Ecolab(ECL) - 2022 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION This section presents Ecolab Inc.'s unaudited consolidated financial statements, management's discussion, market risk, and controls for Q3 and the first nine months of 2022 and 2021 Item 1. Financial Statements This section presents Ecolab Inc.'s unaudited consolidated financial statements and condensed notes for the third quarter and first nine months ended September 30, 2022 and 2021 Consolidated Statements of Income This section provides the consolidated statements of income for Ecolab Inc. for the third quarter and first nine months ended September 30, 2022 and 2021 Consolidated Statements of Income (millions, except per share amounts) | (millions, except per share amounts) | Third Quarter Sep 2022 | Sep 30 2021 | Nine Months Sep 2022 | Sep 30 2021 | |:-------------------------------------|:-----------------------|:------------|:---------------------|:------------| | Net sales | $3,669.3 | $3,320.8 | $10,516.6 | $9,368.5 | | Operating income | $483.0 | $465.8 | $1,163.3 | $1,210.9 | | Net income attributable to Ecolab | $347.1 | $324.5 | $827.3 | $828.9 | | Diluted EPS | $1.21 | $1.12 | $2.88 | $2.87 | - Net sales increased 10.5% in Q3 2022 YoY and 12.2% in the first nine months of 2022 YoY[7] - Operating income increased 3.7% in Q3 2022 YoY but decreased 4.0% in the first nine months of 2022 YoY[7] - Net income attributable to Ecolab increased 6.9% in Q3 2022 YoY but slightly decreased 0.2% in the first nine months of 2022 YoY[7] - Diluted EPS increased 8.0% in Q3 2022 YoY and 0.3% in the first nine months of 2022 YoY[7] Consolidated Statements of Comprehensive Income This section presents Ecolab Inc.'s consolidated statements of comprehensive income for the third quarter and first nine months ended September 30, 2022 and 2021 Consolidated Statements of Comprehensive Income (millions) | (millions) | Third Quarter Sep 2022 | Sep 30 2021 | Nine Months Sep 2022 | Sep 30 2021 | |:-------------------------------------------------|:-----------------------|:------------|:---------------------|:------------| | Net income including noncontrolling interest | $352.0 | $328.6 | $839.4 | $838.7 | | Total foreign currency translation adjustments | ($164.0) | ($72.0) | ($194.2) | $69.7 | | Derivatives and hedging instruments | $11.6 | $15.3 | $13.1 | $16.7 | | Pension and postretirement benefits | ($62.3) | $33.4 | ($20.6) | $172.7 | | Comprehensive income attributable to Ecolab | $134.5 | $301.6 | $631.6 | $1,089.8 | - Comprehensive income attributable to Ecolab decreased significantly by 55.4% in Q3 2022 YoY and 42.0% in the first nine months of 2022 YoY, primarily due to negative foreign currency translation adjustments and pension and postretirement benefit adjustments[9] Consolidated Balance Sheets This section details Ecolab Inc.'s consolidated balance sheets as of September 30, 2022, and December 31, 2021 Consolidated Balance Sheets (millions) | (millions) | Sep 30 2022 | Dec 31 2021 | |:-----------------------------------------|:------------|:------------| | Total current assets | $5,099.3 | $4,687.1 | | Total assets | $21,037.0 | $21,206.4 | | Total current liabilities | $3,772.3 | $3,553.2 | | Total liabilities | $13,947.1 | $13,953.3 | | Total Ecolab shareholders' equity | $7,062.6 | $7,224.2 | - Total assets decreased slightly by 0.8% from December 31, 2021, to September 30, 2022, while total liabilities remained relatively stable[11] - Total Ecolab shareholders' equity decreased by 2.2% over the same period[11] Consolidated Statements of Cash Flows This section outlines Ecolab Inc.'s consolidated statements of cash flows for the first nine months ended September 30, 2022 and 2021 Consolidated Statements of Cash Flows (millions) | (millions) | Nine Months Sep 2022 | Sep 30 2021 | |:--------------------------------------------|:---------------------|:------------| | Cash provided by operating activities | $929.2 | $1,421.0 | | Cash used for investing activities | ($506.4) | ($638.5) | | Cash used for financing activities | ($675.6) | ($1,159.3) | | Decrease in cash and cash equivalents | ($247.0) | ($362.3) | | Cash and cash equivalents, end of period | $112.9 | $897.9 | - Cash provided by operating activities decreased by 34.6% in the first nine months of 2022 compared to 2021[14] - Cash used for investing activities decreased by 20.7%, and cash used for financing activities decreased by 41.7% over the same period[14] - The company experienced a decrease in cash and cash equivalents of $247.0 million, resulting in an end-of-period balance of $112.9 million[14] Consolidated Statements of Equity This section presents Ecolab Inc.'s consolidated statements of equity as of September 30, 2022 and 2021 Consolidated Statements of Equity (millions) | (millions) | Sep 30 2022 | Sep 30 2021 | |:-----------------------------------------|:------------|:------------| | Total Ecolab Shareholders' Equity | $7,062.6 | $6,933.5 | | Noncontrolling Interest | $27.3 | $28.3 | | Total Equity | $7,089.9 | $6,961.8 | - Total Ecolab Shareholders' Equity increased by 1.9% from September 30, 2021, to September 30, 2022[16] - Cash dividends declared per common share were $0.51 in Q3 2022 versus $0.48 in Q3 2021, and $1.53 in the first nine months of 2022 versus $1.44 in 2021[16] Condensed Notes to Consolidated Financial Statements This section provides condensed notes detailing significant accounting policies and financial information for Ecolab Inc.'s consolidated financial statements 1. Consolidated Financial Information This note provides an overview of the unaudited consolidated financial information and the impact of COVID-19 on future estimates - The unaudited consolidated financial information for Q3 2022 and 2021 reflects management's opinion of all necessary adjustments for a fair statement[19] - The company acknowledges the ongoing impact of COVID-19, which introduces