LINDE PLC Non-GAAP Measures
Throughout MD&A, the company provides adjusted operating results from continuing operations exclusive of certain items such as cost reduction programs and other charges, net gains on sale of businesses, purchase accounting impacts of theLinde 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."
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Consolidated Results The following table provides summary information for the quarters and six months endedJune 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 June 30, Six Months Ended June 30, (Millions of dollars, except per share 2021 data) 2022 2021 Variance 2022 Variance Sales$ 8,457 $ 7,584 12 %$ 16,668 $ 14,827 12 % Cost of sales, exclusive of depreciation and amortization$ 4,940 $ 4,194 18 %$ 9,738 $ 8,248 18 % As a percent of sales 58.4 % 55.3 % 58.4 % 55.6 % Selling, general and administrative$ 771 $ 822 (6) %$ 1,573 $ 1,609 (2) % As a percent of sales 9.1 % 10.8 % 9.4 % 10.9 % Depreciation and amortization$ 1,091 $ 1,171 (7) %$ 2,203 $ 2,337 (6) %Russia -Ukraine conflict and other charges (b)$ 993 $ 204 387 %$ 989 $ 196
405 %
Other income (expense) - net$ (36) $ (17) (112) %$ (24) $ (13) (85) % Operating profit$ 589 $ 1,142 (48) %$ 2,069 $ 2,355 (12) % Operating margin 7.0 % 15.1 % 12.4 % 15.9 % Interest expense - net$ 5 $ 18 (72) % $ 14$ 38 (63) % Net pension and OPEB cost (benefit), excluding service cost$ (62) $ (49) 27 %$ (126) $ (98) 29 % Effective tax rate 44.3 % 28.5 % 30.0 % 24.9 % Income from equity investments$ 50 $ 37 35 % $ 94$ 80 18 % Noncontrolling interests from continuing operations$ (38) $ (36) 6 %$ (74) $ (74) - % Income from continuing operations$ 372 $ 840 (56) %$ 1,546 $ 1,819 (15) % Diluted earnings per share from continuing operations$ 0.74 $ 1.60 (54) %$ 3.04 $ 3.46 (12) % Diluted shares outstanding 505,269 523,723 (4) % 508,432 525,380 (3) % Number of employees 72,438 71,736 1 % 72,438 71,736 1 % Adjusted Amounts (a) Operating profit$ 1,988 $ 1,837 8 %$ 3,893 $ 3,525 10 % Operating margin 23.5 % 24.2 % 23.4 % 23.8 % Effective tax rate 24.5 % 24.6 % 24.4 % 24.3 % Income from continuing operations$ 1,566 $ 1,415 11 %$ 3,066 $ 2,727 12 % Diluted earnings per share from continuing operations$ 3.10 $ 2.70 15 %$ 6.03 $ 5.19 16 % Other Financial Data (a) EBITDA from continuing operations$ 1,730 $ 2,350 (26) %$ 4,366 $ 4,772 (9) % As percent of sales 20.5 % 31.0 % 26.2 % 32.2 % Adjusted EBITDA from continuing operations$ 2,746 $ 2,585 6 %$ 5,409 $ 5,023 8 % As percent of sales 32.5 % 34.1 % 32.5 % 33.9 % (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 second quarter of 2022, Linde's sales were$8,457 million , 12% above prior year, primarily driven by 7% price attainment and 2% higher volumes. Cost pass-through, representing the contractual billing of energy cost variances primarily to onsite customers, increased sales by 7% in the quarter, with minimal impact on operating profit. Currency translation decreased sales by 5% in the second quarter of 2022 as compared to 2021. Reported operating profit for the second quarter of 2022 of$589 million , or 7.0% of sales, was 48% below prior year. The reported year-over-year decrease was primarily due to charges relating to the deconsolidation and impairment of Russian subsidiaries resulting from the ongoing war inUkraine and related sanctions (see Note 2 to the condensed consolidated financial statements) partially offset by higher price and productivity initiatives. The reported effective tax rate ("ETR") was 44.3% in the second quarter 2022 versus 28.5% in the second quarter 2021, driven primarily by the non-deductibility of the 27 -------------------------------------------------------------------------------- Table of Contents charges related to the deconsolidation and impairment of Linde's Russian subsidiaries partially offset by the reversal of a related deferred tax liability. Diluted earnings per share from continuing operations ("EPS") was$0.74 , or 54% below EPS of$1.60 in the second quarter of 2021 primarily due to lower income from continuing operations, partially offset by lower diluted shares outstanding.
