LINDE PLC
The following discussion of the company's financial condition and results of
operations should be read together with its consolidated financial statements
and notes to the consolidated financial statements included in Item 8 of this
Form 10-K.
Page
Business Overview 19
Executive Summary - Financial Results & Outlook 20
Consolidated Results and Other Information 21
Segment Discussion 27
Liquidity, Capital Resources and Other Financial Data 32 Off-Balance Sheet Arrangements
34
Critical Accounting Estimates 34
New Accounting Standards 37
Fair Value Measurements 37
Non-GAAP Financial Measures 38
Supplemental Guarantee Information 42
18
--------------------------------------------------------------------------------
Table of Contents
BUSINESS OVERVIEW
The company's primary products in its industrial gases business are atmospheric
gases (oxygen, nitrogen, argon, rare gases) and process gases (carbon dioxide,
helium, hydrogen, electronic gases, specialty gases, acetylene). The company
also designs, engineers, and builds equipment that produces industrial gases and
offers its customers a wide range of gas production and processing services such
as olefin plants, natural gas plants, air separation plants, hydrogen and
synthesis gas plants and other types of plants.
Linde's industrial gas operations are managed on a geographical basis and in
2021 84% of sales were generated by Linde's three geographic segments (Americas,
EMEA and APAC) and the remaining 16% are related primarily to the Engineering
segment, and to a lesser extent Other (see Note 18 to the consolidated financial
statements for operating segment details).
Linde serves a diverse group of industries including healthcare, chemicals and
energy, manufacturing, metals and mining, food and beverage, and electronics.
The diversity of end-markets supports financial stability for Linde in varied
business cycles.
Linde generates most of its revenues and earnings in the following geographies
where the company has its strongest market positions and where distribution and
production operations allow the company to deliver the highest level of service
to its customers at the lowest cost.
North and South America Europe, Middle East and Africa Asia and Pacific
("Americas") ("EMEA") ("APAC")
United States Germany China
Brazil United Kingdom Australia
Mexico Eastern Europe South Korea
Canada South Africa India
The company manufactures and distributes its industrial gas products through
networks of thousands of production plants, pipeline complexes, distribution
centers and delivery vehicles. Major pipeline complexes are primarily located in
the United States and China. These networks are a competitive advantage,
providing the foundation of reliable product supply to the company's customer
base. The majority of Linde's business is conducted through long-term contracts
which provide stability in cash flow and the ability to pass through changes in
energy and feedstock costs to customers. The company has growth opportunities in
all major geographies and in diverse end-markets such as healthcare, chemicals
and energy, manufacturing, metals and mining, food and beverage, and
electronics.
19
--------------------------------------------------------------------------------
Table of Contents
EXECUTIVE SUMMARY - FINANCIAL RESULTS & OUTLOOK
2021 Year in review
•Sales of$30,793 million were 13% above 2020 sales of$27,243 million . Volume growth across all end markets and project start-ups increased sales by 8% . Higher pricing across all geographic segments contributed 3% to sales. Favorable currency translation and higher cost pass-through increased sales by 5%, partially offset by the deconsolidation of a joint venture with operations in APAC which decreased sales by 3% . •Reported operating profit of$4,984 million was 50% above 2020. Adjusted operating profit of$7,176 million was 24% above 2020. The increase in both reported and adjusted operating profit was primarily driven by higher volume and price and the benefit of cost reduction programs and other charges and productivity initiatives, partially offset by the deconsolidation of a joint venture with operations in APAC.*
•Income from continuing operations of
•Cash flow from operations of
*A reconciliation of the adjusted amounts can be found in the "Non-GAAP Financial Measures" section in this MD&A.
2022 Outlook
Linde provides quarterly updates on operating results, material trends that may
affect financial performance, and financial guidance via earnings releases and
investor teleconferences. These materials are available on the company's
website, www.linde.com, but are not incorporated herein.
20
--------------------------------------------------------------------------------
Table of Contents
CONSOLIDATED RESULTS AND OTHER INFORMATION
The discussion that follows includes a comparison of our results of operations
and liquidity and capital resources for the years ended December 31, 2021 and
2020. For the discussion comparing the years ended December 31, 2020 and 2019,
refer to Part II, Item 7, Management's Discussion and Analysis of Financial
Condition and Results of Operations, of our Form 10-K for the year ended
December 31, 2020 .
The following table provides summary information for 2021 and 2020. The reported amounts are GAAP amounts from the Consolidated Statements of Income. The adjusted amounts are intended to supplement investors' understanding of the company's financial information and are not a substitute for GAAP measures.
(Millions of dollars, except per share data) Year Ended December 31, 2021 2020 Variance Reported Amounts Sales$ 30,793 $ 27,243 13 % Cost of sales, exclusive of depreciation and amortization$ 17,543 $ 15,383 14 % As a percent of sales 57.0 % 56.5 % Selling, general and administrative$ 3,189 $ 3,193 - % As a percent of sales 10.4 % 11.7 % Depreciation and amortization$ 4,635 $ 4,626 - %
Cost reduction programs and other charges (a)
506 (46) % Operating Profit$ 4,984 $ 3,322 50 % Operating margin 16.2 % 12.2 % Interest expense - net$ 77 $ 115 (33) % Net pension and OPEB cost (benefit), excluding service cost$ (192) $ (177) 8 % Effective tax rate 24.7 % 25.0 % Income from equity investments$ 119 $ 85 40 % Noncontrolling interests from continuing operations$ (135) $ (125) 8 % Income from continuing operations$ 3,821 $ 2,497 53 % Diluted earnings per share from continuing operations$ 7.32 $ 4.70 56 % Diluted shares outstanding 521,875 531,157 (2) % Number of employees 72,327 74,207 (3) % Adjusted Amounts (b) Operating profit$ 7,176 $ 5,797 24 % Operating margin 23.3 % 21.3 % Income from continuing operations$ 5,579 $ 4,371 28 % Diluted earnings per share from continuing operations$ 10.69 $ 8.23 30 % Other Financial Data (b) EBITDA from continuing operations$ 9,738 $ 8,033 21 % As percent of sales 31.6 % 29.5 % Adjusted EBITDA from continuing operations$ 10,179 $ 8,645 18 % As percent of sales 33.1 % 31.7 % ________________________
(a)See Note 3 to the consolidated financial statements.
(b)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 Financial Measures" section of this MD&A.