uncertainty in future estimates and assumptions[19] 2. Special (Gains) and Charges This note details the components of special (gains) and charges, including restructuring, acquisition, COVID-19, and Russia/Ukraine activities Total Special (Gains) and Charges (millions) | (millions) | Third Quarter Sep 2022 | Sep 30 2021 | Nine Months Sep 2022 | Sep 30 2021 | |:-----------------------------------------|:-----------------------|:------------|:---------------------|:------------| | Total special (gains) and charges | $49.7 | $98.5 | $132.0 | $171.8 | - Total special (gains) and charges decreased by 49.5% in Q3 2022 YoY and 23.1% in the first nine months of 2022 YoY[21] - These charges are not allocated to reportable segments for internal management reporting[21] - Restructuring activities, acquisition and integration costs, COVID-19 activities, Russia/Ukraine activities, other operating activities, other (income) expense, and interest expense are the primary components of special (gains) and charges[21][22] Restructuring Activities This section outlines charges related to restructuring programs, including severance and equipment disposals Restructuring Charges (Gains) (millions) | (millions) | Third Quarter Sep 2022 | Sep 30 2021 | Nine Months Sep 2022 | Sep 30 2021 | |:-----------------------------------------|:-----------------------|:------------|:---------------------|:------------| | Restructuring charges (gains) - COS | $2.1 | $2.2 | $5.5 | $24.1 | | Restructuring charges (gains) - SG&A | ($0.3) | $0.4 | $0.8 | $6.5 | - Restructuring activities include the Institutional Advancement Program, Accelerate 2020, and other immaterial programs, primarily related to severance, equipment disposals, and office closures[22][23][26][27] Acquisition and Integration Related Costs This section details costs associated with acquisitions and their integration, primarily from the Purolite acquisition Acquisition and Integration Related Costs (millions) | (millions) | Third Quarter Sep 2022 | Sep 30 2021 | Nine Months Sep 2022 | Sep 30 2021 | |:-----------------------------------------|:-----------------------|:------------|:---------------------|:------------| | Acquisition & integration - COS | $4.2 | $- | $32.7 | $- | | Acquisition & integration - SG&A | $4.1 | $0.8 | $15.0 | $3.3 | - Acquisition and integration costs in Q3 2022 were $4.2 million in cost of sales and $4.1 million in special (gains) and charges, primarily from the Purolite acquisition inventory step-up and integration costs[30] COVID-19 Activities This section reports charges incurred due to COVID-19 related activities, including employee wages and testing COVID-19 Activities (millions) | (millions) | Third Quarter Sep 2022 | Sep 30 2021 | Nine Months Sep 2022 | Sep 30 2021 | |:-----------------------------------------|:-----------------------|:------------|:---------------------|:------------| | COVID-19 activities, net - COS | $- | $50.7 | $16.3 | $51.8 | | COVID-19 activities, net - SG&A | $2.5 | $1.5 | $7.1 | $16.2 | | After tax net charges | $2.1 | $40.6 | $17.9 | $51.9 | - COVID-19 related charges in Q3 2022 were $1.3 million for employee wages and $1.6 million for testing[31] - Net after-tax charges were $2.1 million in Q3 2022, significantly down from $40.6 million in Q3 2021[31] Russia/Ukraine Activities This section details charges related to the company's limited operations in Russia and asset recoverability risks due to the conflict Russia/Ukraine Activities (millions) | (millions) | Third Quarter Sep 2022 | Sep 30 2021 | Nine Months Sep 2022 | Sep 30 2021 | |:-----------------------------------------|:-----------------------|:------------|:---------------------|:------------| | Russia/Ukraine activities - COS | $0.8 | $- | $7.2 | $- | | Russia/Ukraine activities - SG&A | $- | $- | $5.9 | $- | | After tax charges | $0.7 | $- | $14.0 | $- | - Ecolab limited its Russian business to essential operations due to the invasion of Ukraine[32] - Charges of $0.8 million in Q3 2022 and $13.1 million in the first nine months of 2022 were recorded, primarily for asset recoverability risk in Russia and Ukraine[32] Other (Income) Expense This section covers other non-operating income and expenses, including pension plan settlement expenses Other (Income) Expense (millions) | (millions) | Third Quarter Sep 2022 | Sep 30 2021 | Nine Months Sep 2022 | Sep 30 2021 | |:-----------------------------------------|:-----------------------|:------------|:---------------------|:------------| | Other (income) expense | $24.8 | $7.0 | $24.8 | $26.6 | - Other (income) expense included settlement expenses of $24.8 million in Q3 2022 and $7.0 million in Q3 2021, related to U.S. pension plan lump-sum payments to retirees[34] Interest Expense This section details interest expense, including special charges related to debt refinancing in prior periods Interest Expense (millions) | (millions) | Third Quarter Sep 2022 | Sep 30 2021 | Nine Months Sep 2022 | Sep 30 2021 | |:-----------------------------------------|:-----------------------|:------------|:---------------------|:------------| | Interest expense, net | $- | $32.3 | $- | $32.3 | - Interest expense in Q3 2021 included $32.3 million in special charges primarily related to debt refinancing[35] 3. Acquisitions and Dispositions This note summarizes acquisition activities, including purchase accounting adjustments for prior year acquisitions Acquisitions and Dispositions (millions) | (millions) | Nine Months Sep 2022 | Sep 30 2021 | |:-----------------------------------------|:---------------------|:------------| | Total aggregate purchase price | $- | $212.9 | | Net cash paid for acquisitions | $- | $208.5 | - No acquisitions occurred in the first nine months of 2022[37] - In 2021, Ecolab acquired NWA, VanBaerle, and TechTex, finalizing purchase accounting for TechTex and NWA in 2022[37] - Goodwill increased by $7.4 million due to