ECOLAB INC. - Quarter Report: 2022 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
OR
☐ 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)


Delaware		41-0231510
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

1 Ecolab Place, St. Paul, Minnesota 55102

(Address of principal executive offices)(Zip Code)

1-800-232-6522

(Registrant’s telephone number, including area code)

(Not applicable)

(Former name, former address and former fiscal year,

if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

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

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 ◻

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ⌧ No ◻

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.


Large accelerated filer ⌧		Accelerated filer ◻
Non-accelerated filer ◻		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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ⌧

The number of shares of each of the registrant’s classes of Common Stock outstanding as of September 30, 2022: 284,828,060 shares, par value $1.00 per share.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

Third Quarter Ended

Nine Months Ended

September 30

(millions, except per share amounts)

2022

2021

2022

2021

Product and equipment sales

$2,963.0

$2,653.8

$8,473.9

$7,461.6

Service and lease sales

706.3

667.0

2,042.7

1,906.9

Net sales

3,669.3

3,320.8

10,516.6

9,368.5

Product and equipment cost of sales

1,877.1

1,625.1

5,371.7

4,452.9

Service and lease cost of sales

414.5

391.6

1,204.4

1,119.8

Cost of sales (including special (gains) and charges (a))

2,291.6

2,016.7

6,576.1

5,572.7

Selling, general and administrative expenses

876.9

832.0

2,731.7

2,548.2

Special (gains) and charges

17.8

6.3

45.5

36.7

Operating income

483.0

465.8

1,163.3

1,210.9

Other (income) expense (b)

5.7

(13.0)

(32.6)

(27.5)

Interest expense, net (c)

65.1

76.4

174.1

173.7

Income before income taxes

412.2

402.4

1,021.8

1,064.7

Provision for income taxes

60.2

73.8

182.4

226.0

Net income including noncontrolling interest

352.0

328.6

839.4

838.7

Net income attributable to noncontrolling interest

4.9

4.1

12.1

9.8

Net income attributable to Ecolab

$347.1

$324.5

$827.3

$828.9

Earnings attributable to Ecolab per common share

Basic

$ 1.22

$ 1.13

$ 2.90

$ 2.90

Diluted

$ 1.21

$ 1.12

$ 2.88

$ 2.87

Weighted-average common shares outstanding

Basic

284.9

286.4

285.4

286.1

Diluted

286.3

289.2

287.0

289.0

(a)	Cost of sales includes special (gains) and charges of $7.1 and $52.9 in the third quarter of 2022 and 2021, respectively, and $61.7 and $76.2 in the first nine months of 2022 and 2021, respectively, which is recorded in product and equipment cost of sales and service and lease cost of sales.

(b)	Other expense (income) includes special charges of $24.8 in the third quarter and first nine months of 2022 and $7.0 and $26.6 in the third quarter and first nine months of 2021, respectively.

(c)	Interest expense, net includes special charges of $32.3 in the third quarter and first nine months of 2021.

The accompanying notes are an integral part of the consolidated financial statements.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

Third Quarter Ended

Nine Months Ended

September 30

(millions)

2022

2021

2022

2021

Net income including noncontrolling interest

$352.0

$328.6

$839.4

$838.7

Other comprehensive income (loss), net of tax

Foreign currency translation adjustments

Foreign currency translation

(246.7)

(107.2)

(367.2)

60.9

Gain on net investment hedges

82.7

35.2

173.0

8.8

Total foreign currency translation adjustments

(164.0)

(72.0)

(194.2)

69.7

Derivatives and hedging instruments

11.6

15.3

13.1

16.7

Pension and postretirement benefits

(62.3)

33.4

(20.6)

172.7

Subtotal

(214.7)

(23.3)

(201.7)

259.1

Total comprehensive income, including noncontrolling interest

137.3

305.3

637.7

1,097.8

Comprehensive income attributable to noncontrolling interest

2.8

3.7

6.1

8.0

Comprehensive income attributable to Ecolab

$134.5

$301.6

$631.6

$1,089.8

The accompanying notes are an integral part of the consolidated financial statements.

CONSOLIDATED BALANCE SHEETS

(unaudited)



	September 30		December 31
(millions, except per share amounts)	2022		2021

ASSETS
Current assets
Cash and cash equivalents		$112.9		$359.9
Accounts receivable, net		2,714.3		2,478.4
Inventories		1,802.7		1,491.8
Other current assets		469.4		357.0
Total current assets		5,099.3		4,687.1
Property, plant and equipment, net		3,260.9		3,288.5
Goodwill		7,741.4		8,063.9
Other intangible assets, net		3,915.0		4,224.1
Operating lease assets		427.0		396.8
Other assets		593.4		546.0
Total assets		$21,037.0		$21,206.4

LIABILITIES AND EQUITY
Current liabilities
Short-term debt		$497.9		$411.0
Accounts payable		1,584.4		1,384.2
Compensation and benefits		434.2		509.5
Income taxes		110.4		104.3
Other current liabilities		1,145.4		1,144.2
Total current liabilities		3,772.3		3,553.2
Long-term debt		8,026.7		8,347.2
Postretirement health care and pension benefits		878.0		894.2
Deferred income taxes		577.1		622.0
Operating lease liabilities		317.5		282.6
Other liabilities		375.5		254.1
Total liabilities		13,947.1		13,953.3
Commitments and contingencies (Note 16)

Equity (a)
Common stock		364.6		364.1
Additional paid-in capital		6,551.8		6,464.6
Retained earnings		9,205.1		8,814.5
Accumulated other comprehensive loss		(1,830.5)		(1,634.8)
Treasury stock		(7,228.4)		(6,784.2)
Total Ecolab shareholders’ equity		7,062.6		7,224.2
Noncontrolling interest		27.3		28.9
Total equity		7,089.9		7,253.1
Total liabilities and equity		$21,037.0		$21,206.4

(a)	Common stock, 800.0 shares authorized, $1.00 par value per share, 284.8 shares outstanding as of September 30, 2022 and 286.9 shares outstanding as of December 31, 2021. Shares outstanding are net of treasury stock.

The accompanying notes are an integral part of the consolidated financial statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)


	Nine Months Ended
	September 30
(millions)	2022		2021

OPERATING ACTIVITIES
Net income including noncontrolling interest		$839.4		$838.7
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation		463.4		453.1
Amortization		238.8		174.4
Deferred income taxes		(106.6)		52.7
Share-based compensation expense		67.2		72.5
Pension and postretirement plan contributions		(51.8)		(51.3)
Pension and postretirement plan expense, net		20.5		29.9
Restructuring charges, net of cash paid		(17.8)		(35.1)
Debt refinancing		-		29.4
Other, net		13.2		19.7
Changes in operating assets and liabilities, net of effect of acquisitions:
Accounts receivable		(350.8)		(101.0)
Inventories		(385.7)		(79.8)
Other assets		(345.0)		(48.1)
Accounts payable		260.2		71.5
Other liabilities		284.2		(5.6)
Cash provided by operating activities		929.2		1,421.0

INVESTING ACTIVITIES
Capital expenditures		(510.0)		(423.8)
Property and other assets sold		1.4		12.3
Acquisitions and investments in affiliates, net of cash acquired		(7.2)		(209.9)
Other, net		9.4		(17.1)
Cash used for investing activities		(506.4)		(638.5)

FINANCING ACTIVITIES
Net issuances of commercial paper and notes payable		87.6		0.5
Long-term debt borrowings		-		293.7
Long-term debt repayments		-		(1,017.9)
Reacquired shares		(445.4)		(77.8)
Dividends paid		(445.0)		(426.5)
Exercise of employee stock options		20.8		94.3
Debt refinancing		-		(29.4)
Hedge settlements		109.6		9.4
Other, net		(3.2)		(5.6)
Cash used for financing activities		(675.6)		(1,159.3)

Effect of exchange rate changes on cash and cash equivalents		5.8		14.5

Decrease in cash and cash equivalents		(247.0)		(362.3)
Cash and cash equivalents, beginning of period		359.9		1,260.2
Cash and cash equivalents, end of period		$112.9		$897.9

The accompanying notes are an integral part of the consolidated financial statements.

CONSOLIDATED STATEMENTS OF EQUITY

(unaudited)


	Third Quarter Ended September 30, 2022 and 2021
(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, June 30, 2021		$363.2		$6,333.3		$8,472.8		($1,710.6)		($6,749.6)		$6,709.1		$27.2		$6,736.3

Net income						324.5						324.5		4.1		328.6
Other comprehensive income (loss)								(22.9)				(22.9)		(0.4)		(23.3)
Cash dividends declared (a)						(137.5)						(137.5)		(2.6)		(140.1)
Stock options and awards		0.5		66.5						0.4		67.4				67.4
Reacquired shares										(7.1)		(7.1)				(7.1)
Balance, September 30, 2021		$363.7		$6,399.8		$8,659.8		($1,733.5)		($6,756.3)		$6,933.5		$28.3		$6,961.8

Balance, June 30, 2022		$364.5		$6,529.8		$9,003.3		($1,617.9)		($7,186.3)		$7,093.4		$25.0		$7,118.4

Net income						347.1						347.1		4.9		352.0
Other comprehensive income (loss)								(212.6)				(212.6)		(2.1)		(214.7)
Cash dividends declared (a)						(145.3)						(145.3)		(0.5)		(145.8)
Stock options and awards		0.1		22.0						0.5		22.6				22.6
Reacquired shares										(42.6)		(42.6)				(42.6)
Balance, September 30, 2022		$364.6		$6,551.8		$9,205.1		($1,830.5)		($7,228.4)		$7,062.6		$27.3		$7,089.9

	Nine Months Ended September 30, 2022 and 2021
(millions, except per share amounts)	Common Stock		Additional Paid-in Capital		Retained Earnings		OCI (Loss)		Treasury Stock		Ecolab Shareholders' Equity		Non-Controlling Interest		Total Equity
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						828.9						828.9		9.8		838.7
Other comprehensive income (loss)								260.9				260.9		(1.8)		259.1
Cash dividends declared (a)						(412.1)						(412.1)		(14.7)		(426.8)
Stock options and awards		1.1		164.8						1.2		167.1				167.1
Reacquired shares										(77.8)		(77.8)				(77.8)
Balance, September 30, 2021		$363.7		$6,399.8		$8,659.8		($1,733.5)		($6,756.3)		$6,933.5		$28.3		$6,961.8

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

Net income						827.3						827.3		12.1		839.4
Other comprehensive income (loss)								(195.7)				(195.7)		(6.0)		(201.7)
Cash dividends declared (a)						(436.7)						(436.7)		(8.3)		(445.0)
Fair value adjustment of prior acquisition												-		0.6		0.6
Stock options and awards		0.5		87.2						1.2		88.9				88.9
Reacquired shares										(445.4)		(445.4)				(445.4)
Balance, September 30, 2022		$364.6		$6,551.8		$9,205.1		($1,830.5)		($7,228.4)		$7,062.6		$27.3		$7,089.9

(a)	Dividends declared per common share were $0.51 and $0.48 in the third quarter of 2022 and 2021, respectively and $1.53 and $1.44 in the first nine months of 2022 and 2021, respectively.

The accompanying notes are an integral part of the consolidated financial statements.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. CONSOLIDATED FINANCIAL INFORMATION

The unaudited consolidated financial information for the third quarter ended September 30, 2022 and 2021 reflects, in the opinion of management, all adjustments necessary for a fair statement of the financial position, results of operations, comprehensive income, equity and cash flows of Ecolab Inc. ("Ecolab" or "the Company") for the interim periods presented. Any adjustments consist of normal recurring items.

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.

The financial results for any interim period are not necessarily indicative of results for the full year. The consolidated balance sheet data as of December 31, 2021 was derived from the audited consolidated financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America. The unaudited consolidated financial information should be read in conjunction with the consolidated financial statements and notes thereto incorporated in the Company's Annual Report on Form 10-K for the year ended December 31, 2021 filed with the Securities and Exchange Commission (“SEC”) on February 25, 2022.

With respect to the unaudited financial information of the Company for the third quarter ended September 30, 2022 and 2021 included in this Form 10-Q, PricewaterhouseCoopers LLP reported that they have applied limited procedures in accordance with professional standards for a review of such information. Their separate report dated November 4, 2022 appearing herein states that they did not audit and they do not express an opinion on that unaudited financial information. Accordingly, the degree of reliance on their report on such information should be restricted in light of the limited nature of the review procedures applied. PricewaterhouseCoopers LLP is not subject to the liability provisions of Section 11 of the Securities Act of 1933, as amended (the "Act"), for their report on the unaudited financial information because that report is not a "report" or a "part" of a registration statement prepared or certified by PricewaterhouseCoopers LLP within the meaning of Sections 7 and 11 of the Act.

2. SPECIAL (GAINS) AND CHARGES

Special (gains) and charges reported on the Consolidated Statements of Income include the following:


	Third Quarter Ended				Nine Months Ended
	September 30				September 30
(millions)	2022		2021		2022		2021
Cost of sales
Restructuring activities		$2.1		$2.2		$5.5		$24.1
Acquisition and integration activities		4.2		-		32.7		-
COVID-19 activities, net		-		50.7		16.3		51.8
Russia/Ukraine activities		0.8		-		7.2		-
Other		-		-		-		0.3
Cost of sales subtotal		7.1		52.9		61.7		76.2

Special (gains) and charges
Restructuring activities		(0.3)		0.4		0.8		6.5
Acquisition and integration activities		4.1		0.8		15.0		3.3
COVID-19 activities, net		2.5		1.5		7.1		16.2
Russia/Ukraine activities		-		-		5.9		-
Other		11.5		3.6		16.7		10.7
Special (gains) and charges subtotal		17.8		6.3		45.5		36.7

Operating income subtotal		24.9		59.2		107.2		112.9

Other (income) expense		24.8		7.0		24.8		26.6
Interest expense, net		-		32.3		-		32.3

Total special (gains) and charges		$49.7		$98.5		$132.0		$171.8

For segment reporting purposes, special (gains) and charges are not allocated to reportable segments, which is consistent with the Company’s internal management reporting.

Restructuring activities

Restructuring activities relate to the Institutional Advancement Program, Accelerate 2020 and other immaterial restructuring programs which are described below. These activities have been included as a component of cost of sales and special (gains) and charges on the Consolidated Statements of Income. Restructuring liabilities have been classified as a component of other current and other noncurrent liabilities on the Consolidated Balance Sheets.

Institutional Advancement Program

The Company approved a restructuring plan in 2020 focused on the Institutional business (“the Institutional Plan”) which is intended to enhance the Company’s Institutional sales and service structure and allow the sales team to capture share and penetration while maximizing service effectiveness by leveraging the Company’s ongoing investments in digital technology. In February 2021, the Company expanded the Institutional Plan, and expect that these restructuring charges will be completed by 2023, with total anticipated costs of $70 million ($55 million after tax). The remaining costs are expected to be primarily cash expenditures for severance and non-cash costs related to equipment disposals. Actual costs may vary from these estimates depending on actions taken.

Certain activities contemplated in this Institutional Plan were previously approved in 2020 and included as part of Accelerate 2020. These activities were reclassified to the Institutional Plan. During the third quarter of 2022 and 2021, the Company recorded restructuring charges of $1.8 million ($1.3 million after tax) and $1.4 million ($1.4 million after tax), respectively, and in the first nine months of 2022 and 2021 $3.9 million ($2.9 million after tax) and $9.5 million ($7.5 million after tax), respectively, primarily related to severance, disposals of equipment and office closures. The Company has recorded $51.7 million ($39.5 million after tax) of cumulative restructuring charges under the Institutional Plan. The liability related to the Institutional Plan was $2.2 million as of September 30, 2022 and is expected to be paid over a period of a few months to several quarters and will continue to be funded from operating activities.

Restructuring activity related to the Institutional Plan since inception of the underlying actions includes the following:


	Employee
	Termination		Asset
(millions)	Costs		Disposals		Other		Total
2020-2021 Activity
Recorded expense (income) and accrual		$23.8		$8.5		$15.5		$47.8
Net cash payments		(19.9)		-		(14.3)		(34.2)
Non-cash net charges		-		(8.5)		-		(8.5)
Restructuring liability, December 31, 2021		3.9		-		1.2		5.1

2022 Activity
Recorded expense (income) and accrual		0.4		2.9		0.6		3.9
Net cash payments		(3.6)		-		(0.3)		(3.9)
Non-cash net charges		-		(2.9)		-		(2.9)
Restructuring liability, September 30, 2022		$0.7		$-		$1.5		$2.2

Accelerate 2020

During 2018, the Company formally commenced a restructuring plan Accelerate 2020 (“the Plan”), to leverage technology and system investments and organizational changes. The goals of the Plan are to further simplify and automate processes and tasks, reduce complexity and management layers, consolidate facilities and focus on key long-term growth areas by further leveraging technology and structural improvements. During 2020, the Company expanded the Plan for additional costs and savings to further leverage the technology and structural improvements. Following the establishment of the separate Institutional Plan, the Company expects that the restructuring activities will be completed by the end of 2022, with total anticipated costs of $255 million ($195 million after tax). The remaining 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.

The Company recorded restructuring charges (gains) of ($0.6) million ($0.3 million after tax) and $1.5 million ($1.2 million after tax) in the third quarter of 2022 and 2021, respectively, and ($0.2) million ($0.1 million after tax) and $2.9 million ($2.8 million after tax) in the first nine months of 2022 and 2021, respectively. The liability related to the Plan was $15.5 million as of the end of the third quarter of 2022. The Company has recorded $244.3 million ($189.9 million after tax) of cumulative restructuring charges under the Plan. The remaining liability is expected to be paid over a period of several quarters and will continue to be funded from operating activities.

Restructuring activity related to the Accelerate 2020 Plan since inception of the underlying actions includes the following:


	Employee
	Termination		Asset
(millions)	Costs		Disposals		Other		Total
2018-2021 Activity
Recorded expense (income) and accrual		$216.3		$8.3		$19.9		$244.5
Net cash payments		(183.4)		1.2		(17.2)		(199.4)
Non-cash charges		-		(9.5)		(2.0)		(11.5)
Effect of foreign currency translation		(0.9)		-		-		(0.9)
Restructuring liability, December 31, 2021		32.0		-		0.7		32.7

2022 Activity
Recorded expense (income) and accrual		(1.3)		-		1.1		(0.2)
Net cash payments		(15.3)		-		(1.7)		(17.0)
Restructuring liability, September 30, 2022		$15.4		$-		$0.1		$15.5

Other Restructuring Activities

During the third quarter of 2022 and 2021, the Company recorded restructuring charges (gains) of $0.6 million ($0.5 million after tax) and ($0.3) million ($0.5 million after tax), respectively, and during the first nine months of 2022 and 2021 $2.6 million ($2.0 million after tax) and $18.2 million ($16.9 million after tax), respectively, related to other immaterial restructuring activity. The charges are primarily related to severance and asset write-offs.

