Ecolab(ECL) - 2024 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION This section presents Ecolab Inc.'s comprehensive financial data, including statements, notes, and management's discussion, for the reported interim periods Item 1. Financial Statements This section presents Ecolab Inc.'s unaudited consolidated financial statements for the third quarter and first nine months ended September 30, 2024 and 2023, including statements of income, comprehensive income, balance sheets, cash flows, and equity. These statements provide a snapshot of the company's financial performance and position during the interim periods. Consolidated Statements of Income This statement details Ecolab's revenues, expenses, and net income for the specified interim periods, highlighting profitability trends. | (millions, except per share amounts) | Third Quarter Sep 2024 | Third Quarter Sep 2023 | Nine Months Sep 2024 | Nine Months Sep 2023 | | :----------------------------------- | :--------------------- | :--------------------- | :------------------- | :------------------- | | Net sales | $3,998.5 | $3,958.1 | $11,736.2 | $11,381.8 | | Cost of sales | $2,261.5 | $2,330.5 | $6,630.6 | $6,870.5 | | Operating income | $1,044.8 | $566.0 | $2,219.6 | $1,402.3 | | Income before income taxes | $987.3 | $506.2 | $2,036.9 | $1,218.0 | | Net income attributable to Ecolab | $736.5 | $404.0 | $1,639.5 | $967.1 | | Diluted EPS | $2.58 | $1.41 | $5.72 | $3.38 | - Net income attributable to Ecolab increased by 82.3% to $736.5 million in Q3 2024 from $404.0 million in Q3 2023, and by 69.5% to $1,639.5 million for the first nine months of 2024 from $967.1 million in the same period of 2023[3] - Diluted EPS rose by 83% to $2.58 in Q3 2024 from $1.41 in Q3 2023, and by 69.2% to $5.72 for the first nine months of 2024 from $3.38 in the same period of 2023[3] Consolidated Statements of Comprehensive Income This statement presents Ecolab's net income alongside other comprehensive income items, such as foreign currency translation adjustments, for a complete view of financial performance. | (millions) | Third Quarter Sep 2024 | Third Quarter Sep 2023 | Nine Months Sep 2024 | Nine Months Sep 2023 | | :--------------------------------------------- | :--------------------- | :--------------------- | :------------------- | :------------------- | | Net income including noncontrolling interest | $740.8 | $409.4 | $1,652.4 | $982.2 | | Total foreign currency translation adjustments | $58.1 | ($35.9) | ($0.9) | ($62.3) | | Total comprehensive income attributable to Ecolab | $782.1 | $364.4 | $1,636.1 | $892.3 | - Total comprehensive income attributable to Ecolab significantly increased by 114.6% to $782.1 million in Q3 2024 from $364.4 million in Q3 2023, and by 83.4% to $1,636.1 million for the first nine months of 2024 from $892.3 million in the same period of 2023[5] - Foreign currency translation adjustments shifted from a loss of $35.9 million in Q3 2023 to a gain of $58.1 million in Q3 2024[5] Consolidated Balance Sheets This statement provides a snapshot of Ecolab's assets, liabilities, and equity at specific points in time, reflecting its financial health. | (millions) | Sep 30, 2024 | Dec 31, 2023 | | :------------------------------- | :----------- | :----------- | | Total assets | $22,101.6 | $21,846.6 | | Total liabilities | $13,526.1 | $13,774.4 | | Total Ecolab shareholders' equity | $8,547.8 | $8,044.7 | - Total assets increased by $255 million to $22,101.6 million as of September 30, 2024, compared to December 31, 2023[6] - Total liabilities decreased by $248.3 million to $13,526.1 million as of September 30, 2024, compared to December 31, 2023[6] Consolidated Statements of Cash Flows This statement categorizes Ecolab's cash inflows and outflows from operating, investing, and financing activities, illustrating liquidity and solvency. | (millions) | Nine Months Sep 2024 | Nine Months Sep 2023 | | :---------------------------------------- | :------------------- | :------------------- | | Cash provided by operating activities | $2,047.2 | $1,559.3 | | Cash provided by (used for) investing activities | $193.7 | ($642.1) | | Cash used for financing activities | ($1,884.0) | ($469.2) | | Increase in cash and cash equivalents | $341.6 | $402.7 | | Cash and cash equivalents, end of period | $1,261.1 | $1,001.3 | - Cash provided by operating activities increased by $487.9 million to $2,047.2 million for the first nine months of 2024 compared to the same period in 2023[7] - Investing activities shifted from using $642.1 million in the first nine months of 2023 to providing $193.7 million in the same period of 2024, largely due to divestiture proceeds[7] Consolidated Statements of Equity This statement details the changes in Ecolab's shareholders' equity over the interim periods, including net income, dividends, and share repurchases. | (millions) | Sep 30, 2024 | Sep 30, 2023 | | :--------------------------------------- | :----------- | :----------- | | Total Ecolab Shareholders' Equity (Q3) | $8,547.8 | $7,795.8 | | Total Ecolab Shareholders' Equity (9M) | $8,547.8 | $7,795.8 | | Net income (Q3) | $736.5 | $404.0 | | Net income (9M) | $1,639.5 | $967.1 | | Cash dividends declared (Q3) | ($161.4) | ($151.2) | | Cash dividends declared (9M) | ($486.5) | ($453.1) | | Reacquired shares (Q3) | ($468.9) | ($0.7) | | Reacquired shares (9M) | ($993.3) | ($11.7) | - Total Ecolab shareholders' equity increased to $8,547.8 million as of September 30, 2024, from $7,795.8 million as of September 30, 2023[8] - Share repurchases significantly increased, with $468.9 million in Q3 2024 compared to $0.7 million in Q3 2023, and $993.3 million for the first nine months of 2024 compared to $11.7 million in the same period of 2023[8][9] Condensed Notes to Consolidated Financial Statements This section provides detailed explanations and disclosures for the consolidated financial statements, covering accounting policies, significant transactions, and financial instrument details. It includes information on asset sales, special charges, acquisitions, debt, equity, and segment performance, offering context to the reported financial figures. Note 1. Consolidated