purchase accounting adjustments for 2021 acquisitions[38] 4. Balance Sheets Information This note provides detailed information on key balance sheet accounts, including receivables, inventories, and intangible assets Balance Sheets Information (millions) | (millions) | Sep 30 2022 | Dec 31 2021 | |:-----------------------------------------|:------------|:------------| | Accounts receivable, net | $2,714.3 | $2,478.4 | | Inventories | $1,802.7 | $1,491.8 | | Other current assets | $469.4 | $357.0 | | Property, plant and equipment, net | $3,260.9 | $3,288.5 | | Other intangible assets, net | $3,915.0 | $4,224.1 | | Other assets | $593.4 | $546.0 | | Other current liabilities | $1,145.4 | $1,144.2 | | Accumulated other comprehensive income (loss) | ($1,830.5) | ($1,634.8) | - Accounts receivable increased by 9.5% and inventories by 20.8% from December 31, 2021, to September 30, 2022[41] - Other intangible assets, net, decreased by 7.3% due to accumulated amortization[41] 5. Debt and Interest This note details the company's debt structure, including short-term and long-term debt, and net interest expense Debt (millions) | (millions) | Sep 30 2022 | Dec 31 2021 | |:-----------------------------------------|:------------|:------------| | Short-term debt | $497.9 | $411.0 | | Long-term debt | $8,026.7 | $8,347.2 | | Total debt | $8,524.6 | $8,758.2 | - Total debt decreased by 2.7% from December 31, 2021, to September 30, 2022[45][50] - Short-term debt increased by 21.1%, primarily due to commercial paper issuances[45][46] - The company has a $2.0 billion revolving credit facility and $2.0 billion commercial paper programs[47][50] Net Interest Expense (millions) | (millions) | Third Quarter Sep 2022 | Sep 30 2021 | Nine Months Sep 2022 | Sep 30 2021 | |:-----------------------------------------|:-----------------------|:------------|:---------------------|:------------| | Net Interest Expense | $65.1 | $76.4 | $174.1 | $173.7 | - Net interest expense decreased by 14.8% in Q3 2022 YoY, but remained stable for the first nine months of 2022 YoY[54] - Q3 2021 included $32.3 million in debt refinancing charges[54] 6. Goodwill and Other Intangible Assets This note provides information on goodwill and other intangible assets, including impairment assessments and amortization expense Goodwill and Other Intangible Assets (millions) | (millions) | Sep 30 2022 | Dec 31 2021 | |:-----------------------------------------|:------------|:------------| | Goodwill | $7,741.4 | $8,063.9 | | Nalco trade name (indefinite-lived) | $1,230.0 | $1,230.0 | | Intangible assets subject to amortization | $2,685.0 | $2,994.1 | - Goodwill decreased by 4.0% from December 31, 2021, to September 30, 2022, primarily due to foreign currency translation effects[56][57][58] - The company performs annual impairment assessments for goodwill and the Nalco trade name, with no impairment recognized in the periods presented[57] - Total amortization expense for intangible assets was $80.6 million in Q3 2022 (up 39.7% YoY) and $238.8 million in the first nine months of 2022 (up 36.9% YoY)[57] 7. Fair Value Measurements This note describes the fair value hierarchy used for financial instruments and the fair value of long-term debt - The company uses a fair value hierarchy (Level 1, 2, 3) for financial instruments[60] - Foreign currency forward contracts, interest rate swap agreements, and cross-currency swap derivative contracts are classified as Level 2[60] Long-term Debt Fair Value (millions) | (millions) | Sep 30 2022 Carrying Amount | Sep 30 2022 Fair Value | |:-----------------------------------------|:----------------------------|:-----------------------| | Long-term debt, including current maturities | $8,029.3 | $7,126.4 | - The fair value of long-term debt was $7,126.4 million as of September 30, 2022, lower than its carrying amount of $8,029.3 million[61] 8. Derivatives and Hedging Transactions This note explains the company's use of derivative instruments for managing foreign currency and interest rate risks - Ecolab uses foreign currency forward contracts, interest rate swap agreements, cross-currency swap derivative contracts, and foreign currency debt to manage risks, not for speculative purposes[63] Notional Value of Derivatives (millions) | (millions) | Notional Sep 30 2022 | Notional Dec 31 2021 | |:-----------------------------------------|:---------------------|:---------------------| | Foreign currency forward contracts | $4,304 | $4,059 | | Interest rate swap agreements | $1,500 | $1,250 | | Cross-currency swap derivative contracts | $427 | $482 | - The company increased its notional value of foreign currency forward contracts and interest rate swap agreements from December 31, 2021, to September 30, 2022[65] - A new €200 million cross-currency swap was entered into in October 2022 as a net investment hedge[65][79] 9. Other Comprehensive Income (Loss) Information This note details the components of other comprehensive income (loss), including foreign currency and pension adjustments - Other comprehensive income (loss) includes foreign currency translation adjustments, defined benefit pension and postretirement plan adjustments, and gains/losses on derivative instruments[81] Other Comprehensive Income (Loss) (millions) | (millions) | Third Quarter Sep 2022 | Sep 30 2021 | Nine Months Sep 2022 | Sep 30 2021 | |:-----------------------------------------|:-----------------------|:------------|:---------------------|:------------| | Derivative and Hedging Instruments (net of tax) | $11.6 | $15.3 | $13.1 | $16.7 | | Pension and Postretirement Benefits (net of tax) | ($62.3) | $33.4 | ($20.6) | $172.7 | - Net of tax, pension and postretirement benefits showed a loss of $62.3 million in Q3 2022, a significant decrease from a gain of $33.4 million in Q3 2021, primarily due to current period net actuarial losses[82] 10. Shareholders' Equity This note provides information