ECOLAB INC. 
The following management discussion and analysis ("MD&A") provides information
we believe is useful in understanding our operating results, cash flows and
financial condition. We provide quantitative information about the material
sales drivers including the impact of changes in volume and pricing and the
effect of acquisitions and changes in foreign currency at the corporate and
reportable segment level. We also provide quantitative information regarding
special (gains) and charges, discrete tax items and other significant factors we
believe are useful for understanding our results. Such quantitative drivers are
supported by comments meant to be qualitative in nature. Qualitative factors are
generally ordered based on estimated significance.
The MD&A should be read in conjunction with both the unaudited consolidated
financial information and related notes included in this Form 10-Q, and
Management's Discussion and Analysis of Financial Condition and Results of
Operations included in our Annual Report on Form 10-K for the year ended
December 31, 2021 . This discussion contains various Non-GAAP Financial Measures
and also contains various Forward-Looking Statements within the meaning of the
Private Securities Litigation Reform Act of 1995. We refer readers to the
statements entitled "Non-GAAP Financial Measures" and "Forward-Looking
Statements" located at the end of Part I of this report.
Comparability of Results
Purolite Acquisition
OnDecember 1, 2021 , we acquiredPurolite Corporation ("Purolite") for total consideration of$3.7 billion in cash. Purolite is a leading and fast-growing global provider of high-end ion exchange resins for the separation and purification of solutions for pharmaceutical and industrial applications. Headquartered inKing of Prussia, Pennsylvania , Purolite operates in more than 30 countries. Purolite is reported within our Life Sciences operating segment. Acquisition and integration charges are recorded within special (gains) and charges. Amortization of acquisition-related intangible assets is recorded in the Corporate reportable segment.
Impact of Acquisitions and Divestitures
Acquisition adjusted growth rates exclude the results of our acquired businesses from the first twelve months post acquisition and the results of our divested businesses from the twelve months prior to divestiture. As part of the separation of ChampionX in 2020, we entered into a Master Cross Supply and Product Transfer agreement with ChampionX to provide, receive or transfer certain products for a period up to 36 months. Sales of product to ChampionX under this agreement are recorded in product and equipment sales in the Corporate segment along with the related cost of sales. These transactions are removed from the consolidated results as part of the calculation of the impact of acquisitions and divestitures.
Fixed Currency Foreign Exchange Rates
Management evaluates the sales and operating income performance of our non-U.S. dollar functional currency international operations based on fixed currency exchange rates, which eliminate the impact of exchange rate fluctuations on our international operations. Fixed currency amounts are updated annually at the beginning of each year based on translation intoU.S. dollars at foreign currency exchange rates established by management, with all periods presented using such rates. Public currency rate data provided within the "Segment Performance" section of this MD&A reflect amounts translated at actual public average rates of exchange prevailing during the corresponding period and is provided for informational purposes only.
OVERVIEW OF THE SECOND QUARTER ENDED
Sales Performance
When comparing second quarter 2022 against second quarter 2021, sales performance was as follows:
? Reported net sales increased 13% to
increased 17% and acquisition adjusted fixed currency sales increased 13%.
Fixed currency sales for our Global Industrial segment increased 13% to
accelerating total pricing and new business wins.
Fixed currency sales for our Global Institutional & Specialty segment increased
18% to
and innovation. Specialty sales showed good growth, driven by strong quickservice sales. Fixed currency sales for ourGlobal Healthcare & Life Sciences segment
increased 37% to
Healthcare sales. While Healthcare sales improved sequentially, its decline
versus the prior year reflected good growth in
offset by a modest sales decline in
Fixed currency sales and acquisition adjusted fixed currency sales for Other
? increased 14% to
Elimination, Textile Care and Colloidal Technologies.
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Financial Performance
When comparing second quarter 2022 against second quarter 2021, our financial performance was as follows:
Reported operating income decreased 5% to
operating income decreased 8% and our adjusted fixed currency operating income
decreased 4%.
Net income attributable to Ecolab decreased 1% to
2021 reported results, our adjusted net income attributable to Ecolab decreased
11%.
Reported diluted EPS of
reported results, adjusted diluted EPS decreased 10% to
quarter of 2022.
Our reported tax rate was 19.7% during the second quarter of 2022, compared to
21.5% during the second quarter of 2021. Excluding the tax rate impact of ? special (gains) and charges and discrete tax items from both 2022 and 2021
results, our adjusted tax rate was 19.2% during the second quarter of 2022,
compared to 19.3% during the second quarter of 2021.
RESULTS OF OPERATIONSNet Sales Second Quarter Ended Six Months Ended June 30 June 30 (millions) 2022 2021 Change 2022 2021 Change
Product and equipment sales$2,886.8 $2,514.4 $5,510.9 $4,807.8 Service and lease sales 693.8 648.3 1,336.4 1,239.9 Reported GAAP net sales$3,580.6 $3,162.7 13 %$6,847.3 $6,047.7 13 % Effect of foreign currency translation 35.6 (70.1) 24.3 (146.8)
Non-GAAP fixed currency sales$3,616.2 $3,092.6 17 %
Product and sold equipment revenue is generated from providing cleaning,
sanitizing and water treatment products or selling equipment used in combination
with specialized products. Service and lease equipment revenue is generated from
providing services or leasing equipment to customers. All of our sales are
subject to the same economic conditions.
The percentage components of the period-over-period 2022 sales change are shown
below:
Second Quarter Ended Six Months Ended
June 30 June 30
(percent) 2022 2022
Volume 4 % 5 %
Price changes 9 9Acquisition adjusted fixed currency sales change 13 13 Acquisitions and divestitures 4 4 Fixed currency sales change 17 16 Foreign currency translation (3) (3) Reported GAAP net sales change 13 % 13 %
Amounts do not necessarily sum due to rounding.
Cost of Sales ("COS") and Gross Profit Margin
Second Quarter Ended Six Months Ended
June 30 June 30
2022 2021 2022 2021
Gross Gross Gross Gross
(millions/percent) COS Margin COS Margin COS Margin COS Margin
Product and equipment cost
of sales $1,799.0 $1,464.9 $3,494.6 $2,827.8
Service and lease cost of
sales 412.1 379.1 789.9 728.2
Reported GAAP COS and gross
margin $2,211.1 38.2 % $1,844.0 41.7 % $4,284.5 37.4 % $3,556.0 41.2 %
Special (gains) and charges 1.7 3.7 54.6 23.3
Non-GAAP adjusted COS and
gross margin $2,209.4 38.3 % $1,840.3 41.8 % $4,229.9 38.2 % $3,532.7 41.6 %
Our COS and corresponding gross profit margin ("gross margin") are shown in the
table above. Gross margin is defined as net sales less cost of sales divided by
net sales.
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Our reported gross margin was 38.2% and 41.7% for the second quarter of 2022 and
2021, respectively. Our reported gross margin was 37.4% and 41.2% for the first
six months of 2022 and 2021, respectively. Special (gains) and charges included
in items impacting cost of sales are shown within the "Special (Gains) and
Charges" table below.