The restructuring liability balance for all plans other than the Accelerate 2020 and Institutional Plan were $4.0 million and $4.6 million as of September 30, 2022 and December 31, 2021, respectively. The remaining liability is expected to be paid over a period of a few months to several quarters and will continue to be funded from operating activities.

Cash payments during 2022 related to all other restructuring plans excluding the Accelerate 2020 and Institutional Plan were $3.2 million.

Subsequent event

In November 2022, the Company announced a Europe cost savings program (the “Europe Program”) targeting $80 million of annualized pre-tax savings after completion of the program. In connection with these actions, the Company expects to incur pre-tax charges of $130 million ($110 million after tax), beginning with approximately $60 million of pre-tax charges in the fourth quarter of 2022. The Europe Program charges are expected to be primarily cash expenditures related to severance and asset disposals.

Acquisition and integration related costs

Acquisition and integration related costs reported in product and equipment cost of sales on the Consolidated Statements of Income in the third quarter and first nine months of 2022 include $4.2 million ($3.9 million after tax) and $32.7 million ($25.8 million after tax), respectively, related primarily to the recognition of fair value step-up in the Purolite Corporation (“Purolite”) inventory and other integration costs.

Acquisition and integration related costs reported in special (gains) and charges on the Consolidated Statements of Income include $4.1 million ($3.9 million after tax) and $0.8 million ($0.8 million after tax) during the third quarter of 2022 and 2021, respectively and $15.0 million ($11.9 million after tax) and $3.3 million ($2.9 million after tax) during the first nine months of 2022 and 2021, respectively. Charges are related to the Purolite, Copal Invest NV, including its primary operating entity CID Lines (collectively, “CID Lines”), and Bioquell PLC (“Bioquell”) acquisitions and consist of integration costs, advisory and legal fees.

Further information related to the Company’s acquisitions is included in Note 3.

COVID-19 activities

The Company recorded charges of $1.3 million and $2.6 million during the third quarter of 2022 and 2021, respectively, and $1.3 million and $12.6 million during the first nine months of 2022 and 2021, respectively, to protect the wages of certain employees directly impacted by the COVID-19 pandemic. The Company recorded charges of $1.6 million and $3.1 million related to employee COVID-19 testing and related expenses during the third quarter of 2022 and 2021, respectively, and $7.7 million and $11.5 million during the first nine months of 2022 and 2021, respectively. In addition, the Company received immaterial amounts of subsidies and government assistance, which were recorded in special (gains) and charges in the first nine months of both 2022 and 2021. The Company recorded $15.0 million in inventory reserves related to excess sanitizer inventory and estimated disposal costs during the first quarter of 2022. COVID-19 pandemic charges are recorded in product and equipment cost of sales and special (gains) and charges on the Consolidated Statements of Income. After tax net charges related to the COVID-19 pandemic were $2.1 million and $40.6 million during the third quarter of 2022 and 2021, respectively, and $17.9 million and $51.9 million during the first nine months of 2022 and 2021, respectively.

Russia/Ukraine activities

In light of Russia’s invasion of Ukraine and the sanctions against Russia by the United States and other countries, the Company has made the determination that it will limit its Russian business to operations that are essential to life, providing minimal support for its healthcare, life sciences, food and beverage and certain water businesses. The Company recorded charges of $0.8 million ($0.7 million after tax) and charges of $13.1 million ($14.0 million after tax) in the third quarter and first nine months of 2022, respectively, primarily related to recoverability risk of certain assets in both Russia and Ukraine.

Other operating activities

Other special charges of $11.5 million ($8.7 million after tax) and $16.7 million ($12.6 million after tax) recorded in the third quarter and first nine months of 2022, respectively, relate primarily to certain legal charges, which are recorded in special (gains) and charges on the Consolidated Statements of Income.

Other special charges of $3.6 million ($2.7 million after tax) and $10.7 million ($8.3 million after tax) recorded in the third quarter and first nine months of 2021, respectively, related to certain legal charges in addition to tax consulting fees associated with the ChampionX separation, which are recorded in special (gains) and charges and product and equipment cost of sales on the Consolidated Statements of Income.

Other (income) expense

The Company incurred settlement expense recorded in other expense (income) on the Consolidated Statements of Income of $24.8 million ($18.8 million after tax) and $7.0 million ($5.3 million after tax) during the third quarter of 2022 and 2021, respectively, and $24.8 million ($18.8 million after tax) and $26.6 million ($20.2 million after tax) during the first nine months of 2022 and 2021, respectively. Expenses are related to U.S. pension plan lump-sum payments to retirees.

Interest expense

Other special charges of $32.3 million ($28.4 million after tax) in the third quarter of 2021 in interest expense on the Consolidated Statement of Income primarily related to debt refinancing charges.

3. ACQUISITIONS AND DISPOSITIONS

Acquisitions

The Company makes business acquisitions that align with its strategic business objectives. The assets and liabilities of acquired businesses are recorded in the Consolidated Balance Sheets at fair value as of their acquisition dates. The purchase price allocation is based on estimates of the fair value of assets acquired, liabilities assumed and consideration exchanged. Purchase consideration is reduced by the amount of cash or cash equivalents acquired. No acquisitions occurred during the first nine months of 2022 and acquisitions during the first nine months of 2021 were not significant to the Company’s consolidated financial statements; therefore, pro forma financial information is not presented.

During the third quarter of 2021, the Company acquired National Wiper Alliance, Inc. (“NWA”), a U.S.-based business which sells wipes for healthcare and institutional applications. NWA became part of the Global Healthcare & Life Sciences reporting segment. Purchase accounting for the NWA acquisition was finalized in the third quarter of 2022. The goodwill related to the acquisition of NWA is tax deductible.

During the first quarter of 2021, the Company acquired VanBaerle Hygiene AG (“VanBaerle”), a Switzerland-based business which sells cleaning products and related services to restaurants, long-term care facilities, hotels and laundries primarily for institutional applications. VanBaerle became part of the Global Institutional & Specialty reporting segment. Purchase accounting for the VanBaerle acquisition was finalized in the fourth quarter of 2021. The goodwill related to the acquisition of VanBaerle is not tax deductible.

Also, during the first quarter of 2021, the Company acquired TechTex Holdings Limited (“TechTex”), a U.K.-based business which sells wipes and other nonwovens products primarily for life sciences and healthcare applications. TechTex became part of the Global Healthcare & Life Sciences reporting segment. Purchase accounting for the TechTex acquisition was finalized in the first quarter of 2022. The goodwill related to the acquisition of TechTex is not tax deductible.

There were no acquisitions during the third quarter of 2022 or 2021. The following table summarizes the acquisition date fair value of net assets acquired from the Company’s acquisitions during the first nine months of 2022 and 2021:


	Third Quarter Ended				Nine Months Ended
	September 30				September 30
(millions)	2022		2021		2022		2021
Net tangible assets (liabilities) acquired		$-		$14.8		$-		$12.4

Identifiable intangible assets
Customer relationships		-		41.0		-		72.1
Trademarks		-		1.1		-		4.7
Non-compete agreements		-		3.0		-		3.0
Other technology		-		-		-		1.5
Total intangible assets		-		45.1		-		81.3

Goodwill		-		60.2		-		119.2
Total aggregate purchase price		-		120.1		-		212.9

Acquisition-related liabilities and contingent consideration (a)		-		-		-		(4.4)
Net cash paid for acquisitions, including acquisition-related
liabilities and contingent consideration		$-		$120.1		$-		$208.5

(a)	Subsequent to the acquisitions, $1.4 in contingent consideration was remitted to the seller during the first nine months of 2021 and is included in investing activities on the Consolidated Statements of Cash Flows.

During the first nine months of 2022, the Company recorded purchase accounting adjustments associated with the finalization of the purchase accounting for its acquisition of TechTex and NWA, as well as continued adjustment of its second half 2021 acquisitions of EPN Water Col, Ltd (“EPN”) and Purolite. The purchase accounting of EPN and Purolite has not been finalized; purchase accounting will be finalized in the fourth quarter of 2022. As a result of these purchase accounting adjustments, the Company made $7.2 million of acquisition-related payments, acquisition related net tangible assets increased by $5.4 million, definite-lived intangible assets decreased by $5.6 million, and goodwill increased by $7.4 million.

During the third quarter of 2021, the Company recorded purchase accounting adjustments associated with the finalization of the purchase accounting on its 2020 acquisitions. As a result of these purchase accounting adjustments, the acquisition related liabilities and goodwill recognized from those acquisition decreased by $0.9 million.

No intangible assets were acquired during the first nine months of 2022. The weighted average useful life of identifiable intangible assets acquired during the first nine months of 2021 was 14 years.

4. BALANCE SHEETS INFORMATION



	September 30		December 31
(millions)	2022		2021
Accounts receivable, net
Accounts receivable		$2,820.3		$2,549.9
Allowance for expected credit losses and other accruals		(106.0)		(71.5)
Total		$2,714.3		$2,478.4

Inventories
Finished goods		$1,079.4		$1,010.6
Raw materials and parts		853.5		596.1
Inventories at FIFO cost		1,932.9		1,606.7
FIFO cost to LIFO cost difference		(130.2)		(114.9)
Total		$1,802.7		$1,491.8

Other current assets
Prepaid assets		$129.3		$121.2
Taxes receivable		166.1		151.3
Derivative assets		121.2		61.4
Other		52.8		23.1
Total		$469.4		$357.0

Property, plant and equipment, net
Land		$160.5		$159.2
Buildings and leasehold improvements		1,122.0		1,134.1
Machinery and equipment		1,955.9		1,968.7
Merchandising and customer equipment		2,718.1		2,708.2
Capitalized software		960.3		884.6
Construction in progress		360.8		325.0
		7,277.6		7,179.8
Accumulated depreciation		(4,016.7)		(3,891.3)
Total		$3,260.9		$3,288.5

Other intangible assets, net
Intangible assets not subject to amortization
Trade names		$1,230.0		$1,230.0
Intangible assets subject to amortization
Customer relationships		3,301.6		3,444.6
Trademarks		550.5		561.1
Patents		500.5		496.3
Other technology		519.8		527.2
		4,872.4		5,029.2
Accumulated amortization
Customer relationships		(1,523.7)		(1,440.9)
Trademarks		(194.2)		(170.3)
Patents		(291.9)		(269.3)
Other technology		(177.6)		(154.6)
		(2,187.4)		(2,035.1)
Net intangible assets subject to amortization		2,685.0		2,994.1
Total		$3,915.0		$4,224.1

Other assets
Deferred income taxes		$115.9		$120.6
Pension		92.2		114.6
Derivative asset		114.2		29.4
Other		271.1		281.4
Total		$593.4		$546.0



	September 30		December 31
(millions)	2022		2021
Other current liabilities
Discounts and rebates		$356.5		$341.1
Dividends payable		145.3		146.3
Interest payable		54.0		47.7
Taxes payable, other than income		149.1		154.2
Derivative liability		3.3		-
Restructuring		18.6		39.1
Contract liability		109.1		91.7
Operating lease liabilities		108.6		115.1
Other		200.9		209.0
Total		$1,145.4		$1,144.2

Accumulated other comprehensive income (loss)
Unrealized gain (loss) on derivative financial instruments, net of tax		$18.0		$4.9
Unrecognized pension and postretirement benefit expense, net of tax		(653.4)		(632.8)
Cumulative translation, net of tax		(1,195.1)		(1,006.9)
Total		($1,830.5)		($1,634.8)

5. DEBT AND INTEREST

Short-term Debt

The following table provides the components of the Company’s short-term debt obligations as of September 30, 2022 and December 31, 2021.




	September 30		December 31
(millions)	2022		2021
Short-term debt
Commercial paper		$485.0		$400.0
Notes payable		10.3		8.5
Long-term debt, current maturities		2.6		2.5
Total		$497.9		$411.0

Lines of Credit

As of September 30, 2022, the Company has a $2.0 billion multi-year revolving credit facility which expires in April 2026. The credit facility has been established with a diverse syndicate of banks and supports the Company’s U.S. and Euro commercial paper programs. There were no borrowings under the Company’s credit facility as of either September 30, 2022 or December 31, 2021.

Commercial Paper

The Company’s commercial paper program is used as a potential source of liquidity and consists of a $2.0 billion U.S. commercial paper program and a $2.0 billion Euro commercial paper program. The maximum aggregate amount of commercial paper that may be issued by the Company under its commercial paper programs may not exceed $2.0 billion.

The Company had $485.0 million and $400.0 million outstanding commercial paper under its U.S. program as of September 30, 2022 and December 31, 2021, respectively.

Notes Payable

The Company’s notes payable consists of uncommitted credit lines with major international banks and financial institutions, primarily to support global cash pooling structures. As of September 30, 2022 and December 31, 2021, the Company had $10.3 million and $8.5 million, respectively, outstanding under these credit lines.

Long-term Debt

The following table provides the components of the Company’s long-term debt obligations, including current maturities, as of September 30, 2022 and December 31, 2021.


	Maturity	September 30		December 31
(millions)	by Year	2022		2021

Long-term debt
Public notes (2022 principal amount)
Two year 2021 senior notes ($500 million)	2023		$498.3		$497.2
Seven year 2016 senior notes (€575 million)	2024		576.4		649.3
Ten year 2015 senior notes (€575 million)	2025		576.4		649.7
Ten year 2016 senior notes ($750 million)	2026		721.4		744.9
Ten year 2017 senior notes ($500 million)	2027		433.7		488.4
Six year 2021 senior notes ($500 million)	2027		496.3		495.7
Ten year 2020 senior notes ($698 million)	2030		643.7		709.1
Ten year 2020 senior notes ($600 million)	2031		552.8		593.4
Eleven year 2021 senior notes ($650 million)	2032		644.5		644.0
Thirty year 2011 senior notes ($389 million)	2041		384.5		384.3
Thirty year 2016 senior notes ($200 million)	2046		197.2		197.2
Thirty year 2017 senior notes ($484 million)	2047		425.2		424.3
Thirty year 2020 senior notes ($500 million)	2050		490.6		490.4
Thirty year 2021 senior notes ($850 million)	2051		838.8		838.5
Thirty-four year 2021 senior notes ($685 million)	2055		536.7		535.3
Finance lease obligations and other			12.8		8.0
Total debt			8,029.3		8,349.7
Long-term debt, current maturities			(2.6)		(2.5)
Total long-term debt			$8,026.7		$8,347.2

Public Notes

In August 2021, the Company completed a private offering of a $300 million aggregate principal 34-year fixed rate notes with a coupon rate of 2.75% (“New 34-year Notes”). Immediately following the offering, the Company completed a private offering to exchange a portion of the outstanding senior notes due 2030, 2041, 2046, 2047 (“Old Notes”), for $385 million of New 34-year Notes. In connection with the exchange offering, $387 million of Old Notes were validly tendered and subsequently cancelled.

The New 34-year Notes bear a lower fixed coupon rate on an extended maturity date, compared with the Old Notes that were exchanged. There were no other significant changes to the terms between the Old Notes and the New 34-year Notes. The exchange was accounted for as a debt modification, and there were cash payments to the note holders of $118 million as a result of the exchange. Existing deferred financing costs associated with the Old Notes, as well as discounts associated with the New 34-year Notes aggregating $143 million, are being amortized over the term of the New 34-year Notes and recorded as interest expense.

In September 2021, the Company completed the retirement of the $500 million 2.375% Notes due 2022 and the $400 million 3.25% Notes due 2023 which was accounted for as a debt extinguishment. A make-whole premium of $25.0 million was expensed immediately and is reflected as a financing cash flow activity.

The Company’s public notes may be redeemed by the Company at its option at redemption prices that include accrued and unpaid interest and a make-whole premium. Upon the occurrence of a change of control accompanied by a downgrade of the public notes below investment grade rating, within a specified time period, the Company would be required to offer to repurchase the public notes at a price equal to 101% of the aggregate principal amount thereof, plus any accrued and unpaid interest to the date of repurchase. The public notes are senior unsecured and unsubordinated obligations of the Company and rank equally with all other senior and unsubordinated indebtedness of the Company.

Covenants

The Company is in compliance with all covenants under the Company’s outstanding indebtedness as of September 30, 2022.

Net Interest Expense

Interest expense and interest income recognized during the third quarter and first nine months of 2022 and 2021 were as follows:

Third Quarter Ended

Nine Months Ended

September 30

(millions)

2022

2021

2022

2021

Interest expense

$66.7

$78.3

$179.1

$183.8

Interest income

(1.6)

(1.9)

(5.0)

(10.1)

Interest expense, net

$65.1

$76.4

$174.1

$173.7

Interest expense generally includes the expense associated with the interest on the Company’s outstanding borrowings. Interest expense also includes the amortization of debt issuance costs and debt discounts, which are both recognized over the term of the related debt.

During the third quarter of 2021, the Company issued, exchanged and retired certain long-term debt, incurring debt refinancing charges of $32.3 million ($28.4 million after tax), which are included as a component of interest expense, net on the Consolidated Statement of Income.

6. GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

Goodwill arises from the Company’s acquisitions and represents the excess of the fair value of the purchase consideration exchanged over the fair value of net assets acquired. The Company’s reporting units are largely its operating segments. Following the acquisition of Purolite on December 1, 2021, the Company’s Life Sciences Operating Segment consists of the Purolite and Global Life Sciences Reporting Units. The Company assesses goodwill for impairment on an annual basis during the second quarter. If circumstances change or events occur that demonstrate it is more likely than not that the carrying amount of a reporting unit exceeds its fair value, the Company completes an interim goodwill assessment of that reporting unit prior to the next annual assessment. If the results of an annual or interim goodwill assessment demonstrate the carrying amount of a reporting unit is greater than its fair value, the Company will recognize an impairment loss for the amount by which the reporting unit’s carrying amount exceeds its fair value, but not to exceed the carrying amount of goodwill assigned to that reporting unit.

During the second quarter of 2022, the Company completed its annual goodwill impairment assessment for eleven of its twelve reporting units using discounted cash flow analyses that incorporated assumptions regarding future growth rates, terminal values and discount rates. The Company’s goodwill impairment assessments for 2022 indicated the estimated fair values of each of these eleven reporting units exceeded the carrying amounts of the respective reporting unit by a significant margin. Given the recent acquisition of Purolite, the Company’s annual goodwill impairment assessment of the Purolite Reporting Unit was qualitative in nature and considered information regarding its operations, financial performance and the macroeconomic environment. After weighting both positive and negative information, it is more likely than not that the fair value of the Purolite Reporting Unit exceeds its carrying amount. There has been no impairment of goodwill in any of the periods presented.