Financial Information This note clarifies the basis of presentation for the unaudited interim financial statements, including adjustments and review procedures. - The unaudited consolidated financial information for Q3 2024 and 2023 includes all necessary adjustments for fair statement, consisting of normal recurring items[11] - Interim financial results are not necessarily indicative of full-year results[11] - PricewaterhouseCoopers LLP applied limited review procedures to the unaudited financial information and does not express an audit opinion[11] Note 2. Assets and Liabilities Held for Sale This note details the sale of Ecolab's global surgical solutions business, including the resulting gain and its financial impact. - Ecolab sold its global surgical solutions business on August 1, 2024, for $926 million cash, resulting in a pre-tax gain of $365.3 million ($264.2 million after tax) or $0.92 per diluted share[12] - The divested business did not meet discontinued operations criteria, with its operating results reported in the Global Healthcare & Life Sciences segment until closing[12] | (millions) | August 1, 2024 | | :------------------------------ | :------------- | | Total assets held for sale | $632.8 | | Total liabilities held for sale | $128.2 | Note 3. Special (Gains) and Charges This note provides details on significant non-recurring financial impacts, including restructuring costs, divestiture gains, and acquisition-related expenses. | (millions) | Third Quarter Sep 2024 | Third Quarter Sep 2023 | Nine Months Sep 2024 | Nine Months Sep 2023 | | :--------------------------------------- | :--------------------- | :--------------------- | :------------------- | :------------------- | | Cost of sales subtotal | $0.9 | $5.9 | $3.2 | $17.2 | | Special (gains) and charges subtotal | ($332.6) | $36.7 | ($292.2) | $82.2 | | Total special (gains) and charges | ($331.7) | $42.6 | ($289.0) | $99.4 | - Total special (gains) and charges shifted from a $42.6 million charge in Q3 2023 to a $331.7 million gain in Q3 2024, primarily due to the gain on sale of the global surgical solutions business[14] - Special (gains) and charges are not allocated to reportable segments for internal management reporting[14] One Ecolab This section outlines the One Ecolab initiative, detailing its objectives for growth, margin expansion, and associated restructuring costs. - Ecolab launched the One Ecolab initiative on July 30, 2024, to enhance growth and margin expansion, including a restructuring plan to leverage digital technologies and realign functional work into global centers of excellence[15] - Anticipated restructuring costs are $175 million ($136 million after tax) and special charges of $50 million ($39 million after tax) by the end of 2027, primarily for severance[15] - The company recorded $17.4 million in restructuring charges and $7.0 million in non-restructuring special charges in Q3 2024 related to this initiative[15][16] Other restructuring This section details restructuring activities beyond the One Ecolab initiative, primarily related to the Combined Program. - Other restructuring primarily relates to the Combined Program, with activities included in cost of sales and special (gains) and charges[18] Combined Program This section describes the Combined Program, targeting operational efficiencies in Europe and other regions, including expected charges and savings. - The Combined Program, expanded in February 2023, targets Europe and other regions for Institutional and Healthcare businesses, with expected pre-tax charges of $195 million ($150 million after tax) substantially completed by end of 2024[19] - Restructuring charges for the Combined Program were $1.3 million in Q3 2024 and $23.3 million for the first nine months of 2024[19] - The net liability for the Combined Program was $18.0 million as of September 30, 2024, down from $43.1 million at December 31, 2023[19] Sale of global surgical solutions business This section details the financial impact of the global surgical solutions business sale, including the significant pre-tax gain realized. - The sale of the global surgical solutions business, closed on August 1, 2024, resulted in a $365.3 million gain ($264.2 million after tax) in 2024[22] - Charges related to professional fees for the sale were $3.3 million in Q3 2024 and $14.6 million for the first nine months of 2024[22] Acquisition and integration related costs This section outlines the costs incurred for acquisitions and their integration into Ecolab's operations. | (millions) | Third Quarter Sep 2024 | Third Quarter Sep 2023 | Nine Months Sep 2024 | Nine Months Sep 2023 | | :--------------------------------------- | :--------------------- | :--------------------- | :------------------- | :------------------- | | Acquisition and integration related costs | $3.5 | $3.0 | $8.3 | $11.5 | - Acquisition and integration related costs were $3.5 million in Q3 2024 and $8.3 million for the first nine months of 2024[23] Other operating activities (Special Gains and Charges) This section covers other special gains and charges impacting operating activities, such as recoveries of COVID-era credits and legal charges. | (millions) | Third Quarter Sep 2024 | Third Quarter Sep 2023 | Nine Months Sep 2024 | Nine Months Sep 2023 | | :--------------------------------------- | :--------------------- | :--------------------- | :------------------- | :------------------- | | Other special (gains) and charges | $3.1 | $8.9 | ($8.8) | $19.6 | - Other special (gains) and charges primarily related to recoveries of COVID era credits and certain legal charges[24] Note 4. Acquisitions This note details recent immaterial acquisitions, their integration into the Global Pest Elimination segment, and associated purchase accounting. - In May and September 2024, Ecolab completed two immaterial acquisitions, both becoming part of the Global Pest Elimination segment[26] - The purchase accounting for 2024 acquisitions is preliminary, with goodwill expected to be tax deductible[26] | (millions) | Nine Months Sep 2024 | Nine Months Sep 2023 | | :--------------------------------------- | :------------------- | :------------------- | | Total