Excluding the impact of special (gains) and charges within cost of sales, second
quarter 2022 adjusted gross margin was 38.3% and our adjusted gross margin for
the first six months of 2022 was 38.2%. These percentages compared against a
second quarter 2021 adjusted gross margin of 41.8% and an adjusted gross margin
of 41.6% for the first six months of 2021.
Our adjusted gross margin decreased when comparing the second quarter and first
six months of 2022 against the second quarter and first six months of 2021,
primarily reflecting accelerating total pricing that was more than offset by a
significant increase in delivered product costs.
Selling, General and Administrative Expense
Selling, general and administrative ("SG&A") expenses as a percentage of sales
were 26.3% and 27.1% for the second quarter and first six months of 2022,
respectively, compared to 27.0% and 28.4% for the second quarter and first six
months of 2021, respectively. The SG&A ratio to sales in the second quarter and
first six months of 2022 decreased as sales leverage and cost savings more than
offset investments in the business.
Special (Gains) and Charges
Special (gains) and charges reported on the Consolidated Statements of Income
include the following items:
Second Quarter Ended Six Months Ended
June 30 June 30
(millions) 2022 2021 2022 2021
Cost of sales
Restructuring activities $0.8 $3.7 $3.4 $21.9 Acquisition and integration activities 0.9 -
28.5 - COVID-19 activities, net - - 16.3 1.1 Russia/Ukraine activities - - 6.4 - Other - - - 0.3 Cost of sales subtotal 1.7 3.7 54.6 23.3 Special (gains) and charges Restructuring activities 0.3 2.5 1.1 6.1
Acquisition and integration activities 3.4 1.3
10.9 2.5 COVID-19 activities, net 3.1 8.3 4.6 14.7 Russia/Ukraine activities (5.7) - 5.9 - Other 2.5 5.5 5.2 7.1
Special (gains) and charges subtotal 3.6 17.6
27.7 30.4 Operating income subtotal 5.3 21.3 82.3 53.7 Other (income) expense - 19.6 - 19.6
Total special (gains) and charges$5.3 $40.9
For segment reporting purposes, special (gains) and charges are not allocated to reportable segments, which is consistent with our internal management reporting.
Restructuring activities
Restructuring activities relate to the Institutional Advancement Program, Accelerate 2020 and other immaterial restructuring programs which are described below. These activities have been included as a component of cost of sales and special (gains) and charges on the Consolidated Statements of Income. Restructuring liabilities have been classified as a component of other current and other noncurrent liabilities on the Consolidated Balance Sheets.
Further details related to our restructuring charges are included in Note 2.
32
Institutional Advancement Program
We approved a restructuring plan in 2020 focused on the Institutional business
("the Institutional Plan") which is intended to enhance our Institutional sales
and service structure and allow the sales team to capture share and penetration
while maximizing service effectiveness by leveraging our ongoing investments in
digital technology. In February 2021 , we expanded the Institutional Plan, and we
expect that these restructuring charges will be completed by 2023, with total
anticipated costs of $65 million ($50 million after tax) or $0.17 per diluted
share. The remaining costs are expected to be primarily cash expenditures for
severance and non-cash charges related to equipment disposals. Actual costs may
vary from these estimates depending on actions taken.
In the second quarter and first six months of 2022, we recorded restructuring
charges of $0.7 million ($0.6 million after tax) or less than $0.01 per diluted
share and $2.2 million ($1.6 million after tax) or less than $0.01 per diluted
share, respectively, primarily related to severance, disposals of equipment and
office closures. We have recorded $49.9 million ($38.2 million after tax), or
$0.13 per diluted share of cumulative restructuring charges under the
Institutional Plan. The liability related to the Institutional Plan was $2.4
million as of June 30, 2022 . The majority of the pretax charges represent net
cash expenditures which are expected to be paid over a period of a few months to
several quarters which continue to be funded from operating activities.
The Institutional Plan has delivered
Accelerate 2020
During 2018, we formally commenced a restructuring plan Accelerate 2020 ("the
Plan"), to leverage technology and system investments and organizational
changes. The goals of the Plan are to further simplify and automate processes
and tasks, reduce complexity and management layers, consolidate facilitates and
focus on key long-term growth areas by further leveraging technology and
structural improvements. During 2020, we expanded the Plan for additional costs
and savings to further leverage the technology and structural improvements.
Following the establishment of the separate Institutional Plan, we now expect
that the restructuring activities will be completed by the end of 2022, with
total anticipated costs of $255 million ($195 million after tax), or $0.68 per
diluted share. Remaining costs are expected to be primarily cash expenditures
for severance costs and some facility closure costs relating to team
reorganizations. Actual costs may vary from these estimates depending on actions
taken.
We recorded restructuring charges (gains) of $0.1 million ($0.1 million after
tax), or less than $0.01 per diluted share and ($0.3) million ($0.2 million
after tax), or less than $0.01 per diluted share in the second quarter of 2022
and 2021, respectively and $0.4 million ($0.2 million after tax), or less than
$0.01 per diluted share and $1.4 million ($1.6 million after tax), or $0.01 per
diluted share in the first six months of 2022 and 2021, respectively. The
liability related to the Plan was $21.0 million as of the end of the second
quarter of 2022. We have recorded $244.9 million ($190.2 million after tax), or
$0.66 per diluted share, of cumulative restructuring charges under the Plan. The
majority of the pretax charges represent net cash expenditures which are
expected to be paid over a period of a few months to several quarters which
continue to be funded from operating activities.
The Plan has delivered
Other Restructuring Activities
During the second quarter of 2022 and 2021, we incurred restructuring charges of$0.3 million ($0.2 million after tax), or less than$0.01 per diluted share and$4.3 million ($5.6 million after tax), or$0.01 per diluted share, respectively, and during the first six months of 2022 and 2021, we incurred$2.0 million ($1.5 million after tax), or less than$0.01 per diluted share and$18.5 million ($16.4 million after tax), or$0.06 per diluted share, respectively, related to other immaterial restructuring activity. The charges primarily related to severance and asset write-offs. The restructuring liability balance for all other restructuring plans excluding the Accelerate 2020 and Institutional Plan were$4.2 million and$4.6 million as ofJune 30, 2022 andDecember 31, 2021 , respectively. The remaining liability is expected to be paid over a period of a few months to several quarters and will continue to be funded from operating activities. Cash payments during the second quarter of 2022 related to all other restructuring plans excluding the Accelerate 2020 and Institutional Plan were$2.4 million .
