UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the fiscal year ended December 31, 20172021 | |
OR
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File No. 1-9328
ECOLAB INC.
(Exact name of registrant as specified in its charter)
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Delaware | | 41-0231510 |
(State or other jurisdiction of
incorporation or organization) | | (I.R.S. Employer
Identification No.) |
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1 Ecolab Place, St. Paul, Minnesota55102 |
(Address of principal executive offices) (Zip Code) |
Registrant’s telephone number, including area code: 1-800-232-6522
Securities registered pursuant to Section 12(b) of the Act:
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Registrant’s telephone number, including area code: 1-800-232-6522 |
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Securities registered pursuant to Section 12(b) of the Act: |
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Title of each class | | Trading symbol(s) | | Name of each exchange on which registered |
Common Stock, $1.00 par value 2.625% Euro Notes due 2025 1.000% Euro Notes due 2024 | | ECL ECL 25 ECL 24 | | New York Stock Exchange Inc. New York Stock Exchange Inc. New York Stock Exchange Inc. |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☒ YES ☐ NO⌧ Yes ◻ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐ YES ☒ NO◻ Yes ⌧ No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ YES ☐ NO⌧ Yes ◻ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files. ☒ YES ☐ NO⌧ Yes ◻ No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer ☒ | | Accelerated filer ☐ |
Non-accelerated filer ☐(Do not check if a smaller reporting company) | | Smaller reporting company ☐ |
| | Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell Companycompany (as defined in Rule 12b-2 of the Exchange Act). ☐ YES ☒ NO
Aggregate market value of voting and non-voting common equity held by non-affiliates of registrant on June 30, 2017: $38,254,640,5122021, the last business day of the Registrant’s most recently completed second fiscal quarter: $58,664,362,024 (see Item 12, under Part III hereof), based on a closing price of registrant’s Common Stock of $132.75$205.97 per share.
The number of shares of registrant’s Common Stock, par value $1.00 per share, outstanding as of January 31, 2018: 288,858,4412022: 286,751,531 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Proxy Statement for the Annual Meeting of Stockholders to be held May 3, 20185, 2022, and to be filed within 120 days after the registrant’s fiscal year ended December 31, 20172021 (hereinafter referred to as “Proxy Statement”), are incorporated by reference into Part III.
PART I
PART I
Except where the context otherwise requires, references in this Form 10-K to (i) “Ecolab,” “Company,” “we” and “our” are to Ecolab Inc. and its subsidiaries, collectively; (ii) “Nalco”, “Nalco Company” and “Nalco Champion” are to Nalco Company LLC, a wholly-owned subsidiary of the Company; (iii) “Nalco transaction” and “Nalco merger” are to the merger of Ecolab and Nalco Holding Company completed in December 2011; (iv) “Purolite” are to Purolite LLC, a wholly-owned subsidiary of the Company and (iv) “Championits subsidiaries, collectively; and (v) “Purolite transaction” are to ourthe Company’s acquisition of privatelythe shares of the subsidiaries and certain other affiliated entities of Purolite Corporation and substantially all of the assets of Purolite Corporation used or held Champion Technologiesfor use in connection with its filtration and its related company Corsicana Technologiespurification resins business in April 2013.December 2021.
Item 1. Business.
General Development of Business.
Ecolab was incorporated as a Delaware corporation in 1924. Our fiscal year is the calendar year ending December 31. International subsidiaries are included in the consolidated financial statements on the basis of their U.S. GAAP (accounting principles generally accepted in the United States of America) November 30 fiscal year-endsyear ends to facilitate the timely inclusion of such entities in our consolidated financial reporting.
In 2017,On June 3, 2020, we completed the previously announced separation of our Upstream Energy business (the “ChampionX business”) in a Reverse Morris Trust transaction (the “Transaction”) through the split-off of ChampionX Holding Inc. (“ChampionX”), formed by Ecolab as a wholly owned subsidiary to hold the ChampionX business, followed immediately by the merger (the “Merger”) of ChampionX with a wholly owned subsidiary of ChampionX Corporation (f/k/a Apergy Corporation, “Apergy”).
As discussed in Note 5 Discontinued Operations, the ChampionX business met the criteria to be reported as discontinued operations because the separation of ChampionX was a strategic shift in business that had a major effect on our operations and financial results. Therefore, we reported the historical results of ChampionX, including the results of operations and cash flows as discontinued operations, and related assets and liabilities were retrospectively reclassified for all periods presented herein. Unless otherwise noted, the accompanying financial information has been revised to reflect the effect of the separation of ChampionX and prior year balances have been revised accordingly to reflect continuing operations only.
Subsequent to the separation of ChampionX, we no longer report the Upstream Energy segment, which previously held the ChampionX business. We are aligned into three reportable segments and Other.
Effective in the first quarter of 2020, and in anticipation of the separation of the Upstream Energy business, we created the Upstream and Downstream operating segments from the Global Energy operating segment, which was also a reportable segment. We eliminated the Global Energy reportable segment and created the Downstream operating segment and the Upstream operating segment, which are reported in the Global Industrial reportable segment and newly established Upstream Energy reportable segment which is reported in discontinued operations, respectively. Also, in the first quarter of 2020, we announced leadership changes which allow for shared oversight and focus on the Healthcare and Life Sciences operating segments and established the Global Healthcare & Life Sciences reportable segment. This segment is comprised of the Healthcare operating segment which was previously aggregated in the Global Institutional reportable segment and the Life Sciences operating segment which was previously aggregated in the Global Industrial reportable segment. Additionally, the Textile Care operating segment is reported in Other, which had previously been aggregated in the Global Industrial reportable segment. We also renamed the Global Institutional reportable segment to the Global Institutional & Specialty reportable segment. We made other immaterial changes, including the movement of certain customers and cost allocations between reportable segments.
On December 1, 2021, we acquired Purolite for total consideration of $3.7 billion in cash. Purolite is a leading and fast-growing global provider of high-end ion exchange resins for the separation and purification of solutions that is highly complementary to our current offering and critical to safe, high quality drug production and biopharma product purification in the life sciences industries. It also provides purification and separation solutions for critical industrial markets like microelectronics, nuclear power and food and beverage. Headquartered in King of Prussia, Pennsylvania, Purolite operates in more than 30 countries. Purolite is reported within our Life Sciences operating segment.
We continued to invest in and build our business through various acquisitions that complement our strategic vision. Most notably, we completed the acquisition of Laboratoires Anios (“Anios”), a leading European manufacturer and marketer of hygiene and disinfection products for the healthcare, food service, and food and beverage processing industries in February 2017. In November 2017, we completed the sale of our Equipment Care division which had annualized net sales of approximately $180 million. See Part II, Item 8, Note 4 of this Form 10-K for additional information about the acquisitions and divestitures of the Company.divestitures.
Financial Information About Operating Segments and Geographic Areas.
The financial information about reportable segments appearing under the heading “Operating Segments and Geographic Information” is incorporated by reference from Part II, Item 8, Note 17 of this Form 10-K.
Narrative Description of Business.Business.
General
With 20172021 sales of $13.8$12.7 billion, we are thea global leader in water, hygiene and energy technologiesinfection prevention solutions and services that protect people and vital resources.services. We deliver comprehensive programs, productssolutions, data-driven insights and servicespersonalized service to promote safeadvance food safety, maintain clean and safe environments, optimize water and energy use, and improve operational efficiencies and sustainability for customers in the food, healthcare, energy, hospitality and industrial markets in more than 170 countries around the world. Our cleaning and sanitizing programs and products and pest elimination services support customers in the foodservice, food and beverage processing, hospitality, healthcare, government and
education, retail, textile care and commercial facilities management sectors. Our products and technologies are also used in water treatment, pollution control, energy conservation, oil production and refining, steelmaking,primary metals manufacturing, papermaking, mining and other industrial processes. We provided equipment maintenance and repair services prior to disposal of our Equipment Care business in the fourth quarter of 2017.
We pursue a “Circle the Customer – Circle the Globe” strategy by providing an array of innovative programs, products and services designed to meet the specific operational and sustainability needs of our customers throughout the world. Through this strategy and our varied product and service mix, one customer may utilize the offerings of several of our operating segments. Important in our business proposition for customers is our ability to produce improved results while reducing their water and energy use. With that in mind, we focus on continually innovating to optimize both our own operations and the solutions we provide to customers, aligning with our corporate strategy to address some of the world’s most pressing and complex sustainability challenges such as water scarcity and climate change. The work we do matters, and the way we do it matters to our employees, customers, investors and the communities in which we and our customers operate.
Sustainability is core to our business strategy. We deliver sustainable solutions that help companies around the world achieve their business goals while reducing environmental impacts. We partner with customers at approximately three million customer locations around the world to reduce water and energy use as well as greenhouse gas emissions through our high-efficiency solutions. By partnering with our customers to help them do more with less through the use of our innovative and differentiated solutions, we aim to help our customers conserve more than 300 billion gallons of water annually by 2030. In 2020, we helped our customers conserve more than 206 billion gallons of water and avoid more than 3.5 million metric tons of greenhouse gas emissions.
The following description of our business is based upon our reportable segments as reported in our consolidated financial statements for the year ended December 31, 2017,2021, which are located in Item 8 of Part II of this Form 10-K. NineOperating segments that share similar economic characteristics and future prospects, nature of our ten operating segments (eleven prior to the saleproducts and production processes, end-use markets, channels of Equipment Care),distribution and regulatory environment have been aggregated into three reportable segments: Global Industrial, Global Institutional & Specialty and Global Energy. Our two operatingHealthcare & Life Sciences. Operating segments that are primarily fee-for-service have been combined into Other,were not aggregated and do not meetexceed the quantitative criteria to be separately reported.reported have been combined into Other. We provide similar information for Other as compared to our three reportable segments as we consider the information regarding its underlying operating segments as useful in understanding our consolidated results.
Global Industrial
This reportable segment consists of the Water, Food & Beverage, Paper, Life SciencesDownstream and Textile CarePaper operating segments, which provide water treatment and process applications, and cleaning and sanitizing solutions, primarily to large industrial customers within the manufacturing, food and beverage processing, transportation, chemical, mining and primary metals and mining, power generation, global refining, petrochemical, pulp and paper pharmaceutical and commercial laundry industries. The underlying operating segments exhibit similar manufacturing processes, distribution methods and economic characteristics. Descriptions of the fivefour operating segments which comprise our Global Industrial reportable segment follow below.
Water
Water serves customers across industrial and institutional markets, with the exception of the pulp and paper industry which is serviced by Paper and the energy industries which are served by Energy.markets. Within Water, our institutional clients include commercial buildings, hospitals, universities and hotels. Lightlight industry markets include food and beverage, manufacturing and transportation.transportation, institutional clients including commercial buildings, hospitals, universities and hotels, and global high technology serving customers including data centers and microelectronics. Heavy industries served include power, mining, chemicals and primary metals.metals and mining.
Water provides water treatment products and water technologiestechnology programs for cooling water, waste water, boiler water and process water applications. Our cooling water treatment programs are designed to control the main problemschallenges associated with cooling water systems — corrosion, scale and microbial fouling and contamination — in open recirculating, once-through and closed systems. Our wastewater products and programs focus on improving overall plant economics, addressing compliance issues, optimizing equipment efficiency and improving operator capabilities and effectiveness. We provide integrated chemical and digitally-based solutions, process improvements and mechanical component modifications to optimize boiler performance and control corrosion and scale build-up. Our programs assist in themore effectively managing water use of water for plant processes by optimizing the performance of treatment chemicals and equipment in order to minimize costs and maximize returnreturns on investment.
Our offerings include specialty products such as scale and corrosion inhibitors, antifoulants, pre-treatment solutions, membrane treatments, coagulants and flocculants, and anti-foams,anti-foamers, as well as our 3D TRASARTM technology, technologies, which combines chemistry, remote services and monitoring and control. We provide products and programs for water treatment and process applications aimed at combining environmental benefits with economic gains for our customers. Typically, water savings, energy savings maintenance and capital expenditure avoidanceoperating efficiency are among theour primary sources of value tocreation for our customers, with product quality and production enhancement improvements also providing a key differentiating featurefeatures for many of our offerings. Our offerings are sold primarily by our corporate account and field sales employees.
We believe that we are one of the leading suppliers world-wide amongglobal suppliers of products and programs for chemical applications within the industrial water treatment industry.
Food & Beverage
Food & Beverage addressesprovides cleaning and sanitation products and programs to facilitate the processing of products for human consumption. Food & Beverage provides detergents, cleaners, sanitizers, lubricants and animal health products, as well as cleaning systems, electronicdigitally-based dispensers, monitors and chemical injectors for the application of chemical products, primarily to dairy plants,plants; dairy, farms,swine and poultry farms; breweries and soft-drink bottling plants andas well as meat, poultry and other food processors. Food & Beverage is also a leading developer and marketer of antimicrobial products used in direct contact with meat, poultry, seafood and produce during processing in order to reduce microbial contamination. Food & Beverage also designs, engineers and installs CIP (“clean‑in‑place”clean-in-place”) process control systems and facility cleaning systems for its customer base. Water savings, energy savings, and operating efficiency are among our sources of value creation for our customers. Products for use in processing facilities are sold primarily by our corporate account and field sales employees, while products for use on farms are sold through dealers and independent, third-party distributors.
We believe that we are one of the leading global suppliers world-wide of cleaning and sanitizing products to the dairy plant, dairy, swine and poultry farm, beverage/brewery, food, meat and poultry, and beverage/brewery processorprocessing industries.
Downstream
customer assets while improving product quality and yields. Our product portfolio includes corrosion inhibitors, antifoulants, hydrogen sulfide removal, cold flow improvers, lubricity inhibitors, crude desalting, reactive monomer inhibitors, olefins, anti-polymerants, anti-oxidants and water treatment.
Paper
Our customers include many of the largest publicly traded oil, refining and petrochemical companies, as well as national refining and petrochemical companies, and large independent refining companies. Our downstream offerings are sold primarily by our corporate account and field sales employees and, to a lesser extent, through engineering, procurement, and construction contractors (EPC), technology licensors, distributors, sales agents and joint ventures.
We believe we are one of the leading global providers of products and programs for specialty chemical applications to downstream refineries and petrochemical operations.
Paper
Paper provides water and process applications for the pulp and paper industries, offering a comprehensive portfolio of programs that are used in all principal steps of the papermaking process and across all grades of paper, including graphic grades, board and packaging, and tissue and towel. While Paper provides its customers similar types of products and programs for water treatment and wastewater treatment as those offered by Water. Also,Water, Paper also offers two specialty programs that differentiate its offerings from Water—pulp applications and paper applications. Our pulp applications maximize process efficiency and increase pulp cleanliness and brightness in bleaching operations, as well as predict and monitor scaling potential utilizing on-line monitoring to design effective treatment programs and avoid costly failures. Our paper process applications focus on improving our customers’ operational efficiency, in part through water savings, energy savings and operating efficiency. Advanced digital sensing, monitoring and automation combine with innovative chemistries and detailed process knowledge to provide a broad range of customer solutions. Specialty products include flocculants, coagulants, dewatering aids and digester yield enhances.additives. Our offerings are sold primarily by our corporate account and field sales employees.
We believe that we are one of the leading global suppliers world-wide of water treatment products and process aids to the pulp and papermaking industry.
Life Sciences
Effective in the first quarter of 2017, we established the Life Sciences operating segment. Life Science provides contamination control, cleaning and sanitizing solutions to personal care and pharmaceutical manufacturers. Life Sciences provides detergents, cleaners, sanitizers, disinfectant, as well as cleaning systems, electronic dispensers and chemical injectors for the application of chemical products. Additionally, sterile alcohols, sterile biocides, residue removal and dilution solutions, surface wipes, dispensing equipment and aerosol sprays are primarily sold for application within clean room environments. Products and programs are sold primarily through field sales personnel and corporate account personnel, and to a lesser extent through distributors.
Life Sciences is comprised of customers and accounts previously included in our Food & Beverage and Healthcare operating segments, which were related to manufacturing in the following industries: pharmaceutical, animal health and medicine, biologic products, cosmetics and medical device. Our tailored, comprehensive solutions and technical know-how focus on ensuring product quality and safety while improving operational efficiency in customers’ cleaning, sanitation and disinfection processes.
Textile Care
Textile Care provides products and services that manage the entire wash process through custom designed programs, premium products, dispensing equipment, water and energy management, and real time data management for large scale, complex commercial laundry operations including uniform rental, hospitality, linen rental and healthcare laundries. Textile Care’s programs are designed to meet our customers’ needs for exceptional cleaning, while extending the useful life of linen and reducing our customers’ overall operating costs. Products and programs are marketed primarily through field sales employees and, to a lesser extent, through distributors.
We believe that we are one of the leading suppliers world-wide in the laundry markets in which we compete.
Global Institutional & Specialty
This reportable segment consists of the Institutional Specialty and HealthcareSpecialty operating segments, which provide specialized cleaning and sanitizing products to the foodservice, hospitality, lodging, healthcare, government, education and retail industries. The underlying operating segments exhibit similar manufacturing processes, distribution methods and economic characteristics. Descriptions of the threetwo operating segments which comprise our Global Institutional & Specialty reportable segment follow below.
Institutional
Institutional sells specialized cleaners and sanitizers for washing dishes, glassware, flatware, foodservice utensils and kitchen equipment (“warewashing”), plus specialized cleaners for various applications throughout food service operations; foroperations, on-premise laundries (typically used by hotel and healthcare customers); and for general housekeeping functions, as well asfunctions. We also sell food safety products and equipment, water filters, dishwasher racks and related kitchen sundries to the foodservice, lodging, educational and healthcare industries. Institutional also provides pool and spa treatment programs for hospitality and other commercial customers, as well as a broad range of janitorial cleaning and floor care products and programs to customers in hospitality, healthcare and commercial facilities. Institutional develops various digital monitoring and chemical dispensing systems which are used by our customers to efficiently and safely dispense our cleaners and sanitizers.sanitizers, and through these products, systems and our on-site sales and service expertise, develop better results for our customers
including water savings, energy savings and operating efficiency. In addition, Institutional markets a lease program comprised of energy-efficient dishwashing machines, detergents, rinse additives and sanitizers, including full machine maintenance. Through our EcoSure Food Safety Management business, Institutional also provides customized on-site evaluations, training and quality assurance services to foodservice operations. With the Lobster Ink business, Institutional provides our customers with end-to-end digital training solutions designed to drive corrective actions and optimal frontline execution.
Institutional sells its products and programs primarily through its direct field sales and corporate account sales personnel. Corporate account sales personnel establish relationships and negotiate contracts with larger multi-unit or “chain” customers. We also utilize independent, third-party foodservice, broad-line and janitorial distributors to provide logistics to end customers for accounts that prefer to purchasework through these distributors. Many of these distributors also participate in marketing our product and service offerings to the end customers. Through our field sales personnel, we generally provide the same customer support to end-use customers supplied by these distributors as we do to direct customers.
We believe that we are one of the leading global suppliers of warewashing and laundry products and programs to the food service, hospitality and lodging markets.
Specialty
Specialty
Specialty supplies cleaning and sanitizing chemical products and related items primarily to regional, national and international quick service restaurant (“QSR”) chains and food retailers (i.e., supermarkets and grocery stores). Its products include specialty and general purpose hard surface cleaners, degreasers, sanitizers, polishes, hand care products and assorted cleaning tools and equipment which are primarily sold under the “Ecolab” and “Kay” brand names. Specialty’s cleaning and sanitation programs are customized to meet the needs of the market segments it serves and are designed to provide highly effective cleaning performance, promote food safety, reduce labor, water and energy costs and enhance user and guest safety. A number of dispensing options are available for products in the core product range. Specialty supports its product sales with training programs and technical support designed to meet the special needs of its customers.
Both Specialty’s QSR business and its food retail business utilize atheir corporate account sales force which manages relationships with customers at the corporate headquarters and regional office levels (and, in the QSR market segment, at the franchisee level) and atheir field sales force which provides program support at the individual restaurant or store level. QSR customers are primarily supplied through third party distributors while most food retail customers utilize their own distribution networks. While Specialty’s customer base has broadened significantly over the years, Specialty’s business remains largely dependent upon a limited number of major QSR chains and franchisees and large food retail customers.
We believe that Specialty iswe are one of the leading suppliers of cleaning and sanitizing products to the global QSR market and a leading supplier of cleaning and sanitizing products to the global food retail market.
Healthcare
Global Healthcare & Life Sciences
This reportable segment consists of the Healthcare and Life Sciences operating segments, which provide specialized cleaning and sanitizing products to the healthcare, personal care and pharmaceutical industries. The underlying operating segments exhibit similar manufacturing processes, distribution methods and economic characteristics. Descriptions of the two operating segments which comprise our Global Healthcare & Life Sciences reportable segment follow below.
Healthcare
Healthcare provides infection prevention surgical solutions and contamination controlsurgical solutions to acute care hospitals, surgery centers and medical device Original Equipment Manufacturers (“OEM”), and pharmaceutical and hospital clean room environments.. Healthcare’s proprietary infection prevention and surgical solutions (hand hygiene, hard surface disinfection, digital monitoring systems, instrument cleaning, patient drapes, equipment drapes and surgical fluid warming and cooling systems) are sold primarily under the "Ecolab", "Microtek""Ecolab," "Microtek," and “Anios” brand names to various departments within the acute care environment (Infection Control, Environmental Services, Central Sterile and Operating Room). Healthcare sells its products and programs primarilyprincipally through its field sales personnel and corporate account personnel but also sells through healthcare distributors.
We believe Healthcare is awe are one of the leading suppliersuppliers of infection prevention and surgical solutions in the United States and Europe.
Global EnergyLife Sciences
This reportable segment, which operatesLife Sciences provides end-to-end cleaning and contamination control solutions to pharmaceutical and personal care manufacturers. These products are primarily sold under the Nalco Champion“Ecolab” brand name, consists of the Energy operating segment, which serves the process chemicals and water treatment needs of the global petroleum and petrochemical industries in both upstream and downstream applications.
Energy provides on-site, technology-driven solutions to the global drilling and completion, oil and gas production and refining and petrochemical industries. Our product portfolio includes: additives for drilling and well stimulation, corrosion inhibitors, oil and water separation, scale control, paraffin and asphaltene control, biocides, hydrate control, hydrogen sulfide removal, oil dispersants, foamers and anti-foamers, flow improvers, anti-foulants, crude desalting, monomer inhibitors, anti-oxidants, fuel and lubricant additives, and traditional water treatment.
The Energy operating segment operates under an upstream group composed primarily of ourWellChem and Oil Field Chemicals businesses and a downstream refinery and petrochemical processing group. Our upstream group provides solutions to the oil and gas production sector, including crude oil and natural gas production, pipeline gathering/transmission systems, gas processing, heavy oil and bitumen upgrading and enhanced oil recovery. Upstream also supplies chemicals for the cementing, drilling, fracturing and acidizing phases of well drilling and stimulation. Our priority is to safely manage the critical challenges facing today’s oil and gas producers throughout the life cycle of their assets, with such an approach helping our customers minimize risk, achieve their production targets and maximize profitability. Our downstream group provides products and programs for process and water treatment applications specific to the petroleum refining and fuels industry, enabling our customers to profitably refine and upgrade hydrocarbons. Our heavy oil upgrading programs minimize operational costs and mitigate fouling, corrosion, foaming and the effects of heavy metals during the refining process. We also offer fuel additives, including corrosion inhibitors, to protect engine fuel systems and pre-market underground storage tanks and piping. Our customers include nearly all of the largest publicly traded oil companies,detergents, cleaners, sanitizers, disinfectants, surface wipes, as well as national oil companiescleaning systems, electronic dispensers and large independent oil companies. Our Energy offeringschemical injectors for the application of chemical products. With the acquisition of Purolite, the portfolio now includes premium fluid treatment and purification solutions with a broad range of unique products sold under the “Purolite” brand name, particularly focusing on biopharma purification solutions, active pharmaceutical ingredients (“API’s”) and high value industrial applications. The Life Sciences portfolio also includes decontamination systems and services utilizing hydrogen peroxide vapor, which are sold under the “Bioquell” brand name. The pharmaceutical clean room environment is the primary area that Ecolab and Bioquell products are utilized. Purolite products are primarily used in the purification of biologic therapeutics, API’s and high value industrial applications. Products and programs are sold primarily bythrough our field sales and corporate account and field sales employeespersonnel, and to a lesser extent through distributors, sales agentsdistributors.
Life Sciences is comprised of customers and joint ventures.
accounts related to manufacturing in the following industries: pharmaceutical, animal health and medicine, blood purification and dialysis, biologic products, cosmetics and medical devices. Our tailored, comprehensive solutions and technical know-how focus on ensuring product quality, safety and compliance standards are met while improving operational efficiency in customers’ cleaning, sanitation and disinfection processes. We believe Energy iswe are one of the leading global providerssuppliers of specialty chemicals to the upstream oilprocess purification solutions in Europe and gas industry,North America and downstream refineriesof contamination control solutions in Europe, with a growing presence in North America and petrochemical operations.other regions.
Other
Other consists of the Pest Elimination, Textile Care and Equipment Care, prior to its sale in November 2017,Colloidal Technologies Group operating segments. These operating segments do not meet the quantitative criteria to be separately reported. We provide pest elimination and kitchen repair and maintenance throughdisclose these operating segments within Other as we consider the information useful in understanding our two operating units that are primarily fee-for-service businesses. In general, these businesses provide service which can augment or extend our product offerings to our business customers as a part of our “Circle the Customer” approach and, in particular, by enhancing our food safety capabilities.consolidated results.
Pest Elimination
Pest Elimination provides services designed to detect, eliminate and prevent pests, such as rodents and insects, in restaurants, food and beverage processors, educational and healthcare facilities, hotels, quick service restaurant and grocery operations and other institutional and commercial customers. The services of Pest Elimination are sold and performed by our field sales and service personnel.
Pest Elimination continues to expand its geographic coverage. In addition to the United States, which constitutes the largest operation, we operate in various countries in Asia Pacific, Greater China, Western Europe, Latin America and South Africa, with the largest operations in France, the United Kingdom, Greater China and Mexico. Africa.
We believe Pest Elimination is a leading supplier of pest elimination programs to the commercial, hospitality and institutional markets in the geographies it serves.
EquipmentTextile Care
PriorTextile Care provides products and services that manage the entire wash process through custom designed programs, premium products, dispensing equipment, water and energy management and reduction, and real time data management for large scale, complex commercial laundry operations including uniform rental, hospitality, linen rental and healthcare laundries. Textile Care’s programs are designed to its salemeet our customers’ needs for exceptional cleaning, while extending the useful life of linen and reducing our customers’ overall operating costs. Products and programs are marketed primarily through our field sales employees and, to a lesser extent, through distributors. We believe we are one of the leading global suppliers in November 2017, Equipment Care provided equipment repair, maintenancethe laundry markets in which we compete.
Colloidal Technologies Group
The Colloidal Technologies Group (“CTG”) produces and preventive maintenance servicessells colloidal silica, which is comprised of nano-sized particles of silica in water. These products and associated programs are used primarily for binding and polishing applications. CTG serves customers across various industries, including semiconductor manufacturing, catalyst manufacturing, chemicals and aerospace component manufacturing.
CTG incorporates strong collaboration with customers to develop customized solutions that meet the commercial food service industry. Repair services were offeredtechnical demands of their operations. Our silica-based applications are widely used for in-warranty repair, actingpolishing of silicon wafers, semiconductor substrates and the precision surface finishing of optics, watch crystals and other glass components. We offer a variety of silica-based particles that can be used as the manufacturer’s authorized service agent,binders in heterogeneous catalyst systems and as well as after-warranty repair. In addition, Equipment Care operatedsilica nutrients for manufacturing specialty zeolites. Our silica products are used worldwide as a binder for precision investment casting slurries, which ultimately facilitate the manufacture of near net-shape metal parts distributor to repair service companiessuch as turbine blades and end-use customers. Operations were solely ingolf club heads.
Our products are sold primarily by our corporate account employees. We believe we are one of the United States.leading global suppliers of colloidal silica.
Additional Information
International Operations
We directly operate in approximately 100 countries outside of the United States through wholly-owned subsidiaries or, in some cases, through a joint venture with a local partner. In certain countries, selected products are sold by our export operations to distributors, agents or licensees, although the volume of those sales is not significant in terms of our overall revenues. In general, our businesses conducted outside the United States are similar to those conducted in the United States.
Our business operations outside the United States are subject to the usual risks of foreign operations, including possible changes in trade and foreign investment laws, international business laws and regulations, tax laws, currency exchange rates and economic and political conditions. The profitability of our Internationalinternational operations is generally lower than the profitability of our businesses in the United States, due to (i) the additional cost of operating in numerous and diverse foreign jurisdictions with varying laws and regulations, (ii) higher costs of importing certain raw materials and finished goods in some regions, (iii) the smaller scale of international operations where certain operating locations are smaller in size, and (iv) the additional reliance on distributors and agents in certain countries which can negatively impact our margins. Proportionately larger investments in sales and technical support are also necessary in certain geographies in order to facilitate the growth of our international operations.
Competition
In general, the markets in which the businesses in our Global Industrial reportable segment compete are led by a few large companies, with the rest of the market served by smaller entities focusing on more limited geographic regions or a smaller subset of products and services. Our businesses in this segment compete on the basis of their demonstrated value, technical expertise, innovation, digital technology, chemical formulations, global customer support, detection equipment, monitoring capabilities, and dosing and metering equipment. Through the combination of our digitally enabled end-to-end water management and hygiene solutions, data-driven insights and personalized service, our Global Industrial businesses deliver outcomes that help our customers optimize water and energy use, improve productivity, advance food safety, and achieve sustainability and net zero goals, while optimizing total cost of operations.
The businesses in our Global Institutional & Specialty reportable segment and Other have two significant classes of competitors. First, we compete with a small number of large companies selling directly or through distributors on a national or international scale. Second, we have numerous smaller regional or local competitors which focus on more limited geographies, product lines and/or end-use customer segments. We compete principally by providing superior value, premium customer support, training, service, and innovative and differentiated products to help our customers protect their brand reputation.reputation and improve their operational efficiency.
Within the Global Healthcare & Life Sciences reportable segment, the Healthcare business competes geographically with companies primarily focused on a smaller range of product categories, with few globally scaled competitors. Life Sciences business competes in the European market versus several mid-size and regional competitors and competes against two large and other mid-size or regional competitors in North America. Outside of North America and Europe competitors are much more fragmented and do not offer the same level of service or coverage as Ecolab. Our businesses in this segment compete by enabling our customers success through improved hygiene, digitally enabled programs in key operating room and patient room space as well as a tailored approach to delivering key inputs that directly impact our customers patients globally.
Sales
Our Global Energy reportable segment competes with a limited number of multinational companies, with the remainder of the market comprised of smaller, regional niche companies focused on limited geographic areas. We compete in this business on the basis of our product quality, technical expertise, chemical formulations, effective global supply chain, strong customer service and emphasis on safety and environmental leadership.
Sales
Products,products, systems and services are primarily marketed in domestic and international markets by our Company-trained direct field sales personnel who also advise and assist our customers in the proper and most efficient use of the products and systems in order to meet a full range of cleaning and sanitation, water treatment and process chemistry needs. Independent, third-party distributors and, to a lesser extent, sales agents, are utilized in several markets, as described in the segment descriptions found above.
Number of Employees
We had 48,400 employees as of December 31, 2017.
Customers and Classes of Products
We believe that our business is not materially dependent upon a single customer. Additionally, although we have a diverse customer base and no customer or distributor constitutesconstituted 10 percent or more of our 2017 consolidated revenues in 2021, 2020 or 2019, we do have customers and independent third-party distributors, the loss of which could have a material adverse effect on results of operations for the affected earnings periods; however, we consider it unlikely that such an event would have a material adverse impact on our financial position. No material part of our business is subject to renegotiation or termination at the election of a governmental unit.
We sold one class of products within the Global Institutional & Specialty reportable segment which comprised 10% or more of consolidated net sales in the last three years. Sales of warewashing products were approximately 10%, 11%, and 13% of consolidated net sales in 20172021, 2020, and 20162019, respectively.
Human Capital
As of December 31, 2021, Ecolab employed approximately 47,000 employees, including approximately 25,000 sales and 10%service and 1,200 research, development, and engineering employees. Approximately 42% of consolidated net salesthe employees are employed in 2015.North America, 21% in Europe, 8% in Asia Pacific, 18% in Latin America, 4% in India, Middle East and Africa, and 7% in Greater China.
We are committed to developing a culture that is diverse, equitable, inclusive, and fully leverages our employees’ talents as we work together to serve the needs of our customers. We believe in providing comprehensive training and career development opportunities and in compensating and rewarding our employees equitably. Our commitment to the safety of our employees, contractors and customers is evident in all we do, from the way we operate, to the products we develop and to the customers we serve. In addition, we are committed to promoting the health and well-being of our employees, our customers, and their customers by contributing to programs and initiatives that enhance the quality of life in the communities where they work and live. In support of these overall objectives, key areas of focus include:
Diversity, Equity, and Inclusion: We have a long-standing belief that a diverse, equitable, and inclusive workforce is a critical foundation for the shared success of our employees, our company, our customers, and our communities. To build that strong foundation, we have worked to embed diversity and inclusion throughout all people processes, including recruitment, promotional practices, training and development, and total rewards. To help guide our work and ensure a broad commitment to progress, Ecolab utilizes a Diversity Council made up of senior leaders throughout our company and chaired by our CEO. We review key metrics and practices, including diverse representation, hiring practices, and retention with the Council and with senior executives and business leads monthly. We set diversity goals at or above market availability and require diverse slates for all hiring activity. As a part of our 2030 impact goals, we have committed to the following:
| ● | Committing to the UN Sustainable Development Goal 5: Gender Equality for Women and Girls |
| ● | Maintaining Ecolab’s pay equity in the U.S. and expanding globally |
| ● | Increasing management level gender diversity to 35% with the ultimate goal of gender parity |
| ● | Increasing management level ethnic/racial diversity to 25% as we seek to meet full representation of the U.S. workforce at all levels |
We have a vibrant and growing community of Employee Resource Groups (ERGs) to help employees connect with colleagues, take part in career and leadership development experiences, and provide important insights in support of advancing our work in diversity, equity, and inclusion. These employee-led ERGs create community and focus across several dimensions of diversity, including gender, race/ethnicity, gender identity, sexual orientation, ability/disability, military service and more. All employees are welcome and encouraged to join, participate or become leaders within any of our 12 ERGs.
Employee Training and Development: At our core, Ecolab’s growth is rooted in decades of science, learning and innovation. We have ambitious solution-oriented teams and we continually look for ways to help our employees learn and grow. Beyond rigorous technical, functional, and business-specific training courses, our Global Corporate Flagship Development Programs are designed to deepen leadership capability and prepare successors for key leadership roles.
Safety, Health and Wellness: At Ecolab, the safety of our employees and contractors is our top priority and is embedded into our company values. Our safety goals are simple: zero accidents, zero injuries and zero violations. We communicate that this is a collective goal all employees commit to, own, and deliver on every day. Our leadership teams and a network of Safety, Health and Environment professionals around the world support employees with proven safety programs, processes, and platforms. Understanding underlying and potential risks is a critical component to improving safety outcomes. Our Global Safety Dashboard tracks our performance on a range of leading and lagging safety indicators and helps us measure the effectiveness of our safety programs.
Additionally, a Be Well Program is available to U.S. employees and their families to empower, educate and support their personal journey to overall well-being by making positive lifestyle choices while creating a culture of wellness throughout Ecolab. Over the last few years, we’ve expanded our offerings to include comprehensive child and elder caregiver resources to help employees balance the demands of work and personal responsibilities. To ensure the safety of our employees amidst an ongoing COVID-19 pandemic environment, we’ve continued to help our global employees garner access to vaccines and COVID-19 testing, have provided the option for employees who can do their work remotely to work from home, and have implemented additional safety measures for our employees working in the field and in our plant and warehouse locations.
Future of Work: Ecolab is committed to building a best-in-class, thriving work environment for all employees —from those who work in the field serving our customers, to those who work in our manufacturing facilities, to our employees who work in an office environment— our focus extends across all segments of our workforce. The Future of Work at Ecolab will embrace enhanced tools and technology and evolved practices to optimize performance, productivity, and collaboration. As we prepare to welcome more of our employees back to work in our Ecolab offices, we will offer a hybrid work model that balances evolving work practices and norms while preserving the practices we believe are core and fundamental to our success.
For additional detail regarding our Human Capital Management metrics and focus areas, please refer to our website for additional detail regarding our Human Capital Management metrics and focus areas, Diversity, Equity and Inclusion initiatives and other information and metrics, including our latest Corporate Responsibility GRI Report and EEO-1 report.
Patents and Trademarks
We own and license a number of patents, trademarks and other intellectual property.property, including intellectual property from our recent acquisition of Purolite. While we have an active program to protect our intellectual property by filing for patents or trademarks and pursuing legal action, when appropriate, to prevent infringement, except for the items listed below, we do not believe that our overall business is materially dependent on any individual patent or trademark.
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● | | Patents related to our TRASAR and 3D TRASAR technology, which are material to our Global Industrial reportable segment. U.S. and foreign patents protect aspects of our key TRASAR and 3D TRASAR technology until at least 2024. |
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● | | Trademarks related to Ecolab, Nalco and 3D TRASAR, which collectively are material to all of our reportable segments. The Ecolab, Nalco and 3D TRASAR trademarks are registered or applied for in all of our key markets and we anticipate maintaining them indefinitely. |
Seasonality
We experience variability in our quarterly operating results due to seasonal sales volume and business mix fluctuations in our operating segments. Part II, Item 8, Note 18,20, entitled “Quarterly Financial Data” of this Form 10-K is incorporated herein by reference.
