ECOLAB INC. - Quarter Report: 2023 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, 2023
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, 2023: 285,139,820 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)

2023

2022

2023

2022

Product and equipment sales

$3,170.9

$2,963.0

$9,152.0

$8,473.9

Service and lease sales

787.2

706.3

2,229.8

2,042.7

Net sales

3,958.1

3,669.3

11,381.8

10,516.6

Product and equipment cost of sales

1,868.1

1,877.1

5,561.7

5,371.7

Service and lease cost of sales

462.4

414.5

1,308.8

1,204.4

Cost of sales (including special charges (a))

2,330.5

2,291.6

6,870.5

6,576.1

Selling, general and administrative expenses

1,024.9

876.9

3,026.8

2,731.7

Special (gains) and charges

36.7

17.8

82.2

45.5

Operating income

566.0

483.0

1,402.3

1,163.3

Other (income) expense (b)

(14.5)

5.7

(42.0)

(32.6)

Interest expense, net

74.3

65.1

226.3

174.1

Income before income taxes

506.2

412.2

1,218.0

1,021.8

Provision for income taxes

96.8

60.2

235.8

182.4

Net income including noncontrolling interest

409.4

352.0

982.2

839.4

Net income attributable to noncontrolling interest

5.4

4.9

15.1

12.1

Net income attributable to Ecolab

$404.0

$347.1

$967.1

$827.3

Earnings attributable to Ecolab per common share

Basic

$1.42

$1.22

$3.39

$2.90

Diluted

$1.41

$1.21

$3.38

$2.88

Weighted-average common shares outstanding

Basic

285.1

284.9

284.9

285.4

Diluted

286.9

286.3

286.4

287.0

(a)	Cost of sales includes special (gains) and charges of $5.9 and $7.1 in the third quarter of 2023 and 2022, respectively, and $17.2 and $61.7 in the first nine months of 2023 and 2022, 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.

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)

2023

2022

2023

2022

Net income including noncontrolling interest

$409.4

$352.0

$982.2

$839.4

Other comprehensive income (loss), net of tax

Foreign currency translation adjustments

Foreign currency translation

(27.7)

(246.7)

(13.6)

(367.2)

(Loss) gain on net investment hedges

(8.2)

82.7

(48.7)

173.0

Total foreign currency translation adjustments

(35.9)

(164.0)

(62.3)

(194.2)

Derivatives and hedging instruments

0.1

11.6

(6.1)

13.1

Pension and postretirement benefits

(3.2)

(62.3)

(7.3)

(20.6)

Subtotal

(39.0)

(214.7)

(75.7)

(201.7)

Total comprehensive income, including noncontrolling interest

370.4

137.3

906.5

637.7

Comprehensive income attributable to noncontrolling interest

6.0

2.8

14.2

6.1

Comprehensive income attributable to Ecolab

$364.4

$134.5

$892.3

$631.6

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)	2023		2022

ASSETS
Current assets
Cash and cash equivalents		$1,001.3		$598.6
Accounts receivable, net		2,823.5		2,698.1
Inventories		1,536.0		1,792.8
Other current assets		428.6		404.7
Total current assets		5,789.4		5,494.2
Property, plant and equipment, net		3,332.8		3,293.4
Goodwill		8,098.4		8,012.7
Other intangible assets, net		3,528.6		3,680.7
Operating lease assets		536.0		448.2
Other assets		572.9		535.1
Total assets		$21,858.1		$21,464.3

LIABILITIES AND EQUITY
Current liabilities
Short-term debt		$1,129.1		$505.1
Accounts payable		1,498.8		1,728.2
Compensation and benefits		553.3		493.6
Income taxes		134.3		197.6
Other current liabilities		1,285.0		1,285.9
Total current liabilities		4,600.5		4,210.4
Long-term debt		7,487.1		8,075.3
Pension and postretirement benefits		627.1		670.3
Deferred income taxes		450.9		505.6
Operating lease liabilities		415.0		337.8
Other liabilities		455.0		406.3
Total liabilities		14,035.6		14,205.7
Commitments and contingencies (Note 16)

Equity (a)
Common stock		365.4		364.7
Additional paid-in capital		6,710.1		6,580.2
Retained earnings		9,832.8		9,318.8
Accumulated other comprehensive loss		(1,801.4)		(1,726.6)
Treasury stock		(7,311.1)		(7,301.0)
Total Ecolab shareholders’ equity		7,795.8		7,236.1
Noncontrolling interest		26.7		22.5
Total equity		7,822.5		7,258.6
Total liabilities and equity		$21,858.1		$21,464.3

(a)	Common stock, 800.0 shares authorized, $1.00 par value per share, 285.1 shares outstanding as of September 30, 2023 and 284.5 shares outstanding as of December 31, 2022. 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)	2023		2022

OPERATING ACTIVITIES
Net income including noncontrolling interest		$982.2		$839.4
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation		463.3		463.4
Amortization		229.8		238.8
Deferred income taxes		(45.9)		(106.6)
Share-based compensation expense		73.4		67.2
Pension and postretirement plan contributions		(92.2)		(51.8)
Pension and postretirement plan expense (income), net		6.0		20.5
Restructuring charges, net of cash paid		(17.5)		(17.8)
Other, net		21.1		13.2
Changes in operating assets and liabilities, net of effect of acquisitions:
Accounts receivable		(88.9)		(350.8)
Inventories		266.4		(385.7)
Other assets		25.2		(345.0)
Accounts payable		(245.7)		260.2
Other liabilities		(17.9)		284.2
Cash provided by operating activities		1,559.3		929.2

INVESTING ACTIVITIES
Capital expenditures		(512.2)		(510.0)
Property and other assets sold		9.5		1.4
Acquisitions and investments in affiliates, net of cash acquired		(106.8)		(7.2)
Other, net		(32.6)		9.4
Cash used for investing activities		(642.1)		(506.4)

FINANCING ACTIVITIES
Net (repayments) issuances of commercial paper and notes payable		(0.3)		87.6
Reacquired shares		(11.7)		(445.4)
Dividends paid		(462.6)		(445.0)
Exercise of employee stock options		61.2		20.8
Hedge settlements		(53.4)		109.6
Other, net		(2.4)		(3.2)
Cash used for financing activities		(469.2)		(675.6)

Effect of exchange rate changes on cash and cash equivalents		(45.3)		5.8

Increase (decrease) in cash and cash equivalents		402.7		(247.0)
Cash and cash equivalents, beginning of period		598.6		359.9
Cash and cash equivalents, end of period		$1,001.3		$112.9

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

CONSOLIDATED STATEMENTS OF EQUITY

(unaudited)


	Third Quarter Ended September 30, 2023 and 2022
(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, 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) activity								(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

Balance, June 30, 2023		$365.3		$6,684.1		$9,580.0		($1,761.8)		($7,310.9)		$7,556.7		$23.8		$7,580.5

Net income						404.0						404.0		5.4		409.4
Other comprehensive income (loss) activity								(39.6)				(39.6)		0.6		(39.0)
Cash dividends declared (a)						(151.2)						(151.2)		(3.1)		(154.3)
Stock options and awards		0.1		26.0						0.5		26.6				26.6
Reacquired shares										(0.7)		(0.7)				(0.7)
Balance, September 30, 2023		$365.4		$6,710.1		$9,832.8		($1,801.4)		($7,311.1)		$7,795.8		$26.7		$7,822.5

	Nine Months Ended September 30, 2023 and 2022
(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, 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) activity								(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

Balance, December 31, 2022		$364.7		$6,580.2		$9,318.8		($1,726.6)		($7,301.0)		$7,236.1		$22.5		$7,258.6

Net income						967.1						967.1		15.1		982.2
Other comprehensive income (loss) activity								(74.8)				(74.8)		(0.9)		(75.7)
Cash dividends declared (a)						(453.1)						(453.1)		(10.0)		(463.1)
Changes in noncontrolling interests				(4.5)								(4.5)				(4.5)
Stock options and awards		0.7		134.4						1.6		136.7				136.7
Reacquired shares										(11.7)		(11.7)				(11.7)
Balance, September 30, 2023		$365.4		$6,710.1		$9,832.8		($1,801.4)		($7,311.1)		$7,795.8		$26.7		$7,822.5

(a)	Dividends declared per common share were $0.53 and $0.51 in the third quarter of 2023 and 2022, respectively, and $1.59 and $1.53 in the first nine months of 2023 and 2022, 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, 2023 and 2022 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.

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, 2022 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, 2022 filed with the Securities and Exchange Commission (“SEC”) on February 24, 2023.

With respect to the unaudited financial information of the Company for the third quarter ended September 30, 2023 and 2022 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 2, 2023 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)	2023		2022		2023		2022
Cost of sales
Restructuring activities		$5.9		$2.1		$17.2		$5.5
Acquisition and integration activities		-		4.2		-		32.7
Russia/Ukraine		-		0.8		-		7.2
Other		-		-		-		16.3
Cost of sales subtotal		5.9		7.1		17.2		61.7

Special (gains) and charges
Restructuring activities		20.0		(0.3)		46.3		0.8
Acquisition and integration activities		3.0		4.1		11.5		15.0
Russia/Ukraine		0.5		-		1.1		5.9
Other		13.2		14.0		23.3		23.8
Special (gains) and charges subtotal		36.7		17.8		82.2		45.5

Operating income subtotal		42.6		24.9		99.4		107.2

Other (income) expense		-		24.8		-		24.8

Total special (gains) and charges		$42.6		$49.7		$99.4		$132.0

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 are primarily related to the Combined Program which is 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.

Combined Program

In November 2022 the Company approved a Europe cost savings program. In connection with these actions, the Company expected to incur pre-tax charges of $130 million ($110 million after tax). In February 2023, the Company expanded its previously announced Europe

cost savings program to focus on its Institutional and Healthcare businesses in other regions. In connection with the expanded program (“Combined Program”), the Company expects to incur total pre-tax charges of $195 million ($150 million after tax). The Company expects that these restructuring charges will be completed by the end of 2024. Program actions include headcount reductions from terminations, not filling certain open positions, and facility closures. The Combined Program charges are expected to be primarily cash expenditures related to severance and asset disposals.

In anticipation of this Combined Program, a limited number of actions were taken in the fourth quarter of 2022. As a result, the Company reclassified $19.3 million ($14.5 million after tax) from other restructuring to the Combined Program in the first quarter of 2023.