Acquisition and integration related costs
Acquisition and integration costs reported in product and equipment cost of sales on the Consolidated Statements of Income in the second quarter and first six months of 2022 include$0.9 million ($0.6 million after tax) or less than$0.01 per diluted share and$28.5 million ($21.6 million after tax) or$0.08 per diluted share, respectively, and are related primarily to the recognition of fair value step-up in the Purolite inventory. Acquisition and integration costs reported in special (gains) and charges on the Consolidated Statements of Income include$3.4 million ($2.4 million after tax) or less than$0.01 per diluted share and$10.9 million ($8.3 million after tax) or$0.03 per diluted share in the second quarter and first six months of 2022, respectively. Charges are related to Purolite,Copal Invest NV , including its primary operating entityCID Lines (collectively, "CID Lines"), andBioquell PLC ("Bioquell") acquisitions and consist of integration costs, advisory and legal fees. 33 Acquisition and integration costs reported in special (gains) and charges on the Consolidated Statements of Income include$1.3 million ($1.0 million after tax) or less than$0.01 per diluted share and$2.5 million ($2.1 million after tax) or$0.01 per diluted share in the second quarter and first six months of 2021, respectively. Charges are related toCID Lines , andBioquell acquisitions and consist of integration costs, advisory and legal fees.
COVID-19 activities
We recorded charges of$0.5 million and$0.0 million during the second quarter and first six months of 2022, respectively to protect the wages of certain employees directly impacted by the COVID-19 pandemic. We also recorded charges of$2.7 million and$6.1 million related to employee COVID-19 testing and related expenses during the second quarter and first six months of 2022, respectively. In addition, we received immaterial amounts of subsidies and government assistance which were recorded in special (gains) and charges in the first six months of both 2022 and 2021. We recorded$15 million in inventory reserves related to excess sanitizer inventory and estimated disposal costs during the first quarter of 2022. COVID-19 pandemic charges are recorded in product and equipment cost of sales and special (gains) and charges on the Consolidated Statements of Income. Total after tax net charges (gains) related to the COVID-19 pandemic were$2.5 million or less than$0.01 per diluted share and$15.8 million or$0.05 per diluted share during the second quarter and first six months of 2022, respectively. During the second quarter and first six months of 2021, we recorded charges of$4.1 million and$10.0 million , respectively, to protect the wages of certain employees directly impacted by the COVID-19 pandemic. We also recorded charges of$4.9 million and$8.4 million , respectively, during the second quarter and first six months of 2021 related to COVID-19 testing and related expenses. In addition, we received subsidies and government assistance, which were recorded as a special (gain) of($0.7) million and($2.6) million during the second quarter and first six months of 2021, respectively. COVID-19 pandemic charges are recorded in product and equipment sales, service and lease sales, and special (gains) and charges on the Consolidated Statements of Income. Total after tax net charges related to COVID-19 pandemic were$6.4 million or$0.02 per diluted share and$11.3 million or$0.04 per diluted share during the second quarter and first six months of 2021, respectively.
In light ofRussia's invasion ofUkraine and the sanctions againstRussia bythe United States and other countries, we have made the determination that we will limit our Russian business to operations that are essential to life, providing minimal support for our healthcare, life sciences, food and beverage and certain water businesses. We recorded recoveries of($5.7) million ($5.7 million after tax) or$0.02 per diluted share and charges of$12.3 million ($13.3 million after tax) or$0.05 per diluted share in the second quarter and first six months of 2022, respectively, related to recoverability risk of certain assets in
bothRussia andUkraine . Other operating activities Other special charges recorded in the second quarter and first six months of 2022 in special (gains) and charges on the Consolidated Statements of Income were$2.5 million ($1.9 million after tax) or less than$0.01 per diluted and$5.2 million ($3.9 million after tax) or$0.01 per diluted share, respectively, primarily related to certain legal charges. Other special charges of$5.5 million ($4.4 million after tax) or$0.02 per diluted share and$7.4 million ($5.8 million after tax) or$0.02 per diluted share recorded in the second quarter and first six months of 2021, respectively, related to certain legal charges and tax consulting fees associated with the ChampionX separation, which are recorded in special (gains) and charges and product and equipment cost of sales on the Consolidated Statements of Income.
Operating Income and Operating Income Margin
Second Quarter Ended Six Months Ended
June 30 June 30
(millions) 2022 2021 Change 2022 2021 ChangeReported GAAP operating income$425.8 $447.8 (5) %$680.3 $745.1 (9) % Special (gains) and charges 5.3 21.3 82.3 53.7 Non-GAAP adjusted operating income 431.1 469.1 (8) % 762.6 798.8 (5) % Effect of foreign currency translation 6.4 (12.8) 3.6 (26.0) Non-GAAP adjusted fixed currency operating income$437.5 $456.3 (4) %$766.2 $772.8 (1) % Second Quarter Ended Six Months Ended June 30 June 30 (percent) 2022 2021 2022 2021 Reported GAAP operating income margin 11.9 % 14.2 % 9.9 % 12.3 % Non-GAAP adjusted operating income margin 12.0 % 14.8 % 11.1 % 13.2 % Non-GAAP adjusted fixed currency operating income margin 12.1 % 14.8 %
11.2 % 13.1 %
Our operating income and corresponding operating income margin are shown in the
previous tables. Operating income margin is defined as operating income divided
by net sales.
34
Our reported operating income decreased 5% and 9% in the second quarter and
first six months of 2022, respectively, versus the comparable period of 2021.
Our reported operating income for 2022 and 2021 was impacted by special (gains)
and charges; excluding the impact of special (gains) and charges from 2022 and
2021 reported results, our adjusted operating income decreased 8% and 5% in the
second quarter and first six months of 2022, respectively.
As shown in the previous table, foreign currency had a 4 percentage points
impact on adjusted operating income growth for both the second quarter and first
six months of 2022, respectively. Foreign currency had a 10 and 4 percentage
points impact on adjusted operating income growth for the second quarter and
first six months of 2021, respectively.
Other (Income) Expense
Second Quarter Ended Six Months Ended
June 30 June 30
(millions) 2022 2021 Change 2022 2021 Change
Reported GAAP other (income)
expense ($19.5 ) $2.5 (880) % ($38.3 ) ($14.5 ) 164 %
Special (gains) and charges - 19.6 - 19.6 Non-GAAP adjusted other (income) expense ($19.5 ) ($17.1 ) 14 % ($38.3 ) ($34.1 ) 12 % Other expense (income) was($19.5) million and$2.5 million in the second quarter of 2022 and 2021, respectively. Other income was$38.3 million and$14.5 million in the first six months of 2022 and 2021, respectively. We recognized pension settlement expense of$19.6 million in special (gains) and charges
in
second quarter of 2021.