Investments in Equipment
We have no unusual working capital requirements. We have invested in the past, and will continue to invest in the future, in process control and monitoring equipment consisting primarily of systems used by customers to dispense our products as well as to monitor water systems. The investment in such equipment is discussed under the heading "Investing Activities" in Management's Discussion and Analysis of Financial Condition and Results of Operations of this Form 10-K.
Manufacturing and Distribution
We manufacture most of our products and related equipment in Company-operated manufacturing facilities. Some products are also produced for us by third-party contract manufacturers. Other products and equipment are purchased from third-party suppliers. Additional information on product/equipment sourcing is found in the segment discussions above and additional information on our manufacturing facilities is located under Part I, Item 2. “Properties,” of this Form 10-K.
Deliveries to customers are made from our manufacturing plants and a network of distribution centers and third-party logistics service providers. We use common carriers, our own delivery vehicles, and distributors for transport. Additional information on our plant and distribution facilities is located under Part I, Item 2. “Properties,” of this Form 10-K.
Raw Materials
Raw materials purchased for use in manufacturing our products are inorganic chemicals, including alkalis, acids, biocides, phosphonates, phosphorous materials, silicates and salts; and organic chemicals, including acids, alcohols, amines, fatty acids, surfactants, solvents, monomers and polymers. Healthcare purchases plastic films and parts to manufacture medical devices that serve the surgical and infection prevention markets. Pesticides used by Pest Elimination are purchased as finished products under contract or purchase order from the producers or their distributors. We also purchase packaging materials for our manufactured products and components for our specialized cleaning equipment and systems. We purchase more than 10,000 raw materials, with the largest single raw material representing less than 2%four percent of raw material purchases. Our raw materials, with the exception of a few specialized chemicals which we
manufacture, are generally purchased on an annual contract basis and are ordinarily available in adequate quantities from a diverse group of suppliers globally. We have encountered supply chain disruptions from the impacts of the COVID-19 pandemic which has impacted the availability of certain raw materials; however, we believe this to be short-term in nature. When practical, global sourcing is used so that purchasing or production locations can be shifted to control product costs at globally competitive levels.
Research and Development
Our research and development program consists principally of developing and validating the performance of new products, processes, techniques and equipment, improving the efficiency of those already existing, ones, improving service program content, evaluating the environmental compatibility of products and technical support. Key disciplines include analytical and formulation chemistry, microbiology, data science and predictive analytics, process and packaging engineering, digital and remote monitoring engineering and product dispensing technology. Substantially all of our principal products have been developed by our research, development and engineering personnel.
We believe continued research and development activities are critical to maintaining our leadership position within the industry and will provide us with a competitive advantage as we seek additional business with new and existing customers.
Part II, Item 8, Note 14, entitled “Research and Development Expenditures”
Joint Ventures
Over time, we have entered into partnerships or joint ventures in order to meet local ownership requirements, to achieve quicker operational scale, to expand our ability to provide our customers a more fully integrated offering or to provide other benefits to our business or customers. During 2017,2021, the impact on our consolidated net income of our joint ventures, in the aggregate, was less thanapproximately three percent. The table below identifies our most significant consolidated and non-consolidated joint ventures, summarized by the primary purpose of the joint venture.
| | | | |
Local Ownership Requirements / Geographic Expansion
|
Joint Venture
| | Location
| | Segment
|
Nalco Saudi Co. Ltd.
| | Saudi Arabia
| | Global Energy, Global Industrial
|
AGS Champion LLP
| | Kazakhstan
| | Global Energy
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Nalco Angola Prestação de Serviços, Limitada
| | Angola
| | Global Energy
|
RauanNalco LLP
| | Kazakhstan
| | Global Energy
|
Nalco Champion EG Sarl
| | Equatorial Guinea
| | Global Energy
|
Emirates National Chemical Company LLC
| | United Arab Emirates
| | Global Energy
|
Malaysian Energy Chemical & Services Sdn. Bhd.
| | Malaysia
| | Global Energy
|
Arpal Gulf, LLC
| | United Arab Emirates
| | Global Institutional
|
Nalco Champion Dai-ichi India Private Limited
| | India
| | Global Energy
|
Nalco Champion Ghana Limited
| | Ghana
| | Global Energy
|
Operational Scale / Geographic Critical Mass
|
Joint Venture
| | Location
| | Segment
|
Katayama Nalco Inc.
| | Japan
| | Global Industrial
|
Technology / Expanded Product Offering / Manufacturing Capability
|
Joint Venture
| | Location
| | Segment
|
Aquatech International, LLC
| | United States
| | Global Industrial
|
Treated Water Outsourcing
| | United States
| | Global Industrial
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Derypol, S.A.
| | Spain
| | Global Industrial
|
Century LLC
| | United States
| | Global Institutional
|
CJSC Nalco Element JV
| | Russia
| | Global Energy
|
Kogalym Chemicals Plant LLC
| | Russia
| | Global Energy
|
Petrochem Performance Products
| | Azerbaijan
| | Global Energy
|
HanSteel Nalco Water Treatment (Handan) Co., Limited
| | China
| | Global Industrial
|
Additionally, we continue to be party to the Ecolab S.A. joint venture in Venezuela, which historically operated businesses in our Global Industrial and Global Institutional segments. This joint venture was included among the Venezuelan subsidiaries that we deconsolidated for U.S. GAAP purposes effective at the end of the fourth quarter of 2015, as further described within the MD&A and Part II, Item 8, Note 3 of this Form 10-K.
We will continue to evaluate the potential for partnerships and joint ventures that can assist us in increasing our geographic, technological and product reach.
Environmental and Regulatory Considerations
Our businesses are subject to various legislative enactments and regulations relating to the protection of the environment and public health. While we cooperate with governmental authorities and take commercially practicable measures to meet regulatory requirements and avoid or limit environmental effects, some risks are inherent in our businesses. Among the risks are costs associated with transporting and managing hazardous materials and waste disposal and plant site clean‑up,clean-up, fines and penalties if we are found to be in violation of law, as well as modifications, disruptions or discontinuation of certain operations or types of operations including product recalls and reformulations. Similarly, the need for certain of our products and services is dependent upon or might be limited by governmental laws and regulations. Changes in such laws and regulations, including among others, air, pollutionwater, chemical and product regulations, and regulations relating to oil and gas production (including those related to hydraulic fracturing), could impact the sales of some of our products or services. In addition to an increase in costs of manufacturing and delivering products, a change in production regulations or product regulations could result in interruptions to our business and potentially cause economic or consequential losses should we be unable to meet the demands of our customers for products.
Additionally, although we are not currently aware of any such circumstances, there can be no assurance that future legislation or enforcement policies will not have a material adverse effect on our consolidated results of operations, financial position or cash flows. Environmental and regulatory matters most significant to us are discussed below.
Ingredient Legislation: Various laws and regulations have been enacted by state, local and foreign jurisdictions pertaining to the sale of products which contain phosphorous, volatile organic compounds, or other ingredients that may impact human health or the environment. Under California Proposition 65, for example, label disclosures are required for certain products containing chemicals listed by California. Chemical management initiatives that promote pollution prevention through research and development of safer chemicals and safer chemical processes are being advanced by certain states, including California, Maine, Maryland, Massachusetts, Minnesota, Oregon and South Carolina. several states.
Environmentally preferable purchasing programs for cleaning products have been enacted in ninea number of states to date, and in recent years have been considered by several other state legislatures. Cleaning product ingredient disclosure legislation has been introduced in the U.S. Congress in each of the past few years but has not passed, and several states are considering further regulations in this area. Last year,In 2017, California passed the Cleaning Product Right to Know Act of 2017, which will requirethat required ingredient transparency on-line and on-label by 2020 and 2021, respectively. New York is in the process of draftinghas proposed similar regulations with an expected passage in 2018.ingredient disclosure regulation. The U.S. Government is monitoring “green chemistry” initiatives through a variety of initiatives, including its “Design for the Environment” (“DfE”)/“Safer Choice” program. DfE/Safer Choice has three broad areas of work (recognition of safer products on a DfE/Safer Choice label, development of best practices for industrial processes and evaluation of safer chemicals), and we are involved in these to varying degrees. Our Global Institutional and Global Industrial cleaning products are subject to the regulations and may incur additional stay-in-market expenses associated with conducting the required alternatives analyses for chemicals of concern. To date, we generally have been able to comply with such legislative requirements by reformulation or labeling modifications. Such legislation has not had a material adverse effect on our consolidated results of operations, financial position or cash flows to date.
TSCA: The nation’s primary chemicals management law, the Toxic Substances Control Act (“TSCA”), was updated for the first time in 40 years with the passage of the Frank R. Lautenberg Chemical Safety for the 21st Century Act (“LCSA”) in 2016. The LCSA modernizes the original 1976 legislation, aiming to establish greater public confidence in the safety of chemical substances in commerce, improve the U.S. Environmental Protection AgencyAgency’s (“EPA”) EPA’s capability and authority to regulate existing and new chemical substances, and prevent further state action or other notification programs like REACH (see below). For Ecolab, the new TSCA rules willchanges mainly impact testing and submission costs for new chemical substances in the United States. In addition, the EPA likely will be more aggressively using the existing TSCA tools to manage chemicals of concern. We anticipate that compliance with new requirements under TSCA could be similar to the costs associated with REACH in the European Union, which is discussed below.
REACH: The European Union has enacted a regulatory framework for the Registration, Evaluation and Authorization of Chemicals (“REACH”). It, which aims to manage chemical safety risks. REACH established a new European Chemicals Agency (“ECHA”) in Helsinki, Finland, which is responsible for evaluating data to determine hazards and risks and to manage this program for authorizing chemicals for sale and distribution in Europe. We met the pre-registration requirements ofall REACH the 2010 and 2013 registration deadlines, and are on track to meet the final registration deadlines and requirements in 2018.requirements. To help manage this program, we have been simplifying our product lines and working with chemical suppliers to comply with registration requirements. In addition, Korea, Taiwan, Turkey and other countries are implementing similar requirements. Potential costs to us are not yet fully quantifiable but are not expected to have a material adverse effect on our consolidated results of operations or cash flows in any one reporting period or on our financial position.
GHS: In 2003, the United Nations adopted a standard on hazard communication and labeling of chemical products known as the Globally Harmonized System of Classification and Labeling of Chemicals (“GHS”). GHS is designed to facilitate international trade and increase safe handling and use of hazardous chemicals through a worldwide system that classifies chemicals based on their intrinsic hazards and communicates information about those hazards through standardized product labels and safety data sheets (“SDSs”). Most countries in which we operate will adoptadopted GHS-related legislation and numerous countries already have done so.by 2021. The primary cost of compliance revolves around reclassifying products and revising SDSs and product labels. We have met the 2015applicable deadlines in the U.S. and European Union and are working toward a phased-in approach to mitigate the costs of GHS implementation in otherremaining countries (e.g., Thailand)Peru, Chile, India). Potential costs to us are not expected to have a material adverse effect on our consolidated results of operations or cash flows in any one reporting period or on our financial position.
Pesticide and Biocide Legislation: Various international, federal and state environmental laws and regulations govern the manufacture and/or use of pesticides. We manufacture and sell certain disinfecting, sanitizing and material preservation products that kill or reduce microorganisms (bacteria, viruses, fungi) on hard environmental surfaces, in process fluids and on certain food products. Such products constitute “pesticides” or “antimicrobial pesticides” under the current definitions of the Federal Insecticide, Fungicide, and Rodenticide Act (“FIFRA”), as amended by the Food Quality Protection Act of 1996, the principal federal statute governing the manufacture, labeling, handling and use of pesticides. We maintain several hundred product registrations with the U.S. Environmental Protection Agency (“EPA”). Registration entails the necessity to meet certain efficacy, toxicity and labeling requirements and to pay on-going registration fees. In addition, each state in which these products are sold requires registration and payment of a fee. In general, the states impose no substantive requirements different from those required by FIFRA. However, California and certain other states have adopted additional regulatory programs, and California imposes a tax on total pesticide sales in that state. While the cost of complying with rules as to pesticides has not had a material adverse effect on our consolidated results of operations, financial condition, or cash flows to date, the costs and delays in receiving necessary approvals for these products continue to increase. Total fees paid to the EPA and the states to obtain or maintain pesticide registrations are not expected to significantly affect our consolidated results of operations or cash flows in any one reporting period or our financial position.
In Europe, the Biocidal Product Directive and the more recent Biocidal Products Regulation established a program to evaluate and authorize marketing of biocidal active substances and products. We are working with suppliers and industry groups to manage these requirements and have met the firstall relevant deadlinedeadlines of the program by the timely submission of dossiers for active substances.substances and biocide products. Anticipated registration costs, which will be incurred through the multi-year phase-in period, will be significant; however, these costs are not expected to significantly affect our consolidated results of operations or cash flows in any one reporting period or our financial position. The same is true for emerging biocide regulations in Asia.
In addition, Pest Elimination applies restricted-use pesticides that it generally purchases from third parties. That business must comply with certain standards pertaining to the use of such pesticides and to the licensing of employees who apply such pesticides. Such regulations are enforced primarily by the states or local jurisdictions in conformity with federal regulations. We have not experienced material difficulties in complying with these requirements.
FDA Antimicrobial Product Requirements: Various laws and regulations have been enacted by federal, state, local and foreign jurisdictions regulating certain products manufactured and sold by us for controlling microbial growth on humans, animals and foods. In the United States, these requirements generally are administered by the U.S. Food and Drug Administration ("FDA"). However, the U.S. Department of Agriculture and EPA also may share in regulatory jurisdiction of antimicrobials applied to food. The FDA codifies regulations for these product categories in order to ensure product quality, safety and effectiveness. The FDA also has been expanding requirements applicable to such products, including proposing regulations for over-the-counter antiseptic drug products, which may impose additional requirements associated with antimicrobial hand care products and associated costs when finalized by the FDA. FDA regulations associated with the Food Safety Modernization Act may impose additional requirements related to safety product lines. To date, such requirements have not had a material adverse effect on our consolidated results of operations, financial position or cash flows.
Medical Device and Drug Product Requirements: As a manufacturer, distributor and marketer of medical devices and human drugs, we also are subject to regulation by the FDA and corresponding regulatory agencies of the state, local and foreign governments in which we sell our products. These regulations govern the development, testing, manufacturing, packaging, labeling, distribution and marketing of medical devices and medicinal products. We also are required to register with the FDA as a medical device and drug manufacturer, comply with post-market reporting (e.g., Adverse Event Reporting, MDR and Recall) requirements, and to comply with the FDA’s current Good Manufacturing Practices and Quality System Regulations which require that we have a quality system for the design and production of our products intended for commercial distribution in the United States and satisfy recordkeeping requirements with respect to our manufacturing, testing and control activities. Countries in the European Union require that certain products being sold within their jurisdictions obtain a “CE mark”,mark,” an international symbol of adherence to quality assurance standards, and be manufactured in compliance with certain requirements (e.g., Medical Device Directive 93/42/EE, Medical Device Regulation (EU) 2017/745, and ISO 13485). We have CE mark approval to sell various medical device and medicinal products in Europe. Our other international non-European operations also are subject to government regulation and country-specific rules and regulations. Regulators at the federal, state and local level have imposed, are currently considering and are expected to continue to impose regulations on medical devices and drug products. No prediction can be made of the potential effect of any such future regulations, and there can be no assurance that future legislation or regulations will not increase the costs of our products or prohibit the sale or use of certain products.
Equipment: Ecolab’s products are dispensed by equipment that is subject to state and local regulatory requirements, as well as being subject to UL, NSF, and other approval requirements. For certain digitally connected product offerings, Federal Communication Commission (“FCC”) and corresponding international requirements are applicable. We have both dedicated manufacturing facilities and third-party production of our equipment. We are developing processes to monitor and manage changing regulatory regimes and assist with equipment systems compliance. To date, such requirements have not had a material adverse effect on our consolidated results of operations, financial position or cash flows.
Other Environmental Legislation: Our manufacturing plants are subject to federal, state, local or foreign jurisdiction laws and regulations relating to discharge of hazardous substances into the environment and to the transportation, handling and disposal of such substances. The primary federal statutes that apply to our activities in the United States are the Clean Air Act, the Clean Water Act and the Resource Conservation and Recovery Act. We are also subject to the Superfund Amendments and Reauthorization Act of 1986, which imposes certain reporting requirements as to emissions of hazardous substances into
the air, land and water. The products we produce and distribute into Europe are also subject to directives governing electrical waste (WEEE Directive 2012/19/EU) and restrictive substances (RoHS Directive 2011/65/EU). Similar legal requirements apply to Ecolab’s facilities globally. We make capital investments and expenditures to comply with environmental laws and regulations, to promote employee safety and to carry out our announced environmental sustainability principles. To date, such expenditures have not had a significant adverse effect on our consolidated results of operations, financial position or cash flows. Our capital expenditures for environmental, health and safety projects worldwide were approximately $70$28 million in 20172021 and $60$18 million in 2016.2020. Approximately $43$50 million has been budgeted globally for projects in 2018.2022. The decreaseincrease in 2018 from 2017 is duethe projected spend reflects a return to historical annual expenditure levels prior to the completion of several large safety projects at our manufacturing facilities.COVID-19 pandemic.
Climate Change: Various laws and regulations pertaining to climate change have been implemented or are being considered for implementation at the international, national, regional and state levels, particularly as they relate to the reduction of greenhouse gas (“GHG”)(GHG) emissions. NoneWe have not determined that any of these laws and regulations directly apply toimpact Ecolab at the present time; however, as a matter of corporate policy, we support a balanced approach to reducing GHG emissions while sustaining economic growth.
Furthermore, climate-related risks are assessed within our Enterprise Risk Management process and Annual Business Significance Risks Assessment, which is aligned with recommendations of the Financial Stability Board (FSB) Task Force on Climate-related Financial Disclosures (TCFD). We report TCFD disclosures in our annual CDP Climate report located at https://www.ecolab.com/sustainability/sustainability-reporting-resources. We are committed to reducing our carbon footprint and have made significant stridesevaluating further application of the recommendations of the TCFD in recent years. In 2014, we received a Climate Leadership Award, co-sponsored by EPA, recognizing Ecolab for achieving an absolute global greenhouse gas emissions reduction of more than 12.5 percent (22.4 percent intensity reduction).alignment with the recommended timeline from the TCFD.
Our current global sustainability targets were establishedEcolab recognizes that climate change poses potential risks and creates potential opportunities to our organization. Ecolab has taken steps to further identify and assess the nature and magnitude of these risks and opportunities. Ecolab has been focused on assessing climate risks for the past three years, leading up to our TCFD-aligned climate risk assessment conducted in 2016. They include a 25 percent reduction2021. We will continue our efforts to assess additional climate-related risks and opportunities including, exploring our supply chain resiliency. Subsequently, Ecolab will review the results of our analysis and develop adaptation and management plans for any relevant climate change risks and to further benefit from identified opportunities for customer impact.
To further bolster our climate commitment, in water withdrawals and a 10 percent reduction in greenhouse gas2019 we announced new goals to reduce our GHG emissions by 2020. half by 2030 and achieve net zero by 2050, in alignment with the United Nations Global Compact’s Business Ambition for 1.5⁰C. In 2020, we further committed to move to 100% renewable energy by 2030 and set a science-based target (SBT) addressing our Scope 1, 2 and 3 GHG emissions. Our SBT commits us to reduce absolute Scope 1 and 2 emissions by 50% by 2030 from a 2018 base year, and to work with our suppliers representing 70% of our Scope 3 emissions to set science-based reduction targets by 2024.
In addition to managing our internaloperational and supply chain sustainability performance, we partner with customers at more than onethree million customer locations around the world to reduce energy and greenhouse gasGHG emissions through our high-efficiency solutions in cleaning and sanitation, water, paper, and energy services. Showcasing our global team’s dedication to helping our customers thrive and make a positive impact in the world, we have set a 2030 goal to help our customers reduce their GHG emissions by 6.0 million metric tons.
Ecolab recognizes the climate-water nexus. As part of our 2030 Impact Goals, we have committed to restore greater than 50% of our water withdrawal and achieve Alliance for Water Stewardship Standard certification in high-risk watersheds. In addition, we aim to reduce net water withdrawals by 40% per unit of production across our enterprise. We also introduced a customermagnify our impact goal forthrough the first time. By partnering withwater-saving solutions we deliver to our customers, to help them do more with less through the use of our solutions, we aimand have set a goal to help our customers conserve more than 300 billion gallons of water annually by 2030.
Environmental Remediation and Proceedings: Along with numerous other potentially responsible parties (“PRP”), we are currently involved with waste disposal site clean‑upclean-up activities imposed by the federal Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) or state equivalents at 3519 sites in the United States. Additionally, we have similar liability at seventhree sites outside the United States. In general, under CERCLA, we and each other PRP that actually contributed hazardous substances to a Superfund site are jointly and severally liable for the costs associated with cleaning up the site. Customarily, the PRPs will work with the EPA to agree and implement a plan for site remediation.
Based on an analysis of our experience with such environmental proceedings, our estimated share of all hazardous materials deposited on the sites referred to in the preceding paragraph, and our estimate of the contribution to be made by other PRPs which we believe have the financial ability to pay their shares, we have accrued our best estimate of our probable future costs relating to such known sites. In establishing accruals, potential insurance reimbursements are not included. The accrual is not discounted. It is not feasible to predict when the amounts accrued will be paid due to the uncertainties inherent in the environmental remediation and associated regulatory processes.
We have also been named as a defendant in lawsuits where our products have not caused injuries, but the claimants wish to be monitored for potential future injuries. We cannot predict with certainty the outcome of any such tort claims or the involvement we or our products might have in such matters in the future, and there can be no assurance that the discovery of previously unknown conditions will not require significant expenditures. In each of these chemical exposure cases, our insurance carriers have accepted the claims on our behalf (with or without reservation) and our financial exposure should be limited to the amount of our deductible; however, we cannot predict the number of claims that we may have to defend in the future and we may not be able to continue to maintain such insurance.
We have also been named as a defendant in a number of lawsuits alleging personal injury due to exposure to hazardous substances, including multi-party lawsuits alleging personal injury in connection with our products and services. While we do not believe that any of these suits will be material to us based upon present information, there can be no assurance that these environmental matters could not have, either individually or in the aggregate, a material adverse effect on our consolidated results of operations, financial position or cash flows.
Our worldwide net expenditures for contamination remediation were approximately $6$0.5 million in 20172021 and $9$0.6 million in 2016.2020. Our worldwide accruals at December 31, 20172021 for probable future remediation expenditures, excluding potential insurance reimbursements, totaled approximately $21$6.0 million. We review our exposure for contamination remediation costs periodically and our accruals are adjusted as considered appropriate. While the final resolution of these issues could result in costs below or above current accruals and, therefore, have an impact on our consolidated financial results in a future reporting period, we believe the ultimate resolution of these matters will not have a material effect on our consolidated results of operations, financial position or cash flows.
Iran Threat Reduction and Syria Human Rights Act of 2012
Available Information.
Under the Iran Threat Reduction and Syria Human Rights Act of 2012, which added Section 13(r) of the Securities Exchange Act of 1934, the Company is required to disclose in its periodic reports if it or any of its affiliates knowingly engaged in certain activities, transactions or dealings relating to Iran or with entities or individuals designated pursuant to certain Executive Orders. Disclosure is required even where the activities are conducted outside the U.S. by non-U.S. affiliates in compliance with applicable law, and even if the activities are not covered or prohibited by U.S. law. After the easing of certain sanctions by the United States against Iran in January 2016 and in compliance with the economic sanctions regulations administered by U.S. Treasury’s Office of Foreign Assets Control
(OFAC) and U.S. export control laws, a wholly-owned non-U.S. subsidiary of the Company completed the following sales related to businesses in our Energy operating segment pursuant to and in compliance with the terms and conditions of OFAC’s General License H: sales of products used for process and water treatment applications in (i) upstream oil and gas production and (ii) petrochemical plants totaling $5.9 million during the subsidiary’s fiscal year ended November 30, 2017, and additional sales of such products totaling $0.4 million during December 2017, were made to a distributor in Dubai and two distributors in Iran. The net profit before taxes associated with these sales is estimated to be $1.6 million and $0.1 million, respectively. Our non-U.S. subsidiary intends to continue doing business in Iran under General License H in compliance with U.S. economic sanctions and export control laws, which sales may require additional disclosure pursuant to the abovementioned statute.
Available Information.
We file annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy any reports, statements or other information we file with the Securities and Exchange Commission (“SEC”) at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information about the operation of the SEC Public Reference Room in Washington, D.C. by calling the SEC at (800) 732-0330. The SEC maintains a website that contains reports, proxy and information statements, and other information regarding issuers, including the Company,us, that file electronically with the SEC at http:https://www.sec.gov.www.sec.gov.
General information about us, including our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as well as any amendments and exhibits to those reports, are available free of charge through our website at www.ecolab.com/investorhttps://investor.ecolab.com as soon as reasonably practicable after we file them with, or furnish them to, the SEC.
In addition, the following governance materials are available on our web site at www.ecolab.com/investors/https://investor.ecolab.com/corporate-governance: (i) charters of the Audit, Compensation, Finance, Governance and Safety, Health and Environment Committees of our Board of Directors; (ii) our Board's Corporate Governance Principles; and (iii) our Code of Conduct.
We include our website addresses throughout this report for reference only. The information contained on our websites, including the corporate responsibility, EEO-1, and climate reports identified in this report, is not incorporated by reference into this report.
Information about our Executive Officers.Officers.
The persons listed in the following table are our current executive officers. Officers are elected annually. There is no family relationship among any of the directors or executive officers and no executive officer has been involved during the past ten years in any legal proceedings described in applicable Securities and Exchange Commission regulations.
HIDDEN_ROW
| | | | | | | | | | | | | |
|---|
| Name | |
| | Age | |
| | Office | |
| | Positions Held Since
20132017 |
|---|
| | | | | | |
Douglas M. Baker, Jr. | | 5963
| | Executive Chairman of the Board | | Jan. 2021 – Present |
| | | | Chairman of the Board and Chief Executive Officer | | Jan. 20132017 – PresentDec. 2020 |
| | | | | | |
Christophe Beck | | 5054
| | President and Chief Executive Officer | | Jan. 2021 – Present |
| | | | President and Chief Operating Officer | | Apr. 2019 – Dec. 2020 |
| | | | Executive Vice President and President – Industrial | | May 2018 – Mar. 2019 |
| | | | Executive Vice President and President – Global Nalco Water | | May 2017 – PresentMay 2018 |
| | | | Executive Vice President and President – Global Water & Process Services | | May 2015Jan. 2017 – May 2017
|
| | | | Executive Vice President and President – Regions
| | Jan. 2013 – May 2015
|
| | | | | | | |
|---|
Name | |
| | Age | |
| | Office | |
| | Positions Held Since Jan. 1, 2017 |
|---|
Larry L. Berger | | 5761
| | Executive Vice President and Chief Technical Officer | | Jan. 20132017 – Present |
| | | | | | |
Alex N. BlancoJennifer J. Bradway
| | 5745
| | Senior Vice President and Corporate Controller | | Jan. 2022 - Present |
| | | | Senior Vice President and Controller, Global Institutional | | Jan. 2020 – Dec. 2021 |
| | | | Vice President Finance, Institutional North America | | May 2018 – Dec. 2019 |
| | | | Vice President and Controller, Institutional U.S. | | Feb. 2017 – Apr. 2018 |
| | | | Finance Director, Institutional U.S. Distribution | | Jan. 2017 – Feb 2017 |
| | | | | | |
Darrell R. Brown | | 58 | | Executive Vice President and President – Global Industrial | | Apr. 2019 – Present |
| | | | Executive Vice President and President – Energy Services | | Jan. 2018 – Mar. 2019 |
| | | | Executive Vice President, Global Downstream & WellChem | | Apr. 2017 – Dec. 2017 |
| | | | Executive Vice President and President – Europe | | Jan. 2017 – Mar. 2017 |
| | | | | | |
Angela M. Busch | | 55 | | Executive Vice President – Corporate Strategy & Business Development | | Aug. 2018 – Present |
| | | | Senior Vice President – Corporate Development | | Jan. 2017 – Aug. 2018 |
| | | | | | |
Alexander A. De Boo | | 54 | | Executive Vice President and President – Global Markets | | Feb. 2021 - Present |
| | | | Executive Vice President and President – Western Europe | | Apr. 2020 – Jan. 2021 |
| | | | Senior Vice President and General Manager – Industrial, Europe | | Oct. 2018 – Apr. 2020 |
| | | | Senior Vice President and General Manager – Food & Beverage, Europe | | June 2017 – Oct. 2018 |
| | | | Vice President and General Manager – Textile Care, Europe | | Jan. 2017 – June 2017 |
| | | | | | |
Machiel Duijser (1) | | 50 | | Executive Vice President and Chief Supply Chain Officer | | Jan. 2013Feb. 2020 – Present
|
| | | | | | |
Darrell R. BrownScott D. Kirkland
| | 5448
| | Executive Vice President and President – Energy ServicesChief Financial Officer
| | Jan. 20182022 – Present |
| | | | Executive Vice President, Global Downstream and WellChem
| | Apr. 2017 – Dec. 2017
|
| | | | Executive Vice President and President – Europe
| | Feb. 2014 – Mar. 2017
|
| | | | Executive Vice President and President – Asia Pacific
| | Jan. 2013 – Jan. 2014
|
| | | | | | |
Thomas W. Handley
| | 63
| | President and Chief Operating Officer
| | Jan. 2013 – Present
|
| | | | | | |
Michael A. Hickey
| | 56
| | Executive Vice President and President – Global Institutional
| | Jan. 2013 – Present
|
| | | | | | |
Roberto Inchaustegui
| | 62
| | Executive Vice President and President – Global Services and Specialty
| | Jan. 2013 – Present
|
| | | | | | |
Bruno Lavandier
| | 51
| | Senior Vice President and Corporate Controller | | May 2017June 2019 – PresentDec. 2021
|
| | | | Senior Vice President Ecolab Catalyst Program– Finance, Global Energy Services | | Mar.Jan. 2017 – Apr. 2017May 2019
|
| | | | Senior Vice President of Finance, Global Supply Chain
| | Jan. 2015 – Feb. 2017
|
| | | | Vice President of Finance, Global Supply Chain
| | Aug. 2014 – Dec. 2014
|
| | | | President TIORCO and Vice President of Nalco EOR (Enhanced Oil Recovery) Solutions
| | Jan. 2013 – July 2014
|
| | | | | | |
Laurie M. Marsh | | 5458
| | Executive Vice President – Human Resources | | Nov. 2013Jan. 2017 – Present
|
| | | | Vice President – Total Rewards and HR Service Delivery & Technology
| | Jan. 2013 – Oct. 2013
|
HIDDEN_ROW
| | | | | | |
Name
| | Age
| | Office
| | Positions Held Since
Jan. 1, 2013
|
| | | | | | |
Michael C. McCormick | | 5559
| | Executive Vice President, General Counsel and Secretary | | Oct. 2017 – Present |
| | | | Executive Vice President, General Counsel and Assistant Secretary | | Mar. 2017 – Sep. 2017 |
| | | | Chief Compliance Officer, Deputy General Counsel and Assistant Secretary | | June 2016Jan. 2017 – Feb. 2017
|
| | | | Chief Compliance Officer and Assistant Secretary
| | Mar. 2014 – May 2016
|
| | | | Corporate Compliance Officer, Associate General Counsel and Assistant Secretary
| | Jan. 2013 – Feb. 2014
|
| | | | | | |
Timothy P. Mulhere | | 5559
| | Executive Vice President and President – Global Institutional & Specialty Services | | Jan. 2020 – Present |
| | | | Executive Vice President and President – Global Institutional | | July 2018 – Jan. 2020 |
| | | | Executive Vice President and President – Regions | | May 2015Jan. 2017 – June 2018
|
| | | | | | |
Gail Peterson | | 43 | | Senior Vice President – Global Marketing & Communications | | Jan. 2021 – Present |
| | | | Vice President – Marketing Global Healthcare | | July 2017 – Dec. 2020 |
| | | | Vice President – Corporate Strategy | | Jan. 2017 – June 2017 |
| | | | | | |
Elizabeth A. Simermeyer | | 57 | | Executive Vice President and President – Global Water and Process Services | | Jan. 2013 – May 2015
|
| | | | | | |
Daniel J. Schmechel
| | 58
| | Chief Financial Officer and Treasurer
| | Jan. 2017 – Present
|
| | | | Chief Financial Officer
| | Jan. 2013 – Dec. 2016
|
| | | | | | |
Jill S. Wyant
| | 46
| | Executive Vice President and President – Global Regions and Global Healthcare
| | Jan. 2018 – Present
|
| | | | Executive Vice President and President – Global Food & Beverage, Healthcare and Life Sciences
| | May 2016Dec. 2019 – Dec. 2017Present
|
| | | | Executive Vice President and President – Global FoodMarketing & BeverageCommunications and Life Sciences | | Jan. 2013 – Apr. 20162017– Dec. 2019 |
(1) Prior to joining Ecolab in February 2020, Mr. Duijser was employed by Reckitt Benckiser Group plc (RB), a global provider of health, hygiene and home products, as Chief Supply Officer since November 2018. Mr. Duijser joined RB from Amazon.com, Inc., a global service provider for e-commerce, cloud computing, digital streaming, and artificial intelligence, where he served as Vice President Worldwide Engineering from 2017 to 2018.
| ● | Cost management and various cost-containment actions implemented across our business in response to the COVID-19 pandemic could hinder execution of our business strategy, including the deferral of planned capital expenditures, and could adversely affect our business and results of operations. |
| ● | We believe that we appropriately reserve for expected credit losses; however, we cannot be certain that loss or delay in the collection of accounts receivable will not have a material adverse effect on our results of operations and financial condition. |
Our results could be materially and adversely affected by difficulties in securing the supply of certain raw materials or by fluctuations in the cost of raw materials.
The prices of raw materials used in our business fluctuate, and in recent years we have experienced periods of significant increased raw material costs. Changes in raw material prices, unavailability of adequate and reasonably priced raw materials or substitutes for those raw materials, or the inability to obtain or renew supply agreements on favorable terms has materially and adversely affected our business and can in the future materially and adversely affect our consolidated results of operations, financial position or cash flows. In addition, volatility and disruption in economic activity and conditions could disrupt or delay the performance of our suppliers and thus impact our ability to obtain raw materials at favorable prices or on favorable terms, which may materially and adversely affect our business.
Our results depend upon the continued vitality of the markets we serve.
Economic downturns, and in particular downturns in our larger markets including the energy, foodservice, hospitality, travel, health care, food processing, refining, pulp and paper, mining and steel industries, can adversely impact our end-users. The well completionlast two years we have experienced the negative impact of the COVID-19 pandemic on the demand for our products and stimulation, oilservices provided to customers in the full-service restaurant, hospitality, lodging and gas production and refinery and petrochemical plant markets served by our Global Energy segment may be impacted by substantial fluctuations in oil and gas prices; in 2015 and 2016, the Global Energy segment experienced decreased sales as a result of very challenging global energy market conditions.entertainment industries. In recentprior years, the weaker global economic environment, particularly in Europe, and emerging markets such as China and Brazil, has also negatively impacted manycertain of our end-markets. WeakerDuring these periods of weaker economic activity, may continue to adversely affect these markets. During such cycles, these end-usersour customers and potential customers may reduce or discontinue their volume of purchases of cleaning and sanitizing products and water treatment and process chemicals, which has had, and may continue to have, ana material adverse effect on our business.business, financial condition, results of operation or cash flows.
Our results are impacted by general worldwide economic factors.
Economic factors such as the worldwide economy, capital flows, interest rates and currency movements, including, in particular, our exposure to foreign currency risk, have affected our business in the past and may have a material adverse impact on our business in the future. In 2011 and 2012, the European Union’s sovereign debt crisis negativelyFor example, COVID-19 has impacted economic activity in that regionglobal supply chains for most products, as well as led to disruption and volatility in global capital markets, which increases the strengthcost of the euro versus the U.S. dollar. Additionally, the June 2016 Brexit vote resultedcapital and could potentially adversely impact access to capital. COVID-19 has caused similar volatility in a sharp decline in the value of the British pound, as compared to the U.S. dollar and other currencies, and the possibility for referendum by other EU member states may lead to further market volatility. Other regions of the world, including emerging market areas, also expose us to foreign currency risk. As a resultmarkets, increasing risk of increasing currency controls, importation restrictions, workforce regulations, pricing constraintsunfavorable impacts on earnings due to significant FX rate movements. Recent political and local capitalization requirements, we deconsolidated our Venezuelan subsidiaries effectiveeconomic upheaval in countries with Ecolab operations, such as of the end of the fourth quarter of 2015. Prior to deconsolidation, across the second through fourth quarters of 2015, we devalued our Venezuelan bolivar operations within our Water, Paper, Food & Beverage, InstitutionalRussia, Turkey, and Energy operating segments. Similar currency devaluations, credit market disruptions or other economic turmoil in other countriesArgentina, could also have a material adverse impact on our consolidated results of operations, financial position and cash flows by negatively impacting economic activity, including in our key end-markets, and by further weakening the local currency versus the U.S. dollar, resulting in reduced sales and earnings from our foreign operations, which are generated in the local currency, and then translated to U.S. dollars.
If weWe are unsuccessful in executing on key business initiatives, including our Enterprise Resource Planning (“ERP”) system upgrade, our business could be adversely affected.