During the third quarter and first nine months of 2023 the Company recorded total Combined Program restructuring charges of $24.2 million ($20.5 million after tax) and $57.3 million ($46.9 million after tax), respectively, primarily related to severance. The net liability related to the Combined Program was $58.4 million and $62.0 million as of September 30, 2023 and December 31, 2022, 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.

Restructuring activity related to the Combined Program since inception of the underlying actions includes the following items:

Employee

Asset

(millions)

Costs

Disposals

Total

2022 Activity

Recorded expense and accrual

$67.2

Net cash payments

(5.2)

Net restructuring liability, December 31, 2022

62.0

2023 Activity

Recorded expense and accrual

43.4

13.9

57.3

Net cash payments

(66.3)

Non-cash charges

(13.9)

Reclassification

19.3

Net restructuring liability, September 30, 2023

$58.4

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 expects that these restructuring charges will be completed by the end of 2023, with total anticipated costs of $70 million ($55 million after tax). The remaining costs are expected to be primarily non-cash costs related to equipment disposals. Actual costs may vary from these estimates depending on actions taken.

During the third quarter of 2023 and 2022, the Company recorded restructuring charges of $1.7 million ($1.2 million after tax) and $1.8 million ($1.3 million after tax), respectively, and $6.2 million ($4.6 million after tax) and $3.9 million ($2.9 million after tax) in the first nine months of 2023 and 2022, respectively, primarily related to severance, disposals of equipment and office closures. The Company has recorded $60.3 million ($46.0 million after tax) of cumulative restructuring charges under the Institutional Plan. Net cash payments were $0 million and non-cash net charges were $1.7 million for the third quarter of 2023. Net cash payments were $3.1 million and non-cash net charges were $5.0 million for the first nine months of 2023.The liability related to the Institutional Plan was $0 million and $1.9 million as of September 30, 2023 and December 31, 2022, respectively.

Accelerate 2020

During 2018, the Company formally commenced a restructuring plan, Accelerate 2020 (“the A2020 Plan”), to leverage technology and system investments and organizational changes. The goals of the Plan were 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. The restructuring activities were completed at the end of 2022, with total costs of $254.4 million ($198.4 million after tax).

Net cash payments were $1.9 million and $11.4 million for the third quarter and first nine months of 2023, respectively. The liability related to the Plan was $6.7 million and $18.1 million as of the September 30, 2023 and December 31, 2022, respectively. The remaining liability is expected to be paid over a period of several quarters and will continue to be funded from operating activities.

Other Restructuring Activities

During the third quarter and first nine months of 2022, the Company recorded restructuring charges of $0.6 million ($0.5 million after tax) and $2.6 million ($2.0 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 other restructuring plans excluding Combined Program, the A2020 Plan and the Institutional Plan was $3.7 million and $23.2 million as of September 30, 2023 and December 31, 2022, respectively. The decrease in liability was driven primarily by the reclass of $19.3 million from other restructuring to the Combined Program in the first nine months of 2023. Cash payments during the third quarter and first nine months of 2023 related to all other restructuring plans excluding the Combined Program, the A2020 Plan and the Institutional Plan were $0 million and $0.2 million, respectively.

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) 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 $3.0 million ($2.2 million after tax) and $4.1 million ($3.9 million after tax) during the third quarter of 2023 and 2022, respectively and $11.5 million ($8.6 million after tax) and $15.0 million ($11.9 million after tax) during the first nine months of 2023 and 2022, respectively. Charges are integration related costs primarily related to the Purolite acquisition.

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

Russia/Ukraine

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 $0.5 million ($0.4 million after tax) and $1.1 million ($0.9 million after tax) in the third quarter and first nine months of 2023, respectively, and recorded charges of $0.8 million ($0.7 million after tax) and $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 $13.2 million ($9.9 million after tax) and $23.3 million ($17.6 million after tax) recorded in the third quarter and first nine months of 2023, 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 $14.0 million ($10.8 million after tax) and $40.1 million ($30.5 million after tax) recorded in the third quarter and first nine months of 2022, respectively relate primarily to COVID-19 related inventory charges and certain legal charges, which are recorded in product and equipment cost of sales and special (gains) and charges on the Consolidated Statements of Income, respectively.

Other (income) expense

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

3. ACQUISITIONS

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 based on estimates of the fair value of assets acquired, liabilities assumed and noncontrolling interests acquired as of the acquisition date. Goodwill is recognized in the amount that the purchase consideration paid exceeds the fair value of the net assets acquired. Purchase consideration includes both cash paid and the fair value of noncash consideration exchanged, including stock and/or contingent consideration exchanged, and is reduced by the amount of cash or cash equivalents acquired.

In May 2023, the Company acquired Chemlink Laboratories LLC, a U.S.-based producer of small format cleaning solutions. The Company made two other immaterial acquisitions during the second quarter of 2023. All three acquisitions became part of the Global Institutional & Specialty reporting segment.

The purchase accounting for these acquisitions are preliminary and subject to change as the Company finalizes the valuation of intangible assets, income tax balances and working capital. The goodwill arising from the acquisition of Chemlink Laboratories LLC is tax deductible.

No acquisitions occurred during the third quarter of 2023 or first nine months of 2022. The following table summarizes the acquisition date fair value of net assets acquired from the Company’s acquisitions during the first nine months of 2023:


	Nine Months Ended
	September 30
(millions)	2023
Net tangible assets (liabilities) acquired		$9.8

Identifiable intangible assets
Customer relationships		35.5
Other technology		21.8
Total intangible assets		57.3

Goodwill		40.5
Total aggregate purchase price		107.6

Acquisition-related liabilities and contingent consideration		(5.3)
Net cash paid for acquisitions, including acquisition-related
liabilities and contingent consideration		$102.3

During the first nine months of 2022, the Company recorded purchase accounting adjustments associated with the finalization of the purchase accounting for its 2022 and 2021 acquisitions. 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 2023, the Company recorded purchase accounting adjustments. As a result of these purchase accounting adjustments, the Company made $1.7 million of acquisition-related payments, acquisition related net tangible assets increased by $0.4 million, acquisition related liabilities and contingent consideration increased by $0.5 million and goodwill increased by $1.8 million.

The weighted average useful life of identifiable intangible assets acquired during the first nine months of 2023 was 12 years. No intangible assets were acquired during the first nine months of 2022.

4. BALANCE SHEETS INFORMATION



	September 30		December 31
(millions)	2023		2022
Accounts receivable, net
Accounts receivable		$2,983.1		$2,829.0
Allowance for expected credit losses and other accruals		(159.6)		(130.9)
Total		$2,823.5		$2,698.1

Inventories
Finished goods		$967.7		$1,122.7
Raw materials and parts		785.7		849.2
Inventories at FIFO cost		1,753.4		1,971.9
FIFO cost to LIFO cost difference		(217.4)		(179.1)
Total		$1,536.0		$1,792.8

Other current assets
Prepaid assets		$137.7		$123.9
Taxes receivable		194.6		184.1
Derivative assets		44.6		57.5
Other		51.7		39.2
Total		$428.6		$404.7

Property, plant and equipment, net
Land		$155.3		$161.3
Buildings and leasehold improvements		1,160.5		1,126.9
Machinery and equipment		2,057.6		1,966.3
Merchandising and customer equipment		2,726.7		2,635.5
Capitalized software		961.0		962.1
Construction in progress		379.9		403.8
		7,441.0		7,255.9
Accumulated depreciation		(4,108.2)		(3,962.5)
Total		$3,332.8		$3,293.4

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		3,352.6		3,292.8
Patents		504.9		497.0
Trademarks		406.2		404.0
Other technologies		539.9		518.8
		4,803.6		4,712.6
Accumulated amortization
Customer relationships		(1,749.2)		(1,581.7)
Patents		(315.5)		(292.3)
Trademarks		(229.1)		(202.5)
Other technologies		(211.2)		(185.4)
		(2,505.0)		(2,261.9)
Net intangible assets subject to amortization		2,298.6		2,450.7
Total		$3,528.6		$3,680.7

Other assets
Deferred income taxes		$115.6		$108.1
Pension		153.1		118.4
Derivative asset		36.5		44.5
Other		267.7		264.1
Total		$572.9		$535.1



	September 30		December 31
(millions)	2023		2022
Other current liabilities
Discounts and rebates		$411.4		$357.8
Dividends payable		151.1		150.8
Interest payable		58.5		58.7
Taxes payable, other than income		161.5		162.9
Derivative liability		0.1		21.9
Restructuring		69.3		100.6
Contract liability		105.5		116.5
Operating lease liabilities		119.1		108.3
Other		208.5		208.4
Total		$1,285.0		$1,285.9

Accumulated other comprehensive income (loss)
Unrealized (loss) gain on derivative financial instruments, net of tax		($2.4)		$3.7
Unrecognized pension and postretirement benefit expense, net of tax		(474.7)		(467.4)
Cumulative translation, net of tax		(1,324.3)		(1,262.9)
Total		($1,801.4)		($1,726.6)

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, 2023 and December 31, 2022.




	September 30		December 31
(millions)	2023		2022
Short-term debt
Commercial paper		$-		$-
Notes payable		3.4		3.7
Long-term debt, current maturities		1,125.7		501.4
Total		$1,129.1		$505.1

Lines of Credit

As of September 30, 2023, 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, 2023 or December 31, 2022.

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 no outstanding commercial paper under its U.S. and Euro commercial paper programs as of September 30, 2023 and as of December 31, 2022.

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, 2023 and December 31, 2022, the Company had $3.4 million and $3.7 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, 2023 and December 31, 2022.