aggregate purchase price | $57.3 | $107.6 | | Net cash paid for acquisitions | $54.1 | $102.3 | | Goodwill acquired | $33.6 | $40.5 | | Identifiable intangible assets acquired | $21.7 | $57.3 | Note 5. Balance Sheets Information This note provides supplementary details on significant balance sheet accounts, including receivables, inventories, property, and intangible assets. | (millions) | Sep 30, 2024 | Dec 31, 2023 | | :--------------------------------------- | :----------- | :----------- | | Accounts receivable, net | $2,883.0 | $2,834.2 | | Inventories | $1,572.4 | $1,497.2 | | Property, plant and equipment, net | $3,545.5 | $3,474.6 | | Other intangible assets, net | $3,282.1 | $3,493.5 | | Other current liabilities | $1,413.8 | $1,334.9 | | Accumulated other comprehensive loss | ($1,853.8) | ($1,850.4) | - Net intangible assets subject to amortization decreased from $2,263.5 million at December 31, 2023, to $2,052.1 million at September 30, 2024[28] - Inventories increased by $75.2 million to $1,572.4 million as of September 30, 2024, compared to December 31, 2023[28] Note 6. Debt and Interest This note details Ecolab's debt structure, including short-term and long-term obligations, credit facilities, and net interest expense. | (millions) | Sep 30, 2024 | Dec 31, 2023 | | :--------------------------------------- | :----------- | :----------- | | Short-term debt | $643.0 | $630.4 | | Long-term debt (excluding current maturities) | $6,974.5 | $7,551.4 | | Total debt | $7,612.5 | $8,180.0 | - Total long-term debt decreased by $576.9 million to $6,974.5 million as of September 30, 2024, compared to December 31, 2023[37] - Ecolab has a $2.0 billion multi-year revolving credit facility expiring in April 2026, with no borrowings outstanding as of September 30, 2024[32] Short-term Debt This section outlines Ecolab's short-term debt components, including notes payable and current maturities of long-term debt. | (millions) | Sep 30, 2024 | Dec 31, 2023 | | :--------------------------------------- | :----------- | :----------- | | Notes payable | $5.0 | $1.8 | | Long-term debt, current maturities | $638.0 | $628.6 | | Total Short-term debt | $643.0 | $630.4 | Lines of Credit This section details Ecolab's revolving credit facility, its purpose, and current utilization status. - Ecolab has a $2.0 billion multi-year revolving credit facility expiring in April 2026, supporting its U.S. and Euro commercial paper programs[32] - There were no borrowings under the credit facility as of September 30, 2024, or December 31, 2023[32] Commercial Paper This section describes Ecolab's commercial paper program, its maximum aggregate amount, and outstanding balances. - The company's commercial paper program has a maximum aggregate amount of $2.0 billion[33] - No outstanding commercial paper existed under U.S. and Euro programs as of September 30, 2024, or December 31, 2023[33] Notes Payable This section details the company's notes payable, primarily related to global cash pooling arrangements. - Notes payable, primarily for global cash pooling, increased to $5.0 million as of September 30, 2024, from $1.8 million at December 31, 2023[34] Long-term Debt This section outlines Ecolab's long-term debt obligations, including repayments and outstanding balances. | (millions) | Sep 30, 2024 | Dec 31, 2023 | | :--------------------------------------- | :----------- | :----------- | | Total debt | $7,612.5 | $8,180.0 | | Long-term debt, current maturities | ($638.0) | ($628.6) | | Total long-term debt | $6,974.5 | $7,551.4 | - The company repaid $630.4 million of its Seven year 2016 senior notes (€575 million) which matured in 2024[37] Public Notes This section describes the terms and conditions of Ecolab's public notes, including their senior unsecured status and repurchase clauses. - Public notes are senior unsecured and unsubordinated obligations, redeemable at the company's option with a make-whole premium[38] - A change of control accompanied by a downgrade below investment grade would require an offer to repurchase public notes at 101% of principal plus accrued interest[38] Covenants This section confirms Ecolab's compliance with all covenants under its outstanding indebtedness. - Ecolab is in compliance with all covenants under its outstanding indebtedness as of September 30, 2024[39] Net Interest Expense This section details Ecolab's net interest expense, reflecting interest income and expense trends. | (millions) | Third Quarter Sep 2024 | Third Quarter Sep 2023 | Nine Months Sep 2024 | Nine Months Sep 2023 | | :------------------ | :--------------------- | :--------------------- | :------------------- | :------------------- | | Interest expense | $86.4 | $91.3 | $261.1 | $254.1 | | Interest income | ($16.0) | ($17.0) | ($40.3) | ($27.8) | | Interest expense, net | $70.4 | $74.3 | $220.8 | $226.3 | - Net interest expense decreased by 5% in Q3 2024 and 2% for the first nine months of 2024, primarily due to higher interest income on cash balances[40] Note 7. Goodwill and Other Intangible Assets This note provides details on Ecolab's goodwill and other intangible assets, including changes due to acquisitions, divestitures, and impairment assessments. - Ecolab assesses goodwill for impairment annually in the second quarter, with no impairment recorded in any periods presented[41] - The Nalco trade name, an indefinite life intangible asset, was assessed for impairment in Q2 2024 and its estimated fair value significantly exceeded its $1.2 billion carrying amount[42] - Total amortization expense for intangible assets was $73.3 million in Q3 2024 and $226.2 million for the first nine months of 2024[42] Goodwill This section details the changes in goodwill across Ecolab's segments, primarily influenced by divestitures and business combinations. | (millions) | Sep 30, 2024 | Dec 31, 2023 (recast) | | :--------------------------------------- | :----------- | :-------------------- | | Global Industrial | $4,246.9 | $4,243.5 | | Global Institutional & Specialty | $611.6 | $610.0 | | Global Healthcare & Life Sciences | $2,869.9 | $3,158.4 | | Global Pest Elimination | $170.3 | $136.3 | | Total Goodwill | $7,898.7 | $8,148.2 | - Goodwill decreased by $249.5 million to $7,898.7 million as of September 30, 2024, primarily due to the divestiture of businesses ($305.9 million)[43] - Goodwill for Global Pest Elimination increased by $33.6 million due to current year business combinations[43] Other Intangible Assets This section describes Ecolab's other intangible assets, including the Nalco trade name and amortized assets like customer relationships and patents. - The Nalco trade name is the company's only indefinite life intangible asset, with an estimated fair value significantly exceeding its $1.2 billion carrying amount[42] - Intangible assets subject to amortization include customer relationships, trademarks, patents, and other technologies, amortized on a straight-line basis[42] - Total amortization expense for intangible assets was $73.3 million in Q3 2024 and $226.2 million for the first nine months of 2024[42] Note 8. Fair Value Measurements This note explains how Ecolab measures financial instruments at fair value using a three-level hierarchy, including derivatives and long-term debt. - Ecolab's financial instruments, including derivatives and long-term debt, are measured at fair value using a three-level hierarchy[44] | (millions) | Sep 30, 2024 (Fair Value) | Dec 31, 2023 (Fair Value) | | :--------------------------------------- | :------------------------ | :------------------------ | | Foreign currency forward contracts (Assets) | $27.5 | $26.6 | | Cross-currency swap derivative contracts (Assets) | $27.0 | $29.1 | | Foreign currency forward contracts (Liabilities) | $29.0 | $27.0 | | Interest rate swap agreements (Liabilities) | $111.0 | $146.5 | | Cross-currency swap derivative contracts (Liabilities) | $51.0 | $24.9 | | Long-term debt, including current maturities | $6,996.9 | $7,552.5 | - The fair value of long-term debt decreased to $6,996.9 million as of September 30, 2024, from $7,552.5 million at December 31, 2023[46] Note 9. Derivatives and Hedging Transactions This note details Ecolab's use of derivative instruments for managing foreign currency, interest rate, and net investment risks, not for speculation. - Ecolab uses foreign currency forward contracts, interest rate swap agreements, cross-currency swap derivative contracts, and foreign currency debt to manage foreign currency, interest rate, and net investment risks, not for speculative purposes[48] | (millions) | Sep 30, 2024 (Notional Value) | Dec 31, 2023 (Notional Value) | | :--------------------------------------- | :---------------------------- | :---------------------------- | | Foreign currency forward contracts | $2,910 | $3,745 | | Interest rate swap agreements | $1,500 | $1,500 | | Cross-currency swap derivative contracts | $1,788 | $998 | - The notional value of cross-currency swap derivative contracts increased significantly to $1,788 million as of September 30, 2024, from $998 million at December 31, 2023[50] Derivative Positions Summary This section provides a summary of Ecolab's derivative assets and liabilities, distinguishing between hedging and non-hedging instruments. | (millions) | Sep 30, 2024 (Derivative Assets) | Dec 31, 2023 (Derivative Assets) | Sep 30, 2024 (Derivative Liabilities) | Dec 31, 2023 (Derivative Liabilities) | | :--------------------------------------- | :------------------------------- | :------------------------------- | :------------------------------------ | :------------------------------------ | | Derivatives designated as hedging instruments | $32.7 | $35.8 | $170.3 | $176.6 | | Derivatives not designated as hedging instruments | $21.8 | $19.9 | $20.7 | $21.8 |\ | Net value of derivatives | $25.4 | $26.9 | $161.9 | $169.6 | Cash Flow Hedges This section describes Ecolab's use of foreign currency forward contracts as cash flow hedges to mitigate exchange rate fluctuations on forecasted transactions. - Ecolab uses foreign currency forward contracts as cash flow hedges to mitigate foreign currency exchange rate fluctuations on forecasted transactions[53] - Changes in fair value of these contracts are recorded in accumulated other comprehensive income (loss) (AOCI) until hedged items affect earnings[53] Fair Value Hedges This section details Ecolab's use of interest rate swaps as fair value hedges to convert fixed-rate debt to floating-rate, ensuring hedge effectiveness. - Ecolab uses interest rate swaps to convert $1.5 billion of fixed-rate debt to floating-rate, designated as fair value hedges[54] - These hedges are highly effective, with no impact on earnings due to ineffectiveness[54] | (millions) | Sep 30, 2024 | Sep 30, 2023 | | :--------------------------------------- | :----------- | :----------- | | Cumulative basis adjustments for fair value hedges (Long-term debt) | ($112.1) | ($208.0) | Net Investment Hedges This section outlines Ecolab's designation of senior notes and cross-currency swaps as net investment hedges for foreign currency exposures. - Ecolab designates its €575 million senior notes and cross-currency swap derivative contracts as hedges of Euro and CNY denominated net investments[55] - Changes in the spot rate of these instruments are recorded in AOCI, offsetting foreign currency translation adjustments[55] | (millions) | Third Quarter Sep 2024 | Third Quarter Sep 2023 | Nine Months Sep 2024 | Nine Months Sep 2023 | | :--------------------------------------- | :--------------------- | :--------------------- | :------------------- | :------------------- | | Total revaluation (loss) gain, net of tax | ($41.1) | ($8.2) | ($28.9) | ($48.7) | Derivatives Not Designated as Hedging Instruments This section describes Ecolab's use of foreign currency forward contracts as economic hedges for foreign currency denominated assets and liabilities. - Ecolab uses foreign currency forward contracts as economic hedges for foreign currency denominated assets and liabilities, with value changes recognized immediately in earnings[58] Effect of all Derivative Instruments on Income This section summarizes the total gain or loss from all derivative instruments on Ecolab's income. | (millions) | Third Quarter Sep 2024 | Third Quarter Sep 2023 | Nine Months Sep 2024 | Nine