Linde plc(LIN) - 2023 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) The company presents its unaudited condensed consolidated financial statements for the periods ended September 30, 2023 Consolidated Statements of Income Q3 2023 sales decreased while operating profit and net income increased, a trend consistent with the nine-month results Consolidated Statements of Income (Q3 2023 vs Q3 2022) | Metric | Q3 2023 (Millions) | Q3 2022 (Millions) | Change | | :--- | :--- | :--- | :--- | | Sales | $8,155 | $8,797 | -7.3% | | Operating Profit | $2,052 | $1,613 | +27.2% | | Net Income – Linde plc | $1,565 | $1,273 | +23.0% | | Diluted EPS | $3.19 | $2.54 | +25.6% | Consolidated Statements of Income (Nine Months Ended Sep 30) | Metric | 2023 (Millions) | 2022 (Millions) | Change | | :--- | :--- | :--- | :--- | | Sales | $24,552 | $25,465 | -3.6% | | Operating Profit | $5,996 | $3,682 | +62.8% | | Net Income – Linde plc | $4,656 | $2,819 | +65.2% | | Diluted EPS | $9.43 | $5.57 | +69.3% | Condensed Consolidated Balance Sheets Total assets and shareholders' equity decreased slightly as of September 30, 2023, compared to year-end 2022 Condensed Consolidated Balance Sheet Highlights | (Millions of dollars) | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $3,894 | $5,436 | | Total Current Assets | $11,737 | $13,047 | | Property, plant and equipment - net | $23,624 | $23,548 | | Goodwill | $25,955 | $25,817 | | Total Assets | $77,827 | $79,658 | | Liabilities & Equity | | | | Total Current Liabilities | $14,162 | $16,479 | | Long-term debt | $13,232 | $12,198 | | Total Liabilities | $37,589 | $38,271 | | Total Linde plc Shareholders' Equity | $38,898 | $40,028 | Condensed Consolidated Statements of Cash Flows Operating cash flow remained strong while increased investing and financing activities led to a net decrease in cash Cash Flow Summary (Nine Months Ended Sep 30) | (Millions of dollars) | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $6,578 | $6,769 | | Net cash used for investing activities | $(3,444) | $(2,207) | | Net cash used for financing activities | $(4,620) | $(3,479) | | Change in cash and cash equivalents | $(1,542) | $933 | - Key uses of cash in the first nine months of 2023 included capital expenditures of $2.64 billion, acquisitions of $842 million, share repurchases of $2.93 billion, and dividend payments of $1.87 billion[26] Notes to Condensed Consolidated Financial Statements The notes detail the Frankfurt delisting, reorganization costs, legal contingencies, and the nexAir acquisition - In Q1 2023, the company completed an intercompany reorganization, resulting in the delisting of its shares from the Frankfurt Stock Exchange and now trades exclusively on the NYSE[30][31] - Other charges for the nine months ended Sep 30, 2023 were $42 million, a significant decrease from $1,004 million in 2022, which included a $787 million loss from deconsolidating its Russian business[34][37] - Linde faces a contingent liability of $1.1 billion related to a terminated engineering project in Russia and is involved in arbitration proceedings to defend its position[82][85] - On January 5, 2023, Linde acquired the remaining 77% of nexAir, LLC for $859 million in cash, resulting in $458 million of goodwill[111][117] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses financial results, highlighting strong pricing and productivity driving profit growth despite lower sales Consolidated Results Q3 2023 sales fell 7% due to lower cost pass-through, but adjusted operating profit and EPS grew significantly Q3 2023 vs Q3 2022 Performance Summary | Metric | Q3 2023 | Q3 2022 | % Change | | :--- | :--- | :--- | :--- | | Sales | $8,155 M | $8,797 M | (7)% | | Adjusted Operating Profit | $2,306 M | $2,010 M | 15% | | Adjusted Operating Margin | 28.3% | 22.8% | +550 bps | | Adjusted Diluted EPS | $3.63 | $3.10 | 17% | - The main drivers for the 7% sales decline in Q3 2023 were cost pass-through (-6%), Engineering (-4%), and volume (-2%), partially offset by price attainment (+5%)[123][128] Segment Discussion Industrial gas segments delivered strong operating profit growth, while the Engineering segment's sales declined Q3 2023 Segment Operating Profit | Segment | Q3 2023 Operating Profit (M) | Q3 2022 Operating Profit (M) | % Change | | :--- | :--- | :--- | :--- | | Americas | $1,074 | $974 | 10% | | EMEA | $634 | $465 | 36% | | APAC | $459 | $429 | 7% | | Engineering | $116 | $150 | (23)% | - The Americas