Interest Expense, Net
Second Quarter Ended Six Months Ended
June 30 June 30
(millions) 2022 2021 Change 2022 2021 Change
Reported GAAP interest expense, net
Reported net interest expense was$56.0 million and$45.6 million in the second quarter of 2022 and 2021, respectively. Reported net interest expense was$109.0 million and$97.3 million in the first six months of 2022 and 2021, respectively. The increase in interest expense when comparing 2022 against 2021 was driven primarily by interest on new debt issued to fund the Purolite acquisition, partially offset by benefits from debt refinancing transactions completed last year. Provision for Income Taxes
The following table provides a summary of our tax rate:
Second Quarter Ended Six Months Ended
June 30 June 30
(percent) 2022 2021 2022 2021
Reported GAAP tax rate 19.7 % 21.5 % 20.0 % 23.0 %
Tax rate impact of:Special (gains) and charges 0.4 (0.4) -
(0.3)
Discrete tax items (0.9) (1.8) (0.7)
(3.2)
Non-GAAP adjusted tax rate 19.2 % 19.3 % 19.3 %
19.5 %
Our reported tax rate was 19.7% and 21.5% for the second quarter of 2022 and 2021, respectively and 20.0% and 23.0% for the first six months of 2022 and 2021, respectively. The change in our tax rate for the second quarter and first six months of 2022 versus the comparable period of 2021 was driven primarily by discrete tax items and special (gains) and charges. The change in our tax rate includes the tax impact of special (gains) and charges and discrete tax items, which have impacted the comparability of our historical reported tax rates, as amounts included in our special (gains) and charges are derived from tax jurisdictions with rates that vary from our tax rate, and discrete tax items are not necessarily consistent across periods. The tax impact of special (gains) and charges and discrete tax items will likely continue to impact comparability of our reported tax rate in the future. We recognized net tax expense related to discrete tax items of$3.7 million and$4.7 million in the second quarter and first six months of 2022, respectively. This included share-based compensation excess tax benefits of$0.7 million and$3.6 million in the second quarter and first six months of 2022, respectively. The amount of this tax benefit is subject to variation in stock price and award exercises. Additionally, we recognized discrete tax expense of$4.4 million and$8.3 million in the second quarter and first six months of 2022, respectively, primarily due to audit settlements, reserves for uncertain tax positions, prior year return adjustments, repricing of deferred tax balances, and other changes in estimates. We recognized net tax expense related to discrete tax items of$7.7 million and$23.8 million in the second quarter and first six months of 2021, respectively. This included tax expense of$9.5 million related to prior year returns in the second quarter and first six months of 2021, and a deferred tax benefit of$0.9 million and deferred tax expense$24.2 million associated with transferring certain intangible property between affiliates in the second quarter and first six months of 2021, respectively. Share-based compensation excess tax 35
benefit was
The decrease in the second quarter and first six months of 2022 adjusted tax rate compared to 2021 was primarily due to the geographic mix of income and tax planning.
Net Income Attributable to Ecolab
Second Quarter Ended Six Months Ended
June 30 June 30
(millions) 2022 2021 Change 2022 2021 Change
Reported GAAP net income
attributable to Ecolab $308.3 $310.8 (1) % $480.2 $504.4 (5) %
Adjustments:
Special (gains) and charges, after
tax 2.6 34.1 66.2 58.3
Discrete tax net expense 3.7 7.7 4.7 23.8
Non-GAAP adjusted net income $314.6 $352.6 (11) % $551.1 $586.5 (6) %
attributable to Ecolab
Diluted EPS
Second Quarter Ended Six Months Ended
June 30 June 30
(dollars) 2022 2021 Change 2022 2021 Change
Reported GAAP diluted EPS $1.08 $ 1.08 - % $1.67 $ 1.75 (5) %
Adjustments:Special (gains) and charges, after tax 0.01 0.12 0.23 0.20 Discrete tax net expense 0.01 0.02 0.02 0.08 Non-GAAP adjusted diluted EPS$1.10 $ 1.22 (10) %
Per share amounts in the above tables do not necessary sum due to rounding.
Currency translation had an unfavorable impact of approximately (
SEGMENT PERFORMANCE
The non-U.S. dollar functional international amounts included within our reportable segments are based on translation intoU.S. dollars at the fixed currency exchange rates used by management for 2022. The difference between the fixed currency exchange rates and the actual currency exchange rates is reported as "effect of foreign currency translation" in the following tables. All other accounting policies of the reportable segments are consistent withU.S. GAAP and the accounting policies described in Note 2 of our Annual Report on Form 10-K for the year endedDecember 31, 2021 . Additional information about our reportable segments is included in Note 15. Fixed currency net sales and operating income for the second quarter and first six months of 2022 and 2021 for our reportable segments are shown in the following tables: Net Sales Second Quarter Ended Six Months Ended June 30 June 30 (millions) 2022 2021 Change 2022 2021 Change Global Industrial$1,704.1 $1,502.3 13 %$3,261.1 $2,887.2 13 % Global Institutional & Specialty 1,135.1 963.5 18 2,140.2 1,807.6 18 Global Healthcare & Life Sciences 400.8 292.0 37 763.4 573.1 33 Other 342.3 300.3 14 638.3 565.7 13 Corporate 33.9 34.5 (2) 68.6 67.3 2 Subtotal at fixed currency 3,616.2 3,092.6 17 6,871.6 5,900.9 16 Effect of foreign currency translation (35.6) 70.1 (24.3) 146.8 Consolidated reported GAAP net sales$3,580.6 $3,162.7 13 %$6,847.3 $6,047.7 13 % Operating Income Second Quarter Ended Six Months Ended June 30 June 30 (millions) 2022 2021 Change 2022 2021 Change Global Industrial$227.0 $251.3 (10) %$416.2 $461.1 (10) % Global Institutional & Specialty 152.6 137.7 11 263.4 199.6 32 Global Healthcare & Life Sciences 58.5 46.1 27 102.6 88.7 16 Other 52.0 50.8 2 89.2 83.1 7 Corporate (57.9) (50.9) 14 (187.5) (113.4) 65 Subtotal at fixed currency 432.2 435.0 (1) 683.9 719.1 (5) Effect of foreign currency translation (6.4) 12.8 (3.6) 26.0 Consolidated reported GAAP operating income$425.8 $447.8 (5) %$680.3 $745.1 (9) % 36
The following tables reconcile the impact of acquisitions and divestitures within our reportable segments:
Second Quarter Ended
June 30
Net Sales 2022 2021
Impact of Impact of
Acquisitions Acquisitions
Fixed and Acquisition Fixed and Acquisition
(millions) Currency Divestitures Adjusted Currency Divestitures Adjusted
Global Industrial $1,704.1 ($7.2 ) $1,696.9 $1,502.3 $- $1,502.3 Global Institutional & Specialty 1,135.1 - 1,135.1 963.5 - 963.5 Global Healthcare & Life Sciences 400.8 (110.1) 290.7
292.0 - 292.0
Other 342.3 - 342.3 300.3 - 300.3
Corporate 33.9 (33.9) - 34.5 (34.5) -
Subtotal at fixed currency 3,616.2 (151.2) 3,465.0 3,092.6 (34.5) 3,058.1
Effect of foreign currency
translation (35.6) 70.1
Total reported net sales $3,580.6 $3,162.7
Operating Income 2022 2021
Impact of Impact of
Acquisitions Acquisitions
Fixed and Acquisition Fixed and Acquisition
(millions) Currency Divestitures Adjusted Currency Divestitures Adjusted
