What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-02-28 compared with 2022-02-28 · 148 added, 140 removed, 622 unchanged (32% of the section changed)

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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’s industrial gas operations are managed on a geographical basis and in 2022 86% of sales were generated by Linde's three geographic segments (Americas, EMEA and APAC) and the remaining 14% are related largely 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.

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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.

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• Sales of $33,364 million were 8% above 2021 sales of $30,793 million.

Volume growth across all end markets and project start-ups increased sales by 8% .

Higher pricing across all geographic segments contributed 7% 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% .

Cost pass-through increased sales by 6% with minimal impact on operating profit.

Volume increased sales by 1%.

Currency translation decreased sales by 5%, largely in EMEA and APAC.

Divestitures decreased sales by 1%.

• Reported operating profit of $5,369 million was 8% above 2021.

Adjusted operating profit of $7,904 million was 10% above 2021.

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.*

The increase in the reported operating profit was primarily due to higher pricing, productivity initiatives and lower depreciation and amortization driven by merger related assets, which more than offset Russia-Ukraine conflict and other charges and the adverse impacts of inflation and currency in the year.

The increase in adjusted operating profit increase was primarily due to higher pricing and productivity initiatives, which more than offset the adverse impacts of inflation and currency in the year.*

• Income from continuing operations of $4,147 million and diluted earnings per share from continuing operations of $8.23 increased from $3,821 million and $7.32, respectively in 2021.

Adjusted income from continuing operations of $6,195 million and adjusted diluted earnings per share from continuing operations of $12.29 were 11% and 15%, respectively above 2021 adjusted amounts.*

• Cash flow from operations of $9,725 million was 31% above 2020.

• Cash flow from operations of $8,864 million was $861 million below 2021.

The decrease was driven by higher working capital requirements, including lower inflows from contract liabilities from engineering customer advanced payments, partially offset by higher net income adjusted for non cash charges.

Capital expenditures were $3,173 million;

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net purchases of ordinary shares of $5,132 million;

and debt repayments, net were $514 million.

and debt borrowings, net were $4,475 million.

*A reconciliation of the adjusted amounts can be found in the "Non-GAAP Financial Measures" section in this MD&A.

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Depreciation and amortization $ 4,204 $ 4,635 (9) %

Cost reduction programs and other charges (a) $ 273 $ 506 (46) %

Russia-Ukraine conflict and other charges (a) $ 1,029 $ 273 —

Operating Profit $ 5,369 $ 4,984 8 %

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Cost pass-through 6 %

Currency (5) %

Acquisitions/divestitures (1) %

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Linde sales increased $2,571 million, or 8%, for the 2022 year versus 2021.

Volume growth across all end markets and project start ups increased sales by 8%.

Higher pricing across all geographic segments contributed 7% 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 the U.S.

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.

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).

Volume growth in all end markets, except healthcare, and startups increased sales by 1%.

Currency translation decreased sales by 5%, largely in EMEA and APAC, driven by the weakening of the Euro, Chinese yuan, British pound and Australian dollar against the U.S.

The impact of divestitures decreased sales by 1%.

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, increased $1,907 million, or 11%, for the year primarily due to inflation and higher volumes, partially offset by productivity gains and currency effects.

Cost of sales, exclusive of depreciation and amortization, was 58.3% and 57.0% of sales, respectively, in 2022 compared to 2021.

The increase as a percentage of sales was due primarily to higher cost pass-through.

The increase as a percentage of sales was due primarily to higher cost pass-through to customers.

Selling, general and administrative expenses

Selling, general and administrative expense ("SG&A") decreased $82 million, from $3,189 in 2021 to $3,107 million in 2022.

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.

SG&A was 9.3% of sales in 2022 versus 10.4% in 2021.

Currency impacts decreased SG&A by approximately $127 million in 2022.

Excluding currency impacts, underlying SG&A increased primarily due to higher costs.

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 $66 million, or 2%, versus 2020.