21-------------------------------------------------------------------------------- Table of Contents Results of Operations
The following table provides a summary of changes in consolidated sales:
2021 vs. 2020
% Change
Factors Contributing to Changes - Sales
Volume 8 %
Price/Mix 3 %
Cost pass-through 3 %
Currency 2 %
Acquisitions/divestitures (3) %
Engineering - %
13 %
2021 Compared With 2020
Sales
Linde sales increased$3,550 million , or 13%, for the 2021 year versus 2020. Volume growth across all end markets and project start ups increased sales by 8%. Higher pricing across all geographic segments contributed 3% to sales. Currency translation increased sales by 2%, largely in EMEA and APAC, driven by the strengthening of the Euro, Australian dollar, Chinese yuan and British pound against theU.S. dollar. Cost pass-through, representing the contractual billing of energy cost variances primarily to onsite customers, increased sales by 3%, with minimal impact on operating profit. Divestitures decreased sales by 3% primarily driven by the deconsolidation of a joint venture with operations in APAC (see Note 2 to the consolidated financial statements). Cost of sales, exclusive of depreciation and amortization Cost of sales, exclusive of depreciation and amortization, increased$2,160 million , or 14%, for the year primarily due to higher volumes, cost pass-through and currency impacts, partially offset by productivity initiatives. Cost of sales, exclusive of depreciation and amortization, was 57.0% and 56.5% of sales, respectively, in 2021 compared to 2020. The increase as a percentage of sales was due primarily to higher cost pass-through. Selling, general and administrative expenses Selling, general and administrative expense ("SG&A") decreased$4 million , from$3,193 in 2020 to$3,189 million in 2021. SG&A was 10.4% of sales in 2021 versus 11.7% in 2020, primarily due to continued productivity initiatives and the impact of higher cost pass-through on sales. Currency impacts increased SG&A by approximately$62 million in 2021. Excluding currency impacts, underlying SG&A decreased due to continued productivity initiatives. Depreciation and amortization Reported depreciation and amortization expense increased$9 million versus 2020. The increase is primarily due to currency translation impacts, partially offset by a decrease related primarily to intangible assets acquired in the merger becoming fully amortized.
On an adjusted basis, depreciation and amortization expense increased
Cost reduction programs and other charges Linde recorded cost reduction programs and other charges of$273 million and$506 million for 2021 and 2020, respectively, primarily associated with the company's cost reduction program, which represents charges for achieving synergies and cost efficiencies related to the merger (see Note 3 to the consolidated financial statements).
On an adjusted basis, these costs have been excluded in both periods.
Operating profit
Reported operating profit increased
22
--------------------------------------------------------------------------------
Table of Contents
On a reported basis, operating profit increased $1,662 million , or 50% in 2021.
The increase in the year was driven by higher volumes and price, partially
offset by the deconsolidation of a joint venture with operations in APAC. Cost
reduction programs and other charges were $273 million in 2021 and $506 million
in 2020.
On an adjusted basis, which excludes the impacts of purchase accounting, cost
reduction programs and other charges, operating profit increased $1,379 million ,
or 24%. 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 in 2021 decreased $38 million , or 33%, versus
2020 . On an adjusted basis interest expense decreased $54 million , or 29% in
2021 as compared to 2020.
On both a reported and adjusted basis, the decrease year over year was driven by
a lower effective borrowing rate and the impact of unfavorable foreign currency
revaluation on an unhedged intercompany loan in the prior year.
Net pension and OPEB cost (benefit), excluding service cost
Reported net pension and OPEB cost (benefit), excluding service cost was a benefit of$192 million and$177 million in 2021 and 2020, respectively. The increase in benefit largely relates to a higher expected return on plan assets and lower interest costs, partially offset by higher amortization of deferred losses (see Note 16 to the consolidated financial statements).
Effective tax rate
The reported effective tax rate ("ETR") for 2021 was 24.7% versus 25.0% in 2020.
The decrease is primarily driven by increased pre-tax income and jurisdictional
mix. 2021 includes a deferred income tax charge related to the revaluation of
net deferred tax liabilities for a tax rate increase in the United Kingdom ,
offset by a reduction to tax expense related to uncertain tax benefits and
accrued interest and penalties of $47 million (see Note 5 to the consolidated
financial statements).
On an adjusted basis, the ETR for 2021 was 24.1% versus 23.8% in 2020. The increase in the adjusted ETR is primarily due to lower tax benefits in 2021 relative to higher pre-tax income.
Income from equity investments
Reported income from equity investments for 2021 was$119 million as compared to$85 million in 2020. On an adjusted basis, income from equity investments for 2021 was$231 million versus$142 million in 2020. On a reported basis, the increase in income from equity investments was primarily driven by the deconsolidation of a joint venture with operations in APAC which is reflected in equity income effectiveJanuary 1, 2021 , partially offset by a$35 million impairment charge related to a joint venture in the APAC segment in the third quarter of 2021.
On an adjusted basis, the increase in income from equity investments was
primarily driven by the deconsolidation of a joint venture with operations in
APAC which is reflected in equity income effective
Noncontrolling interests from continuing operations
At
Reported noncontrolling interests from continuing operations increased$10 million , from$125 million in 2020 to$135 million in 2021, primarily driven by higher income from continuing operations, partially offset by the deconsolidation of a joint venture with operations in APAC (see Note 2 to the consolidated financial statements) and the buyout of minority shareholders in theRepublic of South Africa . Adjusted noncontrolling interests from continuing operations decreased$36 million in 2021 as compared to 2020, primarily driven by the deconsolidation of a joint venture with operations in APAC (See Note 2 to the consolidated financial statements) and the buyout of minority shareholders in theRepublic of South Africa , which more than offset the increase from higher income from continuing operations.
Income from continuing operations
Reported income from continuing operations increased
23
--------------------------------------------------------------------------------
Table of Contents
On an adjusted basis, which excludes the impacts of purchase accounting and
other non-GAAP adjustments, income from continuing operations increased
$1,208 million , or 28%, in 2021 versus 2020. The increase was primarily due to
higher adjusted operating profit.
Diluted earnings per share from continuing operations
Reported diluted earnings per share from continuing operations increased$2.62 , or 56%, in 2021 as compared to 2020. On an adjusted basis, diluted EPS of$10.69 in 2021 increased 30% versus 2020. The increase on both reported and adjusted basis was primarily due to higher income from continuing operations and lower diluted shares outstanding. Employees
The number of employees at
Other Financial Data
EBITDA increased to
See the "Non-GAAP Financial Measures" section for definitions and reconciliations of these non-GAAP measures to reported GAAP amounts.
Other Comprehensive Income (Loss)
Other comprehensive income (loss) for the year endedDecember 31, 2021 of$358 million resulted primarily from currency translation adjustments of$1,175 million largely offset by an increase in the funded status of the company's retirement obligations of$746 million driven by a higher discount rate environment and strong asset performance. 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, the Chinese yuan and the British pound. See the "Currency" section of the MD&A for exchange rates used for translation purposes and Note 7 to the consolidated financial statements for a summary of the currency translation adjustment component of accumulated other comprehensive income by segment.
Related Party Transactions
The company's related parties are primarily unconsolidated equity affiliates. The company did not engage in any material transactions involving related parties that included terms or other aspects that differ from those which would be negotiated with independent parties.
Environmental Matters
Linde's principal operations relate to the production and distribution of atmospheric and other industrial gases, which historically have not had a significant impact on the environment. However, worldwide costs relating to environmental protection may continue to grow due to increasingly stringent laws and regulations, and Linde's ongoing commitment to rigorous internal standards. In addition, Linde may face physical risks from climate change and extreme weather.