The changes in the carrying amount of goodwill for each of the Company's reportable segments during the nine months ended September 30, 2022 were as follows:

Global

Institutional

Healthcare &

(millions)

Industrial

& Specialty

Life Sciences

Other

Total

December 31, 2021

$4,270.1

$576.5

$2,974.2

$243.1

$8,063.9

Prior year business combinations (a)

0.4

7.0

7.4

Effect of foreign currency translation

(173.9)

(12.6)

(137.1)

(6.3)

(329.9)

September 30, 2022

$4,096.6

$563.9

$2,844.1

$236.8

$7,741.4

(a)	Represents purchase accounting adjustments associated with 2021 acquisitions.

Other Intangible Assets

The Nalco trade name is the Company’s only indefinite-lived intangible asset, which is tested for impairment on an annual basis during the second quarter. During the second quarter of 2022, the Company completed its annual impairment assessment of the Nalco trade name using the relief from royalty discounted cash flow method, which incorporates assumptions regarding future sales projections, royalty rates and discount rates. The Company’s Nalco tradename impairment assessment for 2022 indicated the estimated fair value of the Nalco trade name exceeded its $1.2 billion carrying amount by a significant margin. There has been no impairment of the Nalco trade name intangible since it was acquired.

The Company’s intangible assets subject to amortization include customer relationships, trademarks, patents and other technology primarily acquired through business acquisitions. The fair value of intangible assets acquired in business acquisitions are estimated primarily using discounted cash flow valuation methods at the time of acquisition. Intangible assets are amortized on a straight-line basis over their estimated lives. Total amortization expense related to intangible assets during the third quarter of 2022 and 2021 was $80.6 million and $57.7 million, respectively. Total amortization expense related to intangible assets during the first nine months of 2022 and 2021 was $238.8 and $174.4 million, respectively. Amortization expense related to intangible assets for the remaining three-month period of 2022 is expected to be approximately $74 million.

7. FAIR VALUE MEASUREMENTS

The Company’s financial instruments include cash and cash equivalents, accounts receivable, accounts payable, contingent consideration obligations, commercial paper, notes payable, foreign currency forward contracts, interest rate swap agreements, cross-currency swap derivative contracts and long-term debt.

Fair value is defined as the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. A hierarchy has been established for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring the most observable inputs be used when available. The hierarchy is broken down into three levels:

Level 1 - Inputs are quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities.

Level 2 - Inputs include observable inputs other than quoted prices in active markets.

Level 3 - Inputs are unobservable inputs for which there is little or no market data available.

The carrying amount and the estimated fair value for assets and liabilities measured on a recurring basis were:

September 30, 2022

(millions)

Carrying

Fair Value Measurements

Amount

Level 1

Level 2

Level 3

Assets

Foreign currency forward contracts

$207.2

Cross-currency swap derivative contracts

86.6

Liabilities

Foreign currency forward contracts

39.4

Interest rate swap agreements

192.6


	December 31, 2021
(millions)	Carrying		Fair Value Measurements
	Amount		Level 1		Level 2		Level 3
Assets
Foreign currency forward contracts		$94.5		$-		$94.5		$-
Interest rate swap agreements		1.8		-		1.8		-
Cross-currency swap derivative contracts		9.4		-		9.4		-

Liabilities
Foreign currency forward contracts		12.6		-		12.6		-
Interest rate swap agreements		10.1		-		10.1		-
Cross-currency swap derivative contracts		1.6		-		1.6		-

The carrying value of foreign currency forward contracts is at fair value, which is determined based on foreign currency exchange rates as of the balance sheet date and is classified within Level 2. The carrying value of interest rate swap agreements are at fair value, which are determined based on current forward interest rates as of the balance sheet date and are classified within Level 2. The cross-currency swap derivative contracts are used to partially hedge the Company’s net investments in foreign operations against adverse movements in exchange rates between the U.S. dollar and the Euro. The carrying value of the cross-currency swap derivative contracts are at fair value, which are determined based on the income approach with the relevant interest rates and foreign currency current exchange rates and forward curves as inputs as of the balance sheet date and is classified within Level 2. For purposes of fair value disclosure above, derivative values are presented gross. Further discussion of gross versus net presentation of the Company's derivatives is included within Note 8.

Contingent consideration obligations are recognized and measured at fair value at the acquisition date and thereafter until settlement or expiration. Contingent consideration is classified within Level 3 as the underlying fair value is determined using income-based valuation approaches appropriate for the terms and conditions of each respective contingent consideration. The consideration expected to be transferred is based on the Company’s expectations of various financial measures. The ultimate payment of contingent consideration could deviate from current estimates based on the actual results of these financial measures. Contingent consideration was not material to the Company’s consolidated financial statements.

The carrying values of accounts receivable, accounts payable, cash and cash equivalents, commercial paper and notes payable approximate fair value because of their short maturities and as such are classified within Level 1.

The fair value of long-term debt is based on quoted market prices for the same or similar debt instruments (classified as Level 2). The carrying amount, which includes adjustments related to the impact of interest rate swap agreements, premiums and discounts, and deferred debt issuance costs, and the estimated fair value of long-term debt, including current maturities, held by the Company were:

September 30, 2022

December 31, 2021

Carrying

Fair

Carrying

Fair

Amount

Value

Amount

Value

Long-term debt, including current maturities

$8,029.3

$7,126.4

$8,349.7

$9,085.3

8. DERIVATIVES AND HEDGING TRANSACTIONS

The Company uses foreign currency forward contracts, interest rate swap agreements, cross-currency swap derivative contracts and foreign currency debt to manage risks associated with foreign currency exchange rates, interest rates and net investments in foreign operations. The Company does not hold derivative financial instruments of a speculative nature or for trading purposes. The Company records derivatives as assets and liabilities in the Consolidated Balance Sheets at fair value. Changes in fair value are recognized immediately in earnings unless the derivative qualifies and is designated as a hedge. Cash flows from derivatives are classified in the statement of cash flows in the same category as the cash flows from the items subject to designated hedge or undesignated (economic) hedge relationships. The Company evaluates hedge effectiveness at inception and on an ongoing basis. If a derivative is no longer expected to be effective, hedge accounting is discontinued.

The Company is exposed to credit risk in the event of nonperformance of counterparties for foreign currency forward exchange contracts and interest rate swap agreements. The Company monitors its exposure to credit risk by using credit approvals and credit limits and by selecting major global banks and financial institutions as counterparties. The Company does not anticipate nonperformance by any of these counterparties, and therefore, recording a valuation allowance against the Company’s derivative balance is not considered necessary.

Derivative Positions Summary

Certain of the Company’s derivative transactions are subject to master netting arrangements that allow the Company to net settle contracts with the same counterparties. These arrangements generally do not call for collateral and as of the applicable dates presented in the following table, no cash collateral had been received or pledged related to the underlying derivatives.

The respective net amounts are included in other current assets, other assets, other current liabilities and other liabilities on the Consolidated Balance Sheets.

The following table summarizes the gross fair value and the net value of the Company’s outstanding derivatives:

Derivative Assets

Derivative Liabilities

September 30

December 31

September 30

December 31

(millions)

2022

2021

2022

2021

Derivatives designated as hedging instruments

Foreign currency forward contracts

$130.4

$44.7

$6.5

$2.6

Interest rate swap agreements

1.8

192.6

10.1

Cross-currency swap derivative contracts

86.6

9.4

1.6

Derivatives not designated as hedging instruments

Foreign currency forward contracts

76.8

49.8

32.9

10.0

Gross value of derivatives

293.8

105.7

232.0

24.3

Gross amounts offset in the Consolidated Balance Sheets

(58.4)

(14.9)

(58.4)

(14.9)

Net value of derivatives

$235.4

$90.8

$173.6

$9.4

The following table summarizes the notional values of the Company’s outstanding derivatives:


	Notional Values
		September 30	December 31
(millions)		2022	2021

Foreign currency forward contracts		$ 4,304		$ 4,059
Interest rate swap agreements		1,500		1,250
Cross-currency swap derivative contracts		427		482

Cash Flow Hedges

The Company utilizes foreign currency forward contracts to hedge the effect of foreign currency exchange rate fluctuations on forecasted foreign currency transactions, including inventory purchases and intercompany royalty, intercompany loans, management fee and other payments. These forward contracts are designated as cash flow hedges. The changes in fair value of these contracts are recorded in accumulated other comprehensive income (“AOCI”) until the hedged items affect earnings, at which time the gain or loss is reclassified into the same line item on the Consolidated Statements of Income as the underlying exposure being hedged. Cash flow hedged transactions impacting AOCI are forecasted to occur within the next two years. For forward contracts designated as hedges of foreign currency exchange rate risk associated with forecasted foreign currency transactions, the Company excludes the changes in fair value attributable to time value from the assessment of hedge effectiveness. The initial value of the excluded component (i.e., the forward points) is amortized on a straight-line basis over the life of the hedging instrument and recognized in the same line item on the Consolidated Statements of Income as the underlying exposure being hedged for intercompany loans. For all other cash flow hedge types, the forward points are marked-to-market monthly and recognized in the same line item on the Consolidated Statements of Income as the underlying exposure being hedged. The difference between fair value changes of the excluded component and the amount amortized on the Consolidated Statements of Income is recorded in AOCI.

Fair Value Hedges

The Company manages interest expense using a mix of fixed and floating rate debt. To help manage exposure to interest rate movements and to reduce borrowing costs, the Company may enter into interest rate swap agreements under which the Company agrees to exchange, at specified intervals, the difference between fixed and floating interest amounts calculated by reference to an agreed upon notional principal amount. The mark-to-market of these fair value hedges is recorded as gains or losses in interest (income) expense and is offset by the gain or loss of the underlying debt instrument, which also is recorded in interest (income) expense. These fair value hedges are highly effective and thus, there is no impact on earnings due to hedge ineffectiveness.

In April 2022, the Company entered into an interest rate swap agreement that converted $250 million of its 4.8% debt from a fixed interest rate to a floating interest rate. In aggregate, the Company has entered into a series of interest rate swap agreements to convert $1.5 billion of its debt from a fixed interest rate to a floating interest rate. These interest rate swap agreements are designated as fair value hedges.

The following amounts were recorded in the Consolidated Balance Sheets related to cumulative basis adjustments for fair value hedges:

Carrying amount of the hedged liabilities

Cumulative amount of the fair value hedging adjustment included in the carrying amount of the hedged liabilities

Third Quarter Ended

Line item in which the hedged item is included

September 30

(millions)

2022

2021

2022

2021

Long-term debt

$1,305.6

$745.9

($196.7)

($5.2)

Net Investment Hedges

The Company designates its outstanding €1,150 million ($1,153 million at the end of the third quarter of 2022) senior notes (“Euronotes”) and related accrued interest as hedges of its Euro denominated exposures from the Company’s investments in certain of its Euro denominated functional currency subsidiaries.

The Company entered into a series of cross-currency swap derivative contracts maturing in 2030. The cross-currency swap derivative contracts are designated as net investment hedge of its Euro denominated exposures from the Company’s investments in certain of its Euro denominated functional currency subsidiaries. The cross-currency swap derivative contracts exchange fixed-rate payments in one currency for fixed-rate payments in another currency. As of September 30, 2022, the Company had €425 million ($427 million) cross-currency swap derivative contracts outstanding as hedges of the Company’s net investment in foreign operations. The changes in the spot rate of these instruments are recorded in AOCI in stockholders’ equity, partially offsetting the foreign currency translation adjustment of the Company’s related net investment that is also recorded in AOCI. Any ineffective portions of net investment hedges are reclassified from AOCI into earnings during the period of change. The interest income or expense from these swaps are recorded in interest expense on the accompanying Consolidated Statements of Income consistent with the classification of interest expense attributable to the underlying debt.

The revaluation gains and losses on the Euronotes and cross-currency swap derivative contracts, which are designated and effective as hedges of the Company’s net investments, have been included as a component of the cumulative translation adjustment account, and were as follows:

Third Quarter Ended

Nine Months Ended

September 30

(millions)

2022

2021

2022

2021

Revaluation gain (loss), net of tax:

Euronotes

$59.8

$36.7

$112.6

$10.3

Cross-currency swap derivative contracts

22.9

(1.5)

60.4

(1.5)

Total revaluation gain (loss), net of tax

$82.7

$35.2

$173.0

$8.8

Derivatives Not Designated as Hedging Instruments

The Company also uses foreign currency forward contracts to offset its exposure to the change in value of certain foreign currency denominated assets and liabilities held at foreign subsidiaries, primarily receivables and payables, which are remeasured at the end of each period. Although the contracts are effective economic hedges, they are not designated as accounting hedges. Therefore, changes in the value of these derivatives are recognized immediately in earnings, thereby offsetting the current earnings effect of the related foreign currency denominated assets and liabilities.

Effect of all Derivative Instruments on Income

The gain (loss) of all derivative instruments recognized in product and equipment cost of sales (“COS”), selling, general and administrative expenses (“SG&A”) and interest expense, net (“interest”) is summarized below:


	Third Quarter Ended
	September 30
	2022				2021
(millions)		COS	SG&A	Interest		COS	SG&A	Interest
Gain (loss) on derivatives in cash flow hedging relationship:
Foreign currency forward contracts
Amount of gain (loss) reclassified from AOCI to income		$2.7	$52.7	$-		($4.6)	$42.1	$-
Amount excluded from the assessment of effectiveness recognized in earnings based on changes in fair value		-	-	3.3		-	-	5.1
Interest rate swap agreements
Amount of gain (loss) reclassified from AOCI to income		-	-	(0.6)		-	-	(0.6)

Gain (loss) on derivatives not designated as hedging instruments:
Foreign currency forward contracts
Amount of gain (loss) recognized in income		-	49.6	-		-	22.8	-
Total gain (loss) of all derivative instruments		$2.7	$102.3	$2.7		($4.6)	$64.9	$4.5

	Nine Months Ended
	September 30
	2022				2021
(millions)		COS	SG&A	Interest		COS	SG&A	Interest
Gain (loss) on derivatives in cash flow hedging relationship:
Foreign currency forward contracts
Amount of gain (loss) reclassified from AOCI to income		$3.5	$104.8	$-		($9.2)	$4.7	$-
Amount excluded from the assessment of effectiveness recognized in earnings based on changes in fair value		-	-	11.0		-	-	16.4
Interest rate swap agreements
Amount of gain (loss) reclassified from AOCI to income		-	-	(1.8)		-	-	(1.8)

Gain (loss) on derivatives not designated as hedging instruments:
Foreign currency forward contracts
Amount of gain (loss) recognized in income		-	98.0	-		-	28.6	-
Total gain (loss) of all derivative instruments		$3.5	$202.8	$9.2		($9.2)	$33.3	$14.6

Subsequent Event

In October 2022, the Company entered into a cross currency swap agreement with a notional amount of €200 million maturing in 2026. The cross currency swap is designated as a net investment hedge of its Euro denominated exposures from the Company’s investments in certain of its Euro denominated functional currency subsidiaries.

9. OTHER COMPREHENSIVE INCOME (LOSS) INFORMATION

Other comprehensive income (loss) includes net income, foreign currency translation adjustments, defined benefit pension and postretirement plan adjustments, gains and losses on derivative instruments designated and effective as cash flow hedges and non-derivative instruments designated and effective as foreign currency net investment hedges that are charged or credited to the accumulated other comprehensive loss account in shareholders’ equity. Refer to Note 8 for additional information related to the Company’s derivatives and hedging transactions. Refer to Note 13 for additional information related to the Company’s pension and postretirement benefits activity.

The following tables provide other comprehensive income information related to the Company’s derivatives and hedging instruments and pension and postretirement benefits:

Third Quarter Ended

Nine Months Ended

September 30

(millions)

2022

2021

2022

2021

Derivative and Hedging Instruments

Unrealized gain (loss) on derivative & hedging instruments

Amount recognized in AOCI

$74.2

$61.2

$134.6

$30.3

Loss (gain) reclassified from AOCI into income

COS

(2.7)

4.6

(3.5)

9.2

SG&A

(52.7)

(42.1)

(104.8)

(4.7)

Interest (income) expense, net

(2.7)

(4.5)

(9.2)

(14.6)

(58.1)

(42.0)

(117.5)

(10.1)

Other activity

0.2

0.5

0.7

(0.2)

Tax impact

(4.7)

(4.4)

(4.7)

(3.3)

Net of tax

$11.6

$15.3

$13.1

$16.7

Pension and Postretirement Benefits

Amount recognized in AOCI

Current period net actuarial (loss) gain

($151.7)

$145.0

Amount reclassified from AOCI into income

Settlement charge

24.8

7.0

25.7

26.6

Amortization of net actuarial loss and prior period service credits, net

14.3

16.3

43.7

59.8

(112.6)

23.3

(82.3)

231.4

Other activity

24.7

15.6

42.6

(2.8)

Tax impact

25.6

(5.5)

19.1

(55.9)

Net of tax

($62.3)

$33.4

($20.6)

$172.7

The following table summarizes the derivative and pension and postretirement benefit amounts reclassified from AOCI into income:

Third Quarter Ended

Nine Months Ended

September 30

2022

2021

2022

2021

(millions)

Derivative (gain) loss reclassified from AOCI into income, net of tax

($43.7)

($31.9)

($88.5)

($7.7)

Pension and postretirement benefits amortization of net actuarial losses

and prior service credits and settlement charges reclassified from AOCI into income, net of tax

29.7

33.4

53.1

62.8

10. SHAREHOLDERS’ EQUITY

Share Repurchase Authorization

In February 2015, the Company’s Board of Directors authorized the repurchase of up to 20,000,000 shares of its common stock, including shares to be repurchased under Rule 10b5–1. As of September 30, 2022, 3,404,297 shares remained to be repurchased under the Company’s repurchase authorization. The Company intends to repurchase all shares under its authorization, for which no expiration date has been established, in open market or privately negotiated transactions, subject to market conditions.

Subsequent Event

In November 2022, the Company’s Board of Director's authorized the repurchase up to 10 million additional shares of Ecolab common stock.

Share Repurchases

During the first nine months of 2022, the Company reacquired 2,545,822 shares of its common stock, of which 2,445,890 related to share repurchases through open market and 99,932 related to shares withheld for taxes on the exercise of stock options and the vesting of stock awards and units.

During the first nine months of 2021, the Company reacquired 367,141 shares of its common stock, of which 261,447 related to share repurchases through open market and 105,694 related to shares withheld for taxes on the exercise of stock options and the vesting of stock awards and units.

The Inflation Reduction Act (IRA) was signed into U.S. law on August 16, 2022 and is effective January 1, 2023. The IRA includes an excise tax on the repurchase of corporate stock. The Company does not anticipate the excise tax to have a material impact on the Company’s financial statements.