We continue to execute key business initiatives, including investments to develop business systems and restructurings such as those discussed under Note 3 entitled “Special (Gains) and Charges” of this Form 10-K, as part of our ongoing efforts to improve our efficiency and returns. In particular, we are implementing an ERP system upgrade, which is expected to occur in phases over the next several years. This upgrade, which includes supply chain and certain finance functions, is expected to improve the efficiency of certain financial and related transactional processes. The upgrade involves complex business processdesign and a failure of certain of these processes could result in business disruption. If the projects in which we are investing or the initiatives which we are pursuing are not successfully executed, our consolidated results of operations, financial position or cash flows could be adversely affected.
We may be subject to information technology system failures, network disruptions and breaches in data security.
We rely to a large extent upon information technology systems and infrastructure to operate our business. The size and complexity of our information technology systems make them potentially vulnerable to failure, malicious intrusion and random attack. The Nalco and Champion transactions, as well as more recent acquisitions,Acquisitions have resulted in further de-centralization of systems and additional complexity in our systems infrastructure. Likewise, data security breaches by employees andor others with permitted access to our systems may pose a risk that sensitive data may be exposed to unauthorized persons or to the public. While we have invested in protection of data and information technology, we have experienced immaterial cybersecurity attacks and incidents, and there can be no assurance that our efforts will prevent failures, cybersecurity attacks or breaches in our systems that could cause reputational damage, business disruption andor legal and regulatory costs; could result in third-party claims; could result in compromise or misappropriation of our intellectual property, trade secrets andor sensitive information; or could otherwise adversely affect our business. Certain of our customer offerings include digital components, such as remote monitoring of certain customer operations. A breach of those remote monitoring systems could expose customer data giving rise to potential third-party claims and reputational damage. There may be other related challenges and risks as we continue to implementcomplete implementation of our ERP system upgrade.
We depend on key personnel to lead our business.business; the labor market is very dynamic in the wake of the Covid-19 pandemic.
Our continued success will largely depend on our ability to attract, retain and retaindevelop a high caliber of talent and on the efforts and abilities of our executive officers and certain other key employees, particularly those with sales and sales management responsibilities. This is especially crucial asresponsibilities to drive business growth, development and profitability. As we continue to grow our business, make acquisitions, expand our geographic scope and offer new products and services, we need the integrationorganizational talent necessary to ensure effective succession for executive officer and key employee roles in order to meet the growth, development and profitability goals of new businesses, which may be led by personnel that we believe are critical to the success of the integration and the prospects of theour business. Our operations could be materially and adversely affected if for any reason we were unable to attract, retain or retaindevelop such officers or key employees.employees and successfully execute organizational change and management transitions at leadership levels. More generally, in the wake of the COVID-19 pandemic, expectations from qualified talent in many areas of the labor market have evolved. In light of this, if we are unable to attract and retain employees on terms and conditions that are consistent with our historical operating model, our business could be disrupted or our costs could increase, which may materially and adversely affect our business.
Severe public health outbreaks may materially and adversely impact our business.
Our business could be adversely affected by the effect of a public health epidemic. Besides the COVID-19 pandemic, the United States and other countries have experienced, and may experience in the future, public health outbreaks such as Zika virus, Avian Flu, SARS and H1N1 influenza. A prolonged occurrence of a contagious disease such as these could result in a significant downturn in the foodservice, hospitality and travel industries and also may result in health or other government authorities imposing restrictions on travel further impacting our end markets. Any of these events could result in a significant drop in demand for some of our products and services and materially and adversely affect our business. Uncertainty with respect to the impact on our financial results of the COVID-19 pandemic is discussed further in Management Discussion & Analysis located at Part II, Item 7, of this form 10-K under the heading “Global Economic and Political Environment.”
Strategic Risks
If we are unsuccessful in executing on key business initiatives, including restructurings and our Enterprise Resource Planning (“ERP”) system upgrades, our business could be materially and adversely affected.
We continue to execute key business initiatives, including restructurings and investments to develop business systems, as part of our ongoing efforts to improve our efficiency and returns. In particular, we are undertaking the Institutional Advancement Program and Accelerate 2020 plan to simplify and automate processes and tasks, reduce complexity and management layers, consolidate facilities and focus on key long term growth areas by leveraging technology and structural improvements as discussed under Note 3 entitled “Special (Gains) and Charges” of this Form 10-K. Additionally, we are continuing implementation of our ERP system upgrades, which are expected to continue in phases over the next several years. These upgrades, which include sales, supply chain and certain finance functions, are expected to improve the efficiency of certain financial and related transactional processes. These upgrades involve complex business processdesign and a failure of certain of these processes could result in business disruption. If the projects in which we are investing or the initiatives which we are pursuing are not successfully executed, our consolidated results of operations, financial position or cash flows could materially and adversely be affected.
Our growth depends upon our ability to compete successfully compete with respect to value, innovation and customer support.
Our competitive market is made up ofWe have numerous global, national, regional and local competitors. Our ability to compete depends in part upon our ability to maintain a superior technological capabilityon providing high quality and tohigh value-added products, technology and service. We must also continue to identify, develop and commercialize innovative, profitable and high value-added products for niche applications and commercial digital applications. We have made significant investments in commercial digital product offerings, and our culture and expertise must continue to evolve to develop, support and profitably deploy commercial digital offerings, which are becoming an increasingly important part of our business. There can be no assurance that we will be able to accomplish thisour technology development goals or that technological developments by our competitors will not place certain of our products, technology or services at a competitive
disadvantage in the future. In addition, certain of the new products that we have under development will be offered in markets in which we do not currently compete, and there can be no assurance that we will be able to compete successfully in those new markets. If we fail to introduce new technologies or commercialize our digital offerings on a timely and profitable basis, we may lose market share and our consolidated results of operations, financial position or cash flows could be materially and adversely affected.
Consolidation of our customers and vendors could materially and adversely affect our results.
Customers and vendors in the foodservice, hospitality, travel, healthcare, energy, life sciences, food processing and pulp and paper industries, as well as other industries we serve, have consolidated in recent years and that trend may continue. This consolidation could have a material adverse impact on our ability to retain customers and on our pricing, margins and consolidated results of operations.
We enter into multi-year contracts with customers that could impact our results.
Our multi-year contracts with some of our customers include terms affecting our pricing flexibility. There can be no assurance that these restraints will not have a material adverse impact on our margins and consolidated results of operations.
We may not realize the anticipated benefits of the Purolite acquisition.
We recently acquired Purolite, which operates in the highly regulated life sciences, pharma and biopharma industries and has extensive international operations which complicate integration execution. If we have difficulty integrating Purolite operations or lose key employees or customers, our business could be materially and adversely affected.
If we are unsuccessful in integrating acquisitions, our business could be materially and adversely affected.
As part of our long-term strategy, we seek to acquire complementary businesses. There can be no assurance that we will find attractive acquisition candidates or succeed at effectively managing the integration of acquired businesses into existing businesses. If the underlying business performance of such acquired businesses deteriorates, the expected synergies from such transactions do not materialize or we fail to successfully integrate new businesses into our existing businesses, our consolidated results of operations, financial position or cash flows could be materially and adversely affected.
Legal, Regulatory & Compliance Risks
Our business depends on our ability to comply with laws and governmental regulations and meet our contractual commitments and failure to do so could materially and adversely impact our business; and we may be materially and adversely affected by changes in laws and regulations.
Our business is subject to numerous laws and regulations relating to the environment, including evolving climate change standards, and to the manufacture, storage, distribution, sale and use of our products as well as to the conduct of our business generally, including employment and labor laws and anti-corruption laws. Compliance with these laws and regulations exposes us to potential financial liability and increases our operating costs. A violation of these laws and regulations could expose us to financial liability that may have a material adverse effect on our results of operations and cash flows. Regulation of our products and operations continues to increase with more stringent standards, causing increased costs of operations and potential for liability if a violation occurs. The potential cost to us relating to environmental and product registration laws and regulations is uncertain due to factors such as the unknown magnitude and type of possible contamination and clean-up costs, the complexity and evolving nature of laws and regulations, and the timing and expense of compliance. Changes to current laws (including tax laws), regulations and policies could impose new restrictions, costs or prohibitions on our current practices which would adversely affecthave a material adverse effect on our consolidated results of operations, financial position or cash flows. Changes to labor and employment laws and regulations, as well as related rulings by courts and administrative bodies, could materially and adversely affect our operations and expose us to potential financial liability.
Our results could be adversely affected by difficulties in securing the supplyDefense of litigation, particularly certain raw materials or by fluctuations in the costtypes of raw materials.
The pricesactions such as antitrust, patent infringement, personal injury, product liability, breach of raw materials used in our business can fluctuate from time to time,contract, wage hour and in recent years we have experienced periods of increased raw material costs. Changes in raw material prices, unavailability of adequate and reasonably priced raw materials or substitutes for those raw materials, or the inability to obtain or renew supply agreements on favorable terms can adversely affect our consolidated results of operations, financial position or cash flows. In addition, volatility and disruption in economic activity and conditions could disrupt or delay the performance of our suppliers and thus impact our ability to obtain raw materials at favorable prices or on favorable terms, which may adversely affect our business.
Consolidation of our customers and vendors could affect our results.
Customers and vendors in the foodservice, hospitality, travel, healthcare, energy, food processing and pulp and paper industries, as well as other industries we serve, have consolidated in recent years and that trend may continue. This consolidation could have an adverse impact on our ability to retain customers and on our margins and consolidated results of operations.
Our subsidiaries are defendants in pending lawsuits alleging negligence and injury resulting from the use of our COREXIT dispersant in response to the Deepwater Horizon oil spill, which could expose us to monetary damages or settlement costs.
Our subsidiaries were named as defendants in pending lawsuits alleging negligence and injury resulting from the use of our COREXIT dispersant in response to the Deepwater Horizon oil spill, which could expose us to monetary damages or settlement costs. On April 22, 2010, the deepwater drilling platform, the Deepwater Horizon, operated by a subsidiary of BP plc, sank in the Gulf of Mexico after a catastrophic explosion and fire that began on April 20, 2010. A massive oil spill resulted. Approximately one week following the incident, subsidiaries of BP plc, under the authorization of the responding federal agencies, formally requested our indirect subsidiary, Nalco Company, to supply large quantities of COREXIT 9500, a Nalco oil dispersant product listed on the U.S. EPA National Contingency Plan Product Schedule. Nalco Company responded immediately by providing available COREXIT and increasing production to supply the product to BP’s subsidiaries for use, as authorized and directed by agencies of the federal government.
Nalco Company and certain affiliates (collectively “Nalco”) were named as a defendant in a series of class action lawsuits, can be costly and individual plaintiff lawsuits arising from this event. The plaintiffs in these matters claimed damages under products liability, torttime consuming even if ultimately successful, and other theories. Nalco was also named as a third party defendant in certain matters. Nalco was indemnified in these matters by another of the defendants.
These cases were administratively transferred to a judge in the United States District Court for the Eastern District of Louisiana with other related cases under In Re: Oil Spill by the Oil Rig “Deepwater Horizon” in the Gulf of Mexico, on April 20, 2010, Case No. 10-md-02179 (E.D. La.) (the “MDL”).
Nalco Company, the incident defendants and the other responder defendants have been named as third party defendants by Transocean Deepwater Drilling, Inc. and its affiliates (the “Transocean Entities”) (In re the Complaint and Petition of Triton Asset Leasing GmbH, et al, MDL No. 2179, Civil Action 10-2771). In April and May 2011, the Transocean Entities, Cameron International Corporation, Halliburton Energy Services, Inc., M-I L.L.C., Weatherford U.S., L.P. and Weatherford International, Inc. (collectively, the “Cross Claimants”) filed cross claims in MDL 2179 against Nalco Company and other unaffiliated cross defendants. The Cross Claimants generally allege, among other things, that if they are found liable for damages resulting from the Deepwater Horizon explosion, oil spill and/or spill response, they are entitled to indemnity or contribution from the cross defendants.
On November 28, 2012, the Federal Court in the MDL entered an order dismissing all claims against Nalco. Because claims remained pending against other defendants, the Court’s decision was not a “final judgment” for purposes of appeal. Plaintiffs will have 30 days after entry of final judgment to appeal the Court’s decision. We cannot predict whether there will be an appeal of the dismissal, the involvement we might have in these matters in the future or the potential for future litigation. However, if an appeal by plaintiffs in these
lawsuits is brought and won, these suitssuccessful could have a material adverse effect on our consolidated results of operations, financial position or cash flows.
In December 2012A chemical spill or release could materially and January 2013, the MDL court issued final orders approving two settlements between BPadversely impact our business.
As a manufacturer and Plaintiffs’ Class Counsel: (1)supplier of chemical products, there is a proposed Medical Benefits Class Action Settlement; and (2) a proposed Economic and Property Damages Class Action Settlement. Pursuant to the proposed settlements, class members agree to release claims against BP and other released parties, including Nalco Company and its related entities.
Nalco was named in nine additional complaints in May 2016, and two additional complaints in April 2017, filed by individuals alleging, among other things, business and economic loss resulting from the Deepwater Horizon oil spill. The plaintiffs in these lawsuits are generally seeking awards of unspecified compensatory and punitive damages, and attorneys’ fees and costs. These actions have been consolidated in the MDL. Certain of these complaints were dismissed on July 19, 2017.
On February 22, 2017, the Federal Court in the MDL ordered that plaintiffs who had previously filed a claim and who had “opted out” of and not released their claims under the Medical Benefits Class Action Settlement either: (1) complete a sworn statement indicating, among other things, that they opted out of the Medical Benefits Class Action Settlement (to be completed by plaintiffs who previously filed an individual complaint); or (2) file an individual lawsuit attaching the sworn statement as an exhibit, by a deadline date set by the Court. On July 18, 2017, the Court dismissed certain claims not complying with such order.
There currently remain nine cases pending against Nalco. We expect they will be dismissed pursuant to the Court’s November 28, 2012 order granting Nalco’s motion for summary judgment.
Nalco continues to sell the COREXIT oil dispersant product and could be exposed to future lawsuits from the use of such product. We cannot predict the potential for future litigation with respectchemicals to be accidentally spilled, released or discharged, either in liquid or gaseous form, during production, transportation, storage or use. Such a release could result in environmental contamination as well as a human or animal health hazard. Accordingly, such sales. However, if one or more of such lawsuits are brought and won, these suitsa release could have a material adverse impacteffect on our consolidated results of operations, financial results.position or cash flows.
We enter into multi-year contracts with customers that could impact our results.
Our multi-year contracts with somePotential indemnification liabilities pursuant to the separation and split-off of our customers include terms affectingUpstream Energy business could materially and adversely affect our pricing flexibility. Therebusiness and financial statements.
With respect to the separation and subsequent split-off of our Upstream Energy business, we entered into a separation and distribution agreement with ChampionX Holding Inc. and ChampionX Corporation (f/k/a Apergy Corporation and taken together with ChampionX Holding Inc., “ChampionX”) as well as certain other agreements to govern the separation and related transactions and our relationship with ChampionX going forward. These agreements provide for specific indemnity and certain other obligations of each party and could lead to disputes between ChampionX and us. If we are required to indemnify ChampionX under the circumstances set forth in these agreements, we may be subject to substantial related liabilities. In addition, with respect to the liabilities for which ChampionX has agreed to indemnify us under these agreements, there can be no assurance that the indemnity rights we have against ChampionX will be sufficient to protect us against the full amount of such liabilities, or that ChampionX will be able to fully satisfy its indemnification obligations. Each of these restraints will not have an adverse impact on our margins and consolidated results of operations.
If we are unsuccessful in integrating acquisitions,risks could negatively affect our business could be adversely affected.
As part of our long-term strategy, we seek to acquire complementary businesses. There can be no assurance that we will find attractive acquisition candidates or succeed at effectively managing the integration of acquired businesses into existing businesses. If the underlying business performance of such acquired businesses deteriorates, the expected synergies from such transactions do not materialize or we fail to successfully integrate new businesses into our existing businesses,and our consolidated results of operations, financial position or cash flows could be materially and adversely affected.
Extraordinary events may significantly impact our business.
The occurrence of (a) litigation or claims, (b) the loss or insolvency of a major customer or distributor, (c) repeated or prolonged federal government shutdowns or similar events, (d) war (including acts of terrorism or hostilities which impact our markets), (e) natural or manmade disasters, (f) water shortages or (g) severe weather conditions affecting our operations or the energy, foodservice, hospitality and travel industries may have a material adverse effect on our business.
While we have a diverse customer base and no customer or distributor constitutes 10 percent or more of our consolidated revenues, we do have customers and independent, third-party distributors, the loss of which could have a material adverse effect on our consolidated results of operations or cash flows for the affected earnings periods.
Government shutdowns can have a material adverse effect on our consolidated results of operations or cash flows by disrupting or delaying new product launches, renewals of registrations for existing products and receipt of import or export licenses for raw materials or products.
War (including acts of terrorism or hostilities), natural or manmade disasters, water shortages or severe weather conditions affecting the energy, foodservice, hospitality, travel, health care, food processing, pulp and paper, mining, steel and other industries can cause a downturn in the business of our customers, which in turn can have a material adverse effect on our consolidated results of operations, financial position or cash flows. In particular, the U.S. Gulf Coast is a region with significant refining, petrochemicals and chemicals operations which provide us raw materials, as well as being an important customer base for our Downstream and Water operating segments. Hurricanes or other severe weather events impacting the Gulf Coast, such as the winter freeze in Texas and the Gulf Coast in February 2021, can materially and adversely affect our ability to obtain raw materials at reasonable cost, or at all, and could adversely affect our business with our customers in the region.
Financial Risks
If the separation and split-off of our Upstream Energy business or certain internal transactions undertaken in anticipation of the divestiture are determined to be taxable in whole or in part, we and our stockholders may incur significant tax liabilities.
In connection with the separation and split-off of our Upstream Energy business that was consummated on June 3, 2020, we obtained opinions of outside tax counsel that the related merger and exchange offer will qualify as tax-free transactions to us and our stockholders, except to the extent that cash was paid to Ecolab stockholders in lieu of fractional shares. We have not sought or obtained a ruling from the Internal Revenue Service (IRS) on the tax consequences of these transactions. An opinion of counsel is not binding on the IRS or the courts, which may disagree with the opinion. Even if the merger and exchange offer otherwise qualified as tax-free transactions, they may become taxable to us if certain events occur that affect either Ecolab or ChampionX Corporation. While ChampionX Corporation has agreed not to take certain actions that could cause the transactions not to qualify as tax-free transactions and is generally obligated to indemnify us against any tax consequences if it breaches this agreement, the potential tax liabilities could have a material adverse effect on us if we were not entitled to indemnification or if the indemnification obligations were not fulfilled. If the merger or exchange offer were determined to be taxable, we could be subject to a substantial tax liability, and each U.S. holder of our common stock who participated in the exchange offer could be treated as exchanging the Ecolab shares surrendered for ChampionX Corporation shares in a taxable transaction.
Changes in tax laws and unanticipated tax liabilities could materially and adversely affect the taxes we pay and our profitability.
We are subject to income and other taxes in the United States and foreign jurisdictions, and our operations, plans and results are affected by tax and other initiatives around the world. In particular, we are affected by the impact of changes to tax laws or related authoritative interpretations in the United States, includingStates. While the ultimate adoption of new tax reform under the Tax Cuts and Jobs Act (the “Tax Act”) signed by the President of the United States on December 22, 2017, which includes broad and complex changeslegislation is uncertain, it is possible that any such legislation may include increases to the United States tax code and the state tax response to the Tax Act, including, but not limited to variability in our future tax rate.rates at which income of U.S. companies would be taxed. We are also subject to changes in tax law outside the United States and actions taken with respect to tax-related matters by associations such as interpretation asthe Organization for Economic Co-operation and Development (“OECD”), which represents a coalition of member countries, and the European Commission which influence tax policies in countries where we operate. For example, approximately 140 countries have agreed to the legalityOECD’s two-pillar base erosion and profit shifting project (“BEPS”). This framework, which is expected to be implemented in some countries beginning in 2023, is focused on a number of issues, including shifting taxing rights on income from residence countries to source countries and establishing a minimum 15% global tax advantages granted underrate. Some of the European Union state aid rules.BEPS and related proposals, if enacted into law in the United States and in the foreign countries where we do business, could increase the burden and costs of our tax compliance, the amount of taxes we incur in those jurisdictions and our global effective tax rate. In addition, we are impacted by settlements of pending or any future adjustments proposed by the IRS or other taxing authorities in connection with our tax audits, all of which will depend on their timing, nature and scope. Increases in income tax rates, changes in income tax laws or unfavorable resolution of tax matters could have a material adverse impact on our financial results.
Future events may impact our deferred tax position, including the utilization of foreign tax credits and undistributed earnings of international affiliates that are considered to be reinvested indefinitely.
We evaluate the recoverability of deferred tax assets and the need for deferred tax liabilities based on available evidence. This process involves significant management judgment about assumptions that are subject to change from period to period based on changes in tax laws or variances between future projected operating performance and actual results. We are required to establish a valuation allowance for deferred tax assets if we determine, based on available evidence at the time the determination is made, that it is more likely than not that some portion or all of the deferred tax assets will not be realized. In making this determination, we evaluate all positive and negative evidence as of the end of each reporting period. Future adjustments (either increases or decreases), to the deferred tax asset valuation allowance are determined based upon changes in the expected realization of the net deferred tax assets. The realization of the deferred tax assets ultimately depends on the existence of sufficient taxable income in either the carry-back or carry-forward periods under the tax law. Due to significant estimates used to establish the valuation allowance and the potential for changes in facts and circumstances, it is reasonably possible that we will be required to record adjustments to the valuation allowance in future reporting periods. Changes to the valuation allowance or the amount of deferred tax liabilities could adversely affecthave a material adverse effect on our consolidated results of operations or financial position. Further, should we change our assertion regarding the permanent reinvestment of the undistributed earnings of international affiliates, a deferred tax liability may need to be established.
Our indebtedness may limit our operations and our use of our cash flow, and any failure to comply with the covenants that apply to our indebtedness could materially and adversely affect our liquidity and financial statements.
As of December 31, 2017,2021, we had approximately $7.3$8.8 billion in outstanding indebtedness, with approximately $1.0$1.7 billion in the form of floating rate debt. Our debt level and related debt service obligations may have negative consequences, including:
| ·
● | | requiring us to dedicate significant cash flow from operations to the payment of principal and interest on our debt, which reduces the funds we have available for other purposes such as acquisitions and capital investment; |
| ·
● | | reducing our flexibility in planning for or reacting to changes in our business and market conditions; |
| ·
● | | exposing us to interest rate risk since a portion of our debt obligations are at variable rates. For example, a one percentage point increase in the average interest rate on our floating rate debt at December 31, 20172021 would increase future interest expense by approximately $10$17 million per year; and |
| ·
● | | increasing our cost of funds and materially and adversely affecting our liquidity and access to the capital markets should we fail to maintain the credit ratings assigned to us by independent rating agencies. |
If we add new debt, the risks described above could increase.
Severe public health outbreaks may adversely impact our business.
Our business could be adversely affected by the effect of a public health epidemic. The United States and other countries have experienced, and may experience in the future, public health outbreaks such as Zika virus, Avian Flu, SARS and H1N1 influenza. A prolonged occurrence of a contagious disease such as these could result in a significant downturn in the foodservice, hospitality and travel industries and also may result in health or other government authorities imposing restrictions on travel further impacting our end markets. Any of these events could result in a significant drop in demand for some of our products and services and adversely affect our business.
We incur significant expenses related to the amortization of intangible assets and may be required to report losses resulting from the impairment of goodwill or other assets recorded in connection with the Nalco and Champion transactionstransaction and other acquisitions.
We expect to continue to complete selected acquisitions and joint venture transactions in the future. In connection with acquisition and joint venture transactions, applicable accounting rules generally require the tangible and intangible assets of the acquired business to be recorded on the balance sheet of the acquiring company at their fair values. Intangible assets other than goodwill are required to be amortized over their estimated useful lives and this expense may be significant. Any excess in the purchase price paid by the acquiring company over the fair value of tangible and intangible assets of the acquired business is recorded as goodwill. If it is later determined that the anticipated future cash flows from the acquired business may be less than the carrying values of the assets and goodwill of the acquired business, the assets or goodwill may be deemed to be impaired. In this case, the acquiring company may be required under applicable accounting rules to write down the value of the assets or goodwill on its balance sheet to reflect the extent of the impairment. This write-down of assets or goodwill is generally recognized as a non-cash expense in the statement of operations of the acquiring company for the accounting period during which the write down occurs. As of December 31, 2017,2021, we had goodwill of $7.2$8.1 billion which is maintained in various reporting units, including goodwill from the Nalco and ChampionPurolite transactions. If we determine that any of the assets or goodwill recorded in connection with the Nalco and Champion transactionstransaction or any other prior or future acquisitions or joint venture transactions have become impaired, we will be required to record a loss resulting from the impairment. Impairment losses could be significant and could adversely affect our consolidated results of operations and financial position.
A chemical spill or release could adversely impact our business.
As a manufacturer and supplier of chemical products, there is a potential for chemicals to be accidentally spilled, released or discharged, either in liquid or gaseous form, during production, transportation, storage or use. Such a release could result in environmental contamination as well as a human or animal health hazard. Accordingly, such a release could have a material adverse effect on our consolidated results of operations and financial position or cash flows.position.
Extraordinary events may significantly impact our business.
The occurrence of (a) litigation or claims, (b) the loss or insolvency of a major customer or distributor, (c) war (including acts of terrorism or hostilities which impact our markets), (d) natural or manmade disasters, (e) water shortages or (f) severe weather conditions affecting the energy, foodservice, hospitality and travel industries may have a material adverse effect on our business.
Defense of litigation, particularly certain types of actions such as antitrust, patent infringement, wage hour and class action lawsuits, can be costly and time consuming even if ultimately successful, and if not successful could have a material adverse effect on our consolidated results of operations, financial position or cash flows.
While we have a diverse customer base and no customer or distributor constitutes 10 percent or more of our consolidated revenues, we do have customers and independent, third-party distributors, the loss of which could have a material adverse effect on our consolidated results of operations or cash flows for the affected earnings periods.
War (including acts of terrorism or hostilities), natural or manmade disasters, water shortages or severe weather conditions affecting the energy, foodservice, hospitality, travel, health care, food processing, pulp and paper, mining, steel and other industries can cause a downturn in the business of our customers, which in turn can have a material adverse effect on our consolidated results of operations, financial position or cash flows.
Item 1B. Unresolved Staff Comments.Comments.
We have no unresolved comments from the staff of the Securities and Exchange Commission.
Item 2. Properties.Properties.
Our manufacturing philosophy is to manufacture products wherever an economic, process or quality assurance advantage exists or where proprietary manufacturing techniques dictate in-house production. Currently, most products that we sell are manufactured at our facilities. We position our manufacturing locations and warehouses in a manner to permit ready access to our customers.
Our manufacturing facilities produce chemical products as well as medical devices and equipment for all of our operating segments, although Pest Elimination purchases the majority of their products and equipment from outside suppliers. Our chemical production process consists of producing intermediates via basic reaction chemistry and subsequently blending and packaging those intermediates with other purchased raw materials into finished products in powder, liquid, and solid form. Additionally, intermediates from reaction chemistries are used in some of the blends and liquid form.are also packaged directly into finished goods. Our devices and equipment manufacturing operations consist of producing chemical product dispensers and injectors and other mechanical equipment, medical devices, dishwasher racks, related sundries, dish machine refurbishment and water monitoring and maintenance equipment system from purchased components and subassemblies.
The following table profiles our more significant physical properties with approximately 70,000 square feet or more with ongoing production activities, as well as certain other facilities important in terms of specialization and sources of supply. In general, manufacturing facilities located in the United States serve our U.S. markets and facilities located outside of the United States serve our Internationalinternational markets. However, most of the United States facilities do manufacture products for export.
PLANT PROFILES
| | | | | | | | | | | | | |
|---|
| | | | Approximate Size (Sq. Ft.) | | | | | Segment
| Majority Owned or Leased | |
|---|
Joliet, IL USA | | 610,000 | | Global Institutional & Specialty, Global Industrial, Global Healthcare & Life Sciences | | Owned |
Asheville, NC USA | | 478,000 | | Global Industrial, Global Healthcare & Life Sciences | | Leased |
Tai Cang, CHINA | | 468,000 | | Global Institutional & Specialty, Global Industrial, Global Healthcare & Life Sciences | | Owned |
Hongzhou, CHINA | | 430,125 | | Global Healthcare & Life Sciences | | Owned |
Sainghin, FRANCE | | 360,000 | | Global Institutional & Specialty, Global Industrial, Global Healthcare & Life Sciences | | Owned |
Sugar Land, TX USAMandras, GREECE
| | 350,000355,435 | | Global Energy,Industrial, Global IndustrialHealthcare & Life Sciences | | Owned |
Victoria, ROMANIA | | 343,605 | | Global Healthcare & Life Sciences | | Owned |
| | | | | | |
|---|
| | Approximate Size (Sq. Ft.) | | | | |
|---|
Kwinana, AUSTRALIA | | 87,000 | | Global Institutional & Specialty, Global Industrial | | Owned |
Yangsan, KOREA | | 85,000 | | Global Energy, Global Industrial
| | Owned
|
Cisterna, ITALY
| | 80,000 | | Global Industrial | | Owned |
Cuautitlan, MEXICO | | 76,000 | | Global Institutional & Specialty, Global Industrial, Global Healthcare & Life Sciences | | Owned |
Barueri, BRAZIL | | 75,000 | | Global Institutional & Specialty, Global Industrial, Global Healthcare & Life Sciences | | Leased |
Citereup, INDONESIA | | 74,000 | | Global Industrial | | Owned |
Mullingar, IRELAND | | 74,000 | | Global Institutional & Specialty, Global Industrial | | Leased |
Mosta, MALTA | | 73,000 | | Global Institutional & Specialty, Global Healthcare & Life Sciences | | Leased |
Noviciado, CHILEAubagne, FRANCE
| | 70,00065,000 | | Global Institutional & Specialty, Global Healthcare & Life Sciences | | Leased |
Siegsdorf, GERMANY | | 56,000 | | Global Institutional & Specialty, Global Industrial, Global Healthcare & Life Sciences | | Owned |
Verona, ITALY | | 55,000 | | Global Institutional & Specialty, Global Healthcare & Life Sciences | | Owned |
Guangzhou, CHINA | | 55,000 | | Global Institutional & Specialty, Global Industrial | | Owned |
Navanakorn, THAILAND | | 67,00053,000 | | Global Institutional & Specialty, Global Industrial | | Leased |
Aubagne, FRANCE
| | 65,000 | | Global Institutional
| | Leased
|
Rovigo, ITALY
| | 60,000 | | Global Institutional
| | Owned
|
Siegsdorf, GERMANY
| | 56,000 | | Global Institutional, Global Industrial
| | Owned
|
Verona, ITALY
| | 55,000 | | Global Institutional
| | Owned
|
Guangzhou, CHINA
| | 55,000 | | Global Institutional, Global Industrial
| | Owned
|
Lerma, MEXICO | | 49,000 | | Global Industrial | | Owned |
Maribor, SLOVENIA | | 46,400 | | Global Institutional & Specialty, Global Industrial | | Owned |
Leeds, UNITED KINGDOM | | 25,000 | | Global Institutional & Specialty | | Owned |
Baglan, UNITED KINGDOM | | 24,400 | | Global Institutional & Specialty, Global Healthcare & Life Sciences | | Leased |
Noda, JAPAN | | 22,000 | | Global Institutional & Specialty, Global Industrial, | | Owned
|
Steritimak, RUSSIA
| | 20,000 | | Global Energy, Global IndustrialHealthcare & Life Sciences | | Owned |
Generally, our manufacturing facilities are adequate to meet our existing in-house production needs. We continue to invest in our plant sites to maintain viable operations and to add capacity as necessary to meet business imperatives.
Most of our manufacturing plants also serve as distribution centers. In addition, we operate distribution centers around the world, most of which are leased, and utilize third party logistics service providers to facilitate the distribution of our products and services.
At year-end 2017, ourOur corporate headquarters wasis comprised of four multi-storied buildings locateda 17-story building that we own in downtown St. Paul, Minnesota. We also own two of the buildings – a six story building and the 17-story building purchased from The Travelers Indemnity Company on August 4, 2015. This building, with 485,000 square feet of office space, became the principal office of the Company in 2017, replacing the 280,000-square foot, 19-story building previously serving as the principal office. The process of vacating the former principal office will be completed during 2018. The fourth building, which is leased through 2019, has been substantially vacated by the Company. A 90-acre campus in Eagan, Minnesota is owned and provides for future growth. The Eagan facilitythat houses a significant research and development center, a data center and training facilities as well as several of our administrative functions.
We also have a significant business presence in Naperville, Illinois, where our Water and Paper operating segments maintain their principal administrative offices and research center. As discussedcenter, as well as in Part II, Item 8, Note 6, “Debt and Interest” of this Form 10-K, we previously acquired the beneficial interest in the trust owning the Naperville facility in 2015 and repaid the remaining debt on the facility during 2017. The lease on the facility has since been terminated and the trust has conveyed its ownership interest in the facility to the Company. Our EnergyGreensboro, North Carolina, where our Specialty operating segment maintains Company-ownedits principal administrative offices and a research center. Our Downstream operating segment leases administrative and research facilities in Sugar Land, Texas and maintains additional Company-owned research facilities in Fresno, Texas.
Significant regional administrative and/or research facilities are located in Campinas, Brazil,Brazil; Leiden, Netherlands,Netherlands; and Pune, India, which we own, and in and Dubai, UAE, Lille, France, Miramar, Florida,UAE; Monheim, Germany, Singapore,Germany; Singapore; Shanghai, ChinaChina; and Zurich, Switzerland, which we lease. We also have a network of small leased sales offices in the United States and, to a lesser extent, in other parts of the world.
Item 3. LegalLegal Proceedings.
Discussion of legal proceedings is incorporated by reference from Part II, Item 8, Note 15,16, “Commitments and Contingencies,” of this Form 10-K and should be considered an integral part of Part I, Item 3, “Legal Proceedings.”
Discussion of other environmental-related legal proceedings is incorporated by reference from Part I, Item 1 above, under the heading “Environmental and Regulatory Considerations”.Considerations.”
Item 4. Mine Safety Disclosures.
Not applicable.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
.Securities.
Market Information
Our common stock is listed on the New York Stock Exchange under the symbol “ECL.” Our common stock is also traded on an unlisted basis on certain other United States exchanges. The high and low sales prices of our common stock on the consolidated transaction reporting system during 2017 and 2016 were as follows:
| | | | | | | | | |
| | 2017 | | 2016 | |
Quarter | | High | | Low | | High | | Low | |
First | | $ 126.17 | | $ 117.29 | | $ 113.69 | | $ 98.62 | |
Second | | 134.89 | | 124.42 | | 121.81 | | 109.83 | |
Third | | 134.28 | | 127.18 | | 124.60 | | 116.66 | |
Fourth | | 137.96 | | 128.38 | | 122.28 | | 110.65 | |
Holders
On January 31, 2018,2022, we had 6,3245,185 holders of record of our Common Stock.
Dividends
We have paid common stock dividends for 81 consecutive years. Cash dividends of $0.35 per share were declared in February, May and August 2016. Cash dividends of $0.37 per share were declared in December 2016, February, May and August 2017. A dividend of $0.41 per share was declared in December 2017.