The increase is primarily due to currency translation impacts which increased depreciation and amortization by approximately $60 million in 2021.

Excluding currency impacts, underlying depreciation was relatively flat as the impact of new project start ups was largely offset by the decrease related to the deconsolidation of a joint venture with operations in APAC (see Note 2 to the consolidated financial statements).

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.

Reported depreciation and amortization expense decreased $431 million, or 9% versus 2021.

The decrease is primarily due to lower depreciation and amortization of assets acquired in the merger and currency impacts.

On an adjusted basis, depreciation and amortization expense decreased $49 million, or 2%, versus 2021.

Currency impacts decreased depreciation and amortization by $123 million in 2022.

Excluding currency impacts, underlying depreciation and amortization increased including new project start ups.

Russia-Ukraine conflict and other charges

Russia-Ukraine conflict and other charges were $1,029 million and $273 million for 2022 and 2021, respectively.

The charge for 2022 relates primarily to the deconsolidation and impairment of Russian subsidiaries resulting from the ongoing war in Ukraine and related sanctions recorded as of June 30, 2022.

2021 charges relate to cost reduction program and other charges, primarily severance (see Note 3 to the condensed consolidated financial statements).

On an adjusted basis, these benefits and costs have been excluded in both periods.

Operating profit

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On a reported basis, operating profit increased $385 million, or 8% in 2022.

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.

The increase was primarily due to higher pricing, volumes, savings from productivity initiatives, and lower depreciation and amortization driven by merger related

These increases more than offset the adverse impacts of inflation and currency in the year as well as the Russia-Ukraine conflict and other charges of $1,029 million.

Cost reduction programs and other charges was $273 million in 2021.

On an adjusted basis, which excludes the impacts of purchase accounting as well as Russia-Ukraine conflict and other charges, operating profit increased $728 million, or 10%.

Operating profit growth was driven by higher pricing, volumes and productivity initiatives, which more than offset the effects of inflation and currency during the period.

A discussion of operating profit by segment is included in the segment discussion that follows.

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On an adjusted basis interest expense decreased $32 million, or 25% in 2022 as compared to 2021.

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.

On both a reported and adjusted basis, the decrease year over year was driven primarily by higher interest income on cash deposits, partially offset by higher borrowing costs on short-term debt.

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).

Reported net pension and OPEB cost (benefit), excluding service cost were benefits of $237 million and $192 million in 2022 and 2021, respectively.

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 (see Note 16 to the consolidated financial statements).

Effective tax rate

The reported effective tax rate ("ETR") for 2022 was 25.9% versus 24.7% in 2021.

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).

The increase in the rate is primarily related to the net tax expense resulting from the deconsolidation and impairment of the company’s business in Russia in 2022.

2021 included a deferred income tax charge related to the revaluation of net deferred tax liabilities for a tax rate increase in the United Kingdom (see Note 5 to the consolidated financial statements).

On an adjusted basis, the ETR for 2022 was 24.2% versus 24.1% in 2021.

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

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On an adjusted basis, income from equity investments for 2022 was $247 million versus $231 million in 2021.

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 effective January 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 January 1, 2021.

On a reported basis, the year-over-year increase in income from equity investments was due to a $35 million impairment charge taken in the third quarter of 2021 related to a joint venture in the APAC segment.

On an adjusted basis, the year-over-year increase in income from equity investments was primarily driven by the overall performance of investments in APAC.

Noncontrolling interests from continuing operations

At December 31, 2021, noncontrolling interests from continuing operations consisted primarily of noncontrolling shareholders’ investments in APAC (primarily in China) and surface technologies.

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 the Republic 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 the Republic of South Africa, which more than offset the increase from higher income from continuing operations.

At December 31, 2022, noncontrolling interests from continuing operations consisted primarily of noncontrolling shareholders’ investments in APAC (primarily in China).

Reported noncontrolling interests from continuing operations decreased $1 million, from $135 million in 2021 to $134 million in 2022.