11. EARNINGS ATTRIBUTABLE TO ECOLAB PER COMMON SHARE (“EPS”)

The difference in the weighted average common shares outstanding for calculating basic and diluted EPS is a result of the dilution associated with the Company’s equity compensation plans. As noted in the table below, certain stock options and units outstanding under these equity compensation plans were not included in the computation of diluted EPS because they would not have had a dilutive effect.

The computations of the basic and diluted EPS amounts were as follows:

Third Quarter Ended

Nine Months Ended

September 30

(millions, except per share)

2022

2021

2022

2021

Net income attributable to Ecolab

$347.1

$324.5

$827.3

$828.9

Weighted-average common shares outstanding

Basic

284.9

286.4

285.4

286.1

Effect of dilutive stock options and units

1.4

2.8

1.6

2.9

Diluted

286.3

289.2

287.0

289.0

Earnings attributable to Ecolab per common share

Basic EPS

$ 1.22

$ 1.13

$ 2.90

$ 2.90

Diluted EPS

$ 1.21

$ 1.12

$ 2.88

$ 2.87

Anti-dilutive securities excluded from the computation of diluted EPS

2.5

1.0

2.5

1.0

Amounts do not necessarily sum due to rounding.

12. INCOME TAXES

The Company’s tax rate was 14.6% and 18.3% for the third quarter of 2022 and 2021, respectively, and 17.9% and 21.2% for the first nine months of 2022 and 2021, respectively. The change in the Company’s tax rate for the third quarter and first nine months of 2022 compared to the third quarter and first nine months of 2021 was driven primarily by the impact of discrete tax items and special (gains) and charges. Further information related to special (gains) and charges is included in Note 2.

The Company recognized a net tax benefit related to discrete tax items of $14.2 million and $9.5 million in the third quarter and first nine months of 2022, respectively. This included a deferred tax benefit of $14.6 million associated with utilization of tax attributes as a result of legal entity rationalization and share-based compensation excess tax benefits of $0.7 million and $4.3 million in the third quarter and first nine months of 2022, respectively. The amount of the excess tax benefit is subject to variation in stock price and award exercises. Additionally, the Company recognized discrete tax expense of $1.1 million and $9.4 million during the third quarter and first nine months of 2022, respectively, primarily due to audit settlements, reserves for uncertain tax positions, prior year return adjustments, repricing of deferred tax balances, and other changes in estimates.

The Company recognized a net tax benefit related to discrete tax items of $6.3 million in the third quarter and a net tax expense of $17.5 million in the first nine months of 2021. This included a tax benefit of $4.0 million in the third quarter and a net tax expense of $5.5 million in the first nine months of 2021 related to prior year returns, and a deferred tax benefit of $0.4 million and deferred tax expense of $23.8 million associated with transferring certain intangible property between affiliates in the third quarter and first nine months of 2021, respectively. The share-based compensation excess tax benefit was $9.9 million and $20.7 million in the third quarter and first nine months of 2021, respectively. The remaining discrete tax expense of $8.0 million and $8.9 million in the third quarter and first nine months of 2021, respectively, was primarily due to changes in tax law, reserves for uncertain tax positions, audit settlements, and other changes in estimates.

The CHIPS Act (CHIPS) was signed into U.S. law on August 9, 2022. CHIPS includes incentives for domestic semiconductor manufacturing for expenditures incurred after December 31, 2022. The Company continues to assess qualification for the new tax incentives but does not anticipate CHIPS to have a material impact on the Company’s financial statements.

The IRA includes a corporate alternative minimum tax on certain large corporations, incentives to address climate change mitigation and other non-income tax provisions, including an excise tax on the repurchase of corporate stock. The IRA is effective January 1, 2023. The Company continues to assess the impact of the IRA but does not anticipate the IRA to have a material impact on the Company’s financial statements.

13. PENSION AND POSTRETIREMENT PLANS

The Company has a non-contributory, qualified, defined benefit pension plan covering the majority of its U.S. employees. The Company also has non-contributory, non-qualified, defined benefit plans, which provide for benefits to employees in excess of limits permitted under its U.S. pension plans. Various international subsidiaries also have defined benefit pension plans. The Company provides postretirement health care benefits to certain U.S. employees and retirees.

The components of net periodic pension and postretirement health care benefit expense for the third quarter ended September 30 are as follows:


	U.S.				International				U.S. Postretirement
	Pension				Pension				Health Care
(millions)	2022		2021		2022		2021		2022		2021
Service cost		$10.5		$11.2		$6.8		$7.9		$0.2		$0.2
Interest cost on benefit obligation		14.1		13.3		5.3		4.4		0.8		0.7
Expected return on plan assets		(36.7)		(38.0)		(16.8)		(16.6)		(0.1)		(0.1)
Recognition of net actuarial loss (gain)		10.0		12.1		5.6		5.8		(0.1)		0.2
Amortization of prior service benefit		(1.2)		(1.7)		-		(0.1)		-		-
Curtailments and settlements		24.8		7.0		-		-		-		-
Total expense		$21.5		$3.9		$0.9		$1.4		$0.8		$1.0

The components of net periodic pension and postretirement health care benefit expense for the nine months ended September 30 are as follows:


	U.S.				International				U.S. Postretirement
	Pension				Pension				Health Care
(millions)	2022		2021		2022		2021		2022		2021
Service cost		$31.5		$32.8		$21.0		$24.0		$0.6		$0.6
Interest cost on benefit obligation		42.3		38.3		16.5		13.1		2.4		2.1
Expected return on plan assets		(110.1)		(115.2)		(52.8)		(51.9)		(0.3)		(0.3)
Recognition of net actuarial loss (gain)		30.0		44.5		17.4		20.3		(0.3)		0.6
Amortization of prior service benefit		(3.4)		(5.1)		-		(0.5)		-		-
Curtailments and settlements		25.7		26.6		-		-		-		-
Total expense		$16.0		$21.9		$2.1		$5.0		$2.4		$3.0

Service cost is included as employee compensation cost in either cost of sales or selling, general and administrative expenses on the Consolidated Statements of Income based on employee roles, while non-service components are included in other (income) expense in the Consolidated Statements of Income.

As of September 30, 2022, the Company is in compliance with all funding requirements of each of its defined benefit plans.

During the first nine months of 2022, the Company made contributions of $11 million to its U.S. non-contributory non-qualified defined benefit plans and estimates it will contribute an additional $4 million to such plans during the remainder of 2022.

During the first nine months of 2022, the Company made contributions of $33 million to its international pension plans and estimates it will contribute an additional $12 million to such plans during the remainder of 2022.

During the first nine months of 2022, the Company made contributions of $8 million to its U.S. postretirement health care plans and estimates it will contribute an additional $3 million to such plans during the remainder of 2022.

14. REVENUES

Revenue Recognition

Product and Sold Equipment

Product revenue is generated from sales of cleaning, sanitizing, water treatment, process treatment and colloidal silica products. In addition, the Company sells equipment which may be used in combination with its specialized products. Revenue recognized from product and equipment sales is recognized at the point in time when the obligations in the contract with the customer are satisfied, which generally occurs with the transfer of the product or delivery of the equipment.

On June 3, 2020, the Company completed the separation of its Upstream Energy business (“ChampionX”). The Company 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, while purchases from ChampionX are recorded in inventory. Sales of product to ChampionX post-separation for the third quarter of 2022 and 2021 were $27.8 million and $35.4 million, respectively, and first nine months of 2022 and 2021 were $96.4 million and $102.7 million, respectively. As of September 30, 2022, the Company had an outstanding accounts receivable balance for sales of product to ChampionX of $10.9 million.

Service and Lease Equipment

Service and lease equipment revenue is generated from providing services or leasing equipment to customers. Service offerings include installing or repairing certain types of equipment, activities that supplement or replace headcount at the customer location, or fulfilling deliverables included in the contract. Global Industrial segment services are associated with water treatment and paper process applications. Global Institutional & Specialty segment services include cleaning and sanitizing programs and wash process solutions. Global Healthcare & Life Sciences segment services include pharmaceutical, personal care, infection and containment control solutions. Revenues included in Other primarily relate to services designed to detect, eliminate and prevent pests. Service revenue is recognized over time utilizing an input method and aligns with when the services are provided. Typically, revenue is recognized over time using costs incurred to date because the effort provided by the field selling and service organization represents services provided, which corresponds with the transfer of control. Revenue recognized from leased equipment primarily relates to warewashing and water treatment equipment recognized on a straight-line basis over the length of the lease contract pursuant to Topic 842 Leases.

The Company’s operating lease revenue was as follows:

Third Quarter Ended

Nine Months Ended

September 30

(millions)

2022

2021

2022

2021

Operating lease revenue*

$118.1

$103.3

$345.4

$306.4

*Includes immaterial variable lease revenue

The following table shows principal activities, separated by reportable segments, from which the Company generates its revenue. Corporate segment includes sales to ChampionX under the Master Cross Supply and Product Transfer agreements entered into as part of the ChampionX Separation. For more information about the Company’s reportable segments, refer to Note 15.

Net sales at public exchange rates by reportable segment are as follows:

Third Quarter Ended

Nine Months Ended

September 30

(millions)

2022

2021

2022

2021

Global Industrial

Product and sold equipment

$1,551.8

$1,386.0

$4,381.6

$3,941.0

Service and lease equipment

217.8

217.1

643.6

637.6

Global Institutional & Specialty

Product and sold equipment

964.0

889.9

2,722.8

2,397.7

Service and lease equipment

199.1

180.7

574.5

506.3

Global Healthcare & Life Sciences

Product and sold equipment

329.5

259.4

1,023.7

795.4

Service and lease equipment

27.1

27.5

86.6

86.0

Other

Product and sold equipment

90.0

82.7

249.5

224.0

Service and lease equipment

262.3

241.5

737.9

676.4

Corporate

Product and sold equipment

27.7

35.8

96.3

103.5

Service and lease equipment

0.2

0.1

0.6

Total

Total product and sold equipment

$2,963.0

$2,653.8

$8,473.9

$7,461.6

Total service and lease equipment

$706.3

$667.0

$2,042.7

$1,906.9

Net sales at public exchange rates by geographic region for the third quarter ended September 30 are as follows:


	Global				Global Institutional				Global Healthcare
	Industrial				& Specialty				& Life Sciences				Other				Corporate
(millions)	2022		2021		2022		2021		2022		2021		2022		2021		2022		2021

North America		$836.4		$716.8		$860.5		$776.4		$146.8		$112.6		$227.1		$201.3		$24.8		$25.7
Europe		350.3		353.3		162.8		166.3		164.9		154.1		70.0		70.6		0.7		0.8
Asia Pacific		207.2		199.8		53.5		48.4		23.0		14.8		19.6		17.1		1.1		1.5
Latin America		160.6		141.0		40.8		34.9		5.9		-		12.9		13.0		1.1		6.7
Greater China		101.0		102.9		30.6		32.6		11.9		1.8		20.0		19.5		-		0.7
India, Middle East and Africa		114.1		89.3		14.9		12.0		4.1		3.6		2.7		2.7		-		0.6
Total		$1,769.6		$1,603.1		$1,163.1		$1,070.6		$356.6		$286.9		$352.3		$324.2		$27.7		$36.0

Net sales at public exchange rates by geographic region for the nine months ended September 30 are as follows:


	Global				Global Institutional				Global Healthcare
	Industrial				& Specialty				& Life Sciences				Other				Corporate
(millions)	2022		2021		2022		2021		2022		2021		2022		2021		2022		2021

North America		$2,329.6		$2,046.0		$2,420.6		$2,133.6		$449.5		$320.0		$623.7		$549.8		$84.5		$73.4
Europe		1,005.1		1,008.5		463.8		394.5		523.0		500.8		201.8		191.3		2.2		2.6
Asia Pacific		621.3		586.8		159.2		150.0		66.0		40.3		55.8		54.9		3.2		4.2
Latin America		453.0		400.5		119.1		97.3		16.2		1.1		39.0		37.7		6.2		19.4
Greater China		317.7		292.7		95.0		98.7		41.6		4.5		59.1		57.7		0.1		1.9
India, Middle East and Africa		298.5		244.1		39.6		29.9		14.0		14.7		8.0		9.0		0.2		2.6
Total		$5,025.2		$4,578.6		$3,297.3		$2,904.0		$1,110.3		$881.4		$987.4		$900.4		$96.4		$104.1

Net sales by geographic region were determined based on origin of sale. The United States made up 53% and 52% of total revenues during the nine months ended September 30, 2022 and 2021, respectively.

Accounts Receivable and Allowance for Expected Credit Losses

Accounts receivable are carried at the invoiced amounts, less an allowance for expected credit losses, and generally do not bear interest. The Company’s allowance for expected credit losses estimates the amount of expected future credit losses by analyzing accounts receivable balances by age and applying historical write-off and collection experience. The Company’s estimates separately consider macroeconomic trends, specific circumstances and credit conditions of customer receivables. Account balances are written off against the allowance when it is determined the receivable will not be recovered.

The Company’s allowance for expected return of products shipped and credits related to pricing or quantities shipped was $37.1 million and $20.4 million as of September 30, 2022 and 2021, respectively. Returns and credit activity is recorded directly as a reduction to revenue.

The following table summarizes the activity in the allowance for expected credit losses:


	Nine Months Ended
	September 30
(millions)	2022		2021

Beginning balance		$52.8		$68.4
Bad debt expense		26.8		12.4
Write-offs		(12.8)		(23.7)
Other (a)		2.1		(1.1)
Ending balance		$68.9		$56.0

(a)	Other amounts are primarily the effects of changes in currency translations.

Contract Liability

Payments received from customers are based on invoices or billing schedules as established in contracts with customers. Accounts receivable are recorded when the right to consideration becomes unconditional. The contract liability relates to billings in advance of performance (primarily service obligations) under the contract. Contract liabilities are recognized as revenue when the performance obligation has been performed, which primarily occurs during the subsequent quarter.

The following table summarizes the contract liability activity:


	Nine Months Ended
	September 30
(millions)	2022		2021

Contract liability as of beginning of the year		$91.7		$80.4

Revenue recognized in the period from:
Amounts included in the contract liability at the beginning of the year		(91.7)		(80.4)

Increases due to billings excluding amounts recognized as revenue during the period ended		109.1		86.7

Contract liability as of end of period		$109.1		$86.7

15. OPERATING SEGMENTS

The Company’s organizational structure consists of global business unit and global regional leadership teams. The Company’s eleven operating segments follow its commercial and product-based activities and are based on engagement in business activities, availability of discrete financial information and review of operating results by the Chief Operating Decision Maker at the identified operating segment level.

The Company’s operating segments that share similar economic characteristics and future prospects, nature of the products and production processes, end-use markets, channels of distribution and regulatory environment have been aggregated into three reportable segments: Global Industrial, Global Institutional & Specialty and Global Healthcare & Life Sciences. The Company’s operating segments that do not meet the quantitative criteria to be separately reported have been combined into Other. The Company provides similar information for Other as the Company considers the information regarding its underlying operating segments as useful in understanding its consolidated results.

Comparability of Reportable Segments

The Company evaluates the performance of its non-U.S. dollar functional currency international operations based on fixed currency exchange rates, which eliminates the impact of exchange rate fluctuations on its 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. The “Fixed Currency Rate Change” column shown in the following table reflects international operations at fixed currency exchange rates established by management at the beginning of 2022, rather than the 2021 established rates. The difference between the fixed currency exchange rates and the actual currency exchange rates is reported within the “Effect of foreign currency translation” row in the following table. The “Other” column shown in the following table reflects immaterial changes between reportable segments, including the movement of certain customers and cost allocations.

The impact of the preceding changes on previously reported full year 2021 reportable segment net sales and operating income is summarized as follows:


	December 31, 2021

	2021 Reported					Fixed	2021 Reported
	Valued at 2021				Currency		Valued at 2022
(millions)	Management Rates		Other		Rate Change		Management Rates
Net Sales
Global Industrial		$6,304.9		$-		($218.1)		$6,086.8
Global Institutional & Specialty		3,978.2		-		(69.4)		3,908.8
Global Healthcare & Life Sciences		1,195.4		-		(45.8)		1,149.6
Other		1,226.9		-		(25.9)		1,201.0
Corporate		139.4		-		(2.0)		137.4
Subtotal at fixed currency rates		12,844.8		-		(361.2)		12,483.6
Effect of foreign currency translation		(111.7)		-		361.2		249.5
Consolidated reported GAAP net sales		$12,733.1		$-		$-		$12,733.1

Operating Income
Global Industrial		$1,031.0		$4.0		($49.3)		$985.7
Global Institutional & Specialty		556.9		(3.8)		(7.4)		545.7
Global Healthcare & Life Sciences		160.9		(0.9)		(7.7)		152.3
Other		187.3		0.7		(4.0)		184.0
Corporate		(318.6)				2.0		(316.6)
Subtotal at fixed currency rates		1,617.5		-		(66.4)		1,551.1
Effect of foreign currency translation		(18.9)				66.4		47.5
Consolidated reported GAAP operating income		$1,598.6		$-		$-		$1,598.6

Reportable Segment Information

Financial information for the Company’s reportable segments, is as follows:

Third Quarter Ended

Nine Months Ended

September 30

(millions)

2022

2021

2022

2021

Net Sales

Global Industrial

$1,816.7

$1,565.0

$5,077.8

$4,452.2

Global Institutional & Specialty

1,183.2

1,057.1

3,323.4

2,864.7

Global Healthcare & Life Sciences

375.5

279.7

1,138.9

852.8

Other

362.1

319.5

1,000.4

885.2

Corporate

27.8

35.4

96.4

102.7

Subtotal at fixed currency rates

3,765.3

3,256.7

10,636.9

9,157.6

Effect of foreign currency translation

(96.0)

64.1

(120.3)

210.9

Consolidated reported GAAP net sales

$3,669.3

$3,320.8

$10,516.6

$9,368.5

Operating Income

Global Industrial

$277.0

$258.6

$693.2

$719.7

Global Institutional & Specialty

199.1

190.9

462.5

390.5

Global Healthcare & Life Sciences

34.7

35.2

137.3

123.9

Other

64.4

57.8

153.6

140.9

Corporate

(77.2)

(89.4)

(264.7)

(202.8)

Subtotal at fixed currency rates

498.0

453.1

1,181.9

1,172.2

Effect of foreign currency translation

(15.0)

12.7

(18.6)

38.7

Consolidated reported GAAP operating income

$483.0

$465.8

$1,163.3

$1,210.9

The profitability of the Company’s operating segments is evaluated by management based on operating income.

Consistent with the Company’s internal management reporting, Corporate amounts in the table above include sales to ChampionX in accordance with the long-term supply agreement entered into with the Transaction, as discussed in Note 14. Corporate also includes intangible asset amortization specifically from the Nalco and Purolite acquisitions and special (gains) and charges, as discussed in Note 2, that are not allocated to the Company’s reportable segments.