	Maturity	September 30		December 31
(millions)	by Year	2023		2022

Long-term debt
Public notes (2023 principal amount)
Two year 2021 senior notes ($500 million)	2023		$499.7		$498.7
Seven year 2016 senior notes (€575 million)	2024		623.0		596.9
Ten year 2015 senior notes (€575 million)	2025		622.3		596.7
Ten year 2016 senior notes ($750 million)	2026		723.0		721.1
Ten year 2017 senior notes ($500 million)	2027		435.5		433.9
Six Year 2021 senior notes ($500 million)	2027		497.2		496.5
Five Year 2022 senior notes ($500 million)	2028		493.8		492.7
Ten year 2020 senior notes ($698 million)	2030		634.5		653.5
Ten year 2020 senior notes ($600 million)	2031		547.9		555.2
Eleven year 2021 senior notes ($650 million)	2032		645.0		644.6
Thirty year 2011 senior notes ($389 million)	2041		384.7		384.5
Thirty year 2016 senior notes ($200 million)	2046		197.3		197.3
Thirty year 2017 senior notes ($484 million)	2047		426.5		425.5
Thirty year 2020 senior notes ($500 million)	2050		491.0		490.7
Thirty year 2021 senior notes ($850 million)	2051		839.2		838.9
Thirty-four year 2021 senior notes ($685 million)	2055		538.7		537.2
Finance lease obligations and other			13.5		12.8
Total debt			8,612.8		8,576.7
Long-term debt, current maturities			(1,125.7)		(501.4)
Total long-term debt			$7,487.1		$8,075.3

Public Notes

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, 2023.

Net Interest Expense

Interest expense and interest income recognized during the third quarter and first nine months of 2023 and 2022 were as follows:

Third Quarter Ended

Nine Months Ended

September 30

(millions)

2023

2022

2023

2022

Interest expense

$91.3

$66.7

$254.1

$179.1

Interest income

(17.0)

(1.6)

(27.8)

(5.0)

Interest expense, net

$74.3

$65.1

$226.3

$174.1

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

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 its ten operating segments. 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 2023, the Company completed its annual goodwill impairment assessment for its 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 2023 indicated the estimated fair values of each of these ten reporting units exceeded the carrying amounts of the respective reporting unit by a significant margin. 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, 2023 were as follows:

Global

Institutional

Healthcare &

(millions)

Industrial

& Specialty

Life Sciences

Other

Total

December 31, 2022

$4,081.8

$567.6

$3,125.4

$237.9

$8,012.7

Current year business combinations

40.5

Effect of foreign currency translation

14.0

2.6

27.7

0.9

45.2

September 30, 2023

$4,095.8

$610.7

$3,153.1

$238.8

$8,098.4

Other Intangible Assets

The Nalco trade name is the Company’s only indefinite life intangible asset, which is tested for impairment on an annual basis during the second quarter. During the second quarter of 2023, 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 2023 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 technologies 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 2023 and 2022 was $77.4 million and $80.6 million, respectively, and during the first nine months of 2023 and 2022 was $229.8 million and $238.8 million, respectively. Amortization expense related to intangible assets for the remaining three-month period of 2023 is expected to be approximately $76 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, 2023

(millions)

Carrying

Fair Value Measurements

Amount

Level 1

Level 2

Level 3

Assets

Foreign currency forward contracts

$70.0

Cross-currency swap derivative contracts

47.5

Liabilities

Foreign currency forward contracts

25.6

Interest rate swap agreements

207.1

Cross-currency swap derivative contracts

18.4


	December 31, 2022
(millions)	Carrying		Fair Value Measurements
	Amount		Level 1		Level 2		Level 3
Assets
Foreign currency forward contracts		$118.9		$-		$118.9		$-
Cross-currency swap derivative contracts		58.7		-		58.7		-

Liabilities
Foreign currency forward contracts		83.3		-		83.3		-
Interest rate swap agreements		181.4		-		181.4		-
Cross-currency swap derivative contracts		14.5		-		14.5		-

The carrying value of foreign currency forward contracts is at fair value, which are determined based on foreign currency exchange rates as of the balance sheet date and are 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 are 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, 2023

December 31, 2022

Carrying

Fair

Carrying

Fair

Amount

Value

Amount

Value

Long-term debt, including current maturities

$8,612.8

$7,541.9

$8,576.7

$7,643.6

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)

2023

2022

2023

2022

Derivatives designated as hedging instruments

Foreign currency forward contracts

$41.2

$78.6

$5.7

$9.2

Interest rate swap agreements

207.1

181.4

Cross-currency swap derivative contracts

47.5

58.7

18.4

14.5

Derivatives not designated as hedging instruments

Foreign currency forward contracts

28.8

40.3

19.9

74.1

Gross value of derivatives

117.5

177.6

251.1

279.2

Gross amounts offset in the Consolidated Balance Sheets

(36.4)

(75.6)

(36.4)

(75.6)

Net value of derivatives

$81.1

$102.0

$214.7

$203.6

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


	Notional Values
		September 30	December 31
(millions)		2023	2022

Foreign currency forward contracts		$3,801		$5,745
Interest rate swap agreements		1,500		1,500
Cross-currency swap derivative contracts		811		650

Cash Flow Hedges

The Company uses 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 (loss) (“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 year. 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 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 as of

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

Line item in which the hedged item is included

September 30

(millions)

2023

2022

2023

2022

Long-term debt

$1,294.4

$1,305.6

($208.0)

($196.7)

Net Investment Hedges

The Company designates its outstanding €1,150 million ($1,247 million at the end of the third quarter of 2023) 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 2026 and 2030. These 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, 2023, the Company had €625 million ($661 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.

In August 2023, the Company entered into a cross-currency swap derivative contract with a notional amount of CNH 1,094 million maturing in 2032 (CNH is the Chinese Yuan traded in the offshore market). The cross-currency swap derivative contract is designated as a net investment hedge of its Chinese Yuan (“CNY”) denominated exposures from the Company’s investments in certain of its CNY denominated functional currency subsidiaries. The cross-currency swap derivative contract exchanges fixed-rate payments in USD for fixed-rate payments in CNH. As of September 30, 2023, the Company had a CNH 1,094 million ($150 million) cross-currency swap derivative contract outstanding as a hedge of the Company’s net investment in foreign operations. The changes in the spot rate of these instruments are recorded in accumulated other comprehensive income (loss) in stockholders’ equity, partially offsetting the foreign currency translation adjustment of the Company’s related net investment that is also recorded in accumulated other comprehensive income (loss). 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)

2023

2022

2023

2022

Revaluation (loss) gain, net of tax:

Euronotes

($13.5)

$59.8

($38.4)

$112.6

Cross-currency swap derivative contracts

5.3

22.9

(10.3)

60.4

Total revaluation (loss) gain, net of tax

($8.2)

$82.7

($48.7)

$173.0

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
	2023				2022
(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		$1.5	($10.4)	$-		$2.7	$52.7	$-
Amount excluded from the assessment of effectiveness recognized in earnings based on changes in fair value		-	-	1.9		-	-	3.3
Interest rate swap agreements
Amount of (loss) gain reclassified from AOCI to income		-	-	(0.5)		-	-	(0.6)

(Loss) gain on derivatives not designated as hedging instruments:
Foreign currency forward contracts
Amount of (loss) gain recognized in income		-	(6.2)	-		-	49.6	-
Total gain (loss) of all derivative instruments		$1.5	($16.6)	$1.4		$2.7	$102.3	$2.7

	Nine Months Ended
	September 30
	2023				2022
(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		$9.6	($20.8)	$-		$3.5	$104.8	$-
Amount excluded from the assessment of effectiveness recognized in earnings based on changes in fair value		-	-	6.0		-	-	11.0
Interest rate swap agreements
Amount of (loss) gain reclassified from AOCI to income		-	-	(1.4)		-	-	(1.8)

(Loss) gain on derivatives not designated as hedging instruments:
Foreign currency forward contracts
Amount of (loss) gain recognized in income		-	(34.3)	-		-	98.0	-
Total gain (loss) of all derivative instruments		$9.6	($55.1)	$4.6		$3.5	$202.8	$9.2

Subsequent Event

In October 2023 the Company entered into a cross-currency swap derivative contract with a notional amount of CNH 1,098 million ($150 million) maturing in 2032. The cross-currency swap derivative contract is designated as a net investment hedge of its CNY denominated exposures from the Company’s investments in certain of its CNY denominated functional currency subsidiaries. The cross-currency swap derivative contract exchanges fixed-rate payments in USD for fixed-rate payments in CNH.

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)

2023

2022

2023

2022

Derivative and Hedging Instruments

Unrealized (loss) gain on derivative and hedging instruments

Amount recognized in AOCI

($8.2)

$74.2

($14.9)

$134.6

(Gain) loss reclassified from AOCI into income

COS

(1.5)

(2.7)

(9.6)

(3.5)

SG&A

10.4

(52.7)

20.8

(104.8)

Interest (income) expense, net

(1.4)

(2.7)

(4.6)

(9.2)

7.5

(58.1)

6.6

(117.5)

Other activity

(1.1)

0.2

0.1

0.7

Tax impact

1.9

(4.7)

2.1

(4.7)

Net of tax

$0.1

$11.6

($6.1)

$13.1

Pension and Postretirement Benefits

Amount recognized in AOCI

Current period net actuarial (loss) gain

($151.7)

Amount reclassified from AOCI into income

Settlement charge

24.8

0.6

25.7

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

1.0

14.3

3.5

43.7

1.0

(112.6)

4.1

(82.3)

Other activity

(3.3)

24.7

(9.4)

42.6

Tax impact

(0.9)

25.6

(2.0)

19.1

Net of tax

($3.2)

($62.3)

($7.3)

($20.6)

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

2023

2022

2023

2022

(millions)

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

$5.6

($43.7)

$4.9

($88.5)

Pension and postretirement benefits amortization of net actuarial losses and prior period service credits and settlement charges reclassified from AOCI into income, net of tax

(3.2)

29.7

(7.3)

53.1

10. SHAREHOLDERS’ EQUITY

Share Repurchase Authorization

In February 2015 and November 2022, the Company’s Board of Directors authorized the repurchase of up to 20,000,000 and 10,000,000, respectively, additional shares of its common stock, including shares to be repurchased under Rule 10b5–1. As of September 30, 2023, 12,917,097 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.

Share Repurchases

During the first nine months of 2023, the Company reacquired 72,900 shares of its common stock 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 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.

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)

2023

2022

2023

2022

Net income attributable to Ecolab

$404.0

$347.1

$967.1

$827.3

Weighted-average common shares outstanding

Basic

285.1

284.9

284.9

285.4

Effect of dilutive stock options and units

1.8

1.4

1.5

1.6

Diluted

286.9

286.3

286.4

287.0

Earnings attributable to Ecolab per common share

Basic EPS

$1.42

$1.22

$3.39

$2.90

Diluted EPS

$1.41

$1.21

$3.38

$2.88

Anti-dilutive securities excluded from the computation of diluted EPS

2.3

2.5

3.5

2.5

Amounts do not necessarily sum due to rounding.