on shareholders' equity, including share repurchase authorizations and activities - Ecolab's Board authorized the repurchase of up to 20 million shares in February 2015, with 3,404,297 shares remaining as of September 30, 2022[84] - An additional 10 million shares were authorized for repurchase in November 2022[85] - The company reacquired $445.4 million of shares in the first nine months of 2022, significantly higher than $77.8 million in the same period of 2021[86] - The Inflation Reduction Act's excise tax on stock repurchases is not anticipated to have a material impact[86] 11. Earnings Attributable to Ecolab Per Common Share (EPS) This note presents the calculation of basic and diluted earnings per common share for Ecolab Inc Earnings Attributable to Ecolab Per Common Share (millions, except per share) | (millions, except per share) | Third Quarter Sep 2022 | Sep 30 2021 | Nine Months Sep 2022 | Sep 30 2021 | |:-----------------------------------------|:-----------------------|:------------|:---------------------|:------------| | Net income attributable to Ecolab | $347.1 | $324.5 | $827.3 | $828.9 | | Basic EPS | $1.22 | $1.13 | $2.90 | $2.90 |\ | Diluted EPS | $1.21 | $1.12 | $2.88 | $2.87 | | Anti-dilutive securities excluded (millions) | 2.5 | 1.0 | 2.5 | 1.0 | - Diluted EPS increased by 8.0% in Q3 2022 YoY to $1.21, and slightly increased by 0.3% in the first nine months of 2022 YoY to $2.88[89] 12. Income Taxes This note details the company's reported GAAP tax rate and the impact of discrete tax items Reported GAAP Tax Rate (percent) | (percent) | Third Quarter Sep 2022 | Sep 30 2021 | Nine Months Sep 2022 | Sep 30 2021 | |:-----------------------------------------|:-----------------------|:------------|:---------------------|:------------| | Reported GAAP tax rate | 14.6% | 18.3% | 17.9% | 21.2% | - The reported GAAP tax rate decreased to 14.6% in Q3 2022 from 18.3% in Q3 2021, and to 17.9% in the first nine months of 2022 from 21.2% in 2021, primarily due to discrete tax items and special (gains) and charges[91] - The company recognized a net tax benefit of $14.2 million in Q3 2022 and $9.5 million in the first nine months of 2022 related to discrete tax items, including a deferred tax benefit from legal entity rationalization[91] 13. Pension and Postretirement Plans This note provides information on pension and postretirement plan expenses and contributions Pension and Postretirement Plan Expenses (millions) | (millions) | Third Quarter Sep 2022 | Sep 30 2021 | Nine Months Sep 2022 | Sep 30 2021 | |:-----------------------------------------|:-----------------------|:------------|:---------------------|:------------| | Total U.S. Pension expense | $21.5 | $3.9 | $16.0 | $21.9 | | Total International Pension expense | $0.9 | $1.4 | $2.1 | $5.0 | | Total U.S. Postretirement Health Care expense | $0.8 | $1.0 | $2.4 | $3.0 | - Total U.S. Pension expense significantly increased in Q3 2022 YoY to $21.5 million, primarily due to curtailments and settlements[94] - The company made contributions of $11 million to U.S. non-qualified plans, $33 million to international plans, and $8 million to U.S. postretirement health care plans in the first nine months of 2022[94] 14. Revenues This note describes revenue recognition policies and provides details on operating lease revenue and sales to ChampionX - Revenue from product and equipment sales is recognized at the point of transfer, while service and lease equipment revenue is recognized over time using an input method or straight-line basis for leases[96][97] Operating Lease Revenue and Sales to ChampionX (millions) | (millions) | Third Quarter Sep 2022 | Sep 30 2021 | Nine Months Sep 2022 | Sep 30 2021 | |:-----------------------------------------|:-----------------------|:------------|:---------------------|:------------| | Operating lease revenue | $118.1 | $103.3 | $345.4 | $306.4 | | Sales to ChampionX | $27.8 | $35.4 | $96.4 | $102.7 | - Operating lease revenue increased by 14.3% in Q3 2022 YoY and 12.7% in the first nine months of 2022 YoY[96][97] - Sales to ChampionX decreased by 21.5% in Q3 2022 YoY[96][97] 15. Operating Segments This note outlines the company's reportable operating segments and their fixed currency net sales performance - Ecolab aggregates its eleven operating segments into three reportable segments: Global Industrial, Global Institutional & Specialty, and Global Healthcare & Life Sciences, plus an 'Other' category[105] Net Sales by Operating Segment (fixed currency, millions) | (millions) | Third Quarter Sep 2022 | Sep 30 2021 | Nine Months Sep 2022 | Sep 30 2021 | |:-----------------------------------------|:-----------------------|:------------|:---------------------|:------------| | Global Industrial Net Sales (fixed currency) | $1,816.7 | $1,565.0 | $5,077.8 | $4,452.2 | | Global Institutional & Specialty Net Sales (fixed currency) | $1,183.2 | $1,057.1 | $3,323.4 | $2,864.7 | | Global Healthcare & Life Sciences Net Sales (fixed currency) | $375.5 | $279.7 | $1,138.9 | $852.8 | | Other Net Sales (fixed currency) | $362.1 | $319.5 | $1,000.4 | $885.2 | | Corporate Net Sales (fixed currency) | $27.8 | $35.4 | $96.4 | $102.7 | - Fixed currency net sales for Global Industrial, Global Institutional & Specialty, Global Healthcare & Life Sciences, and Other segments all showed double-digit growth in Q3 2022 YoY[109] 16. Commitments and Contingencies This note details various claims, contingencies, and environmental matters Ecolab is involved in - Ecolab is subject to various claims and contingencies, including workers' compensation, general liability, environmental matters, and lawsuits[112] - Liabilities are accrued when probable and estimable[112] - The company is a defendant in numerous lawsuits related to the TPC Group plant explosion, with over 5,000 plaintiffs[115] - Ecolab believes these claims are without merit and covered by insurance, but