Climate Change
Linde operates in jurisdictions that have, or are developing, laws and/or
regulations to reduce or mitigate the adverse effects of greenhouse gas ("GHG")
emissions and faces a highly uncertain regulatory environment in this area. For
example, the U.S. Environmental Protection Agency ("EPA ") has promulgated rules
requiring reporting of GHG emissions, and Linde and many of its suppliers and
customers are subject to these rules. EPA has also promulgated regulations to
restrict GHG emissions, including final rules regulating GHG emissions from
light-duty vehicles and certain large manufacturing facilities, many of which
are Linde suppliers or customers. In addition to these developments in the
United States , several other countries worldwide have already implemented carbon
taxation or trading systems which impact the company's customers and Linde
operations, including regulations in China , Singapore and the European Union .
Among other impacts, such regulations are expected to raise the cost of energy,
which is a significant cost for Linde. Nevertheless, Linde's long-term customer
contracts routinely provide rights to recover increased electricity, natural
gas, and other costs that are incurred by the company as a result of climate
change regulation.
24
--------------------------------------------------------------------------------
Table of Contents
Linde anticipates continued growth in its hydrogen business due to increased
focus on lowering GHG emissions. Traditionally, hydrogen production plants and a
large number of other manufacturing and electricity-generating plants have been
identified in California and the European Union as a source of carbon dioxide
emissions and these plants are subject to cap-and-trade regulations in those
jurisdictions. Linde believes it will be able to mitigate the costs of these
regulations through the terms of its product supply contracts. However,
legislation that limits GHG emissions may impact growth by increasing capital,
compliance, operating and maintenance costs and/or decreasing demand.
To manage business risks from current and potential GHG emission regulation as
well as physical consequences of climate change, Linde actively monitors current
developments, evaluates the direct and indirect business risks, and takes
appropriate actions. Among others, actions include: increasing relevant
resources and training; maintaining contingency plans; obtaining advice and
counsel from expert vendors, insurance providers and industry experts;
incorporating GHG provisions in commercial agreements; and conducting regular
reviews of the business risks with management. Although there are considerable
uncertainties, Linde believes that the business risk from potential regulations
can be effectively managed through its commercial contracts. Additionally, Linde
does not anticipate any material effects regarding its plant operations or
business arising from potential physical risks of climate change.
Linde continuously seeks opportunities to optimize energy use and GHG emissions
through research and development in customer applications and rigorous
operational energy efficiency, sourcing renewable energy, and purchasing
hydrogen as a chemical byproduct where feasible. Linde tracks GHG emission
performance versus targets and reports regularly to business management and
annually to Linde's Board of Directors. Effective November 2021 , a new
Sustainability Committee was created. The Committee is responsible for Board
oversight of the Company's programs, policies and strategies related to
environmental matters generally, including climate change, greenhouse gas
reduction goals and decarbonization solutions, such as clean hydrogen and carbon
capture.
At the same time, external factors may provide Linde with future business
opportunities. Examples of such factors include governmental regulation of GHG
and other emissions; uncertain costs of energy and certain natural resources;
the development of renewable energy alternatives; and new technologies that help
extract natural gas, improve air quality, increase energy efficiency and
mitigate the impacts of climate change. Linde continues to develop new
applications that can lower emissions and help customers lower energy
consumption and increase product throughput. Stricter regulation of water
quality in emerging economies such as China provide a growing market for a
number of gases, e.g., oxygen for wastewater treatment. Increased concern about
drought in areas such as California and Australia may create additional markets
for carbon dioxide for desalination. Renewable fuel standards in the European
Union and U.S. can create a market for second-generation biofuels which use
industrial gases such as oxygen, carbon dioxide, and hydrogen.
Costs Relating to the Protection of the Environment
Environmental protection costs in 2021 were not significant. Linde anticipates that future annual environmental protection expenditures will be similar to 2021, subject to any significant changes in existing laws and regulations. Based on historical results and current estimates, management does not believe that environmental expenditures will have a material adverse effect on the consolidated financial position, the consolidated results of operations or cash flows in any given year. Legal Proceedings
See Note 17 to the consolidated financial statements for information concerning legal proceedings.
Retirement Benefits Pensions The net periodic benefit cost (benefit) for theU.S. and non-U.S. pension plans was a benefit of$35 million and$28 million in 2021 and 2020, respectively, and costs of$107 million in 2019. 2019 net periodic pension cost included pension settlement charges of$97 million related to lump sum payments, which were triggered by either a change in control provision or merger-related divestitures, and a net curtailment charge of$8 million for termination benefits, primarily in connection with a defined benefit pension plan freeze. Settlement charges were$4 million and$6 million for 2021 and 2020, respectively. The funded status (pension benefit obligation ("PBO") less the fair value of plan assets) for theU.S. plans was a deficit of$135 million and$436 million atDecember 31, 2021 and 2020, respectively. The funded status for non-U.S. plans was a deficit of$1,409 million and$2,334 million atDecember 31, 2021 and 2020, respectively. Both theU.S. and non-U.S. 25
--------------------------------------------------------------------------------
Table of Contents plans derived the benefit from the actual return on plan assets, as well as favorability generated from a lower PBO due to an increase in discount rates.
Global pension contributions were$42 million in 2021,$91 million in 2020, and$94 million in 2019. At a minimum, Linde contributes to its pension plans to comply with local regulatory requirements (e.g., ERISA in theU.S. ). Discretionary contributions in excess of the local minimum requirements are made based on many factors, including long-term projections of the plans' funded status, the economic environment, potential risk of overfunding, pension insurance costs and alternative uses of cash. Changes to these factors can impact the timing of discretionary contributions from year to year. Estimated required contributions for 2021 are currently expected to be in the range of$40 million to$50 million .
Linde assumes expected returns on plan assets for 2022 of 7.00% and 5.54% for
the
Excluding the impact of any settlements, 2022 consolidated pension expense is expected to be a benefit of approximately$91 million . The benefit derived from the expected return on assets assumption for Linde's most significant plans is anticipated to more than offset the expense from service and interest cost accruals and the higher amortization of deferred losses. Refer to the Critical Accounting Policies section and Note 16 to the consolidated financial statements for a more detailed discussion of the company's retirement benefits, including a description of the various retirement plans and the assumptions used in the calculation of net periodic benefit cost (benefit) and funded status.