Months Sep 2023 | | :--------------------------------------- | :--------------------- | :--------------------- | :------------------- | :------------------- | | Total gain (loss) of all derivative instruments | $5.4 | ($15.2) | $2.7 | ($50.5) | - The total gain from all derivative instruments was $5.4 million in Q3 2024, a significant improvement from a $15.2 million loss in Q3 2023[59] Note 10. Other Comprehensive Income (Loss) Information This note details the components of other comprehensive income (loss), including foreign currency translation, pension adjustments, and derivative gains/losses. - Other comprehensive income (loss) includes foreign currency translation adjustments, pension and postretirement plan adjustments, and gains/losses on derivative instruments[60] | (millions) | Third Quarter Sep 2024 | Third Quarter Sep 2023 | Nine Months Sep 2024 | Nine Months Sep 2023 | | :--------------------------------------- | :--------------------- | :--------------------- | :------------------- | :------------------- | | Derivative and Hedging Instruments (Net of tax) | ($8.2) | $0.1 | ($0.9) | ($6.1) | | Pension and Postretirement Benefits (Net of tax) | ($1.4) | ($3.2) | $0.8 | ($7.3) | - Net of tax, derivative and hedging instruments contributed a loss of $8.2 million in Q3 2024, compared to a gain of $0.1 million in Q3 2023[61] Note 11. Shareholders' Equity This note provides details on changes in Ecolab's shareholders' equity, including share repurchase authorizations and actual repurchases. - Ecolab's Board of Directors authorized the repurchase of up to 30,000,000 shares of common stock (20M in Feb 2015, 10M in Nov 2022)[64] - As of September 30, 2024, 8,781,585 shares remained under the repurchase authorization[64] - The company reacquired 4,235,278 shares in the first nine months of 2024, primarily through open market repurchases (4,135,512 shares)[65] Share Repurchase Authorization This section details the Board's authorization for common share repurchases and the remaining shares available. - Ecolab's Board authorized repurchases of up to 30 million common shares, with 8,781,585 shares remaining as of September 30, 2024[64] Share Repurchases This section outlines the number and value of common shares reacquired by Ecolab during the reported periods. - In the first nine months of 2024, Ecolab reacquired 4,235,278 shares, significantly higher than 72,900 shares in the same period of 2023[65] - The majority of 2024 repurchases (4,135,512 shares) were through open market transactions[65] Note 12. Earnings Attributable to Ecolab Per Common Share ("EPS") This note provides the calculation of basic and diluted earnings per common share attributable to Ecolab, including weighted-average shares outstanding. | (millions, except per share) | Third Quarter Sep 2024 | Third Quarter Sep 2023 | Nine Months Sep 2024 | Nine Months Sep 2023 | | :--------------------------------------- | :--------------------- | :--------------------- | :------------------- | :------------------- | | Net income attributable to Ecolab | $736.5 | $404.0 | $1,639.5 | $967.1 | | Weighted-average common shares outstanding Basic | 283.6 | 285.1 | 284.6 | 284.9 | | Diluted EPS | $2.58 | $1.41 | $5.72 | $3.38 | - Diluted EPS increased by 83% to $2.58 in Q3 2024 and by 69% to $5.72 for the first nine months of 2024[67] - Anti-dilutive securities excluded from diluted EPS computation were zero in Q3 2024 and 2.3 million in Q3 2023[67] Note 13. Income Taxes This note details Ecolab's reported GAAP and adjusted tax rates, explaining influences from discrete tax items and special gains/charges. | (percent) | Third Quarter Sep 2024 | Third Quarter Sep 2023 | Nine Months Sep 2024 | Nine Months Sep 2023 | | :------------------ | :--------------------- | :--------------------- | :------------------- | :------------------- | | Reported GAAP tax rate | 25.0% | 19.1% | 18.9% | 19.4% | - The reported tax rate increased to 25.0% in Q3 2024 from 19.1% in Q3 2023, primarily due to discrete tax items and special (gains) and charges[69] - Ecolab recognized a net tax benefit of $42.7 million for discrete tax items in the first nine months of 2024, including a $41.9 million benefit from intangible property transfers[69] Note 14. Pension and Postretirement Plans This note outlines Ecolab's pension and postretirement plan expenses, benefits, and contributions, ensuring compliance with funding requirements. | (millions) | Third Quarter Sep 2024 | Third Quarter Sep 2023 | Nine Months Sep 2024 | Nine Months Sep 2023 | | :--------------------------------------- | :--------------------- | :--------------------- | :------------------- | :------------------- | | Total expense (benefit) - U.S. Pension | ($3.9) | ($5.0) | ($11.3) | ($14.6) | | Total expense (benefit) - International Pension | $6.8 | $6.0 | $21.0 | $18.6 | | Total expense (benefit) - U.S. Health Postretirement Care | $0.6 | $0.7 | $1.8 | $2.0 | - Ecolab made contributions of $5 million to U.S. non-contributory non-qualified defined benefit plans, $30 million to international pension plans, and $8 million to U.S. postretirement health care plans in the first nine months of 2024[74] - The company is in compliance with all funding requirements for its defined benefit plans as of September 30, 2024[73] Note 15. Revenues This note provides a detailed breakdown of Ecolab's net sales by product, service, and geographic region, along with revenue recognition policies. | (millions) | Third Quarter Sep 2024 | Third Quarter Sep 2023 | Nine Months Sep 2024 | Nine Months Sep 2023 | | :--------------------------------------- | :--------------------- | :--------------------- | :------------------- | :------------------- | | Product and sold equipment sales | $3,156.0 | $3,170.9 | $9,315.6 | $9,152.0 | | Service and lease sales | $842.5 | $787.2 | $2,420.6 | $2,229.8 | | Total Net Sales | $3,998.5 | $3,958.1 | $11,736.2 | $11,381.8 | - Service and lease sales increased by 7% in Q3 2024 and 8.5% for the first nine months of 2024[79] - United States accounted for 54% of total revenues during the nine months ended September 30, 2024[81] Revenue Recognition (Product and Sold Equipment) This section describes