the outcome is uncertain[115] - Ecolab is participating in environmental assessments and remediation at approximately 30 locations, with accrued environmental liabilities reflecting management's best estimate of future costs[117] 17. New Accounting Pronouncements This note discusses the application and evaluation of new accounting pronouncements, including ASU 2020-04, 2021-08, and 2021-10 - ASU 2020-04 (Reference Rate Reform) expedients were applied for LIBOR-related contract modifications with no financial statement impact[118] - ASU 2021-08 (Business Combinations) and ASU 2021-10 (Government Assistance) are being evaluated for future impacts[118] Report of Independent Registered Public Accounting Firm PricewaterhouseCoopers LLP reviewed Ecolab Inc.'s interim financial statements, finding no material modifications needed for GAAP conformity - PricewaterhouseCoopers LLP conducted a limited review of the interim financial statements and found no material modifications needed for GAAP conformity[121] - The review is substantially less in scope than an audit, and therefore, no opinion is expressed on the financial statements as a whole[122] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Ecolab's operating results, cash flows, and financial condition for Q3 and the first nine months of 2022, including segment performance and the global economic environment Comparability of Results This section explains factors affecting comparability, including the Purolite acquisition and the use of fixed currency exchange rates - The Purolite acquisition (December 1, 2021, $3.7 billion cash) significantly impacts the Life Sciences operating segment, with acquisition and integration charges recorded as special (gains) and charges[125] - Acquisition-adjusted growth rates exclude results from acquired businesses for the first 12 months post-acquisition and divested businesses for 12 months prior to divestiture[126] - Management evaluates international operations using fixed currency exchange rates, updated annually, to eliminate exchange rate fluctuations[127] Overview of the Third Quarter Ended September 30, 2022 This section provides a high-level overview of Ecolab's financial performance for the third quarter of 2022 Overview of the Third Quarter Ended September 30, 2022 | Metric | Q3 2022 (Reported) | Q3 2021 (Reported) | Change (%) | |:-----------------------------------------|:-------------------|:-------------------|:-----------| | Net sales | $3,669.3 million | $3,320.8 million | 10% | | Fixed currency sales | | | 16% | | Acquisition adjusted fixed currency sales | | | 13% | | Operating income | $483 million | $465.8 million | 4% | | Adjusted operating income (excl. special charges) | | | -3% | | Adjusted fixed currency operating income | | | 2% | | Net income attributable to Ecolab | $347.1 million | $324.5 million | 7% | | Adjusted net income attributable to Ecolab | | | -7% | | Diluted EPS | $1.21 | $1.12 | 8% | | Adjusted diluted EPS | $1.30 | $1.38 | -6% | | Reported tax rate | 14.6% | 18.3% | | | Adjusted tax rate | 18.3% | 19.5% | | - Global Industrial, Institutional & Specialty, Healthcare & Life Sciences, and Other segments all reported strong fixed currency sales growth in Q3 2022, driven by pricing and new business wins[128] Results of Operations This section provides a detailed analysis of Ecolab's financial results, including net sales, costs, and income metrics Net Sales This section analyzes net sales performance, including reported GAAP and non-GAAP fixed currency sales, volume, and price changes Net Sales (millions) | (millions) | Third Quarter Sep 2022 | Sep 30 2021 | Change (%) | Nine Months Sep 2022 | Sep 30 2021 | Change (%) | |:-----------------------------------------|:-----------------------|:------------|:-----------|:---------------------|:------------|:-----------| | Reported GAAP net sales | $3,669.3 | $3,320.8 | 10% | $10,516.6 | $9,368.5 | 12% | | Non-GAAP fixed currency sales | $3,765.3 | $3,256.7 | 16% | $10,636.9 | $9,157.6 | 16% | | Volume change | 1% | | | 4% | | | | Price changes | 12% | | | 9% | | | | Acquisition adjusted fixed currency sales change | 13% | | | 13% | | | | Foreign currency translation impact | (5)% | | | (4)% | | | - Reported net sales increased 10% in Q3 2022 and 12% in the first nine months of 2022[131] - Fixed currency sales grew 16% in both periods, driven by 12% price changes in Q3 and 9% in the first nine months, and 1% volume growth in Q3 and 4% in the first nine months[131] Cost of Sales (COS) and Gross Profit Margin This section examines cost of sales and gross profit margin trends, highlighting impacts from product cost inflation and mix Cost of Sales (COS) and Gross Profit Margin (millions/percent) | (millions/percent) | Third Quarter Sep 2022 COS | Gross Margin | Sep 30 2021 COS | Gross Margin | Nine Months Sep 2022 COS | Gross Margin | Sep 30 2021 COS | Gross Margin | |:-----------------------------------------|:---------------------------|:-------------|:----------------|:-------------|:-------------------------|:-------------|:----------------|:-------------| | Reported GAAP COS | $2,291.6 | 37.5% | $2,016.7 | 39.3% | $6,576.1 | 37.5% | $5,572.7 | 40.5% | | Non-GAAP adjusted COS | $2,284.5 | 37.7% | $1,963.8 | 40.9% | $6,514.4 | 38.1% | $5,496.5 | 41.3% | - Reported gross margin decreased to 37.5% in Q3 2022 from 39.3% in Q3 2021[132] - Adjusted gross margin also decreased, primarily due to accelerating total pricing being more than offset by a significant increase in delivered product cost inflation and unfavorable mix[132][134] Selling, General and Administrative Expense This section analyzes SG&A expenses as a percentage of sales, noting the impact of sales leverage and cost savings - SG&A expenses as a percentage of sales decreased to 23.9% in Q3 2022 from 25.1% in Q3 2021, driven by sales leverage and cost savings offsetting business investments[135] Special (Gains) and Charges This section details the various special (gains) and charges impacting financial results, including restructuring and acquisition costs Total Special (Gains) and Charges (millions) | (millions) | Third Quarter Sep 2022 | Sep 30 2021 | Nine Months Sep 2022 | Sep 30 2021 | |:-----------------------------------------|:-----------------------|:------------|:---------------------|:------------| | Total special (gains) and charges | $49.7 | $98.5 | $132.0 | $171.8 | - Total special (gains) and charges decreased by 49.5% in Q3 2022 YoY and 23.1% in the first nine months of 2022 YoY[138] - These charges are not allocated to reportable segments[138] Institutional Advancement Program This section outlines restructuring charges and anticipated cost savings from the Institutional Advancement Program - Restructuring charges of $1.8 million ($1.3 million after tax) were recorded in Q3 2022, primarily for severance, equipment disposals, and office closures[140] - Cumulative charges reached $51.7 million ($39.5 million after tax)[140] - The program aims for $55 million in annual cost savings by 2024, with $48 million cumulative savings delivered to date[140] Accelerate 2020 This section reports restructuring charges and cumulative cost savings related to the Accelerate 2020 plan - Restructuring charges (gains) of ($0.6) million ($0.3 million after tax) were recorded in Q3 2022[141] - Cumulative charges reached $244.3 million ($189.9 million after tax)[141] - The plan is expected to be completed by the end of 2022, with total anticipated costs of $255 million ($195 million after tax) and $315 million in cumulative cost savings delivered[141] Acquisition and Integration Related Costs This section details acquisition and integration costs, primarily from the Purolite acquisition inventory step-up - Q3 2022 saw $4.2 million in acquisition and integration costs in COS (primarily Purolite inventory step-up) and $4.1 million in special (gains) and charges (integration, advisory, legal fees for Purolite, CID Lines, Bioquell)[143] COVID-19 Activities This section reports charges related to COVID-19 activities, including employee wages and testing - Q3 2022 charges included $1.3 million for employee wages and $1.6 million for testing[144] - Total after-tax net charges were $2.1 million in Q3 2022, a significant reduction from $40.6 million in Q3 2021[144] Russia/Ukraine Activities This section details charges incurred due to the Russia/Ukraine conflict, primarily for asset recoverability risk - Ecolab limited its Russian business to essential operations[145] - Charges of $0.8 million ($0.7 million after tax) in Q3 2022 and $13.1 million ($14.0 million after tax) in the first nine months of 2022 were recorded, mainly due to recoverability risk of assets in Russia and Ukraine[145] Other (Income) Expense This section covers other non-operating income and expenses, including pension plan lump-sum settlement expenses - Settlement expense of $24.8 million ($18.8 million after tax) was incurred in Q3 2022, related to U.S. pension plan lump-sum payments to retirees[147] Interest Expense This section details special charges within interest expense, primarily from debt refinancing in Q3 2021 - Q3 2021 included special charges of $32.3 million ($28.4 million after tax) in interest expense, primarily from debt refinancing[149] Operating Income and Operating Income Margin This section analyzes operating income and margin trends, considering the impact of foreign currency and special charges Operating Income and Operating Income Margin (millions/percent) | (millions/percent) | Third Quarter Sep 2022 | Sep 30 2021 | Change (%) | Nine Months Sep 2022 | Sep 30 2021 | Change (%) | |:-----------------------------------------|:-----------------------|:------------|:-----------|:---------------------|:------------|:-----------| | Reported GAAP operating income | $483.0 | $465.8 | 4% | $1,163.3 | $1,210.9 | (4)% | | Non-GAAP adjusted operating income | $507.9 | $525.0 | (3)% | $1,270.5 | $1,323.8 | (4)% | | Reported GAAP operating income margin | 13.2% | 14.0% | | 11.1% | 12.9% | | | Non-GAAP adjusted operating income margin | 13.8% | 15.8% | | 12.1% | 14.1% | | - Reported operating income increased 4% in Q3 2022 but decreased 4% in the first nine months of 2022[150] - Adjusted operating income (excluding special charges) decreased 3% in Q3 and 4% in the first nine months[150] - Foreign currency had a negative impact of 5 percentage points on adjusted operating income growth in Q3 2022[152] Other (Income) Expense This section examines the changes in other (income) expense, including the impact of pension settlement expenses Other (Income) Expense (millions) | (millions) | Third Quarter Sep 2022 | Sep 30 2021 | Change (%) | Nine Months Sep 2022 | Sep 30 2021 | Change (%) | |:-----------------------------------------|:-----------------------|:------------|:-----------|:---------------------|:------------|:-----------| | Reported GAAP other (income) expense | $5.7 | ($13.0) | (144)% | ($32.6) | ($27.5) | 19% | | Non-GAAP adjusted other (income) expense | ($19.1) | ($20.0) | (4)% | ($57.4) | ($54.1) | 6% | - Reported other (income) expense shifted from an income of ($13.0) million in Q3 2021 to an expense of $5.7 million in Q3 2022, a 144% decrease[153] - This was influenced by pension settlement expenses of $24.8 million in Q3 2022[153] Interest Expense, Net This section analyzes net interest expense, highlighting the impact of the Purolite acquisition and higher interest rates Interest Expense, Net (millions) | (millions) | Third Quarter Sep 2022 | Sep 30 2021 | Change (%) | Nine Months Sep 2022 | Sep 30 2021 | Change (%) | |:-----------------------------------------|:-----------------------|:------------|:-----------|:---------------------|:------------|:-----------| | Reported GAAP interest expense, net | $65.1 | $76.4 | (15)% | $174.1 | $173.7 | 0% | | Non-GAAP