Issuer Purchases of Equity Securities
| | | | | | | | | | |
| | | | | | | Total number of shares | | Maximum number of | |
| | | | | | purchased as part of | | shares that may yet be | |
| | Total number of | | Average price paid | | publicly announced | | purchased under the | |
Period | | shares purchased (1) | | per share (2) | | plans or programs (3) | | plans or programs (3) | |
October 1-31, 2017 | | 4,284 | | | $131.3391 | | - | | 12,358,110 | |
November 1-30, 2017 | | 1,267 | | | 131.6250 | | - | | 12,358,110 | |
December 1-31, 2017 | | 87,432 | | | 136.2796 | | - | | 12,358,110 | |
Total | | 92,983 | | | 135.9886 | | - | | 12,358,110 | |
| | | | | | | | | | |
| | | | | | | Total number of shares | | Maximum number of | |
| | | | | | purchased as part of | | shares that may yet be | |
| | Total number of | | Average price paid | | publicly announced | | purchased under the | |
Period | | shares purchased (1) | | per share (2) | | plans or programs (3) | | plans or programs (3) | |
October 1-31, 2021 | | 129,385 | | | $212.9777 | | 128,312 | | 5,850,187 | |
November 1-30, 2021 | | 1,658 | | | 227.1901 | | - | | 5,850,187 | |
December 1-31, 2021 | | 3,948 | | | 221.9420 | | - | | 5,850,187 | |
Total | | 134,991 | | | $213.4145 | | 128,312 | | 5,850,187 | |
| (1) | (1)
| | Includes 92,9836,679 shares reacquired from employees and/or directors to satisfy the exercise price of stock options or shares surrendered to satisfy statutory tax obligations under our stock incentive plans. |
| (2) | (2)
| | The average price paid per share includes brokerage commissions associated with publicly announced plan purchases plus the value of such other reacquired shares. |
| (3) | (3)
| | As announced on February 24, 2015, our Board of Directors authorized the repurchase of up to 20,000,000 shares. Subject to market conditions, we expect to repurchase all shares under these authorizations, for which no expiration date has been established, in open market or privately negotiated transactions, including pursuant to Rule 10b5-1 and accelerated share repurchase program. |
Item 6. Selected Financial Data
[Reserved].
| | | | | | | | | | | | | | | | | | | | |
December 31, millions, except per share amounts and employees | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | |
OPERATIONS | | | | | | | | | | | | | | | | | | | | |
Net sales | | $13,838.3 | | | | | $13,152.8 | | | | $13,545.1 | | | | $14,280.5 | | | | $13,253.4 | |
Cost of sales (including special (gains) and charges (1)) | | 7,405.1 | | | | | 6,898.9 | | | | 7,223.5 | | | | 7,679.1 | | | | 7,161.2 | |
Selling, general and administrative expenses | | 4,417.1 | | | | | 4,299.4 | | | | 4,345.5 | | | | 4,577.6 | | | | 4,360.3 | |
Special (gains) and charges | | (3.7) | | | | | 39.5 | | | | 414.8 | | | | 68.8 | | | | 171.3 | |
Operating income | | 2,019.8 | | | | | 1,915.0 | | | | 1,561.3 | | | | 1,955.0 | | | | 1,560.6 | |
Interest expense, net (including special (gains) and charges (1)) | | 255.0 | | | | | 264.6 | | | | 243.6 | | | | 256.6 | | | | 262.3 | |
Income before income taxes | | 1,764.8 | | | | | 1,650.4 | | | | 1,317.7 | | | | 1,698.4 | | | | 1,298.3 | |
Provision for income taxes | | 242.4 | | | | | 403.3 | | | | 300.5 | | | | 476.2 | | | | 324.7 | |
Net income including noncontrolling interest | | 1,522.4 | | | | | 1,247.1 | | | | 1,017.2 | | | | 1,222.2 | | | | 973.6 | |
Net income (loss) attributable to noncontrolling interest (including special (gains) and charges (1)) | | 14.0 | | | | | 17.5 | | | | 15.1 | | | | 19.4 | | | | 5.8 | |
Net income attributable to Ecolab | | $1,508.4 | | | | | $1,229.6 | | | | $1,002.1 | | | | $1,202.8 | | | | $967.8 | |
Diluted earnings per share, as reported (GAAP) | | $ 5.13 | | | | | $ 4.14 | | | | $ 3.32 | | | | $ 3.93 | | | | $ 3.16 | |
Diluted earnings per share, as adjusted (Non-GAAP) (2) | | $ 4.69 | | | | | $ 4.37 | | | | $ 4.37 | | | | $ 4.18 | | | | $ 3.54 | |
Weighted-average common shares outstanding - basic | | 289.6 | | | | | 292.5 | | | | 296.4 | | | | 300.1 | | | | 299.9 | |
Weighted-average common shares outstanding - diluted | | 294.0 | | | | | 296.7 | | | | 301.4 | | | | 305.9 | | | | 305.9 | |
| | | | | | | | | | | | | | | | | | | | |
SELECTED INCOME STATEMENT RATIOS | | | | | | | | | | | | | | | | | | | | |
Gross margin | | 46.5 | % | | | | 47.5 | % | | | 46.7 | % | | | 46.2 | % | | | 46.0 | % |
Selling, general and administrative expenses | | 31.9 | | | | | 32.7 | | | | 32.1 | | | | 32.1 | | | | 32.9 | |
Operating income | | 14.6 | | | | | 14.6 | | | | 11.5 | | | | 13.7 | | | | 11.8 | |
Income before income taxes | | 12.8 | | | | | 12.5 | | | | 9.7 | | | | 11.9 | | | | 9.8 | |
Net income attributable to Ecolab | | 10.9 | | | | | 9.3 | | | | 7.4 | | | | 8.4 | | | | 7.3 | |
Effective income tax rate | | 13.7 | % | | | | 24.4 | % | | | 22.8 | % | | | 28.0 | % | | | 25.0 | % |
| | | | | | | | | | | | | | | | | | | | |
FINANCIAL POSITION | | | | | | | | | | | | | | | | | | | | |
Current assets | | $4,596.4 | | | | | $4,279.4 | | | | $4,447.5 | | | | $4,853.0 | | | | $4,698.4 | |
Property, plant and equipment, net | | 3,707.1 | | | | | 3,365.0 | | | | 3,228.3 | | | | 3,050.6 | | | | 2,882.0 | |
Goodwill, intangible and other assets | | 11,658.9 | | | | | 10,685.8 | | | | 10,965.9 | | | | 11,523.8 | | | | 12,027.4 | |
Total assets | | $19,962.4 | | | | | $18,330.2 | | | | $18,641.7 | | | | $19,427.4 | | | | $19,607.8 | |
Current liabilities | | $3,431.8 | | | | | $3,019.4 | | | | $4,764.4 | | | | $4,367.9 | | | | $3,487.5 | |
Long-term debt | | 6,758.3 | | | | | 6,145.7 | | | | 4,260.2 | | | | 4,843.4 | | | | 6,016.0 | |
Postretirement health care and pension benefits | | 1,025.5 | | | | | 1,019.2 | | | | 1,117.1 | | | | 1,188.5 | | | | 795.6 | |
Other liabilities | | 1,058.1 | | | | | 1,175.0 | | | | 1,519.6 | | | | 1,645.5 | | | | 1,899.3 | |
Total liabilities | | 12,273.7 | | | | | 11,359.3 | | | | 11,661.3 | | | | 12,045.3 | | | | 12,198.4 | |
Ecolab shareholders’ equity | | 7,618.5 | | | | | 6,901.1 | | | | 6,909.9 | | | | 7,315.9 | | | | 7,344.3 | |
Noncontrolling interest | | 70.2 | | | | | 69.8 | | | | 70.5 | | | | 66.2 | | | | 65.1 | |
Total equity | | 7,688.7 | | | | | 6,970.9 | | | | 6,980.4 | | | | 7,382.1 | | | | 7,409.4 | |
Total liabilities and equity | | $19,962.4 | | | | | $18,330.2 | | | | $18,641.7 | | | | $19,427.4 | | | | $19,607.8 | |
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SELECTED CASH FLOW INFORMATION | | | | | | | | | | | | | | | | | | | | |
Cash provided by operating activities | | $2,091.3 | | | | | $1,939.7 | | | | $1,999.8 | | | | $1,815.6 | | | | $1,559.8 | |
Cash used for investing activities | | (1,673.2) | | | | | (829.5) | | | | (915.8) | | | | (848.3) | | | | (2,087.7) | |
Cash used for financing activities | | (522.7) | | | | | (868.2) | | | | (1,150.9) | | | | (1,071.0) | | | | (292.6) | |
Depreciation and amortization | | 893.3 | | | | | 850.7 | | | | 859.5 | | | | 872.0 | | | | 816.2 | |
Capital expenditures | | 789.6 | | | | | 707.4 | | | | 771.0 | | | | 748.7 | | | | 625.1 | |
Cash dividends declared per common share | | 1.520 | | | | | 1.420 | | | | 1.340 | | | | 1.155 | | | | 0.965 | |
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SELECTED FINANCIAL MEASURES/OTHER | | | | | | | | | | | | | | | | | | | | |
Total debt | | $7,322.7 | | | | | $6,687.0 | | | | $6,465.5 | | | | $6,548.2 | | | | $6,875.8 | |
Total debt to capitalization | | 48.8 | % | | | | 49.0 | % | | | 48.1 | % | | | 47.0 | % | | | 48.1 | % |
Book value per common share | | $ 26.33 | | | | | $ 23.65 | | | | $ 23.35 | | | | $ 24.40 | | | | $ 24.39 | |
Return on beginning equity | | 21.8 | % | | | | 17.9 | % | | | 13.8 | % | | | 16.5 | % | | | 15.8 | % |
Dividends per share/diluted earnings per common share | | 29.6 | % | | | | 34.3 | % | | | 40.4 | % | | | 29.4 | % | | | 30.5 | % |
Net interest coverage | | 7.9 | | | | | 7.2 | | | | 6.4 | | | | 7.6 | | | | 5.9 | |
Year end market capitalization | | $38,821.3 | | | | | $34,207.7 | | | | $33,852.7 | | | | $31,340.6 | | | | $31,399.4 | |
Annual common stock price range | | $137.96 to | | | | | $ 124.60 to | | | | $ 122.48 to | | | | $ 118.46 to | | | | $ 108.34 to | |
| | $117.29 | | | | | $98.62 | | | | $97.78 | | | | $97.65 | | | | $71.99 | |
Number of employees | | 48,400 | | | | | 47,565 | | | | 47,145 | | | | 47,430 | | | | 45,415 | |
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(1) Cost of sales includes special charges of $44.0 in 2017, $66.0 in 2016, $80.6 in 2015, $14.3 in 2014, and $43.2 in 2013; Interest expense, net includes special charges of $21.9 in 2017 and $2.5 in 2013; Net income (loss) attributable to non-controlling interest includes special charges of $12.8 in 2015 and $0.5 in 2013.
(2) Amounts exclude the impact of special (gains) and charges and discrete tax items.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.Operations.
The following management discussion and analysis (“MD&A”) provides information that we believe is useful in understanding our operating results, cash flows and financial condition. We provide quantitative information about the material sales drivers including the impact of changes in volume and pricing and the effect of acquisitions and changes in foreign currency at the corporate and reportable segment level. We also provide quantitative information regarding special (gains) and charges, discrete tax items and other significant factors we believe are useful for understanding our results. Such quantitative drivers are supported by comments meant to be qualitative in nature. Qualitative factors are generally ordered based on estimated significance.significance.
The discussion should be read in conjunction with the consolidated financial statements and related notes included in this Form 10-K. Our consolidated financial statements are prepared in accordance with U.S. GAAP. This discussion contains various Non-GAAP Financial Measures and also contains various forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We refer readers to the statements and information set forth in the sections entitled “Non-GAAP Financial Measures” at the end of this MD&A, and “Forward-Looking Statements” and “Risk Factors” within Items 1 and 1A of this Form 10-K. We also refer readers to the tables within the section entitled “Results of Operations” of this MD&A for reconciliation information of Non-GAAP measures to U.S. GAAP.
Comparability of Results
Purolite acquisition
On December 1, 2021, we acquired Purolite for total consideration of $3.7 billion in cash. Purolite is a leading and fast-growing global provider of high-end ion exchange resins for the separation and purification of solutions for pharmaceutical and industrial applications. Headquartered in King of Prussia, Pennsylvania, Purolite operates in more than 30 countries. Purolite is reported within our Life Sciences operating segment. Acquisition and integration charges are recorded within special (gains) and charges.
In addition, the remaining impacts of the Purolite acquisition including operating results, acquisition-related amortization and interest expense related to the transaction have also been excluded from adjusted results.
ChampionX Transaction
On June 3, 2020, we completed the previously announced separation of our Upstream Energy business (the “ChampionX business”) in a Reverse Morris Trust transaction (the “Transaction”) through the split-off of ChampionX Holding Inc. (“ChampionX”), formed by Ecolab as a wholly owned subsidiary to hold the ChampionX Business, followed immediately by the merger of ChampionX (the “Merger”) with a wholly owned subsidiary of ChampionX Corporation (f/k/a Apergy Corporation, “Apergy”).
The ChampionX business met the criteria to be reported as discontinued operations because the separation of ChampionX was a strategic shift in business that had a major effect on our operations and financial results. Therefore, we report the historical results of ChampionX, including the results of operations, cash flows, and related assets and liabilities, as discontinued operations for all periods presented herein. Unless otherwise noted, the accompanying MD&A has been revised to reflect the ChampionX business as discontinued operations and prior year balances have been revised accordingly to reflect continuing operations only.
Comparability of Reportable Segments
Effective in the first quarter of 2020, and in anticipation of the separation of the Upstream Energy business, we created the Upstream and Downstream operating segments from the Global Energy operating segment, which was also a reportable segment. Subsequent to the separation of ChampionX, we no longer report the Upstream Energy segment, which previously held the ChampionX business.
The Downstream operating segment has been aggregated into the Global Industrial reportable segment. Also, in the first quarter of 2020, we announced leadership changes which allow for shared oversight and focus on the Healthcare and Life Sciences operating segments and established the Global Healthcare & Life Sciences reportable segment. This segment is comprised of the Healthcare operating segment which was previously aggregated in the Global Institutional reportable segment and the Life Sciences operating segment which was previously aggregated in the Global Industrial reportable segment. Additionally, the Textile Care operating segment, which is now being reported in Other, had previously been aggregated in the Global Industrial reportable segment. We also renamed the Global Institutional reportable segment to the Global Institutional & Specialty reportable segment. We made other immaterial changes, including the movement of certain customers and cost allocations between reportable segments.
Impact of Acquisitions and Divestitures
Acquisition adjusted growth rates exclude the results of our acquired businesses from the first twelve months post acquisition, the results of our divested businesses from the twelve months prior to divestiture and the Venezuelan results of operations from all comparable periods. As part of the separation, we also entered into a Master Cross Supply and Product Transfer agreement with ChampionX to provide, receive or transfer certain products for a period up to 36 months. Sales of product to ChampionX under this agreement are recorded in product and equipment sales in the Corporate segment along with the related cost of sales. These transactions are removed from the consolidated results as part of the calculation of the impact of acquisitions and divestitures.
Fixed Currency Foreign Exchange Rates
Management evaluates the sales and operating income performance of our non-U.S. dollar functional currency international operations based on fixed currency exchange rates, which eliminate the impact of exchange rate fluctuations on our international operations. Fixed currency amounts are updated annually at the beginning of each year based on translation into U.S. dollars at foreign currency exchange rates established by management, with all periods presented using such rates. Fixed currency exchange rates are generally based on existing market rates at the time they are established. Fixed currency amounts for 2015 also reflect all Venezuelan bolivar operations, prior to the deconsolidation of our Venezuelan operations, at the Marginal Currency System (“SIMADI”) rate at year end 2015 of approximately 200 bolivares to 1 U.S. dollar. Public currency rate data provided within the “Segment Performance” section of this MD&A reflect amounts translated at actual public average rates of exchange prevailing during the corresponding period and is provided for informational purposes only.
Venezuela Related Activities
EXECUTIVE SUMMARY
Effective as ofIn 2021, we delivered strong sales performance in an environment where COVID-19 infections impacted business activity and further disrupted global supply chains which together, impacted the end of the fourth quarter of 2015, we deconsolidated our Venezuelan subsidiaries. Prior to deconsolidation, due to the country’s highly inflationary economy, the functional currency of our Venezuelan subsidiaries was the U.S. dollar. As a result, currency remeasurement adjustments for non-U.S. dollar denominated monetary assets and liabilities of our Venezuelan subsidiariesglobal recovery. Delivered product cost inflation and other transactional foreign currency exchange gainssupply constraints increased significantly but we undertook extraordinary measures to assure our customers were supplied with our critical products and losses were reflectedservices. Double-digit sales growth in earnings. Across the second through fourth quarters of 2015,Institutional & Specialty and Other segments along with strong Industrial segment growth more than offset the Venezuelan bolivar operations within our Water, Paper, FoodHealthcare & Beverage, InstitutionalLife Sciences segment’s decline versus a very strong gain last year. Accelerating pricing and Energy operating segments were converted from the official exchange rate at the time of 6.3 bolivares to 1 U.S. dollar to the SIMADI rate at the time of approximately 200 bolivares to 1 U.S. dollar. As noted above, within our fixed currency sales and operating results, to present our historical Venezuelan bolivar operations at a consistent conversion rate, we have reflected all Venezuelan bolivar results for the 2015 reporting year at a SIMADI conversion rate of approximately 200 bolivares to 1 U.S. dollar.
Impact of Acquisitions and Divestitures
Acquisition adjusted growth rates exclude the results of our acquired businesses from the first twelve months post acquisition, exclude the results of our divested businesses from the twelve months prior to divestiture, and exclude the Venezuelan results of operations from all comparable periods.
EXECUTIVE SUMMARY
We achieved accelerating sales and earnings growth through 2017 as we drove new product introductions, new business wins and improved operating efficiency in a mixed market environment. Increased pricing was implemented tohigher volume more than offset significantly higher delivered product costs. Earnings per share leveragedcosts and supply constraints, including the solid operating income growth, benefiting fromimpact of Texas Freeze and Hurricane Ida, and the comparison to lower interest expense, taxes and shares outstanding, to deliver the solid EPS growth.variable compensation last year.
Sales
Reported sales increased 5%8% to $13.8$12.7 billion in 20172021 from $13.2$11.8 billion in 2016. Sales were positively impacted by volume, pricing and acquisitions.2020. When measured in fixed rates of foreign currency exchange, fixed currency sales increased 6% compared to the prior year. Acquisition adjusted fixed currency sales increased 5% compared to the prior year. See the section entitled “Non-GAAP Financial Measures” within this MD&A for further information on our non-GAAP measures and the “Net Sales” table on page 32 and the “Sales by Reportable Segment” table on page 38 for reconciliation information.
Gross Margin
Our reported gross margin was 46.5%40.2% of sales for 2017,2021, compared to our 20162020 reported gross margin of 47.5%41.4%. Excluding the impact of special (gains) and charges and impacts from the Purolite transaction included in cost of sales from both 20172021 and 2016,2020, our adjusted gross margin was 46.8%40.9% in 20172021 and 48.0%41.8% in 2016. See the section entitled “Non-GAAP Financial Measures” within this MD&A for further information on our non-GAAP measures and the “Cost of Sales and Gross Profit Margin” table on page 32 for reconciliation information.2020.
Operating Income
Reported operating income increased 5%15% to $2.0$1.6 billion in 2017,2021, compared to $1.9$1.4 billion in 2016.2020. Adjusted operating income, excluding the impact of special (gains) and charges and the impacts of the Purolite transaction, increased 2%11% in 2017.2021. When measured in fixed rates of foreign currency exchange, adjusted fixed currency operating income increased 2%. See the section entitled “Non-GAAP Financial Measures” within this MD&A for further information on our non-GAAP measures and the “Operating Income” table on page 35 and “Operating Income by Reportable Segment” table on page 38 for reconciliation information.8% in 2021.
Earnings from Continuing Operations Attributable to Ecolab Per Common Share (“EPS”)
Reported continuing operations diluted EPS increased 24%17% to $5.13$3.91 in 20172021 compared to $4.14$3.33 in 2016.2020. Special (gains) and charges had an impact on both years. Special (gains) and charges in 20172021 include COVID-19 related charges, restructuring charges, debt refinancing charges, acquisition and integration charges, and litigation and other charges. Special (gains) and charges in 2020 include debt refinancing charges, restructuring charges, disposal and impairment charges, Healthcare product recall charges, acquisition and integration charges, COVID-19 related charges, and litigation and other charges. Special (gains) and charges in 2019 were driven primarily by the impact of income tax reform, restructuring charges, other discrete taxes,tax items, acquisition and integration charges and the gain on sale of Equipment Care. Special (gains) and charges in 2016 were driven primarily by Energy related charges, Venezuelan related actions, restructuring chargeslitigation and other gainscharges. The impact of the Purolite transaction was $0.02 per share dilutive to reported earnings per share from continuing operations (excluding special charges) as sales since its December 1, 2021 acquisition were more than offset by acquisition-related amortization and charges.interest expense. Adjusted continuing operations diluted EPS, which exclude the impact of special (gains) and charges, the impacts of the Purolite transaction and discrete tax items increased 17% to $4.69 in 20172021 compared to $4.37$4.02 in 2016. See the section entitled “Non-GAAP Financial Measures” within this MD&A for further information on our non-GAAP measures, and the “Diluted EPS” table on page 37 for reconciliation information.2020.
Balance Sheet
We remain committed to our stated objective of having an investment grade balance sheet,maintaining “A” range ratings metrics over the long-term, supported by our current credit ratings of A-/Baa1A3/A- by the major ratings agencies,Standard & Poor’s, Moody’s Investor Services and to achieving “A” range ratings metrics. We believe ourFitch, respectively. Our strong balance sheet has allowed us continued access to capital at attractive rates.
Net Debt to EBITDA
Our net debt to earnings before interest, taxes, depreciation and amortization (“EBITDA”) was 2.43.4 and 2.3 for 2017 and 2016, respectively. Our net debt to adjusted EBITDA, defined as the sum of EBITDA and special (gains) and charges impacting EBITDA, was 2.4 for 20172021 and 2.2 for 2016.2020, respectively. We view these ratios as important indicators of the operational and financial health of our organization. See the section entitled “Non-GAAP Financial Measures” within this MD&A for further information on our non-GAAP measures, andSee the “Net Debt to EBITDA” table on page 4344 for reconciliation information.
Cash Flow
Cash flow from continuing operations operating activities was $2.1 billion in 20172021 compared to $1.9$1.7 billion in 2016.2020. We continued to generate strong cash flow from operations, allowing us to fund our ongoing operations, acquisitions, investments in our business, acquisitions, debt repayments, pension obligations and return cash to our shareholders through share repurchases and dividend payments. See the section entitled “Cash Flows” within this MD&A for further information.
Dividends
We increased our quarterly cash dividend 11%6% in December 20172021, bringing annual dividends declared to an indicated annual rate of $1.64$1.95 per share. The increase represents our 26th30th consecutive annual dividend rate increase and the 81st85th consecutive year we have paid cash dividends. Our outstanding dividend history reflects our continuedlong term growth and development, strong cash flows, solid financial position and confidence in our business prospects for the years ahead.
CRITICAL ACCOUNTING ESTIMATES
Our consolidated financial statements are prepared in accordance with U.S. GAAP. We have adopted various accounting policies to prepare the consolidated financial statements in accordance with U.S. GAAP. Our significant accounting policies are disclosed in Note 2 of the Notes to the Consolidated Financial Statements (“Notes”).
Preparation of our consolidated financial statements, in conformity with U.S. GAAP, requires us to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Estimates are considered to be critical if they meet both of the following criteria: (1) the estimate requires assumptions to be made about matters that are highly uncertain at the time the accounting estimate is made, and (2) different estimates that we reasonably could have used for the accounting estimate in the current period, or changes in the accounting estimate that are reasonably likely to occur from period to period, have a material impact on the presentation of our financial condition or results of operations.
In March 2020, COVID-19 was declared a pandemic by the World Health Organization. As the impact of the pandemic continues to evolve, estimates and assumptions about future events and their effects cannot be determined with certainty and therefore require judgment. These estimates and assumptions may change in future periods and will be recognized in the consolidated financial
information as new events occur and additional information becomes known. To the extent actual results differ materially from those estimates and assumptions, our future financial statements could be affected.
Besides estimates that meet the “critical” estimate criteria, we make many other accounting estimates in preparing our financial statements and related disclosures. All estimates, whether or not deemed critical, affect reported amounts of assets, liabilities, revenues or expenses as well as disclosures of contingent assets and liabilities. Estimates are based on experience and other information available prior to the issuance of the financial statements. Materially different results can occur as circumstances change and additional information becomes known, even from estimates not deemed critical. Our critical accounting estimates include the following:following:
Revenue Recognition
Revenue Recognition
We recognize revenue onis measured as the amount of consideration expected to be received in exchange for transferring goods or providing service. Revenue from product sales atand sold equipment is recognized when obligations under the time evidenceterms of an arrangement exists, title toa contract with the customer are satisfied, which generally occurs with the transfer of the product or delivery of the equipment. Revenue from service and risk of loss transfers toleased equipment is recognized when the services are provided, or the customer receives the pricebenefit from the leased equipment, which is fixedover time. Service revenue is recognized over time utilizing an input method and determinable and collectionaligns with when the services are provided. Typically, revenue is reasonably assured. We recognize revenue on services as they are performed. While we employ a salesrecognized over time using costs incurred to date because the effort provided by the field selling and service team to ensure our customers’ needs are best met inorganization represents services provided, which corresponds with the transfer of control. Revenue for leased equipment is accounted for under Topic 842 Leases and recognized on a high quality way,straight-line basis over the majoritylength of ourthe lease contract.
Our revenue is generated from product sales. Our service businesses and service offerings are discussed in Note 17.
Our sales policies do not provide for general rights of return. We record estimated reductions to revenue for customer programs and incentive offerings including pricing arrangements, promotions and other volume-based incentives at the time the sale is recorded. We also record estimated reserves for product returns and credits at the time of salebased primarily on historical experience and anticipated uncollectible accounts, as discussed below.performance over the contract period. Depending on market conditions, we may increase customer incentive offerings, which could reduce gross profit margins over the term of the incentive.
On January 1, 2018, we adopted Accounting Standards Committee 606 (ASC 606), Revenue from Contracts with Customers, which provides guidance on how revenue with customers should be recognized. For additional information on our adoption of this accounting standard, see Note 2.
Valuation Allowancesincentive. We also record estimated reserves for product returns and Accrued Liabilities
Allowances for Doubtful Accounts
We estimate our allowance for doubtful accounts by analyzing accounts receivable balances by age and applying historical write-off and collection trend rates. In addition, our estimates also include separately providing for customer receivablescredits based on specific circumstances and credit conditions, and whenconditions. We record an allowance for uncollectible accounts based on our estimates of expected future credit losses.
The revenue standard can be applied to a portfolio of contracts with similar characteristics if it is deemed probablereasonable that the balance is uncollectible.effects of applying the standard at the portfolio would not be significantly different than applying the standard at the individual contract level. We estimate our sales returnsapply the portfolio approach primarily within each operating segment by geographical region. Application of the portfolio approach was focused on those characteristics that have the most significant accounting consequences in terms of their effect on the timing of revenue recognition or the amount of revenue recognized. We determined the key criteria to assess with respect to the portfolio approach, including the related deliverables, the characteristics of the customers and allowances by analyzing historical returnsthe timing and credits,transfer of goods and apply these trend ratesservices, which most closely aligned within the operating segments. In addition, the accountability for the business operations, as well as the operational decisions on how to calculate estimated reserves for future credits. Actual results could differ from these estimates.
Our allowance for doubtful accounts balance was $72 milliongo to market and $68 million, as of December 31, 2017 and 2016, respectively. These amounts include our allowance for sales returns and credits of $15 million and $14 million as of December 31, 2017 and 2016, respectively. Our bad debt expense as a percent of reported net sales was 0.1% in 2017 and 0.2% in 2016 and 2015. We believe it is reasonably likely that future results will be consistent with historical trends and experience. However, if the financial condition of our customers were to deteriorate, resulting in an inability to make payments, or if unexpected events, economic downturns, or significant changes in future trends were to occur, additional allowances may be required.
product offerings, are performed at the operating segment level. For additional information on our allowance for doubtful accounts, seerevenue recognition, refer to Note 2.18.
Litigation and Environmental Liabilities
Accrued Liabilities
Our business and operations are subject to extensive environmental laws and regulations governing, among other things, air emissions, wastewater discharges, the use and handling of hazardous substances, waste disposal and the investigation and remediation of soil and groundwater contamination. As with other companies engaged in similar manufacturing activities and providing similar products and services, someSome risk of environmental liability is inherent in our operations.
We record liabilities related to pending litigation, environmental claims and other contingencies when a loss is probable and can be reasonably estimated. Estimates used to record such liabilities are based on our best estimate of probable future costs. We record the amounts that represent the points in the range of estimates that we believe are most probable or the minimum amount when no amount within the range is a better estimate than any other amount. Potential insurance reimbursements generally are not anticipated in our accruals for environmental liabilities or other insured losses. Expected insurance proceeds are recorded as receivables when recovery is deemed certain. While the final resolution of litigation and environmental contingencies could result in amounts different than current accruals, and therefore have an impact on our consolidated financial results in a future reporting period, we believe the ultimate outcome will not have a significant impact on our consolidated financial position.
For additional information on our commitments and contingencies, seerefer to Note 15.16.
Actuarially Determined Liabilities
Pension and Postretirement Healthcare Benefit Plans
The measurement of our pension and postretirement benefit obligations are dependent on a variety of assumptions determined by management and used by our actuaries. These assumptions affect the amount and timing of future contributions and expenses.
The significant assumptions used in developing the required estimates are the discount rate, expected return on assets, projected salary and health care cost increases and mortality table.
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| | The discount rate assumptions for our U.S. plans are assessed using a yield curve constructed from a subset of bonds yielding greater than the median return from a population of non-callable, corporate bond issues rated Aa bythat have an average rating of AA when averaging available Moody’s Investor Services, or AA by Standard & Poors.Poor’s and Fitch ratings. The discount rate is calculated by matching the plans’ projected cash flows to the bond yield curve. For 20172021 and 2016,2020, we elected to measuremeasured service and interest costs by applying the |
| specific spot rates along that yield curve to the plans’ liability cash flows. We believe this approach provides a more precise measurement of service and interest costs by aligning the timing of the plans’ liability cash flows to the corresponding spot rates on the yield curve. For 2015, we measured service and interest costs utilizing a single weighted-average discount rate derived from the yield curve used to measure the plan obligations. The change in approach did not affect the measurement of our plan obligations or the funded status of our plans. In determining our U.S. pension obligations for 2017,2021, our weighted-average discount rate decreasedincreased to 3.70%2.86% from 4.27%2.48% at year-end 2016.2020. In determining our U.S. postretirement health care obligation for 2017,2021, our weighted-average discount rate decreasedincreased to 3.66%2.75% from 4.14%2.37% at year-end 2016.2020. |
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| | The expected rate of return on plan assets reflects asset allocations, investment strategies and views of investment advisors, and represents our expected long-term return on plan assets. Our weighted-average expected return on U.S. plan assets used forin determining the 2016, 2017 and 2018 U.S. pension and U.S. postretirement health care expenses was 7.75%. 7.00% for 2021, 7.25% for 2020 and 7.25% for 2019. |
| ● | ·
| | Projected salary and health care cost increases are based on our long-term actual experience, the near termnear-term outlook and assumed inflation. Our weighted-average projected salary increase used in determining the 2016 U.S. pension expenses was 4.32%,4.03% for 2017 it was 4.03%,2021, 2020 and for 2018 it is 4.03%. 2019. |
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| | For postretirement benefit measurement purposes as of December 31, 2017,2021, the annual rates of increase in the per capita cost of covered health care were assumed to be 8.25%6.75% for pre-65 costs and 11.5%7.25% for post-65 costs. The rates are assumed to decrease each year until they reach 5%4.5% in 20282029 and remain at those levels thereafter. |
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| | In determining our U.S. pension and U.S. postretirement health care obligation for 2017,2021, we utilized the most recent mortality table, MP-2017MP-2021 projection scale (applied to the RP-2006Pri-2012 mortality table). |
The effects of actual results differing from our assumptions, as well as changes in assumptions, are reflected in the unrecognized actuarial loss and amortized over future periods and, therefore, will generally affect our recognized expense in future periods. Significant differences in actual experience or significant changes in assumptions may materially affect future pension and other postretirement obligations.obligations and expense. The unrecognized net actuarial loss on our U.S. qualified and non-qualified pension plans decreased to $527$397 million as of December 31, 20172021 from $533$691 million as of December 31, 20162020 (both before tax), primarily due to the amortization of prior periodcurrent year net actuarial losses. gains.
The effect of a decrease in the discount rate or decrease in the expected return on assets assumption as of December 31, 2017,2021, on the December 31, 2017 funded status2021 defined benefit obligation and 20182022 expense is shown below, assuming no changes in benefit levels and no amortization of gains or losses for our significant U.S. plans:plans. Expense amounts reflect the accounting for actuarial gains as a component of other comprehensive income and recognition of the impacts into income over the remaining service period:
| | | | | | | | | | | |
| | Effect on U.S. Pension Plans | |
| | | | Increase in | | Higher | |
| | Assumption | | Recorded | | 2018 | |
| | | | | | | | | | | |
| | | Effect on U.S. Pension Plans |
| | | | | Increase in | | Higher |
| | | Assumption | | Recorded | | 2022 |
(millions) | | Change | | Obligation | | Expense | | Change | | Obligation | | Expense |
Discount rate | | -0.25 pts | | | $77.2 | | | | $6.0 | | | -0.25 pts | | | $65.6 | | | | $3.3 | |
Expected return on assets | | -0.25 pts | | | N/A | | | | 5.2 | | | -0.25 pts | | | N/A | | | | 5.3 | |
| | | | | | | | | | | |
| | Effect on U.S. Postretirement | |
| | Health Care Benefits Plans | |
| | | | Increase in | | Higher | |
| | Assumption | | Recorded | | 2018 | |
| | | | | | | | | | | |
| | | Effect on U.S. Postretirement |
| | | Health Care Benefits Plans |
| | | | | Increase in | | Higher |
| | | Assumption | | Recorded | | 2022 |
(millions) | | Change | | Obligation | | Expense | | Change | | Obligation | | Expense |
Discount rate | | -0.25 pts | | | $5.2 | | | | $0.6 | | | -0.25 pts | | | $4.4 | | | | $0.1 | |
Expected return on assets | | -0.25 pts | | | N/A | | | | - | | | -0.25 pts | | | N/A | | | | - | |
Our international pension obligations and underlying plan assets represent approximately one third of our global pension plans, with the majority of the amounts held in the U.K. and Eurozone countries. We use assumptions similar to our U.S. plan assumptions to measure our international pension obligations, however, the assumptions used vary by country based on specific local country requirements and information.
SeeRefer to Note 1617 for further discussion concerning our accounting policies, estimates, funded status, contributions and overall financial positions of our pension and postretirement plan obligations.obligations.
Self InsuranceSelf-Insurance
Globally we have insurance policies with varying deductible levels for property and casualty losses. We are insured for losses in excess of these deductibles, subject to policy terms and conditions and have recorded both a liability and an offsetting receivable for amounts in excess of these deductibles. We are self-insured for health care claims for eligible participating employees, subject to certain deductibles and limitations. We determine our liabilities for claims on an actuarial basis.
Restructuring
Our restructuring activities are associated with plans to enhance our efficiency, effectiveness and sharpen the competitiveness of our businesses. These restructuring plans include net costs associated with significant actions involving employee-related severance charges, contract termination costs and asset write-downs and disposals. Employee termination costs are largely based on policies and severance plans, and include personnel reductions and related costs for severance, benefits and outplacement services. These charges are reflected in the quarter in which the actions are probable and the amounts are estimable, which typically is when management approves the associated actions. Contract termination costs include charges to terminate leases prior to the end of their respective terms and other contract termination costs. Asset write-downs and disposals include leasehold improvement write-downs, other asset write-downs associated with combining operations and disposal of assets.
Restructuring charges have been included as a component of cost of sales, special (gains) and charges and net income (loss) attributable to noncontrolling interest on the Consolidated Statement of Income. Amounts included as a component of cost of sales include supply chain related severance and other asset write-downs associated with combining operations. Restructuring liabilities have been classified as a component of both other current and other noncurrent liabilities on the Consolidated Balance Sheet. Our restructuring liability balance was $42 million and $40 million as of December 31, 2017 and 2016, respectively.
For additional information on our restructuring activities, see Note 3.
Income Taxes
Judgment is required to determine the annual effective income tax rate, deferred tax assets and liabilities, any valuation allowances recorded against net deferred tax assets and uncertain tax positions.
On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (the “Tax Act”), which reduces the U.S. federal corporate tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously indefinitely reinvested and creates new taxes on certain foreign sourced earnings. The Tax Act adds many new provisions including changes to bonus depreciation, the deduction for executive compensation and interest expense, a tax on global intangible low taxed income (GILTI), the base erosion anti abuse tax (BEAT) and a deduction for foreign derived intangible income (FDII). Some of these provisions, such as the tax on GILTI, may not apply to the Company with full effect until future years. The Company is assessing the impact of the provisions of the Act that do not apply until later years.
The two material items that impact us for 2017 are the reduction in the U.S. federal tax rate, as it relates to deferred tax assets and liabilities recorded on the balance sheet, and the one-time transition tax that is imposed on our unremitted foreign earnings. We have recorded provisional amounts for the income tax effects that included the reporting period the Tax Act was enacted. Judgement was used when applying the provisions of the Tax Act, including assumptions related to the impact of the lower corporate rate, and other analyses including, but not limited to, estimates of assets and liabilities at future dates and our calculation of deemed repatriation of deferred foreign income. Our provisional amounts are subject to further adjustments during the measurement period of up to one year following enactment of the Tax Act, as provided by recent SEC guidance.
Effective Income Tax Rate
Our effective income tax rate is based on annual income, statutory tax rates and tax planning available in the various jurisdictions in which we operate. Our annual effective income tax rate includes the impact of reserve provisions. We recognize the largest amount of tax benefit that is greater than 50% likely of being realized upon settlement with a taxing authority. We adjust these reserves in light of changing facts and circumstances. This expected annual rate is then applied to our year-to-date operating results. In the event that there is a significant discrete item recognized in our interim operating results, the tax attributable to that item would be separately calculated and recorded in the same period.
Tax regulations require items to be included in our tax returns at different times than the items are reflected in our financial statements. As a result, the effective income tax rate reflected in our financial statements differs from that reported in our tax returns. Some of these differences are permanent, such as expenses that are not deductible on our tax return, and some are temporary differences, such as depreciation expense.
Deferred Tax Assets and Liabilities and Valuation Allowances
Temporary differences create deferredDeferred tax assets and liabilities. Deferredliabilities are determined based on temporary differences between the financial reporting and tax bases of assets and liabilities, applying enacted tax rates expected to be in effect for the year in which the differences are expected to reverse. Based on the evaluation of available evidence, both positive and negative, we recognize tax assets, generally represent itemssuch as net operating loss carryforwards and tax credit carryforwards, to the extent that canrealizing these benefits is considered to be used as a tax deduction or credit in our tax return in future years for which we have already recorded the tax benefit in our income statement. We establish valuation allowances for our deferred tax assets when the amount of expected future taxable income is notmore likely to support the utilization of the entire deduction or credit.than not. Relevant factors in determining the realizability of deferred tax assets include historical results, sources of future taxable income, the expected timing of the reversal of temporary differences, tax planning strategies and the expiration dates of the various tax attributes. Deferred tax liabilities generally represent items for which we have already taken a deduction in our tax return, but have not yet recognized that tax benefit in our financial statements.