12. INCOME TAXES

The Company’s tax rate was 19.1% and 14.6% for the third quarter of 2023 and 2022, respectively, and 19.4% and 17.9% for the first nine months of 2023 and 2022, respectively. The change in the Company’s tax rate for the third quarter and first nine months of 2023 compared to the third quarter and first nine months of 2022 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 net tax expense related to discrete tax items of $3.5 million and $2.3 million in the third quarter and first nine months of 2023, respectively. This included share-based compensation excess tax benefits of $0.8 million and $2.7 million in the third quarter and first nine months of 2023, respectively. Additionally, the Company recognized discrete tax expense of $4.3 million and $5.0 million during the third quarter and first nine months of 2023, respectively, primarily due to prior year adjustments, changes in estimates, audit settlements, uncertain tax positions, and repricing of deferred tax balances.

The Company recognized 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. 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, uncertain tax positions, prior year return adjustments, repricing of deferred tax balances and other changes in estimates.

The Inflation Reduction Act (IRA), which became effective January 1, 2023, includes a corporate alternative minimum tax on certain large corporations and climate change mitigation incentives. In addition, there are other non-income tax provisions, including an excise tax on the repurchase of corporate stock. The Company continues to assess the impact of the IRA but does not anticipate any material impacts 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 pension 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 also provides postretirement health care and life insurance 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)	2023		2022		2023		2022		2023		2022
Service cost		$9.8		$10.5		$6.3		$6.8		$0.1		$0.2
Interest cost on benefit obligation		22.0		14.1		11.5		5.3		1.4		0.8
Expected return on plan assets		(36.2)		(36.7)		(14.2)		(16.8)		-		(0.1)
Recognition of net actuarial loss (gain)		-		10.0		2.5		5.6		(0.8)		(0.1)
Amortization of prior service benefit		(0.6)		(1.2)		(0.1)		-		-		-
Curtailments and settlements		-		24.8		-		-		-		-
Total expense (benefit)		($5.0)		$21.5		$6.0		$0.9		$0.7		$0.8

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)	2023		2022		2023		2022		2023		2022
Service cost		$30.6		$31.5		$17.1		$21.0		$0.3		$0.6
Interest cost on benefit obligation		66.0		42.3		34.5		16.5		4.2		2.4
Expected return on plan assets		(108.8)		(110.1)		(42.0)		(52.8)		-		(0.3)
Recognition of net actuarial loss (gain)		-		30.0		9.3		17.4		(2.4)		(0.3)
Amortization of prior service benefit		(3.1)		(3.4)		(0.3)		-		-		-
Curtailments and settlements		0.7		25.7		-		-		(0.1)		-
Total expense (benefit)		($14.6)		$16.0		$18.6		$2.1		$2.0		$2.4

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, 2023, the Company is in compliance with all funding requirements of each of its defined benefit plans.

During the first nine months of 2023, the Company made contributions of $5 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 2023. In September 2023, the Company made a $50 million voluntary contribution to its non-contributory qualified U.S. pension plan.

During the first nine months of 2023, the Company made contributions of $29 million to its international pension plans and estimates it will contribute an additional $11 million to such plans during the remainder of 2023.

During the first nine months of 2023, 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 2023.

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 and for a smaller set of products with limited suppliers over the next few years. 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 2023 and 2022 were $15.0 million and $27.8 million, respectively, and for the first nine months of 2023 and 2022 were $55.4 million and $96.4 million, respectively. As of September 30, 2023 and December 31, 2022, the Company had an outstanding accounts receivable balance for sales of product to ChampionX of $9.4 million and $12.9 million, respectively.

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)

2023

2022

2023

2022

Operating lease revenue*

$128.4

$118.1

$383.5

$345.4

*Includes immaterial variable lease revenue

The following table shows principal activities, separated by reportable segments, from which the Company generates its revenue. The 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)

2023

2022

2023

2022

Global Industrial

Product and sold equipment

$1,614.0

$1,551.8

$4,700.0

$4,381.6

Service and lease equipment

227.8

217.8

659.7

643.6

Global Institutional & Specialty

Product and sold equipment

1,071.8

966.9

3,039.8

2,730.2

Service and lease equipment

241.2

199.1

674.2

574.5

Global Healthcare & Life Sciences

Product and sold equipment

378.5

329.5

1,095.0

1,023.7

Service and lease equipment

27.7

27.1

81.7

86.6

Other

Product and sold equipment

91.6

87.1

261.8

242.1

Service and lease equipment

290.5

262.3

814.2

737.9

Corporate

Product and sold equipment

15.0

27.7

55.4

96.3

Service and lease equipment

0.1

Total

Total product and sold equipment

$3,170.9

$2,963.0

$9,152.0

$8,473.9

Total service and lease equipment

$787.2

$706.3

$2,229.8

$2,042.7

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
	2023		2022		2023		2022		2023		2022		2023		2022		2023		2022

North America		$832.1		$836.4		$963.5		$860.5		$170.3		$146.5		$244.9		$227.1		$12.8		$24.8
Europe		385.8		350.3		183.8		162.8		186.5		163.0		81.2		70.0		0.5		0.7
Asia Pacific		218.4		207.2		58.3		53.5		25.5		23.1		21.5		19.6		1.0		1.1
Latin America		193.2		160.6		49.4		40.8		6.8		6.4		14.9		12.9		0.7		1.1
Greater China		95.5		101.0		40.9		33.5		11.5		12.8		17.2		17.1		-		-
India, Middle East and Africa		116.8		114.1		17.1		14.9		5.6		4.8		2.4		2.7		-		-
Total		$1,841.8		$1,769.6		$1,313.0		$1,166.0		$406.2		$356.6		$382.1		$349.4		$15.0		$27.7

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)	2023		2022		2023		2022		2023		2022		2023		2022		2023		2022

North America		$2,437.5		$2,329.6		$2,731.2		$2,420.6		$490.6		$449.1		$687.5		$623.7		$45.9		$84.5
Europe		1,117.0		1,005.1		505.0		463.8		547.0		513.8		222.5		201.8		2.5		2.2
Asia Pacific		654.9		621.3		173.5		159.2		67.8		67.5		64.7		55.8		2.8		3.2
Latin America		531.4		453.0		138.3		119.1		19.1		17.6		42.7		39.0		4.2		6.2
Greater China		291.1		317.7		117.0		102.4		35.2		44.6		51.5		51.7		-		0.1
India, Middle East and Africa		327.8		298.5		49.0		39.6		17.0		17.7		7.1		8.0		-		0.2
Total		$5,359.7		$5,025.2		$3,714.0		$3,304.7		$1,176.7		$1,110.3		$1,076.0		$980.0		$55.4		$96.4

Net sales by geographic region were determined based on origin of sale. The United States made up 53% and 53% of total revenues during the nine months ended September 30, 2023 and 2022, 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 $76.8 million and $37.1 million as of September 30, 2023 and 2022, 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)	2023		2022

Beginning balance		$71.9		$52.8
Bad debt expense		44.2		26.8
Write-offs		(32.6)		(12.8)
Other (a)		(0.8)		2.1
Ending balance		$82.7		$68.9

(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)	2023		2022

Contract liability as of beginning of the year		$116.5		$91.7

Revenue recognized in the period from:
Amounts included in the contract liability at the beginning of the year		(116.5)		(91.7)

Increases due to billings excluding amounts recognized as revenue during the period ended		105.5		109.1

Contract liability as of end of period		$105.5		$109.1

15. OPERATING SEGMENTS

The Company’s organizational structure consists of global business unit and global regional leadership teams. The Company’s ten 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

Effective January 1, 2023, the Company’s former Downstream operating segment is now part of the Water operating segment. This change did not have any impact on the Global Industrial reportable segment.

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 2023, rather than the 2022 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 2022 reportable segment net sales and operating income is summarized as follows:


	December 31, 2022

	2022 Reported					Fixed	2022 Reported
	Valued at 2022				Currency		Valued at 2023
(millions)	Management Rates		Other		Rate Change		Management Rates
Net Sales
Global Industrial		$6,944.0		$-		($207.7)		$6,736.3
Global Institutional & Specialty		4,480.0		10.2		(75.9)		4,414.3
Global Healthcare & Life Sciences		1,570.0		-		(64.2)		1,505.8
Other		1,355.0		(10.2)		(31.5)		1,313.3
Corporate		124.1		-		(0.4)		123.7
Subtotal at fixed currency rates		14,473.1		-		(379.7)		14,093.4
Effect of foreign currency translation		(285.3)				379.7		94.4
Consolidated reported GAAP net sales		$14,187.8		$-		$-		$14,187.8

Operating Income
Global Industrial		$977.0		$0.8		($42.0)		$935.8
Global Institutional & Specialty		634.5		(1.6)		(11.2)		621.7
Global Healthcare & Life Sciences		205.0		(1.8)		(9.9)		193.3
Other		212.8		2.6		(5.5)		209.9
Corporate		(416.7)		-		2.3		(414.4)
Subtotal at fixed currency rates		1,612.6		-		(66.3)		1,546.3
Effect of foreign currency translation		(50.1)				66.3		16.2
Consolidated reported GAAP operating income		$1,562.5		$-		$-		$1,562.5

Reportable Segment Information

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

Third Quarter Ended

Nine Months Ended

September 30

(millions)

2023

2022

2023

2022

Net Sales

Global Industrial

$1,826.9

$1,763.4

$5,321.8

$4,928.1

Global Institutional & Specialty

1,308.7

1,165.7

3,703.9

3,275.2

Global Healthcare & Life Sciences

400.7

360.1

1,166.8

1,092.7

Other

380.3

350.8

1,072.2

970.1

Corporate

15.0

27.7

55.3

96.1

Subtotal at fixed currency rates

3,931.6

3,667.7

11,320.0

10,362.2

Effect of foreign currency translation

26.5

1.6

61.8

154.4

Consolidated reported GAAP net sales

$3,958.1

$3,669.3

$11,381.8

$10,516.6

Operating Income

Global Industrial

$287.5

$266.6

$758.5

$663.3

Global Institutional & Specialty

249.9

195.2

584.3

452.4

Global Healthcare & Life Sciences

44.0

32.0

111.7

129.1

Other

72.9

63.3

186.4

152.0

Corporate

(92.2)