Insurance
Linde purchases insurance to limit a variety of property and casualty risks, including those related to property, business interruption, third-party liability and workers' compensation. Currently, the company self retains up to$10 million per occurrence for vehicle liability inthe United States ,$5 million per occurrence for workers' compensation and general liability. In addition, the company self retains risk up to €5 million at its various properties worldwide for property damage resulting from fire, flood and other perils affecting its properties along with a separate €5 million deductible on all business interruption resulting from a major peril loss. To mitigate its aggregate loss potential above these retentions, the company purchases catastrophic insurance coverage from highly rated insurance companies. The company does not currently operate or participate in any captive insurance companies or other non-traditional risk transfer alternatives. AtDecember 31, 2021 and 2020, the company had recorded a total of$75 million and$71 million , respectively, representing an estimate of the retained liability for the ultimate cost of claims incurred and unpaid as of the balance sheet dates. The estimated liability is established using statistical analysis and is based upon historical experience, actuarial assumptions and professional judgment. These estimates are subject to the effects of trends in loss severity and frequency and are subject to a significant degree of inherent variability. If actual claims differ from the company's estimates, they will be adjusted at that time and financial results could be impacted. Linde recognizes estimated insurance proceeds relating to damages at the time of loss only to the extent of incurred losses. Any insurance recoveries for business interruption and for property damages in excess of the net book value of the property are recognized only when realized or pending payments confirmed by its insurance companies. 26 -------------------------------------------------------------------------------- Table of Contents SEGMENT DISCUSSION Linde's operations consist of two major product lines: industrial gases and engineering. As further described in the following paragraph, Linde's industrial gases operations are managed on a geographic basis, which represents three of the company's reportable segments -Americas , EMEA (Europe /Middle East /Africa ), and APAC (Asia /South Pacific ); a fourth reportable segment which represents the company's Engineering business which designs and manufactures equipment for air separation and other industrial gas applications specifically for end customers and is managed on a worldwide basis operating in all geographic segments. Other consists of corporate costs and a few smaller businesses which individually do not meet the quantitative thresholds for separate presentation. The industrial gases product line centers on the manufacturing and distribution of atmospheric gases (oxygen, nitrogen, argon, rare gases) and process gases (carbon dioxide, helium, hydrogen, electronic gases, specialty gases, acetylene). Many of these products are co-products of the same manufacturing process. Linde manufactures and distributes nearly all of its products and manages its customer relationships on a regional basis. Linde's industrial gases are distributed to various end-markets within a regional segment through one of three basic distribution methods: on-site or tonnage; merchant or bulk; and packaged or cylinder gases. The distribution methods are generally integrated in order to best meet the customer's needs and very few of its products can be economically transported outside of a region. Therefore, the distribution economics are specific to the various geographies in which the company operates and are consistent with how management assesses performance. The company's measure of profit/loss for segment reporting purposes is segment operating profit. Segment operating profit is defined as operating profit excluding purchase accounting impacts of the Linde AG merger, intercompany royalties, and items not indicative of ongoing business trends. This is the manner in which the company's Chief Operating Decision Maker ("CODM") assesses performance and allocates resources.
The table below presents sales and operating profit information about reportable
segments and Other for the years ended
(Millions of dollars) Year Ended December 31, 2021 2020 Variance Sales Americas$ 12,103 $ 10,459 16 % EMEA 7,643 6,449 19 % APAC 6,133 5,687 8 % Engineering 2,867 2,851 1 % Other 2,047 1,797 14 % Total sales$ 30,793 $ 27,243 13 % Operating Profit Americas$ 3,368 $ 2,773 21 % EMEA 1,889 1,465 29 % APAC 1,502 1,277 18 % Engineering 473 435 9 % Other (56) (153) 63 % Segment operating profit 7,176 5,797 24 % Reconciliation to reported operating profit : Cost reduction programs and other charges (Note 3) (273) (506) Purchase accounting impacts - Linde AG (1,919) (1,969) Total operating profit$ 4,984 $ 3,322 27
-------------------------------------------------------------------------------- Table of ContentsAmericas (Dollar amounts in millions)
Variance
Year Ended December 31, 2021 2020 2021 vs. 2020
Sales $ 12,103 $ 10,459 16 %
Operating profit $ 3,368 $ 2,773 21 %
As a percent of sales 27.8 % 26.5 %
2021 vs. 2020
% Change
Factors Contributing to Changes - Sales
Volume 9 %
Price/Mix 3 %
Cost pass-through 3 %
Currency 1 %
Acquisitions/Divestitures - %
16 %
The
Sales
Sales for theAmericas segment increased$1,644 million , or 16%, in 2021 versus 2020. Higher pricing contributed 3% to sales. Higher volumes increased sales by 9%, led by higher demand across all end markets and project start-ups. Currency translation increased sales by 1%, primarily driven by the strengthening of the Canadian dollar and Mexican peso against theU.S. Dollar. Cost past-through increased sales by 3% with minimal impact on operating profit.
Operating Profit
Operating profit in the
EMEA
(Dollar amounts in millions) Variance
Year Ended December 31, 2021 2020 2021 vs. 2020
Sales $ 7,643 $ 6,449 19 %
Operating profit $ 1,889 $ 1,465 29 %
As a percent of sales 24.7 % 22.7 %
2021 vs. 2020
% Change
Factors Contributing to Changes - Sales
Volume 5 %
Price/Mix 4 %
Cost pass-through 6 %
Currency 5 %
Acquisitions/Divestitures (1) %
19 %
28-------------------------------------------------------------------------------- Table of Contents The EMEA segment includes Linde's industrial gases operations in approximately 45 European, Middle Eastern and African countries includingGermany ,France ,Sweden , theRepublic of South Africa , and theU.K.
Sales
EMEA segment sales increased$1,194 million , or 19%, in 2021 versus 2020. Volumes increased 5% driven by increased demand across all end markets. Currency translation increased sales by 5% due to the strengthening of the Euro, British pound and Swedish Krona against theU.S. dollar. Higher price contributed 4% to sales. Cost pass-through, representing the contractual billing of energy cost variances primarily to onsite customers increased sales by 6% with minimal impact on operating profit. Sales decreased 1% related to the divestiture of a non-core business in Scandinavia.
Operating Profit
Operating Profit for the EMEA segment increased
APAC
(Dollar amounts in millions) Variance
Year Ended December 31, 2021 2020 2021 vs. 2020
Sales $ 6,133 $ 5,687 8 %
Operating profit $ 1,502 $ 1,277 18 %
As a percent of sales 24.5 % 22.5 %
2021 vs. 2020
% Change
Factors Contributing to Changes - Sales
Volume/Equipment 11 %
Price/Mix 2 %
Cost pass-through 2 %
Currency 5 %
Acquisitions/Divestitures (12) %
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 $446 million , or 8%, in 2021 versus 2020.
Volumes increased 11% driven by increased demand across all end markets, led by
cyclical end markets and electronics and project start-us. Higher price
increased sales by 2%. Currency translation increased sales by 5% driven
primarily by the strengthening of the Chinese yuan, Australian dollar and Korean
won against the U.S. dollar. Cost pass-through increased sales by 2% with
minimal impact on operating profit. Divestitures decreased sales by 12%
primarily due to the deconsolidation of a joint venture with operations in
Taiwan which decreased sales by $639 million (See Note 2 to the consolidated
financial statements).
Operating Profit
Operating profit in the APAC segment increased $225 million , or 18%, in 2021
versus 2020. Higher volumes and price, and continued productivity initiatives
were partially offset by a $126 million reduction due to the deconsolidation of
the joint venture with operations in Taiwan .
29--------------------------------------------------------------------------------
Table of Contents
Engineering
(Dollar amounts in millions) Variance
Year Ended December 31, 2021 2020 2021 vs. 2020
Sales $ 2,867 $ 2,851 1 %
Operating profit $ 473 $ 435 9 %
As a percent of sales 16.5 % 15.3 %
2021 vs. 2020
% Change
Factors Contributing to Changes - Sales
Volume (3) %
Currency 4 %
1 %
Sales
Engineering segment sales increased $16 million , or 1%, in 2021 versus 2020,
driven by project timing, partially offset by currency impacts which increased
sales by 4% .