Ecolab's policy for recognizing revenue from product and sold equipment sales at the point of transfer or delivery. - Product and equipment revenue is recognized at the point of transfer or delivery[75] - Sales to ChampionX under a transitional supply agreement are recorded in the Corporate segment[75] Service and Lease Equipment This section details Ecolab's recognition of service revenue over time and reports operating lease revenue. - Service revenue is recognized over time using an input method, aligning with when services are provided[76] - Operating lease revenue was $133.5 million in Q3 2024, up from $128.4 million in Q3 2023[77] Accounts Receivable and Allowance for Expected Credit Losses This section explains how Ecolab manages accounts receivable, including the estimation and allowance for expected credit losses. - Accounts receivable are carried at invoiced amounts less an allowance for expected credit losses, estimated by analyzing age, historical write-off, and collection experience[82] | (millions) | Nine Months Sep 2024 | Nine Months Sep 2023 | | :------------------ | :------------------- | :------------------- | | Beginning balance | $77.3 | $71.9 | | Bad debt expense | $33.2 | $44.2 | | Write-offs | ($34.4) | ($32.6) | | Ending balance | $76.0 | $82.7 | Contract Liability This section describes Ecolab's contract liability, representing billings in advance of performance, primarily for service obligations. - Contract liability relates to billings in advance of performance, primarily service obligations, recognized as revenue when the performance obligation is met[84] | (millions) | Nine Months Sep 2024 | Nine Months Sep 2023 | | :--------------------------------------- | :------------------- | :------------------- | | Contract liability as of beginning of the year | $110.9 | $116.5 | | Revenue recognized from beginning of year liability | ($110.9) | ($116.5) | | Increases due to billings | $103.9 | $105.5 | | Contract liability as of end of period | $103.9 | $105.5 | Note 16. Operating Segments This note provides financial information for Ecolab's reportable operating segments, including net sales and operating income, and explains comparability adjustments. - Ecolab's eight operating segments are aggregated into four reportable segments: Global Industrial, Global Institutional & Specialty, Global Healthcare & Life Sciences, and Global Pest Elimination[87] | (millions) | Third Quarter Sep 2024 | Third Quarter Sep 2023 | Nine Months Sep 2024 | Nine Months Sep 2023 | | :--------------------------------------- | :--------------------- | :--------------------- | :------------------- | :------------------- | | Global Industrial Net Sales | $1,993.0 | $1,940.8 | $5,790.7 | $5,655.4 | | Global Institutional & Specialty Net Sales | $1,403.6 | $1,314.1 | $4,046.6 | $3,719.0 | | Global Healthcare & Life Sciences Net Sales | $334.1 | $408.3 | $1,112.0 | $1,189.7 | | Global Pest Elimination Net Sales | $308.7 | $283.1 | $872.6 | $797.4 | | Consolidated reported GAAP net sales | $3,998.5 | $3,958.1 | $11,736.2 | $11,381.8 | - Corporate amounts include sales to ChampionX, intangible asset amortization from Nalco and Purolite acquisitions, and special (gains) and charges not allocated to reportable segments[92] Comparability of Reportable Segments (Notes) This section details recent changes in Ecolab's reportable segment structure and the recasting of prior period amounts for comparability. - Effective January 1, 2024, Textile Care and Colloidal Technologies Group (CTG) operating segments are now part of the Water operating segment within Global Industrial[88] - The Pest Elimination operating segment is now reported as a stand-alone Global Pest Elimination reportable segment[88] - Prior period amounts have been recast to conform with current period presentation, and performance is evaluated using fixed currency exchange rates[88] Reportable Segment Information This section presents detailed net sales and operating income data for each of Ecolab's reportable segments. | (millions) | Third Quarter Sep 2024 | Third Quarter Sep 2023 | Nine Months Sep 2024 | Nine Months Sep 2023 | | :--------------------------------------- | :--------------------- | :--------------------- | :------------------- | :------------------- | | Global Industrial Operating Income | $349.1 | $299.1 | $926.0 | $783.8 | | Global Institutional & Specialty Operating Income | $325.6 | $254.9 | $894.3 | $598.4 | | Global Healthcare & Life Sciences Operating Income | $35.8 | $44.7 | $106.5 | $113.3 | | Global Pest Elimination Operating Income | $63.1 | $59.0 | $174.1 | $155.9 | | Consolidated reported GAAP operating income | $1,044.8 | $566.0 | $2,219.6 | $1,402.3 | - Global Industrial net sales at fixed currency increased 3% in Q3 2024 and 2% for the first nine months of 2024[91] - Global Institutional & Specialty net sales at fixed currency increased 7% in Q3 2024 and 9% for the first nine months of 2024[91] Note 17. Commitments and Contingencies This note outlines Ecolab's various commitments and contingencies, including insurance, litigation, and environmental matters, and associated accruals. - Ecolab is subject to various claims and contingencies, including workers' compensation, general liability, environmental matters, and lawsuits[93] - Liabilities are recorded when a contingent loss is probable and reasonably estimable; material losses are disclosed even if not probable or estimable[93] - The company believes there is no reasonably possible risk of material loss in excess of accrued amounts for legal matters[95] Insurance This section describes Ecolab's insurance policies and self-insurance practices for property, casualty, and health care claims. - Ecolab has insurance policies with varying deductible levels for property and casualty losses and is self-insured for health care claims[94] Litigation and Environmental Matters This section details Ecolab's involvement in various lawsuits, claims, and environmental actions arising in the ordinary course of business. - Ecolab is party to various lawsuits, claims, and environmental actions arising in the ordinary course of business, including antitrust, employment, and product