adjusted interest expense, net | $65.1 | $44.1 | 48% | $174.1 | $141.4 | 23% | - Reported net interest expense decreased 15% in Q3 2022 YoY, but adjusted net interest expense increased 48% due to interest on debt for the Purolite acquisition and higher average interest rates on floating rate debt[154] Provision for Income Taxes This section discusses the provision for income taxes, including changes in the GAAP tax rate and discrete tax items Provision for Income Taxes (percent) | (percent) | Third Quarter Sep 2022 | Sep 30 2021 | Nine Months Sep 2022 | Sep 30 2021 | |:-----------------------------------------|:-----------------------|:------------|:---------------------|:------------| | Reported GAAP tax rate | 14.6% | 18.3% | 17.9% | 21.2% | | Non-GAAP adjusted tax rate | 18.3% | 19.5% | 18.9% | 19.5% | - The reported GAAP tax rate decreased in Q3 2022 and the first nine months of 2022, primarily due to discrete tax items and special (gains) and charges[156] - A net tax benefit of $14.2 million was recognized in Q3 2022 from discrete tax items[156] Net Income Attributable to Ecolab This section analyzes net income attributable to Ecolab, including reported GAAP and non-GAAP adjusted figures Net Income Attributable to Ecolab (millions) | (millions) | Third Quarter Sep 2022 | Sep 30 2021 | Change (%) | Nine Months Sep 2022 | Sep 30 2021 | Change (%) | |:-----------------------------------------|:-----------------------|:------------|:-----------|:---------------------|:------------|:-----------| | Reported GAAP net income attributable to Ecolab | $347.1 | $324.5 | 7% | $827.3 | $828.9 | (0)% | | Non-GAAP adjusted net income attributable to Ecolab | $372.5 | $399.0 | (7)% | $923.6 | $985.5 | (6)% | - Reported net income attributable to Ecolab increased 7% in Q3 2022 YoY but remained flat for the first nine months of 2022[157] - Adjusted net income decreased 7% in Q3 2022 and 6% in the first nine months of 2022[157] Diluted EPS This section presents reported GAAP and non-GAAP adjusted diluted EPS, noting the impact of currency translation Diluted EPS (dollars) | (dollars) | Third Quarter Sep 2022 | Sep 30 2021 | Change (%) | Nine Months Sep 2022 | Sep 30 2021 | Change (%) | |:-----------------------------------------|:-----------------------|:------------|:-----------|:---------------------|:------------|:-----------| | Reported GAAP diluted EPS | $1.21 | $1.12 | 8% | $2.88 | $2.87 | 0% | | Non-GAAP adjusted diluted EPS | $1.30 | $1.38 | (6)% | $3.22 | $3.41 | (6)% | - Reported diluted EPS increased 8% in Q3 2022 YoY to $1.21[157] - Adjusted diluted EPS decreased 6% in Q3 2022 and 6% in the first nine months of 2022[157] - Currency translation had an unfavorable impact of ($0.08) per share in Q3 2022[157] Segment Performance This section provides a detailed analysis of the financial performance of Ecolab's operating segments Net Sales by Segment (fixed currency, millions) | (millions) | Third Quarter Sep 2022 Net Sales (fixed currency) | Sep 30 2021 Net Sales (fixed currency) | Change (%) | |:-----------------------------------------|:--------------------------------------------------|:---------------------------------------|:-----------| | Global Industrial | $1,816.7 | $1,565.0 | 16% | | Global Institutional & Specialty | $1,183.2 | $1,057.1 | 12% | | Global Healthcare & Life Sciences | $375.5 | $279.7 | 34% | | Other | $362.1 | $319.5 | 13% | | Corporate | $27.8 | $35.4 | (21)% | - All reportable segments, except Corporate, showed double-digit fixed currency net sales growth in Q3 2022[159] - Global Healthcare & Life Sciences had the highest growth at 34%, largely due to acquisitions[159] Global Industrial This section analyzes the Global Industrial segment's fixed currency sales and operating income performance Global Industrial Performance (millions/percent) | (millions/percent) | Third Quarter Sep 2022 | Sep 30 2021 | Change (%) | Nine Months Sep 2022 | Sep 30 2021 | Change (%) | |:-----------------------------------------|:-----------------------|:------------|:-----------|:---------------------|:------------|:-----------| | Sales at fixed currency | $1,816.7 | $1,565.0 | 16% | $5,077.8 | $4,452.2 | 14% | | Volume | -% | | | 2% | | | | Price changes | 15% | | | 11% | | | | Operating income at fixed currency | $277.0 | $258.6 | 7% | $693.2 | $719.7 | (4)% | | Fixed currency operating income margin | 15.2% | 16.5% | | 13.7% | 16.2% | | - Global Industrial fixed currency sales increased 16% in Q3 2022, driven by accelerating pricing (15%) and new business wins[164][165] - Operating income increased 7% in Q3, but margins decreased due to higher delivered product costs and unfavorable mix[164][166] Global Institutional & Specialty This section analyzes the Global Institutional & Specialty segment's fixed currency sales and operating income performance Global Institutional & Specialty Performance (millions/percent) | (millions/percent) | Third Quarter Sep 2022 | Sep 30 2021 | Change (%) | Nine Months Sep 2022 | Sep 30 2021 | Change (%) | |:-----------------------------------------|:-----------------------|:------------|:-----------|:---------------------|:------------|:-----------| | Sales at fixed currency | $1,183.2 | $1,057.1 | 12% | $3,323.4 | $2,864.7 | 16% | | Volume | 2% | | | 9% | | | | Price changes | 10% | | | 7% | | | | Operating income at fixed currency | $199.1 | $190.9 | 4% | $462.5 | $390.5 | 18% | | Fixed currency operating income margin | 16.8% | 18.1% | | 13.9% | 13.6% | | - Fixed currency sales increased 12% in Q3 2022, with Institutional sales up 14% and Specialty sales up 8%[170][172] - Operating income increased 4% in Q3, but margins decreased due to higher delivered product costs and business investments[170][173] Global Healthcare & Life Sciences This section analyzes the Global Healthcare & Life Sciences segment's fixed currency sales and operating income, including acquisition impacts Global