Operating profit
Engineering segment operating profit increased
Other
(Dollar amounts in millions) Variance
Year Ended December 31, 2021 2020 2021 vs. 2020
Sales $ 2,047 $ 1,797 14 %
Operating profit $ (56) $ (153) 63 %
As a percent of sales (2.7) % (8.5) %
2021 vs. 2020
% Change
Factors Contributing to Changes - Sales
Volume/Price 11 %
Cost pass-through - %
Currency 3 %
Acquisitions/Divestitures - %
14 %
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.
30
--------------------------------------------------------------------------------
Table of Contents
Sales
Sales for Other increased
Operating profit
Operating profit in Other increased
Currency
The results of Linde's non-U.S. operations are translated to the company's reporting currency, theU.S. dollar, from the functional currencies used in the countries in which the company operates. For most foreign operations, Linde uses the local currency as its functional currency. There is inherent variability and unpredictability in the relationship of these functional currencies to theU.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 perU.S. dollar): Percent of 2021 Statements of Income
Balance Sheets
Consolidated Average Year Ended December 31, December 31,
Currency Sales 2021 2020 2021 2020
Euro 21 % 0.85 0.88 0.88 0.82
Chinese yuan 9 % 6.45 6.90 6.36 6.53
British pound 7 % 0.73 0.78 0.74 0.73
Australian dollar 4 % 1.33 1.45 1.38 1.30
Brazilian real 4 % 5.39 5.11 5.58 5.20
Korean won 3 % 1,144 1,178 1,189 1,087
Canadian dollar 3 % 1.25 1.34 1.26 1.27
Mexican peso 2 % 20.28 21.35 20.53 19.91
Indian rupee 2 % 73.91 74.08 74.34 73.07
Republic of South African rand 2 % 14.77 16.37 15.94 14.69
Swedish krona 1 % 8.58 9.18 9.05 8.23
Thailand bhat 1 % 31.93 31.28 33.40 29.96
Russian ruble 1 % 73.69 71.95 74.68 74.04
31--------------------------------------------------------------------------------
Table of Contents
LIQUIDITY, CAPITAL RESOURCES AND OTHER FINANCIAL DATA
(Millions of dollars)
Year Ended December 31, 2021 2020
Net Cash Provided by (Used for)
Operating Activities
Income from continuing operations (including noncontrolling
interests) $ 3,956 $ 2,622
Non-cash charges (credits):
Add: Cost reduction programs and other charges, net of payments (a)
98 258
Add: Depreciation and amortization 4,635 4,626
Add (Less): Deferred income taxes (254) (369)
Add (Less): non-cash charges and other 109 285
Income from continuing operations adjusted for non-cash charges
and other 8,544 7,422
Less: Pension contributions (42) (91)
Add (Less): Working capital 1,148 364
Add (Less): Other 75 (266)
Net cash provided by operating activities $ 9,725 $ 7,429
Investing Activities
Capital expenditures $ (3,086) $ (3,400)
Acquisitions, net of cash acquired (88) (68)
Divestitures and asset sales, net of cash divested 167 482
Net cash provided by (used for) investing activities $ (3,007) $ (2,986)
Financing Activities
Debt increases (decreases) - net $ (514) $ 1,313
Issuances (purchases) of ordinary shares - net (4,562) (2,410)
Cash dividends - Linde plc shareholders (2,189) (2,028)
Noncontrolling interest transactions and other (323) (220)
Net cash (used) for financing activities $
(7,588)
Effect of exchange rate changes on cash $
(61)
Cash and cash equivalents, end-of-period$ 2,823 $ 3,754 ____________________
(a)See Note 3 to the consolidated financial statements.
Cash decreased$931 million in 2021 versus 2020. The primary sources of cash in 2021 were cash flows from operations of$9,725 million . The primary uses of cash included capital expenditures of$3,086 million , net purchases of ordinary shares of$4,562 million , and cash dividends to shareholders of$2,189 million . Cash Flows From Operations 2021 compared with 2020 Cash flows from operations was$9,725 million , an increase of$2,296 million , or 31% from 2020. The increase was driven by higher net income adjusted for non-cash charges and lower working capital requirements, including an increase in contract liabilities due to engineering customer advanced payments, which more than offset higher cash taxes. Cost reduction programs and other charges, net of payments was$98 million and$258 million for the years endedDecember 31, 2021 and 2020, respectively, representing charges of$273 million and$506 million net of related cash outflows of$175 million and$248 million , respectively, in each period. 32
--------------------------------------------------------------------------------
Table of Contents Investing 2021 compared with 2020 Net cash used for investing activities was$3,007 million in 2021 compared to$2,986 million in 2020. The increase was primarily driven by lower proceeds from divestitures in 2021, largely offset by lower capital expenditures. Capital expenditures in 2021 were$3,086 million , a decrease of$314 million from 2020. Capital expenditures during 2021 related primarily to investments in new plant and production equipment for growth. Approximately 42% of the capital expenditures were in theAmericas segment with 32% in the APAC segment and the rest primarily in the EMEA segment.
At
Acquisition expenditures in 2021 were$88 million , an increase of$20 million from 2020 and related primarily to acquisitions in theAmericas and EMEA. Acquisitions for the year endedDecember 31, 2020 were$68 million and related to acquisitions in theAmericas and APAC. Divestitures and asset sales in 2021 totaled$167 million as compared to$482 million in 2020. The 2020 period includes net proceeds from merger-related divestitures of$98 million from the sale of selected assets ofLinde China and proceeds of approximately$130 million related to the divestiture of a non-core business in Scandinavia. Financing Linde's financing strategy is to secure long-term committed funding by issuing public notes and debentures and commercial paper backed by a long-term bank credit agreement. Linde's international operations are funded through a combination of local borrowing and intercompany funding to minimize the total cost of funds and to manage and centralize currency exchange exposures. As deemed necessary, Linde manages its exposure to interest-rate changes through the use of financial derivatives (see Note 12 to the consolidated financial statements and Item 7A. Quantitative and Qualitative Disclosures About Market Risk). Cash used for financing activities was$7,588 million in 2021 compared to$3,345 million in 2020. Cash used for debt was$514 million in 2021 versus cash provided by debt of$1,313 million in 2020 primarily due to lower proceeds from debt issuances and decreased commercial paper borrowings, partially offset by lower debt repayments. Net purchases of ordinary shares were$4,562 million in 2021 versus$2,410 million in 2020. Cash dividends increased to$2,189 million in 2021 versus$2,028 million in 2020 driven primarily by a 10% increase in dividends per share from$3.852 per share to$4.24 per share. Cash used for Noncontrolling interest transactions and other was$323 million for the year endedDecember 31, 2021 versus cash used of$220 million for the respective 2020 period primarily due to the settlement of the buyout of minority interests in theRepublic of South Africa in January of 2021.