Global Industrial $227.0 ($1.3 ) $225.7 $251.3 $- $251.3 Global Institutional & Specialty 152.6 - 152.6 137.7 - 137.7 Global Healthcare & Life Sciences 58.5 (29.9) 28.6
46.1 - 46.1
Other 52.0 - 52.0 50.8 - 50.8
Corporate (52.6) 22.7 (29.9) (29.6) - (29.6)
Non-GAAP adjusted fixed currency
operating income 437.5 (8.5) 429.0 456.3 - 456.3
Special (gains) and charges 5.3 21.3
Subtotal at fixed currency 432.2 435.0
Effect of foreign currency
translation (6.4) 12.8Total reported operating income$425.8
$447.8 Six Months Ended June 30 Net Sales 2022 2021 Impact of Impact of Acquisitions Acquisitions Fixed and Acquisition Fixed and Acquisition (millions) Currency Divestitures Adjusted Currency Divestitures Adjusted Global Industrial$3,261.1 ($13.1 )$3,248.0 $2,887.2 $-$2,887.2
Global Institutional & Specialty 2,140.2 - 2,140.2 1,807.6 - 1,807.6 Global Healthcare & Life Sciences 763.4 (212.0) 551.4
573.1 - 573.1
Other 638.3 - 638.3 565.7 - 565.7
Corporate 68.6 (68.6) - 67.3 (67.3) -
Subtotal at fixed currency 6,871.6 (293.7) 6,577.9 5,900.9 (67.3) 5,833.6
Effect of foreign currency
translation (24.3) 146.8
Total reported net sales $6,847.3 $6,047.7
Operating Income 2022 2021
Impact of Impact of
Acquisitions Acquisitions
Fixed and Acquisition Fixed and Acquisition
(millions) Currency Divestitures Adjusted Currency Divestitures Adjusted
Global Industrial $416.2 ($2.1 ) $414.1 $461.1 $- $461.1 Global Institutional & Specialty 263.4 - 263.4 199.6 - 199.6 Global Healthcare & Life Sciences 102.6 (49.5) 53.1
88.7 - 88.7
Other 89.2 - 89.2 83.1 - 83.1
Corporate (105.2) 45.6 (59.6) (59.7) - (59.7)
Non-GAAP adjusted fixed currency
operating income 766.2 (6.0) 760.2 772.8 - 772.8
Special (gains) and charges 82.3 53.7
Subtotal at fixed currency 683.9 719.1
Effect of foreign currency
translation (3.6) 26.0Total reported operating income$680.3
$745.1 37 Unless otherwise noted, the following segment performance commentary compares the second quarter and first six months of 2022 against the second quarter
and
first six months of 2021.
Global Industrial
Second Quarter Ended Six Months Ended
June 30 June 30
2022 2021 2022 2021Sales at fixed currency (millions)$1,704.1 $1,502.3 $3,261.1 $2,887.2 Sales at public currency (millions) 1,689.9 1,544.5
3,255.6 2,975.5 Volume 1 % 3 % Price changes 12 % 10 % Acquisition adjusted fixed currency sales change 13 % 12 % Acquisitions and divestitures - % - % Fixed currency sales change 13 % 13 % Foreign currency translation (4) % (3) % Public currency sales change 9 % 9 % Operating income at fixed currency (millions)$227.0 $251.3 $416.2 $461.1 Operating income at public currency (millions) 223.8 260.8 415.2 481.1 Fixed currency operating income change (10) % (10) % Fixed currency operating income margin 13.3 % 16.7 % 12.8 % 16.0 % Acquisition adjusted fixed currency operating income change (10) % (10) % Acquisition adjusted fixed currency operating income margin 13.3 % 16.7 % 12.7 % 16.0 % Public currency operating income change (14) %
(14) %
Percentages in the above table do not necessarily sum due to rounding.
Fixed currency sales for Global Industrial increased in both the second quarter and first six months of 2022, as strong double-digit growth across all divisions was driven by accelerating total pricing and new business wins. All operating segments reported double-digit growth, Water fixed currency sales increased 13% (11% acquisition adjusted) and 12% (11% acquisition adjusted) in the second quarter and first six months of 2022, respectively, reflecting accelerating total pricing and new business wins. Light industry water treatment sales reported strong growth, driven by double-digit growth across manufacturing, data centers, microelectronics, and food and beverage. Heavy industry sales also recorded a strong increase led by strong gains in power and chemicals. Mining showed very strong growth, benefitting from our strategic shift toward high-value metals and fertilizers. Food & Beverage fixed currency sales increased 13% and 12% in the second quarter and first six months of 2022, respectively, reflecting accelerating total pricing. Downstream fixed currency sales increased 10% and 13% in the second quarter and first six months of 2022, respectively, driven by accelerating total pricing and new business wins. Paper fixed currency sales increased 17% and 16% in the second quarter and first six months of 2022, respectively, driven by accelerating total pricing and new business wins.
Operating Income
Fixed currency operating income and fixed currency operating income margins decreased for Global Industrial in both the second quarter and first six months of 2022.
Acquisition adjusted fixed currency operating income margins decreased 3.4
percentage points during the second quarter of 2022, as the 8.8 percentage point
positive impacts of accelerating pricing was more than offset by the 12.2
percentage points negative impacts of significantly higher Delivered Product
Costs and unfavorable mix. Acquisition adjusted fixed currency operating income
margins decreased 3.3 percentage points during the first six months of 2022, as
the 7.8 percentage point positive impacts of strong accelerating pricing and
volume growth were more than offset by the 10.6 percentage point negative
impacts of significantly higher Delivered Product Costs.
38
Global Institutional & Specialty
Second Quarter Ended Six Months Ended
June 30 June 30
2022 2021 2022 2021Sales at fixed currency (millions)$1,135.1 $963.5 $2,140.2 $1,807.6 Sales at public currency (millions) 1,127.2 976.0
2,134.2 1,833.4 Volume 11 % 13 % Price changes 7 % 5 % Acquisition adjusted fixed currency sales change 18 % 18 % Acquisitions and divestitures - % - % Fixed currency sales change 18 % 18 % Foreign currency translation (2) % (2) % Public currency sales change 15 % 16 % Operating income at fixed currency (millions)$152.6 $137.7 $263.4 $199.6 Operating income at public currency (millions) 151.3 138.5 262.4 200.5 Fixed currency operating income change 11 % 32 % Fixed currency operating income margin 13.4 % 14.3 % 12.3 % 11.0 % Acquisition adjusted fixed currency operating income change 11 % 32 % Acquisition adjusted fixed currency operating income margin 13.4 % 14.3 % 12.3 % 11.0 % Public currency operating income change 9 %
31 %
Percentages in the above table do not necessarily sum due to rounding.
Fixed currency sales for Global Institutional & Specialty increased in the second quarter and first six months of 2022.
At an operating segment level, Institutional fixed currency sales increased 23%
and 24% in the second quarter and first six months of 2022, respectively, driven
by improved volume, accelerating total pricing and new business wins. Specialty
fixed currency sales increased 5% in both the second quarter and first six
months of 2022 driven by strong quickservice sales and modest growth in food
retail sales.
Operating Income
Fixed currency operating income increased for both the second quarter and first
six months of 2022 while fixed currency operating income margins decreased and
increased for the second quarter and first six months of 2022, respectively, for
our Global Institutional & Specialty segment.