(76.6)

(248.4)

(263.0)

Subtotal at fixed currency rates

562.1

480.5

1,392.5

1,133.8

Effect of foreign currency translation

3.9

2.5

9.8

29.5

Consolidated reported GAAP operating income

$566.0

$483.0

$1,402.3

$1,163.3

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 under Chapter 11 (Case No. 22-10493-CTG, United States Bankruptcy Court for the District of Delaware). In connection with the bankruptcy cases, TPC 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. As part of their bankruptcy plan, TPC and its affiliates announced a settlement which allows the MDL plaintiffs a $500 million claim solely for purposes of claim allowance in the chapter 11 case and distribution of value pursuant to TPC’s bankruptcy plan. Other key terms of the settlement between TPC and the MDL plaintiffs include the establishment of a settlement trust for the benefit of certain general unsecured creditors, which is funded with $30 million and the assignment of TPC’s claims and causes of action, if any, against certain third parties, including Nalco, related to the TPC plant explosion. As part of the bankruptcy process, TPC and its debtor affiliates received a discharge of all MDL related claims, as did certain non-debtor affiliates to the extent third parties did not opt out of the non-debtor releases. Nalco opted out of these releases, preserving any direct causes of action it may have against non-debtors. Furthermore, the allowance of the $500 million claim should have no effect on any claims or defenses asserted against or by Nalco in the MDL litigation. On December 1, 2022, the bankruptcy court confirmed the TPC bankruptcy plan, including the approval of the settlement and establishment of the aforementioned settlement trust. On December 16, 2022, the TPC bankruptcy plan went effective.

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 any potential loss 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 25 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 Were Adopted:
	Date of		Date of	Effect on the
Standard	Issuance	Description	Adoption	Financial Statements

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 adoption of this standard did not have a significant impact on the Company's financial statements.

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, 2023, and the related consolidated statements of income, comprehensive income, and equity for the three-month and nine-month periods ended September 30, 2023 and 2022, and the consolidated statements of cash flows for the nine-month periods ended September 30, 2023 and 2022, 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, 2022, and the related consolidated statements of income, comprehensive income, equity and of cash flow for the year then ended (not presented herein), and in our report dated February 24, 2023, 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, 2022, 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
Minneapolis, Minnesota
November 2, 2023

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, 2022. 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

Impact of Acquisitions and Divestitures

Our non-GAAP financial measures for organic sales, organic operating income and organic operating income margin are at fixed currency and exclude the impact of special (gains) and charges, the results of our acquired businesses from the first twelve months post acquisition and the results of 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 of 36 months and for a small set of products with limited suppliers over the next few years. 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.

Comparability of Reportable Segments

Effective January 1, 2023, our former Downstream operating segment is now part of the Water operating segment. This change did not have any impact on the Global Industrial reportable segment.

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, 2023

Sales Performance

When comparing third quarter 2023 against third quarter 2022, sales performance was as follows:

●	Reported net sales increased 8% to $3,958.1 million and organic sales increased 7%.

●	Organic sales for our Global Industrial segment increased 4% to $1,826.9 million, led by growth in Food & Beverage and Water which more than offset the expected decline in Paper sales

●	Organic sales for our Global Institutional & Specialty segment increased 11% to $1,291.4 million with double-digit growth in both Institutional and Specialty.

●	Organic sales for our Global Healthcare & Life Sciences segment increased 11% to $400.7 million driven by improved growth in Healthcare and Life Sciences.

●	Organic sales for Other increased 8% to $380.3 million led by double-digit growth in Pest Elimination.

Financial Performance

When comparing third quarter 2023 against third quarter 2022, our financial performance was as follows:

●	Reported operating income increased 17% to $566.0 million. Organic operating income increased 20%.

●	Net income attributable to Ecolab increased 16% to $404.0 million. Excluding the impact of special (gains) and charges and discrete tax items from both 2023 and 2022 reported results, our adjusted net income attributable to Ecolab increased 19%.

●	Reported diluted EPS increased 17% to $1.41. Excluding the impact of special (gains) and charges and discrete tax items from both 2023 and 2022 reported results, adjusted diluted EPS increased 18% to $1.54 in the third quarter of 2023.

●

Our reported tax rate was 19.1% during the third quarter of 2023, compared to 14.6% during the third quarter of 2022. Excluding the tax rate impact of special (gains) and charges and discrete tax items from both 2023 and 2022 results, our adjusted tax rate was 18.5% during the third quarter of 2023, compared to 18.3% during the third quarter of 2022.

RESULTS OF OPERATIONS

Net Sales


	Third Quarter Ended						Nine Months Ended
	September 30						September 30
(millions)	2023		2022		Change		2023		2022		Change
Product and equipment sales		$3,170.9		$2,963.0				$9,152.0		$8,473.9
Service and lease sales		787.2		706.3				2,229.8		2,042.7
Reported GAAP net sales		$3,958.1		$3,669.3	8	%		$11,381.8		$10,516.6	8	%
Effect of foreign currency translation		(26.5)		(1.6)				(61.8)		(154.4)
Non-GAAP fixed currency sales		$3,931.6		$3,667.7	7	%		$11,320.0		$10,362.2	9	%
Effect of acquisitions and divestitures		(32.3)		(27.7)				(79.0)		(96.1)
Non-GAAP organic sales		$3,899.3		$3,640.0	7	%		$11,241.0		$10,266.1	9	%

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 2023 sales change are shown below:


	Third Quarter Ended			Nine Months Ended
	September 30			September 30
(percent)	2023			2023
Volume		-	%		-	%
Price changes		7			10
Organic sales change		7			9
Acquisitions and divestitures		-			-
Fixed currency sales change		7			9
Foreign currency translation		1			(1)
Reported GAAP net sales change		8	%		8	%

Amounts do not necessarily sum due to rounding.

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

Third Quarter Ended

Nine Months Ended

September 30

2023

2022

2023

2022

Gross

(millions/percent)

COS

Margin

COS

Margin

COS

Margin

COS

Margin

Product and equipment cost of sales

$1,868.1

$1,877.1

$5,561.7

$5,371.7

Service and lease cost of sales

462.4

414.5

1,308.8

1,204.4

Reported GAAP COS and gross margin

$2,330.5

41.1

$2,291.6

37.5

$6,870.5

39.6

$6,576.1

37.5

Special (gains) and charges

5.9

7.1

17.2

61.7

Non-GAAP adjusted COS and gross margin

$2,324.6

41.3

$2,284.5

37.7

$6,853.3

39.8

$6,514.4

38.1

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 41.1% and 37.5% for the third quarter of 2023 and 2022, respectively. Our reported gross margin was 39.6% and 37.5% for the first nine months of 2023 and 2022, 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 COS, third quarter 2023 and 2022 adjusted gross margin was 41.3% and 37.7%, respectively, and for the first nine months of 2023 and 2022 was 39.8% and 38.1%, respectively.

Our adjusted gross margin increased when comparing the third quarter of 2023 against the third quarter of 2022 reflecting strong pricing and slightly lower delivered product costs.

Selling, General and Administrative Expense

Selling, general and administrative (“SG&A”) expenses as a percentage of sales were 25.9% and 26.6% for the third quarter and first nine months of 2023, respectively, compared to 23.9% and 26.0% for the third quarter and first nine months of 2022, respectively. The SG&A ratio to sales in the third quarter of 2023 increased as sales leverage and cost savings were offset by investments in the business including incentive compensation.

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)	2023		2022		2023		2022
Cost of sales
Restructuring activities		$5.9		$2.1		$17.2		$5.5
Acquisition and integration activities		-		4.2		-		32.7
Russia/Ukraine		-		0.8		-		7.2
Other		-		-		-		16.3
Cost of sales subtotal		5.9		7.1		17.2		61.7

Special (gains) and charges
Restructuring activities		20.0		(0.3)		46.3		0.8
Acquisition and integration activities		3.0		4.1		11.5		15.0
Russia/Ukraine		0.5		-		1.1		5.9
Other		13.2		14.0		23.3		23.8
Special (gains) and charges subtotal		36.7		17.8		82.2		45.5

Operating income subtotal		42.6		24.9		99.4		107.2

Other (income) expense		-		24.8		-		24.8

Total special (gains) and charges		$42.6		$49.7		$99.4		$132.0

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

Restructuring activities

Restructuring activities are primarily related to the Combined Program 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.

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

Combined Program

In November 2022, we approved a Europe cost savings program. In connection with these actions, we expected to incur pre-tax charges of $130 million ($110 million after tax) or $0.38 per diluted share. In February 2023, we expanded our previously announced Europe cost savings program to focus on its Institutional and Healthcare businesses in other regions. In connection with the expanded program (“Combined Program”), we expect to incur total pre-tax charges of $195 million ($150 million after tax) or $0.52 per diluted share. We expect that these restructuring charges will be completed by the end of 2024. Program actions include headcount reductions from terminations, not filling certain open positions, and facility closures. The Combined Program charges are expected to be primarily cash expenditures related to severance and asset disposals.

In anticipation of this Combined Program, a limited number of actions were taken in the fourth quarter of 2022. As a result, we reclassified $19.3 million ($14.5 million after tax) or $0.05 per diluted share from other restructuring to the Combined Program in the first quarter of 2023.

During the third quarter and first nine months of 2023 we recorded total Combined Program restructuring charges of $24.2 million ($20.5 million after tax) or $0.07 per diluted share and $57.3 million ($46.9 million after tax) or $0.16 per diluted share, respectively, primarily related to severance. The net liability related to the Combined Program was $58.4 million and $62.0 million as of September 30, 2023 and December 31, 2022, 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.

The Combined Program has delivered $104 million of cumulative cost savings with estimated annualized cost savings of $175 million in continuing operations by 2024.

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 the end of 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 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 2023, we recorded restructuring charges of $1.7 million ($1.2 million after tax) or $0.01 per diluted share and $6.2 million ($4.6 million after tax) or $0.02 per diluted share, respectively, primarily related to disposals of equipment. We have recorded $60.3 million ($40.6 million after tax), or $0.14 per diluted share of cumulative restructuring charges under the Institutional Plan. Net cash payments were $0 million and $3.1 million and non-cash net charges were $1.7 million and $5.0 million for the third quarter and first nine months of 2023, respectively. The liability related to the Institutional Plan was $0 million and $1.9 million as of September 30, 2023 and December 31, 2022, respectively.