The company believes that it has sufficient operating flexibility, cash
reserves, and funding sources to maintain adequate amounts of liquidity to meet
its business needs around the world. At
Note 11 to the consolidated financial statements includes information with respect to the company's debt activity in 2021, current debt position, debt covenants and the available credit facilities; and Note 12 includes information relating to derivative financial instruments. Linde's credit facilities are with major financial institutions and are non-cancelable until maturity. Therefore, the company believes the risk of the financial institutions being unable to make required loans under the credit facilities, if requested, to be low. Linde's major bank credit and long-term debt agreements contain standard covenants. The company was in compliance with these covenants atDecember 31, 2021 and expects to remain in compliance for the foreseeable future. The company maintains a$5 billion unsecured and undrawn revolving credit agreement with no associated financial covenants. No borrowings were outstanding under the credit agreement as ofDecember 31, 2021 . 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 andStandard & Poor's . Linde's total net debt outstanding atDecember 31, 2021 was$11,384 million ,$1,016 million lower than$12,400 million atDecember 31, 2020 . TheDecember 31, 2021 net debt balance includes$13,069 million in public securities,$1,138 million representing primarily worldwide bank borrowings, net of$2,823 million of cash. Linde's global effective borrowing rate was approximately 1.4% for 2021. 33 -------------------------------------------------------------------------------- Table of Contents InJune 2021 , Linde repaid €600 million of 3.875% notes that became due. InSeptember 2021 , Linde issued €700 million of 0.000% notes due 2026, €500 million of 0.375% notes due 2033, and €700 million of 1.000% notes due 2051. InNovember 2021 , Linde repaid$600 million of 2.45% notes that were due in 2022. There was no impact to interest within the consolidated statements of income (see Note 11 to the consolidated financial statements).
In
OnFebruary 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 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases ofEquity Securities .
OFF-BALANCE SHEET ARRANGEMENTS
As discussed in Note 17 to the consolidated financial statements, at
CRITICAL ACCOUNTING ESTIMATES
The policies discussed below are considered by management to be critical to understanding Linde's financial statements and accompanying notes prepared in accordance with accounting principles generally accepted inthe United States ("U.S. GAAP"). Their application places significant importance on management's judgment as a result of the need to make estimates of matters that are inherently uncertain. Linde's financial position, results of operations and cash flows could be materially affected if actual results differ from estimates made. These policies are determined by management and have been reviewed by Linde's Audit Committee. Revenue Recognition Long-Term Construction Contracts The company designs and manufactures equipment for air separation and other varied gas production and processing plants manufactured specifically for end customers. Revenues for sale of equipment contracts are generally recognized over time as Linde has an enforceable right to payment for performance completed to date and performance does not create an asset with alternative use. For contracts recognized over time, revenue is recognized primarily using a cost incurred input method. Costs incurred to date relative to total estimated costs at completion are used to measure progress toward satisfying performance obligations. The result is applied to total expected revenue and results in financial statement recognition of revenue in addition to costs incurred to date. Any expected loss on a contract is recognized as an expense immediately. Contract modifications are typically accounted for as part of the existing contract and are recognized as a cumulative adjustment for the inception-to-date effect of such change. We assess performance as progress towards completion is achieved on specific projects, earnings will be impacted by changes to our forecast of revenues and costs on these projects. The cost incurred input method places considerable importance on accurate estimates of the extent of progress towards completion and may involve estimates on the scope of deliveries and services required to fulfill the contractually defined obligations. The key source of estimation uncertainty is the total estimated costs at completion including material, labor and overhead costs and the resultant state of completion of the contracts. There are inherent uncertainties associated with the estimation process, including technical complexity, duration of construction cycle, potential cost inflation (whether equipment or manpower), and scope considerations all of which may affect the total estimation process. Changes in these estimates may lead to a significant impact on future financial statements.
Pension Benefits
Pension benefits represent financial obligations that will be ultimately settled
in the future with employees who meet eligibility requirements. Because of the
uncertainties involved in estimating the timing and amount of future payments,
significant estimates are required to calculate pension expense and liabilities
related to the company's plans. The company utilizes the services of independent
actuaries, whose models are used to facilitate these calculations.
Several key assumptions are used in actuarial models to calculate pension
expense and liability amounts recorded in the financial statements. Management
believes the three most significant variables in the models are the expected
long-term rate of return on plan assets, the discount rate, and the expected
rate of compensation increase. The actuarial models also use assumptions for
various other factors, including long-term inflation rates, employee turnover,
retirement age, and
34
--------------------------------------------------------------------------------
Table of Contents
mortality. Linde management believes the assumptions used in the actuarial
calculations are reasonable, reflect the company's experience and expectations
for the future and are within accepted practices in each of the respective
geographic locations in which it operates. Actual results in any given year will
often differ from actuarial assumptions because of economic and other factors.
The sensitivities to each of the key assumptions presented below exclude the
impact of special items that occurred during the year.
The weighted-average expected long-term rates of return on pension plan assets
were 7.00% for U.S. plans and 5.28% for non-U.S. plans for the year ended
December 31, 2021 (7.00% and 5.31%, respectively at December 31, 2020 ). The
expected long-term rate of return on the U.S. and Non-U.S. plan assets is
estimated based on the plans' investment strategy and asset allocation,
historical capital market performance and, to a lesser extent, historical plan
performance. A 0.50% change in these expected long-term rates of return, with
all other variables held constant, would change Linde's pension expense by
approximately $46 million .
The company has consistently used a market-related value of assets rather than
the fair value at the measurement date to determine annual pension expense. The
market-related value recognizes investment gains or losses over a five-year
period. As a result, changes in the fair value of assets from year to year are
not immediately reflected in the company's annual pension expense. Instead,
annual pension expense in future periods will be impacted as deferred investment
gains or losses are recognized in the market-related value of assets over the
five-year period. The consolidated market-related value of assets was $9,612
million , or $804 million lower than the fair value of assets of $10,416 million
at December 31, 2021 . These net deferred investment losses of $804 million will
be recognized in the calculation of the market-related value of assets ratably
over the next four years and will impact future pension expense. Future actual
investment gains or losses will impact the market-related value of assets and,
therefore, will impact future annual pension expense in a similar manner.
Discount rates are used to calculate the present value of plan liabilities and
pension costs and are determined annually by management. The company measures
the service and interest cost components of pension and OPEB expense for
significant U.S. and non-U.S. plans using the spot rate approach. U.S. plans
that do not use the spot rate approach continue to determine discount rates by
using a cash flow matching model provided by the company's independent
actuaries. The model includes a portfolio of corporate bonds graded Aa or better
by at least half of the ratings agencies and matches the U.S. plans' projected
cash flows to the calculated spot rates. Discount rates for the remaining
Non-U.S. plans are based on market yields for high-quality fixed income
investments representing the approximate duration of the pension liabilities on
the measurement date. Refer to Note 16 to the consolidated financial statements
for a summary of the discount rates used to calculate plan liabilities and
benefit costs, and to the Retirement Benefits section of the Consolidated
Results and Other Information section of this MD&A for a further discussion of
2021 benefit costs. A 0.50% reduction in discount rates, with all other
variables held constant, would increase Linde's pension expense by approximately
$52 million whereas a 0.50% increase in discount rates would result in a
decrease of $47 million . A 0.50% reduction in discount rates would increase the
PBO by approximately $951 million whereas a 0.50% increase in discount rates
would have a favorable impact to the PBO of approximately $841 million .