Acquisition adjusted fixed currency operating income margins decreased 0.9
percentage points during the second quarter of 2022, as the 9.0 percentage point
positive impacts from accelerating pricing and strong volume growth were more
than offset by the 9.1 percentage point negative impacts of higher Delivered
Product Costs and investments in the business. Acquisition adjusted fixed
currency operating income margins increased 1.3 percentage points during the
first six months of 2022, as the 8.7 percentage point positive impacts from
accelerating pricing and strong volume growth overcame the 6.6 percentage point
negative impacts of higher Delivered Product Costs.
39
Second Quarter Ended Six Months Ended
June 30 June 30
2022 2021 2022 2021Sales at fixed currency (millions)$400.8 $292.0 $763.4 $573.1 Sales at public currency (millions) 390.9 301.8
753.7 594.5
Volume (6) % (8) %
Price changes 5 % 4 %
(1) % (4) %
Acquisitions and divestitures 38 % 37 %
Fixed currency sales change 37 % 33 %
Foreign currency translation (7) % (5) %
Public currency sales change 30 % 27 %
Operating income at fixed currency
(millions) $58.5 $46.1 $102.6 $88.7
Operating income at public currency
(millions) 56.8 48.0 101.0 93.0
Fixed currency operating income change 27 % 16 % Fixed currency operating income margin 14.6 % 15.8 % 13.4 % 15.5 % Acquisition adjusted fixed currency operating income change (38) % (40) % Acquisition adjusted fixed currency operating income margin 9.8 % 15.8 % 9.6 % 15.5 % Public currency operating income change 18 %
9 %
Percentages in the above table do not necessarily sum due to rounding.
Acquisition adjusted fixed currency sales forGlobal Healthcare & Life Sciences were flat as double-digit growth in Life Sciences was offset by modestly lower Healthcare sales. While Healthcare sales improved sequentially, its decline versus the prior year reflected good growth inNorth America that was more than offset by a slower recovery inEurope . At an operating segment level, Healthcare fixed currency sales decreased 1% (3% acquisition adjusted) and 3% (6% acquisition adjusted) in the second quarter and first six months of 2022, respectively, as good growth inNorth America that was more than offset by a modest sales decline inEurope . Life Sciences fixed currency sales increased 171% (10% acquisition adjusted) and 163% (6% acquisition adjusted) in the second quarter and first six months of 2022, respectively, reflecting the acquisition of Purolite. Excluding the acquisition of Purolite, the Life Sciences business growth was driven by accelerating total pricing and new business. Operating Income Fixed currency operating income increased and fixed currency operating income margins decreased for ourGlobal Healthcare & Life Sciences segment in both the second quarter and first six months of 2022. Acquisition adjusted fixed currency operating income margins decreased 6.0 percentage points during the second quarter of 2022, as the 4.2 percentage point positive impacts from accelerated pricing was more than offset by the 9.7 percentage point negative impact from higher Delivered Product Costs, lower volumes and investments in the business. Acquisition adjusted fixed currency operating income margins decreased 5.9 percentage points during the first six months of 2022, as the 3.3 percentage point positive impacts from impacts from accelerating pricing was more than offset by the 8.7 percentage point negative impact from higher Delivered Product Costs, lower volumes and investments in the business. 40 Other Second Quarter Ended Six Months Ended June 30 June 30 2022 2021 2022 2021
Sales at fixed currency (millions)$342.3 $300.3 $638.3 $565.7 Sales at public currency (millions) 338.7 305.5
635.1 576.2 Volume 8 % 8 % Price changes 6 % 5 % Acquisition adjusted fixed currency sales change 14 % 13 % Acquisitions and divestitures - % - % Fixed currency sales change 14 % 13 % Foreign currency translation (3) % (2) % Public currency sales change 11 % 10 % Operating income at fixed currency (millions)$52.0 $50.8 $89.2 $83.1 Operating income at public currency (millions) 51.6 51.7
89.1 84.6
Fixed currency operating income change 2 % 7 % Fixed currency operating income margin 15.2 % 16.9 % 14.0 % 14.7 % Acquisition adjusted fixed currency operating income change 2 % 7 % Acquisition adjusted fixed currency operating income margin 15.2 % 16.9 % 14.0 % 14.7 % Public currency operating income change 0 %
5 %
Percentages in the above table do not necessarily sum due to rounding.
Fixed currency sales for Other increased in the second quarter and first six months of 2022, led by double-digit growth in Pest Elimination, Textile Care and Colloidal Technologies At an operating segment level, Pest Elimination fixed currency sales increased 11% in both the second quarter and first six months of 2022, reflecting strong growth across food retail, hospitality, restaurants and food and beverage. Textile Care fixed currency sales increased 25% and 21% in the second quarter and first six months of 2022, respectively.Colloidal Technologies Group fixed currency sales increased 17% and 11% in the second quarter and first six months of 2022, respectively. Operating Income Fixed currency operating income increased and fixed currency operating income margins decreased for Other both in the second quarter and first six months of 2022. Acquisition adjusted fixed currency operating income margins decreased 1.7 percentage points during the second quarter of 2022, as the 4.7 percentage point positive impact from accelerating pricing was more than offset by the 5.4 percentage point negative impact of higher Delivered Product Costs and investments in the business. Acquisition adjusted fixed currency operating income margins decreased 0.7 percentage points during the first six months of 2022, as the 4.1 percentage point positive impact from accelerating pricing was more than offset by the 5.0 percentage point negative impact of higher Delivered Product Costs and investments in business.
Corporate
Consistent with our internal management reporting, Corporate amounts in the
table on page 36 include sales to ChampionX in accordance with the long-term
supply agreement entered into with the Transaction post-separation, as discussed
in Note 14, intangible asset amortization specifically from the Nalco and
Purolite acquisitions and special (gains) and charges that are not allocated to
our reportable segments. Items included within special (gains) and charges are
shown in the table on page 32.
41
FINANCIAL POSITION, CASH FLOWS AND LIQUIDITY
Financial Position
Total assets were
Total liabilities were
Our net debt to earnings before interest, taxes, depreciation and amortization ("EBITDA") is shown in the following table. EBITDA is a non-GAAP measures discussed further in the "Non-GAAP Financial Measures" section of this MD&A.
The inputs to EBITDA reflect the trailing twelve months of activity as ofJune 30 : 2022 2021 (ratio) Net debt to EBITDA 3.5 2.2 (millions) Total debt$8,786.1 $6,726.2 Cash 124.9 1,402.4 Net debt$8,661.2 $5,323.8 Net income including noncontrolling interest$1,121.3 $1,064.3 Provision for income taxes 240.2 267.7 Interest expense, net 230.0 280.5 Depreciation 611.7 605.2 Amortization 280.2 231.9 EBITDA$2,483.4 $2,449.6 Cash Flows Operating Activities Six Months Ended June 30 (millions) 2022 2021 Change
Cash provided by operating activities
We continue to generate cash flow from operations, allowing us to fund our ongoing operations, acquisitions, investments in the business and pension obligations along with returning cash to our shareholders through dividend payments and share repurchases. Cash provided by operating activities decreased$306 million in first six months of 2022 compared to the first six months of 2021, driven primarily by a$292 million increase in working capital excluding the impact of non-cash special charges. The increase in working capital is primarily driven by sales growth. 42 Investing Activities Six Months Ended June 30 (millions) 2022 2021 Change
Cash used for investing activities (
Cash used for investing activities is primarily impacted by the timing of business acquisitions and dispositions as well as capital investments in the business.