Prior to the enactment of the Tax Act, U.S. deferred income taxes had not been provided on certain unremitted foreign earnings that are considered permanently reinvested. Undistributed earnings of foreign subsidiaries are considered to have been reinvested indefinitely or are available for distribution with foreign tax credits available to offset the amount of applicable income tax and foreign withholding taxes that might be payable on earnings. Upon enactment of the Tax Act, we recorded a one-time transition tax on certain unremitted foreign earnings of foreign subsidiaries, which is payable over eight years. We will continue to assert permanent reinvestment of the undistributed earnings of international affiliates, and if our policy changes we would record applicable taxes.
For additional information on income taxes see Note 12.
Uncertain Tax Positions
A number of years may elapse before a particular tax matter, for which we have established a reserve,liability for uncertain tax position, is audited and finally resolved. The number of tax years with open tax audits varies depending on the tax jurisdiction. The Internal Revenue Service (“IRS”) has completed its examinations of our federal income tax returns (Ecolab and Nalco) through 2014. Our U.S. federal income tax returns forthrough 2016 and the years 20152017 and 20162018 are currently under audit. In addition to the U.S. federal examinations, we have ongoing audit activity in several U.S. state and foreign jurisdictions.
The tax positions we take are based on our interpretations of tax laws and regulations in the applicable federal, state and international jurisdictions. We believe our tax returns properly reflect the tax consequences of our operations, and our reservesliabilities for uncertain tax contingenciespositions are appropriate and sufficient for the positions taken. Because of the uncertainty of the final outcome of these examinations, we have reserved for potential reductions of tax benefits (including related interest and penalties) for amounts that do not meet the more-likely-than-not thresholds for recognition and measurement as required by authoritative guidance. The liability for uncertain tax reserves arepositions is reviewed throughout the year, taking into account new legislation, regulations, case law and audit results. Settlement of any particular issue could result in offsets to other balance sheet accounts, cash payments or receipts and/or adjustments to tax expense. The majority of ourLiabilities for uncertain tax reservespositions are presented in the Consolidated Balance SheetSheets within other non-current liabilities. Our gross liability for uncertain tax positions was $62$25 million and $76$21 million as of December 31, 20172021 and 2016,2020, respectively.
For additional information on income taxes seerefer to Note 12.13.
Long-Lived Assets, Intangible Assets and Goodwill
Long-Lived and Amortizable Intangible Assets
Long-lived and amortizable intangible assets acquired are recorded on the acquisition date at their respective fair values based on the fair value requirements defined in U.S. GAAP. This requires us to make significant estimates and assumptions relating to the present value of its future cash flows, such as growth rates, royalty rates or discount rates.
We periodically review our long-lived and amortizable intangible assets, the net value of which was $7.0$6.8 billion and $6.4$5.3 billion as of December 31, 20172021 and 2016,2020, respectively, for impairment and to assess whetherwhen significant events or changes in business circumstances indicate that the carrying value of the assets may not be recoverable. Such circumstances may include a significant decrease in the market price of an asset or asset group, a significant adverse change in the manner in which the asset isor asset groups are being used or in its physical condition or history of operating or cash flow losses associated with the use of the asset.asset or asset group. Impairment losses could occur when the carrying amount of an asset or asset group exceeds the anticipated future undiscounted cash flows expected to result from the use of the asset or asset group and its eventual disposition. The amount of the impairment loss to be recorded, if any, is calculated as the excess of the asset’s or assets group’s carrying valueamount over its estimated fair value.
We use the straight-line method to recognize amortization expense related to our amortizable intangible assets, including our customer relationships. We consider various factors when determining the appropriate method of amortization for our customer relationships, including projected sales data, customer attrition rates and length of key customer relationships.
For segment reporting purposes, special (gains) and charges are not allocated to reportable segments, which is consistent with our internal management reporting.
Restructuring Activities
Restructuring Activities
Restructuring chargesactivities are primarily related to the Institutional Advancement Program and Accelerate 2020, both of which are described below. These activities have been included as a component of cost of sales, special (gains) and charges, and net income (loss) attributable to noncontrolling interestother (income) expense on the Consolidated StatementStatements of Income. Restructuring liabilities have been classified as a component of other current and other noncurrent liabilities on the Consolidated Balance Sheets.
Further details related to our restructuring charges are included in Note 3.3.
DuringInstitutional Advancement Program
We approved a restructuring plan in 2020 focused on the second quarter of 2017,Institutional business (“the Institutional Plan”) which is intended to enhance our Institutional sales and service structure and allow the sales team to capture share and penetration while maximizing service effectiveness by leveraging our ongoing investments in digital technology. In February 2021, we commenced restructuringexpanded the Institutional Plan, and other cost-saving actions in order to streamline our operations. These actions include a reduction of our global workforce by approximately 570 positions, as well as asset disposals and lease terminations. As a result ofexpect that these actions, we have incurred restructuring charges will be completed by 2023, with total anticipated costs of $45.5$65 million ($32.750 million after tax) or $0.11$0.17 per diluted share. The costs are expected to be primarily cash expenditures for severance and facility closures. We also anticipate non-cash charges related to equipment disposals. Actual costs may vary from these estimates depending on actions taken.
In 2021, we recorded total restructuring charges of $12.6 million ($10.2 million after tax) or $0.04 per diluted share, during 2017. Actions were substantially completed in 2017. Asprimarily related to severance, disposals of equipment and office closures. We have recorded $47.8 million ($36.6 million after tax), or $0.13 per diluted share of cumulative restructuring charges under the Institutional Plan. The liability related to the Institutional Plan was $5.1 million as of December 31, 2017, the restructuring liability balance related to these activities was $23.2 million.2021. The majority of the pretax charges represent net cash expenditures which are expected to be paid over a period of a few months to several quarters and willwhich continue to be funded from operating activities. Cash payments during 2017,
The Institutional Plan has delivered $41 million of cumulative cost savings with estimated annual cost savings of $50 million in continuing operations by 2024.
Accelerate 2020
During 2018, we formally commenced a restructuring plan Accelerate 2020 (“the Plan”), to leverage technology and system investments and organizational changes. The goal of the Plan is to further simplify and automate processes and tasks, reduce complexity and management layers, consolidated facilities and focus on key long-term growth areas by further leveraging technology and structural improvements. During 2020, we expanded the Plan for additional costs and savings to further leverage the technology and structural improvements. Following the establishment of the separate Institutional Plan, we now expect that the restructuring activities will be completed by the end of 2022, with total anticipated costs of $255 million ($195 million after tax), or $0.67 per diluted share, over this period of time, when revised for continuing operations. Costs are expected to be primarily cash expenditures for severance costs and some facility closure costs relating to team reorganizations. Actual costs may vary from these estimates depending on actions taken.
We recorded restructuring charges of $5.3 million ($6.2 million after tax) or $0.02 per diluted share in 2021. The liability related to actions initiatedthe Plan was $32.7 million as of the end of the year. We have recorded $244.5 million ($190.0 million after tax), or $0.66 per diluted share, of cumulative restructuring charges under the Plan. The majority of the pretax charges represent net cash expenditures which are expected to be paid over a period of a few months to several quarters which continue to be funded from operating activities.
The Plan has delivered $300 million of cumulative cost savings with estimated annual cost savings of $315 million in 2017, were $17.8 million.continuing operations by 2022.
We recordedOther Restructuring Activities
During 2021, we incurred restructuring charges of $18.7 million ($17.0 million after tax), or $0.06 per diluted share, related to other immaterial restructuring activity. The charges primarily related to severance and asset write-offs.
During 2020, we incurred restructuring charges of $1.8 million ($1.2 million after tax), or less than $0.01 per diluted share, related to other immaterial restructuring plan. The charges are comprised of severance, facility closure costs, including asset disposals, and consulting fees.
During 2019, net restructuring gains related to legacy restructuring plans that commencedentered into prior to 2015 of $1.02019 were $1.5 million ($0.041.1 million after tax) or less than $0.01 per diluted share during 2017. We recorded netshare.
The restructuring gains of $9.1 million ($10.8 million after tax) or $0.04 per diluted share in 2016 and net restructuring charges of $100.3 million ($77.2 million after tax) or $0.25 per diluted share during 2015. The legacyliability balance for all other restructuring plans liability balance was $18.3 million, $39.6excluding Accelerate 2020 and the Institutional Plan were $4.6 million and $90.1$5.9 million as of December 31, 2017, 20162021 and 2015,2020, respectively. The reduction in liability balance was driven primarily by severance and other cash payments. The remaining accrualliability is expected to be paid over a period of a few months to several quarters and continueswill continue to be funded from operating activities. Cash payments during 2021 related to all other restructuring plans excluding the Accelerate 2020 and Institutional Plan were $10.5 million.
Acquisition and integration related costs
Acquisition and integration costs reported in cost of sales on the Consolidated Statement of Income in 2017 include $13.2 million ($8.6 million after tax) or $0.03 per diluted share related primarily to disposal of excess inventory upon the closure of Swisher plants, accelerated rent expense, and amounts related to recognition of fair value step-up in the Anios inventory.
Acquisition and integration costs reported in special (gains) and charges on the Consolidated StatementStatements of Income in 20172021 include $15.4$29.9 million ($9.923.5 million after tax) or $0.03$0.08 per diluted share. Charges are related to the Purolite Corporation (“Purolite”), Copal Invest NV, including its primary operating entity CID Lines (collectively, “CID Lines”), and Bioquell PLC (“Bioquell”) acquisitions and consist of integration costs and advisory and legal fees. Acquisition and integration costs reported in product and equipment cost of sales on the Consolidated Statements of Income in 2021 include $4.2 million ($3.3 million after tax) or $0.01 per diluted share and are related to the recognition of fair value step-up in the Purolite inventory. In conjunction with its acquisitions, we incurred $0.8 million ($0.6 million after tax), or less than $0.01 per diluted share, of special (gains) and charges reported in interest expense in 2021.
During 2020, acquisition and integration costs reported in special (gains) and charges on the Consolidated Statements of Income include $8.5 million ($6.9 million after tax) or $0.02 per diluted share. Charges are related to CID Lines, Bioquell and the Laboratoires Anios (“Anios”) acquisitions and consist of integration costs and advisory and legal fees. Acquisition and integration costs reported in product and equipment cost of sales on the Consolidated Statements of Income in 2020 include $3.9 million ($3.2 million after tax) or $0.01 per diluted share and are related to the recognition of fair value step-up in the CID Lines inventory, severance and the closure of a facility. In conjunction with our acquisitions, we incurred $0.7 million ($0.6 million after tax), or less than $0.01 per diluted share, of special (gains) and charges reported in interest expense in 2020.
During 2019, acquisition and integration costs reported in special (gains) and charges on the Consolidated Statements of Income include $5.6 million ($4.1 million after tax) or $0.01 per diluted share. Charges are primarily related to the Bioquell and Anios acquisitions and consist of integration costs, advisory and legal fees,fees. Acquisition and integration charges forcosts reported in product and equipment cost of sales on the Anios and Swisher acquisitions during 2017.
During 2016, we incurred acquisition and integration chargesConsolidated Statements of $8.6Income in 2019 include $7.6 million ($5.45.6 million after tax) or $0.02 per diluted share primarilyand are related to recognition of fair value step-up in the Swisher acquisition. During 2015, as a result of the Champion acquisitionBioquell inventory and Nalco merger,facility closure costs. In conjunction with our acquisitions, we incurred charges of $18.7$0.2 million ($12.00.1 million after tax), or $0.05less than $0.01 per diluted share. Theshare, of special (gains) and charges have been included as a component ofreported in interest expense in 2019.
Disposal and impairment charges
Disposal and impairment charges reported in special (gains) and charges on the Consolidated StatementStatements of Income. Further information related to our acquisitions is included in Note 4.
Fixed asset impairment and other charges
During 2017, we recorded other charges of $26.2Income include $41.4 million ($19.741.5 million after tax), or $0.07$0.14 per diluted share primarily relating to fixed asset impairments and a Global Energy vendor contract termination.
in the 2020. During 2015,2020, we recorded fixed asset impairment charge of $24.7a $28.6 million ($15.428.6 million after tax), or $0.05$0.10 per diluted share consisting of certain production equipment and buildings within one of our U.S. plants. During 2016, we recorded an additional charge of $10.0 million ($6.3 million after tax), or $0.02 per diluted share related to the dry polymer fixed asset impairment as well as related inventory charges. Subsequent to the charge, the remaining value of the underlying fixed assets was less than $5 million. Inventory charges include adjustmentsfor a minority equity method investment due to the significant decline in activityCOVID-19 impact on the economic environment and related pricesthe liquidity of the corresponding dry polymer products.
These items have been included as a componentminority equity method investment. In addition, we recorded charges of cost of sales on the Consolidated Statement of Income.
Inventory costs and reserve
During 2015, we improved and standardized estimates related to our inventory reserves and product costing, resulting in a net pre-tax charge of $6.1 million. Separately, the actions resulted in a charge of $20.6$12.8 million ($15.912.9 million after tax), or $0.05 per diluted share, related to inventory reserve calculations, partially offset by a gain of $14.5 million ($12.2 million after tax), or $0.04 per diluted share related to the capitalizationdisposal of certain cost components into inventory. During 2016, we took additional actionsHolchem Group Limited (“Holchem”) for the loss on sale and related transaction fees during 2020. Further information related to the capitalizationdisposal is included in Note 4.
COVID-19 activities
Customer demand for sanitizer products surged at the outset of certain cost components into inventory, whichCOVID-19. We worked hard to meet the rapidly increasing demand and sold the vast majority of the sanitizer inventory. However, COVID-19 variant-related delays of customer’s reopening and consumer activity resulted in a gainsmall portion of $6.2excess sanitizer inventory. We have recorded inventory reserves of $60 million ($4.6 million after tax), or $0.02 per diluted share.
Energy related charges
Oil industry activity was depressed during 2016 when compared with 2014 levels, resulting from2021 for excess oil supply pressures, which negatively impacted explorationsanitizer inventory and production investments in the energy industry, particularly in North America. As a result of these conditionsestimated disposal costs. During 2021 and their corresponding impact on our business outlook,2020, we recorded total charges of $76.8$36.8 million ($50.0and $57.1 million, after tax) or $0.17 per diluted share, comprisedrespectively, to protect the wages of inventory write-downscertain employees directly impacted by the COVID-19 pandemic. We also recorded charges of $16.5 million and $2.4 million related to employee COVID-19 testing and related disposal costs, fixed asset charges, headcount reductionsexpenses during 2021 and other charges in 2016. No such charges2020, respectively. In addition, we received subsidies and government assistance, which were incurred in 2017.
The inventory write-downs and related disposal costs of $40.5 million include adjustments due to the significant decline in activity and related prices of certain specific-use and other products, coupled with declines in replacement costs, as well as estimated costs to dispose the respective excess inventory. The fixed asset charges of $20.4 million resulted from the write-down of certain assets related to the reduction of certain aspects of our North American operations within the Global Energy segment, as well as abandonment of certain projects under construction. The carrying value of the corresponding fixed assets was reduced to zero. The employee termination costs of $13.1 million include a reduction in our Global Energy segment’s global workforce to better align its workforce with anticipated activity levels in the near term. As of the end of 2017, the remaining severance liability was minimal.
The charges discussed above have been includedrecorded as a componentspecial (gain) of both($6.2) million and ($23.4) million during 2021 and 2020, respectively. COVID-19 pandemic charges are recorded in product and equipment cost of sales, service and lease cost of sales, and special (gains) and charges on the Consolidated StatementStatements of Income. Total after tax net charges (gains) related to COVID-19 pandemic were $81.3 million or $0.28 per diluted share and $27.4 million or $0.09 per diluted share during 2021 and 2020, respectively.
Other operating activities
During 2021, 2020 and 2019, we recorded special charges of $0.3 million ($0.2 million after tax) or less than $0.01 per diluted share, $24.4 million ($16.0 million after tax) or $0.06 per diluted share and $10.5 million ($7.1 million after tax) or $0.02 per diluted share, respectively, recorded in product and equipment cost of sales on the Consolidated Statements of Income primarily related to a Healthcare product recall in Europe.
Other special charges of $18.4 million ($14.1 million after tax) or $0.05 per diluted share in 2021, $34.7 million ($33.9 million after tax) or $0.12 per diluted share recorded in 2020 and $21.4 million ($16.2 million after tax), or $0.06 per diluted share recorded in 2019 relate primarily to a specific legal reserve and related legal charges, partially offset by a litigation settlement in 2019, which are recorded in special (gains) and charges on the Consolidated Statements of Income. We also recorded during 2020 a $7.2 million or $0.02 per diluted share, special charge related to the separation of ChampionX as a tax expense on the Consolidated Statements of Income.
Venezuela related activitiesOther (income) expense
Effective as of the end of the fourth quarter of 2015,During 2021, we deconsolidated our Venezuelan subsidiaries and began accounting for the investmentsincurred settlement expense recorded in our Venezuelan subsidiaries using the cost method of accounting effective in the first quarter of 2016. The conditions within Venezuela driving this decision remained in place during 2016 and 2017. Prior to deconsolidation, we remeasured our Venezuelan bolivar operations within our Water, Paper, Food & Beverage, Institutional and the bolivar portion of our Venezuelan operations within Energy operating segments from the official exchange rate at the time of 6.3 bolivares to 1 U.S. dollar to the SIMADI rate at the time of approximately 200 bolivares to 1 U.S. dollar. As a result of the ownership structure of our Food & Beverage and Institutional operations in Venezuela, we reflected a portion of the devaluation impact as a component of net income (loss) attributable to noncontrolling interestother (income) expense on the Consolidated StatementStatements of Income. Upon deconsolidation,Income of $37.2 million ($28.7 million after tax), or $0.10 per diluted share related to U.S. pension plan lump-sum payments to retirees.
During 2020 and 2019, we recorded a charge to fully write off our intercompany receivables and investment. The total charges during 2015 related to our actions in Venezuela were $289.3other expense of $0.4 million ($246.80.3 million after tax). We reflected $11.1 million of the above charges as a component of net income (loss) attributable to noncontrolling interest on the Consolidated Statement of Income, resulting in a net charge of $235.7 million or $0.78less than $0.01 per diluted share.
We recorded gains due to U.S. dollar cash recoveries of intercompany receivables written off at the time of deconsolidation of $11.5share and $9.5 million ($7.2 million after tax) or $0.02 per diluted share, and $7.8 million ($4.9 million after tax) or $0.02 per diluted share in 2017 and 2016, respectively.
Gain on sale of business
During 2017, we disposed of the Equipment Care business and recorded a gain of $46.1 million ($12.4 million after tax primarily due to non-deductible goodwill), or $0.04 per diluted share, net of working capital adjustments, costs to sell and other transaction expenses. The gain has been included as a component of special (gains) and charges on the Consolidated Statement of Income.
Other
We recorded net gains of $1.4 million ($0.7 million after tax), or less than $0.01 per diluted share, net charges of $33.2 million ($21.1 million after tax) or $0.07 per diluted share, and net charges of $56.3 million ($34.5 million after tax), or $0.11 per diluted share in 2017, 2016, and 2015, respectively, primarily related to litigation relatedpension curtailments and settlements for ChampionX separation and Accelerate 2020. These charges and settlements. In 2015, this also included the recognition of a loss on the sale of a portion of our Ecovation business, offset partially by the recovery of funds deposited into escrow as part of the Champion transaction. These items have been included as a component of special (gains) and chargesother (income) expense on the Consolidated StatementStatements of Income.
Interest Expense,expense, net
During 2017, in anticipation of U.S. tax reform2021 and a potential limit on interest deductibility in future years,2020, we entered into transactions to exchange or retire certain long-term debt, and incurred debt exchange and extinguishmentrecorded special charges of $21.9$32.3 million ($13.628.4 million after tax), or $0.05$0.10 per diluted share. This charge has been included as a componentshare and $83.1 million ($64.0 million after tax) or $0.22 per diluted share, respectively, in interest expense on the Consolidated Statements of Income related to debt refinancing charges. In addition, during 2021, 2020 and 2019, an immaterial amount of interest expense net on the Consolidated Statement of Income.was recorded due to acquisition and integration costs.
Operating Income and Operating Income Margin
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | Percent Change |
| | | | | | | | | | | | | | | | | | | | | |
(millions) | | 2021 | | 2020 | | 2019 | | | 2021 | | 2020 |
Reported GAAP operating income | | | $1,598.6 | | | | $1,395.7 | | | | $1,845.2 | | | | | 15 | % | | | (24) | % |
Special (gains) and charges | | | 196.5 | | | | 227.8 | | | | 158.7 | | | | | | | | | | |
Impact of Purolite on operating income | | | 3.8 | | | | - | | | | - | | | | | | | | | | |
Non-GAAP adjusted operating income | | | 1,798.9 | | | | 1,623.5 | | | | 2,003.9 | | | | | 11 | | | | (19) | |
Effect of foreign currency translation | | | 18.9 | | | | 52.8 | | | | 37.2 | | | | | | | | | | |
Non-GAAP adjusted fixed currency operating income | | | $1,817.8 | | | | $1,676.3 | | | | $2,041.1 | | | | | 8 | % | | | (18) | % |
| | | | | | | | | | | | | | | | | | | | | |
(percent) | | 2021 | | 2020 | | 2019 | | | | | | | |
Reported GAAP operating income margin | | | 12.6 | % | | | 11.8 | % | | | 14.7 | % | | | | | | | | | |
Non-GAAP adjusted operating income margin | | | 14.1 | % | | | 13.8 | % | | | 16.0 | % | | | | | | | | | |
Non-GAAP adjusted fixed currency operating income margin | | | 14.2 | % | | | 13.8 | % | | | 15.9 | % | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | Percent Change |
| | | | | | | | | | | | | | | | | | | | | | |
(millions) | | 2017 | | 2016 | | 2015 | | | | 2017 | | 2016 |
Reported GAAP operating income | | | $2,019.8 | | | | $1,915.0 | | | | $1,561.3 | | | | | | 5 | % | | | 23 | % |
Special (gains) and charges | | | 40.3 | | | | 105.5 | | | | 495.4 | | | | | | | | | | | |
Non-GAAP adjusted operating income | | | 2,060.1 | | | | 2,020.5 | | | | 2,056.7 | | | | | | 2 | | | | (2) | |
Effect of foreign currency translation | | | (32.9) | | | | (25.2) | | | | (119.8) | | | | | | | | | | | |
Non-GAAP adjusted fixed currency operating income | | | $2,027.2 | | | | $1,995.3 | | | | $1,936.9 | | | | | | 2 | % | | | 3 | % |
| | | | | | | | | | | | | | | | | | | | | | |
(percent) | | 2017 | | 2016 | | 2015 | | | | | | | | |
Reported GAAP operating income margin | | | 14.6 | % | | | 14.6 | % | | | 11.5 | % | | | | | | | | | | |
Non-GAAP adjusted operating income margin | | | 14.9 | % | | | 15.4 | % | | | 15.2 | % | | | | | | | | | | |
Non-GAAP adjusted fixed currency | | | | | | | | | | | | | | | | | | | | | | |
operating income margin | | | 14.9 | % | | | 15.3 | % | | | 14.9 | % | | | | | | | | | | |
Our operating income and corresponding operating income margin are shown in the previous tables. Operating income margin is defined as operating income divided by sales.
Our reported operating income increased 5%15% when comparing 20172021 to 20162020 primarily driven by increased pricing and increased 23%higher volume which more than offset significantly higher delivered product costs and supply constraints, including the impact of the Texas Freeze and Hurricane Ida and higher variable compensation compared to last year. Our reported operating income decreased 24% when comparing 20162020 to 2015.2019 primarily due to the overall negative impact of the COVID-19 pandemic on results, which yielded lower sales and reduced operating leverage, unfavorable business mix, more than offsetting cost savings, favorable pricing and higher variable compensation. Our reported operating income for 2017, 20162021, 2020 and 20152019 was impacted by special (gains) and charges. Excluding the impact of special (gains) and charges from all three years, 2017and the impacts of the Purolite transaction, 2021 adjusted operating income increased 2%11% when compared to 20162020 adjusted operating income and 20162020 adjusted fixed currency operating income decreased 2%19% when compared to 20152019 adjusted operating income.
As shownOther (Income) Expense
| | | | | | | | | | | |
(millions) | | 2021 | | 2020 | | 2019 |
Reported GAAP other (income) expense | | | ($33.9) | | | | ($55.9) | | | | ($77.0) |
Special (gains) and charges | | | 37.2 | | | | 0.4 | | | | 9.5 |
Non-GAAP adjusted other (income) expense | | | ($71.1) | | | | ($56.3) | | | | ($86.5) |
Our reported other income was $33.9 million, $55.9 million and $77.0 million in 2021, 2020 and 2019, respectively. Excluding the previous table, foreign currency translation had a minimal impact onof settlements and curtailments recorded in special (gains) and charges during 2021, 2020 and 2019, our adjusted operatingother income growth for 2017. Foreign currency translation had a negative impact on adjusted fixed currency operating income growth for 2016, as adjusted fixed currency operating income increased 3%.was $71.1 million, $56.3 million and $86.5 million, respectively, reflecting lower interest costs associated with future payments of employee pension obligations.
Interest Expense, Net
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
(millions) | | 2017 | | 2016 | | 2015 |
Reported GAAP interest expense, net | | | $255.0 | | | | $264.6 | | | | $243.6 | |
Special (gains) and charges | | | 21.9 | | | | - | | | | - | |
Non-GAAP adjusted interest expense, net | | | $233.1 | | | | $264.6 | | | | $243.6 | |
Reported
| | | | | | | | | | | |
(millions) | | 2021 | | 2020 | | 2019 |
Reported GAAP interest expense, net | | | $218.3 | | | | $290.2 | | | | $190.7 |
Special (gains) and charges | | | 33.1 | | | | 83.8 | | | | 0.2 |
Impact of Purolite on interest expense | | | 3.5 | | | | - | | | | - |
Non-GAAP adjusted interest expense, net | | | $181.7 | | | | $206.4 | | | | $190.5 |
Our reported net interest expense totaled $255.0$218.3 million, $264.6$290.2 million and $243.6$190.7 million during 2017, 20162021, 2020 and 2015,2019, respectively.
During 2017, in anticipation of U.S. tax reform and a potential limit on interest deductibility in future years, we entered into transactions to exchange or retire certain long-term debt, andWe incurred debt exchange and extinguishment charges of $21.9$33.1 million ($13.629.0 million after tax), or $0.05$0.10 per diluted share.share, $83.8 million ($64.6 million after tax), or $0.22 per diluted share and $0.2 million ($0.1 million after tax), or less than $0.01 per diluted share, of interest expense special charges in conjunction with our debt refinancing and acquisitions during 2021, 2020 and 2019, respectively.
TheAdjusted for special (gains) and charges and the Purolite transaction, the decrease in interest expense when comparing 2021 against 2020 was driven primarily by a reduction in average debt levels and average interest rates. The increase in our 20172020 adjusted net interest expense compared to 2016 was driven primarily by an increased mix of lower cost Euro interest and lower interest rates on refinanced debt. The increase when comparing 2016 to 20152019 was driven primarily by higher weighted average interest rates on outstanding debt.
Provision for Income Taxes
The following table provides a summary of our tax rate:
| | | | | | | | | | | |
| | | | | | | | | | |
(percent) | | 2017 | | 2016 | | 2015 | | | 2021 | | 2020 | | 2019 |
Reported GAAP tax rate | | 13.7 | % | | 24.4 | % | | 22.8 | % | | | 19.1 | % | | 15.2 | % | | 16.7 | % |
Tax rate impact of: | | | | | | | | | | | | | | | | | | | |
The Tax Act | | 8.8 | | | 0.0 | | | 0.0 | | | |
Special gains and charges | | (0.1) | | | 1.0 | | | (0.4) | | | |
Special (gains) and charges | | | 0.1 | | | 0.7 | | | 0.6 | |
Discrete tax items | | 1.4 | | | (0.2) | | | 3.5 | | | | (0.3) | | | 3.8 | | | 3.0 | |
Purolite tax impacts | | | - | | | - | | | - | |
Non-GAAP adjusted tax rate | | 23.8 | % | | 25.2 | % | | 25.9 | % | | | 18.9 | % | | 19.7 | % | | 20.3 | % |
Our reported tax rate was 19.1%, 15.2%, and 16.7%, for 2017, 20162021, 2020 and 20152019, respectively. The change in our tax rate includes the tax impact of special gains(gains) and charges and discrete tax items, which have impacted the comparability of our historical reported tax rates, as amounts included in our special gains(gains) and charges are derived from tax jurisdictions with rates that vary from our tax rate, and discrete tax items are not necessarily consistent across periods. The tax impact of special (gains) and charges and discrete tax items will likely continue to impact comparability of our reported tax rate in the future. The enactment of the Tax Act also significantly impacted the comparability of our reported tax rate.
Our 2017 reported tax rate includes $160.9 million ofWe recognized net tax benefits associated with the Tax Act, $6.2expense of $5.8 million related to discrete tax items during 2021. This included a non-cash deferred tax expense of net tax benefits on special gains and charges and net tax benefits of $25.3$25.1 million associated with discrete tax items. In connection with our analysis of the impact of the Tax Act, we recorded a provisional net discretetransferring certain intangible property between affiliates. Share-based compensation excess tax benefit was $29.1 million. The amount of $160.9 million in the period ended December 31, 2017, which includes a $321.0 millionthis tax benefit for recording deferred tax assets and liabilities at the U.S. enacted tax rate and a net expense for the one-time transition tax of $160.1 million. While we are able to make an estimate of the impact of the reduction in the U.S. rate, it may be affected by other analyses related to the Tax Act, including, but not limited to, estimates of assets and liabilities at future dates, our calculation of deemed repatriation of deferred foreign income and the state tax effect of adjustments made to federal temporary differences. In addition, federal and state tax authorities continue to issue technical guidance which may change the provisional amounts recorded in our financial statements.
Special (gains) and charges represent the tax impact of special (gains) and charges, as well as additional tax benefits utilized in anticipation of U.S. tax reform of $7.8 million. During 2017, we also recorded a discrete tax benefit of $39.7 million related to excess tax benefits, resulting from the adoption of accounting changes regarding the treatment of tax benefits on share-based compensation. The extent of excess tax benefits is subject to variation in stock price and stock optionaward exercises. In addition, we recorded netThe remaining discrete expensestax expense of $14.4$9.8 million was primarily related to recognizing adjustments fromthe filing our 2016 U.S.of federal, state, and foreign tax returns and other income tax return and international adjustments due toincluding the impact of changes in estimates, partially offset by the release of reserves for uncertain tax positions due to the expiration of statute of limitationslaw, audit settlements and other changes in state tax matters. estimates.
Our 2016 reported tax rate includes $43.1 million ofWe recognized a total net tax benefits on special gains and charges and net expenses of $3.9 million associated with discrete tax items. Our 2015 reported tax rate includes $105.7 million of net tax benefits on special gains and charges and net benefits of $63.3 million associated with discrete tax items. The net expensesbenefit related to discrete tax items of $55.8 million during 2020. The tax benefit related to share-based compensation excess tax benefit contributed $57.3 million. We recorded changes in 2016 were drivenreserves in non-U.S. and U.S. jurisdictions due to audit settlements and expiration of statutes of limitations which resulted in a $9.8 million tax benefit. Additionally, we recognized a net tax expense of $11.3 million primarily by recognizing adjustments fromrelated to the filing our 2015 U.S.of the prior year federal, state and foreign tax returns and other income tax return, partially offset by settlement of international tax matters and remeasurement of certain deferred tax assets and liabilities resulting from the application of updated tax rates in international jurisdictions. Net expenses were also impacted by adjustments to deferred tax asset and liability positions and the release of reserves for uncertain tax positions due to the expiration of statute of limitations in international jurisdictions.adjustments.
Net benefitsWe recognized total net benefit related to discrete tax items of $57.7 million during 2019. Share-based compensation excess tax benefit contributed $42.3 million in 2015 were driven2019. We recognized $15.6 million tax benefit related to changes in local tax law, which primarily includes $30.4 million benefit due to the passage of the Swiss Tax Reform and AHV Financing Act, a Swiss federal tax law, offset by a tax expense of $10.2 million due to the release of $20.6 million of valuation allowances based on the realizabilityfinal Treasury Regulation governing taxation of foreign deferred tax assetsdividends. We recorded changes in reserves in non-U.S. and our abilityU.S. jurisdictions due to recognize a worthless stock deductionaudit settlements and statutes of $39.0 million for the tax basislimitations which resulted in a wholly-owned domestic subsidiary.$13.8 million tax benefit. We finalized the 2015 and 2016 IRS audit, which also resulted in discrete tax expense of $11.0 million. The remaining discrete tax expense was primarily related to changes in estimates in non-U.S. jurisdictions.
The change in our adjusted tax raterates from 20152019 to 20172021 was primarily driven by global tax planning projects and geographic income mix. Future comparability of our adjusted tax rate may be impacted by various factors, including but not limited to the Tax Act, other changes in global tax rules, further tax planning projects and geographic income mix.
Net Income from Discontinued Operations, net of tax
| | | | | | | | | | | |
(millions) | | 2021 | | 2020 | | 2019 |
Reported GAAP net (loss) income from discontinued operations, net of tax | | | $- | | | | ($2,172.5) | | | | $133.3 |
Adjustments: | | | | | | | | | | | |
Special (gains) and charges | | | - | | | | 2,210.7 | | | | 74.3 |
Discrete tax net expense (benefit) | | | - | | | | 22.7 | | | | (0.7) |
Non-GAAP adjusted net income from discontinued operations, net of tax | | | $- | | | | $60.9 | | | | $206.9 |
Special charges reported in discontinued operations consist primarily of ChampionX separation charges.
Net Income from Continuing Operations Attributable to Ecolab
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Percent Change | |
| | | | | | | | | | | | | | | | |
(millions) | | 2017 | | 2016 | | 2015 | | 2017 | | 2016 |
Reported GAAP net income attributable to Ecolab | | | $1,508.4 | | | | $1,229.6 | | | $1,002.1 | | 23 | % | | 23 | % |
Adjustments: | | | | | | | | | | | | | | | | |
Special (gains) and charges, after tax | | | 56.0 | | | | 62.4 | | | 376.9 | | | | | | |
Discrete tax net expense (benefit) | | | (186.2) | | | | 3.9 | | | (63.3) | | | | | | |
Non-GAAP adjusted net income attributable to Ecolab | | | $1,378.2 | | | | $1,295.9 | | | $1,315.7 | | 6 | % | | (2) | % |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Percent Change | |
| | | | | | | | | | | | | | | | |
(millions) | | 2021 | | 2020 | | 2019 | | 2021 | | 2020 |
Reported GAAP net income from continuing operations attributable to Ecolab | | | $1,129.9 | | | | $967.4 | | | $1,425.6 | | 17 | % | | (32) | % |
Adjustments: | | | | | | | | | | | | | | | | |
Special (gains) and charges, after tax | | | 213.5 | | | | 254.1 | | | 128.3 | | | | | | |
Discrete tax net (benefit) expense | | | 5.8 | | | | (55.8) | | | (57.7) | | | | | | |
Impact of Purolite on net income | | | 5.6 | | | | - | | | - | | | | | | |
Non-GAAP adjusted net income from continuing operations attributable to Ecolab | | | $1,354.8 | | | | $1,165.7 | | | $1,496.2 | | 16 | % | | (22) | % |
Diluted EPS
from Continuing Operations
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Percent Change | |
| | | | | | | | | | | | | | | | |
(dollars) | | 2017 | | 2016 | | 2015 | | 2017 | | 2016 |
Reported GAAP diluted EPS | | | $ 5.13 | | | | $ 4.14 | | | $ 3.32 | | 24 | % | | 25 | % |
Adjustments: | | | | | | | | | | | | | | | | |
Special (gains) and charges | | | 0.19 | | | | 0.21 | | | 1.25 | | | | | | |
Discrete tax net expense (benefit) | | | (0.63) | | | | 0.01 | | | (0.21) | | | | | | |
Non-GAAP adjusted diluted EPS | | | $ 4.69 | | | | $ 4.37 | | | $ 4.37 | | 7 | % | | 0 | % |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Percent Change | |
| | | | | | | | | | | | | | | | |
(dollars) | | 2021 | | 2020 | | 2019 | | 2021 | | 2020 |
Reported GAAP diluted EPS from continuing operations | | | $ 3.91 | | | | $ 3.33 | | | $ 4.87 | | 17 | % | | (32) | % |
Adjustments: | | | | | | | | | | | | | | | | |
Special (gains) and charges, after tax | | | 0.74 | | | | 0.88 | | | 0.45 | | | | | | |
Discrete tax net (benefit) expense | | | 0.02 | | | | (0.19) | | | (0.20) | | | | | | |
Impact of Purolite on diluted EPS | | | 0.02 | | | | - | | | - | | | | | | |
Non-GAAP adjusted diluted EPS from continuing operations | | | $4.69 | | | | $ 4.02 | | | $ 5.12 | | 17 | % | | (21) | % |
Per share amounts do not necessarily sum due to rounding.
Currency translation had minimalan favorable $0.11 impact on reported and adjusted diluted EPS comparability across 2017when comparing 2021 to 2020 and 2016, but had a significant unfavorable $0.05 impact of approximately $0.31 per share for 2016 comparedwhen comparing 2020 to 2015.2019.