16. COMMITMENTS AND CONTINGENCIES

The Company is subject to various claims and contingencies related to, among other things, workers’ compensation, general liability (including product liability), automobile claims, health care claims, environmental matters and lawsuits. The Company is also subject to various claims and contingencies related to income taxes. The Company also has contractual obligations including lease commitments.

The Company records liabilities when a contingent loss is probable and can be reasonably estimated. If the reasonable estimate of a probable loss is a range, the Company records the most probable estimate of the loss or the minimum amount when no amount within the range is a better estimate than any other amount. The Company discloses a contingent liability even if the liability is not probable or the amount is not estimable, or both, if there is a reasonable possibility that a material loss may have been incurred.

Insurance

Globally, the Company has insurance policies with varying deductible levels for property and casualty losses. The Company is insured for losses in excess of these deductibles, subject to policy terms and conditions and has recorded both a liability and an offsetting receivable for amounts in excess of these deductibles. The Company is self-insured for health care claims for eligible participating employees, subject to certain deductibles and limitations. The Company determines its liabilities for claims on an actuarial basis.

Litigation and Environmental Matters

The Company and certain subsidiaries are party to various lawsuits, claims and environmental actions that have arisen in the ordinary course of business. These include from time to time antitrust, employment, commercial, patent infringement, tort, product liability and wage hour lawsuits, as well as possible obligations to investigate and mitigate the effects on the environment of the disposal or release of certain chemical substances at various sites, such as Superfund sites and other operating or closed facilities. The Company has established accruals for certain lawsuits, claims and environmental matters. The Company currently believes that there is not a reasonably possible risk of material loss in excess of the amounts accrued related to these legal matters. Because litigation is inherently uncertain, and unfavorable rulings or developments could occur, there can be no certainty that the Company may not ultimately incur charges in excess of recorded liabilities. A future adverse ruling, settlement or unfavorable development could result in future charges that could have a material adverse effect on the Company’s results of operations or cash flows in the period in which they are recorded. The Company currently believes that such future charges related to suits and legal claims, if any, would not have a material adverse effect on the Company’s consolidated financial position.

TPC Group Litigation

On November 27, 2019, a Butadiene production plant owned and operated by TPC Group, Inc. in Port Neches, Texas, experienced an explosion and fire that resulted in personal injuries, the release of chemical fumes and extensive property damage to the plant and surrounding areas in and near Port Neches, Texas.

Nalco Company LLC, a subsidiary of Ecolab, supplied process chemicals to TPC used in TPC’s production processes. Nalco did not operate, manage, maintain or control any aspect of TPC’s plant operations.

In connection with its provision of process chemicals to TPC, Nalco has been named in numerous lawsuits stemming from the plant explosion. Nalco has been named a defendant, along with TPC and other defendants, in multi-district litigation (“MDL”) proceedings pending in Orange County, Texas, alleging among other things claims for personal injury, property damage and business losses (In re TPC Group Litigation – A2020-0236-MDL, Orange County, Texas). In addition, numerous other lawsuits have been filed against Nalco, including TPC Group v. Nalco, E0208239, Jefferson County, Texas, a subrogation claim by TPC’s insurers seeking reimbursement for property damage losses. Over 5,000 plaintiffs (including the subrogation matter) currently have asserted claims against Nalco.

All of these cases make similar allegations and seek damages for personal injury, property damage, business losses and other damages, including exemplary damages. The Company expects all these cases will be consolidated for pretrial purposes into the Orange County MDL referenced above. Due to the large number of plaintiffs, the early stage of the litigation and the fact that many of the claims do not specify an amount of damages, any estimate of any loss or range of losses cannot be made at this time.

On June 1, 2022, TPC and seven of its affiliated companies filed for bankruptcy reorganization under Chapter 11 (Case No. 22-10493-CTG, United States Bankruptcy Court for the District of Delaware), and the bankruptcy cases are expected to continue through at least November 2022. In connection with the bankruptcy cases, TPC has disclosed an estimated range of its liability related to the Port Neches incident to individuals and homeowners (including subrogation claims) of approximately $152 million to $520 million. TPC and its affiliates have announced a settlement in principle between them and certain of these plaintiffs seeking to discharge all Port Neches related claims asserted against TPC and its affiliates in exchange for $30 million and the establishment of a settlement trust for the benefit of certain general unsecured creditors, to which TPC would assign its claims and causes of action, if any, against certain third parties, including Nalco, related to the TPC plant explosion. The settlement is subject to definitive documentation and approval in the bankruptcy court.

The Company believes the claims asserted against Nalco in the lawsuits stemming from the TPC plant explosion are without merit and intends to defend the claims vigorously. The Company also believes the claims should be covered by insurance subject to deductibles. However, the Company cannot predict the outcome of these lawsuits, the involvement the Company might have in these matters in the future or the potential for future litigation.

Environmental Matters

The Company is currently participating in environmental assessments and remediation at approximately 30 locations, the majority of which are in the U.S., and environmental liabilities have been accrued reflecting management’s best estimate of future costs. Potential insurance reimbursements are not anticipated in the Company’s accruals for environmental liabilities.

17. NEW ACCOUNTING PRONOUNCEMENTS


Standards That Are Not Yet Adopted:
			Required
	Date of		Date of	Effect on the
Standard	Issuance	Description	Adoption	Financial Statements



ASU 2020-04 - Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting ASU 2021-01 - Reference Rate Reform (Topic 848): Scope	March 2020	Certain LIBOR rates, widely used reference rates for pricing financial products were discontinued on December 31, 2021. This standard provides optional expedients and exceptions if certain criteria are met when accounting for contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform.	Application of guidance is optional until the options and expedients expire on December 31, 2022.	The Company evaluated contracts whose terms previously included references to LIBOR or one of its equivalents and identified two contracts requiring modifications of the interest rate provisions included therein. The Company applied certain of the expedients included in ASC 848 allowing the Company to account for the contract modifications prospectively. There were no financial statement impacts at the time of modification.

ASU 2021-08 - Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers	October 2021	Update to improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to the recognition of an acquired contract liability and payment terms and their effect on subsequent revenue recognized by the acquirer.	January 1, 2023.	The Company is currently evaluating any potential future impacts on the Company's financial statements, any such changes would be prospective.

ASU 2021 -10 - Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance	November 2021	Update to increase the transparency of government assistance including annual disclosure of the types of assistance, an entity’s accounting for the assistance, and the effect of the assistance on an entity’s financial statements.	Annual period beginning January 1, 2022.	The Company is currently gathering the information and evaluating the future impact on the Company's financial statement annual disclosures.

No other new accounting pronouncements issued or effective have had or are expected to have a material impact on the Company’s consolidated financial statements.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of Ecolab Inc.

Results of Review of Interim Financial Statements

We have reviewed the accompanying consolidated balance sheet of Ecolab Inc. and its subsidiaries (the “Company”) as of September 30, 2022, and the related consolidated statements of income, comprehensive income, and equity for the three-month and nine-month periods ended September 30, 2022 and 2021, and the consolidated statements of cash flows for the nine-month periods ended September 30, 2022 and 2021, including the related notes (collectively referred to as the “interim financial statements”). Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of the Company as of December 31, 2021, and the related consolidated statements of income, comprehensive income, equity and cash flows for the year then ended (not presented herein), and in our report dated February 25, 2022, which included a paragraph describing a change in the manner of accounting for leases in the 2019 financial statements, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet information as of December 31, 2021, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Basis for Review Results

These interim financial statements are the responsibility of the Company’s management. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (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 review in accordance with the standards of the PCAOB. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.





/s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP
Minneapolis, Minnesota
November 4, 2022

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following management discussion and analysis (“MD&A”) provides information 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.

The MD&A should be read in conjunction with both the unaudited consolidated financial information and related notes included in this Form 10-Q, and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2021. 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 entitled “Non-GAAP Financial Measures” and “Forward-Looking Statements” located at the end of Part I of this report.

Comparability of Results

Purolite Acquisition

On December 1, 2021, we acquired Purolite Corporation (“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. Amortization of acquisition-related intangible assets is recorded in the Corporate reportable segment.

Impact of Acquisitions and Divestitures

Acquisition adjusted growth rates exclude the results of our acquired businesses from the first twelve months post acquisition and the results of our divested businesses from the twelve months prior to divestiture. As part of the separation of ChampionX in 2020, we 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. 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.

OVERVIEW OF THE THIRD QUARTER ENDED SEPTEMBER 30, 2022

Sales Performance

When comparing third quarter 2022 against third quarter 2021, sales performance was as follows:

●	Reported net sales increased 10% to $3,669.3 million, fixed currency sales increased 16% and acquisition adjusted fixed currency sales increased 13%.

●	Fixed currency sales for our Global Industrial segment increased 16% to $1,816.7 million, as strong double-digit growth across all divisions was driven by accelerating total pricing and new business wins.

●

Fixed currency sales for our Global Institutional & Specialty segment increased 12% to $1,183.2 million. Continued double-digit growth in the Institutional division reflected accelerating total pricing and volume growth. Specialty sales showed good growth, driven by strong quickservice sales growth.

●

Fixed currency sales for our Global Healthcare & Life Sciences segment increased 34% to $375.5 million. Acquisition adjusted fixed currency sales were flat as growth in Life Sciences was offset by slightly lower Healthcare sales. Healthcare’s decline reflected accelerating total pricing that were offset by continued softness in Europe.

●	Fixed currency sales and acquisition adjusted fixed currency sales for Other increased 13% to $362.1 million reflecting double-digit growth in Pest Elimination, Textile Care and Colloidal Technologies.

Financial Performance

When comparing third quarter 2022 against third quarter 2021, our financial performance was as follows:

●	Reported operating income increased 4% to $483 million. Excluding the impact of special (gains) and charges from both 2022 and 2021 reported results, adjusted operating income decreased 3% and our adjusted fixed currency operating income increased 2%.

●	Net income attributable to Ecolab increased 7% to $347.1 million. Excluding the impact of special (gains) and charges and discrete tax items from both 2022 and 2021 reported results, our adjusted net income attributable to Ecolab decreased 7%.

●	Reported diluted EPS increased 8% to $1.21. Excluding the impact of special (gains) and charges and discrete tax items from both 2022 and 2021 reported results, adjusted diluted EPS decreased 6% to $1.30 in the third quarter of 2022.

●

Our reported tax rate was 14.6% during the third quarter of 2022, compared to 18.3% during the third quarter of 2021. Excluding the tax rate impact of special (gains) and charges and discrete tax items from both 2022 and 2021 results, our adjusted tax rate was 18.3% during the third quarter of 2022, compared to 19.5% during the third quarter of 2021.

RESULTS OF OPERATIONS

Net Sales


	Third Quarter Ended						Nine Months Ended
	September 30						September 30
(millions)	2022		2021		Change		2022		2021		Change
Product and equipment sales		$2,963.0		$2,653.8				$8,473.9		$7,461.6
Service and lease sales		706.3		667.0				2,042.7		1,906.9
Reported GAAP net sales		$3,669.3		$3,320.8	10	%		$10,516.6		$9,368.5	12	%
Effect of foreign currency translation		96.0		(64.1)				120.3		(210.9)
Non-GAAP fixed currency sales		$3,765.3		$3,256.7	16	%		$10,636.9		$9,157.6	16	%

Product and sold equipment revenue is generated from providing cleaning, sanitizing and water treatment products or selling equipment used in combination with specialized products. Service and lease equipment revenue is generated from providing services or leasing equipment to customers. All of our sales are subject to the same economic conditions.

The percentage components of the period-over-period 2022 sales change are shown below:


	Third Quarter Ended			Nine Months Ended
	September 30			September 30
(percent)	2022			2022
Volume		1	%		4	%
Price changes		12			9
Acquisition adjusted fixed currency sales change		13			13
Acquisitions and divestitures		3			4
Fixed currency sales change		16			16
Foreign currency translation		(5)			(4)
Reported GAAP net sales change		10	%		12	%

Amounts do not necessarily sum due to rounding.

Cost of Sales (“COS”) and Gross Profit Margin

Third Quarter Ended

Nine Months Ended

September 30

2022

2021

2022

2021

Gross

(millions/percent)

COS

Margin

COS

Margin

COS

Margin

COS

Margin

Product and equipment cost of sales

$1,877.1

$1,625.1

$5,371.7

$4,452.9

Service and lease cost of sales

414.5

391.6

1,204.4

1,119.8

Reported GAAP COS and gross margin

$2,291.6

37.5

$2,016.7

39.3

$6,576.1

37.5

$5,572.7

40.5

Special (gains) and charges

7.1

52.9

61.7

76.2

Non-GAAP adjusted COS and gross margin

$2,284.5

37.7

$1,963.8

40.9

$6,514.4

38.1

$5,496.5

41.3

Our COS and corresponding gross profit margin (“gross margin”) are shown in the table above. Gross margin is defined as net sales less cost of sales divided by net sales.

Our reported gross margin was 37.5% and 39.3% for the third quarter of 2022 and 2021, respectively. Our reported gross margin was 37.5% and 40.5% for the first nine months of 2022 and 2021, respectively. Special (gains) and charges included in items impacting cost of sales are shown within the “Special (Gains) and Charges” table below.

Excluding the impact of special (gains) and charges within cost of sales, third quarter 2022 adjusted gross margin was 37.7% and our adjusted gross margin for the first nine months of 2022 was 38.1%. These percentages compared against a third quarter 2021 adjusted gross margin of 40.9% and an adjusted gross margin of 41.3% for the first nine months of 2021.

Our adjusted gross margin decreased when comparing the third quarter and first nine months of 2022 against the third quarter and first nine months of 2021, primarily reflecting accelerating total pricing that was more than offset by a significant increase in delivered product cost inflation and unfavorable mix.

Selling, General and Administrative Expense

Selling, general and administrative (“SG&A”) expenses as a percentage of sales were 23.9% and 26.0% for the third quarter and first nine months of 2022, respectively, compared to 25.1% and 27.2% for the third quarter and first nine months of 2021, respectively. The SG&A ratio to sales in the third quarter and first nine months of 2022 decreased driven by sales leverage and cost savings that more than offset investments in the business.

Special (Gains) and Charges

Special (gains) and charges reported on the Consolidated Statements of Income include the following items:


	Third Quarter Ended				Nine Months Ended
	September 30				September 30
(millions)	2022		2021		2022		2021
Cost of sales
Restructuring activities		$2.1		$2.2		$5.5		$24.1
Acquisition and integration activities		4.2		-		32.7		-
COVID-19 activities, net		-		50.7		16.3		51.8
Russia/Ukraine activities		0.8		-		7.2		-
Other		-		-		-		0.3
Cost of sales subtotal		7.1		52.9		61.7		76.2

Special (gains) and charges
Restructuring activities		(0.3)		0.4		0.8		6.5
Acquisition and integration activities		4.1		0.8		15.0		3.3
COVID-19 activities, net		2.5		1.5		7.1		16.2
Russia/Ukraine activities		-		-		5.9		-
Other		11.5		3.6		16.7		10.7
Special (gains) and charges subtotal		17.8		6.3		45.5		36.7

Operating income subtotal		24.9		59.2		107.2		112.9

Other (income) expense		24.8		7.0		24.8		26.6
Interest expense, net		-		32.3		-		32.3

Total special (gains) and charges		$49.7		$98.5		$132.0		$171.8

For segment reporting purposes, special (gains) and charges are not allocated to reportable segments, which is consistent with our internal management reporting.

Restructuring activities

Further details related to our restructuring charges are included in Note 2.

Institutional Advancement Program

We approved a restructuring plan in 2020 focused on the 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 expanded the Institutional Plan, and we expect that these restructuring charges will be completed by 2023, with total anticipated costs of $70 million ($55 million after tax) or $0.19 per diluted share. The remaining costs are expected to be primarily cash expenditures for severance and non-cash charges related to equipment disposals. Actual costs may vary from these estimates depending on actions taken.

In the third quarter and first nine months of 2022, we recorded restructuring charges of $1.8 million ($1.3 million after tax) or less than $0.01 per diluted share and $3.9 million ($2.9 million after tax) or $0.01 per diluted share, respectively, primarily related to severance, disposals of equipment and office closures. We have recorded $51.7 million ($39.5 million after tax), or $0.14 per diluted share of cumulative restructuring charges under the Institutional Plan. The liability related to the Institutional Plan was $2.2 million as of September 30, 2022. 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 Institutional Plan has delivered $48 million of cumulative cost savings with estimated annual cost savings of $55 million 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 goals of the Plan are to further simplify and automate processes and tasks, reduce complexity and management layers, consolidate facilitates 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 $0.68 per diluted share. Remaining 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 (gains) of ($0.6) million ($0.3 million after tax), or less than $0.01 per diluted share and $1.5 million ($1.2 million after tax), or less than $0.01 per diluted share in the third quarter of 2022 and 2021, respectively and ($0.2) million ($0.1 million after tax), or less than $0.01 per diluted share and $2.9 million ($2.8 million after tax), or $0.01 per diluted share in the first nine months of 2022 and 2021, respectively. The liability related to the Plan was $15.5 million as of the end of the third quarter of 2022. We have recorded $244.3 million ($189.9 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 $315 million of cumulative cost savings with estimated annual cost savings of $315 million by 2022.

Other Restructuring Activities

During the third quarter of 2022 and 2021, we incurred restructuring charges (gains) of $0.6 million ($0.5 million after tax), or less than $0.01 per diluted share and ($0.3) million ($0.5 million after tax), or less than $0.01 per diluted share, respectively, and during the first nine months of 2022 and 2021, we incurred $2.6 million ($2.0 million after tax), or less than $0.01 per diluted share and $18.2 million ($16.9 million after tax), or $0.06 per diluted share, respectively, related to other immaterial restructuring activity. The charges primarily related to severance and asset write-offs.

The restructuring liability balance for all other restructuring plans excluding the Accelerate 2020 and Institutional Plan were $4.0 million and $4.6 million as of September 30, 2022 and December 31, 2021, respectively. The remaining liability is expected to be paid over a period of a few months to several quarters and will continue to be funded from operating activities. Cash payments during the third quarter of 2022 related to all other restructuring plans excluding the Accelerate 2020 and Institutional Plan were $3.2 million.

Acquisition and integration related costs

Acquisition and integration related costs reported in product and equipment cost of sales on the Consolidated Statements of Income in the third quarter and first nine months of 2022 include $4.2 million ($3.9 million after tax) or $0.01 per diluted share and $32.7 million ($25.8 million after tax) or $0.09 per diluted share, respectively, and are related primarily to the recognition of fair value step-up in the Purolite inventory and other integration costs.

Acquisition and integration related costs reported in special (gains) and charges on the Consolidated Statements of Income include $4.1 million ($3.9 million after tax) or $0.01 per diluted share and $15.0 million ($11.9 million after tax) or $0.04 per diluted share in the third quarter and first nine months of 2022, respectively. Charges are related to Purolite, Copal Invest NV, including its primary operating entity CID Lines (collectively, “CID Lines”), and Bioquell PLC (“Bioquell”) acquisitions and consist of integration related costs, advisory and legal fees.