We continue to make capital investments in the business, including merchandising equipment, manufacturing equipment and facilities. Total capital expenditures were$318 million and$246 million in the first six months of 2022 and 2021, respectively. Total cash paid for acquisitions, net of cash acquired along with net cash received from dispositions, during the first six months of 2022 and 2021, was$7 million and$90 million , respectively. Our acquisitions are discussed further in Note 3. We continue to target strategic business acquisitions which complement our growth strategy and expect to continue to make capital investments and acquisitions in the future to support our long-term growth. Financing Activities Six Months Ended June 30 (millions) 2022 2021 Change
Cash used for financing activities (
Our cash flows from financing activities primarily reflect the issuances and repayment of debt, common stock repurchases, proceeds from common stock issuances related to our equity incentive programs and dividend payments.
We issued
Shares are repurchased for the purpose of partially offsetting the dilutive effect of our equity compensation plans, to manage our capital structure and to efficiently return capital to shareholders. We reacquired a total of$403 million and$71 million of shares in the first six months of 2022 and 2021, respectively. Cash proceeds and tax benefits from stock option exercises provide a portion of the funding for repurchase activity.
There was no long-term debt issuance or repayment activity through the first six months of 2022 or 2021.
We paid dividends of
The impact on financing cash flows of commercial paper and notes payable issuances are shown in the following table:
Six Months Ended
June 30
(millions) 2022 2021 Change
Net issuances of commercial paper and notes payable
Liquidity and Capital Resources
We currently expect to fund the cash requirements which are reasonably foreseeable for the next twelve months, including scheduled debt repayments, new investments in the business, share repurchases, dividend payments, possible business acquisitions and pension and postretirement contributions with cash from operating activities, and as needed, additional short-term and/or long-term borrowings. We continue to expect our operating cash flow to remain strong. As ofJune 30, 2022 , we had$125 million of cash and cash equivalents on hand, of which$92 million was held outside of theU.S. We will continue to evaluate our cash position in light of future developments. As ofJune 30, 2022 , we have a$2.0 billion multi-year credit facility which expires inApril 2026 . The credit facility has been established with a diverse syndicate of banks and supports ourU.S. and Euro commercial paper programs. The maximum aggregate amount of commercial paper that may be issued under ourU.S. commercial paper program and our Euro commercial paper program may not exceed$2.0 billion . At the end of the second quarter of 2022, we had$604 million outstanding commercial paper under ourU.S. program and no outstanding commercial paper under our Euro program. There were no borrowings under our credit facility as ofJune 30, 2022 or 2021. As ofJune 30, 2022 , both programs were rated A-2 byStandard & Poor's , P-2 by Moody's and F-1 by Fitch.
There was no long-term debt issuance or repayment activity through the first six months of 2022 or 2021.
We are in compliance with our debt covenants and other requirements of our credit agreements and indentures. We believe we have sufficient borrowing capacity to meet our foreseeable operating activities, as needed.
43
The schedule of contractual obligations included in the Financial Position and
Liquidity section of our Form 10-K for the year ended December 31, 2021
disclosed total notes payable and long-term debt due within one year of $11
million . As of June 30, 2022 , the total notes payable and long-term debt due
within one year was $14 million . There was $604 million commercial paper
outstanding as of June 30, 2022 and $400 million as of December 31, 2021 .
Our gross liability for uncertain tax positions was $22 million as of June 30,
2022 and $25 million as of December 31, 2021 . We are not able to reasonably
estimate the amount by which the liability will increase or decrease over time;
however, at this time, we do not expect significant payments related to these
obligations within the next year.
GLOBAL ECONOMIC ENVIRONMENT
Coronavirus disease 2019 (COVID-19)
InMarch 2020 , the coronavirus disease 2019 (COVID-19) was declared a pandemic by theWorld Health Organization . The COVID-19 pandemic is continuing to affect major economic and financial markets and industries are facing the challenges with the economic conditions resulting from efforts to address the pandemic, including supply shortages, inflation and other challenges, such as those resulting from the introduction of vaccination mandates. While many government restrictions in theU.S. have eased, restrictions on activities continue in many other regions, particularly those where vaccination rates lag, continuing to impact consumer activity in those regions. Concerns remain that our markets could see a resurgence of cases triggering additional government mandated lockdowns or similar restrictions on activity, for example due to the emergence of a variant against which existing vaccines are not as effective or which may be more easily transmitted, particularly to those unvaccinated. These conditions have had and will continue to have a negative impact on market conditions and customer demand throughout the world.
Global Economies
Approximately half of our sales are outside of theU.S. Our international operations subject us to changes in economic conditions and foreign currency exchange rates as well as political uncertainty in some countries which could impact future operating results. While the economic environment remains complex and unpredictable, we assume growth will continue, inflation remains higher and currency translation impacts become more challenging. With the global energy surcharge implemented, total pricing is expected to accelerate further in order to help us stay ahead of inflation.Argentina is classified as a highly inflationary economy in accordance withU.S. GAAP, and theU.S. dollar is the functional currency for our subsidiaries inArgentina . During the first six months of 2022, sales inArgentina represented less than 1% of our consolidated sales. Assets held inArgentina at the end of the second quarter of 2022 represented less than 1% of our consolidated assets.Turkey was also classified as a highly inflationary economy in accordance withU.S. GAAP. During the first six months of 2022, sales inTurkey represented less than 1% of our consolidated sales. Assets held inTurkey at the end of the second quarter of 2022 represented less than 1% of our consolidated assets. In light ofRussia's invasion ofUkraine and the sanctions againstRussia bythe United States and other countries, we have made the determination that we will limit our Russian business to operations that are essential to life, providing minimal support for our healthcare, life sciences, food and beverage and certain water businesses. We may further narrow our presence inRussia depending on future developments. Our Russian andUkraine operations represented approximately 1% of our 2021 annual sales. We recorded charges (recoveries) of($5.7) million in the second quarter of 2022 and$13.3 million in the first six months of 2022 related to recoverability risk of certain assets in bothRussia andUkraine . NEW ACCOUNTING PRONOUNCEMENTS
For information on new accounting pronouncements, refer to Note 17 to the Consolidated Financial Statements.