SEGMENT PERFORMANCE
The non-U.S. dollar functional currency international amounts included within our reportable segments are based on translation into U.S. dollars at the fixed currency exchange rates usedestablished by management for 2017.2021. The difference between the fixed currency exchange rates and the actual currency exchange rates is reported as “effect of foreign currency translation” in the following tables. Fixed currency amounts for 2015 also reflect all Venezuelan bolivar operations, prior to deconsolidation of our Venezuelan operations, at a SIMADI rate of approximately 200 bolivares to 1 U.S. dollar. All other accounting policies of the reportable segments are consistent with U.S. GAAP and the accounting policies described in Note 2. Additional information about our reportable segments is included in Note 17.19.
Fixed currency net sales and operating income for 2017, 20162021, 2020 and 20152019 for our reportable segments are shown in the following tables.tables.
| | | | | | | | | | | | | | | |
Net Sales | | | | | | | | | | | | Percent Change | |
| | | | | | | | | | | | | | | |
(millions) | | 2017 | | 2016 | | 2015 | | 2017 | 2016 |
Global Industrial | | | $4,878.5 | | | | $4,687.2 | | | $4,551.1 | | 4 | % | 3 | % |
Global Institutional | | | 4,744.9 | | | | 4,440.1 | | | 4,164.6 | | 7 | | 7 | |
Global Energy | | | 3,199.3 | | | | 3,075.8 | | | 3,520.1 | | 4 | | (13) | |
Other | | | 823.5 | | | | 801.7 | | | 742.7 | | 3 | | 8 | |
Subtotal at fixed currency | | | 13,646.2 | | | | 13,004.8 | | | 12,978.5 | | 5 | | 0 | |
Effect of foreign currency translation | | | 192.1 | | | | 148.0 | | | 566.6 | | | | | |
Total reported net sales | | | $13,838.3 | | | | $13,152.8 | | | $13,545.1 | | 5 | % | (3) | % |
| | | | | | | | | | | | | | | |
Operating Income | | | | | | | | | | | | Percent Change | |
| | | | | | | | | | | | | | | |
(millions) | | 2017 | | 2016 | | 2015 | | 2017 | 2016 |
Global Industrial | | | $722.0 | | | | $720.0 | �� | | $638.9 | | 0 | % | 13 | % |
Global Institutional | | | 985.7 | | | | 950.5 | | | 867.1 | | 4 | | 10 | |
Global Energy | | | 338.5 | | | | 346.7 | | | 475.3 | | (2) | | (27) | |
Other | | | 149.3 | | | | 145.2 | | | 124.6 | | 3 | | 17 | |
Corporate | | | (208.6) | | | | (272.6) | | | (664.4) | | | | | |
Subtotal at fixed currency | | | 1,986.9 | | | | 1,889.8 | | | 1,441.5 | | 5 | | 31 | |
Effect of foreign currency translation | | | 32.9 | | | | 25.2 | | | 119.8 | | | | | |
Total reported operating income | | | $2,019.8 | | | | $1,915.0 | | | $1,561.3 | | 5 | % | 23 | % |
| | | | | | | | | | | | | | | | |
Net Sales | | | | | | | | | | | | Percent Change | |
| | | | | | | | | | | | | | | | |
(millions) | | 2021 | | 2020 | | 2019 | | 2021 | | 2020 |
Global Industrial | | | $6,304.9 | | | | $6,048.2 | | | $6,087.9 | | 4 | % | | (1) | % |
Global Institutional & Specialty | | | 3,978.2 | | | | 3,629.0 | | | 4,477.2 | | 10 | | | (19) | |
Global Healthcare & Life Sciences | | | 1,195.4 | | | | 1,241.1 | | | 1,017.6 | | (4) | | | 22 | |
Other | | | 1,226.9 | | | | 1,103.4 | | | 1,220.5 | | 11 | | | (10) | |
Corporate | | | 139.4 | | | | 100.6 | | | - | | 39 | | | 100 | |
Subtotal at fixed currency | | | 12,844.8 | | | | 12,122.3 | | | 12,803.2 | | 6 | | | (5) | |
Effect of foreign currency translation | | | (111.7) | | | | (332.1) | | | (241.2) | | | | | | |
Total reported net sales | | | $12,733.1 | | | | $11,790.2 | | | $12,562.0 | | 8 | % | | (6) | % |
| | | | | | | | | | | | | | | | |
Operating Income | | | | | | | | | | | | Percent Change | |
| | | | | | | | | | | | | | | | |
(millions) | | 2021 | | 2020 | | 2019 | | 2021 | | 2020 |
Global Industrial | | | $1,031.0 | | | | $1,123.1 | | | $921.3 | | (8) | % | | 22 | % |
Global Institutional & Specialty | | | 556.9 | | | | 324.0 | | | 945.8 | | 72 | | | (66) | |
Global Healthcare & Life Sciences | | | 160.9 | | | | 218.3 | | | 129.2 | | (26) | | | 69 | |
Other | | | 187.3 | | | | 132.8 | | | 169.7 | | 41 | | | (22) | |
Corporate | | | (318.6) | | | | (349.7) | | | (283.6) | | (9) | | | 23 | |
Subtotal at fixed currency | | | 1,617.5 | | | | 1,448.5 | | | 1,882.4 | | 12 | | | (23) | |
Effect of foreign currency translation | | | (18.9) | | | | (52.8) | | | (37.2) | | | | | | |
Total reported operating income | | | $1,598.6 | | | | $1,395.7 | | | $1,845.2 | | 15 | % | | (24) | % |
The following tables reconcile the impact of acquisitions and divestitures within our reportable segments.
| | | | | | | | | | | | |
Net Sales | | | | | | | | | | | | |
| | 2017 | | 2016 |
(millions) | | Fixed
Currency | | Impact of Acquisitions and Divestitures | | Acquisition Adjusted | | Fixed
Currency | | Impact of Acquisitions and Divestitures | | Acquisition Adjusted |
Global Industrial | | $4,878.5 | | $(46.7) | | $4,831.8 | | $4,687.2 | | $(11.0) | | $4,676.2 |
Global Institutional | | 4,744.9 | | (207.4) | | 4,537.5 | | 4,440.1 | | (28.9) | | 4,411.2 |
Global Energy | | 3,199.3 | | (9.0) | | 3,190.3 | | 3,075.8 | | (33.5) | | 3,042.3 |
Other | | 823.5 | | (2.1) | | 821.4 | | 801.7 | | (28.9) | | 772.8 |
Subtotal at fixed currency | | 13,646.2 | | (265.2) | | 13,381.0 | | 13,004.8 | | (102.3) | | 12,902.5 |
Effect of foreign currency translation | | 192.1 | | | | | | 148.0 | | | | |
Total reported net sales | | $13,838.3 | | | | | | $13,152.8 | | | | |
| | | | | | | | | | | | |
Operating Income | | | | | | | | | | | | |
| | 2017 | | 2016 |
(millions) | | Fixed
Currency | | Impact of Acquisitions and Divestitures | | Acquisition Adjusted | | Fixed
Currency | | Impact of Acquisitions and Divestitures | | Acquisition Adjusted |
Global Industrial | | $722.0 | | $(3.4) | | $718.6 | | $720.0 | | $(2.5) | | $717.5 |
Global Institutional | | 985.7 | | (25.8) | | 959.9 | | 950.5 | | 0.8 | | 951.3 |
Global Energy | | 338.5 | | (2.9) | | 335.6 | | 346.7 | | (13.8) | | 332.9 |
Other | | 149.3 | | 0.6 | | 149.9 | | 145.2 | | (2.1) | | 143.1 |
Corporate | | (168.3) | | - | | (168.3) | | (167.1) | | - | | (167.1) |
Non-GAAP adjusted fixed currency operating income | | 2,027.2 | | (31.5) | | 1,995.7 | | 1,995.3 | | (17.6) | | 1,977.7 |
Special (gains) and charges | | 40.3 | | | | | | 105.5 | | | | |
Subtotal at fixed currency | | 1,986.9 | | | | | | 1,889.8 | | | | |
Effect of foreign currency translation | | 32.9 | | | | | | 25.2 | | | | |
Total reported operating income | | $2,019.8 | | | | | | $1,915.0 | | | | |
| | | | | | | | | | | | |
| | Year ended |
| | December 31 |
Net Sales | | 2021 | | 2020 |
(millions) | | Fixed
Currency | | Impact of Acquisitions and Divestitures | | Acquisition Adjusted | | Fixed
Currency | | Impact of Acquisitions and Divestitures | | Acquisition Adjusted |
Global Industrial | | $6,304.9 | | (65.9) | | $6,239.0 | | $6,048.2 | | (37.1) | | $6,011.1 |
Global Institutional & Specialty | | 3,978.2 | | (14.2) | | 3,964.0 | | 3,629.0 | | - | | 3,629.0 |
Global Healthcare & Life Sciences | | 1,195.4 | | (44.5) | | 1,150.9 | | 1,241.1 | | (1.2) | | 1,239.9 |
Other | | 1,226.9 | | - | | 1,226.9 | | 1,103.4 | | - | | 1,103.4 |
Corporate | | 139.4 | | (139.4) | | - | | 100.6 | | (100.6) | | - |
Subtotal at fixed currency | | 12,844.8 | | (264.0) | | 12,580.8 | | 12,122.3 | | (138.9) | | 11,983.4 |
Effect of foreign currency translation | | (111.7) | | | | | | (332.1) | | | | |
Total reported net sales | | $12,733.1 | | | | | | $11,790.2 | | | | |
| | | | | | | | | | | | |
Operating Income | | 2021 | | 2020 |
(millions) | | Fixed
Currency | | Impact of Acquisitions and Divestitures | | Acquisition Adjusted | | Fixed
Currency | | Impact of Acquisitions and Divestitures | | Acquisition Adjusted |
Global Industrial | | $1,031.0 | | (3.4) | | $1,027.6 | | $1,123.1 | | (2.6) | | $1,120.5 |
Global Institutional & Specialty | | 556.9 | | 2.2 | | 559.1 | | 324.0 | | - | | 324.0 |
Global Healthcare & Life Sciences | | 160.9 | | 10.2 | | 171.1 | | 218.3 | | (0.2) | | 218.1 |
Other | | 187.3 | | - | | 187.3 | | 132.8 | | - | | 132.8 |
Corporate | | (122.1) | | - | | (122.1) | | (121.9) | | - | | (121.9) |
Non-GAAP adjusted fixed currency operating income | | 1,814.0 | | 9.0 | | 1,823.0 | | 1,676.3 | | (2.8) | | 1,673.5 |
Special (gains) and charges | | 196.5 | | | | | | 227.8 | | | | |
Subtotal at fixed currency | | 1,617.5 | | | | | | 1,448.5 | | | | |
Effect of foreign currency translation | | (18.9) | | | | | | (52.8) | | | | |
Total reported operating income | | $1,598.6 | | | | | | $1,395.7 | | | | |
Global Industrial
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | 2021 | | 2020 | | 2019 |
Sales at fixed currency (millions) | | | $4,878.5 | | | | $4,687.2 | | | | $4,551.1 | | | | $6,304.9 | | | | $6,048.2 | | | | $6,087.9 | |
Sales at public currency (millions) | | | 4,974.4 | | | | 4,766.6 | | | | 4,773.9 | | | | 6,237.8 | | | | 5,867.1 | | | | 5,978.8 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Volume | | | 2 | % | | | 2 | % | | | | | | | 2 | % | | | (3) | % | | | | |
Price changes | | | 1 | % | | | 1 | % | | | | | | | 2 | % | | | 2 | % | | | | |
Acquisition adjusted fixed currency sales change | | | 3 | % | | | 2 | % | | | | | | | 4 | % | | | (1) | % | | | | |
Acquisitions and divestitures | | | 1 | % | | | 1 | % | | | | | | | - | % | | | 1 | % | | | | |
Fixed currency sales change | | | 4 | % | | | 3 | % | | | | | | | 4 | % | | | (1) | % | | | | |
Foreign currency translation | | | 0 | % | | | (3) | % | | | | | | | 2 | % | | | (1) | % | | | | |
Public currency sales change | | | 4 | % | | | (0) | % | | | | | | | 6 | % | | | (2) | % | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Operating income at fixed currency (millions) | | | $722.0 | | | | $720.0 | | | | $638.9 | | | | $1,031.0 | | | | $1,123.1 | | | | $921.3 | |
Operating income at public currency (millions) | | | 740.7 | | | | 735.9 | | | | 684.1 | | | | 1,016.3 | | | | 1,086.8 | | | | 901.6 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Fixed currency operating income change | | | 0 | % | | | 13 | % | | | | | | | (8) | % | | | 22 | % | | | | |
Fixed currency operating income margin | | | 14.8 | % | | | 15.4 | % | | | 14.0 | % | | | 16.4 | % | | | 18.6 | % | | | 15.1 | % |
Acquisition adjusted fixed currency operating income change | | | - | % | | | 12 | % | | | | | | | (8) | % | | | 22 | % | | | | |
Acquisition adjusted fixed currency operating income margin | | | 14.9 | % | | | 15.3 | % | | | 14.1 | % | | | 16.5 | % | | | 18.6 | % | | | * | |
Public currency operating income change | | | 1 | % | | | 8 | % | | | | | | | (6) | % | | | 21 | % | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
* Not meaningful
Amounts do not necessarily sum due to rounding.
Net Sales
Fixed currency sales growth for Global Industrial increased in both 20172021 as strong growth in Paper and 2016 was drivenWater, led by volume gainsrecovering market conditions, strong pricing and pricing. Atnew business wins, along with a regional level, the 2017good growth in Food & Beverage, were offset by a decrease in Downstream sales increasegrowth. The 2020 sales decrease was impacted by good growthregional declines in Latin America, North America and Greater China. Regional results for 2016 were impactedAsia Pacific, partially offset by good growth in Latin America and moderate growth in Middle East/Africa (“MEA”) and Europe. all other regions.
At an operating segment level,Water fixed currency sales increased 5%6% in 2017 (increase of 3% acquisition adjusted).2021 as strong new business wins and accelerating pricing leveraged recovering markets. Water fixed currency sales decreased 2% in 2020. Light industry water treatment sales had solid growth wasin 2021 and modest growth in 2020 led by innovative technologygood gains in food & beverage, light manufacturing and service offerings.data centers. Heavy industry sales recorded a strong increase in 2021 driven by primary metals and were moderately lower in 2020, impacted by lower end market demand. Food & Beverage fixed currency sales increased 3% (2% acquisition adjusted) in 2021 primarily reflecting accelerating pricing, recovering markets and new business wins. Globally, we realized strong growth in beverage, brewing and modest growth in dairy. Fixed currency sales increased 3% in 2016, (increase of 1%5% (3% acquisition adjusted) in 2020, as growth in light industry sales was offset by a double digit decline in the mining industry.Food & Beverage fixed currency sales increased 4% in 2017, benefiting from new business winsshare gains and pricing which more than offset generally flat industry trends. Growth was led by the food, beverage and brew markets. FixedDownstream fixed currency sales increaseddecreased 3% and 8% in 2016, benefiting2021 and 2020, respectively, due to lower demand from corporate accountCOVID and share gains, which more than offset generally flat industry trends. impacts from the Texas freeze and Hurricane Ida impacts in 2021, while substantial reductions in transportation fuel demand and additive use hurt 2020 results. Paper fixed currency sales increased 3%11% in 2017 benefiting from2021 driven by increased pricing, strong sales efforts andnew business wins, which more than offset challenging market conditions in China and Europe.increased ecommerce activity. Fixed currency sales increased 2%were flat in 2016, helped by strong sales efforts and business wins. Textile Care fixed currency sales increased 2%2020 despite softer industrial containerboard market conditions which reduced volumes in 2017 and 4% in 2016, benefiting from new customer accounts in Europe. Life Sciences fixed currency sales increased 7% in 2017 as business wins and pricing drove sales growth in both the pharmaceutical and personal care markets.major regions.
Operating Income
Fixed currency operating income and fixed currency operating income margins for Global Industrial was flatdecreased in 20172021 and increased in 20162020 when compared to prior periods.
Acquisition adjusted fixed currency operating income margins decreased 2.1 percentage points in 2021 compared to 2020, as the 1.8 percentage point positive impact from accelerating pricing was more than offset by the 3.4 percentage point negative impact of significantly higher delivered product costs and supply constraints, including the impact of Texas Freeze and Hurricane Ida. Acquisition adjusted fixed currency operating income margins increased in 2020, as the favorable impacts of cost savings, pricing, lower delivered product costs and lower variable compensation more than offset the negative impact of lower volume.
Global Institutional & Specialty
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | 2021 | | 2020 | | 2019 |
Sales at fixed currency (millions) | | | $3,978.2 | | | | $3,629.0 | | | | $4,477.2 | |
Sales at public currency (millions) | | | 3,955.9 | | | | 3,562.5 | | | | 4,416.1 | |
| | | | | | | | | | | | |
Volume | | | 7 | % | | | (21) | % | | | | |
Price changes | | | 2 | % | | | 2 | % | | | | |
Acquisition adjusted fixed currency sales change | | | 9 | % | | | (20) | % | | | | |
Acquisitions and divestitures | | | - | % | | | 1 | % | | | | |
Fixed currency sales change | | | 10 | % | | | (19) | % | | | | |
Foreign currency translation | | | 1 | % | | | - | % | | | | |
Public currency sales change | | | 11 | % | | | (19) | % | | | | |
| | | | | | | | | | | | |
Operating income at fixed currency (millions) | | | $556.9 | | | | $324.0 | | | | $945.8 | |
Operating income at public currency (millions) | | | 554.7 | | | | 320.1 | | | | 936.8 | |
| | | | | | | | | | | | |
Fixed currency operating income change | | | 72 | % | | | (66) | % | | | | |
Fixed currency operating income margin | | | 14.0 | % | | | 8.9 | % | | | 21.1 | % |
Acquisition adjusted fixed currency operating income change | | | 73 | % | | | (66) | % | | | | |
Acquisition adjusted fixed currency operating income margin | | | 14.1 | % | | | 8.9 | % | | | * | |
Public currency operating income change | | | 73 | % | | | (66) | % | | | | |
| | | | | | | | | | | | |
* Not meaningful
Amounts do not necessarily sum due to rounding.
Net Sales
Fixed currency sales for Global Institutional & Specialty increased in 2021 driven by strong growth in the Institutional operating segment reflecting recovering markets, new business wins including gains from the Ecolab Science Certified programs, innovation and accelerating pricing and decreased in 2020 driven by a significant decline in the Institutional businessdue to the impact of the COVID-19 pandemic.
At an operating segment level, Institutional fixed currency sales increased 15% in 2021, driven by strong growth in the Institutional operating segment reflecting recovering markets in the U.S. and Europe, new business wins including gains from the Ecolab Science Certified programs, innovation and accelerating pricing. Fixed currency sales decreased 27% in 2020, reflecting strong hand and surface hygiene sales that were more than offset by the negative effects of mandated reductions for in-unit dining and domestic and international travel that significantly reduced foot traffic at full-service restaurants, occupancy rates at hotels and customer visits to other entertainment facilities through the year. Specialty fixed currency sales decreased 3% in 2021, as modest quickservice sales growth were more than offset by lower food retail sales. Quickservice sales showed a modest gain as new business wins more than offset impacts of COVID-19 restrictions and labor shortages. Food retail sales declined versus the strong sanitizer demand in 2020 and customer labor shortages that has resulted in reduced in-store services and associated product usage.Fixed currency sales increased 8% (5% acquisition adjusted) in 2020, as strong food retail sales growth, benefiting from continued expanded cleaning protocols and frequency in the grocery stores in response to the COVID-19 pandemic and new customer additions, was partially offset by moderately lower quickservice sales, which saw strong hand and surface sanitizer sales more than offset by COVID-19 pandemic related impacts on restaurant volumes.
Operating Income
Fixed currency operating income for our Global Institutional & Specialty segment increased in 2021 and decreased in 2020 when compared to prior periods. Fixed currency operating income margins for Global Industrial decreased in 2017 and increased in 2016. Acquisitions had a minimal impact on the fixed currency operating income growth and the fixed currency operating income margins2021 after decreasing in 2017 and positively impacted fixed currency operating income growth and had minimal impact on fixed currency operating income margins in 2016.2020.
Acquisition adjusted fixed currency operating income margins decreased 0.4increased 5.2 percentage points in 2017, negatively impacted by approximately 2.0during 2021, as the 6.9 percentage points relatedpoint positive impact from higher volume, accelerating pricing, and favorable mix more than offset the 2.4 percentage point negative impact of the comparison to lower variable compensation last year and higher delivered product costs and investments in the business, partially offset by 1.9 percentage points from favorable impact of pricing and volume gains and cost savings initiatives.costs. Acquisition adjusted fixed currency operating income margins increased 1.2 percentage points in 2016, benefitingdecreased during 2020 as margins were negatively impacted from favorablevolume declines, unfavorable mix and higher bad debt expense, which more than offset the positive impact of sales volume gains, product mix changes and pricing gains.cost savings.
Global Healthcare & Life Sciences
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | 2021 | | 2020 | | 2019 |
Sales at fixed currency (millions) | | | $1,195.4 | | | | $1,241.1 | | | | $1,017.6 | |
Sales at public currency (millions) | | | 1,181.6 | | | | 1,185.5 | | | | 974.1 | |
| | | | | | | | | | | | |
Volume | | | (9) | % | | | 18 | % | | | | |
Price changes | | | 2 | % | | | 1 | % | | | | |
Acquisition adjusted fixed currency sales change | | | (7) | % | | | 19 | % | | | | |
Acquisitions and divestitures | | | 3 | % | | | 2 | % | | | | |
Fixed currency sales change | | | (4) | % | | | 21 | % | | | | |
Foreign currency translation | | | 4 | % | | | - | % | | | | |
Public currency sales change | | | 0 | % | | | 21 | % | | | | |
| | | | | | | | | | | | |
Operating income at fixed currency (millions) | | | $160.9 | | | | $218.3 | | | | $129.2 | |
Operating income at public currency (millions) | | | 159.2 | | | | 205.7 | | | | 121.6 | |
| | | | | | | | | | | | |
Fixed currency operating income change | | | (26) | % | | | 69 | % | | | | |
Fixed currency operating income margin | | | 13.5 | % | | | 17.6 | % | | | 12.7 | % |
Acquisition adjusted fixed currency operating income change | | | (22) | % | | | 67 | % | | | | |
Acquisition adjusted fixed currency operating income margin | | | 14.9 | % | | | 17.6 | % | | | * | |
Public currency operating income change | | | (23) | % | | | 69 | % | | | | |
| | | | | | | | | | | | |
Global Institutional
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
Sales at fixed currency (millions) | | | $4,744.9 | | | | $4,440.1 | | | | $4,164.6 | |
Sales at public currency (millions) | | | 4,802.5 | | | | 4,483.5 | | | | 4,260.6 | |
| | | | | | | | | | | | |
Volume | | | 1 | % | | | 3 | % | | | | |
Price changes | | | 2 | % | | | 2 | % | | | | |
Acquisition adjusted fixed currency sales change | | | 3 | % | | | 5 | % | | | | |
Acquisitions and divestitures | | | 4 | % | | | 2 | % | | | | |
Fixed currency sales change | | | 7 | % | | | 7 | % | | | | |
Foreign currency translation | | | 0 | % | | | (1) | % | | | | |
Public currency sales change | | | 7 | % | | | 5 | % | | | | |
| | | | | | | | | | | | |
Operating income at fixed currency (millions) | | | $985.7 | | | | $950.5 | | | | $867.1 | |
Operating income at public currency (millions) | | | 993.8 | | | | 956.7 | | | | 878.6 | |
| | | | | | | | | | | | |
Fixed currency operating income change | | | 4 | % | | | 10 | % | | | | |
Fixed currency operating income margin | | | 20.8 | % | | | 21.4 | % | | | 20.8 | % |
Acquisition adjusted fixed currency operating income change | | | 1 | % | | | 12 | % | | | | |
Acquisition adjusted fixed currency operating income margin | | | 21.2 | % | | | 21.6 | % | | | 21.0 | % |
Public currency operating income change | | | 4 | % | | | 9 | % | | | | |
| | | | | | | | | | | | |
* Not meaningful
Amounts do not necessarily sum due to rounding.
Net Sales
Fixed currency sales growthdecreased for Global InstitutionalHealthcare & Life Sciences in both 2017 and 20162021 compared to a strong 2020 year when sales benefited from volumestrong COVID-19 related demand and increased in 2020 as growth acquisitionswas driven by volume and pricing gains. At a regional level, the 2017 sales increase was led by good growth in North America. The 2016 sales increase was led by good growth in North America, Latin America and Asia Pacific.
At an operating segment level, InstitutionalHealthcare fixed currency sales increased 1%decreased 5% (8% acquisition adjusted) in 2017 (increase of 2% acquisition adjusted). Global lodging demand continued2021 reflecting the comparison against strong 2020 COVID-19 related hand and surface disinfection sales as well as softer elective surgical procedures activity in 2021 due to show moderate growth while global full service restaurant industry foot traffic remained weak, particularlythe rise in North America.COVID variants during the year. Fixed currency sales increased 8%18% (16% acquisition adjusted) in 2016 (increase2020. Strong COVID-19 pandemic related hand and surface disinfection sales growth more than offset the unfavorable effects of 5% acquisition adjusted). New business wins, led by demand for our leading product innovation in key platforms, along with appropriate pricing, drove our results. Specialtydelayed elective surgical procedures. Life Sciences fixed currency sales increased 7%decreased 5% (4% acquisition adjusted) in 2017, led primarily2021 as accelerating pricing was more than offset by new account wins and growth in global quick service accounts, leveraging generally modest industry trends. New business gains remain robust,volume declines versus the very strong 2020 driven by improved service coverage, new product innovations, additional customer solutions and a continued focus among our customers on food safety as fresh products become more prevalent and require more cleaning.extraordinary COVID-19 demand last year. Fixed currency sales increased 7%35% in 2016. Both quick service and food retail sales growth were solid,2020, led by accountstrong demand for biodecontamination units, business wins and pricing in our cleaning and disinfection programs for both the pharmaceutical and personal care markets, with strong growth new customersin Europe and product penetration.Healthcare fixed currency sales increased 42% in 2017 (increase of 3%, when adjusted for the Anios acquisition), with modest growth for Healthcare inmoderate North America and Europe. Fixed currency sales increased 4% in 2016, as improving trends in both North America and Europe reflected the continued focus on our value proposition, leading to customer gains and product penetration.gains.
Operating Income
Fixed currency operating income for our Global InstitutionalHealthcare & Life Sciences segment decreased in 2021 and increased in both 2017 and 20162020 when compared to prior periods. Fixed currency operating income margins decreased for Global Institutional in 20172021 and increased in 2016. Acquisitions had a positive impact on fixed currency operating income growth in 2017 and a negative impact in 2016. Acquisitions had a negative impact on fixed currency operating income margins in both 2017 and 2016.2020.
Acquisition adjusted fixed currency operating income margins decreased 0.42.7 percentage points in 2017, negatively impacted2021, as the 1.8 percentage point positive impact from accelerating pricing was more than offset by approximately 1.6the 3.5 percentage points related business investments and higher delivered product costs. Pricing gains, product mix and salespoint negative impact of volume favorably impacted acquisition adjusted fixed currency operating income margins by adding approximately 1.5 percentage points in 2017.declines due to strong comparison against last year. Acquisition adjusted fixed currency operating income margins increased 0.6 percentage points in 2016. The favorable impact of2020 driven by strong volume gains, reduced discretionary spending and pricing, gains, product mix changes and sales volume increases added approximately 1.9 percentage points in 2016, partially offset by investments in the business.negative impact of higher delivered product costs.
Other
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | 2021 | | 2020 | | 2019 |
Sales at fixed currency (millions) | | | $1,226.9 | | | | $1,103.4 | | | | $1,220.5 | |
Sales at public currency (millions) | | | 1,218.6 | | | | 1,075.1 | | | | 1,193.0 | |
| | | | | | | | | | | | |
Volume | | | 9 | % | | | (11) | % | | | | |
Price changes | | | 2 | % | | | 2 | % | | | | |
Acquisition adjusted fixed currency sales change | | | 11 | % | | | (10) | % | | | | |
Acquisitions and divestitures | | | - | % | | | - | % | | | | |
Fixed currency sales change | | | 11 | % | | | (10) | % | | | | |
Foreign currency translation | | | 2 | % | | | - | % | | | | |
Public currency sales change | | | 13 | % | | | (10) | % | | | | |
| | | | | | | | | | | | |
Operating income at fixed currency (millions) | | | $187.3 | | | | $132.8 | | | | $169.7 | |
Operating income at public currency (millions) | | | 186.2 | | | | 130.2 | | | | 165.2 | |
| | | | | | | | | | | | |
Fixed currency operating income change | | | 41 | % | | | (22) | % | | | | |
Fixed currency operating income margin | | | 15.3 | % | | | 12.0 | % | | | 13.9 | % |
Acquisition adjusted fixed currency operating income change | | | 41 | % | | | (21) | % | | | | |
Acquisition adjusted fixed currency operating income margin | | | 15.3 | % | | | 12.0 | % | | | * | |
Public currency operating income change | | | 43 | % | | | (21) | % | | | | |
| | | | | | | | | | | | |
Global Energy
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
Sales at fixed currency (millions) | | | $3,199.3 | | | | $3,075.8 | | | | $3,520.1 | |
Sales at public currency (millions) | | | 3,230.0 | | | | 3,092.9 | | | | 3,747.2 | |
| | | | | | | | | | | | |
Volume | | | 6 | % | | | (10) | % | | | | |
Price changes | | | (1) | % | | | (3) | % | | | | |
Acquisition adjusted fixed currency sales change | | | 5 | % | | | (13) | % | | | | |
Acquisitions and divestitures | | | (1) | % | | | (0) | % | | | | |
Fixed currency sales change | | | 4 | % | | | (13) | % | | | | |
Foreign currency translation | | | 0 | % | | | (5) | % | | | | |
Public currency sales change | | | 4 | % | | | (17) | % | | | | |
| | | | | | | | | | | | |
Operating income at fixed currency (millions) | | | $338.5 | | | | $346.7 | | | | $475.3 | |
Operating income at public currency (millions) | | | 344.2 | | | | 349.2 | | | | 538.5 | |
| | | | | | | | | | | | |
Fixed currency operating income change | | | (2) | % | | | (27) | % | | | | |
Fixed currency operating income margin | | | 10.6 | % | | | 11.3 | % | | | 13.5 | % |
Acquisition adjusted fixed currency operating income change | | | 1 | % | | | (28) | % | | | | |
Acquisition adjusted fixed currency operating income margin | | | 10.5 | % | | | 10.9 | % | | | 13.2 | % |
Public currency operating income change | | | (1) | % | | | (35) | % | | | | |
| | | | | | | | | | | | |
* Not meaningful
Amounts do not necessarily sum due to rounding.
Net Sales
Fixed currency sales for Global EnergyOther increased in 2017 had a2021 led by strong growth in the well stimulationPest Elimination as it benefited from new business while the production business showedwins and a modest decline, as growthrecovering market. Fixed currency sales decreased in 2020 with declines in sales results mostly impacting North America was offset by international markets. Sales in our downstream business rose moderately. In 2016,and Europe.
At an operating segment level, Pest Elimination fixed currency sales for Global Energy were negativelyincreased 11% in 2021 reflecting strong growth in food and beverage plants, restaurants and hospitality markets. Fixed currency sales decreased 2% in 2020 with sales growth in food and beverage plants, grocery stores and healthcare facilities offset by the impact of lower restaurant and hospitality volumes impacted by volume reductions and lower pricing. Continued difficult operating conditions negatively impacted our well stimulation and production businessesthe COVID-19 pandemic due to lower pricingpartial or full customer closures along with limited vendor access. Textile Care fixed currency sales increased 10% in 2021 and customer product usage. Salesdecreased 27% in our downstream business were flat2020. Colloidal Technologies Group fixed currency sales increased 16% in 2016. Market challenges2021 and decreased 18% in North America drove the reductions from a regional perspective in 2016.2020.
Operating Income
Fixed currency operating income for Global Energyin Other increased in 2021 and decreased during both 2017 and 2016in 2020 as compared to the prior year. Fixed currency operating income margins also decreased during both comparable periods. Acquisitions had a negative impact on fixed currency operating incomeincreased in 20172021 and minimal impact on the fixed currency operating incomedeclined in 2016. Acquisitions had a minimal impact on fixed currency operating income margins during both 2017 and 2016.2020.
Acquisition adjusted fixed currency operating income margins for our Global Energy segment decreased 0.4 and 2.3in Other increased 3.3 percentage points in 20172021, as the 4.4 percentage point positive impact from higher volume and 2016, respectively. Higher delivered product costs and business investments negatively impacted 2017 by 1.7 percentage points, partially offset by cost savings of 1.0 percentage points. Reductions in sales volume, product mix changes and lowerincreased pricing contributed approximately 5.7 percentage points to the decline in 2016, whichmore than offset the benefit1.1 percentage point negative impact of the comparison to lower delivered product costs, synergies and other cost reduction actions.
Other
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
Sales at fixed currency (millions) | | | $823.5 | | | | $801.7 | | | | $742.7 | |
Sales at public currency (millions) | | | 831.4 | | | | 809.8 | | | | 763.4 | |
| | | | | | | | | | | | |
Volume | | | 4 | % | | | 6 | % | | | | |
Price changes | | | 2 | % | | | 2 | % | | | | |
Acquisition adjusted fixed currency sales change | | | 6 | % | | | 8 | % | | | | |
Acquisitions and divestitures | | | (3) | % | | | (0) | % | | | | |
Fixed currency sales change | | | 3 | % | | | 8 | % | | | | |
Foreign currency translation | | | (0) | % | | | (2) | % | | | | |
Public currency sales change | | | 3 | % | | | 6 | % | | | | |
| | | | | | | | | | | | |
Operating income at fixed currency (millions) | | | $149.3 | | | | $145.2 | | | | $124.6 | |
Operating income at public currency (millions) | | | 151.2 | | | | 147.2 | | | | 128.3 | |
| | | | | | | | | | | | |
Fixed currency operating income change | | | 3 | % | | | 17 | % | | | | |
Fixed currency operating income margin | | | 18.1 | % | | | 18.1 | % | | | 16.8 | % |
Acquisition adjusted fixed currency operating income change | | | 5 | % | | | 16 | % | | | | |
Acquisition adjusted fixed currency operating income margin | | | 18.2 | % | | | 18.5 | % | | | 17.1 | % |
Public currency operating income change | | | 3 | % | | | 15 | % | | | | |
| | | | | | | | | | | | |
Amounts do not necessarily sum due to rounding.
Net Sales
Fixed currency sales growth for Other in both 2017 and 2016 was driven by volume increases and pricing gains. At a regional level, the 2017 sales increase was led by good growth in North America. The 2016 sales increase was led by good growth in Asia Pacific, Latin America, North America and MEA.
At an operating segment level,Pest Elimination fixed currency sales increased 8% in 2017 (increase of 7% acquisition adjusted), sales to food beverage and hospitality, and good growth in restaurants led the growth. Fixed currency sales increased 8% in 2016, impacted by continued gains in the foodservice market, benefiting from customer penetration and new service offerings. Prior to the sale of Equipment Care, fixed currency sales increased 2% in 2017. Fixed currency sales increased 7% in 2016, driven by continued increases in both service and parts sales, benefiting from new customer additions.
Operating Income
Fixed currency operating income increased in both 2017 and 2016 as compared to the priorvariable compensation last year. The corresponding operating margin for our Other segment remained flat in 2017 and increased in 2016.
Acquisition adjusted fixed currency operating income margins for ourin Other segment decreased 0.3 percentage points in 20172020 reflecting lower volume and increased 1.4 percentage points in 2016. Field investments and other cost increasesunfavorable mix negatively impacted 2017 margins, by 1.8 percentage points, offsetting the benefit of pricing volume and mix gains of 1.5 percentage points. In 2016, the favorablewhich more than offset positive impact of pricing gains, product mix changescost savings and sales volume increases added approximately 2.4 percentage points and was partially offset by investments in business and other cost increases.pricing.
Corporate
Corporate
Consistent with our internal management reporting, Corporate amounts in the table on page 3839 include sales to ChampionX in accordance with the long-term supply agreement entered into with the Transaction post-separation, as discussed in Note 5, intangible asset amortization specifically from the Nalco merger and special (gains) and charges that are not allocated to our reportable segments.segments. Items included within special (gains) and charges are shown in the table on page 33.33.
FINANCIAL POSITION, CASH FLOW AND LIQUIDITY
Financial Position
Total assets were $20.0$21.2 billion as of December 31, 2017,2021, compared to total assets of $18.3$18.1 billion as of December 31, 2016. The increase in assets during 2017 was driven primarily by increased goodwill and intangibles as a result of the Anios and other acquisitions and the positive impact of foreign currency exchange rates on the value of our foreign assets translated into U.S. dollars as of year end 2017.2020.
Total liabilities were $12.3$14.0 billion as of December 31, 2017,2021, compared to total liabilities of $11.4$11.9 billion as of December 31, 2016.2020. Total debt was $7.3$8.8 billion as of December 31, 20172021 and $6.7 billion as of December 31, 2016.2020. See further discussion of our debt activity within the “Liquidity and Capital Resources” section of this MD&A.
Our net debt to EBITDA and net debt to adjusted EBIDTA areis shown in the following table.