Adjusted noncontrolling interests from continuing operations increased $6 million in 2022 as compared to 2021.

Income from continuing operations

Reported income from continuing operations increased $1,324 million, or 53%, primarily due to higher overall operating profit.

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.

Reported income from continuing operations increased $326 million, or 9%.

On an adjusted basis, which excludes the impacts of purchase accounting and Russia-Ukraine conflict and other charges, income from continuing operations increased $616 million, or 11%, in 2022 versus 2021.

On both a reported and adjusted basis, the increase was driven by higher operating profit.

Diluted earnings per share from continuing operations

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The increase on both reported and adjusted basis was primarily due to higher income from continuing operations and lower diluted shares outstanding.

The number of employees at December 31, 2021 was 72,327, a decrease of 3%, or 1,880 employees from December 31, 2020, primarily driven by cost reduction actions and divestitures.

The number of employees at December 31, 2022 was 65,010, a decrease of 10%, or 7,317 employees from 2021, primarily driven by the sale of GIST business, cost reduction initiatives and the deconsolidation of Russian subsidiaries in the EMEA and Engineering segments.

Other Financial Data

EBITDA increased to $9,738 million in 2021 from $8,033 million in 2020.

Adjusted EBITDA from continuing operations increased to $10,179 million for 2021 as compared to $8,645 million in 2020, primarily due to higher income from continuing operations versus the prior year period.

EBITDA from continuing operations increased to $9,745 million in 2022 from $9,738 million in 2021.

Adjusted EBITDA from continuing operations increased to $10,873 million for 2022 as compared to $10,179 million in 2021, primarily due to higher adjusted income from continuing operations plus depreciation and amortization versus the prior period.

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 ended December 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.

Other comprehensive income (loss) for the year ended December 31, 2022 was a loss of $778 million resulted primarily from currency translation adjustments of $1,835 million, partially offset by an increase in the funded status of the company's retirement obligations of $1,070 million driven by a higher discount rate environment.

The translation adjustments reflect the impact of translating local currency foreign subsidiary financial statements to U.S.

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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.

Linde’s principal operations relate to the production and distribution of atmospheric and other industrial gases, which for the most part are used to help customers reduce their emissions.

Worldwide costs relating to environmental protection may continue to grow due to increasingly stringent laws and regulations.

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.

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 therefore 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.

Environmental Protection Agency ("EPA") has promulgated rules requiring reporting of GHG emissions to which Linde, its suppliers and customers are subject to.

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.

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 and its customers, 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.

Linde anticipates continued growth in its hydrogen business due to increased focus on lowering GHG emissions.

Linde anticipates continued growth in hydrogen sales due to increased focus on decarbonization projects.

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.

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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 continuously seeks opportunities to optimize energy use and GHG emissions through research and development in customer applications and rigorous operational energy efficiency, sourcing low-carbon source 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.

In 2021, a new Sustainability Committee was created.

The Committee is responsible for oversight of the Company's programs, policies and strategies related to environmental matters, including climate change, greenhouse gas reduction goals and decarbonization solutions, such as clean energy and carbon management.

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;

For example, in 2022, several pieces of legislation were enacted, including the Inflation Reduction Act in the U.S., which provides for investments in decarbonization opportunities including hydrogen projects.

Other factors include governmental regulation of GHG and other emissions;

uncertain costs of energy and certain natural resources;

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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.

Linde continues to develop new applications that can help customers lower emissions by reducing energy consumption and increasing 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.

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The net periodic benefit cost (benefit) for the 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.

pension plans was a benefit of $110 million, $35 million and $25 million in 2022, 2021 and 2020, respectively.

The funded status (pension benefit obligation ("PBO") less the fair value of plan assets) for the U.S.

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The funded status for non-U.S.

plans was a deficit of $1,409 million and $2,334 million at December 31, 2021 and 2020, respectively.

plans was a surplus of $208 million and deficit of $1,430 million at December 31, 2022 and 2021, respectively.

