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."
Consolidated Results The following table provides summary information for the three months endedMarch 31, 2021 and 2020. 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) 2021 2020 Variance Sales$ 7,243 $ 6,739 7 % Cost of sales, exclusive of depreciation and amortization$ 4,054 $ 3,843 5 % As a percent of sales 56.0 % 57.0 % Selling, general and administrative $ 787 $ 861 (9) % As a percent of sales 10.9 % 12.8 % Depreciation and amortization$ 1,166 $ 1,142 2 % Cost reduction programs and other charges (b) $ (8) $ 131 (106) % Other income (expense) - net $ 4 $ 15 (73) % Operating profit$ 1,213 $ 733 65 % Operating margin 16.7 % 10.9 % Interest expense - net $ 20 $ 24 (17) % Net pension and OPEB cost (benefit), excluding service cost $ (49) $ (45) 9 % Effective tax rate 21.6 % 21.9 % Income from equity investments $ 43 $ 17 153 % Noncontrolling interests from continuing operations $ (38) $ (35) 9 % Income from continuing operations $ 979 $ 571 71 % Diluted earnings per share from continuing operations $ 1.86 $ 1.07 74 % Diluted shares outstanding 526,927 534,956 (2) % Number of employees 71,699 79,008 (9) % Adjusted Amounts (a) Operating profit$ 1,688 $ 1,352 25 % Operating margin 23.3 % 20.1 % Effective tax rate 23.9 % 23.9 % Income from continuing operations$ 1,312 $ 1,009 30 % Diluted earnings per share from continuing operations $ 2.49 $ 1.89 32 % Other Financial Data (a) EBITDA from continuing operations$ 2,422 $ 1,892 28 % As percent of sales 33.4 % 28.1 % Adjusted EBITDA from continuing operations$ 2,438 $ 2,049 19 % As percent of sales 33.7 % 30.4 % (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" sections of this MD&A. 24 -------------------------------------------------------------------------------- Table of Contents (b) See Note 2 to the condensed consolidated financial statements.
Reported
In the first quarter of 2021, Linde's sales were$7,243 million , 7% above prior year, primarily driven by 2% price attainment and 3% higher volumes. Currency translation increased sales by 4% in the first quarter of 2021 as compared to 2020. Reported operating profit for the first quarter of 2021 of$1,213 million , or 16.7% of sales, was 65% above prior year. The reported year-over-year increase was primarily due to higher price and volumes and lower cost reduction programs and other charges. The reported effective tax rate ("ETR") was 21.6% in the first quarter 2021 versus 21.9% in the first quarter 2020. Diluted earnings per share from continuing operations ("EPS") was$1.86 , or 74% above EPS of$1.07 in the first quarter of 2020 primarily due to higher income from continuing operations and lower diluted shares outstanding.
Adjusted
In the first quarter of 2021, adjusted operating profit of$1,688 million , or 23.3% of sales, was 25% higher as compared to 2020 driven by higher price and volumes and continued productivity initiatives across all segments. The adjusted ETR was 23.9% in the first quarter 2021, flat versus the 2020 quarter. On an adjusted basis, EPS was$2.49 , 32% above the 2020 adjusted EPS of$1.89 , 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 March 31, 2021 vs. 2020
% Change
Factors Contributing to Changes - Sales
Volume 3 %
Price/Mix 2 %
Cost pass-through 1 %
Currency 4 %
Acquisitions/divestitures (3) %
Engineering - %
7 %
Sales
Sales increased $504 million , or 7%, for the first quarter of 2021 versus the
respective 2020 period. Volume increased sales by 3% in the quarter primarily
driven by healthcare, electronics and a recovery in the cyclical end markets of
manufacturing, metals, chemicals and refining. Higher pricing across all
geographic segments contributed 2% to sales in the quarter. Currency translation
increased sales by 4% in the quarter, largely in EMEA and APAC, driven by the
strengthening of the Euro, Australian dollar, Chinese yuan and British pound
against the U.S. dollar. Cost pass-through increased sales by 1% in the quarter
with minimal impact on operating profit. The deconsolidation of a joint venture
with operations in APAC decreased sales by 3% (see Note 13 to the condensed
consolidated financial statements).
Cost of sales, exclusive of depreciation and amortization
Cost of sales, exclusive of depreciation and amortization increased $211
million , or 5%, for the first quarter of 2021 primarily due to higher volumes
and currency impacts, partially offset by productivity initiatives. Cost of
sales, exclusive of depreciation and amortization was 56.0% of sales for the
first quarter of 2021 versus 57.0% of sales for the respective 2020 period. The
decrease as a percentage of sales in the quarter was due primarily to cost
reduction and productivity initiatives.
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Selling, general and administrative expenses
Selling, general and administrative expense ("SG&A") decreased $74 million , or
9%, for the first quarter of 2021. SG&A was 10.9% of first quarter sales versus
12.8% for the respective 2020 period. Currency impacts increased SG&A by
approximately $25 million in the quarter. Excluding currency impacts, underlying
SG&A decreased driven by lower incentive compensation and continued cost
reduction and productivity initiatives.