The weighted-average expected rate of compensation increase was 3.25% for U.S.
plans and 2.55% for non-U.S. plans at December 31, 2021 (3.25% and 2.55%,
respectively, at December 31, 2020 ). The estimated annual compensation increase
is determined by management every year and is based on historical trends and
market indices. A 0.50% change in the expected rate of compensation increase,
with all other variables held constant, would change Linde's pension expense by
approximately $8 million and would impact the PBO by approximately $54 million .
Asset Impairments
AtDecember 31, 2021 , the company had goodwill of$27,038 million and$1,813 million of other indefinite-lived intangible assets.Goodwill represents the aggregate of the excess consideration paid for acquired businesses over the fair value of the net assets acquired. Indefinite-lived other intangibles relate to the Linde name.
The company performs a goodwill impairment test annually or more frequently if events or circumstances indicate that an impairment loss may have been incurred.
The impairment tests performed during the fourth quarter of 2021 indicated no impairment. AtDecember 31, 2021 , Linde's enterprise value was approximately$188 billion (outstanding shares multiplied by the year-end stock price plus net debt, and without any control premium) while its total capital was approximately$57 billion . The impairment test allows an entity to first assess qualitative factors to determine if it is more likely than not that the fair value of a reporting unit is less than carrying value. If it is determined that it is more likely than not that the fair value of a reporting unit is less than carrying value then the company will estimate and compare the fair value of its reporting units to 35
--------------------------------------------------------------------------------
Table of Contents
their carrying value, including goodwill. Reporting units are determined based on one level below the operating segment level.
Management believes that the quantitative and qualitative factors used to perform its annual goodwill impairment assessment are appropriate and reasonable. Although the 2021 assessment indicated that it is more likely than not that the fair value of each reporting unit exceeded its carrying value, changes in circumstances or conditions affecting this analysis could have a significant impact on the fair value determination, which could then result in a material impairment charge to the company's results of operations. Reporting units with greater concentration of Linde AG assets fair valued during the 2018Praxair, Inc. and Linde AG merger are at greater risk of impairment in future periods.
Other indefinite-lived intangible assets are evaluated for impairment on an annual basis or more frequently if events and circumstances indicate that an impairment loss may have been incurred, and no impairments were indicated.
See Notes 9 and 10 to the consolidated financial statements.
Long-Lived Assets
Long-lived assets, including property, plant and equipment and finite-lived other intangible assets, are tested for impairment whenever events or changes in circumstances indicate that the carrying amount of an individual asset or asset group may not be recoverable. For purposes of this test, asset groups are determined based upon the lowest level for which there are independent and identifiable cash flows. Based upon Linde's business model an asset group may be a single plant and related assets used to support on-site, merchant and packaged gas customers. Alternatively, the asset group may be a collection of distribution related assets (cylinders, distribution centers, and stores) or be a pipeline complex which includes multiple interdependent plants and related assets connected by pipelines within a geographic area used to support the same distribution methods. Income Taxes AtDecember 31, 2021 , Linde had deferred tax assets of$1,829 million (net of valuation allowances of$235 million ), and deferred tax liabilities of$7,826 million . AtDecember 31, 2021 , uncertain tax positions totaled$387 million (see Note 1 and Note 5 to the consolidated financial statements). Income tax expense was$1,262 million for the year endedDecember 31, 2021 , or about 24.7% of pre-tax income (see Note 5 to the consolidated financial statements for additional information related to taxes). In the preparation of consolidated financial statements, Linde estimates income taxes based on diverse legislative and regulatory structures that exist in various jurisdictions where the company conducts business. Deferred income tax assets and liabilities represent tax benefits or obligations that arise from temporary differences due to differing treatment of certain items for accounting and income tax purposes. Linde evaluates deferred tax assets each period to ensure that estimated future taxable income will be sufficient in character (e.g. capital gain versus ordinary income treatment), amount and timing to result in their recovery. A valuation allowance is established when management determines that it is more likely than not that a deferred tax asset will not be realized to reduce the assets to their realizable value. Considerable judgments are required in establishing deferred tax valuation allowances and in assessing exposures related to tax matters. As events and circumstances change, related reserves and valuation allowances are adjusted to income at that time. Linde's tax returns are subject to audit and local taxing authorities could challenge the company's tax positions. The company's practice is to review tax filing positions by jurisdiction and to record provisions for uncertain income tax positions, including interest and penalties when applicable. Linde believes it records and/or discloses such potential tax liabilities as appropriate and has reasonably estimated its income tax liabilities and recoverable tax assets. If new information becomes available, adjustments are charged or credited against income at that time. Management does not anticipate that such adjustments would have a material adverse effect on the company's consolidated financial position or liquidity; however, it is possible that the final outcomes could have a material impact on the company's reported results of operations.
Contingencies
The company accrues liabilities for non-income tax contingencies when management
believes that a loss is probable and the amounts can be reasonably estimated,
while contingent gains are recognized only when realized or realizable. If new
information becomes available or losses are sustained in excess of recorded
amounts, adjustments are charged against income at that time. Management does
not anticipate that in the aggregate such losses would have a material adverse
effect on the company's consolidated financial position or liquidity; however,
it is possible that the final outcomes could have a material impact on the
company's reported results of operations.
36
--------------------------------------------------------------------------------
Table of Contents
Linde is subject to various claims, legal proceedings and government
investigations that arise from time to time in the ordinary course of business.
These actions are based upon alleged environmental, tax, antitrust and personal
injury claims, among others (see Note 17 to the consolidated financial
statements). Such contingencies are significant and the accounting requires
considerable management judgments in analyzing each matter to assess the likely
outcome and the need for establishing appropriate liabilities and providing
adequate disclosures. Linde believes it records and/or discloses such
contingencies as appropriate and has reasonably estimated its liabilities.
NEW ACCOUNTING STANDARDS
See Note 1 to the consolidated financial statements for information concerning new accounting standards and the impact of the implementation of these standards on the company's financial statements.
FAIR VALUE MEASUREMENTS
Linde does not expect changes in the aggregate fair value of its financial assets and liabilities to have a material impact on the consolidated financial statements. See Note 13 to the consolidated financial statements.
37
--------------------------------------------------------------------------------
Table of Contents
NON-GAAP FINANCIAL MEASURES
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
financial leverage and operating performance. Special 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. 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 in the following reconciliations are presented in this MD&A.