liability[95] - Accruals have been established for certain matters, and the company believes future charges would not materially adversely affect its consolidated financial position[95] TPC Group Litigation This section details Nalco Company LLC's involvement in multi-district litigation stemming from the 2019 TPC Group plant explosion. - Nalco Company LLC, an Ecolab subsidiary, is a defendant in multi-district litigation stemming from a 2019 plant explosion at TPC Group, Inc., with over 5,000 plaintiffs[96] - TPC's bankruptcy plan included a $500 million claim for MDL plaintiffs and assignment of claims against third parties, including Nalco, to a settlement trust[96] - Ecolab believes claims against Nalco are without merit and expects potential losses to be covered by insurance, subject to deductibles[96] Vehicle Accident Litigation This section describes a lawsuit against Ecolab following a June 2024 vehicle collision involving an employee. - Ecolab was named in a lawsuit following a June 2024 vehicle collision involving an employee, resulting in fatalities and serious injuries[97] - The company believes any potential loss should be covered by insurance, subject to its deductible, but cannot estimate the loss due to the early stage of litigation[97] Environmental Matters This section outlines Ecolab's involvement in environmental assessments and remediation, with accrued liabilities for estimated future costs. - Ecolab is involved in environmental assessments and remediation at approximately 25 locations, primarily in the U.S., with accrued liabilities reflecting management's best estimate of future costs[98] Note 18. New Accounting Pronouncements This note discusses new accounting pronouncements and their anticipated impact on Ecolab's financial statements and disclosures. | Standard | Description | Date of Adoption | Effect on Financial Statements | | :------- | :---------- | :--------------- | :----------------------------- | | ASU 2023-09 Income taxes (Topic 740): Improvements to Income Tax Disclosures | Requires specific categories in rate reconciliation and additional information for reconciling items meeting a quantitative threshold. | January 1, 2025 | Currently evaluating impact and additional disclosure requirements. | | ASU 2023-07 - Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures | Improves disclosures about reportable segments, adding detailed information on significant segment expenses and CODM's use of reported measures. | Effective for annual periods beginning after December 15, 2023 | Expected to impact disclosures, but no material impact to financial condition or results. | Report of Independent Registered Public Accounting Firm PricewaterhouseCoopers LLP reviewed Ecolab Inc.'s interim financial statements for the periods ended September 30, 2024 and 2023. Based on their review, they are not aware of any material modifications needed for conformity with U.S. GAAP. They also confirmed that the December 31, 2023 consolidated balance sheet information is fairly stated in relation to the audited consolidated balance sheet. - PricewaterhouseCoopers LLP conducted a review of the interim financial statements and found no material modifications needed for conformity with U.S. GAAP[102] - The review is substantially less in scope than an audit, and therefore, no audit opinion is expressed on the interim financial information[103] - The consolidated balance sheet information as of December 31, 2023, is fairly stated in all material respects[102] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Ecolab's financial condition, results of operations, and cash flows, including key trends and non-GAAP measures. Comparability of Results This section outlines the factors affecting the comparability of Ecolab's financial results, including the impact of acquisitions and divestitures, changes in reportable segments, and the use of fixed currency exchange rates for evaluating international operations. It clarifies how non-GAAP measures are derived to provide a clearer view of underlying performance. - Non-GAAP financial measures for organic sales, operating income, and margin exclude special (gains) and charges, results of acquired businesses (first 12 months post-acquisition), and divested businesses (12 months prior to divestiture)[106] - Effective January 1, 2024, the former Textile Care and Colloidal Technologies Group (CTG) operating segments are now part of the Water operating segment within Global Industrial[107] - The Pest Elimination operating segment is now reported as a stand-alone Global Pest Elimination reportable segment[107] Impact of Acquisitions and Divestitures This section explains how non-GAAP measures exclude the financial impact of acquired and divested businesses for comparability. - Non-GAAP organic sales and operating income measures exclude the impact of acquired businesses for the first twelve months post-acquisition and divested businesses for the twelve months prior to divestiture[106] - Sales to ChampionX under a transitional supply agreement are removed from consolidated results for acquisition/divestiture impact calculation[106] Comparability of Reportable Segments (MD&A) This section details the reclassification of operating segments for consistent reporting and analysis in the MD&A. - Effective January 1, 2024, the former Textile Care and Colloidal Technologies Group (CTG) operating segments are now part of the Water operating segment within Global Industrial[107] - The Pest Elimination operating segment is now reported as a stand-alone Global Pest Elimination reportable segment[107] Fixed Currency Foreign Exchange Rates (MD&A) This section explains the use of fixed currency exchange rates to evaluate international operations, removing foreign exchange fluctuations. - Management evaluates international operations' sales and operating income performance using fixed currency exchange rates to eliminate the impact of fluctuations[108] - Fixed currency amounts are updated annually at the beginning of each year, with all periods presented using these rates[108] Overview of the Third Quarter Ended September 30, 2024 Ecolab reported a strong third