Adjusted
In the second quarter of 2022, adjusted operating profit of$1,988 million , or 23.5% of sales, was 8% higher as compared to 2021 driven by higher price and productivity initiatives, partially offset by inflation. The adjusted ETR was 24.5% in the second quarter 2022 versus 24.6% in the 2021 quarter. On an adjusted basis, EPS was$3.10 , 15% above the 2021 adjusted EPS of$2.70 , 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. 28 --------------------------------------------------------------------------------
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Results of operations
The changes in consolidated sales compared to the prior year are attributable to
the following:
Six Months Ended June 30,
Quarter Ended June 30, 2022 vs. 2021 2022 vs. 2021
% Change % Change
Factors Contributing to Changes - Sales
Volume 2 % 2 %
Price/Mix 7 % 6 %
Cost pass-through 7 % 7 %
Currency (5) % (4) %
Acquisitions/divestitures - % - %
Engineering 1 % 1 %
12 % 12 %
Sales
Sales increased $873 million , or 12%, for the second quarter of 2022 and
increased $1,841 million , or 12% for the six months ended June 30, 2022 versus
the respective 2021 periods. Volume growth in all end markets except healthcare
and project startups increased sales by 2% in the quarter and year-to-date
period. Higher pricing across all geographic segments contributed 7% to sales in
the quarter and 6% in the year-to-date period. Currency translation decreased
sales by 5% in the quarter and 4% in the year-to-date period, largely in EMEA
and APAC, driven by the weakening of the Euro, Australian dollar and British
pound against the U.S. dollar. Cost pass-through increased sales by 7% in the
quarter and 7% in the year-to-date period with minimal impact on operating
profit.
Cost of sales, exclusive of depreciation and amortization
Cost of sales, exclusive of depreciation and amortization increased $746
million , or 18%, for the second quarter of 2022 and increased $1,490 million , or
18% for the six months ended June 30, 2022 primarily due to inflation and higher
volumes, partially offset by productivity initiatives and currency impacts. Cost
of sales, exclusive of depreciation and amortization was 58.4% and 58.4% of
sales, respectively, for the second quarter and six months ended June 30, 2022
versus 55.3% and 55.6% of sales for the respective 2021 periods. The increase as
a percentage of sales in the quarter and for the six months ended June 30, 2022
was due primarily to higher cost pass-through.
Selling, general and administrative expenses
Selling, general and administrative expense ("SG&A") decreased $51 million , or
6%, for the second quarter of 2022 and decreased $36 million , or 2%, for the six
months ended June 30, 2022 . SG&A was 9.1% of second quarter sales and 9.4% of
sales for the six months ended June 30, 2022 versus 10.8% and 10.9% for the
respective 2021 periods. Currency impacts decreased SG&A by approximately
$32 million and $50 million for the quarter and six months ended June 30, 2022 ,
respectively. Excluding currency impacts, underlying SG&A decreased in the
second quarter of 2022 driven primarily by lower incentive compensation and
increased for the six months ended June 30, 2022 due primarily to higher costs.
Depreciation and amortization
Reported depreciation and amortization expense decreased $80 million , or 7%, for
the second quarter of 2022 and decreased $134 million , or 6%, for the six months
ended June 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 $2 million , for
the second quarter of 2022 and increased $4 million , for the year-to-date
period. Currency impacts decreased depreciation and amortization by $29 million
and $45 million , for the quarter and six months ended June 30, 2022 ,
respectively. Excluding currency, underlying depreciation and amortization
increased primarily due to new project start ups.
Russia -Ukraine conflict and other charges
Russia -Ukraine conflict and other charges were $993 million and $989 million for
the second quarter and six months ended June 30, 2022 , respectively, and $204
million and $196 million for the respective 2021 periods. 2022 charges relate
primarily to the deconsolidation and impairment of Russian subsidiaries
resulting from the ongoing war in Ukraine and related sanctions. 2021 charges
relate to cost reduction program and other charges, primarily severance (see
Note 2 to the condensed consolidated financial statements).
On an adjusted basis, these costs have been excluded in both periods.