Acquisition and integration costs reported in special (gains) and charges on the Consolidated Statements of Income include $0.8 million ($0.8 million after tax) or less than $0.01 per diluted share and $3.3 million ($2.9 million after tax) or $0.01 per diluted share in the third quarter and first nine months of 2021, respectively. Charges are related to CID Lines, and Bioquell acquisitions and consist of integration costs, advisory and legal fees.

COVID-19 activities

We recorded charges of $1.3 million during the third quarter and first nine months of 2022 to protect the wages of certain employees directly impacted by the COVID-19 pandemic. We also recorded charges of $1.6 million and $7.7 million related to employee COVID-19 testing and related expenses during the third quarter and first nine months of 2022, respectively. In addition, we received immaterial amounts of subsidies and government assistance which were recorded in special (gains) and charges in the first nine months of both 2022 and 2021. We recorded $15 million in inventory reserves related to excess sanitizer inventory and estimated disposal costs during the first quarter of 2022. COVID-19 pandemic charges are recorded in product and equipment cost of sales and special (gains) and charges on the Consolidated Statements of Income. Total after tax net charges related to the COVID-19 pandemic were $2.1 million or less than $0.01 per diluted share and $17.9 million or $0.06 per diluted share during the third quarter and first nine months of 2022, respectively.

During the third quarter and first nine months of 2021, we recorded charges of $2.6 million and $12.6 million, respectively, to protect the wages of certain employees directly impacted by the COVID-19 pandemic. We also recorded charges of $3.1 million and $11.5 million, respectively, during the third quarter and first nine months of 2021 related to COVID-19 testing and related expenses. In addition, we received subsidies and government assistance, which were recorded as special (gains) and charges of ($3.5) million and ($6.1) million during the third quarter and first nine months of 2021, respectively. COVID-19 pandemic charges are recorded in product and equipment sales, service and lease sales, and special (gains) and charges on the Consolidated Statements of Income. Total after tax net charges related to COVID-19 pandemic were $40.6 million or $0.14 per diluted share and $51.9 million or $0.18 per diluted share during the third quarter and first nine months of 2021, respectively.

Russia/Ukraine activities

In light of Russia’s invasion of Ukraine and the sanctions against Russia by the United States and other countries, we have made the determination that we will limit our Russian business to operations that are essential to life, providing minimal support for our healthcare, life sciences, food and beverage and certain water businesses. We recorded charges of $0.8 million ($0.7 million after tax) or less than $0.01 per diluted share and charges of $13.1 million ($14.0 million after tax) or $0.05 per diluted share in the third quarter and first nine months of 2022, respectively, primarily related to recoverability risk of certain assets in both Russia and Ukraine.

Other operating activities

Other special charges recorded in the third quarter and first nine months of 2022 in special (gains) and charges on the Consolidated Statements of Income were $11.5 million ($8.7 million after tax) or $0.03 per diluted share and $16.7 million ($12.6 million after tax) or $0.04 per diluted share, respectively, primarily related to certain legal charges.

Other special charges of $3.6 million ($2.7 million after tax) or $0.01 per diluted share and $10.7 million ($8.3 million after tax) or $0.03 per diluted share recorded in the third quarter and first nine months of 2021, respectively, related to certain legal charges in addition to tax consulting fees associated with the ChampionX separation, which are recorded in special (gains) and charges and product and equipment cost of sales on the Consolidated Statements of Income.

Other (income) expense

We incurred settlement expense recorded in other expense (income) on the Consolidated Statements of Income of $24.8 million ($18.8 million after tax) or $0.07 per diluted share and $7.0 million ($5.3 million after tax) or $0.02 per diluted share during the third quarter of 2022 and 2021, respectively, and $24.8 million ($18.8 million after tax) or $0.07 per diluted share and $26.6 million ($20.2 million after tax) or $0.07 per diluted share during the first nine months of 2022 and 2021, respectively. Expenses are related to U.S. pension plan lump-sum payments to retirees.

Interest expense

During the third quarter of 2021, we recorded special charges of $32.3 million ($28.4 million after tax) or $0.10 per diluted share in interest expense on the Consolidated Statement of Income primarily related to debt refinancing charges.

Operating Income and Operating Income Margin


	Third Quarter Ended									Nine Months Ended
	September 30									September 30
(millions)	2022			2021			Change			2022			2021			Change
Reported GAAP operating income		$483.0			$465.8			4	%		$1,163.3			$1,210.9			(4)	%
Special (gains) and charges		24.9			59.2						107.2			112.9
Non-GAAP adjusted operating income		507.9			525.0			(3)	%		1,270.5			1,323.8			(4)	%
Effect of foreign currency translation		15.0			(12.7)						18.6			(38.7)
Non-GAAP adjusted fixed currency operating income		$522.9			$512.3			2	%		$1,289.1			$1,285.1			0	%

	Third Quarter Ended									Nine Months Ended
	September 30									September 30
(percent)	2022			2021						2022			2021
Reported GAAP operating income margin		13.2	%		14.0	%					11.1	%		12.9	%
Non-GAAP adjusted operating income margin		13.8	%		15.8	%					12.1	%		14.1	%
Non-GAAP adjusted fixed currency operating income margin		13.9	%		15.7	%					12.1	%		14.0	%

Our operating income and corresponding operating income margin are shown in the previous tables. Operating income margin is defined as operating income divided by net sales.

Our reported operating income increased 4% and decreased 4% in the third quarter and first nine months of 2022, respectively, versus the comparable period of 2021. Our reported operating income for 2022 and 2021 was impacted by special (gains) and charges; excluding the impact of special (gains) and charges from 2022 and 2021 reported results, our adjusted operating income decreased 3% and 4% in the third quarter and first nine months of 2022, respectively.

As shown in the previous table, foreign currency had a 5 and 4 percentage points impact on adjusted operating income growth for the third quarter and first nine months of 2022, respectively. Foreign currency had a 2 and 4 percentage points impact on adjusted operating income growth for the third quarter and first nine months of 2021, respectively.

Other (Income) Expense


	Third Quarter Ended						Nine Months Ended
	September 30						September 30
(millions)	2022		2021		Change		2022		2021		Change
Reported GAAP other (income) expense		$5.7		($13.0)	(144)	%		($32.6)		($27.5)	19	%
Special (gains) and charges		24.8		7.0				24.8		26.6
Non-GAAP adjusted other (income) expense		($19.1)		($20.0)	(4)	%		($57.4)		($54.1)	6	%

Other expense (income) was $5.7 million and ($13.0) million in the third quarter of 2022 and 2021, respectively. Other income was $32.6 million and $27.5 million in the first nine months of 2022 and 2021, respectively. We recognized pension settlement expense of $24.8 million in special (gains) and charges in third quarter and first nine months of 2022, and $7.0 million and $26.6 million in third quarter and first nine months of 2021, respectively.

Interest Expense, Net


	Third Quarter Ended						Nine Months Ended
	September 30						September 30
(millions)	2022		2021		Change		2022		2021		Change
Reported GAAP interest expense, net		$65.1		$76.4	(15)	%		$174.1		$173.7	0	%
Special (gains) and charges		-		32.3				-		32.3
Non-GAAP adjusted interest expense, net		$65.1		$44.1	48	%		$174.1		$141.4	23	%

Reported net interest expense was $65.1 million and $76.4 million in the third quarter of 2022 and 2021, respectively. Reported net interest expense was $174.1 million and $173.7 million in the first nine months of 2022 and 2021, respectively. In the third quarter of 2021, we incurred $32.3 million of expense associated with debt refinancing. Adjusted for debt refinancing costs, the increase in interest expense when comparing 2022 against 2021 was driven primarily by the interest on debt issued to fund the Purolite acquisition and the impact from higher average interest rates on floating rate debt.

Provision for Income Taxes

The following table provides a summary of our tax rate:


	Third Quarter Ended				Nine Months Ended
	September 30				September 30
(percent)	2022		2021		2022		2021
Reported GAAP tax rate	14.6	%	18.3	%	17.9	%	21.2	%
Tax rate impact of:
Special (gains) and charges	0.6		-		0.2		(0.3)
Discrete tax items	3.1		1.2		0.8		(1.4)
Non-GAAP adjusted tax rate	18.3	%	19.5	%	18.9	%	19.5	%

Our reported tax rate was 14.6% and 18.3% for the third quarter of 2022 and 2021, respectively and 17.9% and 21.2% for the first nine months of 2022 and 2021, respectively. The change in our tax rate for the third quarter and first nine months of 2022 versus the comparable period of 2021 was driven primarily by discrete tax items and special (gains) and charges. The change in our tax rate includes the tax impact of special (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) 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.

We recognized a net tax benefit related to discrete tax items of $14.2 million and $9.5 million in the third quarter and first nine months of 2022, respectively. This included a deferred tax benefit of $14.6 million associated with utilization of tax attributes as a result of legal entity rationalization and share-based compensation excess tax benefits of $0.7 million and $4.3 million in the third quarter and first nine months of 2022, respectively. The amount of the excess tax benefit is subject to variation in stock price and award exercises. Additionally, we recognized discrete tax expense of $1.1 million and $9.4 million in the third quarter and first nine months of 2022, respectively, primarily due to audit settlements, reserves for uncertain tax positions, prior year return adjustments, repricing of deferred tax balances, and other changes in estimates.

We recognized a net tax benefit related to discrete tax items of $6.3 million in the third quarter and a net tax expense of $17.5 million in the first nine months of 2021. This included a tax benefit of $4.0 million in the third quarter and a net tax expense of $5.5 million in the first nine months of 2021 related to prior year returns, and a deferred tax benefit of $0.4 million and deferred tax expense of $23.8 million associated with transferring certain intangible property between affiliates in the third quarter and first nine months of 2021, respectively. The share-based compensation excess tax benefit was $9.9 million and $20.7 million in the third quarter and first nine months of 2021, respectively. The remaining discrete tax expense of $8.0 million and $8.9 million during the quarter and first nine months of 2021, respectively, was primarily due to changes in tax law, reserves for uncertain tax positions, audit settlements, and other changes in estimates.

The decrease in the third quarter and first nine months of 2022 adjusted tax rate compared to 2021 was primarily due to the geographic mix of income and tax planning.

Net Income Attributable to Ecolab

Third Quarter Ended

Nine Months Ended

September 30

(millions)

2022

2021

Change

2022

2021

Change

Reported GAAP net income attributable to Ecolab

$347.1

$324.5

$827.3

$828.9

(0)

Adjustments:

Special (gains) and charges, after tax

39.6

80.8

105.8

139.1

Discrete tax net expense

(14.2)

(6.3)

(9.5)

17.5

Non-GAAP adjusted net income attributable to Ecolab

$372.5

$399.0

(7)

$923.6

$985.5

(6)

Diluted EPS


	Third Quarter Ended							Nine Months Ended
	September 30							September 30
(dollars)	2022		2021		Change			2022		2021		Change
Reported GAAP diluted EPS		$1.21		$ 1.12		8	%		$2.88		$ 2.87		0	%
Adjustments:
Special (gains) and charges, after tax		0.14		0.28					0.37		0.48
Discrete tax net expense		(0.05)		(0.02)					(0.03)		0.06
Non-GAAP adjusted diluted EPS		$1.30		$ 1.38		(6)	%		$3.22		$ 3.41		(6)	%

Per share amounts in the above tables do not necessary sum due to rounding.

Currency translation had an unfavorable impact of approximately ($0.08) and ($0.17) per share on diluted EPS for the third quarter and first nine months of 2022, respectively, when compared to the comparable periods of 2021.

SEGMENT PERFORMANCE

The non-U.S. dollar functional international amounts included within our reportable segments are based on translation into U.S. dollars at the fixed currency exchange rates used by management for 2022. 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. All other accounting policies of the reportable segments are consistent with U.S. GAAP and the accounting policies described in Note 2 of our Annual Report on Form 10-K for the year ended December 31, 2021. Additional information about our reportable segments is included in Note 15.

Fixed currency net sales and operating income for the third quarter and first nine months of 2022 and 2021 for our reportable segments are shown in the following tables:


Net Sales	Third Quarter Ended						Nine Months Ended
	September 30						September 30
(millions)	2022		2021		Change		2022		2021		Change
Global Industrial		$1,816.7		$1,565.0	16	%		$5,077.8		$4,452.2	14	%
Global Institutional & Specialty		1,183.2		1,057.1	12			3,323.4		2,864.7	16
Global Healthcare & Life Sciences		375.5		279.7	34			1,138.9		852.8	34
Other		362.1		319.5	13			1,000.4		885.2	13
Corporate		27.8		35.4	(21)			96.4		102.7	(6)
Subtotal at fixed currency		3,765.3		3,256.7	16			10,636.9		9,157.6	16
Effect of foreign currency translation		(96.0)		64.1				(120.3)		210.9
Consolidated reported GAAP net sales		$3,669.3		$3,320.8	10	%		$10,516.6		$9,368.5	12	%

Operating Income	Third Quarter Ended						Nine Months Ended
	September 30						September 30
(millions)	2022		2021		Change		2022		2021		Change
Global Industrial		$277.0		$258.6	7	%		$693.2		$719.7	(4)	%
Global Institutional & Specialty		199.1		190.9	4			462.5		390.5	18
Global Healthcare & Life Sciences		34.7		35.2	(1)			137.3		123.9	11
Other		64.4		57.8	11			153.6		140.9	9
Corporate		(77.2)		(89.4)	(14)			(264.7)		(202.8)	31
Subtotal at fixed currency		498.0		453.1	10			1,181.9		1,172.2	1
Effect of foreign currency translation		(15.0)		12.7				(18.6)		38.7
Consolidated reported GAAP operating income		$483.0		$465.8	4	%		$1,163.3		$1,210.9	(4)	%

The following tables reconcile the impact of acquisitions and divestitures within our reportable segments:

Third Quarter Ended

September 30

Net Sales

2022

2021

(millions)

Fixed
Currency

Impact of Acquisitions and Divestitures

Acquisition Adjusted

Fixed
Currency

Impact of Acquisitions and Divestitures

Acquisition Adjusted

Global Industrial

$1,816.7

($7.9)

$1,808.8

$1,565.0

Global Institutional & Specialty

1,183.2

1,057.1

Global Healthcare & Life Sciences

375.5

(95.5)

280.0

279.7

Other

362.1

319.5

Corporate

27.8

(27.8)

35.4

(35.4)

Subtotal at fixed currency

3,765.3

(131.2)

3,634.1

3,256.7

(35.4)

3,221.3

Effect of foreign currency translation

(96.0)

64.1

Total reported net sales

$3,669.3

$3,320.8

Operating Income

2022

2021

(millions)

Fixed
Currency

Impact of Acquisitions and Divestitures

Acquisition Adjusted

Fixed
Currency

Impact of Acquisitions and Divestitures

Acquisition Adjusted

Global Industrial

$277.0

($1.3)

$275.7

$258.6

Global Institutional & Specialty

199.1

190.9

Global Healthcare & Life Sciences

34.7

(15.6)

19.1

35.2

Other

64.4

57.8

Corporate

(52.3)

22.4

(29.9)

(30.2)

Non-GAAP adjusted fixed currency operating income

522.9

5.5

528.4

512.3

Special (gains) and charges

24.9

59.2

Subtotal at fixed currency

498.0

453.1

Effect of foreign currency translation

(15.0)

12.7

Total reported operating income

$483.0

$465.8

Nine Months Ended

September 30

Net Sales

2022

2021

(millions)

Fixed
Currency

Impact of Acquisitions and Divestitures

Acquisition Adjusted

Fixed
Currency

Impact of Acquisitions and Divestitures

Acquisition Adjusted

Global Industrial

$5,077.8

($21.0)

$5,056.8

$4,452.2

Global Institutional & Specialty

3,323.4

2,864.7

Global Healthcare & Life Sciences

1,138.9

(307.5)

831.4

852.8

Other

1,000.4

885.2

Corporate

96.4

(96.4)

102.7

(102.7)

Subtotal at fixed currency

10,636.9

(424.9)

10,212.0

9,157.6

(102.7)

9,054.9

Effect of foreign currency translation

(120.3)

210.9

Total reported net sales

$10,516.6

$9,368.5

Operating Income

2022

2021

(millions)

Fixed
Currency

Impact of Acquisitions and Divestitures

Acquisition Adjusted

Fixed
Currency

Impact of Acquisitions and Divestitures

Acquisition Adjusted

Global Industrial

$693.2

($3.4)

$689.8

$719.7

Global Institutional & Specialty

462.5

390.5

Global Healthcare & Life Sciences

137.3

(65.1)

72.2

123.9

Other

153.6

140.9

Corporate

(157.5)

68.0

(89.5)

(89.9)

Non-GAAP adjusted fixed currency operating income

1,289.1

(0.5)

1,288.6

1,285.1

Special (gains) and charges

107.2

112.9

Subtotal at fixed currency

1,181.9

1,172.2

Effect of foreign currency translation

(18.6)

38.7

Total reported operating income

$1,163.3

$1,210.9

Unless otherwise noted, the following segment performance commentary compares the third quarter and first nine months of 2022 against the third quarter and first nine months of 2021.

Global Industrial


	Third Quarter Ended						Nine Months Ended
	September 30						September 30
	2022			2021			2022			2021
Sales at fixed currency (millions)		$1,816.7			$1,565.0			$5,077.8			$4,452.2
Sales at public currency (millions)		1,769.6			1,603.1			5,025.2			4,578.6

Volume		-	%					2	%
Price changes		15	%					11	%
Acquisition adjusted fixed currency sales change		16	%					14	%
Acquisitions and divestitures		1	%					-	%
Fixed currency sales change		16	%					14	%
Foreign currency translation		(5)	%					(4)	%
Public currency sales change		10	%					10	%

Operating income at fixed currency (millions)		$277.0			$258.6			$693.2			$719.7
Operating income at public currency (millions)		269.0			267.1			684.2			748.2

Fixed currency operating income change		7	%					(4)	%
Fixed currency operating income margin		15.2	%		16.5	%		13.7	%		16.2	%
Acquisition adjusted fixed currency operating income change		7	%					(4)	%
Acquisition adjusted fixed currency operating income margin		15.2	%		16.5	%		13.6	%		16.2	%
Public currency operating income change		1	%					(9)	%

Percentages in the above table do not necessarily sum due to rounding.

Net Sales

Fixed currency sales for Global Industrial increased in both the third quarter and first nine months of 2022, as strong double-digit growth across all divisions was driven by accelerating total pricing and new business wins.