quarter 2024, with a 1% increase in reported net sales and a 4% increase in organic sales. Financial performance saw an 85% rise in reported operating income and an 82% increase in net income attributable to Ecolab, driven by strong organic growth and strategic initiatives. Sales Performance This section highlights Ecolab's net sales and organic sales growth for the third quarter, broken down by reportable segment. - Reported net sales increased 1% to $3,998.5 million in Q3 2024 compared to Q3 2023[109] - Organic sales increased 4% in Q3 2024[109] - Global Industrial organic sales increased 2%, Global Institutional & Specialty organic sales increased 7%, Global Healthcare & Life Sciences organic sales increased 1%, and Global Pest Elimination organic sales increased 8%[109] Financial Performance This section summarizes Ecolab's reported and adjusted operating income, net income, and diluted EPS for the third quarter. - Reported operating income increased 85% to $1,044.8 million in Q3 2024, with organic operating income up 22%[110] - Net income attributable to Ecolab increased 82% to $736.5 million in Q3 2024[110] - Adjusted diluted EPS increased 19% to $1.83 in Q3 2024, excluding special (gains) and charges and discrete tax items[110] Results of Operations Ecolab's results of operations for Q3 and the first nine months of 2024 show significant improvements in net sales, operating income, and net income, largely driven by strong organic growth, value pricing, and lower delivered product costs. Special (gains) from divestitures and restructuring initiatives also played a role, while tax rates were influenced by discrete tax items. Net Sales This section analyzes Ecolab's reported and organic net sales growth, attributing changes to volume and pricing. | (millions) | Third Quarter Sep 2024 | Third Quarter Sep 2023 | Nine Months Sep 2024 | Nine Months Sep 2023 | | :--------------------------------------- | :--------------------- | :--------------------- | :------------------- | :------------------- | | Reported GAAP net sales | $3,998.5 | $3,958.1 | $11,736.2 | $11,381.8 | | Non-GAAP organic sales | $4,018.7 | $3,865.4 | $11,720.0 | $11,261.2 | - Reported GAAP net sales increased 1% in Q3 2024 and 3% for the first nine months of 2024[111] - Organic sales increased 4% in both Q3 and the first nine months of 2024, driven by 2% volume growth and 2-3% pricing[111][112] Cost of Sales ("COS") and Gross Profit Margin This section examines changes in cost of sales and gross profit margin, driven by pricing and delivered product costs. | (millions/percent) | Third Quarter Sep 2024 | Third Quarter Sep 2023 | Nine Months Sep 2024 | Nine Months Sep 2023 | | :--------------------------------------- | :--------------------- | :--------------------- | :------------------- | :------------------- | | Reported GAAP COS | $2,261.5 | $2,330.5 | $6,630.6 | $6,870.5 | | Reported GAAP gross margin | 43.4% | 41.1% | 43.5% | 39.6% | | Non-GAAP adjusted gross margin | 43.5% | 41.3% | 43.5% | 39.8% | - Reported gross margin increased to 43.4% in Q3 2024 from 41.1% in Q3 2023[113] - Adjusted gross margin increased due to strong value pricing and lower delivered product costs[114] Selling, General and Administrative Expense This section discusses selling, general, and administrative expenses as a percentage of sales, considering productivity and investments. - SG&A expenses as a percentage of sales were 25.6% in Q3 2024, compared to 25.9% in Q3 2023[115] - The SG&A ratio to sales in Q3 2024 increased as sales productivity was offset by growth-oriented investments[115] Special (Gains) and Charges (MD&A) This section details the financial impact of special gains and charges, including restructuring initiatives and divestiture gains. | (millions) | Third Quarter Sep 2024 | Third Quarter Sep 2023 | Nine Months Sep 2024 | Nine Months Sep 2023 | | :--------------------------------------- | :--------------------- | :--------------------- | :------------------- | :------------------- | | Cost of sales subtotal | $0.9 | $5.9 | $3.2 | $17.2 | | Special (gains) and charges subtotal | ($332.6) | $36.7 | ($292.2) | $82.2 | | Total special (gains) and charges | ($331.7) | $42.6 | ($289.0) | $99.4 | - Total special (gains) and charges shifted from a $42.6 million charge in Q3 2023 to a $331.7 million gain in Q3 2024, primarily due to the gain on sale of the global surgical solutions business[118] - For segment reporting, special (gains) and charges are not allocated to reportable segments[116] One Ecolab (MD&A) This section provides further details on the One Ecolab initiative, its strategic goals, anticipated costs, and expected savings. - The One Ecolab initiative, announced July 30, 2024, aims for growth and margin expansion through restructuring and leveraging digital technologies[117] - Anticipated restructuring costs are $175 million ($136 million after tax) and special charges of $50 million ($39 million after tax) by the end of 2027[117] - The initiative has delivered $8 million in cumulative cost savings, with estimated annualized savings of $225 million by 2027[117] Other restructuring (MD&A) This section discusses other restructuring activities, primarily related to the Combined Program, and their financial impact. - Other restructuring primarily relates to the Combined Program, with activities included in cost of sales and special (gains) and charges[119] Combined Program (MD&A) This section updates on the Combined Program, including expected charges, completion timeline, and cumulative cost savings. - The Combined Program expects total pre-tax charges of $195 million ($150 million after tax) to be substantially completed by the end of 2024[119] - Restructuring charges for the Combined Program were $1.3 million in Q3 2024 and $23.3 million for the first nine months of 2024[119] - The Combined Program has delivered $167 million in cumulative cost savings, with estimated annualized savings of $175 million by 2024[119] Sale of global surgical solutions business (MD&A) This section reiterates the financial gain from the sale of the global surgical solutions business and related professional fees. - The sale of the global surgical solu