EBITDA and adjusted EBITDA areis a non-GAAP measures, which aremeasure discussed further in the “Non-GAAP Financial Measures” section of this MD&A.
| | | | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 | |
| | | | | | | | | | | | | |
| | | 2021 | | 2020 | | 2019 |
(ratio) | | | | | | | | | | | | | | | | | | | | | | | | |
Net debt to EBITDA | | | 2.4 | | | | 2.3 | | | | 2.6 | | | | 3.4 | | | | 2.4 | | | | 2.3 | |
Net debt to adjusted EBITDA | | | 2.4 | | | | 2.2 | | | | 2.2 | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
(millions) | | | | | | | | | | | | | | | | | | | | | | | | |
Total debt | | | $7,322.7 | | | | $6,687.0 | | | | $6,465.5 | | | | $8,758.2 | | | | $6,686.6 | | | | $6,353.6 | |
Cash | | | 211.4 | | | | 327.4 | | | | 92.8 | | | | 359.9 | | | | 1,260.2 | | | | 118.8 | |
Net debt | | | $7,111.3 | | | | $6,359.6 | | | | $6,372.7 | | | | $8,398.3 | | | | $5,426.4 | | | | $6,234.8 | |
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Net income including non-controlling interest | | | $1,522.4 | | | | $1,247.1 | | | | $1,017.2 | | |
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Net income including noncontrolling interest | | | | $1,144.0 | | | | $984.8 | | | | $1,442.9 | |
Provision for income taxes | | | 242.4 | | | | 403.3 | | | | 300.5 | | | | 270.2 | | | | 176.6 | | | | 288.6 | |
Interest expense, net | | | 255.0 | | | | 264.6 | | | | 243.6 | | | | 218.3 | | | | 290.2 | | | | 190.7 | |
Depreciation | | | 585.7 | | | | 561.0 | | | | 559.5 | | | | 604.4 | | | | 594.3 | | | | 569.1 | |
Amortization | | | 307.6 | | | | 289.7 | | | | 300.0 | | | | 238.7 | | | | 218.4 | | | | 206.2 | |
EBITDA | | | 2,913.1 | | | | 2,765.7 | | | | 2,420.8 | | | | $2,475.6 | | | | $2,264.3 | | | | $2,697.5 | |
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Special (gains) and charges impacting EBITDA | | | 40.3 | | | | 105.5 | | | | 495.4 | | |
Adjusted EBITDA | | | $2,953.4 | | | | $2,871.2 | | | | $2,916.2 | | |
Cash Flows
Operating Activities
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(millions) | | 2017 | | 2016 | | 2015 | | 2017 | | 2016 | | 2021 | | 2020 | | 2019 | | 2021 | | 2020 |
Cash provided by operating activities | | | $2,091.3 | | | | $1,939.7 | | | $1,999.8 | | | $151.6 | | | | $(60.1) | | | | $2,061.9 | | | | $1,741.8 | | | | $2,046.7 | | | | $320.1 | | | | ($304.9) | |
We continue to generate strong cash flow from operations, amidst the COVID-19 pandemic, allowing us to fund our ongoing operations, acquisitions, investments in the business and pension obligations along with returning cash to our shareholders through dividend payments and share repurchases.
Comparability of cash generated fromCash provided by operating activities across 2015 to 2017 was impacted by fluctuations in accounts receivable, inventories and accounts payable (“working capital”), the combination of which increased $56 million, $35 million and $119$320 million in 2017, 20162021 compared to 2020, driven primarily by $159 million in increased net income, $94 million in higher tax expense accruals associated with higher income, and 2015 respectively. The cash flowan increase in accruals for variable compensation, partially offset by $83 million of increased investment in working capital. Cash provided by operating activities decreased $305 million in 2020 compared to 2019, driven primarily by $458 million of lower net income due to the impact across the three years fromof COVID-19, partially offset by $160 million of improvement in working capital accounts was driven by changes in sales volumes and timing of collections; timing of purchases and production and usage levels; and volume of purchases and timing of payments. capital.
The impact on operating cash flows of pension and postretirement plan contributions, cash activity related to restructuring, cash paid for income taxes and cash paid for interest, are shown in the following table:
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(millions) | | 2017 | | 2016 | | 2015 | | 2017 | | 2016 | | 2021 | | 2020 | | 2019 | | 2021 | | 2020 |
Pensions and postretirement plan contributions | | | $144.1 | | | | $211.8 | | | $64.9 | | | $(67.7) | | | | $146.9 | | | | $60.2 | | | | $70.7 | | | | $186.0 | | | | ($10.5) | | | | ($115.3) | |
Restructuring payments | | | 39.2 | | | | 51.6 | | | 61.7 | | | (12.4) | | | | (10.1) | | | | 78.3 | | | | 71.1 | | | | 82.5 | | | | 7.2 | | | | (11.4) | |
Income tax payments | | | 402.8 | | | | 359.1 | | | 533.1 | | | 43.7 | | | | (174.0) | | | | 275.7 | | | | 366.9 | | | | 337.4 | | | | (91.2) | | | | 29.5 | |
Interest payments | | | 239.3 | | | | 267.0 | | | 237.2 | | | (27.7) | | | | 29.8 | | | | 208.7 | | | | 262.5 | | | | 189.4 | | | | (53.8) | | | | 73.1 | |
Investing Activities
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(millions) | | 2017 | | 2016 | | 2015 | | 2017 | | 2016 | | 2021 | | 2020 | | 2019 | | 2021 | | 2020 |
Cash used for investing activities | | | $(1,673.2) | | | | $(829.5) | | | $(915.8) | | | $(843.7) | | | | $86.3 | | | | ($4,579.7) | | | | ($857.7) | | | | ($1,129.6) | | | | ($3,722.0) | | | | $271.9 | |
Cash used for investing activities is primarily impacted by the timing of business acquisitions and dispositions as well as from capital investments in the business.
Total cash paid for acquisitions, net of cash acquired and net of cash received from dispositions, in 2017, 20162021, 2020 and 20152019 was $870$3,924 million, $49$371 million and $265$385 million, respectively. Our acquisitions and divestitures across 2017, 2016 and 2015 are discussed further in Note 4. We continue to target strategic business acquisitions which complement our growth strategy and expect to continue to make capital investments and acquisitions in the future to support our long-term growth.
We continue to make capital investments in the business, including merchandising and customer equipment and manufacturing facilities. Total capital expenditures including software, were $869$643 million, $757$489 million and $815$731 million in 2017, 20162021, 2020 and 2015,2019, respectively.
Financing Activities
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(millions) | | 2017 | | 2016 | | 2015 | | 2017 | | 2016 | | 2021 | | 2020 | | 2019 | | 2021 | | 2020 |
Cash used for financing activities | | | $(522.7) | | | | $(868.2) | | | $(1,150.9) | | | $345.5 | | | | $282.7 | | |
Cash provided by (used for) financing activities | | | | $1,603.2 | | | | ($340.2) | | | | ($1,346.6) | | | | $1,943.4 | | | | $1,006.4 | |
Our cash flows from financing activities primarily reflect the issuances and repayment of debt, common stock repurchases, proceeds from common stock issuances related to our equity incentive programs and dividend paymentspayments.
We issued $2,800 million par value and acquisition-related contingent considerations.
received $2,775 million in proceeds of long-term debt and repaid $900 million of long-term debt in 2021. We issued $1,850 million par value and received $1,856 million in proceeds of long-term debt and repaid $1,570 million of long-term debt in 2020. We repaid $401 million of long-term debt in 2019. The proceeds received from the debt issuances were used for the Purolite acquisition, repayment of outstanding debt, repayment of commercial paper and general corporate purposes. In addition, we issued $394 million of commercial paper and notes payable in 2021 and repaid $66 million and $252 million in 2020 and 2019, respectively.
Shares are repurchased for the purpose of partially offsetting the dilutive effect of our equity compensation plans and stock issued in acquisitions, to manage our capital structure and to efficiently return capital to shareholders. We repurchased a total of $600$107 million, $740$146 million, and $755$354 million of shares in 2017, 20162021, 2020 and 2015,2019, respectively. These amounts include $300 million of shares repurchased each year from 2015 through 2017 through our ASR programs. See Note 10 for further information regarding our ASR programs. Cash proceeds and tax benefits from stock option exercises provide a portion of the funding for repurchase activity.
The impact on financing cash flows of commercial paper and notes payable repayments, long-term debt borrowings and long-term debt repayments, are shown in the following table:
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(millions) | | 2017 | | 2016 | | 2015 | | 2017 | | 2016 | | 2021 | | 2020 | | 2019 | | 2021 | | 2020 |
Net repayments of commercial paper and notes payable | | | $(43.7) | | | | $(606.4) | | | $(312.1) | | | $562.7 | | | | $(294.3) | | |
Net issuances (repayments) of commercial paper and notes payable | | | | $393.6 | | | | ($65.5) | | | | ($252.0) | | | | $459.1 | | | | $186.5 | |
Long-term debt borrowings | | | 1,309.4 | | | | 2,390.0 | | | 1,223.7 | | | (1,080.6) | | | | 1,166.3 | | | | 2,775.0 | | | | 1,855.9 | | | | — | | | | 919.1 | | | | 1,855.9 | |
Long-term debt repayments | | | (799.0) | | | | (1,569.6) | | | (1,034.7) | | | 770.6 | | | | (534.9) | | | | (1,017.9) | | | | (1,570.0) | | | | (400.6) | | | | 552.1 | | | | (1,169.4) | |
In December 2017,2021, we increased our indicated annualquarterly dividend rate by 11%6%. This represents the 26th30th consecutive year we have increased our dividend. We have paid dividends on our common stock for 8185 consecutive years. We paid dividends of $566 million, $561 million and $553 million in 2021, 2020 and 2019, respectively. Cash dividends declared per share of common stock, by quarter, for each of the last three years were as follows:follows:
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| | First | | Second | | Third | | Fourth | | | | |
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2017 | | | $0.370 | | | | $0.370 | | | $0.370 | | | $0.410 | | | | $1.520 | |
2016 | | | 0.350 | | | | 0.350 | | | 0.350 | | | 0.370 | | | | 1.420 | |
2015 | | | 0.330 | | | | 0.330 | | | 0.330 | | | 0.350 | | | | 1.340 | |
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2021 | | | $0.48 | | | | $0.48 | | | | $0.48 | | | | $0.51 | | | | $1.95 | |
2020 | | | $0.47 | | | | $0.47 | | | | $0.47 | | | | $0.48 | | | | $1.89 | |
2019 | | | $0.46 | | | | $0.46 | | | | $0.46 | | | | $0.47 | | | | $1.85 | |
Liquidity and Capital Resources
We currently expect to fund all of our cash requirements which are reasonably foreseeable for 2018,the next twelve months, including scheduled debt repayments, new investments in the business, share repurchases, dividend payments, possible business acquisitions and pension and postretirement contributions with cash from operating activities, and as needed, additional short-term and/or long-term borrowings. We continue to expect our operating cash flow to remain strong.
As of December 31, 2017,2021, we had $211$360 million of cash and cash equivalents on hand, of which $151$181 million was held outside of the U.S.
As of December 31, 2016,2020, we had $327$1,260 million of cash and cash equivalents on hand, of which $184$59 million was held outside of the U.S. We will continue to evaluate our cash position in light of future developments.
As of December 31, 2015, we had $26 million of deferred tax liabilities for pre-acquisition foreign earnings associated with the legacy Nalco entities and legacy Champion entities that we intended to repatriate. These liabilities were recorded as part of the respective purchase price accounting of each transaction. The remaining foreign earnings were repatriated in 2016, reducing the deferred tax liabilities to zero at December 31, 2016.
As of December 31, 20172021, we had a $2.0 billion multi-year credit facility, which expires in November 2022.April 2026. The credit facility has been established with a diverse syndicate of banks.banks and supports our U.S. and Euro commercial paper programs. The maximum aggregate amount of commercial paper that may be issued under our U.S. commercial paper program and our Euro commercial paper program may not exceed $2.0 billion. At year end, we had $400 million outstanding commercial paper under our U.S. program and no commercial paper outstanding on our Euro program. There were no borrowings under our credit facility as of December 31, 20172021 or 2016.2020. As of December 31, 2021, both programs were rated A-2 by Standard & Poor’s, P-2 by Moody’s and F-1 by Fitch.
We had a $305 million term credit agreement which we drew on and repaid $303 million during the second quarter of 2020. The credit facility supports our $2.0 billion U.S. commercial paper program and $2.0 billion European commercial paper program. Combined borrowing under these two commercial paper programs may not exceed $2.0 billion. At year-end, we had no amount outstanding under the European commercial paper program and no amount outstanding under the U.S. commercial paper program.agreement expired in June 2020.
Additionally, we have uncommitted credit lines of $660 million with major international banks and financial institutions toinstitutions. These credit lines support our generaldaily global funding needs. Most of these lines are used to supportneeds, primarily our global cash pooling structures. Approximately $643We have $118 million of these credit lines were available for use as of year-end 2017. Bankbank supported letters of credit, surety bonds and guarantees total $198 million and representoutstanding in support of our commercial business transactions. We do not have any other significant unconditional purchase obligations or commercial commitments.commitments.
As of December 31, 2017, our short-term borrowing program was rated A-2 by2021, Standard & Poor’s and P-2 by Moody’s.
As of December 31, 2017, Standard & Poor’s and Moody’sFitch both rated our long-term credit at A- (stable outlook) and Baa1Moody’s rated our long-term credit at A3 (stable outlook), respectively.. A reduction in our credit ratings could limit or preclude our ability to issue commercial paper under our current programs or could also adversely affect our ability to renew existing, or negotiate new, credit facilities in the future and could increase the cost of these facilities. Should this occur, we could seek additional sources of funding, including issuing additional term notes or bonds. In addition, we have the ability, at our option, to draw upon our $2.0 billion of committed credit facility.
We are in compliance with our debt covenants and other requirements of our credit agreements and indentures.
A schedule of our various obligations as of December 31, 20172021 are summarized in the following table:table:
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| | | | | Than | | 2-3 | | 4-5 | | Than | | |
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(millions) | | Total | | 1 Year | | Years | | Years | | 5 Years | | | Total | | 1 Year | | Years | | Years | | 5 Years | |
Notes payable | | | $ 15 | | | $ 15 | | | $ - | | | $ - | | | $ - | | | | $ 8 | | | $ 8 | | | | | | | | | | |
One-time transition tax | | | 160 | | | 13 | | | 26 | | | 26 | | | 95 | | | | 83 | | | | | | 13 | | | 70 | | | | |
Long-term debt | | | 7,303 | | | 549 | | | 696 | | | 1,513 | | | 4,545 | | | | 8,347 | | | 2 | | | 1,150 | | | 1,396 | | | 5,799 | |
Capital lease obligations | | | 5 | | | 1 | | | 1 | | | 1 | | | 2 | | |
Operating leases | | | 617 | | | 131 | | | 211 | | | 160 | | | 115 | | | | 450 | | | 138 | | | 157 | | | 74 | | | 81 | |
Interest* | | | 2,753 | | | 242 | | | 436 | | | 375 | | | 1,700 | | | | 3,644 | | | 234 | | | 456 | | | 418 | | | 2,536 | |
Total | | | $ 10,853 | | | $ 951 | | | $ 1,370 | | | $ 2,075 | | | $ 6,457 | | | | $ 12,532 | | | $ 382 | | | $ 1,776 | | | $ 1,958 | | | $ 8,416 | |
| * | Interest on variable rate debt was calculated using the interest rate at year end 2021. |
*Interest on variable rate debt was calculated using the interest rate at year-end 2017.
During the fourth quarter of 2017, we recorded a one-time transition tax related to enactment of the Tax Act. The expense is primarily related to the one-time transition tax, which is payable over eight years. As discussed further in Note 12, this balance is a provisional amount and is subject to adjustment during the measurement period of up to one year following the enactment of the Tax Act, as provided by recent SEC guidance.
As of December 31, 2017,2021, our gross liability for uncertain tax positions was $68$25 million. We are not able to reasonably estimate the amount by which the liability will increase or decrease over an extended period of time or whether a cash settlement of the liability will be required. Therefore, these amounts have been excluded from the schedule of contractual obligations.
We do not have required minimum cash contribution obligations for our qualified pension plans in 2018.2021. We are required to fund certain international pension benefit plans in accordance with local legal requirements. We estimate contributions to be made to our international plans will approximate $49 million in 2018.2022. These amounts have been excluded from the schedule of contractual obligations.
We lease certain sales and administrative office facilities, distribution centers, research and manufacturing facilities and other equipment under longer-term operating leases. Vehicle leases are generally shorter in duration. Vehicle leases have guaranteed residual value requirements that have historically been satisfied primarily by the proceeds on the sale of the vehicles.
Off-Balance Sheet Arrangements
Market Risk
We enter into contractual arrangements (derivatives) in the ordinary course of business to manage foreign currency exposure and interest rate risks. We do not enter into derivatives for speculative or trading purposes. Our use of derivatives is subject to internal policies that provide guidelines for control, counterparty risk, and ongoing monitoring and reporting, and is designed to reduce the volatility associated with movements in foreign exchange and interest rates on our income statement and cash flows.
We enter into foreign currency forward contracts to hedge certain intercompany financial arrangements, and to hedge against the effect of exchange rate fluctuations on transactions related to cash flows denominated in currencies other than U.S. dollars. We use net investment hedges as hedging instruments to manage risks associated with our investments in foreign operations. As of December 31, 2017,2021, we had a total of €1,150 million senior notes designated as net investment hedges.
We enter into cross-currency swap derivative contracts to hedge certain Euro denominated exposures from our investments in certain of its Euro denominated functional currency subsidiaries. We use net investment hedges as hedging instruments to manage risks associated with our investments in foreign operations. As of December 31, 2021, we had €425 million of cross-currency swap derivative contracts outstanding designated as a net investment hedge.
We manage interest expense using a mix of fixed and floating rate debt. To help manage borrowing costs, we may enter into interest rate swap agreements. Under these arrangements, we agree to exchange, at specified intervals, the difference between fixed and floating interest amounts calculated by reference to an agreed-upon notional principal amount. As of December 31, 2017,2021, we had $1,250 million of interest rate swaps outstanding with notional values of $950 million.outstanding.
SeeRefer to Note 89 for further information on our hedging activity.
Based on a sensitivity analysis (assuming a 10% adverse change in market rates) of our foreign exchange and interest rate derivatives and other financial instruments, changes in exchange rates or interest rates would increase/decrease our financial position and liquidity by approximately $322$278 million. The effect on our results of operations would be substantially offset by the impact of the hedged items.items.
GLOBAL ECONOMIC AND POLITICAL ENVIRONMENT
Energy MarketsCOVID-19
Approximately 23%In March 2020, the COVID-19 was declared a pandemic by the World Health Organization. The COVID-19 pandemic is continuing to affect major economic and financial markets and industries are facing the challenges with the economic conditions resulting from efforts to address the pandemic, including supply shortages, inflation and other challenges, such as those resulting from the introduction of our sales are generated from our Global Energy segment, the results of which, as noted further below, are subject to volatilityvaccination mandates. While many government restrictions in the oilU.S. have eased throughout 2021, restrictions on activities continue in many other regions, particularly those where vaccination rates lag, continuing to impact consumer activity in those regions. Concerns remain that our markets could see a resurgence of cases triggering additional government mandated lockdowns or similar restrictions on activity, for example due to the emergence of a variant against which existing vaccines are not as effective or which may be more easily transmitted, particularly to those unvaccinated. These conditions have had and gas commodity markets.will continue to have a negative impact on market conditions and customer demand throughout the world.
During 2017, oil industry activity gradually recovered from 2016’s lows, with strong gains in North America drilling activity overWe expect continued, if uneven, global economic recovery. We have also experienced continued substantial delivered product cost inflation. While we expect the past yearchallenges that affected us and related recovering capital expenditure trends. Demand for oil and overall energy consumption has shown modest growth with oil prices rising from their lows in early 2016.
Our global footprint and broad business portfolio within the Global Energy segment, as well as our strong execution capabilities are expected to providerest of the required resilience to outperformworld in the current market. As such, wefourth quarter to continue to remain confidentinto the first quarter of 2022, assuming the rate of cost inflation and COVID impacts ease progressively in the long-term growth prospectssecond half of the segment.year, we believe our continued actions should help us deliver improved results in 2022.
Global Economies
Approximately half of our sales are outside of the United States.U.S. Our international operations subject us to changes in economic conditions and foreign currency exchange rates as well as political uncertainty in some countries which could impact future operating results.
Brexit ReferendumArgentina has continued to experience negative economic trends, evidenced by multiple periods of increasing inflation rates, devaluation of the Argentine Peso, and increasing borrowing rates. Argentina is classified as a highly inflationary economy in accordance with U.S. GAAP, and the U.S. dollar is the functional currency for our subsidiaries in Argentina. During 2021, sales in Argentina represented less than 1% of our consolidated sales. Assets held in Argentina at the end of 2021 represented less than 1% of our consolidated assets.
On March 29, 2017,In February 2022, the United Kingdom (“U.K.”) government gave formal notice toU.S. and the European Union (“EU”)responded to beginRussia’s invasion of Ukraine by imposing various economic sanctions. The U.S. and other countries could impose wider sanctions or take further actions if the process of negotiatingconflict escalates. While it is difficult to anticipate the U.K.’s exit (“Brexit”) fromimpact the EU. The effects of Brexit will dependsanctions may have on Ecolab, any agreementsfurther sanctions imposed or actions taken by the U.K. makes to retain access to the EU markets either during a transitional periodU.S. or more permanently. The negotiations might also impact various tax reliefsother countries, or any retaliatory measures by Russia in response, could increase our costs, reduce our sales and
exemptions that apply to transactions between the U.K. and EU. In the longer term, any impact from Brexit earnings or otherwise have an adverse effect on our U.K. operations will depend, in part, on the outcome of tariff, trade, regulatory, and other negotiations. We will continue to monitor the status of tax law changes and tax treaty negotiations at the U.K. and EU.
operations. During 2017,2021, net sales of our U.K. operationsto Russia and Ukraine were approximately 2%1% of our consolidated net sales.
NEW ACCOUNTING PRONOUNCEMENTS
Information regarding new accounting pronouncements is included in Note 2.
NON-GAAP FINANCIAL MEASURES
This MD&A includes financial measures that have not been calculated in accordance with U.S. GAAP. These non-GAAP measures include:
●Fixed currency sales
●Adjusted net sales
●Adjusted fixed currency sales
●Acquisition adjusted fixed currency sales
●Adjusted cost of sales
●Adjusted gross margin
●Fixed currency operating income
●Fixed currency operating income margin
●Adjusted operating income
●Adjusted operating income margin
●Adjusted fixed currency operating income
●Adjusted fixed currency operating income margin
●Acquisition adjusted fixed currency operating income
●Acquisition adjusted fixed currency operating income margin
●Adjusted other (income) expense
| ● | Adjusted interest expense, net |
●EBITDA
Adjusted EBITDA
●Adjusted tax rate
●Adjusted net income from discontinued operations, net of tax
●Adjusted net income from continuing operations attributable to Ecolab
●Adjusted diluted EPS from continuing operations
Adjusted interest expense, net
We provide these measures as additional information regarding our operating results. We use these non-GAAP measures internally to evaluate our performance and in making financial and operational decisions, including with respect to incentive compensation. We believe that our presentation of these measures provides investors with greater transparency with respect to our results of operations and that these measures are useful for period-to-period comparison of results.
Our non-GAAP adjusted financial measure for net sales excludes Purolite sales. Our non-GAAP adjusted financial measures for cost of sales, gross margin, interestoperating income, other (income) expense and operating incomeinterest expense exclude the impact of special (gains) and charges and (with the exception of other (income) expense) the impact of the Purolite transaction, and our non-GAAP measures for tax rate, net income from continuing operations attributable to Ecolab and diluted EPS from continuing operations further exclude the impact of discrete tax items. We include items within special (gains) and charges and discrete tax items that we believe can significantly affect the period-over-period assessment of operating results and not necessarily reflect costs and/or income associated with historical trends and future results. After tax special (gains) and charges are derived by applying the applicable local jurisdictional tax rate to the corresponding pre-tax special (gains) and charges.
EBITDA is defined as the sum of net income including non-controlling interest, provision for income taxes, net interest expense, depreciation and amortization. Adjusted EBITDA is defined as the sum of EBITDA and special (gains) and charges impacting EBITDA. EBITDA and adjusted EBITDA are used as inputs toin our net debt to EBITDA and net debt to adjusted EBITDA ratios. Weratio, which we view these ratios as important indicators of the operational and financial health of our organization.
We evaluate the performance of our international operations based on fixed currency rates of foreign exchange. Fixed currency amounts included in this Form 10-K are based on translation into U.S. dollars at the fixed foreign currency exchange rates established by management at the beginning of 2017. Fixed2021. We also provide our segment results based on public currency amounts also reflect all Venezuelan bolivar operations, priorrates for international purposes.
Our reportable segments do not include the impact of intangible asset amortization from the Nalco merger or the impact of special (gains) and charges as these are not allocated to the deconsolidation of our Venezuelan operations, at a SIMADI rate of approximately 200 bolivares to 1 U.S. dollar, which was the approximate conversion rate for SIMADI at year end 2015.Company’s reportable segments.
Acquisition adjusted growth rates exclude the results of our acquired businesses from the first twelve months post acquisition, exclude the results of our divested businesses from the twelve months prior to divestiture and exclude the Venezuelan results of operations from both the current period andall comparable periodperiods. In addition, as part of the prior year.separation, we also entered into a Master Cross Supply and Product Transfer agreement with ChampionX to provide, receive or transfer certain products for a period up to 36 months. Sales of product to ChampionX under this agreement are recorded in product and equipment sales in the Corporate segment along with the related cost of sales. These transactions are removed from the consolidated results as part of the calculation of the impact of acquisitions and divestitures.
These non-GAAP measures are not in accordance with, or an alternative to U.S. GAAP, and may be different from non-GAAP measures used by other companies. Investors should not rely on any single financial measure when evaluating our business. We recommend that investors view these measures in conjunction with the U.S. GAAP measures included in this MD&A and we have provided reconciliations of reported U.S. GAAP amounts to the non-GAAP amounts.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
.Risk.
The discussion under the heading entitled "Market Risk" and “Global Economic and Political Environment” is incorporated by reference from Part II, Item 7 of this Form 10-K.
Item 8. Financial Statements and Supplementary Data
.Data.
REPORTS OF MANAGEMENT
To our Shareholders:
Management’s Responsibility for Financial Statements
Management is responsible for the integrity and objectivity of the consolidated financial statements. The statements have been prepared in accordance with accounting principles generally accepted in the United States of America and, accordingly, include certain amounts based on management’s best estimates and judgments.
The Board of Directors, acting through its Audit Committee composed solely of independent directors, is responsible for determining that management fulfills its responsibilities in the preparation of financial statements and maintains internal control over financial reporting. The Audit Committee recommends to the Board of Directors the appointment of the Company’s independent registered public accounting firm, subject to ratification by the shareholders. It meets regularly with management, the internal auditors and the independent registered public accounting firm.
The independent registered public accounting firm has audited the consolidated financial statements included in this annual report and have expressed their opinion regarding whether these consolidated financial statements present fairly in all material respects our financial position and results of operation and cash flows as stated in their report presented separately herein.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of management, including the principal executive officer and principal financial officer, an evaluation of the design and operating effectiveness of internal control over financial reporting was conducted based on the 2013 framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the evaluation under the framework in Internal Control — Integrated Framework, management concluded that internal control over financial reporting was effective as of December 31, 2017.2021.
On December 1, 2021, the Company completed the acquisition of Purolite. Refer to Note 4 of the Notes to the Consolidated Financial Statements for additional information. Based on the Securities and Exchange Commission staff guidance companies may exclude acquisitions from their assessment of internal control over financial reporting during the first year of an acquisition and management elected to exclude Purolite from its assessment of internal control over financial reporting as of December 31, 2021. Purolite’s total assets and total revenues, excluded from management’s assessment, represent approximately 2% and less than 1%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2021.
The Company’s independent registered public accounting firm, PricewaterhouseCoopers LLP, has audited the effectiveness of the Company’s internal control over financial reporting as of December 31, 20172021 as stated in their report which is included herein.
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Douglas M. Baker, Jr.
| Daniel J. Schmechel
|
ChairmanPresident and Chief Executive Officer
| Chief Financial Officer and Treasurer |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors and Shareholders of Ecolab Inc.:
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Ecolab Inc. and its subsidiaries (the “Company”) as of December 31, 20172021 and 2016,2020, and the related consolidated statements of income, of comprehensive income, of equity and of cash flows for each of the three years in the period ended December 31, 2017,2021, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2017,2021, based on criteria established in Internal Control - Integrated Framework(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 20172021 and 2016,2020, and the results of theirits operations and theirits cash flows for each of the three years in the period ended December 31, 20172021 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management'sManagement’s Report on Internal Control overOver Financial Reporting. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB")(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
As described in Management’s Report on Internal Control Over Financial Reporting, management has excluded Purolite Corporation (“Purolite”) from its assessment of internal control over financial reporting as of December 31, 2021 because it was acquired by the Company in a purchase business combination during 2021. We have also excluded Purolite from our audit of internal control over financial reporting. Purolite is a wholly-owned subsidiary whose total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting represent approximately 2% and less than 1%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2021.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the acquisition accounting, including controls over management’s valuation of the U.S. customer relationships intangible asset. These procedures also included, among others (i) reading the purchase agreement; (ii) testing management’s process for determining the fair value of the U.S. customer relationships intangible asset; (iii) evaluating the appropriateness of the discounted cash flow analysis; (iv) testing the completeness and accuracy of the underlying data used in the discounted cash flow analysis; and (v) evaluating the reasonableness of the significant assumptions used by management related to projected revenues, contributory asset charges, the tax savings due to amortization, the income tax rate, the customer attrition rate, and the discount rate. Evaluating management’s significant assumptions related to projected revenues and the income tax rate involved evaluating whether the significant assumptions used by management were reasonable considering (i) the current and past performance of Purolite; (ii) the consistency with external market and industry data; and (iii) whether these significant assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in evaluating (i) the appropriateness of the discounted cash flow analysis and (ii) the reasonableness of the significant assumptions related to contributory asset charges, the tax savings due to amortization, the customer attrition rate, and the discount rate.
/s/ PricewaterhouseCoopers LLP
Minneapolis, Minnesota
February 23, 201825, 2022
We have served as the Company’s auditor since 1970.
CONSOLIDATED STATEMENTSTATEMENTS OF INCOME
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Year ended December 31, (millions, except per share amounts) | | 2017 | | 2016 | | 2015 |
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Net sales | | | $13,838.3 | | | | $13,152.8 | | | $13,545.1 |
Operating expenses | | | | | | | | | | |
Cost of sales (including special charges (a)) | | | 7,405.1 | | | | 6,898.9 | | | 7,223.5 |
Selling, general and administrative expenses | | | 4,417.1 | | | | 4,299.4 | | | 4,345.5 |
Special (gains) and charges | | | (3.7) | | | | 39.5 | | | 414.8 |
Operating income | | | 2,019.8 | | | | 1,915.0 | | | 1,561.3 |
Interest expense, net (including special charges (b)) | | | 255.0 | | | | 264.6 | | | 243.6 |
Income before income taxes | | | 1,764.8 | | | | 1,650.4 | | | 1,317.7 |
Provision for income taxes | | | 242.4 | | | | 403.3 | | | 300.5 |
Net income including noncontrolling interest | | | 1,522.4 | | | | 1,247.1 | | | 1,017.2 |
Net income attributable to noncontrolling interest (including special charges (c)) | | | 14.0 | | | | 17.5 | | | 15.1 |
Net income attributable to Ecolab | | | $1,508.4 | | | | $1,229.6 | | | $1,002.1 |
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Earnings attributable to Ecolab per common share | | | | | | | | | | |
Basic | | | $ 5.21 | | | | $ 4.20 | | | $ 3.38 |
Diluted | | | $ 5.13 | | | | $ 4.14 | | | $ 3.32 |
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Dividends declared per common share | | | $1.520 | | | | $1.420 | | | $1.340 |
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Weighted-average common shares outstanding | | | | | | | | | | |
Basic | | | 289.6 | | | | 292.5 | | | 296.4 |
Diluted | | | 294.0 | | | | 296.7 | | | 301.4 |
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(millions, except per share amounts) | | 2021 | | 2020 | | 2019 |
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Product and equipment sales | | | $10,153.3 | | | | $9,466.6 | | | $10,129.0 |
Service and lease sales | | | 2,579.8 | | | | 2,323.6 | | | 2,433.0 |
Net sales | | | 12,733.1 | | | | 11,790.2 | | | 12,562.0 |
Product and equipment cost of sales | | | 6,100.9 | | | | 5,481.3 | | | 5,617.5 |
Service and lease cost of sales | | | 1,514.9 | | | | 1,424.5 | | | 1,428.3 |
Cost of sales (including special charges (a)) | | | 7,615.8 | | | | 6,905.8 | | | 7,045.8 |
Selling, general and administrative expenses | | | 3,416.1 | | | | 3,309.1 | | | 3,550.8 |
Special (gains) and charges | | | 102.6 | | | | 179.6 | | | 120.2 |
Operating income | | | 1,598.6 | | | | 1,395.7 | | | 1,845.2 |
Other (income) expense (b) | | | (33.9) | | | | (55.9) | | | (77.0) |
Interest expense, net (c) | | | 218.3 | | | | 290.2 | | | 190.7 |
Income before income taxes | | | 1,414.2 | | | | 1,161.4 | | | 1,731.5 |
Provision for income taxes | | | 270.2 | | | | 176.6 | | | 288.6 |
Net income from continuing operations, including noncontrolling interest | | | 1,144.0 | | | | 984.8 | | | 1,442.9 |
Net income from continuing operations attributable to noncontrolling interest | | | 14.1 | | | | 17.4 | | | 17.3 |
Net income from continuing operations attributable to Ecolab | | | 1,129.9 | | | | 967.4 | | | 1,425.6 |
Net income (loss) from discontinued operations, net of tax (Note 5) (d) | | | - | | | | (2,172.5) | | | 133.3 |
Net income (loss) attributable to Ecolab | | | $1,129.9 | | | | ($1,205.1) | | | $1,558.9 |
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Earnings (loss) attributable to Ecolab per common share | | | | | | | | | | |
Basic | | | | | | | | | | |
Continuing operations | | | $ 3.95 | | | | $ 3.37 | | | $ 4.95 |
Discontinued operations | | | $ - | | | | ($ 7.57) | | | $ 0.46 |
Earnings attributable to Ecolab | | | $ 3.95 | | | | ($ 4.20) | | | $ 5.41 |
Diluted | | | | | | | | | | |
Continuing operations | | | $ 3.91 | | | | $ 3.33 | | | $ 4.87 |
Discontinued operations | | | $ - | | | | ($ 7.48) | | | $ 0.46 |
Earnings attributable to Ecolab | | | $ 3.91 | | | | ($ 4.15) | | | $ 5.33 |
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Weighted-average common shares outstanding | | | | | | | | | | |
Basic | | | 286.3 | | | | 287.0 | | | 288.1 |
Diluted | | | 289.1 | | | | 290.3 | | | 292.5 |
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| (a) | (a)
| | Cost of sales includes special charges of $44.0$91.9 in 2017, $66.02021, $39.3 in 2016,2020, and $80.6$38.5 in 2015, respectively. 2019, which is included in product and equipment cost of sales. Cost of sales includes special charges of $2.0 in 2021 and $8.9 in 2020, which is included in service and lease cost of sales. |
| (b) | (b)
Other (income) expense includes special charges of $37.2 in 2021, $0.4 in 2020 and $9.5 in 2019. |
| (c) | | Interest expense, net includes special charges of $21.9$33.1 in 2017. 2021, $83.8 in 2020, and $0.2 in 2019. |
| (d) | (c)
| | Net income attributable to(loss) from discontinued operations, net of tax includes noncontrolling interest includes special charges of $12.8$2.2 in 2015. 2020. |
The accompanying notes are an integral part of the consolidated financial statements.
