ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

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 ("Americas")

Europe, Middle East and Africa (“EMEA”)

Asia and Pacific (“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.

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 $3,821 million and diluted earnings per share from continuing operations of $7.32 increased from $2,497 million and $4.70, respectively in 2020. Adjusted income from continuing operations of $5,579 million and adjusted diluted earnings per share from continuing operations of $10.69 were 28% and 30%, respectively above 2020 adjusted amounts.*

• Cash flow from operations of $9,725 million was 31% above 2020. Capital expenditures were $3,086 million; dividends paid were $2,189 million; net purchases of ordinary shares of $4,562 million; and debt repayments, net were $514 million.

*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.

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)	$	273		$	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.

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 2021year 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 the U.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 $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.

Operating profit

Reported operating profit increased $1,662 million in 2021, or 50%. On an adjusted basis, operating profit increased $1,379 million, or 24%, for 2021 versus 2020.

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 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.

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.

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.

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 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.

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.

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. The translation adjustments reflect the impact of translating local currency foreign subsidiary financial statements to U.S. dollars, and are largely driven by the movement of the U.S. dollar against major currencies including the Euro, 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.

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 the U.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 the U.S. plans was a deficit of $135 million and $436 million at December 31, 2021 and 2020, respectively. 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. Both the U.S. and non-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.

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 the U.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% and5.54% for the U.S. and non-U.S. plans, respectively, which are consistent with the long-term expected returns on its investment portfolios.

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 in the 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.

At December 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.

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 December 31, 2021 and 2020.

(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

Americas

(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 Americas segment includes Linde’s industrial gases operations in approximately 20 countries including the United States, Canada, Mexico and Brazil.

Sales

Sales for the Americas 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 the U.S. Dollar. Cost past-through increased sales by 3% 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.

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	%

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.

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 the U.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 $424 million, or 29%, in 2021 versus 2020 driven primarily by higher price and volumes and continued productivity initiatives.

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.

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

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.

Sales

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%.

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.

Currency

The results of Linde’s non-U.S. operations are translated to the company’s reporting currency, the U.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 the U.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 per U.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

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)	$	(3,345)

Effect of exchange rate changes on cash	$	(61)	$	(44)


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 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.

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 the Americas segment with 32% in the APAC segment and the rest primarily in the EMEA segment.

At December 31, 2021 , Linde's sale of gas backlog of large projects under construction was approximately $3.5 billion. 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.

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 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.

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 December 31, 2021, Linde's credit ratings as reported by Standard & Poor’s and Moody’s were A-1 and P-1 for short-term debt, respectively, and A and A2 for long-term debt, respectively.

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 at December 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 of December 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 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 global effective borrowing rate was approximately 1.4% for 2021.

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.

On February 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 of Equity Securities.

OFF-BALANCE SHEET ARRANGEMENTS

As discussed in Note 17 to the consolidated financial statements, at December 31, 2021, Linde had undrawn outstanding letters of credit, bank guarantees and surety bonds entered into in connection with normal business operations and they are not reasonably likely to have a material impact on Linde’s consolidated financial condition, results of operations, or liquidity.

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 in the 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

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

Goodwill and Other Indefinite-Lived Intangibles Assets

At December 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. At December 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

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 2018 Praxair, 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

At December 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. At December 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 ended December 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.

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.

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 December 31,	2021			2020
Adjusted Operating Profit and Operating Margin
Reported operating profit	$	4,984		$	3,322

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		$	2,706

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		$	(12)

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)		$	(183)

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		$	184

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	$	(135)		$	(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	$	(150)		$	(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

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		%

(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 31,2021		December 31,2020
(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

SUPPLEMENTAL GUARANTEE INFORMATION

On June 6, 2020, the company filed a Form S-3 Registration Statement with the SEC (the "Registration Statement").

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 of Linde plc may be guaranteed by Linde Inc. (previously Praxair, Inc.) and/or Linde GmbH (previously Linde AG). Linde plc may provide guarantees of debt securities offered by its wholly owned subsidiaries Linde Inc. or Linde Finance under the Registration Statement.

Linde Inc. is a wholly owned subsidiary of Linde plc. Linde Inc. may offer debt securities under the Registration Statement. Debt securities of Linde Inc. will be guaranteed by Linde plc, and such guarantees by Linde plc may be guaranteed by Linde GmbH. Linde Inc. may also provide (i) guarantees of debt securities offered by Linde plc under the Registration Statement and (ii) guarantees of the guarantees provided by Linde plc of debt securities of Linde Finance offered under the Registration Statement.

Linde Finance B.V. is a wholly owned subsidiary of Linde 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 and Linde Inc. may guarantee Linde plc’s obligations under its downstream guarantee.

Linde GmbH is a wholly owned subsidiary of Linde plc. Linde GmbH may provide (i) guarantees of debt securities offered by Linde plc under the Registration Statement and (ii) upstream guarantees of downstream guarantees provided by Linde plc of debt securities of Linde Inc. or Linde Finance offered under the Registration Statement.

In September 2019, Linde plc provided downstream guarantees of all of the pre-business combination Linde Inc. and Linde Finance notes, and Linde GmbH and Linde Inc., respectively, provided upstream guarantees of Linde 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 of Debt Securities – Guarantees” and “Description of Debt Securities – Ranking” in the Registration Statement, which subsections are incorporated herein by reference.

The following tables present summarized financial information for Linde 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.

(Millions of dollars)
Statement of Income Data	Twelve Months Ended December 31, 2021		Twelve Months Ended 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

LIN - Linde Plc