 | |||||||||||||
| Add: Purchase accounting impacts - Linde AG (c) | 244 | 246 | |||||||||||||||
| Add: Other charges | — | 18 | |||||||||||||||
| Total adjustments | 244 | 264 | |||||||||||||||
| Adjusted income before income taxes and equity investments | $ | 2,324 | $ | 2,205 | |||||||||||||
| Reported Income taxes | $ | 463 | $ | 430 | |||||||||||||
| Reported effective tax rate | 22.3 | % | 22.2 | % | |||||||||||||
| Adjusted income taxes | $ | 528 | $ | 532 | |||||||||||||
| Adjusted effective tax rate | 22.7 | % | 24.1 | % | |||||||||||||
| Income from Equity Investments | |||||||||||||||||
| Reported income from equity investments | $ | 48 | $ | 41 | |||||||||||||
| Add: Purchase accounting impacts - Linde AG (c) | 18 | 18 | |||||||||||||||
| Adjusted income from equity investments | $ | 66 | $ | 59 | |||||||||||||
| Adjusted Noncontrolling Interests | |||||||||||||||||
| Reported noncontrolling interests | $ | (38) | $ | (36) | |||||||||||||
| Add: Purchase accounting impacts - Linde AG (c) | (3) | (3) | |||||||||||||||
| Adjusted noncontrolling interests | $ | (41) | $ | (39) | |||||||||||||
| Adjusted Net Income - Linde plc (b) | |||||||||||||||||
| Reported net income - Linde plc | $ | 1,627 | $ | 1,516 | |||||||||||||
| Add: Other charges | (5) | (27) | |||||||||||||||
| Add: Purchase accounting impacts - Linde AG (c) | 199 | 204 | |||||||||||||||
| Total adjustments | 194 | 177 | |||||||||||||||
| Adjusted net income - Linde plc | $ | 1,821 | $ | 1,693 | |||||||||||||
| Adjusted Diluted EPS (b) | |||||||||||||||||
| Reported diluted EPS | $ | 3.35 | $ | 3.06 | |||||||||||||
| Add: Pension settlement charge | — | — | |||||||||||||||
| Add: Other charges | (0.01) | (0.05) | |||||||||||||||
| Add: Purchase accounting impacts - Linde AG (c) | 0.41 | 0.41 | |||||||||||||||
| Total adjustments | 0.40 | 0.36 | |||||||||||||||
| Adjusted diluted EPS | $ | 3.75 | $ | 3.42 | |||||||||||||
| Reported percentage change | 9 | % | |||||||||||||||
| Adjusted percentage change | 10 | % | |||||||||||||||
| Adjusted EBITDA and % of Sales | |||||||||||||||||
| Net Income - Linde plc | $ | 1,627 | $ | 1,516 | |||||||||||||
| Add: Noncontrolling interests | 38 | 36 | |||||||||||||||
| Add: Net pension and OPEB cost (benefit), excluding service cost | (50) | (45) | |||||||||||||||
| Add: Interest expense | 65 | 37 | |||||||||||||||
| Add: Income taxes | 463 | 430 | |||||||||||||||
| Add: Depreciation and amortization | 949 | 948 | |||||||||||||||
| EBITDA | $ | 3,092 | $ | 2,922 | |||||||||||||
| Add: Other charges | — | 18 | |||||||||||||||
| Add: Purchase accounting impacts - Linde AG (c) | 24 | 23 | |||||||||||||||
| Total adjustments | 24 | 41 | |||||||||||||||
| Adjusted EBITDA | $ | 3,116 | $ | 2,963 | |||||||||||||
| Reported sales | $ | 8,100 | $ | 8,193 | |||||||||||||
| % of sales | |||||||||||||||||
| EBITDA | 38.2 | % | 35.7 | % | |||||||||||||
| Adjusted EBITDA | 38.5 | % | 36.2 | % |
| (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 2018 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: Represents the noncontrolling interests’ ownership portion of the adjustments described above determined on an entity by entity basis. | |||||||||||||||||||||||||||||||||||||||||
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.
| March 31, 2024 | December 31, 2023 | ||||||||||
| (Millions of dollars) | |||||||||||
| Debt | $ | 20,319 | $ | 19,373 | |||||||
| Less: cash and cash equivalents | (4,848) | (4,664) | |||||||||
| Net debt | 15,471 | 14,709 | |||||||||
| Less: purchase accounting impacts - Linde AG | (5) | (7) | |||||||||
| Adjusted net debt | $ | 15,466 | $ | 14,702 |
Supplemental Guarantee Information
On May 3, 2023, 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 pre-existing Linde Inc. and Linde Finance notes, and Linde GmbH and Linde Inc., respectively, provided upstream guarantees of Linde plc’s downstream guarantees.
Linde plc has filed a base prospectus with the Luxembourg Stock Exchange for a €10.0 billion debt issuance program, under which Linde plc may offer debt securities. Linde Inc. and Linde GmbH have provided to Linde plc upstream guarantees in relation to debt securities of Linde plc offered under the European debt program.
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 | Three Months Ended March 31, 2024 | Twelve months ended December 31, 2023 | |||||||||
| Sales | $ | 1,938 | $ | 8,143 | |||||||
| Operating profit | 336 | 1,656 | |||||||||
| Net income | (57) | 735 | |||||||||
| Transactions with non-guarantor subsidiaries | 759 | 3,004 | |||||||||
| Balance Sheet Data (at period end) | |||||||||||
| Current assets (a) | $ | 5,467 | $ | 4,423 | |||||||
| Long-term assets (b) | 13,329 | 13,833 | |||||||||
| Current liabilities (c) | 9,765 | 10,882 | |||||||||
| Long-term liabilities (d) | 59,698 | 56,546 | |||||||||
| (a) From current assets above, amount due from non-guarantor subsidiaries | $ | 2,477 | $ | 1,753 | |||||||
| (b) From long-term assets above, amount due from non-guarantor subsidiaries | 575 | 816 | |||||||||
| (c) From current liabilities above, amount due to non-guarantor subsidiaries | 1,698 | 1,684 | |||||||||
| (d) From long-term liabilities above, amount due to non-guarantor subsidiaries | 40,763 | 39,458 |
Previous: Cover and table of contents · Next: Item 3. Quantitative and Qualitative Disclosures About Market Risk