segment's 10% operating profit growth was driven by higher pricing (+5% to sales) and the nexAir acquisition (+3% to sales)[157][159] - The EMEA segment saw a substantial 36% increase in operating profit, benefiting from strong pricing (+6% to sales) and favorable currency (+6%)[160][162][163] - Engineering segment sales declined 44% and operating profit fell 23% in Q3 2023 due to project timing and the wind-down of sanctioned projects in Russia[167][168][170] Liquidity, Capital Resources and Other Financial Data The company maintained strong liquidity after significant capital deployment for investments and shareholder returns Cash Flow Summary (Nine Months Ended Sep 30, 2023) | (Millions of dollars) | Amount | | :--- | :--- | | Net cash provided by operating activities | $6,578 | | Capital expenditures | $(2,636) | | Acquisitions, net of cash acquired | $(842) | | Net purchases of ordinary shares | $(2,900) | | Cash dividends - Linde plc shareholders | $(1,866) | - The company's sale of gas backlog for large projects under construction was approximately $4.5 billion as of September 30, 2023[182] - Linde maintains access to a $5 billion revolving credit facility and a $1.5 billion facility, both of which were undrawn as of September 30, 2023[48][187] NON-GAAP MEASURES AND RECONCILIATIONS This section reconciles GAAP to non-GAAP measures, adjusting for purchase accounting and other charges Reconciliation of Reported to Adjusted Operating Profit (Q3 2023) | (Millions of dollars) | Amount | | :--- | :--- | | Reported operating profit | $2,052 | | Add: Other charges | $2 | | Add: Purchase accounting impacts - Linde AG | $252 | | Adjusted operating profit | $2,306 | Reconciliation of Reported to Adjusted Diluted EPS (Q3 2023) | Per Share Data | Amount | | :--- | :--- | | Reported diluted EPS | $3.19 | | Add: Pension settlement charge | $0.02 | | Add: Other charges | $0.00 | | Add: Purchase accounting impacts - Linde AG | $0.42 | | Adjusted diluted EPS | $3.63 | - The company excludes purchase accounting impacts from the Linde AG merger from its non-GAAP measures due to the merger's structure and for management compensation purposes[194] Item 3. Quantitative and Qualitative Disclosures about Market Risk The company's market risk disclosures reference the 2022 Annual Report on Form 10-K - There is no new information provided on market risk; the report refers to the disclosures in the 2022 Annual Report on Form 10-K[214] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective with no material changes to internal controls - The principal executive officer and principal financial officer have concluded that the company's disclosure controls and procedures are effective[216] - No material changes in internal control over financial reporting occurred during the quarter[216] PART II - OTHER INFORMATION Item 1. Legal Proceedings The company details significant legal matters, including disputes in Brazil and Russia, in Note 9 - The company is involved in several legal proceedings, with significant matters including Brazilian tax issues and a dispute with RusChemAlliance (RCA) over a terminated project in Russia[218][75] Item 1A. Risk Factors No material changes to risk factors were reported since the 2022 Annual Report on Form 10-K - No material changes to the risk factors disclosed in the 2022 Form 10-K have occurred during the quarterly period[219] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased $1.2 billion in shares in Q3 and approved a new $15 billion repurchase program Share Repurchases (Q3 2023) | Period | Total Shares Purchased (Thousands) | Average Price Paid Per Share | | :--- | :--- | :--- | | July 2023 | 905 | $376.98 | | August 2023 | 997 | $380.63 | | September 2023 | 1,264 | $377.81 | | Third Quarter 2023 | 3,166 | $378.46 | - On October 23, 2023, the company's board of directors approved a new $15.0 billion share repurchase program[220] Item 3. Defaults Upon Senior Securities No defaults upon senior securities were reported during the period - None[221] Item 4. Mine Safety Disclosures This item is not applicable to the company's operations - Not applicable[222] Item 5. Other Information No other information was reported for this item - None[223] Item 6. Exhibits This section lists all exhibits filed with the report, including officer certifications and XBRL data - Exhibits filed include CEO and CFO certifications pursuant to Rule 13a-14(a) and Section 1350, as well as XBRL data files[224]