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Operating profit On a reported basis, operating profit decreased$553 million , or 48%, for the second quarter of 2022 and decreased$286 million , or 12%, for the six months endedJune 30, 2022 . The decrease was primarily due toRussia -Ukraine conflict and other charges, which more than offset growth from higher pricing and productivity initiatives and lower depreciation and amortization driven by merger related intangible assets. On an adjusted basis, which excludes the impacts of purchase accounting andRussia -Ukraine conflict and other charges, operating profit increased$151 million , or 8% in the 2022 quarter and increased$368 million , or 10%, for the six months endedJune 30, 2022 . Operating profit growth was driven by higher pricing and productivity initiatives which more than offset inflation 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 decreased$13 million for the second quarter of 2022 and decreased$24 million for the six months endedJune 30, 2022 . On an adjusted basis, interest expense decreased$19 million for the second quarter of 2022 and decreased$38 million for the six months endedJune 30, 2022 versus the respective 2021 periods. The decrease in both periods was driven by a lower effective borrowing rate and higher interest income on cash deposits. Net pension and OPEB cost (benefit), excluding service cost Reported net pension and OPEB cost (benefit), excluding service cost was a benefit of$62 million and$126 million for the quarter and six months endedJune 30, 2022 , respectively, versus a benefit of$49 million and$98 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 six months endedJune 30, 2022 was 44.3% and 30.0%, respectively, versus 28.5% and 24.9% for the respective 2021 periods. The increase is primarily related to the net tax expense resulting from the deconsolidation and impairment of the company's business inRussia , driven predominantly by the non-deductibility of the impairment charges partially offset by the reversal of a related deferred tax liability. For the quarter and six months endedJune 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 theUnited 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 six months endedJune 30, 2022 was 24.5% and 24.4%, respectively, versus 24.6% and 24.3% for the respective 2021 periods. Income from equity investments Reported income from equity investments for the second quarter of 2022 and six months endedJune 30, 2022 was$50 million and$94 million , respectively, versus$37 million and$80 million for the respective 2021 periods. On an adjusted basis, income from equity investments for the second quarter and six months endedJune 30, 2022 was$69 million and$133 million , respectively, versus$56 million and$118 million in the prior year respective periods. The increase on both basis was primarily driven by the overall performance of investments in APAC.
Noncontrolling interests from continuing operations
At
Reported noncontrolling interests from continuing operations increased
Income from continuing operations Reported income from continuing operations decreased$468 million , or 56%, for the second quarter of 2022 and decreased$273 million , or 15%, for the six months endedJune 30, 2022 versus the respective 2021 periods, primarily due to lower overall operating profit. On an adjusted basis, which excludes the impacts of purchase accounting andRussia -Ukraine conflict and other charges, income from continuing operations increased$151 million , or 11%, for the quarter and increased$339 million , or 12%, for the six months endedJune 30, 2022 versus the respective 2021 periods. The increase was driven by higher overall adjusted operating profit. Diluted earnings per share from continuing operations Reported diluted earnings per share from continuing operations decreased$0.86 , or 54%, for the second quarter of 2022 and decreased$0.42 , or 12%, for the six months endedJune 30, 2022 versus the comparable 2021 periods. The decrease was primarily due to lower income from continuing operations, partially offset by lower diluted shares outstanding.
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Table of Contents On an adjusted basis, diluted EPS for the second quarter of 2022 increased$0.40 , or 15%, and increased$0.84 , or 16% for the six months endedJune 30, 2022 versus the respective 2021 periods. The increase was primarily due to higher adjusted income from continuing operations and lower diluted shares outstanding.
Employees
The number of employees at
Other Financial Data EBITDA was$1,730 million for the second quarter of 2022 as compared to$2,350 million in the respective 2021 period. EBITDA was$4,366 million for the six months endedJune 30, 2022 as compared to$4,772 million in the respective 2021 period. The decrease in both periods was driven by lower income from continuing operations plus depreciation and amortization versus the prior periods. Adjusted EBITDA from continuing operations increased to$2,746 million for the second quarter 2022 from$2,585 million in the respective 2021 period. Adjusted EBITDA from continuing operations increased to$5,409 million from$5,023 million for the six months endedJune 30, 2022 as compared to the respective 2021 period primarily due to higher adjusted income from continuing operations plus depreciation and amortization versus the 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 second quarter of 2022 and six months endedJune 30, 2022 were$1,545 million and$1,447 million , respectively, resulting primarily from currency translation adjustments of$1,699 million and$1,651 million during the quarter and year-to-date periods, respectively. The translation adjustments reflect the impact of translating local currency foreign subsidiary financial statements toU.S. dollars, and are largely driven by the movement of theU.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.
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