CONSOLIDATED STATEMENTSTATEMENTS OF COMPREHENSIVE INCOME
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Year ended December 31, (millions) | | | 2017 | | 2016 | | 2015 | |
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Net income including noncontrolling interest | | | | $1,522.4 | | | | $1,247.1 | | | $1,017.2 | |
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Other comprehensive income (loss), net of tax | | | | | | | | | | | | |
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Foreign currency translation adjustments | | | | | | | | | | | | |
Foreign currency translation | | | | 209.1 | | | | (230.4) | | | (626.8) | |
Gain (loss) on net investment hedges | | | | (109.7) | | | | (2.5) | | | 101.3 | |
Reclassification associated with Venezuelan entities | | | | - | | | | - | | | 2.4 | |
| | | | 99.4 | | | | (232.9) | | | (523.1) | |
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Derivatives and hedging instruments | | | | (17.9) | | | | (17.5) | | | 11.7 | |
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Pension and postretirement benefits | | | | | | | | | | | | |
Current period net actuarial loss | | | | (33.4) | | | | (102.3) | | | (2.3) | |
Pension and postretirement prior period service costs and benefits adjustments | | | | (0.5) | | | | 7.7 | | | 4.5 | |
Amortization of net actuarial loss and prior service costs included in | | | | | | | | | | | | |
net periodic pension and postretirement costs | | | | 24.7 | | | | 20.2 | | | 33.6 | |
Postretirement benefits changes | | | | - | | | | 33.9 | | | - | |
Reclassification associated with Venezuelan entities | | | | - | | | | - | | | 2.2 | |
| | | | (9.2) | | | | (40.5) | | | 38.0 | |
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Subtotal | | | | 72.3 | | | | (290.9) | | | (473.4) | |
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Total comprehensive income, including noncontrolling interest | | | | 1,594.7 | | | | 956.2 | | | 543.8 | |
Comprehensive income attributable to noncontrolling interest | | | | 15.7 | | | | 16.2 | | | 13.1 | |
Comprehensive income attributable to Ecolab | | | | $1,579.0 | | | | $940.0 | | | $530.7 | |
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(millions) | | | 2021 | | 2020 | | 2019 | |
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Net income (loss) attributable to Ecolab | | | | $1,129.9 | | | | ($1,205.1) | | | $1,558.9 | |
Net income from continuing operations attributable to noncontrolling interest | | | | 14.1 | | | | 17.4 | | | 17.3 | |
Net income from discontinued operations attributable to noncontrolling interest | | | | - | | | | 2.2 | | | - | |
Net income (loss) attributable to Ecolab, including noncontrolling interest | | | | $1,144.0 | | | | ($1,185.5) | | | $1,576.2 | |
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Other comprehensive income (loss), net of tax | | | | | | | | | | | | |
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Foreign currency translation adjustments | | | | | | | | | | | | |
Foreign currency translation | | | | (10.9) | | | | 50.0 | | | (45.1) | |
Separation of ChampionX | | | | - | | | | 229.9 | | | - | |
Gain (loss) on net investment hedges | | | | 51.6 | | | | (87.7) | | | 31.4 | |
Total foreign currency translation adjustments | | | | 40.7 | | | | 192.2 | | | (13.7) | |
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Derivatives and hedging instruments | | | | 26.0 | | | | (17.0) | | | (3.4) | |
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Pension and postretirement benefits | | | | | | | | | | | | |
Current period net actuarial gain (loss) | | | | 204.8 | | | | (139.2) | | | (251.1) | |
Settlement charge | | | | 26.7 | | | | - | | | - | |
Pension and postretirement prior period service benefits | | | | 1.9 | | | | 5.1 | | | (0.3) | |
Amortization of net actuarial loss and prior period service credits, net | | | | 56.3 | | | | 56.0 | | | (0.2) | |
Total pension and postretirement benefits | | | | 289.7 | | | | (78.1) | | | (251.6) | |
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Subtotal | | | | 356.4 | | | | 97.1 | | | (268.7) | |
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Total comprehensive income (loss), including noncontrolling interest | | | | 1,500.4 | | | | (1,088.4) | | | 1,307.5 | |
Comprehensive income attributable to noncontrolling interest | | | | 10.9 | | | | 21.4 | | | 15.4 | |
Comprehensive income (loss) attributable to Ecolab | | | | $1,489.5 | | | | ($1,109.8) | | | $1,292.1 | |
The accompanying notes are an integral part of the consolidated financial statements.
CONSOLIDATED BALANCE SHEET
S
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December 31, (millions, except per share amounts) | | 2017 | | 2016 |
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ASSETS | | | | | | | | |
Current assets | | | | | | | | |
Cash and cash equivalents | | | $211.4 | | | | $327.4 | |
Accounts receivable, net | | | 2,574.1 | | | | 2,341.2 | |
Inventories | | | 1,445.9 | | | | 1,319.4 | |
Other current assets | | | 365.0 | | | | 291.4 | |
Total current assets | | | 4,596.4 | | | | 4,279.4 | |
Property, plant and equipment, net | | | 3,707.1 | | | | 3,365.0 | |
Goodwill | | | 7,167.1 | | | | 6,383.0 | |
Other intangible assets, net | | | 4,017.6 | | | | 3,817.8 | |
Other assets | | | 474.2 | | | | 485.0 | |
Total assets | | | $19,962.4 | | | | $18,330.2 | |
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LIABILITIES AND EQUITY | | | | | | | | |
Current liabilities | | | | | | | | |
Short-term debt | | | $564.4 | | | | $541.3 | |
Accounts payable | | | 1,177.1 | | | | 983.2 | |
Compensation and benefits | | | 549.4 | | | | 516.3 | |
Income taxes | | | 183.6 | | | | 87.4 | |
Other current liabilities | | | 957.3 | | | | 891.2 | |
Total current liabilities | | | 3,431.8 | | | | 3,019.4 | |
Long-term debt | | | 6,758.3 | | | | 6,145.7 | |
Postretirement health care and pension benefits | | | 1,025.5 | | | | 1,019.2 | |
Deferred income taxes | | | 642.8 | | | | 970.2 | |
Other liabilities | | | 415.3 | | | | 204.8 | |
Total liabilities | | | 12,273.7 | | | | 11,359.3 | |
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Equity (a) | | | | | | | | |
Common stock | | | 354.7 | | | | 352.6 | |
Additional paid-in capital | | | 5,435.7 | | | | 5,270.8 | |
Retained earnings | | | 8,045.4 | | | | 6,975.0 | |
Accumulated other comprehensive loss | | | (1,642.3) | | | | (1,712.9) | |
Treasury stock | | | (4,575.0) | | | | (3,984.4) | |
Total Ecolab shareholders’ equity | | | 7,618.5 | | | | 6,901.1 | |
Noncontrolling interest | | | 70.2 | | | | 69.8 | |
Total equity | | | 7,688.7 | | | | 6,970.9 | |
Total liabilities and equity | | | $19,962.4 | | | | $18,330.2 | |
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(millions, except per share amounts) | 2021 | | 2020 |
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ASSETS | | | | | | | |
Current assets | | | | | | | |
Cash and cash equivalents | | $359.9 | | | | $1,260.2 | |
Accounts receivable, net | | 2,478.4 | | | | 2,273.8 | |
Inventories | | 1,491.8 | | | | 1,285.2 | |
Other current assets | | 357.0 | | | | 298.2 | |
Total current assets | | 4,687.1 | | | | 5,117.4 | |
Property, plant and equipment, net | | 3,288.5 | | | | 3,124.9 | |
Goodwill | | 8,063.9 | | | | 6,006.9 | |
Other intangible assets, net | | 4,224.1 | | | | 2,977.0 | |
Operating lease assets | | 396.8 | | | | 423.8 | |
Other assets | | 546.0 | | | | 476.0 | |
Total assets | | $21,206.4 | | | | $18,126.0 | |
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LIABILITIES AND EQUITY | | | | | | | |
Current liabilities | | | | | | | |
Short-term debt | | $411.0 | | | | $17.3 | |
Accounts payable | | 1,384.2 | | | | 1,160.6 | |
Compensation and benefits | | 509.5 | | | | 469.3 | |
Income taxes | | 104.3 | | | | 96.1 | |
Other current liabilities | | 1,144.2 | | | | 1,188.9 | |
Total current liabilities | | 3,553.2 | | | | 2,932.2 | |
Long-term debt | | 8,347.2 | | | | 6,669.3 | |
Postretirement health care and pension benefits | | 894.2 | | | | 1,226.2 | |
Deferred income taxes | | 622.0 | | | | 483.9 | |
Operating lease liabilities | | 282.6 | | | | 300.5 | |
Other liabilities | | 254.1 | | | | 312.4 | |
Total liabilities | | 13,953.3 | | | | 11,924.5 | |
Commitments and contingencies (Note 16) | | | | | | | |
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Equity (a) | | | | | | | |
Common stock | | 364.1 | | | | 362.6 | |
Additional paid-in capital | | 6,464.6 | | | | 6,235.0 | |
Retained earnings | | 8,814.5 | | | | 8,243.0 | |
Accumulated other comprehensive loss | | (1,634.8) | | | | (1,994.4) | |
Treasury stock | | (6,784.2) | | | | (6,679.7) | |
Total Ecolab shareholders’ equity | | 7,224.2 | | | | 6,166.5 | |
Noncontrolling interest | | 28.9 | | | | 35.0 | |
Total equity | | 7,253.1 | | | | 6,201.5 | |
Total liabilities and equity | | $21,206.4 | | | | $18,126.0 | |
| (a) | (a)
| | Common stock, 800.0 million shares authorized, $1.00 par value, 289.3 million286.9 shares outstanding at December 31, 2017, 291.8 million2021 and 285.7 shares outstanding at December 31, 2016.2020. Shares outstanding are net of treasury stock. |
The accompanying notes are an integral part of the consolidated financial statements.
CONSOLIDATED STATEMENTSTATEMENTS OF CASH FLOWS
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Year ended December 31, (millions) | | 2017 | | 2016 | | 2015 | |
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OPERATING ACTIVITIES | | | | | | | | | | | |
Net income including noncontrolling interest | | | $1,522.4 | | | | $1,247.1 | | | $1,017.2 | |
Adjustments to reconcile net income to cash provided by operating activities: | | | | | | | | | | | |
Depreciation | | | 585.7 | | | | 561.0 | | | 559.5 | |
Amortization | | | 307.6 | | | | 289.7 | | | 300.0 | |
Deferred income taxes | | | (354.5) | | | | (90.6) | | | (244.5) | |
Share-based compensation expense | | | 90.5 | | | | 85.7 | | | 78.2 | |
Excess tax benefits from share-based payment arrangements | | | - | | | | (43.6) | | | (57.8) | |
Pension and postretirement plan contributions | | | (144.1) | | | | (211.8) | | | (64.9) | |
Pension and postretirement plan expense | | | 36.9 | | | | 54.1 | | | 113.8 | |
Restructuring charges, net of cash paid | | | 5.2 | | | | (60.5) | | | 38.4 | |
Venezuelan charges | | | - | | | | - | | | 289.3 | |
(Gain) Loss on sale of business | | | (50.6) | | | | (0.5) | | | 13.7 | |
Asset charges and write-downs | | | 15.1 | | | | 65.9 | | | 24.7 | |
Other, net | | | 37.4 | | | | 14.2 | | | 11.6 | |
Changes in operating assets and liabilities, net of effect of acquisitions: | | | | | | | | | | | |
Accounts receivable | | | (91.8) | | | | 0.9 | | | (24.0) | |
Inventories | | | (85.5) | | | | 18.8 | | | (48.6) | |
Other assets | | | (48.9) | | | | (34.9) | | | (69.1) | |
Accounts payable | | | 121.1 | | | | (55.1) | | | (46.1) | |
Other liabilities | | | 144.8 | | | | 99.3 | | | 108.4 | |
Cash provided by operating activities | | | 2,091.3 | | | | 1,939.7 | | | 1,999.8 | |
| | | | | | | | | | | |
INVESTING ACTIVITIES | | | | | | | | | | | |
Capital expenditures | | | (789.6) | | | | (707.4) | | | (771.0) | |
Capitalized software expenditures | | | (79.0) | | | | (49.4) | | | (44.2) | |
Property and other assets sold | | | 10.7 | | | | 30.5 | | | 15.0 | |
Acquisitions and investments in affiliates, net of cash acquired | | | (989.2) | | | | (49.5) | | | (265.9) | |
Divestiture of businesses | | | 118.8 | | | | 0.9 | | | 0.5 | |
Release from (deposit into) acquisition related escrow | | | (0.8) | | | | - | | | 45.6 | |
Reduction of cash due to Venezuelan deconsolidation | | | - | | | | - | | | (4.2) | |
Restricted cash activity | | | 53.8 | | | | (55.9) | | | - | |
Settlement of net investment hedges | | | 2.1 | | | | 1.3 | | | 108.4 | |
Cash used for investing activities | | | (1,673.2) | | | | (829.5) | | | (915.8) | |
| | | | | | | | | | | |
FINANCING ACTIVITIES | | | | | | | | | | | |
Net repayments of commercial paper and notes payable | | | (43.7) | | | | (606.4) | | | (312.1) | |
Long-term debt borrowings | | | 1,309.4 | | | | 2,390.0 | | | 1,223.7 | |
Long-term debt repayments | | | (799.0) | | | | (1,569.6) | | | (1,034.7) | |
Reacquired shares | | | (600.3) | | | | (739.6) | | | (755.1) | |
Dividends paid | | | (448.7) | | | | (427.5) | | | (400.7) | |
Exercise of employee stock options | | | 83.8 | | | | 76.8 | | | 83.1 | |
Excess tax benefits from share-based payment arrangements | | | - | | | | 43.6 | | | 57.8 | |
Acquisition related liabilities and contingent consideration | | | (8.5) | | | | (35.5) | | | (12.9) | |
Other, net | | | (15.7) | | | | - | | | - | |
Cash used for financing activities | | | (522.7) | | | | (868.2) | | | (1,150.9) | |
| | | | | | | | | | | |
Effect of exchange rate changes on cash and cash equivalents | | | (11.4) | | | | (7.4) | | | (49.9) | |
| | | | | | | | | | | |
(Decrease) increase in cash and cash equivalents | | | (116.0) | | | | 234.6 | | | (116.8) | |
Cash and cash equivalents, beginning of period | | | 327.4 | | | | 92.8 | | | 209.6 | |
Cash and cash equivalents, end of period | | | $211.4 | | | | $327.4 | | | $92.8 | |
| | | | | | | | | | | |
SUPPLEMENTAL CASH FLOW INFORMATION | | | | | | | | | | | |
Income taxes paid | | | $402.8 | | | | $359.1 | | | $533.1 | |
Interest paid | | | 239.3 | | | | 267.0 | | | 237.2 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
(millions) | | 2021 | | 2020 | | 2019 | |
| | | | | | | | | | | |
OPERATING ACTIVITIES | | | | | | | | | | | |
Net income (loss) including noncontrolling interest | | | $1,144.0 | | | | ($1,185.5) | | | $1,576.2 | |
Less: Net income (loss) from discontinued operations including noncontrolling interest | | | - | | | | (2,170.3) | | | 133.3 | |
Net income from continuing operations including noncontrolling interest | | | $1,144.0 | | | | $984.8 | | | $1,442.9 | |
Adjustments to reconcile net income to cash provided by operating activities: | | | | | | | | | | | |
Depreciation | | | 604.4 | | | | 594.3 | | | 569.1 | |
Amortization | | | 238.7 | | | | 218.4 | | | 206.2 | |
Deferred income taxes | | | (1.1) | | | | (45.8) | | | (22.1) | |
Share-based compensation expense | | | 89.5 | | | | 82.1 | | | 84.0 | |
Pension and postretirement plan contributions | | | (60.2) | | | | (70.7) | | | (186.0) | |
Pension and postretirement plan expense, net | | | 42.4 | | | | 42.0 | | | 22.6 | |
Restructuring charges, net of cash paid | | | (41.7) | | | | 7.8 | | | 29.9 | |
Debt refinancing | | | 29.4 | | | | 77.1 | | | - | |
Other, net | | | 15.9 | | | | 61.0 | | | 17.6 | |
Changes in operating assets and liabilities, net of effect of acquisitions: | | | | | | | | | | | |
Accounts receivable | | | (178.2) | | | | 155.6 | | | (173.1) | |
Inventories | | | (73.0) | | | | (179.5) | | | 22.3 | |
Other assets | | | (92.9) | | | | 42.3 | | | (70.4) | |
Accounts payable | | | 200.4 | | | | 55.9 | | | 22.9 | |
Other liabilities | | | 144.3 | | | | (283.5) | | | 80.8 | |
Cash provided by operating activities - continuing operations | | | 2,061.9 | | | | 1,741.8 | | | 2,046.7 | |
Cash provided by operating activities - discontinued operations | | | - | | | | 118.4 | | | 374.0 | |
Cash provided by operating activities | | | 2,061.9 | | | | 1,860.2 | | | 2,420.7 | |
| | | | | | | | | | | |
INVESTING ACTIVITIES | | | | | | | | | | | |
Capital expenditures | | | (643.0) | | | | (489.0) | | | (731.3) | |
Property and other assets sold | | | 12.2 | | | | 5.3 | | | 7.5 | |
Acquisitions and investments in affiliates, net of cash acquired | | | (3,923.7) | | | | (487.0) | | | (391.4) | |
Divestiture of businesses | | | - | | | | 116.2 | | | 6.8 | |
Other, net | | | (25.2) | | | | (3.2) | | | (21.2) | |
Cash used for investing activities - continuing operations | | | (4,579.7) | | | | (857.7) | | | (1,129.6) | |
Cash provided by (used for) investing activities - discontinued operations | | | - | | | | 443.2 | | | (69.5) | |
Cash used for investing activities | | | (4,579.7) | | | | (414.5) | | | (1,199.1) | |
| | | | | | | | | | | |
FINANCING ACTIVITIES | | | | | | | | | | | |
Net issuances (repayments) of commercial paper and notes payable | | | 393.6 | | | | (65.5) | | | (252.0) | |
Long-term debt borrowings | | | 2,775.0 | | | | 1,855.9 | | | - | |
Long-term debt repayments | | | (1,017.9) | | | | (1,570.0) | | | (400.6) | |
Reacquired shares | | | (106.6) | | | | (146.2) | | | (353.7) | |
Dividends paid | | | (566.4) | | | | (560.8) | | | (552.9) | |
Exercise of employee stock options | | | 143.5 | | | | 241.5 | | | 186.8 | |
Debt refinancing | | | (29.4) | | | | (77.1) | | | - | |
Other, net | | | 11.4 | | | | (18.0) | | | 25.8 | |
Cash provided by (used for) financing activities - continuing operations | | | 1,603.2 | | | | (340.2) | | | (1,346.6) | |
Cash used for financing activities - discontinued operations | | | - | | | | (1.6) | | | (3.0) | |
Cash provided by (used for) financing activities | | | 1,603.2 | | | | (341.8) | | | (1,349.6) | |
| | | | | | | | | | | |
Effect of exchange rate changes on cash and cash equivalents | | | 14.3 | | | | (30.1) | | | 20.4 | |
| | | | | | | | | | | |
(Decrease) increase in cash and cash equivalents | | | (900.3) | | | | 1,073.8 | | | (107.6) | |
Cash and cash equivalents, beginning of period - continuing operations | | | 1,260.2 | | | | 118.8 | | | 243.2 | |
Cash and cash equivalents, beginning of period - discontinued operations | | | - | | | | 67.6 | | | 50.8 | |
Cash and cash equivalents, beginning of period | | | 1,260.2 | | | | 186.4 | | | 294.0 | |
Cash and cash equivalents, end of period - continuing operations | | | 359.9 | | | | 1,260.2 | | | 118.8 | |
Cash and cash equivalents, end of period - discontinued operations | | | - | | | | - | | | 67.6 | |
Cash and cash equivalents, end of period | | | $359.9 | | | | $1,260.2 | | | $186.4 | |
| | | | | | | | | | | |
SUPPLEMENTAL CASH FLOW INFORMATION | | | | | | | | | | | |
Income taxes paid | | | $275.7 | | | | $366.9 | | | $337.4 | |
Net interest paid | | | 208.7 | | | | 262.5 | | | 189.4 | |
Presentation of 2019 cash flow has been conformed to the current year presentation. There was no change to cash provided by or (used for) operating activities, investing activities or financial activities.
The accompanying notes are an integral part of the consolidated financial statements.
CONSOLIDATED STATEMENTSTATEMENTS OF EQUITY
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Ecolab Shareholders | | | | | | |
| | | | | Additional | | | | | | | | | | Ecolab | | Non- | | | | |
| | Common | | Paid-in | | Retained | | OCI | | Treasury | | Shareholders' | | Controlling | | Total | |
(millions) | | Stock | | Capital | | Earnings | | (Loss) | | Stock | | Equity | | Interest | | Equity | |
Balance, December 31, 2014 | | | $347.7 | | | $4,874.5 | | | $5,555.1 | | | $(951.9) | | | $(2,509.5) | | | $7,315.9 | | | $66.2 | | | $7,382.1 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Net income | | | | | | | | | 1,002.1 | | | | | | | | | 1,002.1 | | | 15.1 | | | 1,017.2 | |
Comprehensive income (loss) activity | | | | | | | | | | | | (471.4) | | | | | | (471.4) | | | (2.0) | | | (473.4) | |
Cash dividends declared | | | | | | | | | (396.9) | | | | | | | | | (396.9) | | | (8.3) | | | (405.2) | |
Venezuela deconsolidation | | | | | | | | | | | | | | | | | | | | | (0.5) | | | (0.5) | |
Stock options and awards | | | 2.6 | | | 205.4 | | | | | | | | | 7.3 | | | 215.3 | | | | | | 215.3 | |
Reacquired shares | | | | | | 6.2 | | | | | | | | | (761.3) | | | (755.1) | | | | | | (755.1) | |
Balance, December 31, 2015 | | | 350.3 | | | 5,086.1 | | | 6,160.3 | | | (1,423.3) | | | (3,263.5) | | | 6,909.9 | | | 70.5 | | | 6,980.4 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Net income | | | | | | | | | 1,229.6 | | | | | | | | | 1,229.6 | | | 17.5 | | | 1,247.1 | |
Comprehensive income (loss) activity | | | | | | | | | | | | (289.6) | | | | | | (289.6) | | | (1.3) | | | (290.9) | |
Cash dividends declared | | | | | | | | | (414.9) | | | | | | | | | (414.9) | | | (16.9) | | | (431.8) | |
Stock options and awards | | | 2.3 | | | 200.2 | | | | | | | | | 3.2 | | | 205.7 | | | | | | 205.7 | |
Reacquired shares | | | | | | (15.5) | | | | | | | | | (724.1) | | | (739.6) | | | | | | (739.6) | |
Balance, December 31, 2016 | | | 352.6 | | | 5,270.8 | | | 6,975.0 | | | (1,712.9) | | | (3,984.4) | | | 6,901.1 | | | 69.8 | | | 6,970.9 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
New accounting guidance adoption (a) | | | | | | | | | 1.9 | | | | | | | | | 1.9 | | | | | | 1.9 | |
Net income | | | | | | | | | 1,508.4 | | | | | | | | | 1,508.4 | | | 14.0 | | | 1,522.4 | |
Comprehensive income (loss) activity | | | | | | | | | | | | 70.6 | | | | | | 70.6 | | | 1.7 | | | 72.3 | |
Cash dividends declared | | | | | | | | | (439.9) | | | | | | | | | (439.9) | | | (19.3) | | | (459.2) | |
Acquisition of noncontrolling interests | | | | | | | | | | | | | | | | | | | | | 4.0 | | | 4.0 | |
Stock options and awards | | | 2.1 | | | 170.3 | | | | | | | | | 4.3 | | | 176.7 | | | | | | 176.7 | |
Reacquired shares | | | | | | (5.4) | | | | | | | | | (594.9) | | | (600.3) | | | | | | (600.3) | |
Balance, December 31, 2017 | | | $354.7 | | | $5,435.7 | | | $8,045.4 | | | $(1,642.3) | | | $(4,575.0) | | | $7,618.5 | | | $70.2 | | | $7,688.7 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Year ended December 31, 2021, 2020 and 2019 |
(millions, except per share amounts) | | Common
Stock | | Additional
Paid-in
Capital | | Retained
Earnings | | AOCI
(Loss) | | Treasury
Stock | | Ecolab Shareholders'
Equity | | Non-Controlling
Interest | | Total
Equity |
Balance, December 31, 2018 | | | $357.0 | | | $5,633.2 | | | $8,909.5 | | | ($1,761.7) | | | ($5,134.8) | | | $8,003.2 | | | $50.4 | | | $8,053.6 |
| | | | | | | | | | | | | | | | | | | | | | | | |
New accounting guidance adoption (a) | | | | | | | | | 58.4 | | | (61.2) | | | | | | (2.8) | | | | | | (2.8) |
Net income | | | | | | | | | 1,558.9 | | | | | | | | | 1,558.9 | | | 17.3 | | | 1,576.2 |
Comprehensive income (loss) activity | | | | | | | | | | | | (266.8) | | | | | | (266.8) | | | (1.9) | | | (268.7) |
Cash dividends declared (b) | | | | | | | | | (533.1) | | | | | | | | | (533.1) | | | (25.1) | | | (558.2) |
Changes in noncontrolling interests | | | | | | 0.2 | | | | | | | | | | | | 0.2 | | | (0.2) | | | 0.0 |
Stock options and awards | | | 2.6 | | | 273.7 | | | | | | | | | 3.1 | | | 279.4 | | | | | | 279.4 |
Reacquired shares | | | | | | | | | | | | | | | (353.7) | | | (353.7) | | | | | | (353.7) |
Balance, December 31, 2019 | | | 359.6 | | | 5,907.1 | | | 9,993.7 | | | (2,089.7) | | | (5,485.4) | | | 8,685.3 | | | 40.5 | | | 8,725.8 |
| | | | | | | | | | | | | | | | | | | | | | | | |
New accounting guidance adoption (c) | | | | | | | | | (4.3) | | | | | | | | | (4.3) | | | | | | (4.3) |
Net (loss) income | | | | | | | | | (1,205.1) | | | | | | | | | (1,205.1) | | | 19.6 | | | (1,185.5) |
Comprehensive income (loss) activity | | | | | | | | | | | | 95.3 | | | | | | 95.3 | | | 1.8 | | | 97.1 |
Cash dividends declared (b) | | | | | | | | | (541.3) | | | | | | | | | (541.3) | | | (21.0) | | | (562.3) |
Separation of ChampionX | | | | | | (8.5) | | | | | | | | | (1,051.4) | | | (1,059.9) | | | 3.4 | | | (1,056.5) |
Changes in noncontrolling interests | | | | | | 17.6 | | | | | | | | | | | | 17.6 | | | (9.3) | | | 8.3 |
Stock options and awards | | | 3.0 | | | 318.8 | | | | | | | | | 3.3 | | | 325.1 | | | | | | 325.1 |
Reacquired shares | | | | | | | | | | | | | | | (146.2) | | | (146.2) | | | | | | (146.2) |
Balance, December 31, 2020 | | | 362.6 | | | 6,235.0 | | | 8,243.0 | | | (1,994.4) | | | (6,679.7) | | | 6,166.5 | | | 35.0 | | | 6,201.5 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net income | | | | | | | | | 1,129.9 | | | | | | | | | 1,129.9 | | | 14.1 | | | 1,144.0 |
Comprehensive income (loss) activity | | | | | | | | | | | | 359.6 | | | | | | 359.6 | | | (3.2) | | | 356.4 |
Cash dividends declared (b) | | | | | | | | | (558.4) | | | | | | | | | (558.4) | | | (17.0) | | | (575.4) |
Stock options and awards | | | 1.5 | | | 229.6 | | | | | | | | | 2.1 | | | 233.2 | | | | | | 233.2 |
Reacquired shares | | | | | | | | | | | | | | | (106.6) | | | (106.6) | | | | | | (106.6) |
Balance, December 31, 2021 | | | $364.1 | | | $6,464.6 | | | $8,814.5 | | | ($1,634.8) | | | ($6,784.2) | | | $7,224.2 | | | $28.9 | | | $7,253.1 |
| | | | | | | | | | | | | | | | | | | | | | | | |
| (a) | | UponIn 2019, upon adoption of ASU 2016-09, Compensation2018-02, Income Statement – Stock Compensation, a valuation allowance was releasedReporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, the Company reclassified stranded tax effects resulting from the Tax Cut and Jobs Act from accumulated other comprehensive income to retained earnings. Also, upon adoption of ASU 2016-02, Leases (Topic 842), the Company has established right-of-use assets and lease liabilities for previously unrecognized excess tax benefits resultingoperating leases and the cumulative effect of applying the standard is recognized in an adjustmentretained earnings at the beginning of the period adopted.
|
| (b) | Dividends declared per common share were $1.95, $1.89, and $1.85 in 2021, 2020 and 2019, respectively. |
| (c) | In 2020, upon adoption of ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, the Company reclassified the cumulative effect of applying the standard to retained earnings at the beginning retained earnings.of the period adopted. |
Refer to Note 2 for additional information regarding adoption of new accounting standards.
COMMON STOCK ACTIVITY
| | | | | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 | |
| | Common | | Treasury | | | Common | | Treasury | | Common | | Treasury | |
Year ended December 31(shares) | | Stock | | Stock | | | Stock | | Stock | | Stock | | Stock | |
Shares, beginning of year | | 352,607,741 | | (60,782,667) | | | 350,339,820 | | (54,372,729) | | 347,724,788 | | (47,872,332) | |
Stock options | | 1,714,214 | | 41,767 | | | 1,778,821 | | 58,969 | | 1,962,360 | | 151,261 | |
Stock awards | | 393,941 | | 55,431 | | | 489,100 | | 14,291 | | 652,672 | | 14,745 | |
Reacquired shares | | - | | (4,707,629) | | | | | (6,483,198) | | | | (6,666,403) | |
Shares, end of year | | 354,715,896 | | (65,393,098) | | | 352,607,741 | | (60,782,667) | | 350,339,820 | | (54,372,729) | |
| | | | | | | | | | | | | | |
| | 2021 | | 2020 | | 2019 | |
| | Common | | Treasury | | | Common | | Treasury | | Common | | Treasury | |
Year ended December 31 | | Stock | | Stock | | | Stock | | Stock | | Stock | | Stock | |
Shares, beginning of year | | 362,553,443 | | (76,801,025) | | | 359,569,234 | | (71,159,472) | | 356,958,100 | | (69,243,979) | |
Stock options | | 1,270,757 | | 29,684 | | | 2,577,231 | | 35,122 | | 2,220,815 | | 41,575 | |
Stock awards | | 315,162 | | 17,760 | | | 406,978 | | 40,122 | | 390,319 | | 29,173 | |
Reacquired shares | | - | | (502,132) | | | - | | (761,245) | | - | | (1,986,241) | |
Separation of ChampionX | | - | | - | | | - | | (4,955,552) | | - | | - | |
Shares, end of year | | 364,139,362 | | (77,255,713) | | | 362,553,443 | | (76,801,025) | | 359,569,234 | | (71,159,472) | |
The accompanying notes are an integral part of the consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS
Ecolab is thea global leader in water, hygiene and energy technologiesinfection prevention solutions and services that protect people and vital resources. The Company delivers comprehensive solutions, data-driven insights and on-sitepersonalized service to promote safeadvance food safety, maintain clean and safe environments, optimize water and energy use and improve operational efficiencies and sustainability for customers in the food, healthcare, energy, hospitality and industrial markets in more than 170 countries.
The Company’s cleaning and sanitizing programs and products and pest elimination services support customers in the foodservice, food and beverage processing, hospitality, healthcare, government and education, retail, textile care and commercial facilities management sectors. The Company’s products and technologies are also used in water treatment, pollution control, energy conservation, oil production and refining, steelmaking,primary metals manufacturing, papermaking, mining and other industrial processes.
On June 3, 2020, the Company completed the separation of its Upstream Energy business (the “ChampionX business”) in a Reverse Morris Trust transaction (the “Transaction”) through the split-off of ChampionX Holding Inc. (“ChampionX”), formed by Ecolab as a wholly owned subsidiary to hold the ChampionX business, followed immediately by the merger (the “Merger”) of ChampionX with a wholly owned subsidiary of ChampionX Corporation (f/k/a Apergy Corporation, “Apergy”).
As discussed in Note 5 Discontinued Operations, during 2020, the ChampionX business met the criteria to be reported as discontinued operations because the separation of the ChampionX business was a strategic shift in business that had a major effect on the Company's operations and financial results. Therefore, the Company reported the historical results of ChampionX, including the results of operations, cash flows, and related assets and liabilities, as discontinued operations. Unless otherwise noted, the accompanying Notes to the Consolidated Financial Statements have all been revised to reflect the effect of the separation of ChampionX and all prior year balances have been revised accordingly to reflect continuing operations only.
Subsequent to the separation of ChampionX, effective the third quarter of 2020, the Company no longer reports the Upstream Energy segment, which previously held the ChampionX business. The Company is aligned into 3 reportable segments and Other.
Effective in the first quarter of 2020, and in anticipation of the separation of the Upstream Energy business, the Company created the Upstream and Downstream operating segments from the Global Energy operating segment, which was also a reportable segment. Subsequent to the separation of ChampionX, the Company no longer reports the Upstream Energy segment, which previously held the ChampionX business.
The Downstream operating segment has been aggregated into the Global Industrial reportable segment. Also, in the first quarter of 2020, the Company announced leadership changes which allow for shared oversight and focus on the Healthcare and Life Sciences operating segments and established the Global Healthcare & Life Sciences reportable segment. This segment is comprised of the Healthcare operating segment which was previously aggregated in the Global Institutional reportable segment and the Life Sciences operating segment which was previously aggregated in the Global Industrial reportable segment. Additionally, the Textile Care operating segment, which is now being reported in Other, had previously been aggregated in the Global Industrial reportable segment. The Company also renamed the Global Institutional reportable segment to the Global Institutional & Specialty reportable segment. The Company made other immaterial changes, including the movement of certain customers and cost allocations between reportable segments.
On December 1, 2021, the Company acquired Purolite for total consideration of $3.7 billion in cash, net of cash acquired. Purolite is a leading and fast-growing global provider of high-end ion exchange resins for the separation and purification of solutions, that is highly complementary to our current offering and critical to safe, high quality drug production and biopharma product purification in the life sciences industries. It also provides purification and separation solutions for critical industrial markets like microelectronics, nuclear power and food and beverage. Headquartered in King of Prussia, Pennsylvania, Purolite operates in more than 30 countries. Purolite is reported within our Life Sciences operating segment.
The Company is aligned into 3 reportable segments: Global Industrial, Global Institutional & Specialty, and Global Healthcare & Life Sciences as discussed in Note 19 Operating Segments and Geographical Information. Operating segments that were not aggregated and do not exceed the quantitative criteria to be separately reported have been combined into Other.
Except for the changes due to adoption of the new accounting standards, the Company has consistently applied the accounting policies to all periods presented in these consolidated financial statements.
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and all subsidiaries in which the Company has a controlling financial interest. Investments in companies, joint ventures or partnerships in which the Company does not have control but has the ability to exercise significant influence over operating and financial policies,decisions, are reported using the equity method. Effective as of the end of the fourth quarter of 2015, the Company determined it did not meet the accounting criteria for control over its Venezuelan subsidiaries. Therefore, the Company deconsolidated its Venezuelan subsidiaries effective as of the end of the fourth quarter of 2015, and began accounting for the investments in its Venezuelan subsidiaries using the cost method of accounting, effective in the first quarter of 2016.accounting. The costalternative method of accounting is used in circumstancescircumstance where the Company has no substantialCompany’s investments in companies, joint ventures and partnerships neither provide it control or significant influence over the investee and for investments that do not have readily identifiable fair values. Investments accounted for under the investment has no easily determinable fair value.alternative method are recorded at cost and adjusted for impairments, if any, or observable price changes of the same or similar securities issued by the investee. International subsidiaries are included in the financial statements on the basis of their U.S. GAAP November 30 fiscal year-endsyear ends to facilitate the timely inclusion of such entities in the Company’s consolidated financial reporting. All intercompany transactions and profits are eliminated in consolidation.
Use of Estimates
The preparation of the Company’s financial statements requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from these estimates. The Company’s critical accounting estimates include revenue recognition, valuation allowances and accrued liabilities, actuarially determined liabilities, restructuring, income taxes, and long-lived assets, intangible assets and goodwill.
In March 2020, coronavirus 2019 (“COVID-19”) was declared a pandemic by the World Health Organization. As the impact of the pandemic continues to evolve, estimates and assumptions about future events and their effects cannot be determined with certainty and therefore require judgment. These estimates and assumptions may change in future periods and will be recognized in the consolidated financial information as new events occur and additional information becomes known. To the extent actual results differ materially from those estimates and assumptions, the Company’s future financial statements could be affected.
Foreign Currency Translation
Financial position and reported results of operations of the Company’s non-U.S. dollar functional currency international subsidiaries are measured using local currencies as the functional currency. Assets and liabilities of these operations are translated at the exchange rates in effect at each fiscal year end. The translation adjustments related to assets and liabilities that arise from the use of differingchanges in exchange rates from period to period are included in accumulated other comprehensive income (loss)loss in shareholders’ equity. Income statement accounts are translated at average rates of exchange prevailing during the year. As discussed in Note 1719 Operating Segments and Geographic Information, the Company evaluates its international operations based on fixed rates of exchange; however, the differentchanges in exchange rates from period to period impact the amount of reported income from consolidated operations.
Concentration of Credit Risk
Credit risk represents the accounting loss that would be recognized at the reporting date if counterparties failed to perform as contracted. The Company believes the likelihood of incurring material losses due to concentration of credit risk is remote.minimal. The principal financial instruments subject to credit risk are as follows:
Cash and Cash Equivalents - The Company maintains cash deposits with major banks, which from time to time may exceed insured limits. The possibility of loss related to financial condition of major banks has been deemed minimal. Additionally, the Company’s investment policy limits exposure to concentrations of credit risk and changes in market conditions.
Accounts Receivable - A large number of customers in diverse industries and geographies, as well as the practice of establishing reasonable credit lines, limits credit risk. Based on historical trends and experiences, the allowance for doubtful accountsexpected credit losses is adequate to cover potentialexpected credit risk losses.
Foreign Currency and Interest Rate Contracts and Derivatives - Exposure to credit risk is limited by internal policies and active monitoring of counterparty risks. In addition, the Company uses a diversified group of major international banks and financial institutions as counterparties. The Company does not anticipate nonperformance by any of these counterparties.
Cash and Cash Equivalents
Cash equivalents include highly-liquid investments with a maturity of three months or less when purchased.
Accounts Receivable and Allowance For Doubtful Accountsfor Expected Credit Losses
Accounts receivable are carried at the invoiced amounts, less an allowance for doubtful accounts,expected credit losses, and generally do not bear interest. The CompanyCompany’s allowance for expected credit losses estimates the balanceamount of allowance for doubtful accountsexpected future credit losses by analyzing accounts receivable balances by age and applying historical write-off and collection trend rates.experience. The Company’s estimates include separately providing for customer receivables based onconsidered macroeconomic trends and specific circumstances and credit conditions and when it is deemed probable that the balance is uncollectible.of customer receivables. Account balances are written off against the allowance when it is determined the receivable will not be recovered.