Adjusted Amounts
(Dollar amounts in millions, except per share data)
Year Ended
2021 2020
Adjusted Operating Profit and Operating Margin Reported operating profit$ 4,984
Add: Cost reduction programs and other charges 273
506
Add: Purchase accounting impacts - Linde AG (c) 1,919 1,969 Total adjustments 2,192 2,475 Adjusted operating profit$ 7,176 $ 5,797 Reported percentage change 50 % Adjusted percentage change 24 % Reported sales$ 30,793 $ 27,243 Reported operating margin 16.2 % 12.2 % Adjusted operating margin 23.3 % 21.3 % Adjusted Depreciation and amortization Reported depreciation and amortization$ 4,635 $ 4,626 Less: Purchase accounting impacts - Linde AG (c) (1,863) (1,920) Adjusted depreciation and amortization$ 2,772
Adjusted Other Income (Expense) - net Reported Other Income (Expense) - net$ (26) $ (61) Add: Purchase accounting impacts - Linde AG (c) (56) (49) Adjusted Other Income (Expense) - net$ 30
Adjusted Net Pension and OPEB Cost (Benefit), Excluding Service Cost Reported net pension and OPEB cost (benefit), excluding service cost
$ (192) $ (177) Add: Pension settlement charges (4) (6)
Adjusted Net Pension and OPEB cost (benefit), excluding service costs
$
(196)
Adjusted Interest Expense - Net Reported interest expense - net$ 77 $ 115 Add: Purchase accounting impacts - Linde AG (c) 53 85 Less: Bond Redemption -
(16)
Adjusted interest expense - net$ 130
38
--------------------------------------------------------------------------------
Table of Contents
Adjusted Income Taxes (a)
Reported income taxes $ 1,262 $ 847
Add: Purchase accounting impacts - Linde AG (c) 452
399
Add: Pension settlement charges 1
1
Add: Cost reduction programs and other charges 29 130 Less: Bond Redemption - 4 Total adjustments 482 534 Adjusted income taxes$ 1,744 $ 1,381 Adjusted Effective Tax Rate (a) Reported income before income taxes and equity investments$ 5,099 $ 3,384 Add: Pension settlement charge 4
6
Add: Purchase accounting impacts - Linde AG (c) 1,866
1,884
Add: Cost reduction programs and other charges 273 506 Less: Bond Redemption - 16 Total adjustments 2,143 2,412 Adjusted income before income taxes and equity investments$ 7,242 $ 5,796 Reported Income taxes$ 1,262 $ 847 Reported effective tax rate 24.7 % 25.0 % Adjusted income taxes$ 1,744 $ 1,381 Adjusted effective tax rate 24.1 % 23.8 % Income from Equity Investments Reported income from equity investments$ 119 $
85
Add: Cost reduction programs and other charges (d) 35
-
Add: Purchase accounting impacts - Linde AG (c) 77
57
Adjusted income from equity investments$ 231 $
142
Adjusted Noncontrolling Interests from Continuing Operations
Reported noncontrolling interests from continuing operations
(125)
Add: Cost reduction programs and other charges -
(4)
Add: Purchase accounting impacts - Linde AG (c) (15)
(57)
Total adjustments (15)
(61)
Adjusted noncontrolling interests from continuing operations
(186)
Adjusted Income from Continuing Operations (b) Reported income from continuing operations$ 3,821 $
2,497
Add: Pension settlement charge 3
5
Add: Cost reduction programs and other charges 279
372
Add: Purchase accounting impacts - Linde AG (c) 1,476 1,485 Less: Bond Redemption - 12 Total adjustments 1,758 1,874 Adjusted income from continuing operations$ 5,579 $
4,371
39--------------------------------------------------------------------------------
Table of Contents Adjusted Diluted EPS from Continuing Operations (b) Reported diluted EPS from continuing operations
$ 7.32 $ 4.70 Add: Pension settlement charge 0.01
0.01
Add: Cost reduction programs and other charges 0.53
0.70
Less: Bond Redemption -
0.02
Add: Purchase accounting impacts - Linde AG 2.83
2.80
Total adjustments 3.37
3.53
Adjusted diluted EPS from continuing operations$ 10.69 $ 8.23 Reported percentage change 56 % Adjusted percentage change 30 % Adjusted EBITDA and % of Sales Income from continuing operations$ 3,821 $ 2,497 Add: Noncontrolling interests related to continuing operations 135
125
Add: Net pension and OPEB cost (benefit), excluding service cost (192) (177) Add: Interest expense 77 115 Add: Income taxes 1,262 847 Add: Depreciation and amortization 4,635
4,626
EBITDA from continuing operations 9,738
8,033
Add: Cost reduction programs and other charges 308
506
Add: Purchase accounting impacts - Linde AG 133
106
Total adjustments 441
612
Adjusted EBITDA from continuing operations$ 10,179 $ 8,645 Reported sales$ 30,793 $ 27,243 % of sales EBITDA from continuing operations 31.6 % 29.5 % Adjusted EBITDA from continuing operations 33.1
% 31.7 %
40
--------------------------------------------------------------------------------
Table of Contents
(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 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
purchasing 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.
December 31, December 31,
2021 2020
(Millions of dollars)
Debt $ 14,207 $ 16,154
Less: cash and cash equivalents (2,823) (3,754)
Net debt 11,384 12,400
Less: purchase accounting impacts - Linde AG (61) (121)
Adjusted net debt $ 11,323 $ 12,279
41-------------------------------------------------------------------------------- Table of Contents SUPPLEMENTAL GUARANTEE INFORMATION
On
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 ofLinde plc may be guaranteed byLinde Inc. (previouslyPraxair, Inc. ) and/orLinde GmbH (previously Linde AG).Linde plc may provide guarantees of debt securities offered by its wholly owned subsidiariesLinde Inc. or Linde Finance under the Registration Statement.Linde Inc. is a wholly owned subsidiary ofLinde plc .Linde Inc. may offer debt securities under the Registration Statement. Debt securities ofLinde Inc. will be guaranteed byLinde plc , and such guarantees byLinde plc may be guaranteed byLinde GmbH .Linde Inc. may also provide (i) guarantees of debt securities offered byLinde plc under the Registration Statement and (ii) guarantees of the guarantees provided byLinde plc of debt securities of Linde Finance offered under the Registration Statement.Linde Finance B.V . is a wholly owned subsidiary ofLinde 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 andLinde Inc. may guaranteeLinde plc's obligations under its downstream guarantee.Linde GmbH is a wholly owned subsidiary ofLinde plc .Linde GmbH may provide (i) guarantees of debt securities offered byLinde plc under the Registration Statement and (ii) upstream guarantees of downstream guarantees provided byLinde plc of debt securities ofLinde Inc. or Linde Finance offered under the Registration Statement. InSeptember 2019 ,Linde plc provided downstream guarantees of all of the pre-business combinationLinde Inc. and Linde Finance notes, andLinde GmbH andLinde Inc. , respectively, provided upstream guarantees ofLinde 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 ofDebt Securities - Guarantees" and "Description ofDebt Securities - Ranking" in the Registration Statement, which subsections are incorporated herein by reference. The following tables present summarized financial information forLinde 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. 42 --------------------------------------------------------------------------------
Table of Contents
(Millions of dollars)
Statement of Income Data Twelve Months Ended Twelve Months Ended
December 31, 2021 December 31, 2020
Sales $ 7,767 $ 6,876
Operating profit 973 786
Net income 721 690
Transactions with non-guarantor subsidiaries 2,067 2,222
Balance Sheet Data (at period end)
Current assets (a) $ 5,826 $ 4,174
Long-term assets (b) 15,928 17,978
Current liabilities (c) 8,853 8,337
Long-term liabilities (d) 42,860 39,208
(a) From current assets above, amount due from
non-guarantor subsidiaries $ 4,209 $ 1,984
(b) From long-term assets above, amount due
from non-guarantor subsidiaries 3,257 4,565
(c) From current liabilities above, amount due
to non-guarantor subsidiaries 1,304 1,054
(d) From long-term liabilities above, amount
due to non-guarantor subsidiaries 28,142 23,394
43--------------------------------------------------------------------------------
Table of Contents
© Edgar Online, source