The Institutional Plan has delivered $54 million of annual cost savings.

Accelerate 2020

During 2018, we formally commenced a restructuring plan Accelerate 2020 (“the A2020 Plan”), to leverage technology and system investments and organizational changes. The goals of the Plan were 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. The restructuring activities were completed at the end of 2022, with total costs of $254 million ($198 million after tax), or $0.69 per diluted share.

Net cash payments were $1.9 million and $11.4 million for the third quarter and first nine months of 2023, respectively. The liability related to the Plan was $6.7 million and $18.1 million as of September 30, 2023 and December 31, 2022, respectively. The remaining liability is expected to be paid over a period of a few months to several quarters which continue to be funded from operating activities.

The A2020 Plan has delivered $315 million of cumulative cost savings.

Other Restructuring Activities

During the third quarter and first nine months of 2022, we incurred restructuring charges of $0.6 million ($0.5 million after tax), or less than $0.01 per diluted share and $2.6 million ($2.0 million after tax), or less than $0.01 per diluted share, respectively, related to other immaterial restructuring activity.

The restructuring liability balance for all other restructuring plans excluding the Combined Program, the A2020 Plan and the Institutional Plan was $3.7 million and $23.2 million as of September 30, 2023 and December 31, 2022, respectively. The decrease in liability was driven primarily by the reclass of $19.3 million from other restructuring to the Combined Program in the first nine months of 2023. Cash payments during the third quarter and first nine months of 2023 related to all other restructuring plans excluding the Combined Program, the A2020 Plan and the Institutional Plan were $0 million and $0.2 million, respectively.

Acquisition and integration related costs

Acquisition and integration 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, related primarily to the recognition of fair value step-up in the Purolite Corporation (“Purolite”) inventory.

Acquisition and integration related costs reported in special (gains) and charges on the Consolidated Statements of Income include $3.0 million ($2.2 million after tax) or $0.01 per diluted share and $11.5 million ($8.6 million after tax) or $0.03 per diluted share in the third quarter and first nine months of 2023, respectively. Charges are integration related costs primarily related to the Purolite acquisition.

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 incurred charges of $0.5 million ($0.4 million after tax) or less than $0.01 per diluted share and charges of $0.8 million ($0.7 million after tax) or less than $0.01 per diluted share in the third quarter of 2023 and 2022, respectively, and charges of $1.1 million ($0.9 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 first nine months of 2023 and 2022, respectively, primarily related to recoverability risk of certain assets in both Russia and Ukraine.

Other operating activities

Other special charges recorded in product and equipment cost of sales and special (gains) and charges on the Consolidated Statements of Income in the third quarter of 2023 and 2022 were $13.2 million ($9.9 million after tax) or $0.03 per diluted share and $14.0 million ($10.8 million after tax) or $0.04 per diluted share, respectively, and in the first nine months of 2023 and 2022 were $23.3 million ($17.6 million after tax) or $0.06 per diluted share and $40.1 million ($30.5 million after tax) or $0.11 per diluted share, respectively, primarily related to certain legal charges and 2022 COVID-19 related inventory charges.

Other (income) expense

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

Operating Income and Operating Income Margin


	Third Quarter Ended								Nine Months Ended
	September 30								September 30
(millions)	2023			2022					2023			2022
Reported GAAP operating income		$566.0			$483.0		17	%		$1,402.3			$1,163.3		21	%
Special (gains) and charges		42.6			24.9					99.4			107.2
Non-GAAP adjusted operating income		608.6			507.9		20	%		1,501.7			1,270.5		18	%
Effect of foreign currency translation		(4.6)			(2.1)					(10.5)			(27.9)
Non-GAAP adjusted fixed currency operating income		604.0			505.8		19	%		1,491.2			1,242.6		20	%
Effect of acquisitions and divestitures		0.1			(0.4)					(1.9)			(0.4)
Non-GAAP organic operating income		$604.1			$505.4		20	%		$1,489.3			$1,242.2		20	%

	Third Quarter Ended								Nine Months Ended
	September 30								September 30
(percent)	2023			2022					2023			2022
Reported GAAP operating income margin		14.3	%		13.2	%				12.3	%		11.1	%
Non-GAAP adjusted operating income margin		15.4	%		13.8	%				13.2	%		12.1	%
Non-GAAP adjusted fixed currency operating income margin		15.4	%		13.8	%				13.2	%		12.0	%
Non-GAAP organic operating income margin		15.5	%		13.9	%				13.2	%		12.1	%

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 17% and 21% in the third quarter and first nine months of 2023, respectively, versus the comparable periods of 2022. Our reported operating income for 2023 and 2022 was impacted by special (gains) and charges; excluding the impact of special (gains) and charges from 2023 and 2022 reported results, our adjusted operating income increased 20% and 18% in the third quarter and first nine months of 2023.

As shown in the previous table, foreign currency had a 1 and (2) percentage point impact on adjusted operating income growth for the third quarter and first nine months of 2023, respectively. 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.

Other (Income) Expense


	Third Quarter Ended						Nine Months Ended
	September 30						September 30
(millions)	2023		2022		Change		2023		2022		Change
Reported GAAP other (income) expense		($14.5)		$5.7	(354)	%		($42.0)		($32.6)	29	%
Special (gains) and charges		-		24.8				-		24.8
Non-GAAP adjusted other (income) expense		($14.5)		($19.1)	(24)	%		($42.0)		($57.4)	(27)	%

Reported other (income) expense increased to ($14.5) million from $5.7 million in the third quarter of 2023 compared to the third quarter of 2022, respectively. Reported other income increased to $42.0 million from $32.6 million in the first nine months of 2023 compared to the first nine months of 2022, respectively. We recognized pension settlement expense of $24.8 million in special (gains) and charges in third quarter and first nine months of 2022. Other income in the third quarter of 2023 increased as modestly higher pension costs were more than offset by the 2022 $24.8 million settlement expense related to U.S. pension plan lump-sum payments to retirees.

Interest Expense, Net


	Third Quarter Ended						Nine Months Ended
	September 30						September 30
(millions)	2023		2022		Change		2023		2022		Change
Reported GAAP interest expense, net		$74.3		$65.1	14	%		$226.3		$174.1	30	%

Reported net interest expense was $74.3 million and $65.1 million in the third quarter of 2023 and 2022, respectively, and $226.3 million and $174.1 million in the first nine months of 2023 and 2022, respectively. The increase in interest expense reflected the impact from higher average interest rates on outstanding 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)	2023		2022		2023		2022
Reported GAAP tax rate	19.1	%	14.6	%	19.4	%	17.9	%
Tax rate impact of:
Special (gains) and charges	0.1		0.6		0.1		0.2
Discrete tax items	(0.7)		3.1		(0.2)		0.8
Non-GAAP adjusted tax rate	18.5	%	18.3	%	19.3	%	18.9	%

Our reported tax rate was 19.1% and 14.6% for the third quarter of 2023 and 2022, respectively and 19.4% and 17.9% for the first nine months of 2023 and 2022, respectively. The change in our tax rate for the third quarter and first nine months of 2023 versus the comparable periods of 2022 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 net tax expense related to discrete tax items of $3.5 million and $2.3 million in the third quarter and first nine months of 2023, respectively. This included share-based compensation excess tax benefits of $0.8 million and $2.7 million in the third quarter and first nine months of 2023, respectively. Additionally, we recognized net tax expense related to discrete tax items of $4.3 million and $5.0 million in the third quarter and first nine months of 2023, respectively, primarily due to prior year adjustments, changes in estimates, audit settlements, uncertain tax positions, and repricing of deferred tax balances.

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. 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, uncertain tax positions, prior year return adjustments, repricing of deferred tax balances, and other changes in estimates.

Net Income Attributable to Ecolab


	Third Quarter Ended							Nine Months Ended
	September 30							September 30
(millions)	2023		2022		Change			2023		2022		Change
Reported GAAP net income attributable to Ecolab		$404.0		$347.1		16	%		$967.1		$827.3		17	%
Adjustments:
Special (gains) and charges, after tax		34.2		39.6					78.6		105.8
Discrete tax net expense		3.5		(14.2)					2.3		(9.5)
Non-GAAP adjusted net income attributable to Ecolab		$441.7		$372.5		19	%		$1,048.0		$923.6		13	%

Diluted EPS


	Third Quarter Ended							Nine Months Ended
	September 30							September 30
(dollars)	2023		2022		Change			2023		2022		Change
Reported GAAP diluted EPS		$1.41		$ 1.21		17	%		$3.38		$ 2.88		17	%
Adjustments:
Special (gains) and charges, after tax		0.12		0.14					0.27		0.37
Discrete tax net expense		0.01		(0.05)					0.01		(0.03)
Non-GAAP adjusted diluted EPS		$1.54		$ 1.30		18	%		$3.66		$ 3.22		14	%

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

Currency translation had an unfavorable impact of approximately ($0.00) and ($0.08) per share on diluted EPS for the third quarter and first nine months of 2023, when compared to the comparable periods of 2022.