All operating segments reported double-digit growth, Water fixed currency sales increased 15% (14% acquisition adjusted) and 13% (12% acquisition adjusted) in the third quarter and first nine months of 2022, respectively, reflecting accelerating total pricing and new business wins. Light industry water treatment sales reported strong growth, driven by double-digit growth across data centers and microelectronics, food & beverage, manufacturing, and institutional. Heavy industry sales also recorded a strong increase led by double digit growth in power and chemicals. Mining showed very strong growth, benefiting from our strategic shift toward high-value metals and fertilizers, as well as strong new business wins. Food & Beverage fixed currency sales increased 14% and 12% in the third quarter and first nine months of 2022, respectively, reflecting accelerating total pricing. Downstream fixed currency sales increased 22% and 16% in the third quarter and first nine months of 2022, respectively, driven by accelerating pricing, new business wins and improved customer utilization rates. Paper fixed currency sales increased 19% and 17% in the third quarter and first nine months of 2022, respectively, driven by accelerating total pricing and new business wins.

Operating Income

Fixed currency operating income increased for the third quarter and decreased for first nine months of 2022, while fixed currency operating income margins decreased for Global Industrial in both the third quarter and first nine months of 2022.

Acquisition adjusted fixed currency operating income margins decreased 1.3 percentage points during the third quarter of 2022, as the 11.2 percentage point positive impacts of accelerating total pricing was more than offset by the 12.1 percentage points negative impacts of significantly higher Delivered Product Costs and unfavorable mix. Acquisition adjusted fixed currency operating income margins decreased 2.6 percentage points during the first nine months of 2022, as the 8.7 percentage point positive impacts of strong accelerating pricing were more than offset by the 12.0 percentage point negative impacts of significantly higher Delivered Product Costs and investments in the business.

Global Institutional & Specialty


	Third Quarter Ended						Nine Months Ended
	September 30						September 30
	2022			2021			2022			2021
Sales at fixed currency (millions)		$1,183.2			$1,057.1			$3,323.4			$2,864.7
Sales at public currency (millions)		1,163.1			1,070.6			3,297.3			2,904.0

Volume		2	%					9	%
Price changes		10	%					7	%
Acquisition adjusted fixed currency sales change		12	%					16	%
Acquisitions and divestitures		-	%					-	%
Fixed currency sales change		12	%					16	%
Foreign currency translation		(3)	%					(2)	%
Public currency sales change		9	%					14	%

Operating income at fixed currency (millions)		$199.1			$190.9			$462.5			$390.5
Operating income at public currency (millions)		196.1			193.4			458.5			393.9

Fixed currency operating income change		4	%					18	%
Fixed currency operating income margin		16.8	%		18.1	%		13.9	%		13.6	%
Acquisition adjusted fixed currency operating income change		4	%					18	%
Acquisition adjusted fixed currency operating income margin		16.8	%		18.1	%		13.9	%		13.6	%
Public currency operating income change		1	%					16	%

Percentages in the above table do not necessarily sum due to rounding.

Net Sales

Fixed currency sales for Global Institutional & Specialty increased in the third quarter and first nine months of 2022.

At an operating segment level, Institutional fixed currency sales increased 14% and 20% in the third quarter and first nine months of 2022, respectively, driven by accelerating total pricing and new business wins. Specialty fixed currency sales increased 8% and 6% in third quarter and first nine months of 2022, respectively, driven by strong quick service sales and modest growth in food retail sales.

Operating Income

Fixed currency operating income increased for both the third quarter and first nine months of 2022 while fixed currency operating income margins decreased and increased for the third quarter and first nine months of 2022, respectively, for our Global Institutional & Specialty segment.

Acquisition adjusted fixed currency operating income margins decreased 1.3 percentage points during the third quarter of 2022, as the 7.7 percentage point positive impacts from accelerating pricing were more than offset by the 8.6 percentage point negative impacts by higher Delivered Product Costs and investments in the business. Acquisition adjusted fixed currency operating income margins increased 0.3 percentage points during the first nine months of 2022, as the 8.7 percentage point positive impacts from accelerating total pricing and strong volume growth overcame the 8.5 percentage point negative impacts of higher Delivered Product Costs and investments in the business.

Global Healthcare & Life Sciences


	Third Quarter Ended						Nine Months Ended
	September 30						September 30
	2022			2021			2022			2021
Sales at fixed currency (millions)		$375.5			$279.7			$1,138.9			$852.8
Sales at public currency (millions)		356.6			286.9			1,110.3			881.4

Volume		(9)	%					(8)	%
Price changes		9	%					6	%
Acquisition adjusted fixed currency sales change		-	%					(2)	%
Acquisitions and divestitures		34	%					36	%
Fixed currency sales change		34	%					34	%
Foreign currency translation		(9)	%					(6)	%
Public currency sales change		24	%					26	%

Operating income at fixed currency (millions)		$34.7			$35.2			$137.3			$123.9
Operating income at public currency (millions)		31.4			36.4			132.4			129.4

Fixed currency operating income change		(1)	%					11	%
Fixed currency operating income margin		9.2	%		12.6	%		12.1	%		14.5	%
Acquisition adjusted fixed currency operating income change		(46)	%					(42)	%
Acquisition adjusted fixed currency operating income margin		6.8	%		12.6	%		8.7	%		14.5	%
Public currency operating income change		(14)	%					2	%

Percentages in the above table do not necessarily sum due to rounding.

Net Sales

Acquisition adjusted fixed currency sales for Global Healthcare & Life Sciences were flat for the third quarter, as growth in Life Sciences was offset by slightly lower Healthcare sales.

At an operating segment level, Healthcare fixed currency sales decreased 2% (2% acquisition adjusted) and 3% (5% acquisition adjusted) in the third quarter and first nine months of 2022, respectively, as accelerating total pricing was offset by continued softness in Europe. Life Sciences fixed currency sales increased 158% (5% acquisition adjusted) and 161% (6% acquisition adjusted) in the third quarter and first nine months of 2022, respectively, reflecting the acquisition of Purolite. Excluding the acquisition of Purolite, the Life Sciences business growth was driven by accelerating total pricing and double-digit growth in consumable pharmaceutical and personal care products were partially offset by normalizing demand for Bioquell’s biocontamination systems.

Operating Income

Fixed currency operating income decreased and increased for the third quarter and first nine months of 2022, respectively, while fixed currency operating income margins decreased for our Global Healthcare & Life Sciences segment in both the third quarter and first nine months of 2022.

Acquisition adjusted fixed currency operating income margins decreased 5.8 percentage points during the third quarter of 2022, as the 7.0 percentage point positive impacts from accelerated pricing was more than offset by the 13.7 percentage point negative impact from higher Delivered Product Costs, lower volumes and unfavorable mix. Acquisition adjusted fixed currency operating income margins decreased 5.8 percentage points during the first nine months of 2022, as the 4.5 percentage point positive impacts from impacts from accelerating pricing was more than offset by the 10.7 percentage point negative impact from higher Delivered Product Costs, lower volumes and investments in the business.

Other


	Third Quarter Ended						Nine Months Ended
	September 30						September 30
	2022			2021			2022			2021
Sales at fixed currency (millions)		$362.1			$319.5			$1,000.4			$885.2
Sales at public currency (millions)		352.3			324.2			987.4			900.4

Volume		6	%					7	%
Price changes		7	%					6	%
Acquisition adjusted fixed currency sales change		13	%					13	%
Acquisitions and divestitures		-	%					-	%
Fixed currency sales change		13	%					13	%
Foreign currency translation		(4)	%					(3)	%
Public currency sales change		9	%					10	%

Operating income at fixed currency (millions)		$64.4			$57.8			$153.6			$140.9
Operating income at public currency (millions)		63.0			58.7			152.1			143.3

Fixed currency operating income change		11	%					9	%
Fixed currency operating income margin		17.8	%		18.1	%		15.4	%		15.9	%
Acquisition adjusted fixed currency operating income change		11	%					9	%
Acquisition adjusted fixed currency operating income margin		17.8	%		18.1	%		15.4	%		15.9	%
Public currency operating income change		7	%					6	%

Percentages in the above table do not necessarily sum due to rounding.

Net Sales

Fixed currency sales for Other increased in the third quarter and first nine months of 2022, reflecting double-digit growth in Pest Elimination, Textile Care, and Colloidal Technologies.

At an operating segment level, Pest Elimination fixed currency sales increased 12% and 11% in the third quarter and first nine months of 2022, respectively, reflecting strong growth across food retail, food and beverage, hospitality, and restaurants. Textile Care fixed currency sales increased 17% and 19% in the third quarter and first nine months of 2022, respectively. Colloidal Technologies Group fixed currency sales increased 16% and 13% in the third quarter and first nine months of 2022, respectively.

Operating Income

Fixed currency operating income increased and fixed currency operating income margins decreased for Other both in the third quarter and first nine months of 2022.

Acquisition adjusted fixed currency operating income margins decreased 0.3 percentage points during the third quarter of 2022, as the 5.6 percentage point positive impact from accelerating total pricing was more than offset by the 5.9 percentage point negative impact of higher Delivered Product Costs and investments in the business. Acquisition adjusted fixed currency operating income margins decreased 0.5 percentage points during the first nine months of 2022 as the 5.2 percentage point positive impact from accelerating pricing and volume growth was more than offset by the 5.4 percentage point negative impact of higher Delivered Product Costs and investments in business.

Corporate

Consistent with our internal management reporting, Corporate amounts in the table on page 39 include sales to ChampionX in accordance with the long-term supply agreement entered into with the Transaction post-separation, as discussed in Note 14, intangible asset amortization specifically from the Nalco and Purolite acquisitions and special (gains) and charges that are not allocated to our reportable segments. Items included within special (gains) and charges are shown in the table on page 34.

FINANCIAL POSITION, CASH FLOWS AND LIQUIDITY

Financial Position

Total assets were $21.0 billion as of September 30, 2022, compared to total assets of $21.2 billion as of December 31, 2021.

Total liabilities were $13.9 billion as of September 30, 2022, compared to total liabilities of $14.0 billion as of December 31, 2021. Total debt was $8.5 billion as of September 30, 2022 and $8.8 billion as of December 31, 2021. See further discussion of our debt activity within the “Liquidity and Capital Resources” section of this MD&A.

Our net debt to earnings before interest, taxes, depreciation and amortization (“EBITDA”) is shown in the following table. EBITDA is a non-GAAP measure discussed further in the “Non-GAAP Financial Measures” section of this MD&A.

The inputs to EBITDA reflect the trailing twelve months of activity for the period presented:


	September 30, 2022		December 31, 2021
(ratio)
Net debt to EBITDA		3.4		3.4

(millions)
Total debt		$8,524.6		$8,758.2
Cash		112.9		359.9
Net debt		$8,411.7		$8,398.3

Net income including noncontrolling interest		$1,144.7		$1,144.0
Provision for income taxes		226.6		270.2
Interest expense, net		218.7		218.3
Depreciation		614.7		604.4
Amortization		303.1		238.7
EBITDA		$2,507.8		$2,475.6

Cash Flows

Operating Activities

Nine Months Ended

September 30

(millions)

2022

2021

Change

Cash provided by operating activities

$929.2

$1,421.0

($491.8)

We continue to generate cash flow from operations, 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. Cash provided by operating activities decreased $492 million in first nine months of 2022 compared to the first nine months of 2021, driven primarily by $381 million increase in working capital excluding the impact of non-cash special charges. The increase in working capital is primarily driven by receivables higher than last year due to pricing and surcharge rollout but expected to improve by year-end. Additionally inventory was impacted by inflationary environment and higher stock holding to mitigate supply disruption.

Investing Activities

Nine Months Ended

September 30

(millions)

2022

2021

Change

Cash used for investing activities

($506.4)

($638.5)

$132.1

Cash used for investing activities is primarily impacted by the timing of business acquisitions and dispositions as well as capital investments in the business.

We continue to make capital investments in the business, including merchandising equipment, manufacturing equipment and facilities. Total capital expenditures were $510 million and $424 million in the first nine months of 2022 and 2021, respectively.

Total cash paid for acquisitions, net of cash acquired along with net cash received from dispositions, during the first nine months of 2022 and 2021, was $7 million and $210 million, respectively. Our acquisitions are discussed further in Note 3. 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.

Financing Activities

Nine Months Ended

September 30

(millions)

2022

2021

Change

Cash used for financing activities

($675.6)

($1,159.3)

$483.7

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 payments.

We issued $88 million and $1 million of commercial paper and notes payable in the first nine months of 2022 and 2021, respectively. We issued $300 million par value and received $294 million in proceeds of long-term debt and repaid $900 million of long-term debt in the first nine months of 2021.

Shares are repurchased for the purpose of partially offsetting the dilutive effect of our equity compensation plans, to manage our capital structure and to efficiently return capital to shareholders. We reacquired a total of $445 million and $78 million of shares in the first nine months of 2022 and 2021, respectively. Cash proceeds and tax benefits from stock option exercises provide a portion of the funding for repurchase activity.

We paid dividends of $445 million and $427 million in in the first nine months of 2022 and 2021, respectively.

The impact on financing cash flows of commercial paper and notes payable issuances are shown in the following table:

Nine Months Ended

September 30

(millions)

2022

2021

Change

Net issuances of commercial paper and notes payable

$87.6

$0.5

$87.1

Long-term debt borrowings

293.7

(293.7)

Long-term debt repayments

(1,017.9)

1,017.9

Liquidity and Capital Resources

We currently expect to fund the cash requirements which are reasonably foreseeable for 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 September 30, 2022, we had $113 million of cash and cash equivalents on hand, of which $78 million was held outside of the U.S. We will continue to evaluate our cash position in light of future developments.

As of September 30, 2022, we have a $2.0 billion multi-year credit facility which expires in April 2026. The credit facility has been established with a diverse syndicate of 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 the end of the third quarter of 2022, we had $485 million outstanding commercial paper under our U.S. program and no outstanding commercial paper under our Euro program. There were no borrowings under our credit facility as of September 30, 2022 or 2021. As of September 30, 2022, both programs were rated A-2 by Standard & Poor’s, P-2 by Moody’s and F-1 by Fitch.

There was no long-term debt issuance or repayment activity through the first nine months of 2022. Our long-term debt issuance and repayment activity through the first nine months of 2021 is discussed in the Cash Flows – Financing Activities section of this MD&A.

We are in compliance with our debt covenants and other requirements of our credit agreements and indentures. We believe we have sufficient borrowing capacity to meet our foreseeable operating activities, as needed.

The schedule of contractual obligations included in the Financial Position and Liquidity section of our Form 10-K for the year ended December 31, 2021 disclosed total notes payable and long-term debt due within one year of $11 million. As of September 30, 2022, the total notes payable and long-term debt due within one year was $13 million. There was $485 million commercial paper outstanding as of September 30, 2022 and $400 million as of December 31, 2021.

Our gross liability for uncertain tax positions was $20 million as of September 30, 2022 and $25 million as of December 31, 2021. We are not able to reasonably estimate the amount by which the liability will increase or decrease over time; however, at this time, we do not expect significant payments related to these obligations within the next year.

GLOBAL ECONOMIC ENVIRONMENT

Coronavirus disease 2019 (COVID-19)

In March 2020, the coronavirus disease 2019 (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 vaccination mandates. While many government restrictions in the U.S. have eased, 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 will continue to have a negative impact on market conditions and customer demand throughout the world.

Global Economies

Approximately half of our sales are outside of the 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. We expect a more challenging macroeconomic environment, especially in Europe, as the war and the energy crisis is having a significant impact on costs and demand. We also assume continued high delivered product costs and significant unfavorable currency translation impacts that persist well into 2023.

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 the first nine months of 2022, sales in Argentina represented less than 1% of our consolidated sales. Assets held in Argentina at the end of the third quarter of 2022 represented less than 1% of our consolidated assets. Turkey was also classified as a highly inflationary economy in accordance with U.S. GAAP. During the first nine months of 2022, sales in Turkey represented less than 1% of our consolidated sales. Assets held in Turkey at the end of the third quarter of 2022 represented less than 1% of our consolidated assets.

In light of Russia’s invasion of Ukraine and the sanctions against Russia by the United States and other countries, we have made the determination that we will limit our Russian business to operations that are essential to life, providing minimal support for our healthcare, life sciences, food and beverage and certain water businesses. We may further narrow our presence in Russia depending on future developments. Our Russian and Ukraine operations represented approximately 1% of our 2021 annual sales. We recorded charges of $0.8 million in the third quarter of 2022 and $13.1 million in the first nine months of 2022 primarily related to recoverability risk of certain assets in both Russia and Ukraine.

NEW ACCOUNTING PRONOUNCEMENTS

For information on new accounting pronouncements, refer to Note 17 to the Consolidated Financial Statements.

Subsequent Events

In October 2022, we entered into a cross currency swap agreement with a notional amount of €200 million maturing in 2026. The cross currency swap is designated as a net investment hedge of our Euro denominated exposures from our investments in certain of its Euro denominated functional currency subsidiaries.

In November 2022, our Board of Director's authorized the repurchase up to 10 million additional shares of Ecolab common stock.

In November 2022, we announced a Europe cost savings program (the “Europe Program”) targeting $80 million of annualized pre-tax savings after completion of the program. The Europe Program is expected to be completed by mid-2024 and is expected to result in approximately $80 million of pre-tax annualized operating expense savings ($70 million after tax) by the end of 2024. In connection with these actions, we expect to incur pre-tax charges of $130 million ($110 million after tax), beginning with approximately $60 million of pre-tax charges in the fourth quarter of 2022. The Europe Program charges are expected to be primarily cash expenditures related to severance and asset disposals.

NON-GAAP FINANCIAL MEASURES

This Quarterly Report on Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operation” in Item 2, contains financial measures that have not been calculated in accordance with accounting principles generally accepted in the U.S. (GAAP). These non-GAAP measures include:

●

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

●

EBITDA

●

Adjusted tax rate

●

Adjusted net income attributable to Ecolab

●

Adjusted diluted EPS

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 financial measures for cost of sales, gross margin and operating income exclude the impact of special (gains) and charges, and our non-GAAP measures for tax rate, net income attributable to Ecolab and diluted EPS 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 noncontrolling interest, provision for income taxes, net interest expense, depreciation and amortization. EBITDA is used in our net debt to EBITDA ratio, which we view 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-Q are based on translation into U.S. dollars at the fixed foreign currency exchange rates established by management at the beginning of 2022. We also provide our segment results based on public currency rates for informational purposes.

Our reportable segments do not include the impact of intangible asset amortization from the Nalco and Purolite transactions or the impact of special (gains) and charges as these are not allocated our reportable segments.

Acquisition adjusted growth rates exclude the results of our acquired businesses from the first twelve months post acquisition and exclude the results of our divested businesses from the twelve months prior to divestiture. In addition, as part of the separation of ChampionX in 2020, we 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.