Both the U.S.

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.

plans derived the benefit from a lower PBO due to an increase in discount rates.

Global pension contributions were $51 million in 2022, $42 million in 2021, and $91 million in 2020.

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Th e 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.

Refer to the Critical Accounting Estimates 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.

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.

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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.

a fourth reportable segment, which represents the company's Engineering business, 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.

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Reconciliation to reported operating profit :

Cost reduction programs and other charges (Note 3)

Russia-Ukraine conflict and other charges (Note 3)

(1,029) (273)

Purchase accounting impacts - Linde AG (1,506) (1,919)

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Higher pricing contributed 6% 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 the U.S.

Higher volumes increased sales by 4%, driven by higher demand across all end markets except healthcare, led by chemicals and energy.

Cost past-through increased sales by 5% with minimal impact on operating profit.

Operating Profit

Operating profit in the Americas segment increased $595 million, or 21%, in 2021 versus 2020.

Operating profit increased due primarily to higher pricing and volumes and continued productivity initiatives.

Operating profit in the Americas segment increased $364 million, or 11%, in 2022 versus 2021 driven primarily by higher pricing, volumes and continued productivity initiatives which more than offset inflation.

(Dollar amounts in millions) Variance

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Cost pass-through 13 %

Currency (11) %

Acquisitions/Divestitures (2) %

The EMEA segment includes Linde's industrial gases operations in approximately 45 European, Middle Eastern and African countries including Germany, France, Sweden, the Republic of South Africa, and the U.K.

The EMEA segment includes Linde's industrial gases operations in approximately 45 European, Middle Eastern and African countries including Germany, the U.K., France, Sweden and the Republic of South Africa.

EMEA segment sales increased $800 million, or 10%, in 2022 versus 2021.

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 the U.S.

Higher price contributed 4% to sales.

Higher price attainment increased sales by 13%.

Cost pass-through, representing the contractual billing of energy cost variances primarily to onsite customers, increased sales by 13% with minimal impact on operating profit.

Sales decreased 1% related to the divestiture of a non-core business in Scandinavia.

Currency translation decreased sales by 11% due largely to the weakening of the Euro and British pound against the U.S.

Volume decreased sales by 3%.

The impact of net divestitures decreased sales by 2% primarily due to the deconsolidation of Russian subsidiaries as of June 30, 2022.

Operating Profit

Operating Profit for the EMEA segment increased $424 million, or 29%, in 2021 versus 2020 driven primarily by higher price and volumes and continued productivity initiatives.

Operating Profit for the EMEA segment increased $124 million, or 7%, in 2022 versus 2021.

The increase was driven largely by higher pricing and continued productivity initiatives which more than offset currency, inflation and divestitures.

(Dollar amounts in millions) Variance

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Cost pass-through 2 %

Currency (6) %

Acquisitions/Divestitures — %

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Sales for the APAC segment increased $347 million, or 6%, in 2022 versus 2021.

Volumes increased 11% driven by increased demand across all end markets, led by cyclical end markets and electronics and project start-us.

Volume increased 5% including project start-ups in the electronics and chemicals and energy end markets.

Higher price increased sales by 5%.

Currency translation increased sales by 5% driven primarily by the strengthening of the Chinese yuan, Australian dollar and Korean won against the U.S.

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).

Currency translation decreased sales by 6% driven primarily by the weakening of the Australian dollar, Korean won and Chinese Yuan against the U.S.

Operating Profit

Operating profit in the APAC segment increased $168 million, or 11%, in 2022 versus 2021.

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.

The increase was primarily driven by higher volumes and pricing and continued productivity initiatives which more than offset the impact of currency and inflation.

(Dollar amounts in millions) Variance

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Factors Contributing to Changes - 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% .

Currency (9) %

Engineering segment sales decreased $105 million, or 4%, in 2022 versus 2021 .

The decrease was driven by project timing and negative currency translation, partially offset by a $321 million project progress recognition during the third quarter.