Depreciation and amortization
Reported depreciation and amortization expense increased $24 million , or 2%, for
the first quarter of 2021 primarily due to currency translation impacts.
On an adjusted basis depreciation and amortization increased $22 million , or 3%,
for the first quarter of 2021, primarily due to currency translation impacts
which increased depreciation and amortization by $20 million . Excluding currency
impacts, underlying depreciation was relatively flat as the impact of new
project start ups was largely offset by the deconsolidation of a joint venture
with operations in APAC (see Note 13 to the condensed consolidated financial
statements).
Cost reduction programs and other charges
Cost reduction programs and other charges was a benefit of $8 million and a
charge of $131 million for the first quarter 2021 and 2020, respectively,
primarily related to merger and synergy-related costs (see Note 2 to the
condensed consolidated financial statements).
On an adjusted basis, these costs have been excluded in both periods.
Operating profit
On a reported basis, operating profit increased $480 million , or 65%, for 2021.
The increase was primarily due to higher volumes and price, partially offset by
the deconsolidation of a joint venture with operations in APAC. Cost reduction
programs and other charges was a benefit of $8 million for the first quarter,
versus a charge of $131 million for the respective 2020 period.
On an adjusted basis, which excludes the impacts of purchase accounting and cost
reduction programs and other charges, operating profit increased $336 million ,
or 25% in the 2021 quarter. Operating profit growth was driven by higher volume
and price and the benefit of cost reduction programs and productivity
initiatives, partially offset by the deconsolidation of a joint venture with
operations in APAC. A discussion of operating profit by segment is included in
the segment discussion that follows.
Interest expense - net
Reported interest expense - net decreased $4 million for the first quarter of
2021. On an adjusted basis interest expense decreased $8 million for the first
quarter versus the respective 2020 period.
On both a reported and adjusted basis, the decrease was driven primarily by the
impact of unfavorable foreign currency revaluation on an unhedged intercompany
loan in the prior year period.
Net pension and OPEB cost (benefit), excluding service cost
Reported net pension and OPEB cost (benefit), excluding service cost was a
benefit of $49 million for the 2021 quarter, versus a benefit of $45 million for
the respective 2020 period. The increase in benefit of $4 million largely
relates to a higher expected return on assets and lower interest costs driven by
the low discount rate environment offset by higher amortization of deferred
losses.
Effective tax rate
The reported effective tax rate ("ETR") for the 2021 quarter was 21.6%, versus
21.9% for the respective 2020 period.
On an adjusted basis, the ETR for the first quarter 2021 was 23.9%, flat with
the respective 2020 period.
Income from equity investments
Reported income from equity investments for the first quarter 2021 was $43
million , versus $17 million for the respective 2020 period. On an adjusted
basis, income from equity investments for the first quarter of 2021 was $62
million , versus $31 million , in the prior respective period. The increase in
both the reported and adjusted income from equity investments was driven by the
deconsolidation of a joint venture with operations in APAC which is reflected in
equity income effective January 1, 2021 (see Note 13 to the condensed
consolidated financial statements), and the impact of unfavorable foreign
currency revaluation on an unhedged loan of an investment in EMEA in the prior
year period.
Noncontrolling interests from continuing operations
At March 31, 2021 , noncontrolling interests from continuing operations consisted
primarily of non-controlling shareholders' investments in APAC (primarily China )
and surface technologies.
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Reported noncontrolling interests from continuing operations increased $3
million for the first quarter of 2021 versus the respective 2020 period.
Adjusted noncontrolling interests from continuing operations decreased $7
million for the first quarter of 2021 versus the respective 2020 period,
primarily driven by the deconsolidation of a joint venture with operations in
APAC (see Note 13 to the condensed consolidated financial statements) and the
buyout of minority shareholders in the Republic of South Africa .
Income from continuing operations
Reported income from continuing operations increased $408 million , or 71%, for
the first quarter of 2021 primarily due to higher operating profit versus the
respective 2020 period.
On an adjusted basis, which excludes the impacts of purchase accounting and
other non-GAAP adjustments, income from continuing operations increased $303
million , or 30%, for 2021 versus the respective 2020 period. The increase in the
quarter was driven by higher overall adjusted operating profit.
Diluted earnings per share from continuing operations
Reported diluted EPS from continuing operations increased $0.79 , or 74%, for
2021 versus the comparable 2020 period. On an adjusted basis, diluted EPS of
$2.49 for the first quarter increased $0.60 , or 32% versus the respective 2020
period. The increase in both reported and adjusted diluted EPS is driven by
higher income from continuing operations and lower diluted shares outstanding.
Employees
The number of employees at March 31, 2021 was 71,699, a decrease of 7,309
employees from March 31, 2020 primarily driven by cost reduction actions and
divestitures.
Other Financial Data
EBITDA from continuing operations was $2,422 million for the first quarter 2021
as compared to $1,892 million in the respective 2020 period. Adjusted EBITDA
from continuing operations increased to $2,438 million for the first quarter
2021 from $2,049 million in the respective 2020 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 income (loss) for the first quarter 2021 was a loss of $661
million and resulted primarily from currency translation adjustments of $715
million during the quarter. 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.
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