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 2023. 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, 2022. 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 2023 and 2022 for our reportable segments are shown in the following tables:


Net Sales	Third Quarter Ended						Nine Months Ended
	September 30						September 30
(millions)	2023		2022		Change		2023		2022		Change
Global Industrial		$1,826.9		$1,763.4	4	%		$5,321.8		$4,928.1	8	%
Global Institutional & Specialty		1,308.7		1,165.7	12			3,703.9		3,275.2	13
Global Healthcare & Life Sciences		400.7		360.1	11			1,166.8		1,092.7	7
Other		380.3		350.8	8			1,072.2		970.1	11
Corporate		15.0		27.7	(46)			55.3		96.1	(42)
Subtotal at fixed currency		3,931.6		3,667.7	7			11,320.0		10,362.2	9
Effect of foreign currency translation		26.5		1.6				61.8		154.4
Consolidated reported GAAP net sales		$3,958.1		$3,669.3	8	%		$11,381.8		$10,516.6	8	%

Operating Income	Third Quarter Ended						Nine Months Ended
	September 30						September 30
(millions)	2023		2022		Change		2023		2022		Change
Global Industrial		$287.5		$266.6	8	%		$758.5		$663.3	14	%
Global Institutional & Specialty		249.9		195.2	28			584.3		452.4	29
Global Healthcare & Life Sciences		44.0		32.0	38			111.7		129.1	(13)
Other		72.9		63.3	15			186.4		152.0	23
Corporate		(92.2)		(76.6)	(20)			(248.4)		(263.0)	6
Subtotal at fixed currency		562.1		480.5	17			1,392.5		1,133.8	23
Effect of foreign currency translation		3.9		2.5				9.8		29.5
Consolidated reported GAAP operating income		$566.0		$483.0	17	%		$1,402.3		$1,163.3	21	%

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


	Third Quarter Ended
	September 30
Net Sales	2023			2022
(millions)	Fixed Currency	Impact of Acquisitions and Divestitures	Organic	Fixed Currency	Impact of Acquisitions and Divestitures	Organic
Global Industrial	$1,826.9	$-	$1,826.9	$1,763.4	$-	$1,763.4
Global Institutional & Specialty	1,308.7	(17.3)	1,291.4	1,165.7	-	1,165.7
Global Healthcare & Life Sciences	400.7	-	400.7	360.1	-	360.1
Other	380.3	-	380.3	350.8	-	350.8
Corporate	15.0	(15.0)	-	27.7	(27.7)	-
Subtotal at fixed currency	3,931.6	(32.3)	3,899.3	3,667.7	(27.7)	3,640.0
Effect of foreign currency translation	26.5			1.6
Consolidated reported GAAP net sales	$3,958.1			$3,669.3

Operating Income	2023			2022
(millions)	Fixed Currency	Impact of Acquisitions and Divestitures	Organic	Fixed Currency	Impact of Acquisitions and Divestitures	Organic
Global Industrial	$287.5	$-	$287.5	$266.6	$-	$266.6
Global Institutional & Specialty	249.9	(0.1)	249.8	195.2	-	195.2
Global Healthcare & Life Sciences	44.0	-	44.0	32.0	-	32.0
Other	72.9	-	72.9	63.3	-	63.3
Corporate	(50.3)	0.2	(50.1)	(51.3)	(0.4)	(51.7)
Non-GAAP adjusted fixed currency operating income	604.0	0.1	604.1	505.8	(0.4)	505.4
Special (gains) and charges	41.9			25.3
Subtotal at fixed currency	562.1			480.5
Effect of foreign currency translation	3.9			2.5
Consolidated reported GAAP operating income	$566.0			$483.0

	Nine Months Ended
	September 30
Net Sales	2023			2022
(millions)	Fixed Currency	Impact of Acquisitions and Divestitures	Organic	Fixed Currency	Impact of Acquisitions and Divestitures	Organic
Global Industrial	$5,321.8	$-	$5,321.8	$4,928.1	$-	$4,928.1
Global Institutional & Specialty	3,703.9	(23.7)	3,680.2	3,275.2	-	3,275.2
Global Healthcare & Life Sciences	1,166.8	-	1,166.8	1,092.7	-	1,092.7
Other	1,072.2	-	1,072.2	970.1	-	970.1
Corporate	55.3	(55.3)	-	96.1	(96.1)	-
Subtotal at fixed currency	11,320.0	(79.0)	11,241.0	10,362.2	(96.1)	10,266.1
Effect of foreign currency translation	61.8			154.4
Consolidated reported GAAP net sales	$11,381.8			$10,516.6

Operating Income	2023			2022
(millions)	Fixed Currency	Impact of Acquisitions and Divestitures	Organic	Fixed Currency	Impact of Acquisitions and Divestitures	Organic
Global Industrial	$758.5	$-	$758.5	$663.3	$-	$663.3
Global Institutional & Specialty	584.3	(0.8)	583.5	452.4	-	452.4
Global Healthcare & Life Sciences	111.7	-	111.7	129.1	-	129.1
Other	186.4	-	186.4	152.0	-	152.0
Corporate	(149.7)	(1.1)	(150.8)	(154.2)	(0.4)	(154.6)
Non-GAAP adjusted fixed currency operating income	1,491.2	(1.9)	1,489.3	1,242.6	(0.4)	1,242.2
Special (gains) and charges	98.7			108.8
Subtotal at fixed currency	1,392.5			1,133.8
Effect of foreign currency translation	9.8			29.5
Consolidated reported GAAP operating income	$1,402.3			$1,163.3

Unless otherwise noted, the following segment performance commentary compares the third quarter and first nine months of 2023 against the third quarter and first nine months of 2022.

Global Industrial


	Third Quarter Ended						Nine Months Ended
	September 30						September 30
	2023			2022			2023			2022
Sales at fixed currency (millions)		$1,826.9			$1,763.4			$5,321.8			$4,928.1
Sales at public currency (millions)		1,841.8			1,769.6			5,359.7			5,025.2

Volume		(3)	%					(2)	%
Price changes		6	%					11	%
Organic sales change		4	%					8	%
Acquisitions and divestitures		-	%					-	%
Fixed currency sales change		4	%					8	%
Foreign currency translation		-	%					(1)	%
Public currency sales change		4	%					7	%

Operating income at fixed currency (millions)		$287.5			$266.6			$758.5			$663.3
Operating income at public currency (millions)		289.8			269.0			765.1			684.2

Fixed currency operating income change		8	%					14	%
Fixed currency operating income margin		15.7	%		15.1	%		14.3	%		13.5	%
Organic operating income change		8	%					14	%
Organic operating income margin		15.7	%		15.1	%		14.3	%		13.5	%
Public currency operating income change		8	%					12	%

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

Net Sales

Organic sales for Global Industrial increased in the third quarter and first nine months of 2023, led by growth in Food & Beverage and Water which more than offset the expected decline in third quarter Paper sales.

Water organic sales increased 5% and 9% in the third quarter and first nine months of 2023, respectively, driven by pricing and new business wins. Light industry reported good sales growth led by continued strong performance across data centers and microelectronics. Heavy industry recorded strong sales growth led by primary metals while power and chemicals sales showed solid growth. Downstream industry reported strong sales growth driven by water treatment. Food & Beverage organic sales increased 7% and 11% in the third quarter and first nine months of 2023, respectively, reflecting strong sales growth driven by pricing and new business. Paper organic sales decreased 7% and remained flat in the third quarter and first nine months of 2023, respectively, reflecting pricing and new business wins that were more than offset by easing customer production rates.

Operating Income

Organic operating income and organic operating income margins increased for Global Industrial in both the third quarter and first nine months of 2023, respectively.

Organic operating income margins increased 0.6 percentage points during the third quarter of 2023, as the 4.9 percentage point positive impact of pricing overcame the 4.0 percentage point negative impacts of investments in the business including incentive compensation, and lower volume. Organic operating income margins increased 0.8 percentage points during the first nine months of 2023, as the 8.2 percentage point positive impact of pricing overcame the 6.8 percentage point negative impacts of investments in the business including incentive compensation, lower volume, and higher delivered product costs.

Global Institutional & Specialty


	Third Quarter Ended						Nine Months Ended
	September 30						September 30
	2023			2022			2023			2022
Sales at fixed currency (millions)		$1,308.7			$1,165.7			$3,703.9			$3,275.2
Sales at public currency (millions)		1,313.0			1,166.0			3,714.0			3,304.7

Volume		3	%					2	%
Price changes		8	%					11	%
Organic sales change		11	%					12	%
Acquisitions and divestitures		1	%					1	%
Fixed currency sales change		12	%					13	%
Foreign currency translation		-	%					(1)	%
Public currency sales change		13	%					12	%

Operating income at fixed currency (millions)		$249.9			$195.2			$584.3			$452.4
Operating income at public currency (millions)		250.8			196.1			585.9			457.6

Fixed currency operating income change		28	%					29	%
Fixed currency operating income margin		19.1	%		16.7	%		15.8	%		13.8	%
Organic operating income change		28	%					29	%
Organic operating income margin		19.3	%		16.7	%		15.9	%		13.8	%
Public currency operating income change		28	%					28	%

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

Net Sales

Organic sales for Global Institutional & Specialty increased in the third quarter and first nine months of 2023, with double-digit growth in both the Institutional and Specialty divisions.

At an operating segment level, Institutional organic sales increased 10% and 12% in the third quarter and first nine months of 2023, respectively, reflecting strong sales growth driven by pricing and new business wins. Specialty organic sales increased 12% and 13% in the third quarter and first nine months of 2023, respectively, reflecting sales growth driven by pricing and new business wins.

Operating Income

Organic operating income and organic operating income margin increased in both the third quarter and first nine months of 2023 for our Global Institutional & Specialty segment.

Organic operating income margins increased 2.6 percentage points during the third quarter of 2023, as the 5.7 percentage point positive impact from pricing overcame 3.5 percentage point negative impacts from investments in the business including incentive compensation. Organic operating income margins increased 2.1 percentage points during the first nine months of 2023, as the 7.2 percentage point positive impact from pricing overcame 5.3 percentage point negative impacts from investments in the business including incentive compensation and higher supply chain costs.

Global Healthcare & Life Sciences


	Third Quarter Ended						Nine Months Ended
	September 30						September 30
	2023			2022			2023			2022
Sales at fixed currency (millions)		$400.7			$360.1			$1,166.8			$1,092.7
Sales at public currency (millions)		406.2			356.6			1,176.7			1,110.3

Volume		7	%					-	%
Price changes		4	%					8	%
Organic sales change		11	%					7	%
Acquisitions and divestitures		-	%					-	%
Fixed currency sales change		11	%					7	%
Foreign currency translation		3	%					(1)	%
Public currency sales change		14	%					6	%

Operating income at fixed currency (millions)		$44.0			$32.0			$111.7			$129.1
Operating income at public currency (millions)		45.2			31.3			113.7			132.2

Fixed currency operating income change		38	%					(13)	%
Fixed currency operating income margin		11.0	%		8.9	%		9.6	%		11.8	%
Organic operating income change		38	%					(13)	%
Organic operating income margin		11.0	%		8.9	%		9.6	%		11.8	%
Public currency operating income change		44	%					(14)	%

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

Net Sales

Organic sales for Global Healthcare & Life Sciences increased in both the third quarter and first nine months of 2023 reflecting improved growth in Healthcare and Life Sciences.