Projects for Russia that were sanctioned and have been wound down represented approximately $894 million of the Engineering segment sales during 2022.

Operating profit

Engineering segment operating profit increased $38 million, or 9%, in 2021 versus 2020 driven primarily by currency, favorable cost performance and project timing.

Engineering segment operating profit increased $82 million, or 17%, in 2022 versus 2021 driven by the aforementioned third quarter project and a fourth quarter project settlement, partially offset by other project timing and currency impacts.

(Dollar amounts in millions) Variance

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Cost pass-through 1 %

Currency (4) %

Acquisitions/Divestitures (12) %

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which individually do not meet the quantitative thresholds for separate presentation.

Sales for Other increased $250 million, or 14%, in 2021 versus 2020.

Higher volumes and price increased sales by 11%.

Currency translation increased sales 3%.

Sales for Other decreased $242 million, or 12%, in 2022 versus 2021.

Divestitures decreased sales by 12% due primarily to the sale of the GIST business as of September 30, 2022.

Currency translation decreased sales by 4%.

Underlying sales increased 3% in the year driven primarily by price and higher volumes of aviation and electronic sales in the coatings business.

Cost pass-through increased sales by 1% in 2022.

Sales of the GIST business which was divested as of September 30, 2022 represented approximately $630 million of Other sales during the nine months ended September 30, 2022.

Operating profit

Operating profit in Other increased $97 million, or 63%, in 2021 versus 2020, due primarily to volume growth, higher price and continued productivity initiatives.

Operating profit in Other decreased $10 million, or 18%, in 2022 versus 2021 due primarily to higher sourcing costs in the global helium business and the impact of divestitures, partially offset by lower corporate costs .

The results of Linde’s non-U.S.

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Thailand bhat 1 % 34.96 31.93 34.61 33.40

Russian ruble 1 % 73.69 71.95 74.68 74.04

LIQUIDITY, CAPITAL RESOURCES AND OTHER FINANCIAL DATA

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Non-cash charges (credits):

Cost reduction programs and other charges, net of payments (a) 98 258

Russia-Ukraine and other charges, net of payments (a) 902 98

Depreciation and amortization 4,204 4,635

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Working capital (310) 1,148

Other 75 (266)

Net cash provided by operating activities $ 9,725 $ 7,429

Net cash provided by (used for) operating activities $ 8,864 $ 9,725

Investing Activities

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Noncontrolling interest transactions and other (88) (323)

Net cash (used) for financing activities $ (7,588) $ (3,345)

Net cash provided by (used for) financing activities $ (3,089) $ (7,588)

Effect of exchange rate changes on cash $ (74) $ (61)

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(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 ended December 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.

Cash increased $2,613 million in 2022 versus 2021.

The primary sources of cash in 2022 were cash flows from operations of $8,864 million and debt borrowings, net of $4,475 million.

The primary uses of cash included capital expenditures of $3,173 million, net purchases of ordinary shares of $5,132 million, cash dividends to shareholders of $2,344 million.

2022 compared with 2021

Cash Flows From Operations

Cash flows from operations was $8,864 million, a decrease of $861 million from 2021.

The decrease was driven primarily by higher working capital requirements, including lower inflows from contract liabilities from engineering customer advanced payments, partially offset by higher net income adjusted for non cash charges.

Russia-Ukraine conflict and other charges, net of payments, were $902 million and $98 million for the years ended December 31, 2022 and 2021, respectively, representing charges of $1,029 million and $273 million net of related cash outflows of $127 million and $175 million, respectively, in each period.

As of December 31, 2022, Linde has approximately $1.7 billion recorded in contract liabilities within the consolidated balance sheet related to engineering projects in Russia.

Any obligation to satisfy the related residual contract liabilities may have an adverse effect on Linde’s cash flows.

Net cash used for investing activities was $3,088 million in 2022 compared to $3,007 million in 2021.

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.