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 2, contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include the COVID-19 pandemic outlook; business performance and prospects; expectations concerning timing, amount and type of restructuring costs and savings from restructuring activities; delivered product cost inflation, pricing actions, volume growth, cost savings and productivity improvements; Russian operations; tax deductibility of goodwill; capital investments, acquisitions and share repurchases; amortization expense; non-performance of financial counterparties; payments and contributions to pension and postretirement health care benefit plans; the impact of lawsuits, claims and environmental matters; impact of new accounting pronouncements; cash flows, borrowing capacity and funding of cash requirements; payments related to uncertain tax positions; and implementation of ERP system upgrade.

Without limiting the foregoing, words or phrases such as “will likely result,” “are expected to,” “will continue,” “is anticipated,” “we believe,” “we expect,” “estimate,” “project” (including the negative or variations thereof) or similar terminology, generally identify forward-looking statements. Forward-looking statements may also represent challenging goals for us. These statements, which represent our expectations or beliefs concerning various future events, are based on current expectations that involve a number of risks and uncertainties that could cause actual results to differ materially from those of such forward-looking statements. In particular, the effects of the COVID-19 pandemic depend on numerous factors, including the severity of the disease, the duration of the outbreak, the distribution and efficacy of vaccines, the likelihood of a resurgence of the outbreak, including as result of emerging variants, actions that may be taken by governmental authorities intended to minimize the spread of the pandemic, including vaccination mandates, or to stimulate the economy, and other unintended consequences. Further, the ultimate results of any restructuring or efficiency initiative, integration and business improvement actions, including cost synergies, depend on a number of factors, including the development of final plans, the impact of local regulatory requirements regarding employee terminations, the time necessary to develop and implement the restructuring or efficiency initiative and other business improvement initiatives and the level of success achieved through such actions in improving competitiveness, efficiency and effectiveness. We caution that undue reliance should not be placed on such forward-looking statements, which speak only as of the date made.

Some of the factors which could cause results to differ materially from those expressed in any forward-looking statements are set forth under Item 1A of our most recent Form 10-K, as updated by Item 1A of this Form 10-Q, and our other public filings with the Securities and Exchange Commission (the "SEC"), and include the effects and duration of the COVID-19 pandemic, including the impact of vaccination mandates; difficulty in procuring raw materials or fluctuations in raw material costs; the vitality of the markets we serve; the impact of economic factors such as the worldwide economy, capital flows, interest rates, foreign currency risk, and reduced sales and earnings in our international operations resulting from the weakening of local currencies versus the U.S. dollar; information technology infrastructure failures or breaches in data security; our ability to attract, retain and develop high caliber management talent to lead our business and successfully execute organizational change and changing labor market dynamics in the wake of the COVID-19 pandemic; exposure to global economic, political and legal risks related to our international operations, including the impact of sanctions or other actions taken by the U.S. or other countries, and retaliatory measures taken by Russia in response, in connection with the conflict in Ukraine; public health outbreaks, epidemics or pandemics, such as the current outbreak of COVID-19; our ability to execute key business initiatives, including restructurings and our Enterprise Resource Planning system upgrades; our ability to successfully compete with respect to value, innovation and customer support; pressure on operations from consolidation of customers or vendors; restraints on pricing flexibility due to contractual obligations and our ability to meet our contractual commitments; realization of anticipated benefits of the Purolite acquisition; our ability to acquire complementary businesses and to effectively integrate such businesses; the costs and effects of complying with laws and regulations, including those relating to the environment and to the manufacture, storage, distribution, sale and use of our products, as well as to the conduct of our business generally, including labor and employment and anti-corruption; potential chemical spill or release; potential to incur significant tax liabilities or indemnification liabilities relating to the separation and split-off of our ChampionX business; the occurrence of litigation or claims, including class action lawsuits; the loss or insolvency of a major customer or distributor; repeated or prolonged government and/or business shutdowns or similar events; acts of war or terrorism; natural or man-made disasters; water shortages; severe weather conditions; changes in tax laws and unanticipated tax liabilities; potential loss of deferred tax assets; our indebtedness, and any failure to comply with covenants that apply to our indebtedness; potential losses arising from the impairment of goodwill or other assets; and other uncertainties or risks reported from time to time in our reports to the SEC. There can be no assurances that our earnings levels will meet investors’ expectations. Except as may be required under applicable law, we do not undertake, and expressly disclaim, any duty to update our Forward-Looking Statements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We use foreign currency forward contracts, interest rate swap agreements and foreign currency debt to manage risks associated with foreign currency exchange rates, interest rates and net investments in our foreign operations. We do not hold derivative financial instruments of a speculative nature or for trading purposes. For a more detailed discussion of derivative instruments, refer to Note 8, entitled “Derivatives and Hedging Transactions”, of the consolidated financial statements located under Part I, Item 1 of this quarterly report on Form 10-Q.

Item 4. Controls and Procedures

As of September 30, 2022, we carried out an evaluation, under the supervision and with the participation of our management, including our President and Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation, our President and Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures are effective.

During the period July 1, 2022 through September 30, 2022, other than with respect to the Purolite acquisition, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

We are continuing our implementation of our enterprise resource planning (“ERP”) system upgrades, which are expected to occur in phases over the next several years. These upgrades, which include supply chain and certain finance functions, are expected to improve the efficiency of certain financial and related transactional processes. These upgrades of the ERP systems will affect the processes that constitute our internal control over financial reporting and will require testing for effectiveness.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

Note 16, entitled “Commitments and Contingencies” located under Part I, Item 1 of this Form 10-Q is incorporated herein by reference.

Item 1A. Risk Factors

In our report on Form 10-K for the year ended December 31, 2021, filed with the Securities and Exchange Commission on February 25, 2022, we identify under Item 1A important factors which could affect our financial performance and could cause our actual results for future periods to differ materially from our anticipated results or other expectations, including those expressed in any forward-looking statements made in this Form 10-Q. See the section entitled Forward-Looking Statements located on page 49 of this Form 10-Q. We may also refer to such disclosure to identify factors that may cause results to differ from those expressed in other forward-looking statements made in oral presentations, including telephone conferences and/or webcasts open to the public.

The discussion below provides updates and additions to the risk factors and should be read together with the full list of risk factors set forth in the Form 10-K.

The COVID-19 pandemic and measures taken in response thereto have materially and adversely impacted, and we expect may continue to materially and adversely impact, our business and results of operations, and the full impact of the pandemic will depend on future developments, which are highly uncertain and cannot be predicted.

Beginning in March 2020, the COVID-19 pandemic had a rapid and significant negative impact on the global economy, including a significant downturn in the foodservice, hospitality and travel industries. Measures taken to alleviate the pandemic (such as stay-at-home orders and other responsive measures) significantly impacted our restaurant and hospitality customers and negatively affected demand for our products and services in these segments, resulting in a material adverse effect on our business and results of operations. While many government restrictions in the U.S. have eased, 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 will continue to have a negative impact on market conditions and customer demand throughout the world. In addition, the COVID-19 pandemic continues to have a material effect on the macroeconomic environment, including significant supply chain disruptions resulting from labor shortages, disruptions to logistics networks and capacity constraints, and there is continued uncertainty around its duration and ultimate impact.

We expect the full impact of the COVID-19 pandemic, including the extent of its effect on our business, results of operations and financial condition, to be dictated by future developments which remain uncertain and cannot be predicted, such as the severity of the disease, the duration of the outbreak, the distribution, acceptance and efficacy of vaccines, the likelihood of a resurgence of the outbreak, including as a result of emerging variants, actions that may be taken by governmental authorities intended to minimize the spread of the pandemic or to stimulate the economy and other unintended consequences. In addition to the reduction in the demand for our products and services, the COVID-19 pandemic has had, and we expect will continue to have, certain negative impacts on our business, including, but not limited to, the following:

●

We rely on a global workforce and take measures to protect the health and safety of our employees, customers and others with whom we do business while continuing to effectively manage our employees and maintain business operations. We have taken additional measures and incurred additional expenses to protect the health and safety of our employees to comply with applicable government requirements and safety guidance. Additionally, our business operations may be disrupted if a

significant portion of our workforce is unable to work safely and effectively due to illness, quarantines, government actions or other restrictions or measures responsive to the pandemic, or if members of senior management or our Board of Directors are unable to perform their duties for an extended period of time. A significant outbreak in one of our manufacturing facilities could adversely impact our ability to make and ship products in a timely manner. Measures taken across our business operations to address health and safety may not be sufficient to prevent the spread of COVID-19 among our employee base, customers and others. Therefore, we could face operational disruptions and incur additional expenses, including devoting additional resources to assisting employees diagnosed with COVID-19 and further changing health and safety protocols and processes, that could adversely affect our business and results of operations.

●

A significant number of our employees, as well as customers and others with whom we do business, continue to work in remote or hybrid mode in response to the COVID-19 pandemic. Our business operations may be disrupted, and we may experience increased risk of adverse effects to our business, if our business operations are negatively impacted as a result of remote work arrangements, including due to cybersecurity risks or other disruption to our technology infrastructure. Further, if our key operating facilities experience closures or worker shortages as a result of COVID-19, whether temporary or sustained, our business operations could be significantly disrupted.

●

We are subject to the mandatory vaccination and workplace safety protocols of Executive Order 14042 issued on September 9, 2021 and subsequent guidance issued thereunder by the Safer Federal Workforce Task Force. The Executive Order is currently stayed pending judicial review. This mandate, if enforceable, applies broadly to require covered federal contractor employees on covered contracts, those who perform duties in connection with a covered contract, and those working at the same workplace as covered employees, to be fully vaccinated for COVID-19, except for those that are legally entitled to an accommodation under applicable law. We may similarly be required to flow-down our obligations to certain of our subcontractors and suppliers. If it survives court challenge, the guidance remains subject to the interpretation of various government agencies and other entities, and questions remain regarding the specific application of the Executive Order and related guidance. As a result, if our understanding of its application to our workforce differs from our federal customers’ interpretation, or, despite our strong employee vaccination efforts, enough of our covered employees are unwilling to comply with the mandate, we may experience increased costs, business disruptions and attrition as a result of the mandate. Additionally, we may be subject to potential breach of contract claims, loss of business and assessment of fines if we or our affected subcontractors and suppliers are not able to fully comply in the time frame provided or if such subcontractors and suppliers choose to terminate their contract rather than comply.

●

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 depend upon the continued vitality of the markets we serve.

Economic downturns, and in particular downturns in our larger markets including the foodservice, hospitality, travel, health care, food processing, refining, pulp and paper, mining and steel industries, can adversely impact our customers. In particular, we expect a more challenging macroeconomic environment, especially in Europe, as the war and the energy crisis are having a significant impact on costs and demand. Additionally, the last two years we have experienced the negative impact of the COVID-19 pandemic on the demand for our products and services provided to customers in the full-service restaurant, hospitality, lodging and entertainment industries. In prior years, the weaker global economic environment has also negatively impacted certain of our end-markets. During these periods of weaker economic activity, our 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, a material adverse effect on our business, financial condition, results of operation or cash flows.

Our significant non-U.S. operations expose us to global economic, political and legal risks that could impact our profitability.

We have significant operations outside the United States, including joint ventures and other alliances. We conduct business in approximately 170 countries and, in 2021, approximately 48% of our net sales originated outside the United States. There are inherent risks in our international operations, including:

●

exchange controls and currency restrictions;

●

currency fluctuations and devaluations;

●

tariffs and trade barriers;

●

export duties and quotas;

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changes in the availability and pricing of raw materials, energy and utilities;

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changes in local economic conditions;

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changes in laws and regulations, including the imposition of economic or trade sanctions affecting international commercial transactions;

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impact from Brexit and the possibility of similar events in other EU member states;

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difficulties in managing international operations and the burden of complying with international and foreign laws;

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requirements to include local ownership or management in our business;

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economic and business objectives that differ from those of our joint venture partners;

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exposure to possible expropriation, nationalization or other government actions;

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restrictions on our ability to repatriate dividends from our subsidiaries;

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unsettled political conditions, military action, civil unrest, acts of terrorism, force majeure, war or other armed conflict; and

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countries whose governments have been hostile to U.S.-based businesses.

In light of Russia’s invasion of Ukraine and the United States’ and other countries’ sanctions against Russia, we announced in April 2022 that we will focus our Russian business on operations that are essential to life, providing minimal support for our healthcare, life sciences, food and beverage and certain water businesses. We may further narrow our presence in Russia depending on developments in the conflict or otherwise. Our Russian operations represented approximately 1% of our 2021 annual sales. In the first nine months of 2022, we recorded pre-tax charges of $13.1 million related to recoverability risk of certain assets in both Russia and Ukraine. Depending on developments, we may incur further charges relating to our Russia and Ukraine businesses. The conflict in Ukraine may escalate and/or expand in scope and the broader consequences of this conflict, which have included and/or may in the future include sanctions, embargoes, regional instability and geopolitical shifts; potential retaliatory action by the Russian government against companies, including us, such as nationalization of foreign businesses in Russia; and increased tensions between the United States and countries in which we operate cannot be predicted, nor can we predict the conflict’s impact on the global economy and on our business and financial results. The Russia and Ukraine conflict may also heighten many other risks disclosed in our report on Form 10-K, any of which could materially and adversely affect our business and financial results. Such risks include, but are not limited to, adverse effects on macroeconomic conditions, including increased inflation, constraints on the availability of commodities, supply chain disruption and decreased business spending; disruptions to our or our business partners’ global technology infrastructure, including through cyber-attack or cyber-intrusion; adverse changes in international trade policies and relations; claims, litigation and regulatory enforcement; our ability to implement and execute our business strategy; terrorist activities; our exposure to foreign currency fluctuations; reputational risk; and constraints, volatility, or disruption in the capital markets.

Additionally, changes in U.S. or foreign government policy on international trade, including the imposition or continuation of tariffs, could materially and adversely affect our business. In 2018, the U.S. imposed tariffs on certain imports from China and other countries, resulting in retaliatory tariffs by China and other countries. While the U.S. and China signed a Phase One trade agreement in January 2020, which included the suspension and rollback of tariffs, the CHIPS and Science Act of 2022 with objectives including countering China’s technical ambitions was signed into law in August 2022. Any new tariffs or policies imposed by the U.S., China or other countries or any additional retaliatory measures by any of these countries, could increase our costs, reduce our sales and earnings or otherwise have an adverse effect on our operations.

Further, our operations outside the United States require us to comply with a number of United States and non-U.S. laws and regulations, including anti-corruption laws such as the United States Foreign Corrupt Practices Act and the United Kingdom Bribery Act, as well as U.S. and non-U.S. economic sanctions regulations. We have internal policies and procedures relating to such laws and regulations; however, there is risk that such policies and procedures will not always protect us from the misconduct or reckless acts of employees or representatives, particularly in the case of recently acquired operations that may not have significant training in applicable compliance policies and procedures. Violations of such laws and regulations could result in disruptive investigations, significant fines and sanctions, which could have a material adverse effect on our consolidated results of operations, financial position or cash flows.

Also, because of uncertainties regarding the interpretation and application of laws and regulations and the enforceability of intellectual property and contract rights, we face risks in some countries that our intellectual property rights and contract rights would not be enforced by local governments. We are also periodically faced with the risk of economic uncertainty, which has impacted our business in some countries. Other risks in international business also include difficulties in staffing and managing local operations, including managing credit risk to local customers and distributors.

Our overall success as a global business depends, in part, upon our ability to succeed in differing economic, social, legal and political conditions. We may not continue to succeed in developing and implementing policies and strategies that are effective in each location where we do business, which could have a material adverse effect on our consolidated results of operations, financial position or cash flows.

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 currently undertaking the three restructuring plans, i.e., the Institutional Advancement Program, Accelerate 2020 and Europe Program, discussed under Note 2 entitled “Special (Gains) and Charges” of this Form 10-Q. 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 process design 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.

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, such as the Inflation Reduction Act signed into law on August 16, 2022, which includes a corporate alternative minimum tax on certain large corporations, incentives to address climate change mitigation and other non-income tax provisions, including an excise tax on the repurchase of corporate stock. 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 the 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 OECD’s two-pillar base erosion and profit shifting project (“BEPS”). This framework, which could be implemented in some countries as early as 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 rate. Some of the 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.

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 September 30, 2022, we had approximately $8.5 billion in outstanding indebtedness, with approximately $2.0 billion in the form of floating rate debt. Our debt level and related debt service obligations may have negative consequences, including:

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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;

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reducing our flexibility in planning for or reacting to changes in our business and market conditions;

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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 September 30, 2022 would increase future interest expense by approximately $20 million per year; and

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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.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds


						Number of shares		Maximum number of
	Total					purchased as part		shares that may
	number of		Average price			of publicly		yet be purchased
	shares		paid per			announced plans		under the plans
Period	purchased	⁽¹⁾	share		⁽²⁾	or programs	⁽³⁾	or programs	⁽³⁾
July 1-31, 2022	91,231		$	157.1576		89,600		3,573,597
August 1-31, 2022	49,344			166.2863		48,500		3,525,097
September 1-30, 2022	121,153			164.9311		120,800		3,404,297
Total	261,728		$	162.4770		258,900		3,404,297

(1)	Includes 2,828 shares reacquired from employees and/or directors as swaps for the cost of stock options, or shares surrendered to satisfy minimum statutory tax obligations under our stock incentive plans.

(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)

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 the open authorizations, for which no expiration date has been established, in open market or privately negotiated transactions, including pursuant to Rule 10b5-1.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable.

Item 6. Exhibits


Exhibit No.	Document	Method of Filing

(a)	The following documents are filed as exhibits to this report:
(15.1)	Letter regarding unaudited interim financial information.	Filed herewith electronically.
(31.1)	Rule 13a - 14(a) CEO Certification.	Filed herewith electronically.
(31.2)	Rule 13a - 14(a) CFO Certification.	Filed herewith electronically.
(32.1)	Section 1350 CEO and CFO Certifications.	Filed herewith electronically.
(101.INS)	Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.	Filed herewith electronically.
(101.SCH)	Inline XBRL Taxonomy Extension Schema.	Filed herewith electronically.
(101.CAL)	Inline XBRL Taxonomy Extension Calculation Linkbase.	Filed herewith electronically.
(101.DEF)	Inline XBRL Taxonomy Extension Definition Linkbase.	Filed herewith electronically.
(101.LAB)	Inline XBRL Taxonomy Extension Label Linkbase.	Filed herewith electronically.
(101.PRE)	Inline XBRL Taxonomy Extension Presentation Linkbase.	Filed herewith electronically.
(104)	Cover Page Interactive Data File.	Formatted as Inline XBRL and contained in Exhibit 101.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.


	ECOLAB INC.


Date: November 4, 2022	By:	/s/ Jennifer J. Bradway

		Jennifer J. Bradway
		Senior Vice President and Corporate Controller
		(duly authorized officer and
		Chief Accounting Officer)