At an operating segment level, Healthcare organic sales increased 15% and 8% in the third quarter and first nine months of 2023, respectively, reflecting pricing and new business wins across both North America and Europe. Life Sciences organic sales increased 7% and 5% in third quarter and first nine months of 2023 as growth improved led by new business wins and pricing, which more than offset soft near-term industry demand.

Operating Income

Organic operating income and organic operating income margins both increased in the third quarter of 2023 and both decreased for the first nine months of 2023 for our Global Healthcare & Life Sciences segment.

Organic operating income margins increased 2.1 percentage points during the third quarter of 2023, as the 5.3 percentage point positive impact from pricing, higher volume, and cost savings overcame the 3.5 percentage point negative impacts from targeted investments in the business including incentive compensation. Organic operating income margins decreased 2.2 percentage points during the first nine months of 2023, as the 5.2 percentage point positive impact from pricing was more than offset by the 7.0 percentage point negative impacts from lower volume and targeted investments in the business.

Other


	Third Quarter Ended						Nine Months Ended
	September 30						September 30
	2023			2022			2023			2022
Sales at fixed currency (millions)		$380.3			$350.8			$1,072.2			$970.1
Sales at public currency (millions)		382.1			349.4			1,076.0			980.0

Volume		2	%					2	%
Price changes		6	%					8	%
Organic sales change		8	%					11	%
Acquisitions and divestitures		-	%					-	%
Fixed currency sales change		8	%					11	%
Foreign currency translation		1	%					(1)	%
Public currency sales change		9	%					10	%

Operating income at fixed currency (millions)		$72.9			$63.3			$186.4			$152.0
Operating income at public currency (millions)		72.9			63.1			186.6			153.2

Fixed currency operating income change		15	%					23	%
Fixed currency operating income margin		19.2	%		18.0	%		17.4	%		15.7	%
Organic operating income change		15	%					23	%
Organic operating income margin		19.2	%		18.0	%		17.4	%		15.7	%
Public currency operating income change		16	%					22	%

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

Net Sales

Organic sales for Other increased in both the third quarter and first nine months of 2023 led by double-digit growth in Pest Elimination.

At an operating segment level, Pest Elimination organic sales increased 10% and 11% in the third quarter and first nine months of 2023, respectively, reflecting strong sales growth led by double-digit gains in restaurants, food & beverage, food retail, and healthcare. Textile Care organic sales increased 6% and 10% in the third quarter and first nine months of 2023, respectively. Colloidal Technologies Group organic sales increased 2% and 7% in the third quarter and first nine months of 2023, respectively.

Operating Income

Organic operating income and organic operating income margins increased for Other in both the third quarter and first nine months of 2023.

Organic operating income margins increased 1.2 percentage points during the third quarter of 2023, as the 4.7 percentage point positive impact from pricing overcame the 4.2 percentage point negative impacts of investments in the business including incentive compensation. Organic operating income margins increased 1.7 percentage points during the first nine months of 2023, as the 6.3 percentage point positive impact from pricing overcame the 4.8 percentage point negative impacts of investments in the business including incentive compensation and unfavorable mix.

Corporate

Consistent with our internal management reporting, Corporate amounts in the table on page 36 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 transactions 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 32.

FINANCIAL POSITION, CASH FLOWS AND LIQUIDITY

Financial Position

Total assets were $21.9 billion as of September 30, 2023, compared to total assets of $21.5 billion as of December 31, 2022.

Total liabilities were $14.0 billion as of September 30, 2023, compared to total liabilities of $14.2 billion as of December 31, 2022. Total debt was $8.6 billion as of September 30, 2023 and $8.6 billion as of December 31, 2022. 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, 2023		December 31, 2022
(ratio)
Net debt to EBITDA		2.8		3.2

(millions)
Total debt		$8,616.2		$8,580.4
Cash		1,001.3		598.6
Net debt		$7,614.9		$7,981.8

Net income including noncontrolling interest		$1,251.7		$1,108.9
Provision for income taxes		287.9		234.5
Interest expense, net		295.8		243.6
Depreciation		618.4		618.5
Amortization		311.2		320.2
EBITDA		$2,765.0		$2,525.7

Cash Flows

Operating Activities

Nine Months Ended

September 30

(millions)

2023

2022

Change

Cash provided by operating activities

$1,559.3

$929.2

$630.1

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 increased $630 million in the first nine months of 2023 compared to the first nine months of 2022, driven primarily by a $408 million net favorable change in working capital and $143 million increase in net income. The cash flow impact from working capital was primarily driven by improvement in inventory and receivables offset by a decrease in accounts payable.

Investing Activities

Nine Months Ended

September 30

(millions)

2023

2022

Change

Cash used for investing activities

($642.1)

($506.4)

($135.7)

Cash used for investing activities is primarily impacted by 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 $512 million and $510 million in the first nine months of 2023 and 2022, respectively.

Total cash paid for acquisitions, net of cash acquired along with net cash received from dispositions, during the first nine months of 2023 and 2022, was $107 million and $7 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)

2023

2022

Change

Cash used for financing activities

($469.2)

($675.6)

$206.4

Our cash flows from financing activities primarily reflect the issuances and repayment of debt, common stock repurchases, proceeds from common stock issuances related to our equity incentive programs and dividend payments.

We had net issuances of commercial paper and notes payable of $88 million in the first nine months of 2022.

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 $12 million and $445 million of shares in the first nine months of 2023 and 2022, respectively. Cash proceeds and tax benefits from stock option exercises provide a portion of the funding for repurchase activity.

There was no long-term debt issuance or repayment activity through the first nine months of 2023 or 2022.

We paid dividends of $463 million and $445 million in the first nine months of 2023 and 2022, respectively.

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, 2023, we had $1,001 million of cash and cash equivalents on hand, of which $585 million was held outside of the U.S. Our cash balance is intended to fund current maturities of long-term debt. We will continue to evaluate our cash position in light of future developments.

As of September 30, 2023, 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 2023, we had no outstanding commercial paper under our U.S. program nor our Euro program. 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, 2023 or 2022. As of September 30, 2023, 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 2023.

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, 2022 disclosed total notes payable and long-term debt due within one year of $505 million. As of September 30, 2023, the total notes payable and long-term debt due within one year was $1.1 billion. We had no outstanding commercial paper under our U.S. program as of September 30, 2023 and as of December 31, 2022.

Our gross liability for uncertain tax positions was $21 million as of September 30, 2023 and $25 million as of December 31, 2022. 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

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 weak economic growth are having a significant impact on costs and demand. We also assume slightly lower delivered product cost inflation and for interest rates to remain high through 2023.

Argentina and Turkey are classified as highly inflationary economies in accordance with U.S. GAAP, and the U.S. dollar is the functional currency for our subsidiaries in Argentina and Turkey. During the first nine months of 2023, sales in Argentina represented less than 1% of our consolidated sales. Assets held in Argentina at the end of the first nine months of 2023 represented less than 1% of our

consolidated assets. During the first nine months of 2023, sales in Turkey represented less than 1% of our consolidated sales. Assets held in Turkey at the end of the first nine months of 2023 represented less than 1% of our consolidated assets.

NEW ACCOUNTING PRONOUNCEMENTS

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

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

●

Organic sales, formerly known as 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

●

Organic operating income, formerly known as acquisition adjusted fixed currency operating income

●

Organic operating income margin, formerly known as 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 adjusted cost of sales, adjusted gross margin and adjusted operating income exclude the impact of special (gains) and charges and our non-GAAP financial measures for adjusted tax rate, adjusted net income attributable to Ecolab and adjusted diluted earnings per share 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 2023. 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 to our reportable segments.

Our non-GAAP financial measures for organic sales, organic operating income and organic operating income margin are at fixed currency and exclude the impact of special (gains) and charges, the results of our acquired businesses from the first twelve months post acquisition and the results of 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 and for a small set of products with limited suppliers over the next few years. 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 our business performance and prospects; expectations concerning timing, amount and type of restructuring costs and savings from restructuring activities; macroeconomic environment, delivered product cost inflation and interest rates; Russian operations; working capital; 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 and tax laws; cash flows, borrowing capacity and funding of cash requirements, including current maturities of long-term debt; 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 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 and our other public filings with the Securities and Exchange Commission (the "SEC"), and include the impact of economic factors such as the worldwide economy, capital flows, interest rates, foreign currency risk, reduced sales and earnings in our international operations resulting from the weakening of local currencies versus the U.S. dollar, demand uncertainty, supply chain challenges and inflation; the vitality of the markets we serve; exposure to global economic, political and legal risks related to our international operations, including geopolitical instability, 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; difficulty in procuring raw materials or fluctuations in raw material costs; 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; information technology infrastructure failures or breaches in data security; the effects and duration of the COVID-19 pandemic or other public health outbreaks, epidemics or pandemics; our ability to acquire complementary businesses and to effectively integrate such businesses, including Purolite; 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; the costs and effects of complying with laws and regulations, including those relating to the environment, climate change standards, and to the manufacture, storage, distribution, sale and use of our products, as well as to the conduct of our business generally, including labor and employment and anti-corruption; potential chemical spill or release; our commitments, goals, targets, objectives and initiatives related to sustainability; 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, 2023, we carried out an evaluation, under the supervision and with the participation of our management, including our Chairman 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 Chairman and Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures are effective.

During the period July 1, 2023 through September 30, 2023 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, 2022, filed with the Securities and Exchange Commission on February 24, 2023, 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 45 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.

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, 2023	-		$	-		-		12,917,097
August 1-31, 2023	4,188			183.2846		-		12,917,097
September 1-30, 2023	-			-		-		12,917,097
Total	4,188		$	183.2846		-		12,917,097

(1)	Includes 4,188 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 common shares. As announced on November 3, 2022, our Board of Directors authorized the repurchase of up to an additional 10,000,000 shares. Subject to market conditions, we expect to repurchase all shares under these authorizations, for which no expiration date has been established, in open market or privately negotiated transactions, including pursuant to Rule 10b5-1 and accelerated share repurchase program.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Rule 10b5-1 Plan Adoptions and Modifications

None.

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 2, 2023	By:	/s/ Jennifer J. Bradway

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