The increase was primarily driven by higher capital expenditures and acquisitions, partially offset by proceeds from divestitures, net of cash divested and asset sales.

Capital expenditures in 2022 were $3,173 million, an increase of $87 million from 2021.

Capital expenditures during 2022 related primarily to investments in new plant and production equipment for operating and growth requirements.

Approximately 52% of the capital expenditures were in the Americas segment with 27% in the APAC segment and the rest primarily in the EMEA segment.

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This represents the total estimated capital cost of large plants under construction.

Acquisition expenditures in 2021 were $88 million, an increase of $20 million from 2020 and related primarily to acquisitions in the Americas and EMEA.

Acquisitions for the year ended December 31, 2020 were $68 million and related to acquisitions in the Americas 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 of Linde China and proceeds of approximately $130 million related to the divestiture of a non-core business in Scandinavia.

Acquisitions, net of cash acquired for 2022 were $110 million, an increase of $22 million from 2021.

Acquisitions, net of cash acquired for the year ended December 31, 2021 were $88 million.

Acquisitions in each period related primarily to the Americas and EMEA.

On January 6, 2023, Linde purchased the remaining 77.2% ownership interest in nexAir, LLC in an all cash transaction with a total purchase price of approximately $0.8 billion (see Note 20 to the consolidated financial statements).

Divestitures and asset sales, net of cash divested in 2022 were $195 million as compared to $167 million in 2021.

Divestiture proceeds for the year include cash received from the sale of the company's GIST business of $184 million, net of cash divested of $75 million, for net proceeds of $109 million (See Note 2 to the consolidated financial statements).

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.

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Cash used for financing activities was $3,089 million in 2022 compared to $7,588 million in 2021.

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.

Cash provided by debt was $4,475 million in 2022 versus cash used for debt of $514 million in 2021 primarily driven by higher commercial paper borrowings and debt issuances in 2022.

Net purchases of ordinary shares were $5,132 million in 2022 versus $4,562 million in 2021.

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 ended December 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 the Republic of South Africa in January of 2021.

Cash dividends increased to $2,344 million in 2022 versus $2,189 million in 2021 driven primarily by a 10% increase in dividends per share to $4.68 per share from $4.24 per share, partially offset by lower shares outstanding.

Cash used for Noncontrolling interest transactions and other was $88 million for the year ended December 31, 2022 versus cash used of $323 million for the respective 2021 period primarily due to the settlement of the buyout of minority interests in the Republic of South Africa in 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.

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The company was in compliance with these covenants at December 31, 2022 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 of December 31, 2021.

The company maintains a $5 billion and a $1.5 billion unsecured and undrawn revolving credit agreements with no associated financial covenants.

No borrowings were outstanding under the credit agreements as of December 31, 2022.

The company does not anticipate any limitations on its ability to access the debt capital markets and/or other external funding sources and remains committed to its strong ratings from Moody’s and Standard & Poor’s.

Linde’s total net debt outstanding at December 31, 2021 was $11,384 million, $1,016 million lower than $12,400 million at December 31, 2020.

The December 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 total net debt outstanding at December 31, 2022 was $12,478 million, $1,094 million higher than $11,384 million at December 31, 2021.

The December 31, 2022 net debt balance includes $17,561 million in public securities, and $353 million representing primarily worldwide bank borrowings, net of $5,436 million of cash.

Linde’s global effective borrowing rate was approximately 1.7% for 2022.

In June 2021, Linde repaid €600 million of 3.875% notes that became due.

In September 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.

In November 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 January 2022, Linde repaid €1.0 billion of 0.250% notes that became due in 2022.

In January 2022, Linde repaid €1.0 billion of 0.250% notes that became due.

In March 2022, Linde issued €500 million of 1.000% notes due 2027, €750 million of 1.375% notes due 2031, and €800 million of 1.625% notes due 2035.

In May 2022, Linde repaid $500 million of 2.20% notes due in August 2022.