44
NON-GAAP FINANCIAL MEASURES
This Quarterly Report on Form 10-Q, including "Management's Discussion and Analysis of Financial Condition and Results of Operation" in Item 2, contains financial measures that have not been calculated in accordance with accounting principles generally accepted in theU.S. (GAAP). These non-GAAP measures include: ? Fixed currency sales
? Acquisition adjusted fixed currency sales
? Adjusted cost of sales ? Adjusted gross margin
? Fixed currency operating income
? Fixed currency operating income margin
? Adjusted operating income
? Adjusted operating income margin
? Adjusted fixed currency operating income
? Adjusted fixed currency operating income margin
? Acquisition adjusted fixed currency operating income
? Acquisition adjusted fixed currency operating income margin
? EBITDA ? Adjusted tax rate
? Adjusted net income attributable to Ecolab
? Adjusted diluted EPS
We provide these measures as additional information regarding our operating results. We use these non-GAAP measures internally to evaluate our performance and in making financial and operational decisions, including with respect to incentive compensation. We believe that our presentation of these measures provides investors with greater transparency with respect to our results of operations and that these measures are useful for period-to-period comparison of results. Our non-GAAP financial measures for cost of sales, gross margin and operating income exclude the impact of special (gains) and charges, and our non-GAAP measures for tax rate, net income attributable to Ecolab and diluted EPS further exclude the impact of discrete tax items. We include items within special (gains) and charges and discrete tax items that we believe can significantly affect the period-over-period assessment of operating results and not necessarily reflect costs and/or income associated with historical trends and future results. After tax special (gains) and charges are derived by applying the applicable local jurisdictional tax rate to the corresponding pre-tax special (gains) and charges. EBITDA is defined as the sum of net income including noncontrolling interest, provision for income taxes, net interest expense, depreciation and amortization. EBITDA is used in our net debt to EBITDA ratio, which we view as important indicators of the operational and financial health of our organization. We evaluate the performance of our international operations based on fixed currency rates of foreign exchange. Fixed currency amounts included in this Form 10-Q are based on translation intoU.S. dollars at the fixed foreign currency exchange rates established by management at the beginning of 2022. We also provide our segment results based on public currency rates for informational purposes.
Our reportable segments do not include the impact of intangible asset amortization from the Nalco and Purolite transactions or the impact of special (gains) and charges as these are not allocated our reportable segments.
Acquisition adjusted growth rates exclude the results of our acquired businesses from the first twelve months post acquisition, exclude the results of our divested businesses from the twelve months prior to divestiture. In addition, as part of the separation of ChampionX in 2020, we entered into aMaster Cross Supply and Product Transfer agreement with ChampionX to provide, receive or transfer certain products for a period up to 36 months. Sales of product to ChampionX under this agreement are recorded in product and equipment sales in the Corporate segment along with the related cost of sales. These transactions are removed from the consolidated results as part of the calculation of the impact of acquisitions and divestitures. These non-GAAP measures are not in accordance with, or an alternative toU.S. GAAP, and may be different from non-GAAP measures used by other companies. Investors should not rely on any single financial measure when evaluating our business. We recommend that investors view these measures in conjunction with theU.S. GAAP measures included in this MD&A and we have provided reconciliations of reportedU.S. GAAP amounts to the non-GAAP amounts. 45
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q, including "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 2, contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include the COVID-19 pandemic outlook; business performance and prospects; expectations concerning timing, amount and type of restructuring costs and savings from restructuring activities; delivered product cost inflation, pricing actions, volume growth, cost savings and productivity improvements; Russian operations; tax deductibility of goodwill; capital investments, acquisitions and share repurchases; amortization expense; non-performance of financial counterparties; payments and contributions to pension and postretirement health care benefit plans; the impact of lawsuits, claims and environmental matters; impact of new accounting pronouncements; cash flows, borrowing capacity and funding of cash requirements; payments related to uncertain tax positions; and implementation of ERP system upgrade. Without limiting the foregoing, words or phrases such as "will likely result," "are expected to," "will continue," "is anticipated," "we believe," "we expect," "estimate," "project" (including the negative or variations thereof) or similar terminology, generally identify forward-looking statements. Forward-looking statements may also represent challenging goals for us. These statements, which represent our expectations or beliefs concerning various future events, are based on current expectations that involve a number of risks and uncertainties that could cause actual results to differ materially from those of such forward-looking statements. In particular, the effects of the COVID-19 pandemic depend on numerous factors, including the severity of the disease, the duration of the outbreak, the distribution and efficacy of vaccines, the likelihood of a resurgence of the outbreak, including as result of emerging variants, actions that may be taken by governmental authorities intended to minimize the spread of the pandemic, including vaccination mandates, or to stimulate the economy, and other unintended consequences. Further, the ultimate results of any restructuring or efficiency initiative, integration and business improvement actions, including cost synergies, depend on a number of factors, including the development of final plans, the impact of local regulatory requirements regarding employee terminations, the time necessary to develop and implement the restructuring or efficiency initiative and other business improvement initiatives and the level of success achieved through such actions in improving competitiveness, efficiency and effectiveness. We caution that undue reliance should not be placed on such forward-looking statements, which speak only as of the date made. Some of the factors which could cause results to differ materially from those expressed in any forward-looking statements are set forth under Item 1A of our most recent Form 10-K, as updated by Item 1A of this Form 10-Q, and our other public filings with theSecurities and Exchange Commission (the "SEC"), and include the effects and duration of the COVID-19 pandemic, including the impact of vaccination mandates; difficulty in procuring raw materials or fluctuations in raw material costs; the vitality of the markets we serve; the impact of economic factors such as the worldwide economy, capital flows, interest rates, foreign currency risk, and reduced sales and earnings in our international operations resulting from the weakening of local currencies versus theU.S. dollar; information technology infrastructure failures or breaches in data security; our ability to attract, retain and develop high caliber management talent to lead our business and successfully execute organizational change and changing labor market dynamics in the wake of the COVID-19 pandemic; exposure to global economic, political and legal risks related to our international operations, including the impact of sanctions or other actions taken by theU.S. or other countries, and retaliatory measures taken byRussia in response, in connection with the conflict inUkraine ; public health outbreaks, epidemics or pandemics, such as the current outbreak of COVID-19; our ability to execute key business initiatives, including restructurings and our Enterprise Resource Planning system upgrades; our ability to successfully compete with respect to value, innovation and customer support; pressure on operations from consolidation of customers or vendors; restraints on pricing flexibility due to contractual obligations and our ability to meet our contractual commitments; realization of anticipated benefits of the Purolite acquisition; our ability to acquire complementary businesses and to effectively integrate such businesses; the costs and effects of complying with laws and regulations, including those relating to the environment and to the manufacture, storage, distribution, sale and use of our products, as well as to the conduct of our business generally, including labor and employment and anti-corruption; potential chemical spill or release; potential to incur significant tax liabilities or indemnification liabilities relating to the separation and split-off of our ChampionX business; the occurrence of litigation or claims, including class action lawsuits; the loss or insolvency of a major customer or distributor; repeated or prolonged government and/or business shutdowns or similar events; acts of war or terrorism; natural or man-made disasters; water shortages; severe weather conditions; changes in tax laws and unanticipated tax liabilities; potential loss of deferred tax assets; our indebtedness, and any failure to comply with covenants that apply to our indebtedness; potential losses arising from the impairment of goodwill or other assets; and other uncertainties or risks reported from time to time in our reports to theSEC . There can be no assurances that our earnings levels will meet investors' expectations. Except as may be required under applicable law, we do not undertake, and expressly disclaim, any duty to update our Forward-Looking Statements.
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