Healthcare & Life Sciences Performance (millions/percent) | (millions/percent) | Third Quarter Sep 2022 | Sep 30 2021 | Change (%) | Nine Months Sep 2022 | Sep 30 2021 | Change (%) | |:-----------------------------------------|:-----------------------|:------------|:-----------|:---------------------|:------------|:-----------| | Sales at fixed currency | $375.5 | $279.7 | 34% | $1,138.9 | $852.8 | 34% | | Volume | (9)% | | | (8)% | | | | Price changes | 9% | | | 6% | | | | Acquisition adjusted fixed currency sales change | -% | | | (2)% | | | | Operating income at fixed currency | $34.7 | $35.2 | (1)% | $137.3 | $123.9 | 11% | | Fixed currency operating income margin | 9.2% | 12.6% | | 12.1% | 14.5% | | - Fixed currency sales increased 34% in Q3 2022, primarily due to the Purolite acquisition[175] - Acquisition-adjusted sales were flat[175] - Operating income decreased 1% in Q3, with margins declining due to higher delivered product costs, lower volumes, and unfavorable mix[176][177] Other This section analyzes the 'Other' segment's fixed currency sales and operating income, including Pest Elimination and Textile Care Other Segment Performance (millions/percent) | (millions/percent) | Third Quarter Sep 2022 | Sep 30 2021 | Change (%) | Nine Months Sep 2022 | Sep 30 2021 | Change (%) | |:-----------------------------------------|:-----------------------|:------------|:-----------|:---------------------|:------------|:-----------| | Sales at fixed currency | $362.1 | $319.5 | 13% | $1,000.4 | $885.2 | 13% | | Volume | 6% | | | 7% | | | | Price changes | 7% | | | 6% | | | | Operating income at fixed currency | $64.4 | $57.8 | 11% | $153.6 | $140.9 | 9% | | Fixed currency operating income margin | 17.8% | 18.1% | | 15.4% | 15.9% | | - Fixed currency sales for 'Other' increased 13% in Q3 2022, driven by double-digit growth in Pest Elimination, Textile Care, and Colloidal Technologies[179][180] - Operating income increased 11%, but margins decreased due to higher delivered product costs and business investments[179][181] Corporate This section describes the Corporate segment's components, including sales to ChampionX and unallocated special charges - Corporate segment amounts include sales to ChampionX under a long-term supply agreement, intangible asset amortization from Nalco and Purolite acquisitions, and special (gains) and charges not allocated to reportable segments[182] Financial Position, Cash Flows and Liquidity This section discusses Ecolab's financial position, cash flow activities, and liquidity resources Financial Position This section provides an overview of Ecolab's total assets, liabilities, debt, and net debt to EBITDA ratio Financial Position (millions) | (millions) | Sep 30 2022 | Dec 31 2021 | |:-----------------------------------------|:------------|:------------| | Total assets | $21,037.0 | $21,206.4 | | Total liabilities | $13,947.1 | $13,953.3 | | Total debt | $8,524.6 | $8,758.2 | | Net debt to EBITDA | 3.4 | 3.4 | - Total assets decreased slightly by 0.8% and total debt decreased by 2.7% from December 31, 2021, to September 30, 2022[184][185] - The net debt to EBITDA ratio remained stable at 3.4[184][185] Cash Flows This section details cash flows from operating, investing, and financing activities Operating Activities This section analyzes cash provided by operating activities, noting the impact of working capital changes Cash Provided by Operating Activities (millions) | (millions) | Nine Months Sep 2022 | Sep 30 2021 | Change ($) | |:-----------------------------------------|:---------------------|:------------|:-----------| | Cash provided by operating activities | $929.2 | $1,421.0 | ($491.8) | - Cash provided by operating activities decreased by $491.8 million (34.6%) in the first nine months of 2022, primarily due to a $381 million increase in working capital, driven by higher receivables and inventory[186] Investing Activities This section analyzes cash used for investing activities, including capital expenditures and acquisitions Cash Used for Investing Activities (millions) | (millions) | Nine Months Sep 2022 | Sep 30 2021 | Change ($) | |:-----------------------------------------|:---------------------|:------------|:-----------| | Cash used for investing activities | ($506.4) | ($638.5) | $132.1 | - Cash used for investing activities decreased by $132.1 million (20.7%) in the first nine months of 2022[188] - Capital expenditures increased to $510 million from $424 million, while cash paid for acquisitions decreased significantly to $7 million from $210 million[188] Financing Activities This section analyzes cash used for financing activities, including debt repayments and share repurchases Cash Used for Financing Activities (millions) | (millions) | Nine Months Sep 2022 | Sep 30 2021 | Change ($) | |:-----------------------------------------|:---------------------|:------------|:-----------| | Cash used for financing activities | ($675.6) | ($1,159.3) | $483.7 | - Cash used for financing activities decreased by $483.7 million (41.7%) in the first nine months of 2022[191] - This was driven by increased net issuances of commercial paper ($87.1 million change) and significantly lower long-term debt repayments ($1,017.9 million change), partially offset by higher share repurchases ($445 million vs $78 million)[189][191] Liquidity and Capital Resources This section discusses Ecolab's liquidity sources, including cash, credit facilities, and commercial paper programs - Ecolab expects to fund foreseeable cash requirements through operating activities and, if needed, short-term/long-term borrowings[190] - As of September 30, 2022, cash and cash equivalents were $113 million, with $78 million held outside the U.S[190] - The company has a $2.0 billion multi-year revolving credit facility and $2.0 billion commercial paper programs, with $485 million outstanding commercial paper as of September 30, 2022[