In November 2022, Linde issued $300 million of 4.80% notes due in 2024 and $600 million of 4.70% notes due in 2025.

On February 28, 2022, the company’s Board of Directors approved the additional repurchase of $10.0 billion of its ordinary shares.

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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

The actuarial models also use assumptions for various other factors, including long-term inflation rates, employee turnover, retirement age, and 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.

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Instead, annual pension expense in future periods will be impacted as deferred investment gains or losses are r ecognized 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 wil l be recognized in the calculation of the market-related value of assets ratably over the next four years and will impact future pension expense.

The consolidated market-related value of assets was $8,898 million, or $1,213 million higher than the fair value of assets of $7,685 million at December 31, 2022.

These net deferred investment gains of $1,213 million wil l 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.

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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.

The company performs a goodwill impairment test annually as of October 1 or more frequently if events or circumstances indicate that an impairment loss may have been incurred.

The impairment test performed during the fourth quarter of 2022 indicated no impairment.

At December 31, 2022, Linde’s enterprise value was approximately $173 billion (outstanding shares multiplied by the year-end stock price plus net debt, and without any control premium) while its total capital was approximately $54 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

their carrying value, including goodwill.

Reporting units are determined based on one level below the operating segment level.

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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.

As a result of the Russia-Ukraine conflict, Linde deconsolidated its Russian gas and engineering business entities as of June 30, 2022.

See Note 3 to the consolidated financial statements.

At December 31, 2022, Linde had deferred tax assets of $1,247 million (net of valuation allowances of $276 million), and deferred tax liabilities of $6,903 million.

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Reported operating profit $ 5,369 $ 4,984

Cost reduction programs and other charges 273 506

Russia-Ukraine conflict and other charges (a) 1,029 273

Purchase accounting impacts - Linde AG (c) 1,506 1,919

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Purchase accounting impacts - Linde AG (c) 35 53

Bond Redemption — (16)

Adjusted interest expense - net $ 98 $ 130

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Pension settlement charges 1 1

Cost reduction programs and other charges 29 130

Bond Redemption — 4

Russia-Ukraine conflict and other charges (a) 136 29

Total adjustments 511 482

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Purchase accounting impacts - Linde AG (c) 1,471 1,866

Cost reduction programs and other charges 273 506

Bond Redemption — 16

Russia-Ukraine conflict and other charges (a) 1,029 273

Total adjustments 2,506 2,143

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Reported income from equity investments $ 172 $ 119

Cost reduction programs and other charges (d) 35 —

Russia-Ukraine conflict and other charges (d) — 35

Purchase accounting impacts - Linde AG (c) 75 77

Total adjustments 75 112

Adjusted income from equity investments $ 247 $ 231

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Reported noncontrolling interests from continuing operations $ (134) $ (135)

Cost reduction programs and other charges — (4)

Purchase accounting impacts - Linde AG (c) (22) (15)

Total adjustments (15) (61)

Adjusted noncontrolling interests from continuing operations $ (156) $ (150)

2 unchanged sentences

Pension settlement charge 5 3

Cost reduction programs and other charges 279 372

Russia-Ukraine conflict and other charges (a) 893 279

Purchase accounting impacts - Linde AG (c) 1,150 1,476

Bond Redemption — 12

Total adjustments 2,048 1,758

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Pension settlement charge 0.01 0.01

Cost reduction programs and other charges 0.53 0.70

Bond Redemption — 0.02

Purchase accounting impacts - Linde AG 2.83 2.80

Russia-Ukraine conflict and other charges (a) 1.77 0.53

Purchase accounting impacts - Linde AG (c) 2.28 2.83

Total adjustments 4.06 3.37

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EBITDA from continuing operations 9,745 9,738

Cost reduction programs and other charges 308 506

Purchase accounting impacts - Linde AG 133 106

Russia-Ukraine conflict and other charges (a) 1,029 308

Purchase accounting impacts - Linde AG (c) 99 133

Total adjustments 1,128 441

73 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis