UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended ~~September 30, 2019~~March 31, 2020
	OR
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from to

	Commission File No. 1-9328

ECOLAB INC.

(Exact name of registrant as specified in its charter)


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

1 Ecolab Place, St. Paul, Minnesota 55102

(Address of principal executive offices)(Zip Code)

1-800-232-6522

(Registrant’s telephone number, including area code)

(Not applicable)

(Former name, former address and former fiscal year,

if changed since last report)

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

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common Stock, $1.00 par value

2.625% Euro Notes due 2025

1.000% Euro Notes due 2024

ECL

ECL 25

ECL 24

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ⌧ No ◻

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧ No ◻

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer ⌧		Accelerated filer ◻
Non-accelerated filer ◻		Smaller reporting company ☐
		Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ⌧

The number of shares of each of the registrant’s classes of Common Stock outstanding as of ~~September 30, 2019: 288,244,379~~March 31, 2020: 289,201,752 shares, par value $1.00 per share.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

CONSOLIDATED STATEMENT OF INCOME

(unaudited)



	Third Quarter Ended				Nine Months Ended				First Quarter Ended
	September 30				September 30				March 31
(millions, except per share amounts)	2019		2018		2019		2018		2020		2019

Product and equipment sales		$3,117.7		$3,101.4		$9,096.1		$9,021.5		$2,930.0		$2,886.3
Service and lease sales		700.2		645.8		1,986.6		1,886.2		651.4		619.1
Net sales		3,817.9		3,747.2		11,082.7		10,907.7		3,581.4		3,505.4
Product and equipment cost of sales		1,792.7		1,809.8		5,308.5		5,257.6		1,715.9		1,710.0
Service and lease cost of sales		414.7		380.9		1,196.7		1,151.5		400.9		379.6
Cost of sales (including special charges (a))		2,207.4		2,190.7		6,505.2		6,409.1		2,116.8		2,089.6
Selling, general and administrative expenses		962.5		964.7		2,973.5		3,019.8		1,015.0		1,008.3
Special (gains) and charges		60.4		75.6		150.6		113.7		52.4		40.3
Operating income		587.6		516.2		1,453.4		1,365.1		397.2		367.2
Other (income) expense		(20.8)		(21.0)		(62.9)		(60.0)		(15.2)		(21.2)
Interest expense, net (b)		46.1		55.7		145.0		168.4		48.1		49.4
Income before income taxes		562.3		481.5		1,371.3		1,256.7		364.3		339.0
Provision for income taxes		93.0		43.2		229.4		216.6		74.1		38.6
Net income including noncontrolling interest		469.3		438.3		1,141.9		1,040.1		290.2		300.4
Net income attributable to noncontrolling interest		5.1		2.9		12.6		6.1		6.8		3.9
Net income attributable to Ecolab		$464.2		$435.4		$1,129.3		$1,034.0		$283.4		$296.5

Earnings attributable to Ecolab per common share
Basic		$ 1.61		$ 1.51		$ 3.92		$ 3.58		$ 0.98		$ 1.03
Diluted		$ 1.59		$ 1.48		$ 3.86		$ 3.53		$ 0.97		$ 1.01

Weighted-average common shares outstanding
Basic		288.1		288.8		288.0		288.8		288.8		288.2
Diluted		292.8		293.4		292.5		293.1		292.6		292.3

(a)	Cost of sales includes special (gains) and charges, net of ~~$11.3~~$9.1 and $3.6 in the ~~third~~first quarter of ~~2019~~2020 and ~~2018, respectively, and $22.8 and $3.5 in the first nine months of~~ 2019, ~~and 2018,~~ respectively, which is recorded in product and equipment cost of sales.

(b)	Interest expense, net includes special charges of $0.2 million in the first ~~nine months~~quarter of 2019.

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

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(unaudited)


	Third Quarter Ended				Nine Months Ended				First Quarter Ended
	September 30				September 30				March 31
(millions)	2019		2018		2019		2018		2020		2019

Net income including noncontrolling interest		$469.3		$438.3		$1,141.9		$1,040.1		$290.2		$300.4

Other comprehensive income (loss), net of tax

Foreign currency translation adjustments
Foreign currency translation		(73.5)		(201.8)		(102.7)		(218.9)		(38.2)		105.1
Gain (loss) on net investment hedges		20.9		9.1		37.0		31.9		(1.1)		(6.6)
Total foreign currency translation adjustments		(52.6)		(192.7)		(65.7)		(187.0)		(39.3)		98.5

Derivatives and hedging instruments		(0.9)		11.0		(2.9)		26.3		2.9		(5.6)

Pension and postretirement benefits
Amortization of net actuarial loss and prior service costs included in
net periodic pension and postretirement costs		5.8		7.8		9.2		24.1		12.9		(4.0)
Postretirement benefits changes		-		-		-		14.4
Total pension and postretirement benefits		5.8		7.8		9.2		38.5		12.9		(4.0)

Subtotal		(47.7)		(173.9)		(59.4)		(122.2)		(23.5)		88.9

Total comprehensive income, including noncontrolling interest		421.6		264.4		1,082.5		917.9		266.7		389.3
Comprehensive income attributable to noncontrolling interest		5.7		1.7		15.0		5.9		7.3		4.8
Comprehensive income attributable to Ecolab		$415.9		$262.7		$1,067.5		$912.0		$259.4		$384.5

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

CONSOLIDATED BALANCE SHEET

(unaudited)

September 30

December 31

March 31

December 31

(millions, except per share amounts)

2019

2018

2020

2019

ASSETS

Current assets

Cash and cash equivalents

$135.9

$114.7

$1,661.9

$186.4

Accounts receivable, net

2,722.5

2,662.5

2,855.9

2,796.5

Inventories

1,586.7

1,546.4

1,529.7

1,505.6

Other current assets

425.0

354.1

389.6

339.9

Total current assets

4,870.1

4,677.7

6,437.1

4,828.4

Property, plant and equipment, net

3,861.5

3,836.0

3,920.7

3,954.9

Goodwill

7,220.6

7,078.0

7,231.5

7,251.7

Other intangible assets, net

3,728.3

3,797.7

3,591.9

3,672.5

Operating lease assets

570.3

558.5

577.5

Other assets

584.8

685.1

599.9

584.1

Total assets

$20,835.6

$20,074.5

$22,339.6

$20,869.1

LIABILITIES AND EQUITY

Current liabilities

Short-term debt

$779.1

$743.6

$1,038.3

$380.6

Accounts payable

1,269.4

1,255.6

1,279.5

1,284.3

Compensation and benefits

536.2

579.7

513.5

599.5

Income taxes

75.0

100.6

140.8

142.8

Other current liabilities

1,259.8

1,006.1

1,285.3

1,223.4

Total current liabilities

3,919.5

3,685.6

4,257.4

3,630.6

Long-term debt

5,966.9

6,301.6

6,744.0

5,973.5

Postretirement health care and pension benefits

793.6

944.3

1,072.0

1,088.0

Deferred income taxes

821.6

764.6

737.4

740.4

Operating lease liabilities

418.9

406.9

425.2

Other liabilities

302.7

324.8

261.3

285.6

Total liabilities

12,223.2

12,020.9

13,479.0

12,143.3

Commitments and contingencies (Note 17)

Commitments and contingencies (Note 16)

Equity (a)

Common stock

359.4

357.0

360.8

359.6

Additional paid-in capital

5,874.1

5,633.2

6,018.1

5,907.1

Retained earnings

9,699.7

8,909.5

10,136.9

9,993.7

Accumulated other comprehensive loss

(1,884.7)

(1,761.7)

(2,113.7)

(2,089.7)

Treasury stock

(5,480.8)

(5,134.8)

(5,580.0)

(5,485.4)

Total Ecolab shareholders’ equity

8,567.7

8,003.2

8,822.1

8,685.3

Noncontrolling interest

44.7

50.4

38.5

40.5

Total equity

8,612.4

8,053.6

8,860.6

8,725.8

Total liabilities and equity

$20,835.6

$20,074.5

$22,339.6

$20,869.1

(a)	Common stock, 800.0 shares authorized, $1.00 par value per share, ~~288.2~~289.2 shares outstanding at ~~September 30, 2019~~March 31, 2020 and ~~287.7~~288.4 shares outstanding at December 31, ~~2018.~~2019. Shares outstanding are net of treasury stock.

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

CONSOLIDATED STATEMENT OF CASH FLOWS

(unaudited)

Nine Months Ended

First Quarter Ended

September 30

March 31

(millions)

2019

2018

2020

2019

OPERATING ACTIVITIES

Net income including noncontrolling interest

$1,141.9

$1,040.1

$290.2

$300.4

Adjustments to reconcile net income to cash provided by operating activities:

Depreciation

488.3

461.5

169.3

159.0

Amortization

240.2

238.9

80.3

79.8

Deferred income taxes

17.8

56.6

(5.3)

(5.0)

Share-based compensation expense

73.2

75.5

29.1

32.2

Pension and postretirement plan contributions

(164.0)

(46.0)

(20.6)

(19.0)

Pension and postretirement plan expense

15.4

23.4

9.9

4.9

Restructuring charges, net of cash paid

31.2

57.4

(16.2)

16.3

Other, net

14.5

20.0

11.8

6.4

Changes in operating assets and liabilities, net of effect of acquisitions:

Accounts receivable

(75.7)

(161.3)

(76.2)

8.0

Inventories

(47.6)

(171.2)

(26.0)

(83.0)

Other assets

(142.2)

(22.9)

(48.8)

5.9

Accounts payable

11.0

52.2

(35.3)

Other liabilities

(4.3)

(173.8)

(25.7)

(92.5)

Cash provided by operating activities

1,599.7

1,450.4

371.8

378.1

INVESTING ACTIVITIES

Capital expenditures

(550.4)

(634.1)

(160.7)

(187.0)

Property and other assets sold

8.5

29.5

1.4

1.4

Acquisitions and investments in affiliates, net of cash acquired

(386.6)

(77.6)

(1.5)

(281.8)

Divestiture of businesses

6.8

9.2

Settlement of net investment hedges

14.1

Other, net

(7.5)

10.0

(4.9)

(10.0)

Cash used for investing activities

(929.2)

(648.9)

(165.7)

(477.4)

FINANCING ACTIVITIES

Net issuances of commercial paper and notes payable

149.5

115.7

957.6

487.9

Long-term debt borrowings

766.6

Long-term debt repayments

(400.6)

(301.8)

(299.7)

(400.3)

Reacquired shares

(348.6)

(321.4)

(95.0)

(131.4)

Dividends paid

(418.0)

(370.8)

(145.5)

(141.4)

Exercise of employee stock options

171.7

85.8

83.4

67.7

Acquisition related liabilities and contingent consideration

(1.5)

(10.2)

(2.5)

Acquisition of noncontrolling interests

(13.1)

Other, net

(3.7)

0.9

Cash used for financing activities

(847.5)

(819.5)

Cash provided by (used for) financing activities

1,265.8

(117.5)

Effect of exchange rate changes on cash, cash equivalents and restricted cash

18.9

10.2

3.6

1.8

Decrease in cash, cash equivalents and restricted cash

(158.1)

(7.8)

Increase (decrease) in cash, cash equivalents and restricted cash

1,475.5

(215.0)

Cash, cash equivalents and restricted cash, beginning of period (a)

294.0

211.4

186.4

294.0

Cash, cash equivalents and restricted cash, end of period (b)

$135.9

$203.6

$1,661.9

$79.0

(a)

Restricted cash was $179.3 as of December 31, 2018 and included in Other assets on the Consolidated Balance Sheet.

(b)

There was 0 restricted cash as of ~~September 30, 2019~~March 31, 2020 and ~~2018.~~2019.

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

CONSOLIDATED STATEMENT OF EQUITY

(unaudited)


	Third Quarter Ended September 30, 2019 and 2018
(millions, except shares and per share amounts)	Common Stock		Additional Paid-in Capital		Retained Earnings		OCI (Loss)		Treasury Stock		Ecolab Shareholders' Equity		Non-Controlling Interest		Total Equity		Common Stock		Additional Paid-in Capital		Retained Earnings		OCI (Loss)		Treasury Stock		Ecolab Shareholders' Equity		Non-Controlling Interest		Total Equity
Balance, June 30, 2018		$355.9		$5,545.6		$8,329.9		$(1,592.7)		$(4,789.2)		$7,849.5		$59.0		$7,908.5
Balance, December 31, 2018																		$357.0		$5,633.2		$8,909.5		$(1,761.7)		$(5,134.8)		$8,003.2		$50.4		$8,053.6

New accounting guidance adoption (a)																						58.4		(61.2)				(2.8)				(2.8)
Net income						435.4						435.4		2.9		438.3						296.5						296.5		3.9		300.4
Other comprehensive income (loss) activity								(172.7)				(172.7)		(1.2)		(173.9)								88.0				88.0		0.9		88.9
Cash dividends declared (a)						(118.4)						(118.4)		(0.1)		(118.5)
Changes in noncontrolling interests				(7.7)								(7.7)		(7.0)		(14.7)
Cash dividends declared (b)																						(132.6)						(132.6)		(9.0)		(141.6)
Stock options and awards		0.6		48.1						0.2		48.9				48.9		1.2		97.8						0.8		99.8				99.8
Reacquired shares										(105.6)		(105.6)				(105.6)										(131.4)		(131.4)				(131.4)
Balance, September 30, 2018		$356.5		$5,586.0		$8,646.9		$(1,765.4)		$(4,894.6)		$7,929.4		$53.6		$7,983.0
Balance, March 31, 2019																		$358.2		$5,731.0		$9,131.8		$(1,734.9)		$(5,265.4)		$8,220.7		$46.2		$8,266.9

Balance, June 30, 2019		$358.9		$5,815.7		$9,368.0		$(1,836.4)		$(5,480.8)		$8,225.4		$44.0		$8,269.4

Net income						464.2						464.2		5.1		469.3
Other comprehensive income (loss) activity								(48.3)				(48.3)		0.6		(47.7)
Cash dividends declared (a)						(132.5)						(132.5)		(5.0)		(137.5)
Stock options and awards		0.5		58.4						1.2		60.1				60.1
Reacquired shares										(1.2)		(1.2)				(1.2)
Balance, September 30, 2019		$359.4		$5,874.1		$9,699.7		$(1,884.7)		$(5,480.8)		$8,567.7		$44.7		$8,612.4


	Nine Months Ended September 30, 2019 and 2018
(millions, except shares and per share amounts)	Common Stock		Additional Paid-in Capital		Retained Earnings		OCI (Loss)		Treasury Stock		Ecolab Shareholders' Equity		Non-Controlling Interest		Total Equity
Balance, December 31, 2017		$354.7		$5,435.7		$8,011.6		$(1,643.4)		$(4,575.0)		$7,583.6		$70.2		$7,653.8

New accounting guidance adoption (b)						(43.6)						(43.6)				(43.6)
Net income						1,034.0						1,034.0		6.1		1,040.1
Other comprehensive income (loss) activity								(122.0)				(122.0)		(0.2)		(122.2)
Cash dividends declared (a)						(355.1)						(355.1)		(15.4)		(370.5)
Changes in noncontrolling interests				(7.7)								(7.7)		(7.1)		(14.8)
Stock options and awards		1.8		158.0						1.8		161.6				161.6
Reacquired shares										(321.4)		(321.4)				(321.4)
Balance, September 30, 2018		$356.5		$5,586.0		$8,646.9		$(1,765.4)		$(4,894.6)		$7,929.4		$53.6		$7,983.0

Balance, December 31, 2018		$357.0		$5,633.2		$8,909.5		$(1,761.7)		$(5,134.8)		$8,003.2		$50.4		$8,053.6
Balance, December 31, 2019																		$359.6		$5,907.1		$9,993.7		$(2,089.7)		$(5,485.4)		$8,685.3		$40.5		$8,725.8

New accounting guidance adoption (c)						58.4		(61.2)				(2.8)				(2.8)						(4.3)						(4.3)				(4.3)
Net income						1,129.3						1,129.3		12.6		1,141.9						283.4						283.4		6.8		290.2
Other comprehensive income (loss) activity								(61.8)				(61.8)		2.4		(59.4)								(24.0)				(24.0)		0.5		(23.5)
Cash dividends declared (a)						(397.5)						(397.5)		(20.7)		(418.2)
Cash dividends declared (b)																						(135.9)						(135.9)		(10.0)		(145.9)
Changes in noncontrolling interests																														0.7		0.7
Stock options and awards		2.4		240.9						2.6		245.9				245.9		1.2		111.0						0.4		112.6				112.6
Reacquired shares										(348.6)		(348.6)				(348.6)										(95.0)		(95.0)				(95.0)
Balance, September 30, 2019		$359.4		$5,874.1		$9,699.7		$(1,884.7)		$(5,480.8)		$8,567.7		$44.7		$8,612.4
Balance, March 31, 2020																		$360.8		$6,018.1		$10,136.9		$(2,113.7)		$(5,580.0)		$8,822.1		$38.5		$8,860.6

(a)

~~Dividends declared per common share were $0.46 and $0.41 in the third quarter of 2019 and 2018, respectively and $1.38 and $1.23 in the first nine months of 2019 and 2018, respectively.~~

~~(b)~~

Upon adoption of ASU 2016-16, Intra-Entity Transfers of Assets Other than Inventory, the Company recorded an adjustment to retained earnings representing the write-off of income tax effects that had been deferred from past transactions and the recording of deferred tax assets which previously were not allowed to be recognized.

~~(c)~~

Upon adoption of ASU 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, the Company reclassified stranded tax effects resulting from the Tax Cut and Jobs Act from accumulated other comprehensive income to retained earnings. Also, upon adoption of ASU 2016-02, Leases (Topic 842), the Company has established right-of-use assets and lease liabilities for operating leases and the cumulative effect of applying the standard is recognized in retained earnings at the beginning of the period adopted.

(b)

Dividends declared per common share were $0.47 and $0.46 in the first quarter of 2020 and 2019, respectively.

(c)

Upon adoption of ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, the Company reclassified the cumulative effect of applying the standard to retained earnings at the beginning of the period adopted.

~~See~~Refer to Note 1817 for additional information regarding adoption of new accounting guidance.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. CONSOLIDATED FINANCIAL INFORMATION

The unaudited consolidated financial information for the ~~third~~first quarter ended March 31, 2020 and ~~nine months ended September 30,~~ 2019 ~~and 2018~~ reflects, in the opinion of management, all adjustments necessary for a fair statement of the financial position, results of operations, comprehensive income (loss), equity and cash flows of Ecolab Inc. ("Ecolab" or "the Company") for the interim periods presented. Any adjustments consist of normal recurring items.

The financial results for any interim period are not necessarily indicative of results for the full year. The consolidated balance sheet data as of December 31, ~~2018~~2019 was derived from the audited consolidated financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America. The unaudited consolidated financial information should be read in conjunction with the consolidated financial statements and notes thereto incorporated in the Company's Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

Sales, cost of sales and selling, general and administrative expenses in the selected consolidated income statement information includes immaterial revisions to amounts previously reported in the Company’s quarterly ~~reports~~report on Form 10-Q for ~~each of~~ the first ~~three quarters~~quarter of ~~2018.~~2019. The ~~revisions~~revision had no impact on previously reported total net sales or operating income. Except for the changes due to ~~the~~ adoption of the new accounting standards, the Company has consistently applied the accounting policies to all periods presented in these consolidated financial statements.

With respect to the unaudited financial information of the Company for the ~~third~~first quarter ended March 31, 2020 and ~~nine months ended September 30,~~ 2019 ~~and 2018~~ included in this Form 10-Q, PricewaterhouseCoopers LLP reported that they have applied limited procedures in accordance with professional standards for a review of such information. Their separate report dated ~~October 31, 2019~~May 7, 2020 appearing herein states that they did not audit and they do not express an opinion on that unaudited financial information. Accordingly, the degree of reliance on their report on such information should be restricted in light of the limited nature of the review procedures applied. PricewaterhouseCoopers LLP is not subject to the liability provisions of Section 11 of the Securities Act of 1933, as amended (the "Act"), for their report on the unaudited financial information because that report is not a "report" or a "part" of a registration statement prepared or certified by PricewaterhouseCoopers LLP within the meaning of Sections 7 and 11 of the Act.

ChampionX Separation

On December 18, 2019, the Company entered into definitive agreements with ChampionX Holding Inc. (ChampionX), a wholly owned subsidiary of the Company formed for the purpose of holding the Upstream Energy ~~Spin-off~~business, and Apergy Corporation (Apergy) pursuant to which the Company will separate the Upstream Energy business and combine it with Apergy in a tax-efficient Reverse Morris Trust transaction.

The transaction will occur in a multi-step process pursuant to which, prior to the merger between ChampionX and Apergy, the Company will transfer certain assets, liabilities and entities to ChampionX and its subsidiaries. In exchange, the Company will receive shares of ChampionX common stock and a cash payment, and all shares of ChampionX common stock will be distributed to Ecolab stockholders in an exchange offer. Under the terms of the exchange offer, Ecolab stockholders have the option to exchange all, some or none of their shares of Ecolab common stock for shares of ChampionX common stock. If the exchange offer is fully subscribed and at the conclusion of this exchange, the shares of ChampionX common stock will immediately be converted into shares of Apergy common stock as part of the Merger. All shares of Ecolab common stock that will be tendered and accepted in the exchange will be retired and reduce the number of shares of common stock outstanding.

As a result of and immediately following the Transactions, ChampionX stockholders will own, in the aggregate, approximately 62% of the issued and outstanding Apergy common stock on a fully diluted basis and Apergy stock and equity holders will own, in the aggregate, approximately 38% of the issued and outstanding Apergy common stock on a fully diluted basis (127 million shares). Ecolab stockholders that do not participate in this Exchange Offer will retain the shares of Ecolab common stock that they held prior to the Merger.

In connection with the transaction, ChampionX will enter into a credit agreement with respect to an estimated $537 million senior secured term loan credit facility to finance the one-time special cash payment to Ecolab and will otherwise pay certain expenses in connection with the transaction. The Company intends to use the proceeds to repay debt, pay dividends, repurchase its stock, or a combination thereof.

Ecolab ~~intends to pursue, subject to~~will account for this transaction as a sale and will recognize a gain or loss based on the ~~receipt~~excess or deficit of ~~approval by Ecolab’s Board~~consideration received over the carrying value of ~~Directors~~ChampionX. Consideration received includes a one-time special cash payment (net of cash included on the opening ChampionX balance sheet) from ChampionX and ~~any regulatory approvals, a plan to separate and spin-off~~ the Upstream business of Ecolab’s Global Energy segment (the Upstream Business) through a series of tax-efficient transactions (collectively, the Spin-off). Under the plan, if effectuated, Ecolab’s shareholders would own 100%fair value of the shares of Ecolab common stock tendered and retired as part of the exchange. The cash consideration Ecolab will receive of $0.5 billion is less than the carrying value of ChampionX of about $3.7 billion. As a ~~new corporation that owns~~result, the ~~Upstream Business. The Spin-off is expected to~~gain or loss calculated by subtracting the remaining book value of ChampionX from the non-cash share consideration will be ~~completed in 2020 and is intended to qualify as~~ a ~~tax-free distribution to Ecolab shareholders for U.S. federal income tax purposes.~~

non-cash gain or loss.

The fair value of the Ecolab common stock tendered in the exchange less stock-based equity is based on the 62% (approximately 122.6 million shares) of the outstanding stock of Apergy multiplied by the value of the volume-weighted average Apergy share price of the last three full trading days ending on the expiration date of the exchange offer. As of March 31, 2020 the price of Apergy’s stock was $5.75 and during the quarter ended March 31, 2020 the average price was $21.00. Utilizing the $5.75 and the $21.00 Apergy stock prices to calculate the fair value of the non-cash Ecolab common stock consideration yields a non-cash loss of ($2.5 billion) and ($0.8 billion), respectively.

Completion of the transaction is subject to the satisfaction or waiver of customary closing conditions, including approval by Apergy’s stockholders, approval by certain foreign regulatory authorities and receipt of opinions with respect to the tax-free nature of the transaction. ChampionX continues to be classified as held for use as of March 31, 2020.

2. SPECIAL (GAINS) AND CHARGES

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



	Third Quarter Ended				Nine Months Ended				First Quarter Ended
	September 30				September 30				March 31
(millions)	2019		2018		2019		2018		2020		2019
Cost of sales
Restructuring activities		$6.2		$5.9		$16.2		$6.3		3.0		3.4
Acquisition and integration activities		5.1		(0.1)		6.6		(0.6)		0.4		0.2
Other		-		(2.2)		-		(2.2)		5.7		-
Subtotal		11.3		3.6		22.8		3.5
Cost of sales subtotal										9.1		3.6

Special (gains) and charges
Restructuring activities		25.0		73.1		93.0		82.3		4.3		37.1
Upstream energy spin-off		29.7		-		48.5		-
ChampionX separation										36.6		4.3
Acquisition and integration activities		2.0		2.4		4.9		4.7		5.4		2.5
Other		3.7		0.1		4.2		26.7		6.1		(3.6)
Subtotal		60.4		75.6		150.6		113.7
Special (gains) and charges subtotal										52.4		40.3

Operating income subtotal		71.7		79.2		173.4		117.2		61.5		43.9

Interest expense, net		-		-		0.2		-		-		0.2
Total special (gains) and charges		$71.7		$79.2		$173.6		$117.2		$61.5		$44.1

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

Restructuring activities

Restructuring activities are primarily related to Accelerate 2020 (described below). Restructuring activities have been included as a component of both cost of sales and special (gains) and charges on the Consolidated Statement of Income. Restructuring liabilities have been classified as a component of other current and other noncurrent liabilities on the Consolidated Balance Sheet.

Accelerate 2020

During the third quarter of 2018, the Company formally commenced a restructuring plan Accelerate 2020 (“the Plan”), to leverage technology and system investments and organizational changes. During the first quarter of 2019, the Company raised its goals for the Plan to simplify and automate processes and tasks, reduce complexity and management layers, consolidate facilities and focus on key long-term growth areas by further leveraging technology and structural improvements. The Company expects that the restructuring activities will be completed by the end of 2020, with total anticipated costs of $260 million ($~~190~~200 million after tax) over this period of time. The costs are expected to be primarily cash expenditures for severance costs and some facility closure costs relating to team reorganizations. Actual costs may vary from these estimates depending on actions taken.

The Company recorded restructuring charges of ~~$28.8~~$6.4 million ($~~19.7 million after tax) and $106.8 million ($79.2~~5.4 million after tax) in the ~~third~~first quarter ~~and first nine months~~ of ~~2019, respectively,~~2020, primarily related to severance. The liability related to the Plan was ~~$97.7~~$87.2 million as of the end of the ~~third quarter.~~first quarter of 2020. The Company has recorded ~~$211.4~~$247.6 million ($~~158.8~~189.4 million after tax) of cumulative restructuring charges under the Plan.

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



	Employee								Employee
	Termination		Asset						Termination		Asset
(millions)	Costs		Disposals		Other		Total		Costs		Disposals		Other		Total
2018 Activity
2018 - 2019 Activity
Recorded expense	$	94.1	$	5.0	$	5.5	$	104.6		216.1		5.2		19.9		241.2
Net cash payments		(32.8)		-		(2.4)		(35.2)		(112.6)		1.2		(16.4)		(127.8)
Non-cash charges		-		(5.0)		-		(5.0)		-		(6.4)		(2.0)		(8.4)
Effect of foreign currency translation		(0.5)		-		-		(0.5)		(1.0)		-		-		(1.0)
Restructuring liability, December 31, 2018		60.8		-		3.1		63.9
Restructuring liability, December 31, 2019										102.5		-		1.5		104.0

2019 Activity
2020 Activity
Recorded expense		93.7		0.1		13.0		106.8		4.3		-		2.1		6.4
Net cash payments		(61.6)		0.4		(10.8)		(72.0)		(22.1)		-		(1.1)		(23.2)
Non-cash charges		-		(0.5)		-		(0.5)		-		-		-		-
Effect of foreign currency translation		(0.5)		-		-		(0.5)		-		-		-		-
Restructuring liability, September 30, 2019	$	92.4	$	-	$	5.3	$	97.7
Restructuring liability, March 31, 2020										$84.7		$-		$2.5		$87.2

Other Restructuring Activities

During ~~third~~the first quarter of ~~2019,~~2020, the Company incurred restructuring charges of ~~$2.7~~$0.9 million ($~~2.2~~0.7 million after tax) related to an immaterial restructuring plan. The charges are ~~comprised of facility closure costs, including asset disposals and consulting fees.~~

primarily related to severance. Prior to 2018, the Company engaged in a number of restructuring plans. During ~~both~~ the ~~third quarter~~first quarters of 2020 and ~~first nine months of~~ 2019, net restructuring ~~gains~~charges related to prior year plans were $0.3 million ($0.2 million after tax). During the third quarter and first nine months of 2018, net restructuring gains related to the prior year plans were $0.4 million ($0.3 million after tax) and $0.9 million ($0.6 million after tax), respectively. The gains recorded were due to finalizing estimates upon completion of projects.minimal. The restructuring liability balance for all plans ~~commencing prior to 2018~~other than Accelerate 2020 was ~~$9.6~~$7.4 million and ~~$14.9~~$7.7 million as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively. The reduction in liability was driven primarily by severance ~~and lease~~ payments. 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 ~~2019~~2020 related to all other restructuring plans ~~commencing prior to 2018~~excluding Accelerate 2020 were ~~$4.8~~$0.4 million.

~~Upstream Energy spin-off~~ChampionX Separation

On December 18, 2019, the Company entered into definitive agreements with ChampionX and Apergy pursuant to which the Company will separate the Upstream Energy business and combine it with Apergy in a tax-efficient Reverse Morris Trust transaction. During the first quarter of 2020 and 2019, the ~~Company announced its intention to pursue a plan to separate and spin-off the Upstream business of Ecolab’s Global Energy segment (the Upstream Business). The~~ charges associated with the ~~spin-off~~separation reported in special (gains) and charges on the Consolidated Statement of Income include ~~$29.7~~$36.6 million ($~~24.0~~31.8 million after tax) and ~~$48.5~~$4.3 million ($~~39.7~~3.3 million after tax) ~~in the third quarter and first nine months of 2019,~~, respectively, which are primarily related to professional ~~fees.~~fees to support the separation.

Acquisition and integration related costs

Acquisition and integration costs reported in special (gains) and charges on the Consolidated Statement of Income include ~~$2.0 million ($1.5 million after tax) and $4.9~~$5.4 million ($3.6 million after tax) and $2.5 million ($1.8 million after tax) in the ~~third~~first quarter of 2020 and ~~first nine months of~~ 2019, respectively. Charges are related to the Bioquell, PLC (“Bioquell”) and the Laboratoires Anios (“Anios”) acquisitions and consist of integration costs, advisory and legal fees. Acquisition and integration costs reported in product and equipment cost of sales of ~~$5.1~~$0.4 million ($~~3.8~~0.3 million after tax) and ~~$6.6~~$0.2 million ($~~4.9~~0.1 million after tax) on the Consolidated Statement of Income in the ~~third~~first quarter of 2020 and ~~first nine months of~~ 2019, respectively, ~~relate~~related to ~~the recognition of fair value step-up in the Bioquell inventory and~~ severance related to the closure of a facility. The Company also incurred $0.2 million ($0.1 million after tax) of interest expense in the first ~~nine months~~quarter of 2019.

Acquisition and integration costs reported in special (gains) and charges on the Consolidated Statement of Income include $2.4 million ($1.6 million after tax) and $4.7 million ($3.3 million after tax) in the third quarter and first nine months of 2018, respectively. Charges are related to Anios integration costs, advisory and legal fees. Gains reported in product and equipment cost of sales of $0.1 million ($0.1 million after tax) and $0.6 million ($0.5 million after tax) on the Consolidated Statement of Income in the third quarter and first nine months of 2018, respectively, relate to changes in estimates related to an early lease exit.

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

Other

During the ~~third~~first quarter ~~and first nine months~~ of ~~2019,~~2020, the Company recorded ~~other~~ special charges of ~~$3.7~~$5.7 million ($~~2.7~~3.8 million after tax) ~~and $4.2 million ($1.5 million gain after tax), respectively, which primarily related to legal charges partially offset by a litigation settlement.~~

During the third quarter and first nine months of 2018, the Company recorded other special charges of $0.1 million and $26.7 million, respectively. The charges recorded in the first nine months of 2018 primarily consisted of a $25.0 million ($18.9 million after tax) commitment to the Ecolab Foundation in response to the new U.S. tax law. Other charges were minimal in both the third quarter and first nine months of 2018. Other special gains reported in product and equipment cost of sales on the Consolidated Statement of Income related to a Healthcare product recall in Europe. Other special charges of $6.1 million ($4.6 million after tax) recorded in the ~~third~~first quarter of ~~2018~~2020 relate primarily to legal charges and are recorded in special (gains) and charges on the Consolidated Statement of ~~$2.2~~Income.

During the first quarter of 2019, the Company recorded other special gains in special (gains) and charges on the Consolidated Statement of Income, of $3.6 million ($~~1.7~~4.3 million ~~net of~~after tax) which primarily related to ~~changes in estimates for an inventory LIFO reserve.~~a litigation settlement which was offset with other legal charges.

3. ACQUISITIONS AND DISPOSITIONS

Acquisitions

The Company makes business acquisitions that align with its strategic business objectives. The assets and liabilities of the acquired businesses ~~have been~~are recorded as of the acquisition date, at their respective fair values, and are included in the Consolidated Balance Sheet. The purchase price allocation is based on estimates of the fair value of assets acquired and liabilities assumed. The aggregate purchase price of acquisitions ~~has been~~are reduced for any cash or cash equivalents acquired with the acquisition. Acquisitions during the first nine months of 2019 and 2018 were not significant to the Company’s consolidated financial statements; therefore, pro forma financial information is not presented.acquired.

~~2019 Activity~~During the first quarter of 2020, the Company reached an agreement to purchase CID Lines, a leading global provider of livestock biosecurity and hygiene solutions. The acquisition is expected to close in the second quarter of 2020 and is subject to various regulatory clearances. The Company did not close on any other business acquisitions during the first quarter of 2020.

During the first quarter of 2019, the Company acquired Bioquell, a life sciences business which sells bio-decontamination products and services to the Life Sciences and Healthcare industries. ~~This business became part~~During the first quarter of 2020, Bioquell was moved into the Global ~~Industrial~~Healthcare and Life Sciences reportable ~~segment.~~segment as a result of changes to the Company’s reporting structure. During 2018, the Company deposited $179.3 million (£140.5 million) in an escrow account that was released to the Company upon closing of the transaction in February 2019. ~~As shown within Note 4, this was recorded as restricted cash within other assets on the Consolidated Balance Sheet as of December 31, 2018.~~

Also, during the first quarter of 2019, the Company acquired Lobster Ink, a leading provider of end-to-end online customer training solutions. This acquired business became part of the Global Institutional reportable segment. The purchase price included an earn-out based on the achievement of certain revenue thresholds in any of the ~~full~~ three years following the acquisition. The acquisition date fair value of the earn-out was reflected in the overall purchase consideration exchanged for ~~the acquisition~~Lobster Ink and recorded as contingent ~~consideration.~~consideration liability as part of the Company’s purchase accounting. The earn-out has not yet been paid or settled and the contingent consideration liability is recorded within other liabilities as of ~~September 30, 2019.~~March 31, 2020 at its current fair value.

~~During~~Acquisitions during the ~~third~~first quarter of 2019 were not significant to the Company acquired Chemstar Corporation, a leading provider of cleaning and sanitizing products for the retail industry with a focus on cleaning chemicals and food safety. This acquired business became part of the Global Institutional reportable segment.Company’s consolidated financial statements; therefore, pro forma financial information is not presented.

These acquisitions have been accounted for using the acquisition method of accounting. The purchase accounting ~~which requires, among other things, that assets acquired~~for both Bioquell and ~~liabilities assumed be recognized at fair value as~~Lobster Ink were finalized in the first quarter of the acquisition date. Certain estimated values, primarily working capital adjustments, are not yet finalized and are subject to change. Annualized sales for the businesses acquired in 2019 are $105 million. There were2020 with insignificant purchase price adjustments ~~related to prior year acquisitions.~~

~~2018 Activity~~

~~During~~recognized in the first ~~nine months~~quarter of 2018, the Company acquired a water business which provides a range of services to Nalco Water institutional customers. This acquired business became part of the Company’s Global Industrial reportable segment. In addition, the Company acquired an institutional business which provides a range of cleaning and disinfection products for the hospitality, leisure, residential care, housekeeping and janitorial sectors. These acquisitions have been accounted for using the acquisition method of accounting. There were insignificant purchase price adjustments related to prior year acquisitions.2020.

The components of the cash paid for acquisitions for transactions during the ~~third~~first quarter of 2020 and ~~first nine months of~~ 2019 ~~and 2018~~ are shown in the following table.


	Third Quarter Ended				Nine Months Ended				First Quarter Ended
	September 30				September 30				March 31
(millions)	2019		2018		2019		2018		2020		2019
Net tangible assets (liabilities) acquired and equity method investments		$8.0		$(0.5)		$(1.4)		$1.9		$-		$(14.6)

Identifiable intangible assets
Customer relationships		37.0		-		108.9		40.8		-		70.4
Trademarks		3.0		-		23.4		1.1		-		20.4
Other technology		3.0		-		48.9		4.0		-		45.8
Total intangible assets		43.0		-		181.2		45.9		-		136.6

Goodwill		49.0		-		229.5		30.4		-		180.3
Total aggregate purchase price		100.0		(0.5)		409.3		78.2		-		302.3

Acquisition related liabilities and contingent consideration		(2.2)		-		(22.7)		(0.6)
Net cash paid for acquisitions, including acquisition related
liabilities and contingent consideration		$97.8		$(0.5)		$386.6		$77.6
Acquisition-related liabilities and contingent considerations										-		(20.5)
Net cash paid for acquisitions, including acquisition-related
liabilities and contingent considerations										$-		$281.8

~~The 2019 and 2018 acquisition related liabilities are related to~~During the first quarter of 2020, the Company made $2.5 million of acquisition-related payments associated with prior transactions that primarily consist of the payment of holdback liabilities and contingent consideration.

The weighted average useful life of ~~these~~ identifiable intangible assets acquired in the first quarter of 2019 was 12 ~~and 11 years as of September 30, 2019 and 2018, respectively.~~years.

Dispositions

There were no significant business dispositions during the first ~~nine months~~quarter of ~~2019 and 2018.~~2020 or 2019.

4. BALANCE SHEET INFORMATION



	March 31		December 31
(millions)	2020		2019
Accounts receivable, net
Accounts receivable		$2,931.8		$2,858.5
Allowance for doubtful accounts		(75.9)		(62.0)
Total		$2,855.9		$2,796.5

Inventories
Finished goods		$976.3		$936.5
Raw materials and parts		543.2		559.8
Inventories at FIFO cost		1,519.5		1,496.3
FIFO cost to LIFO cost difference		10.2		9.3
Total		$1,529.7		$1,505.6

Other current assets
Prepaid assets		$148.9		$118.8
Taxes receivable		150.2		133.7
Derivative assets		57.1		54.3
Other		33.4		33.1
Total		$389.6		$339.9

Property, plant and equipment, net
Land		$213.8		$215.1
Buildings and leasehold improvements		1,365.5		1,363.1
Machinery and equipment		2,487.5		2,467.8
Merchandising and customer equipment		2,807.1		2,787.8
Capitalized software		816.3		779.7
Construction in progress		379.5		406.7
		8,069.7		8,020.2
Accumulated depreciation		(4,149.0)		(4,065.3)
Total		$3,920.7		$3,954.9

Other intangible assets, net
Intangible assets not subject to amortization
Trade names		$1,230.0		$1,230.0
Intangible assets subject to amortization
Customer relationships		3,735.8		3,742.1
Trademarks		409.8		409.9
Patents		478.3		479.4
Other technology		291.4		297.2
		4,915.3		4,928.6
Accumulated amortization
Customer relationships		(1,893.7)		(1,835.9)
Trademarks		(211.8)		(205.1)
Patents		(231.3)		(231.6)
Other technology		(216.6)		(213.5)
		(2,553.4)		(2,486.1)
Net intangible assets subject to amortization		2,361.9		2,442.5
Total		$3,591.9		$3,672.5

Other assets
Deferred income taxes		$153.9		$155.6
Pension		33.7		31.1
Derivative asset		43.1		25.4
Other		369.2		372.0
Total		$599.9		$584.1



	March 31		December 31
(millions)	2020		2019
Other current liabilities
Discounts and rebates		$339.1		$331.4
Dividends payable		135.9		135.6
Interest payable		69.4		40.9
Taxes payable, other than income		128.5		113.4
Derivative liabilities		5.1		5.8
Restructuring		91.0		107.1
Contract liability		88.3		84.7
Operating lease liabilities		152.5		153.2
Other		275.5		251.3
Total		$1,285.3		$1,223.4

Accumulated other comprehensive loss
Unrealized gain (loss) on derivative financial instruments, net of tax		$(1.2)		$(4.1)
Unrecognized pension and postretirement benefit expense, net of tax		(810.9)		(823.8)
Cumulative translation, net of tax		(1,301.6)		(1,261.8)
Total		$(2,113.7)		$(2,089.7)

5. DEBT AND INTEREST

Short-term Debt

The following table provides the components of the Company’s short-term debt obligations as of March 31, 2020 and December 31, 2019.



	March 31		December 31
(millions)	2020		2019
Short-term debt
Commercial paper		$1,000.9		$55.1
Notes payable		36.2		24.6
Long-term debt, current maturities		1.2		300.9
Total		$1,038.3		$380.6

Line of Credit

As of March 31, 2020, the Company had a $2.0 billion multi-year credit facility which expires in November 2022. The credit facility has been established with a diverse syndicate of banks and supports the Company’s U.S. and Euro commercial paper programs. There were 0 borrowings under the Company’s credit facility as of either March 31, 2020 or December 31, 2019.

Commercial Paper

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

As of March 31, 2020, the Company had $297.5 million (€270.0 million) of commercial paper outstanding under its Euro program and $703.4 million outstanding under its U.S. program. As of December 31, 2019, the Company had $55.1 million (€50.0 million) of commercial paper outstanding under its Euro program.

Notes Payable

The Company’s notes payable consists of uncommitted credit lines with major international banks and financial institutions, primarily to support global cash pooling structures. As of March 31, 2020 and December 31, 2019, the Company had $36.2 million and $24.6 million, respectively, outstanding under these credit lines.

Long-term Debt

The following table provides the components of the Company’s long-term debt obligations, including current maturities, as of March 31, 2020 and December 31, 2019.



	Maturity	March 31		December 31
(millions)	by Year	2020		2019

Long-term debt
Public notes (2020 principal amount)
Five year 2015 senior notes ($300 million)	2020		$-		$300.0
Ten year 2011 senior notes ($1.02 billion)	2021		1,018.6		1,018.3
Five year 2017 senior notes ($500 million)	2022		498.0		497.8
Seven year 2016 senior notes ($400 million)	2023		398.6		398.5
Seven year 2016 senior notes (€575 million)	2024		629.4		628.4
Ten year 2015 senior notes (€575 million)	2025		630.8		630.0
Ten year 2016 senior notes ($750 million)	2026		744.7		744.5
Ten year 2017 senior notes ($500 million)	2027		495.6		495.4
Ten year 2020 senior notes ($750 million)	2030		766.6		-
Thirty year 2011 senior notes ($458 million)	2041		452.0		451.9
Thirty year 2016 senior notes ($250 million)	2046		246.3		246.2
Thirty year 2017 senior notes ($700 million)	2047		610.7		610.4
Private notes (2020 principal amount)
Series B private placement senior notes ($250 million)	2023		249.6		249.6
Finance lease obligations and other			4.3		3.4
Total debt			6,745.2		6,274.4
Long-term debt, current maturities			(1.2)		(300.9)
Total long-term debt			$6,744.0		$5,973.5

Public Notes

In March 2020, the Company issued $750 million aggregate principal ten year fixed rate notes with a coupon rate of 4.80%, with an effective interest rate of 4.58%. The proceeds will be used to repay a portion of the Company’s outstanding commercial paper and for general corporate purposes.

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

Private Notes

The Company’s private notes may be redeemed by the Company at its option at redemption prices that include accrued and unpaid interest and a make-whole premium. Upon the occurrence of specified changes of control involving the Company, the Company would be required to offer to repurchase the private notes at a price equal to 100% of the aggregate principal amount thereof, plus any accrued and unpaid interest to the date of repurchase. Additionally, the Company would be required to make a similar offer to repurchase the private notes upon the occurrence of specified merger events or asset sales involving the Company, when accompanied by a downgrade of the private notes below investment grade rating, within a specified time period. The private notes are unsecured senior obligations of the Company and rank equal in right of payment with all other senior indebtedness of the Company. The private notes shall be unconditionally guaranteed by subsidiaries of the Company in certain circumstances, as described in the note purchase agreement as amended.

Covenants

The Company is in compliance with its debt covenants as of March 31, 2020.

Net Interest Expense

Interest expense and interest income recognized during the first quarter of 2020 and 2019 were as follows:


	First Quarter Ended
	March 31
(millions)	2020		2019
Interest expense		$52.7		$56.1
Interest income		(4.6)		(6.7)
Interest expense, net		$48.1		$49.4

~~Subsequent Events~~Short-term Debt

~~In October 2019,~~The following table provides the ~~United Kingdom’s Competition and Markets Authority (CMA) announced the results of its review~~components of the Company’s ~~acquisition~~short-term debt obligations as of ~~Holchem Group Limited (“Holchem”), a UK based cleaning products business acquired in the fourth quarter~~March 31, 2020 and December 31, 2019.



	March 31		December 31
(millions)	2020		2019
Short-term debt
Commercial paper		$1,000.9		$55.1
Notes payable		36.2		24.6
Long-term debt, current maturities		1.2		300.9
Total		$1,038.3		$380.6

Line of ~~2018, that requires~~Credit

As of March 31, 2020, the Company ~~to divest Holchem.~~had a $2.0 billion multi-year credit facility which expires in November 2022. The ~~Company disagrees~~credit facility has been established with a diverse syndicate of banks and supports the ~~decision~~Company’s U.S. and ~~continues to believe~~Euro commercial paper programs. There were 0 borrowings under the ~~UK market will remain highly competitive following the acquisition. The Company is reviewing the full report in detail and is considering options and next steps, including an appeal~~Company’s credit facility as of ~~the decision.~~ either March 31, 2020 or December 31, 2019.

Commercial Paper

Notes Payable

1112

~~4. BALANCE SHEET INFORMATION~~Long-term Debt

September 30

December 31
(millions)

2019

2018
Accounts receivable, net

Accounts receivable

$2,783.2

$2,723.1

Allowance for doubtful accounts

(60.7)

(60.6)

Total

$2,722.5

$2,662.5

Inventories

Finished goods

$1,003.6

$1,016.9

Raw materials and parts

580.9

525.6

Inventories at FIFO cost

1,584.5

1,542.5

FIFO cost to LIFO cost difference

2.2

3.9

Total

$1,586.7

$1,546.4

Other current assets

Prepaid assets

$149.9

$132.1

Taxes receivable

154.9

144.2

Derivative assets

95.3

42.8

Other

24.9

35.0

Total

$425.0

$354.1

Property, plant and equipment, net

Land

$215.1

$214.5

Buildings and leasehold improvements

1,336.1

1,279.4

Machinery and equipment

2,416.7

2,313.7

Merchandising and customer equipment

2,727.3

2,565.5

Capitalized software

763.0

666.2

Construction in progress

345.3

400.2

7,803.5

7,439.5

Accumulated depreciation

(3,942.0)

(3,603.5)

Total

$3,861.5

$3,836.0

Other intangible assets, net

Intangible assets not subject to amortization

Trade names

$1,230.0

$1,230.0

Intangible assets subject to amortization

Customer relationships

3,720.5

3,649.3

Trademarks

408.0

384.9

Patents

477.4

470.2

Other technology

291.3

242.8

4,897.2

4,747.2

Accumulated amortization

Customer relationships

(1,769.5)

(1,604.0)

Trademarks

(197.1)

(175.2)

Patents

(225.7)

(207.3)

Other technology

(206.6)

(193.0)

(2,398.9)

(2,179.5)

Net intangible assets subject to amortization

2,498.3

2,567.7

Total

$3,728.3

$3,797.7

Other assets

Deferred income taxes

$109.8

$105.1

Pension

44.5

39.0

Derivative asset

54.8

11.8

Restricted cash

-

179.3

Other

375.7

349.9

Total

$584.8

$685.1

The following table provides the components of the Company’s long-term debt obligations, including current maturities, as of March 31, 2020 and December 31, 2019.



	Maturity	March 31		December 31
(millions)	by Year	2020		2019

Long-term debt
Public notes (2020 principal amount)
Five year 2015 senior notes ($300 million)	2020		$-		$300.0
Ten year 2011 senior notes ($1.02 billion)	2021		1,018.6		1,018.3
Five year 2017 senior notes ($500 million)	2022		498.0		497.8
Seven year 2016 senior notes ($400 million)	2023		398.6		398.5
Seven year 2016 senior notes (€575 million)	2024		629.4		628.4
Ten year 2015 senior notes (€575 million)	2025		630.8		630.0
Ten year 2016 senior notes ($750 million)	2026		744.7		744.5
Ten year 2017 senior notes ($500 million)	2027		495.6		495.4
Ten year 2020 senior notes ($750 million)	2030		766.6		-
Thirty year 2011 senior notes ($458 million)	2041		452.0		451.9
Thirty year 2016 senior notes ($250 million)	2046		246.3		246.2
Thirty year 2017 senior notes ($700 million)	2047		610.7		610.4
Private notes (2020 principal amount)
Series B private placement senior notes ($250 million)	2023		249.6		249.6
Finance lease obligations and other			4.3		3.4
Total debt			6,745.2		6,274.4
Long-term debt, current maturities			(1.2)		(300.9)
Total long-term debt			$6,744.0		$5,973.5

Public Notes

Private Notes

Covenants

The Company is in compliance with its debt covenants as of March 31, 2020.

1213

September 30

December 31
(millions)

2019

2018
Other current liabilities

Discounts and rebates

$332.8

$291.3

Dividends payable

132.6

132.4

Interest payable

65.4

44.5

Taxes payable, other than income

106.4

116.9

Derivative liabilities

48.6

20.1

Restructuring

107.0

73.7

Contract liability

83.6

75.8

Operating lease liabilities

151.7

-

Other

231.7

251.4

Total

$1,259.8

$1,006.1

Accumulated other comprehensive loss

Unrealized gain (loss) on derivative financial instruments, net of tax

$(3.6)

$2.0

Unrecognized pension and postretirement benefit expense, net of tax

(568.2)

(518.9)

Cumulative translation, net of tax

(1,312.9)

(1,244.8)

Total

$(1,884.7)

$(1,761.7)

Net Interest Expense

Interest expense and interest income recognized during the first quarter of 2020 and 2019 were as follows:


	First Quarter Ended
	March 31
(millions)	2020		2019
Interest expense		$52.7		$56.1
Interest income		(4.6)		(6.7)
Interest expense, net		$48.1		$49.4

~~5. DEBT AND INTEREST~~

Short-term Debt

The following table provides the components of the Company’s short-term debt obligations as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018.~~2019.

September 30

December 31

March 31

December 31

(millions)

2019

2018

2020

2019

Short-term debt

Commercial paper

$459.3

$165.4

$1,000.9

$55.1

Notes payable

19.1

176.8

36.2

24.6

Long-term debt, current maturities

300.7

401.4

1.2

300.9

Total

$779.1

$743.6

$1,038.3

$380.6

Line of Credit

As of ~~September 30, 2019,~~March 31, 2020, the Company had a $2.0 billion multi-year credit facility which expires in November 2022. The credit facility has been established with a diverse syndicate of banks and supports the Company’s U.S. and Euro commercial paper programs. There were 0 borrowings under the Company’s credit facility as of either ~~September 30, 2019~~March 31, 2020 or December 31, ~~2018.~~2019.

Commercial Paper

As of ~~September 30, 2019,~~March 31, 2020, the Company had ~~$384.4~~$297.5 million (€~~357.5~~270.0 million) of commercial paper outstanding under its Euro program and ~~$75.0~~$703.4 million outstanding under its U.S. program. As of December 31, ~~2018,~~2019, the Company had ~~$141.4~~$55.1 million (€~~125.0~~50.0 million) of commercial paper outstanding under its Euro ~~program and $24.0 million outstanding under its U.S.~~ program.

Notes Payable

The Company’s notes payable consists of uncommitted credit lines with major international banks and financial institutions, primarily to support global cash pooling structures. As of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, the Company had ~~$19.1~~$36.2 million and ~~$176.8~~$24.6 million, respectively, outstanding under these credit lines.

1312

Long-term Debt

The following table provides the components of the Company’s long-term debt obligations, including current maturities, as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018.~~2019.




	Maturity	September 30		December 31		Maturity	March 31		December 31
(millions)	by Year	2019		2018		by Year	2020		2019

Long-term debt
Public notes (2019 principal amount)
Three year 2016 senior notes ($400 million)	2019		$-		$399.7
Public notes (2020 principal amount)
Five year 2015 senior notes ($300 million)	2020		299.9		299.5	2020		$-		$300.0
Ten year 2011 senior notes ($1.02 billion)	2021		1,018.1		1,017.6	2021		1,018.6		1,018.3
Five year 2017 senior notes ($500 million)	2022		497.6		496.9	2022		498.0		497.8
Seven year 2016 senior notes ($400 million)	2023		398.4		398.0	2023		398.6		398.5
Seven year 2016 senior notes (€575 million)	2024		626.0		644.1	2024		629.4		628.4
Ten year 2015 senior notes (€575 million)	2025		627.7		646.3	2025		630.8		630.0
Ten year 2016 senior notes ($750 million)	2026		744.3		743.8	2026		744.7		744.5
Ten year 2017 senior notes ($500 million)	2027		495.3		494.8	2027		495.6		495.4
Ten year 2020 senior notes ($750 million)						2030		766.6		-
Thirty year 2011 senior notes ($458 million)	2041		451.8		451.6	2041		452.0		451.9
Thirty year 2016 senior notes ($250 million)	2046		246.2		246.1	2046		246.3		246.2
Thirty year 2017 senior notes ($700 million)	2047		610.0		609.0	2047		610.7		610.4
Private notes (2019 principal amount)
Private notes (2020 principal amount)
Series B private placement senior notes ($250 million)	2023		249.5		249.4	2023		249.6		249.6
Finance lease obligations and other			2.8		6.2			4.3		3.4
Total debt			6,267.6		6,703.0			6,745.2		6,274.4
Long-term debt, current maturities			(300.7)		(401.4)			(1.2)		(300.9)
Total long-term debt			$5,966.9		$6,301.6			$6,744.0		$5,973.5

Public Notes

Private Notes

Covenants

The Company is in compliance with its debt covenants as of ~~September 30, 2019.~~March 31, 2020.

Net Interest Expense

Interest expense and interest income recognized during the ~~third~~first quarter of 2020 and ~~first nine months of~~ 2019 ~~and 2018~~ were as follows:

Third Quarter Ended

Nine Months Ended

First Quarter Ended

September 30

March 31

(millions)

2019

2018

2019

2018

2020

2019

Interest expense

$53.0

$58.3

$164.1

$179.5

$52.7

$56.1

Interest income

(6.9)

(2.6)

(19.1)

(11.1)

(4.6)

(6.7)

Interest expense, net

$46.1

$55.7

$145.0

$168.4

$48.1

$49.4

Subsequent Events

In April 2020, the Company executed a $500 million 364-day revolving credit agreement to be used for general corporate purposes with a diverse syndicate of banks. In addition, the Company executed a $305 million term credit agreement that expires on June 15, 2020.

6. GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

Goodwill represents the excess of the purchase price over the fair value of identifiable net assets acquired in a business combination. The Company’s reporting units are its operating segments.

~~During~~ The Company assesses goodwill for impairment on an annual basis during the second quarter of 2019, the Company completed its annual assessment for goodwill impairment across its 11 reporting units through a quantitative analysis, utilizing a discounted cash flow approach, which incorporates assumptions regarding future growth rates, terminal values, and discount rates. The two-step quantitative process involved comparing the estimated fair value of each reporting unit to the reporting unit’s carrying value, including goodwill. If the fair value of a reporting unit exceeds its carrying value, goodwill of the reporting unit is considered not to be impaired, and the second step of the impairment test is unnecessary. If the carrying amount of the reporting unit exceeds its fair value, the second step of the goodwill impairment test would be performed to measure the amount of impairment loss to be recorded, if any. The Company’s goodwill impairment assessment for 2019 indicated the estimated fair value of each of its reporting units exceeded its carrying amount by a significant margin.

quarter. If circumstances change significantly, the Company would ~~also test~~complete an interim goodwill assessment of a reporting unit’s goodwill ~~for impairment during interim periods between~~prior to its next annual ~~tests. There has been 0 impairment of goodwill in any of the years presented.~~assessment.

During the first quarter of 2020, oil prices decreased significantly due to decreased demand following the coronavirus outbreak and falling prices stemming from a lack of consensus among OPEC member nations on production reductions and oil producing nations’ response to reduced prices. The culmination of these events has created instability in the oil and gas industry and resulted in sharp declines in the stock prices of most industry participants. In addition, the uncertainty related to oil demand continues to have a significant impact on the investment and operating plans of Upstream Energy customers. As a result, the Company performed an interim goodwill impairment assessment for the Upstream Energy reporting unit as of March 31, 2020.

The Company used the discounted cash flow method to determine the fair value of the Upstream Energy reporting unit. Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions, estimates, and market factors. Included in the estimated fair value of the Upstream Energy reporting unit are assumptions and estimates regarding Upstream Energy’s future projections, as well as industry projections. These assumptions and estimates include estimated future growth rates, the discount rate, the terminal growth rate, and other market factors. Development of these assumption included significant observable market information and considered current market conditions as of March 31, 2020.

Based on the analysis performed, the Company concluded that the fair value of the Upstream Energy reporting unit exceeded the carrying value by more than 30%. If current expectations of future sales growth and margins are not met, if market factors outside the Company’s control result in changes to valuation assumption, most notably the discount rate, or if management’s expectations or plans otherwise change, then the Upstream Energy reporting unit may become impaired in the future. Recognizing the volatility of current markets, the Company completed various sensitivities. An increase in the discount rate of 1.0 percentage point, holding all other assumptions constant, would continue to result in a fair value that exceeds the carrying value. Similarly, a decrease in Upstream Energy’s projected terminal growth rate by 1.0 percentage point would also result in a fair value that exceeds the carrying value, when holding all other assumption constant. The Company also considered the implied value of the Upstream Energy reporting unit based on the ChampionX separation transaction (refer to Note 1 for more information). In each of these scenarios, the fair value of the Upstream Energy reporting unit would be above its carrying amount as of March 31, 2020 and the Upstream Energy reporting unit’s goodwill would not be impaired.

The changes in the carrying amount of goodwill for each of the Company's reportable segments during the ~~nine months~~first quarter ended ~~September 30, 2019~~March 31, 2020 were as follows:

Global

Healthcare and

Upstream

Global

(millions)

Industrial

Institutional

Energy

Other

Total

Industrial

Institutional

Life Sciences

Energy

Other

Total

December 31, 2018

$2,730.8

$1,015.3

$3,126.6

$205.3

$7,078.0

Current year business combinations (a)

92.9

136.0

0.7

229.6

December 31, 2019

$2,799.2

$1,147.7

$3,100.5

$204.3

$7,251.7

Segment changes (a)

1,124.6

(599.4)

859.3

1,682.6

(3,100.5)

33.4

December 31, 2019 revised

3,923.8

548.3

859.3

1,682.6

237.7

7,251.7

Prior year business combinations (b)

(0.1)

Dispositions

(3.2)

Effect of foreign currency translation

(33.6)

(13.7)

(37.2)

(2.4)

(86.9)

(10.2)

(0.6)

(1.8)

(3.9)

(0.4)

(16.9)

September 30, 2019

$2,790.0

$1,137.6

$3,089.4

$203.6

$7,220.6

March 31, 2020

$3,913.6

$547.7

$857.4

$1,675.5

$237.3

$7,231.5

(a)

~~Represents goodwill associated with~~Relates to reclassifications made to reportable segments in the current ~~year acquisitions. The Company expects $49.4 million~~year. In anticipation of the ~~goodwill related~~Upstream separation, the Company created the Upstream Energy and Downstream operating segment, which are also reporting units, from the Global Energy operating segment, which was also a reporting unit. Goodwill was allocated to ~~businesses acquired~~each reporting unit based on a relative fair value allocation. The Downstream operating segment has been aggregated into the Global Industrial reportable segment, while the Upstream Energy operating segment is a separate reportable segment. In addition, the Company established the Global Healthcare and Life Sciences reportable segment. The Global Healthcare and Life Sciences reportable segment is comprised of the Healthcare and Life Sciences operating segments, which were previously included in the Global Institutional and Global Industrial reportable segment, respectively. These were and continue to be ~~tax deductible.~~reporting units therefore no goodwill allocation was performed. Refer to Note 15 for further information.

(b)	Represents the purchase price allocation adjustments for acquisitions deemed preliminary as of the end of the prior year.

Other Intangible Assets

The Nalco trade name is the Company’s principal indefinite life intangible ~~asset. During~~asset, which is tested for impairment on an annual basis during the second quarter. Based on the ongoing performance of the Company’s reporting units associated with the trade name, an interim impairment assessment during the first quarter of 2019, the Company completed its annual test for indefinite life intangible asset impairment using a relief from royalty method of assessment, which incorporates assumptions regarding future sales projections, royalty rate and discount rates. Based on this testing, the estimated fair value of the asset exceeded its carrying value by a significant margin; therefore, no adjustment to the $1.2 billion carrying value of this asset2020 was not deemed necessary. There has been 0 impairment of the Nalco trade name intangible since it was acquired.

The Company’s intangible assets subject to amortization primarily include customer relationships, trademarks, patents and other technology. The fair value of identifiable intangible assets is estimated based upon discounted future cash flow projections and other acceptable valuation methods. Other intangible assets are amortized on a straight-line basis over their estimated economic lives. Total amortization expense related to other intangible assets during the ~~third~~first quarter of 2020 and 2019 ~~and 2018~~ was ~~$79.7~~$80.3 million and ~~$78.6 million, respectively. Total amortization expense related to other intangible assets during the first nine months of 2019 and 2018 was $240.2 million and $238.9~~$79.8 million, respectively. Estimated amortization for the remaining ~~three month~~nine-month period of ~~2019~~2020 related to other amortizable intangible assets is expected to be approximately ~~$81~~$240 million.

7. FAIR VALUE MEASUREMENTS

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

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

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

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

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

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

September 30, 2019

(millions)

Carrying

Fair Value Measurements


Amount

Level 1

Level 2

Level 3

Assets

Foreign currency forward contracts

$165.8

$-

$165.8

$-

Liabilities

Foreign currency forward contracts

64.3

-

64.3

-


	December 31, 2018								March 31, 2020
(millions)	Carrying		Fair Value Measurements						Carrying		Fair Value Measurements
	Amount		Level 1		Level 2		Level 3		Amount		Level 1		Level 2		Level 3
Assets
Foreign currency forward contracts		$72.3		$-		$72.3		$-		$117.2		$-		$117.2		$-

Liabilities
Foreign currency forward contracts		41.1		-		41.1		-		22.1		-		22.1		-
Interest rate swap agreements		0.2		-		0.2		-

									December 31, 2019
(millions)									Carrying		Fair Value Measurements
									Amount		Level 1		Level 2		Level 3
Assets
Foreign currency forward contracts										$83.9		$-		$83.9		$-

Liabilities
Foreign currency forward contracts										10.0		-		10.0		-

The carrying value of foreign currency forward contracts is at fair value, which is determined based on foreign currency exchange rates as of the balance sheet date and is classified within Level 2. The carrying value of interest rate swap contracts is at fair value, which is determined based on current interest rates and forward interest rates as of the balance sheet date and is classified within Level 2. For purposes of fair value disclosure above, derivative values are presented gross. See further discussion of gross versus net presentation of the Company's derivatives within Note 8.

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

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

The fair value of long-term debt is based on quoted market prices for the same or similar debt instruments (classified as Level 2). The carrying amount and the estimated fair value of long-term debt, including current maturities, held by the Company were:

September 30, 2019

December 31, 2018

March 31, 2020

December 31, 2019

Carrying

Fair

Carrying

Fair

Carrying

Fair

Carrying

Fair

Amount

Value

Amount

Value

Amount

Value

Amount

Value

Long-term debt, including current maturities

$6,267.6

$6,914.4

$6,703.0

$6,844.7

$6,745.2

$7,142.0

$6,274.4

$6,862.0

8. DERIVATIVES AND HEDGING TRANSACTIONS

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

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

Derivative Positions Summary

Certain of the Company’s derivative transactions are subject to master netting arrangements that allow the Company to net settle contracts with the same counterparties. These arrangements generally do not call for collateral and as of the applicable dates presented in the following table, 0 cash collateral had been received or pledged related to the underlying derivatives.

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

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

(millions)

Derivatives Assets

Derivatives Liabilities

Derivatives Assets

Derivatives Liabilities

September 30

December 31

September 30

December 31

March 31

December 31

March 31

December 31

(millions)

2019

2018

2019

2018

2020

2019

2020

2019

Derivatives designated as hedging instruments

Foreign currency forward contracts

$94.1

$40.4

$2.5

$10.2

$75.8

$67.4

$1.4

$2.1

Interest rate swap agreements

0.2

Derivatives not designated as hedging instruments

Foreign currency forward contracts

71.7

31.9

61.8

30.9

41.4

16.5

20.7

7.9

Gross value of derivatives

165.8

72.3

64.3

41.3

117.2

83.9

22.1

10.0

Gross amounts offset in the Consolidated Balance Sheet

(15.7)

(17.7)

(15.7)

(17.7)

(17.0)

(4.2)

(17.0)

(4.2)

Net value of derivatives

$150.1

$54.6

$48.6

$23.6

$100.2

$79.7

$5.1

$5.8

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

Notional Values

September 30

December 31

March 31

December 31

(millions)

2019

2018

2020

2019

Foreign currency forward contracts

$ 5,865

$ 6,226

$ 5,697

$ 4,004

Interest rate agreements

400

Cash Flow Hedges

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

The Company occasionally enters into treasury lock and forward starting interest rate swap agreements to manage interest rate exposure. During 2015 and 2016, the Company entered into and subsequently closed a series of treasury lock and forward starting interest rate swap agreements, in conjunction with its public debt issuances. The agreements were designated and effective as cash flow hedges of the expected interest payments related to the anticipated future debt issuances. Amounts recorded in AOCI are recognized as part of interest expense over the remaining life of the notes as the forecasted interest transactions occur.

Fair Value Hedges

The Company manages interest expense using a mix of fixed and floating rate debt. To help manage exposure to interest rate movements and to reduce borrowing costs, the Company may enter into interest rate swaps under which the Company agrees to exchange, at specified intervals, the difference between fixed and floating interest amounts calculated by reference to an agreed upon notional principal amount. The mark-to-market of these fair value hedges is recorded as gains or losses in interest expense and is offset by the gain or loss of the underlying debt instrument, which also is recorded in interest expense. These fair value hedges are highly effective.

In January 2016, the Company entered into an interest rate swap agreement that converted its $400 million 2.00% debt from a fixed interest rate to a floating interest rate. ~~In January 2015, the Company entered into interest rate swap agreements that converted its $300 million 1.55% debt and its $250 million 3.69% debt from fixed interest rates to floating interest rates.~~ The interest rate swap ~~agreements~~agreement tied to the Company’s ~~$300 million 1.55% debt, $250 million 3.69% and~~ $400 million 2.00% debt expired in January ~~2018, November 2018 and January~~ 2019, ~~respectively,~~ upon repayment of the underlying debt. The interest rate swap was designated as a fair value hedge.

~~The interest rate swaps referenced above were designated as fair value hedges.~~

~~The following amounts were recorded on the Consolidated Balance Sheet related to cumulative basis adjustments for fair value hedges:~~

Line item in which the hedged item is included

Carrying amount of the hedged liabilities

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

Third Quarter Ended

Third Quarter Ended

September 30

September 30

(millions)

2019

2018

2019

2018

Long-term debt

$-

$647.8

$-

$1.6

Net Investment Hedges

The Company designates its outstanding ~~$1,254~~$1,260 million (€1,150 million at the end of the ~~third~~first quarter of ~~2019)~~2020) senior notes (“euronotes”) and related accrued interest as hedges of existing foreign currency exposures related to investments the Company has in certain euro denominated functional currency subsidiaries. ~~$329~~$221 million (€~~300~~200 million at the end of the ~~third~~first quarter of ~~2019)~~2020) of Euro commercial paper were also designated as a hedge of existing foreign currency exposures. The revaluation gains and losses on the euronotes and Euro commercial paper, which are designated and effective as hedges of the Company’s net investments, have been included as a component of the cumulative translation adjustment account, and were as follows:

Third Quarter Ended

Nine Months Ended

First Quarter Ended

September 30

March 31

(millions)

2019

2018

2019

2018

2020

2019

Revaluation gains (losses), net of tax

$20.8

$9.1

$37.0

$31.9

$(1.1)

$(6.6)

Derivatives Not Designated as Hedging Instruments

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

Effect of all Derivative Instruments on Income

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



	Third Quarter Ended								First Quarter Ended
	September 30								March 31
	2019				2018				2020				2019
(millions)		COS	SG&A	Interest		COS	SG&A	Interest		COS	SG&A	Interest		COS	SG&A	Interest
Gain (loss) on derivatives in cash flow hedging relationship:
Foreign currency forward contracts
Amount of gain (loss) reclassified from AOCI to income		$3.9	$2.8	$-		$(2.0)	$12.4	$-		$2.2	$(1.1)	$-		$4.4	$(7.1)	$-
Amount excluded from the assessment of effectiveness recognized in earnings based on changes in fair value		-	-	(5.9)		-	-	10.4		-	-	5.4		-	-	7.0
Interest rate swap agreements
Amount of gain (loss) reclassified from AOCI to income		-	-	(0.2)		-	-	(1.3)		-	-	(0.2)		-	-	(0.2)

Gain (loss) on derivatives in fair value hedging relationship:
Interest rate swaps
Hedged items		-	-	-		-	-	(2.0)		-	-	-		-	-	0.2
Derivatives designated as hedging instruments		-	-	-		-	-	2.0		-	-	-		-	-	(0.2)

Gain (loss) on derivatives not designated as hedging instruments:
Foreign currency forward contracts
Amount of gain (loss) recognized in income		-	11.2	-		-	7.1	0.8		-	17.2	1.2		-	6.1	-
Total gain (loss)		$3.9	$14.0	$(6.1)		$(2.0)	$19.5	$9.9
Total gain (loss) of all derivative instruments										$2.2	$16.1	$6.4		$4.4	$(1.0)	$6.8

	Nine Months Ended
	September 30
	2019				2018
(millions)		COS	SG&A	Interest		COS	SG&A	Interest
Gain (loss) on derivatives in cash flow hedging relationship:
Foreign currency forward contracts
Amount of gain (loss) reclassified from AOCI to income		$13.0	$22.3	$-		$(8.7)	$39.3	$-
Amount excluded from the assessment of effectiveness recognized in earnings based on changes in fair value		-	-	8.4		-	-	27.2
Interest rate swap agreements
Amount of gain (loss) reclassified from AOCI to income		-	-	(0.7)		-	-	(4.7)

Gain (loss) on derivatives in fair value hedging relationship:
Interest rate swaps
Hedged items		-	-	0.2		-	-	(2.3)
Derivatives designated as hedging instruments		-	-	(0.2)		-	-	2.3

Gain (loss) on derivatives not designated as hedging instruments:
Foreign currency forward contracts
Amount of gain (loss) recognized in income		-	25.2	-		-	5.0	4.5
Total gain (loss)		$13.0	$47.5	$7.7		$(8.7)	$44.3	$27.0

9. OTHER COMPREHENSIVE INCOME (LOSS) INFORMATION

Other comprehensive income (loss) includes net income, foreign currency translation adjustments, unrecognized gains and losses on securities, defined benefit pension and postretirement plan adjustments, gains and losses on derivative instruments designated and effective as cash flow hedges and non-derivative instruments designated and effective as foreign currency net investment hedges that are charged or credited to the accumulated other comprehensive loss account in shareholders’ equity.

The following tables provide other comprehensive income information related to the Company’s derivatives and hedging instruments and pension and postretirement benefits. ~~See~~Refer to Note 8 for additional information related to the Company’s derivatives and hedging transactions. Refer to Note 1413 for additional information related to the Company’s pension and postretirement benefits activity.


	Third Quarter Ended				Nine Months Ended				First Quarter Ended
	September 30				September 30				March 31
(millions)	2019		2018		2019		2018		2020		2019
Derivative and Hedging Instruments
Unrealized gains (losses) on derivative & hedging instruments
Amount recognized in AOCI		$0.1		$32.9		$40.2		$85.6		$9.8		$(2.9)
(Gains) losses reclassified from AOCI into income
COS		(3.9)		2.0		(13.0)		8.7		(2.2)		(4.4)
SG&A		(2.8)		(12.4)		(22.3)		(39.3)		1.1		7.1
Interest (income) expense, net		6.1		(9.1)		(7.7)		(22.5)		(5.2)		(6.8)
		(0.6)		(19.5)		(43.0)		(53.1)		(6.3)		(4.1)
Other activity		(0.3)		0.1		(0.4)		-
Tax impact		(0.1)		(2.5)		0.3		(6.2)		(0.6)		1.4
Net of tax		$(0.9)		$11.0		$(2.9)		$26.3		$2.9		$(5.6)

Pension and Postretirement Benefits
Amount recognized in AOCI
Current period net actuarial income (loss) and prior service costs
Amount reclassified from AOCI into income
Amortization of net actuarial loss and prior service costs and benefits		-		6.0		0.2		21.4		14.8		-
Pension and postretirement benefits changes		-		-		-		18.9
		-		6.0		0.2		40.3		14.8		-
Other activity		6.0		3.3		9.3		7.9		1.7		(4.0)
Tax impact		(0.2)		(1.5)		(0.3)		(9.7)		(3.6)		-
Net of tax		$5.8		$7.8		$9.2		$38.5		$12.9		$(4.0)

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

Third Quarter Ended

Nine Months Ended

First Quarter Ended

September 30

March 31

2019

2018

2019

2018

2020

2019

(millions)

Derivative (gains) losses reclassified from AOCI into income, net of tax

$(0.5)

$(16.0)

$(32.5)

$(42.3)

$(4.8)

$(3.0)

Pension and postretirement benefits net actuarial losses

and prior services costs reclassified from AOCI into income, net of tax

5.8

4.5

9.2

16.2

12.9

(4.0)

10. SHAREHOLDERS’ EQUITY

Share Repurchase Authorization

In February 2015, the Company’s Board of Directors authorized the repurchase of up to 20 million shares of its common stock, including shares to be repurchased under Rule 10b5–1. As of ~~September 30, 2019, 6,820,810~~March 31, 2020, 6,432,246 shares remained to be repurchased under the Company’s repurchase authorization. The Company intends to repurchase all shares under its authorization, for which no expiration date has been established, in open market or privately negotiated transactions, subject to market conditions.

Share Repurchases

During the first ~~nine months~~quarter of ~~2019,~~2020, the Company reacquired ~~1,959,148~~497,260 shares of its common stock, of which ~~1,830,584~~372,764 related to share repurchases through open market or private purchases, and ~~128,564~~124,496 related to shares withheld for taxes on the exercise of stock options and the vesting of stock awards and units.

During all of ~~2018,~~2019, the Company reacquired ~~3,908,041~~1,986,241 shares of its common stock, of which ~~3,706,716~~1,846,384 related to share repurchases through open market or private purchases, and ~~201,325~~139,857 related to shares withheld for taxes on the exercise of stock options and the vesting of stock awards and units.

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

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

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



	Third Quarter Ended				Nine Months Ended				First Quarter Ended
	September 30				September 30				March 31
(millions, except per share)	2019		2018		2019		2018		2020		2019

Net income attributable to Ecolab		$464.2		$435.4		$1,129.3		$1,034.0		$283.4		$296.5

Weighted-average common shares outstanding
Basic		288.1		288.8		288.0		288.8		288.8		288.2
Effect of dilutive stock options and units		4.7		4.6		4.5		4.3		3.8		4.1
Diluted		292.8		293.4		292.5		293.1		292.6		292.3

Basic EPS		$ 1.61		$ 1.51		$ 3.92		$ 3.58		$ 0.98		$ 1.03
Diluted EPS		$ 1.59		$ 1.48		$ 3.86		$ 3.53		$ 0.97		$ 1.01

Anti-dilutive securities excluded from the computation of diluted EPS		-		1.4		-		1.4		1.1		1.4

Amounts do not necessarily sum due to rounding.

12. INCOME TAXES

The Company’s tax rate was ~~16.5%~~20.3% and ~~9.0% for the third quarter of 2019 and 2018, respectively, and 16.7% and 17.2%~~11.4% for the first ~~nine months~~quarter of ~~2019~~2020 and ~~2018,~~2019, respectively. The change in the Company’s tax rate for the ~~third~~first quarter ~~and first nine months~~ of ~~2019~~2020 compared to the ~~third~~first quarter ~~and first nine months~~ of ~~2018~~2019 was driven primarily by the impact of discrete tax items and special (gains) and ~~charges, and tax planning.~~charges.

The Company recognized net tax benefits related to discrete tax items of ~~$16.5 million and $43.2~~$2.3 million in the ~~third~~first quarter ~~and first nine months~~ of ~~2019, respectively.~~2020. Share-based compensation excess tax benefit contributed ~~$8.2 million and $40.0~~$23.4 million in the ~~third~~first quarter ~~and first nine months~~ of ~~2019, respectively.~~2020. The Company also recognized tax expense related to friction costs associated with ChampionX separation activity of $18.8 million. Additionally, the Company recognized expense of $5.8 million related to foreign and U.S. changes in estimates. The remaining discrete benefit of ~~$4.3~~$3.5 million ~~and $3.1~~was due to reserves released during the quarter.

The Company recognized total net benefit related to discrete tax items of $27.7 million in the ~~third~~first quarter ~~and first nine months~~ of ~~2019, respectively,~~2019. Share-based compensation excess tax benefit contributed $18.7 million. The Company also recognized a $5.1 million benefit due to ~~finalization~~issuance of ~~certain estimates due~~technical guidance during the quarter related to ~~the 2018 U.S. federal tax return, for~~ the one-time transition tax imposed by the Tax Cuts and Jobs Act (the “Act”). ~~Additionally, the Company recognized benefit of $3.6 million related to foreign audit settlements and related reserve releases during the quarter.~~ The remaining discrete benefit was primarily ~~due~~related to changes in ~~estimates~~tax rates in non-U.S. ~~jurisdictions and from the 2018 U.S. federal tax return.~~jurisdictions.

The Company recorded a net discrete tax benefit of $47.2 million and $35.2 million in the third quarter and first nine months of 2018, respectively. In the third quarter of 2018, the Company filed U.S federal tax returns which resulted in favorable adjustments of $39.9 million related to changes in estimates and an IRS approved method change. The Company recorded discrete tax expense of $4.8 million and $34.2 million in the third quarter and first nine months of 2018, respectively, for the one-time transition tax due to issuance of technical guidance during the respective quarters. Discrete tax items include excess tax benefits related to share-based compensation of $10.7 million and $23.5 million during the third quarter and first nine months of 2018, respectively. The remaining discrete tax benefits related to changes in reserves in non-U.S. jurisdictions and international changes in estimates that were recorded in the third quarter and first nine months of 2018.

13. ~~RENTAL AND LEASES~~

~~Lessee~~

The Company leases sales and administrative office facilities, distribution centers, research and manufacturing facilities, as well as vehicles and other equipment under operating leases. The Company also enters into insignificant finance leases.

The Company determines whether a lease exists at the inception of the arrangement. In assessing whether a contract is or contains a lease, the Company considers a lease a contract that conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The Company accounts for lease components separately from the nonlease components (e.g., common-area maintenance costs). Operating leases are recorded in operating lease assets, other current liabilities and operating lease liabilities in the Consolidated Balance Sheet.

Operating lease assets and operating lease liabilities are measured and recognized based on the present value of the future minimum lease payments over the lease term at commencement date. The Company uses the rate implicit in the lease when available or determinable and when the rate implicit in the lease is not determinable, the Company’s incremental borrowing rate based on the information available at commencement date is used in determining the present value of future payments. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Variable lease payments are not included in the lease liability and are recognized as incurred. The Company identified real estate, vehicles and other equipment as the primary classes of leases. Certain leases with a similar class of underlying assets are accounted for as a portfolio of leases.

The Company elected to not apply the recognition requirements of the new standard to leases with terms of twelve months or less. Those lease payments will continue to be recognized in the Consolidated Statement of Income on a straight-line basis over the lease term and are not recorded on the Consolidated Balance Sheet.

Most leases include one or more options to renew, which is at the Company’s sole discretion, with renewal terms that can extend the lease term from one month to multiple years. The lease start date is when the asset is available for use and in possession of the Company. The lease end date, which includes any options to renew that are reasonably certain to be exercised, is based on the terms of the contract. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. The Company’s lease agreements do not contain any material restrictive covenants.

~~The Company’s operating lease cost was as follows:~~

Third Quarter Ended

Nine Months Ended

September 30

September 30
(millions)

2019

2019
Operating lease cost*

$55.2

$165.4

*Includes immaterial short-term and variable lease costs

~~Future maturity of operating lease liabilities as of September 30, 2019 is as follows:~~

(millions)

Remainder of 2019

$ 38
2020

164
2021

134
2022

96
2023

55
2024

33
Thereafter

117
Total lease payments

637
Less: imputed interest

66
Present value of lease liabilities

$ 571

~~As of December 31, 2018, identifiable future minimum payments with non-cancelable terms in excess of one year were:~~

(millions)

2019

$ 172
2020

141
2021

108
2022

72
2023

37
Thereafter

104
Total

$ 634

~~The Company’s operating leases term and discount rate were as follows:~~



	~~September 30~~
	~~2019~~

~~Weighted-average remaining lease terms (years)~~		~~6.13~~

~~Weighted-average discount rate~~		~~4.02%~~

~~The Company’s other lease information was as follows:~~



	~~Nine Months Ended~~
	~~September 30~~
~~(millions)~~	~~2019~~
~~Cash paid for amounts included in the measurement of lease liabilities:~~
~~Operating cash flows from operating leases~~		~~$149.5~~

~~Leased assets obtained in exchange for new operating lease liabilities~~		~~130.3~~

~~Lessor~~

The Company leases warewashing and water treatment equipment to customers under operating leases. The Company accounts for lease and nonlease components separately. The nonlease components, such as product and service revenue, are accounted for under Topic 606 Revenue from Contracts with Customers, refer to Note 15 for more information. Revenue from leasing equipment is recognized on a straight-line basis over the life of the lease. Cost of sales includes the depreciation expense for assets under operating leases. The assets are depreciated over their estimated useful lives. Initial lease terms range from one year to five years and most leases include annual renewal options.

Lease contracts convey the right for the customer to control the equipment for a period of time as defined by the contract. There are no options for the customer to purchase the equipment and therefore the equipment remains the property of the Company at the end of the lease term.

~~Gross assets under operating leases recorded in Property, plant and equipment, net is $1,100.8 million and related accumulated depreciation is $621.1 million as of September 30, 2019.~~

~~The Company’s operating lease revenue was as follows:~~

Third Quarter Ended

Nine Months Ended

September 30

September 30
(millions)

2019

2019
Operating lease revenue*

$117.0

$324.5

*Includes immaterial variable lease revenue

~~Revenue from operating leases for existing contracts as of September 30, 2019 is as follows:~~

(millions)

Remainder of 2019

$ 92
2020

345
2021

264
2022

194
2023

116
2024

44
Thereafter

13
Total lease revenue

$ 1,068

The Company mitigates the risk of residual value subsequent to the lease term by redeploying assets. As such, the Company expects to receive revenue from the operating lease assets through the remaining useful life and therefore subsequent to the initial contract termination date.

~~14.~~ PENSION AND POSTRETIREMENT PLANS

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

The components of net periodic pension and postretirement health care benefit costs for the ~~third~~first quarter ended ~~September 30~~March 31 are as follows:

U.S.

International

U.S. Postretirement

Pension

Pension

Health Care

(millions)

2019

2018

2019

2018

2019

2018

Service cost

$18.2

$18.6

$7.5

$8.4

$0.3

$0.5

Interest cost on benefit obligation

22.3

20.8

7.8

7.5

1.4

1.3

Expected return on plan assets

(37.4)

(40.5)

(14.8)

(16.1)

(0.1)

(0.1)

Recognition of net actuarial (gain) loss

5.9

9.8

4.1

4.4

(1.0)

(0.5)

Amortization of prior service

cost (benefit)

(2.9)

(1.7)

(0.3)

(0.2)

(5.8)

(5.8)

Total expense (benefit)

$6.1

$7.0

$4.3

$4.0

$(5.2)

$(4.6)

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


	U.S.				International				U.S. Postretirement				U.S.				International				U.S. Postretirement
	Pension				Pension				Health Care				Pension				Pension				Health Care
(millions)	2019		2018		2019		2018		2019		2018		2020		2019		2020		2019		2020		2019
Service cost		$54.6		$55.8		$22.7		$25.4		$1.0		$2.3		$17.1		$18.2		$7.7		$7.6		$0.3		$0.3
Interest cost on benefit obligation		66.8		62.4		23.5		22.4		4.2		4.3		17.5		22.3		5.4		7.8		1.1		1.4
Expected return on plan assets		(112.2)		(121.5)		(45.1)		(48.8)		(0.3)		(0.3)		(38.2)		(37.4)		(15.7)		(15.2)		(0.1)		(0.1)
Recognition of net actuarial (gain) loss		17.7		29.4		12.3		13.2		(3.0)		(1.5)
Amortization of prior service
cost (benefit)		(8.6)		(5.1)		(0.8)		(0.6)		(17.4)		(14.0)
Recognition of net actuarial loss (gain)														13.0		5.9		6.4		4.1		-		(1.0)
Amortization of prior service benefit														(1.8)		(2.9)		-		(0.3)		(2.8)		(5.8)
Total expense (benefit)		$18.3		$21.0		$12.6		$11.6		$(15.5)		$(9.2)		$7.6		$6.1		$3.8		$4.0		$(1.5)		$(5.2)

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

As of ~~September 30, 2019,~~March 31, 2020, the Company is in compliance with all funding requirements of its U.S. pension and postretirement health care plans.

During the first ~~nine months~~quarter of ~~2019,~~2020, the Company made contributions of $4$2 million to its U.S. non-contributory non-qualified defined benefit plans and estimates it will contribute ~~approximately~~ an additional $2$10 million to such plans during the remainder of ~~2019. In September, the Company made a $120 million voluntary contribution in 2019 to its non-contributory qualified U.S. pension plan.~~2020.

During the first ~~nine months~~quarter of ~~2019,~~2020, the Company made contributions of ~~$32~~$15 million to its international pension benefit plans and estimates it will contribute ~~approximately~~ an additional ~~$10~~$31 million to such plans during the remainder of ~~2019.~~2020.

During the first ~~nine months~~quarter of ~~2019,~~2020, the Company made contributions of $8$3 million to its U.S. postretirement health care benefit plans and estimates it will contribute ~~approximately~~ an additional $3$8 million to such plans during the remainder of ~~2019.~~2020.

2422

~~15.~~14. REVENUES

Revenue Recognition

Product and Sold Equipment

Product revenue is generated from cleaning, sanitizing, water, energy and colloidal silica products sold to ~~customers in the Global Industrial, Global Institutional, Global Energy segments and Other.~~customers. In addition, the Company sells equipment which may be used in combination with its specialized products. Revenue recognized from product and sold equipment is recognized at the point in time when the obligations in the contract with the customer are satisfied, which generally occurs with the transfer of the product or delivery of the equipment.

Service and Lease Equipment

Service and lease equipment revenue is generated from providing services or leasing equipment to customers. Service offerings include installing or repairing certain types of equipment, activities that supplement or replace headcount at the customer location, or fulfilling deliverables included in the contract. Services provided in Other ~~primary~~primarily includes services designed to detect, eliminate and prevent pests. ~~Global~~Upstream Energy services include process and water treatment offerings to the global petroleum and petrochemical industries, while services in the Global Industrial segment are associated with water treatment and paper process applications. Global Institutional services include water treatment programs and process applications, and wash process solutions. Global Healthcare and Life Sciences services include pharmaceutical, personal care, infection and containment control solutions. Revenue recognized from leased equipment primarily relates to warewashing and water treatment equipment. Service revenue is recognized over time utilizing an input method and aligns with when the services are provided. Typically, revenue is recognized over time using costs incurred to date because the effort provided by the field selling and service organization represents services provided, which corresponds with the transfer of control. Revenue for leased equipment is accounted for under Topic 842 Leases and recognized on a straight-line basis over the length of the lease contract. ~~Refer to Note 13 for additional information related to~~

The Company’s operating lease ~~equipment.~~revenue was as follows:



	First Quarter Ended
	March 31
(millions)	2020		2019
Operating lease revenue*		$108.4		$102.9

*Includes immaterial variable lease revenue

The following table shows principal activities, separated by reportable segments, from which the Company generates its revenue. The reportable segments have been revised to align with the Company’s reportable segments in the current year. For more information about the Company’s reportable segments, refer to Note ~~16.~~15.

Net sales at public exchange rates by reportable segment ~~for the third quarter and nine months ended September 30~~ are as follows:

Third Quarter Ended

Nine Months Ended

September 30

September 30
(millions)

2019

2018


2019

2018

Global Industrial

Product and sold equipment

$1,225.8

$1,189.6

$3,562.5

$3,422.1

Service and lease equipment

174.0

162.7

499.4

483.4

Global Institutional

Product and sold equipment

1,142.0

1,130.8

3,298.0

3,297.8

Service and lease equipment

202.6

174.3

566.9

510.2

Global Energy

Product and sold equipment

726.3

760.0

2,169.6

2,241.2

Service and lease equipment

106.4

102.2

309.9

309.1

Other

Product and sold equipment

23.6

21.0

66.0

60.4

Service and lease equipment

217.2

206.6

610.4

583.5

Total

Total product and sold equipment

$3,117.7

$3,101.4

$9,096.1

$9,021.5

Total service and lease equipment

700.2

645.8

1,986.6

1,886.2

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

Global

First Quarter Ended

Industrial

Institutional

Energy

Other

March 31

(millions)

2019

2018

2019

2018

2019

2018

2019

2018

2020

2019

North America

$644.5

$627.9

$937.1

$898.0

$493.6

$502.1

$167.5

$156.9

Europe

346.3

326.0

255.0

260.2

93.7

96.7

33.9

33.2

Asia Pacific

177.2

171.4

63.3

62.3

60.9

65.7

10.5

10.5

Latin America

127.4

121.6

43.2

40.9

53.3

55.5

12.5

11.5

Greater China

68.2

70.9

30.7

28.3

17.0

18.7

13.9

12.7

Middle East and Africa

36.2

34.5

15.3

15.4

114.2

123.5

2.5

2.8

Global Industrial

Product and sold equipment

$1,232.5

$1,213.7

Service and lease equipment

202.0

188.3

Global Institutional

Product and sold equipment

888.9

855.6

Service and lease equipment

178.3

165.2

Global Healthcare and Life Sciences

Product and sold equipment

221.9

209.9

Service and lease equipment

21.7

17.7

Upstream Energy

Product and sold equipment

505.5

524.8

Service and lease equipment

54.9

55.2

Other

Product and sold equipment

81.2

82.3

Service and lease equipment

194.5

192.7

Total

$1,399.8

$1,352.3

$1,344.6

$1,305.1

$832.7

$862.2

$240.8

$227.6

Total product and sold equipment

$2,930.0

$2,886.3

Total service and lease equipment

651.4

619.1

2523

Net sales at public exchange rates by geographic region for the first ~~nine months~~quarter ended ~~September 30~~March 31 are as follows:


	Global				Global				Global								Global				Global				Global Healthcare
	Industrial				Institutional				Energy				Other				Industrial				Institutional				and Life Sciences				Upstream Energy				Other
(millions)	2019		2018		2019		2018		2019		2018		2019		2018		2020		2019		2020		2019		2020		2019		2020		2019		2020			2019
																																			��
North America		$1,873.2		$1,780.6		$2,677.5		$2,592.3		$1,443.2		$1,474.8		$463.4		$436.3		$691.6		$673.6		$779.8		$740.1		$107.7		$99.9		$351.3		$358.5		$168.2			$166.6
Europe		1,000.9		959.5		742.9		774.9		300.7		302.5		98.3		97.0		281.2		277.2		142.5		143.1		120.3		119.9		68.1		71.3		59.7			58.3
Asia Pacific		518.4		503.7		185.8		186.8		179.4		200.1		29.8		29.4		183.7		181.7		60.0		56.0		10.5		3.6		20.2		18.2		18.1			18.1
Latin America		368.4		350.8		125.1		124.5		154.7		163.7		35.8		35.2		129.1		125.2		39.8		39.5		1.0		1.0		41.2		40.8		12.0			12.3
Greater China		197.3		211.8		90.4		84.9		58.9		55.1		41.1		37.5		74.2		76.4		33.7		31.2		0.6		0.4		0.5		4.6		13.5			15.6
Middle East and Africa		103.7		99.1		43.2		44.6		342.6		354.1		8.0		8.5		74.7		67.9		11.4		10.9		3.5		2.8		79.1		86.6		4.2			4.1
Total		$4,061.9		$3,905.5		$3,864.9		$3,808.0		$2,479.5		$2,550.3		$676.4		$643.9		$1,434.5		$1,402.0		$1,067.2		$1,020.8		$243.6		$227.6		$560.4		$580.0		$275.7			$275.0

Net sales by geographic region were determined based on origin of sale. Revenues in the United States made up 54% and ~~53%~~54% of total revenues as of ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively.

Contract Liability

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

September 30

September 30

March 31

March 31

(millions)

2019

2018

2020

2019

Contract liability as of beginning of the year

$75.8

$79.0

$84.7

$75.8

Revenue recognized in the period from:

Revenue recognized in the year from:

Amounts included in the contract liability at the beginning of the year

(75.8)

(79.0)

(84.7)

(75.8)

Increases due to billings excluding amounts recognized as revenue during the nine months ended

80.6

81.7

Business combination

3.0

0.2

Increases due to billings excluding amounts recognized as revenue during the year ended

88.3

82.4

Business combinations

3.0

Contract liability as of end of period

$83.6

$81.9

$88.3

$85.4

2624

~~16.~~15. OPERATING SEGMENTS

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

The Company’s operating segments that share similar economic characteristics and future prospects, nature of the products and production processes, end-use markets, channels of distribution and regulatory environment have been aggregated into 34 reportable segments: Global Industrial, Global Institutional, Global Healthcare and ~~Global~~Life Sciences and Upstream Energy. The Company’s operating segments that do not meet the quantitative criteria to be separately reported have been combined into Other. The Company provides similar information for Other as the Company considers the information regarding its underlying operating segments as useful in understanding its consolidated results.

Comparability of Reportable Segments

Effective in the first quarter of 2020, and in anticipation of the separation of the Upstream Energy business under ChampionX, the Company created the Upstream Energy and Downstream operating segments from the Global Energy operating segment, which was also a reportable segment. The table below reflects the elimination of the Global Energy reportable segment and creation of the Downstream operating segment and the Upstream Energy operating segments, which are reported in the Global Industrial reportable segment and newly established Upstream Energy reportable segment, respectively. Also, in the first quarter of 2020, the Company announced leadership changes which allow for shared oversight and focus on the Healthcare and Life Sciences operating segments and established the Global Healthcare and Life Sciences reportable segment. This segment is comprised of the Healthcare operating segment which was previously aggregated in the Global Institutional reportable segment and the Life Sciences operating segment which was previously aggregated in the Global Industrial reportable segment. Additionally, the table reflects the Textile Care operating segment being reported in Other, which had previously been aggregated in the Global Industrial reportable segment. The Company made other immaterial changes, including the movement of certain customers and cost allocations between reportable segments. These changes are presented in "Segment Change" columns of the table below.

The Company evaluates the performance of its non-U.S. dollar functional currency international operations based on fixed currency exchange rates, which eliminates the impact of exchange rate fluctuations on its international operations. Fixed currency amounts are updated annually at the beginning of each year based on translation into U.S. dollars at foreign currency exchange rates established by management, with all periods presented using such rates. ~~Fixed currency rates are generally based on existing market rates at the time they are established.~~ The “Fixed Currency Rate Change” column shown in the following table reflects the impact on previously reported values related to fixed currency exchange rates established by management at the beginning of ~~2019.~~2020, rather than the 2019 established rates. The ~~“Other” column shown~~difference between the fixed currency exchange rates and the actual currency exchange rates is reported within the “Effect of foreign currency translation” row in the table ~~reflects immaterial changes between segments, primarily cost allocations.~~below.

The impact of the preceding changes on previously reported full year ~~2018~~2019 reportable segment net sales and operating income is summarized as follows:


	December 31, 2018						December 31, 2019
	2018 Reported				Fixed	2018 Revised	2019 Reported				Fixed	2019 Revised
	Valued at 2018				Currency	Valued at 2019	Valued at 2019		Segment		Currency	Valued at 2020
(millions)	Management Rates		Other		Rate Change	Management Rates	Management Rates		Change		Rate Change	Management Rates
Net Sales
Global Industrial		$5,462.4		$-	$(242.2)	$5,220.2		$5,569.9		$479.2	$(52.7)	$5,996.4
Global Institutional		5,204.5		-	(138.5)	5,066.0		5,235.5		(800.1)	(23.3)	4,412.1
Global Healthcare and Life Sciences								-		991.7	(12.7)	979.0
Upstream Energy								-		2,350.0	2.9	2,352.9
Global Energy		3,501.8		-	(113.0)	3,388.8		3,334.0		(3,334.0)	-	-
Other		877.6		-	(21.9)	855.7		907.5		313.2	(9.0)	1,211.7
Subtotal at fixed currency rates		15,046.3		-	(515.6)	14,530.7		15,046.9		-	(94.8)	14,952.1
Effect of foreign currency translation		(378.1)		-	515.6	137.5		(140.6)		-	94.8	(45.8)
Consolidated reported GAAP net sales		$14,668.2		$-	$-	$14,668.2		$14,906.3		$-	$-	$14,906.3

Operating Income
Global Industrial		$768.1		$(1.4)	$(42.3)	$724.4		$854.7		$133.4	$(7.5)	$980.6
Global Institutional		1,026.9		-	(19.6)	1,007.3		1,042.2		(93.4)	(1.5)	947.3
Global Healthcare and Life Sciences								-		136.7	(1.6)	135.1
Upstream Energy								-		188.2	(0.3)	187.9
Global Energy		358.5		(0.4)	(19.6)	338.5		379.1		(379.1)	-	-
Other		161.3		1.8	(3.1)	160.0		167.3		14.2	(0.9)	180.6
Corporate		(307.1)		-	3.5	(303.6)		(409.1)		-	1.2	(407.9)
Subtotal at fixed currency rates		2,007.7		-	(81.1)	1,926.6		2,034.2		-	(10.6)	2,023.6
Effect of foreign currency translation		(60.7)		-	81.1	20.4		(20.4)		-	10.6	(9.8)
Consolidated reported GAAP operating income		$1,947.0		$-	$-	$1,947.0		$2,013.8		$-	$-	$2,013.8

2725

Reportable Segment Information

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

Third Quarter Ended

Nine Months Ended

First Quarter Ended

September 30

March 31

(millions)

2019

2018

2019

2018

2020

2019

Net Sales

Global Industrial

$1,418.9

$1,348.5

$4,102.0

$3,828.9

$1,444.0

$1,397.4

Global Institutional

1,357.1

1,304.9

3,895.9

3,769.4

1,072.3

1,020.2

Global Energy

836.5

859.4

2,488.6

2,516.9

Global Healthcare and Life Sciences

246.2

227.0

Upstream Energy

562.7

581.7

Other

242.8

227.4

680.1

636.6

277.8

274.7

Subtotal at fixed currency rates

3,855.3

3,740.2

11,166.6

10,751.8

3,603.0

3,501.0

Effect of foreign currency translation

(37.4)

7.0

(83.9)

155.9

(21.6)

4.4

Consolidated reported GAAP net sales

$3,817.9

$3,747.2

$11,082.7

$10,907.7

$3,581.4

$3,505.4

Operating Income

Global Industrial

$240.1

$212.8

$596.3

$497.6

$226.9

$181.2

Global Institutional

313.0

286.6

767.8

729.3

183.5

176.2

Global Energy

103.6

88.9

270.9

243.9

Global Healthcare and Life Sciences

25.6

27.3

Upstream Energy

39.0

36.5

Other

48.8

48.0

123.1

114.0

25.3

28.9

Corporate

(111.5)

(121.3)

(292.8)

(243.5)

(100.2)

(83.4)

Subtotal at fixed currency rates

594.0

515.0

1,465.3

1,341.3

400.1

366.7

Effect of foreign currency translation

(6.4)

1.2

(11.9)

23.8

(2.9)

0.5

Consolidated reported GAAP operating income

$587.6

$516.2

$1,453.4

$1,365.1

$397.2

$367.2

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

Consistent with the Company’s internal management reporting, Corporate amounts in the table above include intangible asset amortization specifically from the Nalco merger and special (gains) and charges, as discussed in Note 2, that are not allocated to the Company’s reportable segments.

~~17.~~16. COMMITMENTS AND CONTINGENCIES

The Company is subject to various claims and contingencies related to, among other things, workers’ compensation, general liability (including product liability), automobile claims, health care claims, income taxes, environmental matters and lawsuits. The Company is also subject to various claims and contingencies related to income ~~taxes, which are discussed in Note 12.~~taxes. The Company also has contractual obligations including to lease ~~commitments, which are discussed in Note 13.~~commitments.

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

Insurance

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

Litigation and Environmental Matters

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

2826

Environmental Matters

The Company is currently participating in environmental assessments and remediation at approximately 40 locations, the majority of which are in the U.S., and environmental liabilities have been accrued reflecting management’s best estimate of future costs. Potential insurance reimbursements are not anticipated in the Company’s accruals for environmental liabilities.

Matters Related to Deepwater Horizon Incident Response

On April 22, 2010, the ~~deep water~~deepwater drilling platform, the Deepwater Horizon, operated by a subsidiary of BP plc, sank in the Gulf of Mexico after a catastrophic explosion and fire that began on April 20, 2010. A massive oil spill resulted. Approximately one week following the incident, subsidiaries of BP plc, under the authorization of the responding federal agencies, formally requested ~~Nalco Company, now an indirect subsidiary~~certain entities that are or will become subsidiaries of ~~Ecolab,~~ChampionX upon completion of the transactions to separate and combine our Upstream Energy business with Apergy Corporation as discussed in Note 1 (collectively the “COREXIT Defendants”) to supply large quantities of COREXIT™ 9500, ~~a Nalco~~an oil dispersant product listed on the U.S. EPA National Contingency Plan Product Schedule. ~~Nalco~~The COREXIT Defendants responded immediately by providing available ~~COREXIT~~COREXIT™ and increasing production to supply the product to BP’s subsidiaries for use, as authorized and directed by agencies of the federal government throughout the incident. Prior to the incident, ~~Nalco and its subsidiaries~~the COREXIT Defendants had not provided products or services or otherwise had any involvement with the Deepwater Horizon platform. On July 15, 2010, BP announced that it had capped the leaking well, and the application of dispersants by the responding parties ceased shortly thereafter.

On May 1, 2010, the President of the United States appointed retired U.S. Coast Guard Commandant Admiral Thad Allen to serve as the National Incident Commander in charge of the coordination of the response to the incident at the national level. The EPA directed numerous tests of all the dispersants on the National Contingency Plan Product Schedule, including those provided by ~~Nalco,~~the COREXIT Defendants, “to ensure decisions about ongoing dispersant use in the Gulf of Mexico are grounded in the best available science.” ~~Nalco~~The COREXIT Defendants cooperated with this testing process and continued to supply ~~COREXIT,~~COREXIT™, as requested by BP and government authorities. The use of dispersants by the responding parties was one tool used by the government and BP to avoid and reduce damage to the Gulf area from the spill.

In connection with its provision of COREXIT™, the COREXIT ~~Nalco has~~Defendants have been named in several lawsuits as described below.

Cases arising out of the Deepwater Horizon accident were administratively transferred for pre-trial purposes to a judge in the United States District Court for the Eastern District of Louisiana (the “Court”) with other related cases under In Re: Oil Spill by the Oil Rig “Deepwater Horizon” in the Gulf of Mexico, on April 20, 2010, Case No. 10-md-02179 (E.D. La.) (“MDL 2179”). ~~Nalco was~~The COREXIT Defendants were named, along with other unaffiliated defendants, in 6 putative class action complaints related to the Deepwater Horizon oil spill and 21 complaints filed by individuals. Those complaints were consolidated in MDL 2179. The complaints generally allege, among other things, strict liability and negligence relating to the use of ~~the Company’s COREXIT~~COREXIT™ dispersant in connection with the Deepwater Horizon oil spill.

Pursuant to orders issued by the Court in MDL 2179, the claims were consolidated in several master complaints, including 1one naming ~~Nalco~~the COREXIT Defendants and others that responded to the Deepwater Horizon oil spill (known as the “B3 Master Complaint”). On May 18, 2012, ~~Nalco~~the COREXIT Defendants filed a motion for summary judgment against the claims in the B3 Master Complaint, on the grounds that: (i) ~~Plaintiffs’~~the plaintiffs’ claims are preempted by the comprehensive oil spill response scheme set forth in the Clean Water Act and National Oil and Hazardous Substances Pollution Contingency Plan (the “National Contingency Plan”); and (ii) ~~Nalco is~~the COREXIT Defendants are entitled to derivative immunity from suit. On November 28, 2012, the Court granted ~~Nalco’s~~the COREXIT Defendants’ motion and dismissed with prejudice the claims in the B3 Master Complaint asserted against ~~Nalco.~~the COREXIT Defendants. The Court held that such claims were preempted by the Clean Water Act and National Contingency Plan. Because claims in the B3 Master Complaint remained pending against other defendants, the Court’s decision was not a “final judgment” for purposes of appeal. Under Federal Rule of Appellate Procedure 4(a), plaintiffs will have 30 days after entry of final judgment to appeal the Court’s decision.

In December 2012 and January 2013, the MDL 2179 court issued final orders approving 2 settlements between BP and plaintiffs’ class counsel: (1) a proposed Medical Benefits Class Action Settlement; and (2) a proposed Economic and Property Damages Class Action Settlement. Pursuant to the proposed settlements, class members agree to release claims against BP and other released parties, including Nalco.

~~Nalco,~~The COREXIT Defendants, the incident defendants and the other responder defendants have been named as first party defendants by Transocean Deepwater Drilling, Inc. and its affiliates (the “Transocean Entities”) (In re the Complaint and Petition of Triton Asset Leasing GmbH, et al, MDL No. 2179, Civil Action 10-2771). In April and May 2011, the Transocean Entities, Cameron International Corporation, Halliburton Energy Services, Inc., M-I L.L.C., Weatherford U.S., L.P. and Weatherford International, Inc. (collectively, the “Cross Claimants”) filed cross claims in MDL 2179 against ~~Nalco~~the COREXIT Defendants and other unaffiliated cross defendants. The Cross Claimants generally allege, among other things, that if they are found liable for damages resulting from the Deepwater Horizon explosion, oil spill and/or spill response, they are entitled to indemnity or contribution from the cross defendants.

In April and June 2011, in support of its defense of the claims against it, ~~Nalco~~the COREXIT Defendants filed counterclaims against the Cross Claimants. In its counterclaims, ~~Nalco~~the COREXIT Defendants generally ~~alleges~~allege that if ~~it is~~they are found liable for damages resulting from the Deepwater Horizon explosion, oil spill and/or spill response, itthey is entitled to contribution or indemnity from the Cross Claimants.

In May 2016, ~~Nalco was~~the COREXIT Defendants were named in 9 additional complaints filed by individuals alleging, among other things, business and economic loss resulting from the Deepwater Horizon oil spill (“B1” claims). In April 2017, ~~Nalco was~~the COREXIT Defendants were named in 2 additional complaints filed by individuals alleging, among other things, business and economic loss resulting from the Deepwater Horizon oil spill. The plaintiffs in these lawsuits are generally seeking awards of unspecified compensatory and punitive damages, and attorneys’ fees and costs. These actions have been consolidated in MDL 2179.

2927

On February 22, 2017, the Court dismissed the B3 Master Complaint and ordered that plaintiffs who had previously filed a claim that fell within the scope of the B3 Master Complaint and who had “opted out” of and not released their claims under the Medical Benefits Class Action Settlement either: (1) complete a sworn statement indicating, among other things, that they opted out of the Medical Benefits Class Action Settlement (to be completed by plaintiffs who previously filed an individual complaint); or (2) file an individual lawsuit attaching the sworn statement as an exhibit, by a deadline date set by the Court.

On July 10, 2018, the Court entered an order dismissing the “B1” claims against ~~Nalco.~~the COREXIT Defendants. In light of the Court’s orders dismissing various B3 and “B1” claims in their entirety, for most plaintiffs the Court’s November 28, 2012 grant of summary judgment for ~~Nalco~~the COREXIT Defendants is now final and the deadline to appeal has passed. On October 23, 2018, a plaintiff filed a new B3 complaint against ~~Nalco~~the COREXIT Defendants and other unaffiliated defendants generally alleging, among other things, negligence and gross negligence related to the use of ~~COREXIT~~COREXIT™ dispersant in connection with the Deepwater Horizon oil spill. The complaint was consolidated in MDL 2179. There currently remain 3 cases pending against ~~Nalco,~~the COREXIT Defendants relating to the Deepwater Horizon oil spill, all of which are expected to ultimately be dismissed pursuant to the Court’s November 28, 2012 order granting ~~Nalco’s~~the COREXIT Defendants’ motion for summary judgment.

~~The Company~~ChampionX believes the claims asserted against ~~Nalco~~the COREXIT Defendants are without merit and intends to defend these lawsuits vigorously. ~~The Company~~ChampionX also believes that it has rights to contribution and/or indemnification (including legal expenses) from third parties. However, ~~the Company~~ChampionX cannot predict the outcome of these lawsuits, the involvement it might have in these matters in the future, or the potential for future litigation.

~~18.~~17. NEW ACCOUNTING PRONOUNCEMENTS


Standards that are not yet adopted:
			Required
	Date of		Date of	Effect on the
Standard	Issuance	Description	Adoption	Financial Statements



ASU ~~2018-15~~2019-12 - ~~Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40)~~Income Taxes (Topic 740): ~~Customer’s~~Simplifying the Accounting for ~~Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force)~~Income Taxes	~~August 2018~~December 2019	~~Aligns~~Simplifies the ~~requirements~~accounting for ~~capitalizing implementation costs incurred in a hosting arrangement that is a service contract with~~income taxes by removing certain exceptions to the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The amendments require an entity (customer) in a hosting arrangement that is a service contract to determine which implementation costs to capitalize as an assetgeneral principles related to the ~~service contract~~approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and ~~which costs to expense.~~recognition of deferred tax liabilities for outside basis difference. The new standard also simplifies the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the basis of goodwill.	January 1, ~~2020~~2021	~~The ASU should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption.~~ The Company is currently evaluating the impact of adoption.

ASU ~~2018-14~~2020-04 - ~~Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20)~~Reference Rate Reform (Topic 848): ~~Disclosure Framework - Changes to~~Facilitation of the ~~Disclosure Requirements for Defined Benefit Plans~~Effects of Reference Rate Reform on Financial Reporting	~~August 2018~~	Modifies disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. This includes, but is not limited to, the removal of the requirement to disclose the amounts in accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost over the next fiscal year, and the addition of a requirement to disclose the weighted-average interest crediting rates for cash balance plans and other plans with promised interest crediting rates.	~~January 1,~~March 2020	~~The new disclosure requirements~~LIBOR, a widely used reference rate for pricing financial products is scheduled to be discontinued on December 31, 2021. This standard provides optional expedients and exceptions if certain criteria are ~~applied on a retrospective basis~~met when accounting for contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to ~~all periods presented. The Company is currently evaluating the impact~~be discontinued because of ~~adoption.~~
reference rate reform.
~~ASU 2017-04 - Intangibles - Goodwill~~Application of guidance is optional until December 31, 2022 and ~~Other (Topic 350): Simplifying the Test for Goodwill Impairment~~	~~January 2017~~	Simplifies subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill.	~~January 1, 2020~~varies based on expedient elected.	The ~~ASU must be applied on a prospective basis upon adoption. Adoption of the ASU~~Company has not elected any expedients to date and is ~~not expected to have a material impact~~currently evaluating any potential future impacts on the Company's financial statements.

Credit Losses ASUs:
ASU 2018-19 - Codification Improvements to Topic 326, Financial Instruments -Credit Losses
ASU 2016-13 - Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments

~~Various~~

Addresses the recognition, measurement, presentation and disclosure of credit losses on trade and reinsurance receivables, loans, debt securities, net investments in leases, off-balance-sheet credit exposures and certain other instruments. Amends guidance on reporting credit losses from an incurred model to an expected model for assets held at amortized cost, such as accounts receivable, loans and held-to-maturity debt securities. Additional disclosures will also be required.

~~January 1, 2020~~

The Company has identified the financial assets subject to this standard, which primarily include trade and notes receivable. In addition, the Company is updating current accounting policies to be in accordance with the new standard, and is continuing to evaluate the impact of adoption.

3028

Standards that were adopted:

Date of

Effect on the

Standard

Issuance

Description

Adoption

Financial Statements

ASU ~~2018-02~~2018-15 - ~~Income Statement~~Intangibles - ~~Reporting Comprehensive Income (Topic 220)~~Goodwill and Other - Internal-Use Software (Subtopic 350-40): ~~Reclassification~~Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of ~~Certain Tax Effects from Accumulated Other Comprehensive Income~~the FASB Emerging Issues Task Force)

~~February~~August 2018

~~Allows entities~~Aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to ~~reclassify stranded tax effects resulting from~~develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The amendments require an entity (customer) in a hosting arrangement that is a service contract to determine which implementation costs to capitalize as an asset related to the ~~Tax Cut~~service contract and ~~Jobs Act (“the Act”) from accumulated other comprehensive income~~which costs to ~~retained earnings. Tax effects stranded in other comprehensive income for reasons other than the impact of the Act cannot be reclassified.~~expense.

January 1, ~~2019~~2020

~~In order to improve~~The Company adopted the ~~usefulness and transparency,~~prospective transition method. Adoption of this guidance did not have a material impact on the Company made the election to reclassify $61.2 million of income tax effects of the Tax Cuts and Jobs Act from accumulated other comprehensive income to retained earnings related to pension and derivatives.Company's financial statements.

ASU ~~2018-16~~2018-14 - ~~Derivatives and Hedging (Topic 815)~~Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): ~~Inclusion of~~Disclosure Framework - Changes to the ~~Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate~~Disclosure Requirements for Hedge Accounting Purposes
ASU 2017-12 - Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities
Defined Benefit Plans

August 2018

~~Various~~

~~Amends~~Modifies disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. This includes, but is not limited to, the ~~hedge accounting recognition and presentation requirements. Simplifies~~removal of the ~~application~~requirement to disclose the amounts in accumulated other comprehensive income expected to be recognized as components of ~~hedge accounting~~net periodic benefit cost over the next fiscal year, and the ~~requirements~~addition of a requirement to disclose the weighted-average interest crediting rates for ~~hedge documentation~~cash balance plans and ~~effectiveness testing. Requires presentation of all items that affect earnings in the same income statement line as the hedged item. Expands the benchmark~~other plans with promised interest ~~rates that can be used for hedge accounting.~~crediting rates.

January 1, ~~2019~~2020

Adoption of ~~this guidance~~the standard did not ~~have a material~~ impact on the ~~results of operations, financial position~~Company's consolidated balance sheet or ~~cash flows. Required disclosures under~~income statement. Annual disclosure requirements will be updated to align with the new ~~guidance are included~~standard, and changes in ~~Note 8.~~disclosure will not be material.

~~Lease ASUs:~~
ASU ~~2019-01~~2017-04 - ~~Leases~~Intangibles - Goodwill and Other (Topic ~~842)~~350): Codification Improvements
ASU 2018-20 - Leases (Topic 842): Narrow-Scope ImprovementsSimplifying the Test for Lessors
ASU 2018-11 - Leases (Topic 842) Targeted Improvements
ASU 2018-10 - Codification Improvements to Topic 842, Leases
ASU 2018-01 - Leases (Topic 842): Land Easement Practical Expedient
ASU 2016-02 - Leases (Topic 842)Goodwill Impairment

~~Various~~January 2017

~~Introduces~~Simplifies subsequent measurement of goodwill by eliminating Step 2 from the ~~recognition~~goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of ~~lease assets and lease liabilities by lessees for those leases classified as operating leases under previous guidance.~~a reporting unit’s goodwill with the carrying amount of that goodwill.

January 1, ~~2019~~2020

~~See additional information regarding~~The new standard changes the ~~impact~~manner of how goodwill impairment losses are measured when a reporting unit does not pass Step 1 of goodwill assessment guidance. Adoption of this ~~guidance on~~standard will impact the ~~Company's~~ financial statements atto the ~~bottom~~extent any of ~~this table in note (a).~~the reporting units do not pass Step 1 during future goodwill assessments.

Credit Losses ASUs:
ASU 2019-11 - Codification Improvements to Topic 326, Financial Instruments - Credit Losses
ASU 2019-05 - Financial Instruments - Credit Losses (Topic 326): Targeted Transition Relief
ASU 2018-19 - Codification Improvements to Topic 326, Financial Instruments - Credit Losses
ASU 2016-13 - Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments

Various

January 1, 2020

The Company adopted the standard for expected credit losses using the modified retrospective approach. The effects of adoption were reflected as a $4.3

million reduction to retained earnings as of January 1, 2020 and did not materially impact the Company's consolidated balance sheet, income statement or cash flows. Additional information regarding the impact of this guidance on the Company's financial statements at the bottom of this table in note (a).

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

(a)	~~Leases~~Accounts Receivable and Allowance for Doubtful Accounts

~~On January 1, 2019,~~Accounts receivable are carried at the ~~Company adopted Accounting Standards Codification Topic 842 Leases (“the new lease standard”) prospectively~~invoiced amounts, less an allowance for doubtful accounts, and ~~recorded a cumulative effect adjustment to the opening balance of retained earnings of~~ ~~$2.8 million.~~generally do not bear interest. The Company ~~elected~~estimates the ~~package~~allowance for doubtful accounts for expected credit losses by analyzing accounts receivable balances by age and applying historical write-off and collection trend rates. The Company’s estimates separately consider specific circumstances and credit conditions of ~~practical expedients permitted under~~customer receivables, and whether it is probable balances will be collected. Account balances are written off against the ~~transition guidance within~~allowance when it is determined the ~~new lease standard, which allows the Company to carryforward the historical lease classification, to~~receivable will not ~~reassess whether existing contracts are or contain a lease and not to reassess initial direct costs. The Company also elected the land easement practical expedient.~~be recovered.

~~In addition, the Company elected the hindsight practical expedient to determine the lease term~~The Company’s allowance for ~~existing leases. When applying the hindsight expedient, the Company determined that most renewal options would not be reasonably certain in determining~~doubtful accounts balance also includes an allowance for the expected ~~lease term. The Company made an accounting policy election~~return of products shipped and credits related to ~~not apply the recognition requirements~~pricing or quantities shipped of ~~the new standard~~$18 million and $17 million as of March 31, 2020 and 2019, respectively. Returns and credit activity is recorded directly as a reduction to ~~leases with terms of twelve months or less and which do not include an option to purchase the underlying assets which is reasonably certain of exercise.~~revenue.

~~Adoption of~~The following table summarizes the ~~new standard resulted~~activity in the recording of additional net operating lease assets and operating lease liabilities of $572.2 million and $575.0 million, respectively, as of January 1, 2019. The difference between the operating lease assets and operating lease liabilities was recorded as an adjustment to retained earnings. There was no impact to consolidated net earnings or cash flows. Further information related to the Company’s adoption of the new lease standard is included in Note 13.allowance for doubtful accounts:


	First Quarter Ended
	March 31
(millions)	2020		2019

Beginning balance		$62.0		$60.6
Adoption of new standard		4.3		-
Bad debt expense		16.1		3.4
Write-offs		(5.3)		(4.2)
Other (b)		(1.2)		(1.4)
Ending balance		$75.9		$58.4

(b)	Other amounts are primarily the effects of changes in currency translations and the impact of allowance for returns and credits.

3130

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of Ecolab Inc.:

Results of Review of Interim Financial Statements

We have reviewed the accompanying consolidated balance sheet of Ecolab Inc. and its subsidiaries (the “Company”) as of ~~September 30, 2019,~~March 31, 2020, and the related consolidated statements of income, comprehensive income, ~~and~~ equity, ~~for the three-month~~ and ~~nine-month periods ended September 30, 2019 and 2018, and the consolidated statements of~~ cash flows for the ~~nine-month~~three-month periods ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ including the related notes (collectively referred to as the “interim financial statements”). Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of the Company as of December 31, ~~2018,~~2019, and the related consolidated statements of income, comprehensive income, equity, and cash flowsfor the year then ended (not presented herein), and in our report dated ~~March 1,~~February 28, 2020, which included a paragraph describing a change in the manner of accounting for leases in the 2019 financial statements, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet information as of December 31, ~~2018,~~2019 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Basis for Review Results

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


/s/ PricewaterhouseCoopers LLP


PricewaterhouseCoopers LLP
Minneapolis, Minnesota
~~October 31, 2019~~May 7, 2020

3231

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

The following management discussion and analysis (“MD&A”) provides information we believe is useful in understanding our operating results, cash flows and financial condition. We provide quantitative information about the material sales drivers including the impact of changes in volume and pricing and the effect of acquisitions and changes in foreign currency at the corporate and reportable segment level. We also provide quantitative information regarding special (gains) and charges, discrete tax items and other significant factors we believe are useful for understanding our results. Such quantitative drivers are supported by comments meant to be qualitative in nature. Qualitative factors are generally ordered based on estimated significance.

The MD&A should be read in conjunction with both the unaudited consolidated financial information and related notes included in this Form 10-Q, and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019. 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

Fixed Currency Foreign Exchange Rates

Management evaluates the sales and operating income performance of our non-U.S. dollar functional currency international operations based on fixed currency exchange rates, which eliminate the impact of exchange rate fluctuations on our international operations. Fixed currency amounts are updated annually at the beginning of each year based on translation into U.S. dollars at foreign currency exchange rates established by management, with all periods presented using such rates. ~~Fixed currency exchange rates are generally based on existing market rates at the time they are established.~~ 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.

Comparability of Reportable Segments

Effective in the first quarter of 2020, and in anticipation of the separation of our Upstream Energy business under ChampionX Holding Inc. (ChampionX), a wholly owned subsidiary of Ecolab formed for the purpose of holding the Upstream Energy Business, we created the Upstream and Downstream operating segments from the Global Energy operating segment, which was also a reportable segment. Segment information reflects the elimination of the Global Energy reportable segment and creation of the Downstream operating segment and the Upstream operating segment, which are reported in the Global Industrial reportable segment and newly established Upstream Energy reportable segment, respectively. Also, in the first quarter of 2020, we announced leadership changes which allow for shared oversight and focus on the Healthcare and Life Sciences operating segments and established the Global Healthcare and Life Sciences reportable segment. This segment is comprised of the Healthcare operating segment which was previously aggregated in the Global Institutional reportable segment and the Life Sciences operating segment which was previously aggregated in the Global Industrial reportable segment. Additionally, the Textile Care operating segment being reported in Other, which had previously been aggregated in the Global Industrial reportable segment. The Company made other immaterial changes, including the movement of certain customers and cost allocations between reportable segments.

Impact of Acquisitions and Divestitures

Acquisition adjusted growth rates exclude the results of our acquired businesses from the first twelve months post acquisition and exclude the results of our divested businesses from the twelve months prior to divestiture.

ChampionX Separation

On December 18, 2019, the Company entered into definitive agreements with ChampionX and Apergy Corporation (Apergy) pursuant to which the Company will separate the Upstream Energy business and combine it with Apergy in a tax-efficient Reverse Morris Trust transaction.

The transaction will occur in a multi-step process pursuant to which, prior to the merger between ChampionX and Apergy, the Company will transfer certain assets, liabilities and entities to ChampionX or its subsidiaries. In exchange, the Company will receive shares of ChampionX common stock and a cash payment, and all shares of ChampionX common stock will be distributed to Ecolab stockholders in an exchange offer. Under the terms of the exchange offer, Ecolab stockholders have to option to exchange all, some or none of their shares of Ecolab comment stock for shares of ChampionX common stock. If the exchange offer is fully subscribed and at the conclusion of this exchange, the shares of ChampionX common stock will immediately be converted into shares of Apergy common stock as part of the Merger. All shares of Ecolab common stock that will be tendered and accepted in the exchange will be retired and reduce the number of common stock outstanding.

In connection with the transaction, ChampionX will enter into a credit agreement with respect to a $537 million senior secured term loan credit facility to finance the one-time special cash payment to Ecolab and will otherwise pay certain expenses in connection with the transaction. The Company intends to use the proceeds to repay debt, pay dividends, repurchase its stock, or a combination thereof.

Ecolab will account for this transaction as a sale and will recognize a gain or loss based on the excess or deficit of consideration received over the carrying value of ChampionX. Consideration received includes a one-time special cash payment (net of cash included on the opening ChampionX balance sheet) from ChampionX and the fair value of the shares of Ecolab common stock tendered and retired as part of the exchange. The cash consideration Ecolab will receive of $.5 billion is less than the carrying value of ChampionX of about $3.7 billion. As a result, the gain or loss calculated by subtracting the remaining book value of ChampionX from the non-cash share consideration will be a non-cash gain or loss.

The fair value of the Ecolab common stock tendered in the exchange less stock-based equity is based on the 62% (approximately 122.6 million shares) of the outstanding stock of Apergy multiplied by the value of the volume-weighted average Apergy share price of the last three full trading days ending on the expiration date of the exchange offer. As of March 31, 2020, and the average during the quarter-ended March 31, 2020, the price of Apergy’s stock was $5.75 and $21.00, respectively. Utilizing the $5.75 and the $21.00 Apergy stock price to calculate the fair value of the non-cash Ecolab common stock consideration yields a non-cash loss of ($2.5 billion) and ($0.8 billion), respectively.

CRITICAL ACCOUNTING ESTIMATES

In our report on Form 10-K for the year ended December 31, 2019, filed with the Securities and Exchange Commission on February 28, 2020, we disclosed our Critical Accounting Estimates. The discussion below provides an update to the Critical Accounting Estimates and should be read together with the full list of Critical Accounting Estimates set forth in the aforementioned Form 10-K.

Goodwill

We had total goodwill of $7.2 billion and $7.3 billion as of March 31, 2020 and December 31, 2019, respectively. Goodwill represents the excess of the purchase price over the fair value of identifiable net assets acquired in a business combination. Our reporting units are our operating segments. We assess goodwill for impairment on an annual basis during the second quarter. If circumstances change significantly, we would complete an interim goodwill assessment of a reporting unit’s goodwill prior to its next annual assessment.

During the first quarter of 2020, oil prices decreased significantly due to decreased demand following the coronavirus outbreak and falling prices stemming from a lack of consensus among OPEC member nations on production reductions and oil producing nations’ response to reduced prices. The culmination of these events has created instability in the oil and gas industry and resulted in sharp declines in the stock prices of most industry participants. In addition, the uncertainty related to oil demand continues to have a significant impact on the investment and operating plans of Upstream Energy customers. As a result, we performed an interim goodwill impairment assessment for the Upstream Energy reporting unit as of March 31, 2020.

We used the discounted cash flow method to determine the fair value of the Upstream Energy reporting unit. Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions, estimates, and market factors. Included in the estimated fair value of the Upstream Energy reporting unit are assumptions and estimates regarding Upstream Energy’s future projections, as well as industry projections. These assumptions and estimates include estimated future growth rates, the discount rate, the terminal growth rate, and other market factors. Development of these assumption included significant observable market information and considered current market conditions as of March 31, 2020.

Based on the analysis performed, we concluded that the fair value of the Upstream Energy reporting unit exceeded the carrying value by more than 30%. If current expectations of future sales growth and margins are not met, if market factors outside our control result in changes to valuation assumption, most notably the discount rate, or if management’s expectations or plans otherwise change, then the Upstream Energy reporting unit may become impaired in the future. Recognizing the volatility of current markets, we completed various sensitivities. An increase in the discount rate of 1.0 percentage point, holding all other assumptions constant, would continue to result in a fair value that exceeds the carrying value. Similarly, a decrease in Upstream Energy’s projected terminal growth rate by 1.0 percentage point would also result in a fair value that exceeds the carrying value, when holding all other assumption constant. We also considered the implied value of the Upstream Energy reporting unit based on the ChampionX separation transaction (refer to ChampionX Separation above for more information). In each of these scenarios, the fair value of the Upstream Energy reporting unit would be above its carrying amount as of March 31, 2020 and the Upstream Energy reporting unit’s goodwill would not be impaired.

OVERVIEW OF THE ~~THIRD~~FIRST QUARTER ENDED ~~SEPTEMBER 30, 2019~~MARCH 31, 2020

Sales Performance

When comparing ~~third~~first quarter ~~2019~~2020 against ~~third~~first quarter ~~2018,~~2019, sales performance was as follows:

●	Reported net sales increased 2% to ~~$3,818~~$3,581 million, fixed currency sales and acquisition adjusted fixed currency sales increased 3% and 2%, respectively.

●	Fixed currency sales for our Global Industrial segment increased 5%3% to ~~$1,419~~$1,444 million, acquisition adjusted fixed currency sales increased 3%, led by ~~Water~~strong growth in Food & Beverage and ~~Food~~good gains in Downstream and ~~Beverage.~~Paper.

●	Fixed currency sales for our Global Institutional segment increased 4%5% to ~~$1,357~~$1,072 million. Acquisition adjusted fixed currency sales increased 3%4%, led by ~~Specialty and Institutional.~~very strong growth in Specialty.

●	Fixed currency sales for our Global Healthcare and Life Sciences segment increased 8% to $246 million. Acquisition adjusted fixed currency sales also increased 4%, led by strong Life Sciences results.

●	Fixed currency sales for our Upstream Energy segment decreased 3% to ~~$837~~$563 million. Acquisition adjusted fixed currency sales also decreased 3%.

●	Fixed currency sales and acquisition adjusted fixed currency sales for Other sales increased 7%1% to ~~$243~~$278 million, led by modest growth in Pest Elimination.

Financial Performance

When comparing ~~third~~first quarter ~~2019~~2020 against ~~third~~first quarter ~~2018,~~2019, our financial performance was as follows:

●	Reported operating income increased ~~14%~~8% to ~~$588~~$397 million. Excluding the impact of special (gains) and charges from both ~~2019~~2020 and ~~2018~~2019 reported results, adjusted operating income increased ~~11%~~12% and our adjusted fixed currency operating income increased 12%.

●	Net income attributable to Ecolab ~~increased 7%~~decreased 4% to ~~$464~~$283 million. Excluding the impact of special (gains) and charges and discrete tax items from both ~~2019~~2020 and ~~2018~~2019 reported results, our adjusted net income attributable to Ecolab increased ~~12%~~10%.

●

Reported diluted EPS of ~~$1.59 increased 7%~~$0.97 decreased 4%. Excluding the impact of special (gains) and charges and discrete tax items from both ~~2019~~2020 and ~~2018~~2019 reported results, adjusted diluted EPS increased ~~12%~~10% to ~~$1.71~~$1.13 in the ~~third~~first quarter of ~~2019.~~2020.

●

Our reported tax rate was ~~16.5%~~20.3% during the ~~third~~first quarter of ~~2019,~~2020, compared to ~~9.0%~~11.4% during the ~~third~~first quarter of ~~2018.~~2019. Excluding the tax rate impact of special (gains) and charges and discrete tax items from both ~~2019~~2020 and ~~2018~~2019 results, our adjusted tax rate was ~~20.1% and 19.5%~~20.6% during the ~~third~~first quarter of ~~2019~~2020 and ~~2018, respectively.~~2019.

RESULTS OF OPERATIONS

Net Sales


	Third Quarter Ended						Nine Months Ended						First Quarter Ended
	September 30						September 30						March 31
(millions)	2019		2018		Change		2019		2018		Change		2020		2019		Change
Product and equipment sales		$3,117.7		$3,101.4				$9,096.1		$9,021.5				$2,930.0		$2,886.3
Service and lease sales		$700.2		645.8				1,986.6		1,886.2				651.4		619.1
Reported GAAP net sales		$3,817.9		$3,747.2	2	%		$11,082.7		$10,907.7	2	%		$3,581.4		$3,505.4	2	%
Effect of foreign currency translation		37.4		(7.0)				83.9		(155.9)				21.6		(4.4)
Non-GAAP fixed currency sales		$3,855.3		$3,740.2	3	%		$11,166.6		$10,751.8	4	%		$3,603.0		$3,501.0	3	%

Product and sold equipment revenue is generated from providing cleaning, sanitizing, water and energy 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 ~~2019~~2020 sales change are shown below:

Third Quarter Ended

Nine Months Ended

September 30

September 30
(percent)

2019

2019
Volume

0%

1%
Price changes

2

3
Acquisition adjusted fixed currency sales change

2

3
Acquisitions and divestitures

1

1
Fixed currency sales change

3

4
Foreign currency translation

(1)

(2)
Reported GAAP net sales change

2%

2%



		First Quarter Ended
		March 31
(percent)		2020
Volume		1%
Price changes		2
Acquisition adjusted fixed currency sales change		2
Acquisitions and divestitures		1
Fixed currency sales change		3
Foreign currency translation		(1)
Reported GAAP net sales change		2%

Amounts do not necessarily sum due to rounding.

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


	Third Quarter Ended								Nine Months Ended								First Quarter Ended
	September 30								September 30								March 31
	2019				2018				2019				2018				2020				2019
			Gross				Gross				Gross				Gross				Gross				Gross
(millions/percent)	COS		Margin		COS		Margin		COS		Margin		COS		Margin		COS		Margin		COS		Margin
Product and equipment cost of sales		$1,792.7				$1,809.8				$5,308.5				$5,257.6				$1,715.9				$1,710.0
Service and lease cost of sales		414.7				380.9				1,196.7				1,151.5				400.9				379.6
Reported GAAP COS and gross margin		$2,207.4	42.2	%		$2,190.7	41.5	%		$6,505.2	41.3	%		$6,409.1	41.2	%		$2,116.8	40.9	%		$2,089.6	40.4	%
Special (gains) and charges		11.3				3.6				22.8				3.5				9.1				3.6
Non-GAAP adjusted COS and gross margin		$2,196.1	42.5	%		$2,187.1	41.6	%		$6,482.4	41.5	%		$6,405.6	41.3	%		$2,107.7	41.1	%		$2,086.0	40.5	%

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

Our reported gross margin was ~~42.2%~~40.9% and ~~41.5% for the third quarter of 2019 and 2018, respectively. Our reported gross margin~~40.4% for the first ~~nine months~~quarter of ~~2019~~2020 and ~~2018 was 41.3% and 41.2%,~~2019, respectively. Special (gains) and charges included in items impacting COS are shown within the “Special (Gains) and Charges” table on page 35.

Excluding the impact of special (gains) and charges within COS, ~~third~~first quarter 2020 and 2019 adjusted gross margin was ~~42.5%~~41.1% and our adjusted gross margin for the first nine months of 2019 was 41.5%. These percentages compared against a third quarter 2018 adjusted gross margin of 41.6% and an adjusted gross margin of 41.3% for the first nine months of 2018.40.5%, respectively.

Our adjusted gross margin increased when comparing the ~~third~~first quarter ~~and first nine months~~ of ~~2019~~2020 comparable periods of ~~2018,~~2019, which was driven primarily by ~~improved~~increased pricing and lower delivered product costs that were partially offset by other cost ~~efficiency initiatives.~~increases.

Selling, General and Administrative Expense

Selling, general and administrative (“SG&A”) expenses as a percentage of sales were ~~25.2% and 26.8%~~28.3% for the ~~third~~first quarter ~~and first nine months~~ of ~~2019, respectively,~~2020 compared to ~~25.7% and 27.7% for the third quarter and first nine months of 2018.~~28.8% in 2019. The decreased SG&A ratio to sales in the ~~third~~first quarter of ~~2019~~2020 was driven primarily by ~~sales leverage~~cost savings initiatives and ~~cost efficiency initiatives~~volume growth, which more than offset investments in the business.

Special (Gains) and Charges

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



	Third Quarter Ended				Nine Months Ended				First Quarter Ended
	September 30				September 30				March 31
(millions)	2019		2018		2019		2018		2020		2019
Cost of sales
Restructuring activities		$6.2		$5.9		$16.2		$6.3		3.0		3.4
Acquisition and integration activities		5.1		(0.1)		6.6		(0.6)		0.4		0.2
Other		-		(2.2)		-		(2.2)		5.7		-
Subtotal		11.3		3.6		22.8		3.5
Cost of sales subtotal										9.1		3.6

Special (gains) and charges
Restructuring activities		25.0		73.1		93.0		82.3		4.3		37.1
Upstream energy spin-off		29.7		-		48.5		-
ChampionX separation										36.6		4.3
Acquisition and integration activities		2.0		2.4		4.9		4.7		5.4		2.5
Other		3.7		0.1		4.2		26.7		6.1		(3.6)
Subtotal		60.4		75.6		150.6		113.7
Special (gains) and charges subtotal										52.4		40.3

Operating income subtotal		71.7		79.2		173.4		117.2		61.5		43.9

Interest expense, net		-		-		0.2		-		-		0.2
Total special (gains) and charges		$71.7		$79.2		$173.6		$117.2		$61.5		$44.1

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

Restructuring activities

Restructuring activities are primarily related to Accelerate 2020 (described below). These activities have been included as a component of cost of sales and special (gains) and charges on the Consolidated Statement of Income. Restructuring liabilities have been classified as a component of other current and other noncurrent liabilities on the Consolidated Balance Sheet.

Accelerate 2020

During the third quarter of 2018, we formally commenced a restructuring plan Accelerate 2020 (“the Plan”), to leverage technology and system investments and organizational changes. During the first quarter of 2019, we raised our goals for the Plan to further simplify and automate processes and tasks, reduce complexity and management layers, consolidated facilitates and focus on key long-term growth areas by further leveraging technology and structural improvements. We expect that the restructuring activities will be completed by the end of 2020, with total anticipated costs of $260 million ($~~190~~200 million after tax), or ~~$0.65~~$0.68 per diluted share, over this period of time. 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 of ~~$28.8~~$6.4 million ($~~19.7~~5.4 million after tax), or ~~$0.07 per diluted share and $106.8 million ($79.2 million after tax), or $0.27~~$0.02 per diluted share in the ~~third~~first quarter ~~and first nine months~~ of ~~2019, respectively.~~2020. The liability related to the Plan was ~~$97.7~~$87.2 million as of the end of the ~~third~~first quarter of ~~2019.~~2020. We have recorded ~~$211.4~~$247.6 million ($~~158.8~~189.4 million after tax), or ~~$0.54~~$0.65 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 and continues to be funded from operating activities.

The Plan has delivered ~~$80~~$159 million of cumulative cost savings with estimated annual cost savings of $325 million by 2021.

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

Employee







Termination

Asset

(millions)

Costs

Disposals

Other

Total

2018 Activity

Recorded expense

$
94.1

$
5.0

$
5.5

$
104.6

Net cash payments

(32.8)

-

(2.4)

(35.2)

Non-cash charges

-

(5.0)

-

(5.0)

Effect of foreign currency translation

(0.5)

-

-

(0.5)

Restructuring liability, December 31, 2018

60.8

-

3.1

63.9

2019 Activity

Recorded expense

93.7

0.1

13.0

106.8

Net cash payments

(61.6)

0.4

(10.8)

(72.0)

Non-cash charges

-

(0.5)

-

(0.5)

Effect of foreign currency translation

(0.5)

-

-

(0.5)

Restructuring liability, September 30, 2019

$
92.4

$
-

$
5.3

$
97.7

Other Restructuring Activities

During ~~third~~the first quarter of ~~2019,~~2020, we incurred restructuring charges of ~~$2.7~~$0.9 million ($~~2.2~~0.7 million after tax), or less than $0.01 per diluted share related to an immaterial restructuring plan. The charges ~~are comprised of facility closure costs, including asset disposals and consulting fees.~~primarily related to severance.

Prior to 2018, we engaged in a number of restructuring plans. During ~~both~~ the ~~third~~first quarter of 2020 and ~~first nine months of~~ 2019, net restructuring ~~gains~~charges related to prior year plans were $0.3 million ($0.2 million after tax), or less than $0.01 per diluted share. During the third quarter and first nine months of 2018, net restructuring gains related to prior year plans were $0.4 million ($0.3 million after tax), or less than $0.01 and $0.9 million ($0.6 million after tax) or less than $0.01 per diluted share. The gains recorded were due to finalizing estimates upon completion of projects.minimal. The restructuring liability balance for all plans commencing prior to 2018 was ~~$9.6~~$7.4 million and ~~$14.9~~$7.7 million as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively. The reduction in liability was driven primarily by severance payments. 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 ~~2019~~2020 related to all other restructuring plans ~~commencing prior to 2018~~excluding Accelerate 2020 were ~~$4.8~~$0.4 million.

~~Upstream Energy spin-off~~ChampionX Separation

~~During~~On December 18, 2019, the Company entered into definitive agreements with ChampionX and Apergy pursuant to which the Company will separate the Upstream Energy business and combine it with Apergy in a tax-efficient Reverse Morris Trust transaction. The charges reported during the first quarter of ~~2019, we announced our intention to pursue a plan to separate~~2020 and ~~spin-off the Upstream business of our Global Energy segment (the Upstream Business). The charges reported~~2019 in special (gains) and charges on the Consolidated Statement of Income include ~~$29.7~~$36.6 million ($~~24.0~~31.8 million after tax) or ~~$0.08~~$0.11 per diluted share and ~~$48.5~~$4.3 million ($~~39.7~~3.3 million after tax) or ~~$0.14~~$0.01 per diluted share, ~~in the third quarter and first nine months of 2019,~~ respectively. The charges are primarily related to professional fees to support the separation.

Acquisition and integration related costs

Acquisition and integration costs reported in special (gains) and charges on the Consolidated Statement of Income include ~~$2.0 million ($1.5 million after tax) or less than $0.01 per diluted share, and $4.9~~$5.4 million ($3.6 million after tax) or $0.01 per diluted share and $2.5 million ($1.8 million after tax) or $0.01 per diluted share, in the ~~third~~first quarter of 2020 and ~~first nine months of~~ 2019, respectively. Charges are related to Bioquell PLC (“Bioquell”) and the Laboratoires Anios (“Anios”) acquisitions and consist of integration costs, advisory and legal fees. Acquisition and integration costs reported in product and equipment cost of sales of ~~$5.1~~$0.4 million ($~~3.8~~0.3 million after tax) or less than $0.01 per diluted share and ~~$6.6~~$0.2 million ($~~4.9~~0.1 million after tax) or ~~$0.02~~less than $0.01 per diluted share, in the first quarter of 2020 and 2019, respectively, on the Consolidated Statement of Income ~~in the third quarter and first nine months of 2019~~ relate to ~~the recognition of fair value step-up in the Bioquell inventory and~~ severance related to the closure of a facility. We also incurred $0.2 million ($0.1 million after tax) or less than $0.01 per diluted share, of interest expense in the first ~~nine months~~quarter of 2019.

~~Acquisition and integration costs reported in~~Other

During the first quarter of 2020, we recorded special ~~(gains) and~~ charges ~~on the Consolidated Statement~~ of ~~Income include $2.4~~$5.7 million ($~~1.6~~3.8 million after tax) or $0.01 per diluted share recorded in product and ~~$4.7~~equipment cost of sales relates to a Healthcare product recall in Europe. Other special charges of $6.1 million ($~~3.3~~4.6 million after tax) or $0.02 per diluted share recorded in the first quarter of 2020 relate primarily to legal charges.

During the first quarter of 2019, we recorded other special charges of $3.6 million (14.3 million after tax) or $0.01 per diluted share, ~~in the third quarter and first nine months of 2018, respectively. Charges are~~which primarily related to ~~Anios integration costs, advisory and~~a litigation settlement which was offset with other legal fees. Acquisition and integration gain reported in product and equipment cost of sales on the Consolidated Statement of Income in the third quarter of 2018 relate to changes in estimates related to an early lease exit.charges.

~~Other~~

During the third quarter and first nine months of 2019, we recorded other special charges of $3.7 million ($2.7 million after tax) or less than $0.01 per diluted share and $4.2 million ($1.5 million gain after tax) or less than $0.01 per diluted share, respectively, which primarily related to legal charges partially offset by a litigation settlement.

During the third quarter and first nine months of 2018, we recorded other special charges of $0.1 million and $26.7 million, respectively, which primarily consisted of a $25.0 million ($18.9 million after tax) or $0.06 per diluted share, commitment to the Ecolab Foundation in response to the new U.S. tax law. Other charges were minimal in both third quarter and first nine months of 2018. These charges have been included as a component of special (gains) and charges on the Consolidated Statement of Income. Other special gains reported in product and equipment cost of sales on the Consolidated Statement of Income in the third quarter of 2018 of $2.2 million ($1.7 million after tax) or $0.01 per diluted share, related to changes in estimates for an inventory LIFO reserve.

Operating Income and Operating Income Margin



	Third Quarter Ended								Nine Months Ended								First Quarter Ended
	September 30								September 30								March 31
(millions)	2019			2018			Change		2019			2018			Change		2020			2019			Change
Reported GAAP operating income		$587.6			$516.2		14	%		$1,453.4			$1,365.1		6	%		$397.2			$367.2		8	%
Special (gains) and charges		71.7			79.2					173.4			117.2					61.5			43.9
Non-GAAP adjusted operating income		659.3			595.4		11	%		1,626.8			1,482.3		10	%		458.7			411.1		12	%
Effect of foreign currency translation		6.4			(1.2)					11.9			(23.8)					2.9			(0.5)
Non-GAAP adjusted fixed currency operating income		$665.7			$594.2		12	%		$1,638.7			$1,458.5		12	%		$461.6			$410.6		12	%

	Third Quarter Ended								Nine Months Ended								First Quarter Ended
	September 30								September 30								March 31
(percent)	2019			2018					2019			2018					2020			2019
Reported GAAP operating income margin		15.4	%		13.8	%				13.1	%		12.5	%				11.1	%		10.5	%
Non-GAAP adjusted operating income margin		17.3	%		15.9	%				14.7	%		13.6	%				12.8	%		11.7	%
Non-GAAP adjusted fixed currency operating income margin		17.3	%		15.9	%				14.7	%		13.6	%				12.8	%		11.7	%

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

Our reported operating income increased ~~14% and 6%~~8% in the ~~third~~first quarter ~~and first nine months~~ of ~~2019, respectively,~~2020, versus the comparable periods of ~~2018.~~2019. Our reported operating income for ~~2019~~2020 and ~~2018~~2019 was impacted by special (gains) and charges; excluding the impact of special (gains) and charges from ~~2019~~2020 and ~~2018~~2019 reported results, our adjusted operating income increased ~~11% and 10%~~12% in the ~~third~~first quarter ~~and first nine months~~ of ~~2019, respectively.~~2020.

As shown in the previous table, foreign currency had a 1%minimal impact on adjusted operating income growth for the ~~third~~first quarter ~~and 2%~~of 2020. Foreign currency had a 3% impact on adjusted operating income growth for the first ~~nine months~~quarter of 2019.

Other (Income) Expense

Other income was ~~$20.8~~$15.2 million and ~~$21.0 million in the third quarter of 2019 and 2018, respectively. Other income was $62.9 million and $60.0~~$21.2 million in the first ~~nine months~~quarter of ~~2019~~2020 and ~~2018,~~2019, respectively. Other income ~~was consistent for the third quarter and~~decreased in the first ~~nine months~~quarter of 2020 compared to 2019, ~~and 2018,~~ reflecting the return on pension assets and non-service costs of our pension obligations.

Interest Expense, Net


	Third Quarter Ended						Nine Months Ended						First Quarter Ended
	September 30						September 30						March 31
(millions)	2019		2018		Change		2019		2018		Change		2020		2019		Change
Reported GAAP interest expense, net		$46.1		$55.7	(17)	%		$145.0		$168.4	(14)	%		$48.1		$49.4	(3)	%
Special (gains) and charges		-		-				0.2		-				-		0.2
Non-GAAP adjusted interest expense, net		$46.1		$55.7	(17)	%		$144.8		$168.4	(14)	%		$48.1		$49.2	(2)	%

Reported net interest expense was ~~$46.1~~$48.1 million and ~~$55.7~~$49.4 million in the ~~third~~first quarter of ~~2019~~2020 and ~~2018, respectively. Reported net interest expense in the first nine months of~~ 2019, ~~and 2018 was $145.0 million and $168.4 million,~~ respectively. The decrease in net interest expense when comparing ~~2019~~2020 against ~~2018~~2019 was driven primarily by ~~higher~~lower average interest ~~income~~rates and lower outstanding ~~debt.~~debt, partially offset by lower interest income.

Provision for Income Taxes

The following table provides a summary of our tax rate:


	Third Quarter Ended				Nine Months Ended				First Quarter Ended
	September 30				September 30				March 31
(percent)	2019		2018		2019		2018		2020		2019

Reported GAAP tax rate	16.5	%	9.0	%	16.7	%	17.2	%	20.3	%	11.4	%
Tax rate impact of:
The Tax Act	0.7		(0.9)		0.2		(2.5)		-		1.3
Special (gains) and charges	1.0		2.1		0.9		0.6		(0.2)		2.0
Discrete tax items	1.9		9.3		2.6		5.1		0.5		5.9
Non-GAAP adjusted tax rate	20.1	%	19.5	%	20.4	%	20.4	%	20.6	%	20.6	%

Our reported tax rate was ~~16.5%~~20.3% and ~~9.0% for the third quarter of 2019 and 2018, respectively, and 16.7% and 17.2%~~11.4% for the first ~~nine months~~quarter of ~~2019~~2020 and ~~2018,~~2019, respectively. The change in our tax rate for the ~~third~~first quarter ~~and first nine months~~ of ~~2019~~2020 versus the comparable ~~periods~~period of ~~2018~~2019 was driven primarily by discrete tax items and special (gains) and ~~charges, and tax planning.~~charges. 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 as amounts included in special (gains) and charges are derived from tax jurisdictions with rates that vary from our effective tax rate, and discrete tax items are not necessarily consistent across periods. Our tax rate is based on our interpretations of existing tax rules; potential future guidance including regulations not yet issued could impact the future tax rate.

We recognized total net tax benefits related to discrete tax items of ~~$16.5 million and $43.2~~$2.3 million in the ~~third~~first quarter ~~and first nine months~~ of ~~2019, respectively.~~2020. Share-based compensation excess tax benefit contributed ~~$8.2 million and $40.0~~$23.4 million in the ~~third~~first quarter ~~and first nine months~~ of ~~2019, respectively.~~2020. We also recognized ~~benefits~~expense related to friction costs associated with ChampionX separation activity of ~~$4.3~~$18.8 million. Additionally, we recognized expense of $5.8 million related to foreign and ~~$3.1~~U.S. changes in estimates. The remaining discrete benefit of $3.5 million was due to reserve released during the quarter.

We recognized total net benefit related to discrete tax items of $27.7 million in the ~~third~~first quarter ~~and first nine months~~ of ~~2019, respectively,~~2019. Share-based compensation excess tax benefit contributed $18.7 million. We also recognized a $5.1 million benefit due to ~~finalization~~issuance of ~~certain estimates due~~technical guidance during the quarter related to ~~the 2018 U.S. federal tax return, for~~ the one-time transition tax imposed by the Tax Cuts and Jobs Act (the “Act”). ~~Additionally, we recognized benefit of $3.6 million related to foreign audit settlements and related reserve releases during the quarter.~~ The remaining discrete benefit was primarily ~~due~~related to changes in ~~estimates~~tax rates in non-U.S. ~~jurisdictions and from the 2018 U.S. federal tax return.~~jurisdictions.

We recorded a net discrete tax benefit of $47.2 million and $35.2 million in the third quarter and first nine months of 2018. In the third quarter of 2018, we filed U.S. federal tax returns which resulted in favorable adjustments of $39.9 million related to changes in estimates and an IRS approved method change. We recorded discrete tax expense of $4.8 million and $34.2 million in the third quarter and first nine months of 2018, respectively, for the one-time transition tax due to issuance of technical guidance during the respective quarters. Discrete tax items include excess tax benefits related to share-based compensation of $10.7 million and $23.5 million during the third quarter and first nine months of 2018. The remaining discrete tax benefits related to changes in reserves in non-U.S. jurisdictions and international changes in estimates that were recorded in the third quarter and first nine months of 2018.

~~The slight increase in the 2019 third quarter adjusted tax rate compared to 2018 was primarily due to increase in tax expense due to U.S. Tax Reform and the timing of tax planning.~~

Net Income Attributable to Ecolab


	Third Quarter Ended						Nine Months Ended						First Quarter Ended
	September 30						September 30						March 31
(millions)	2019		2018		Change		2019		2018		Change		2020		2019		Change
Reported GAAP net income attributable to Ecolab		$464.2		$435.4	7	%		$1,129.3		$1,034.0	9	%		$283.4		$296.5	(4)	%
Adjustments:
Special (gains) and charges, after tax		53.7		60.1				131.1		88.7				50.2		31.5
Discrete tax net expense (benefit)		(16.5)		(47.2)				(43.2)		(35.2)				(2.3)		(27.7)
Non-GAAP adjusted net income attributable to Ecolab		$501.4		$448.3	12	%		$1,217.2		$1,087.5	12	%		$331.3		$300.3	10	%

Diluted EPS


	Third Quarter Ended						Nine Months Ended						First Quarter Ended
	September 30						September 30						March 31
(dollars)	2019		2018		Change		2019		2018		Change		2020		2019		Change
Reported GAAP diluted EPS		$1.59		$ 1.48	7	%		$3.86		$ 3.53	9	%		$0.97		$ 1.01	(4)	%
Adjustments:
Special (gains) and charges		0.18		0.20				0.45		0.30				0.17		0.11
Discrete tax net expense (benefit)		(0.06)		(0.16)				(0.15)		(0.12)				(0.01)		(0.09)
Non-GAAP adjusted diluted EPS		$1.71		$ 1.53	12	%		$4.16		$ 3.71	12	%		$1.13		$ 1.03	10	%

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

Currency translation had an unfavorable impact of approximately ~~$0.02 and $0.11~~$0.01 per share on diluted EPS for the ~~third~~first quarter ~~and first nine months~~ of ~~2019,~~2020, when compared to the ~~third~~first quarter ~~and first nine months~~ of ~~2018, respectively.~~2019.

SEGMENT PERFORMANCE

The non-U.S. dollar functional international amounts included within our reportable segments are based on translation into U.S. dollars at the fixed currency exchange rates used by management for ~~2019.~~2020. The difference between the fixed currency exchange rates and the actual currency exchange rates is reported as “effect of foreign currency translation” in the following tables. All other accounting policies of the reportable segments are consistent with U.S. GAAP and the accounting policies described in Note 2 of our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019. Additional information about our reportable segments is included in Note ~~16.~~15.

Fixed currency net sales and operating income for the ~~third~~first quarter of 2020 and ~~first nine months of~~ 2019 ~~and 2018~~ for our reportable segments are shown in the following tables.


Net Sales	Third Quarter Ended						Nine Months Ended						First Quarter Ended
	September 30						September 30						March 31
(millions)	2019		2018		Change		2019		2018		Change		2020		2019		Change
Global Industrial		$1,418.9		$1,348.5	5	%		$4,102.0		$3,828.9	7	%		$1,444.0		$1,397.4	3	%
Global Institutional		1,357.1		1,304.9	4			3,895.9		3,769.4	3			1,072.3		1,020.2	5
Global Energy		836.5		859.4	(3)			2,488.6		2,516.9	(1)
Global Healthcare and Life Sciences														246.2		227.0	8
Upstream Energy														562.7		581.7	(3)
Other		242.8		227.4	7			680.1		636.6	7			277.8		274.7	1
Subtotal at fixed currency		3,855.3		3,740.2	3			11,166.6		10,751.8	4			3,603.0		3,501.0	3
Effect of foreign currency translation		(37.4)		7.0				(83.9)		155.9				(21.6)		4.4
Consolidated reported GAAP net sales		$3,817.9		$3,747.2	2	%		$11,082.7		$10,907.7	2	%		$3,581.4		$3,505.4	2	%

Operating Income	Third Quarter Ended						Nine Months Ended						First Quarter Ended
	September 30						September 30						March 31
(millions)	2019		2018		Change		2019		2018		Change		2020		2019		Change
Global Industrial		$240.1		$212.8	13	%		$596.3		$497.6	20	%		$226.9		$181.2	25	%
Global Institutional		313.0		286.6	9			767.8		729.3	5			183.5		176.2	4
Global Energy		103.6		88.9	17			270.9		243.9	11
Global Healthcare and Life Sciences														25.6		27.3	(6)
Upstream Energy														39.0		36.5	7
Other		48.8		48.0	2			123.1		114.0	8			25.3		28.9	(12)
Corporate		(111.5)		(121.3)				(292.8)		(243.5)				(100.2)		(83.4)
Subtotal at fixed currency		594.0		515.0	15			1,465.3		1,341.3	9			400.1		366.7	9
Effect of foreign currency translation		(6.4)		1.2				(11.9)		23.8				(2.9)		0.5
Consolidated reported GAAP operating income		$587.6		$516.2	14	%		$1,453.4		$1,365.1	6	%		$397.2		$367.2	8	%

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

Third Quarter Ended

First Quarter Ended

September 30

March 31

Net Sales

2019

2018

2020

2019

(millions)

Fixed
Currency

Impact of Acquisitions and Divestitures

Acquisition Adjusted

Fixed
Currency

Impact of Acquisitions and Divestitures

Acquisition Adjusted

Fixed
Currency

Impact of Acquisitions and Divestitures

Acquisition Adjusted

Fixed
Currency

Impact of Acquisitions and Divestitures

Acquisition Adjusted

Global Industrial

$1,418.9

$(25.9)

$1,393.0

$1,348.5

$(1.3)

$1,347.2

$1,444.0

$1,397.4

Global Institutional

1,357.1

(9.9)

1,347.2

1,304.9

1,072.3

(14.1)

1,058.2

1,020.2

Global Energy

836.5

859.4

Global Healthcare and Life Sciences

246.2

(9.5)

236.7

227.0

Upstream Energy

562.7

581.7

Other

242.8

(0.8)

242.0

227.4

(0.2)

227.2

277.8

(0.4)

277.4

274.7

Subtotal at fixed currency

3,855.3

(36.6)

3,818.7

3,740.2

(1.5)

3,738.7

3,603.0

(24.0)

3,579.0

3,501.0

Effect of foreign currency translation

(37.4)

7.0

(21.6)

4.4

Total reported net sales

$3,817.9

$3,747.2

$3,581.4

$3,505.4

Operating Income

2019

2018

2020

2019

(millions)

Fixed
Currency

Impact of Acquisitions and Divestitures

Acquisition Adjusted

Fixed
Currency

Impact of Acquisitions and Divestitures

Acquisition Adjusted

Fixed
Currency

Impact of Acquisitions and Divestitures

Acquisition Adjusted

Fixed
Currency

Impact of Acquisitions and Divestitures

Acquisition Adjusted

Global Industrial

$240.1

$0.8

$240.9

$212.8

$(0.8)

$212.0

$226.9

$181.2

Global Institutional

313.0

(4.7)

308.3

286.6

183.5

(0.6)

182.9

176.2

Global Energy

103.6

0.1

103.7

88.9

0.2

89.1

Global Healthcare and Life Sciences

25.6

0.8

26.4

27.3

Upstream Energy

39.0

36.5

Other

48.8

(0.1)

48.7

48.0

25.3

28.9

Corporate

(39.8)

(42.1)

(38.7)

(39.5)

Non-GAAP adjusted fixed currency operating income

665.7

(3.9)

661.8

594.2

(0.6)

593.6

461.6

0.2

461.8

410.6

Special (gains) and charges

71.7

79.2

61.5

43.9

Subtotal at fixed currency

594.0

515.0

400.1

366.7

Effect of foreign currency translation

(6.4)

1.2

(2.9)

0.5

Total reported operating income

$587.6

$516.2

$397.2

$367.2

Nine Months Ended

September 30

Net Sales

2019

2018

(millions)

Fixed
Currency

Impact of Acquisitions and Divestitures

Acquisition Adjusted

Fixed
Currency

Impact of Acquisitions and Divestitures

Acquisition Adjusted

Global Industrial

$4,102.0

$(75.0)

$4,027.0

$3,828.9

$(10.6)

$3,818.3

Global Institutional

3,895.9

(16.4)

3,879.5

3,769.4

Global Energy

2,488.6

(0.1)

2,488.5

2,516.9

(2.5)

2,514.4

Other

680.1

(0.9)

679.2

636.6

(0.2)

636.4

Subtotal at fixed currency

11,166.6

(92.4)

11,074.2

10,751.8

(13.3)

10,738.5

Effect of foreign currency translation

(83.9)

155.9

Total reported net sales

$11,082.7

$10,907.7

Operating Income

2019

2018

(millions)

Fixed
Currency

Impact of Acquisitions and Divestitures

Acquisition Adjusted

Fixed
Currency

Impact of Acquisitions and Divestitures

Acquisition Adjusted

Global Industrial

$596.3

$3.1

$599.4

$497.6

$(2.4)

$495.2

Global Institutional

767.8

1.8

769.6

729.3

Global Energy

270.9

0.1

271.0

243.9

2.3

246.2

Other

123.1

(0.2)

122.9

114.0

(0.1)

113.9

Corporate

(119.4)

(126.3)

Non-GAAP adjusted fixed currency operating income

1,638.7

4.8

1,643.5

1,458.5

(0.2)

1,458.3

Special (gains) and charges

173.4

117.2

Subtotal at fixed currency

1,465.3

1,341.3

Effect of foreign currency translation

(11.9)

23.8

Total reported operating income

$1,453.4

$1,365.1

Unless otherwise noted, the following segment performance commentary compares the ~~third~~first quarter ~~and first nine months~~ of ~~2019~~2020 against the ~~third~~first quarter ~~and first nine months~~ of ~~2018.~~2019.

Global Industrial


	Third Quarter Ended						Nine Months Ended						First Quarter Ended
	September 30						September 30						March 31
	2019			2018			2019			2018			2020			2019
Sales at fixed currency (millions)		$1,418.9			$1,348.5			$4,102.0			$3,828.9			$1,444.0			$1,397.4
Sales at public currency (millions)		1,399.8			1,352.3			4,061.9			3,905.5			1,434.5			1,402.0

Volume		0	%					2	%					1	%
Price changes		3	%					3	%					2	%
Acquisition adjusted fixed currency sales change		3	%					5	%					3	%
Acquisitions and divestitures		2	%					2	%					-	%
Fixed currency sales change		5	%					7	%					3	%
Foreign currency translation		(2)	%					(3)	%					(1)	%
Public currency sales change		4	%					4	%					2	%

Operating income at fixed currency (millions)		$240.1			$212.8			$596.3			$497.6			$226.9			$181.2
Operating income at public currency (millions)		236.6			213.8			590.5			511.6			225.3			181.9

Fixed currency operating income change		13	%					20	%					25	%
Fixed currency operating income margin		16.9	%		15.8	%		14.5	%		13.0	%		15.7	%		13.0	%
Acquisition adjusted fixed currency operating income change		14	%					21	%					25	%
Acquisition adjusted fixed currency operating income margin		17.3	%		15.7	%		14.9	%		13.0	%		15.7	%		13.0	%
Public currency operating income change		11	%					15	%					24	%

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

Net Sales

Fixed currency sales for Global Industrial increased in ~~both~~ the ~~third~~first quarter ~~and first nine months~~ of ~~2019, benefitting~~2020, benefiting from pricing and volume gains. In the ~~third~~first quarter, ~~and first nine months,~~ all major regions showed sales growth.

At an operating segment level, Water fixed currency sales increased ~~5% in the third quarter and 7%~~1% in the first ~~nine months~~quarter of ~~2019. Light~~2020. Globally, there were good gains in light industry ~~sales growth was led~~water treatment, driven by its innovative technology and service offerings. Heavy industry sales ~~continued~~declined slightly primarily due to ~~grow, showing strong international results.~~power, where the ongoing conversion to gas fuel from coal hurt sales. Mining ~~sales gains were led by new business wins.~~declined modestly due to weak coal markets. Food & Beverage fixed currency sales increased ~~8% (4% acquisition adjusted) in the third quarter of 2019 and 9% (6% acquisition adjusted)~~6% in the first ~~nine months~~quarter of ~~2019, benefiting from new business wins and pricing, which more than offset generally flat industry trends. Growth was~~2020 led by ~~the~~share gains and pricing. Globally, we saw strong growth in dairy, food and ~~food businesses.~~beverage and brewing businesses, and moderate softness in protein. Fixed currency sales grew across all regions. ~~Paper~~Downstream fixed currency sales ~~decreased 2% in the third quarter of 2019 and~~ increased 2%4% in the first ~~nine months~~quarter of ~~2019.~~2020 ~~Textile Care~~as sales benefited from steady water treatment volumes and higher additive sales. Paper fixed currency sales increased ~~2% in the third quarter and first nine months of 2019.~~ ~~Life Sciences~~ ~~fixed currency sales increased 32% (7% acquisition adjusted) in the third quarter of 2019 and 34% (11% acquisition adjusted)~~3% in the first ~~nine months~~quarter of ~~2019 as we realized~~2020 led by new business and good ~~growth from business wins~~trends in packaging, tissue and ~~pricing in the pharmaceutical and personal care markets.~~towels.

Operating Income

Fixed currency operating income and fixed currency operating income margins increased for Global Industrial in the ~~third~~first quarter ~~and first nine months~~ of ~~2019. Acquisitions had negative impact on the fixed currency operating income and a negative impact on fixed currency operating income margins.~~2020.

Acquisition adjusted fixed currency operating income margins increased ~~1.6 and 1.9~~2.7 percentage points during the ~~third~~first quarter ~~and first nine months~~ of ~~2019, respectively,~~2020 and were positively impacted approximately ~~3.5 and 3.6~~3.0 percentage points by pricing, lowered delivered product costs and ~~cost efficiency initiatives, which more than offset the approximately 1.7 and 1.0 percentage point margin impact of investments in the business~~improved volume gains during the ~~third~~first quarter ~~and first nine months~~ of ~~2019, respectively.~~2020.

Global Institutional


	Third Quarter Ended						Nine Months Ended						First Quarter Ended
	September 30						September 30						March 31
	2019			2018			2019			2018			2020			2019
Sales at fixed currency (millions)		$1,357.1			$1,304.9			$3,895.9			$3,769.4			$1,072.3			$1,020.2
Sales at public currency (millions)		1,344.6			1,305.1			3,864.9			3,808.0			1,067.2			1,020.8

Volume		1	%					1	%					2	%
Price changes		2	%					2	%					2	%
Acquisition adjusted fixed currency sales change		3	%					3	%					4	%
Acquisitions and divestitures		1	%					0	%					1	%
Fixed currency sales change		4	%					3	%					5	%
Foreign currency translation		(1)	%					(2)	%					(1)	%
Public currency sales change		3	%					1	%					5	%

Operating income at fixed currency (millions)		$313.0			$286.6			$767.8			$729.3			$183.5			$176.2
Operating income at public currency (millions)		310.9			286.5			763.5			733.8			182.8			176.0

Fixed currency operating income change		9	%					5	%					4	%
Fixed currency operating income margin		23.1	%		22.0	%		19.7	%		19.3	%		17.1	%		17.3	%
Acquisition adjusted fixed currency operating income change		8	%					6	%					4	%
Acquisition adjusted fixed currency operating income margin		22.9	%		22.0	%		19.8	%		19.3	%		17.3	%		17.3	%
Public currency operating income change		9	%					4	%					4	%

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

Net Sales

Fixed currency sales for Global Institutional increased in the ~~third~~first quarter ~~and first nine months~~ of ~~2019,~~2020, driven by pricing and volume gains. At a regional level, the ~~third~~first quarter fixed currency sales increased in all major regions.

At an operating segment level, Institutional fixed currency sales increased 1% (0% acquisition adjusted) in the first quarter of 2020 reflecting strong cleaning and sanitizing product sales offset by slowing restaurant, lodging and entertainment facility customer demand due to the pandemic. Specialty fixed currency sales increased 20% (14% acquisition adjusted) in the first quarter of 2020 led by sharp increases in cleaning and sanitizing product sales.

Operating Income

Fixed currency operating income increased while fixed currency operating income margins decreased for our Global Institutional segment in the first quarter of 2020.

Acquisition adjusted fixed currency operating income margins remained flat during the first quarter of 2020. Margins were positively impacted approximately 2.7 percentage points from pricing and cost savings initiatives during the first quarter of 2020. Other selling related expenses negatively impacted margins by approximately 2.6 percentage points during the first quarter of 2020.

Global Healthcare and Life Sciences


	First Quarter Ended
	March 31
	2020			2019
Sales at fixed currency (millions)		$246.2			$227.0
Sales at public currency (millions)		243.6			227.6

Volume		4	%
Price changes		-	%
Acquisition adjusted fixed currency sales change		4	%
Acquisitions and divestitures		4	%
Fixed currency sales change		8	%
Foreign currency translation		(1)	%
Public currency sales change		7	%

Operating income at fixed currency (millions)		$25.6			$27.3
Operating income at public currency (millions)		25.2			27.2

Fixed currency operating income change		(6)	%
Fixed currency operating income margin		10.4	%		12.0	%
Acquisition adjusted fixed currency operating income change		(3)	%
Acquisition adjusted fixed currency operating income margin		11.2	%		12.0	%
Public currency operating income change		(7)	%

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

Net Sales

Fixed currency sales for Global Healthcare and Life Sciences increased in the first quarter of 2020, driven by volume gains. At a regional level, the first quarter fixed currency sales increased in all regions.

At an operating segment level, ~~Institutional~~ fixed currency sales increased 2% in the third quarter and first nine months of 2019, reflecting the exit of low margin business. Global lodging demand continued to show moderate growth while full service restaurant industry foot traffic remained weak. ~~Specialty~~ fixed currency sales increased 12% (9% acquisition adjusted) and 8% (7% acquisition adjusted) in the third quarter and first nine months of 2019, led primarily from strong ongoing business and program wins. Healthcare fixed currency sales increased 3%6% (2% acquisition adjusted) in the first quarter of 2020, as strong hand and surface disinfection sales growth more than offset the unfavorable effects of the fourth quarter’s product recall in Europe. Life Sciences fixed currency sales increased 23% (16% acquisition adjusted) in the first quarter of 2020 driven by business wins and pricing in our cleaning and disinfection programs for both the ~~third quarter~~pharmaceutical and ~~first nine months of 2019, as~~personal care markets, and by strong ~~global program~~ growth ~~was partially offset by decreased sales of the less differentiated non-program sales and business exits.~~in Europe.

Operating Income

Fixed currency operating income and fixed currency operating income margins for our Global ~~Institutional~~Healthcare and Life Sciences segment ~~increased~~decreased in ~~both~~ the ~~third~~first quarter ~~and first nine months~~ of ~~2019.~~2020.

Acquisition adjusted fixed currency operating income margins ~~increased 0.9 and 0.5~~decreased 0.8 percentage points during the ~~third~~first quarter ~~and first nine months~~ of ~~2019 and were~~2020. Volume gains, which positively impacted margins by approximately 2.0 and 2.0 percentage points from improved pricing and cost efficiency initiatives during the third quarter and first nine months of 2019, respectively. Investments in the business negatively impacted approximately 0.9 and 0.63.9 percentage points during the ~~third~~first quarter of 2020, were more than offset by lower efficiency due to the Healthcare product recall and investments in the business which negatively impacted margins by approximately 4.6 percentage points during the first ~~nine months~~quarter of ~~2019, respectively.~~2020.

4243

~~Global~~Upstream Energy


	Third Quarter Ended						Nine Months Ended						First Quarter Ended
	September 30						September 30						March 31
	2019			2018			2019			2018			2020			2019
Sales at fixed currency (millions)		$836.5			$859.4			$2,488.6			$2,516.9			$562.7			$581.7
Sales at public currency (millions)		832.7			862.2			2,479.5			2,550.3			560.4			580.0

Volume		(4)	%					(3)	%					(3)	%
Price changes		1	%					2	%					-	%
Acquisition adjusted fixed currency sales change		(3)	%					(1)	%					(3)	%
Acquisitions and divestitures		0	%					(0)	%					-	%
Fixed currency sales change		(3)	%					(1)	%					(3)	%
Foreign currency translation		(1)	%					(2)	%					(0)	%
Public currency sales change		(3)	%					(3)	%					(3)	%

Operating income at fixed currency (millions)		$103.6			$88.9			$270.9			$243.9			$39.0			$36.5
Operating income at public currency (millions)		102.7			89.2			268.9			249.5			38.8			36.5

Fixed currency operating income change		17	%					11	%					7	%
Fixed currency operating income margin		12.4	%		10.3	%		10.9	%		9.7	%		6.9	%		6.3	%
Acquisition adjusted fixed currency operating income change		16	%					10	%					7	%
Acquisition adjusted fixed currency operating income margin		12.4	%		10.4	%		10.9	%		9.8	%		6.9	%		6.3	%
Public currency operating income change		15	%					8	%					6	%

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

Net Sales

Fixed currency sales for ~~Global~~Upstream Energy decreased in the ~~third~~first quarter ~~and first nine months~~ of ~~2019. Declines~~2020. A significant decline in the well stimulation business ~~that were due to the reduced North America industry activity~~ was partially offset by good growth in production sales. ~~Downstream sales were modestly lower due to the timing of new business start-ups and customer maintenance work.~~

Operating Income

Fixed currency operating income for ~~Global~~Upstream Energy increased during ~~both~~ the ~~third~~first quarter ~~and first nine months~~ of 2019. Acquisitions had a positive impact on the fixed currency operating income for the third quarter and first nine months of 2019, respectively, with minimal impact on the fixed currency operating income margins during the third quarter and first nine months of 2019.2020.

Acquisition adjusted fixed currency operating income margins increased ~~2.0 and 1.1~~0.6 percentage points during the ~~third~~first quarter ~~and first nine months~~ of ~~2019. Pricing, cost efficiency~~2020. Cost savings initiatives and ~~lower~~improved delivered product costs favorably impacted margins by approximately ~~4.0 and 2.9~~3.4 percentage points during the ~~third~~first quarter ~~and first nine months~~ of ~~2019, respectively.~~2020. These gains more than offset a negative impact of approximately ~~1.6 and 1.3~~2.6 percentage points related to lower sales volume leverage and investments in the business during the ~~third~~first quarter ~~and first nine months~~ of ~~2019, respectively.~~2020.

4344

Other


	Third Quarter Ended						Nine Months Ended						First Quarter Ended
	September 30						September 30						March 31
	2019			2018			2019			2018			2020			2019
Sales at fixed currency (millions)		$242.8			$227.4			$680.1			$636.6			$277.8			$274.7
Sales at public currency (millions)		240.8			227.6			676.4			643.9			275.7			275.0

Volume		4	%					5	%					(1)	%
Price changes		2	%					2	%					2	%
Acquisition adjusted fixed currency sales change		7	%					7	%					1	%
Acquisitions and divestitures		(0)	%					(0)	%					0	%
Fixed currency sales change		7	%					7	%					1	%
Foreign currency translation		(1)	%					(2)	%					(1)	%
Public currency sales change		6	%					5	%					0	%

Operating income at fixed currency (millions)		$48.8			$48.0			$123.1			$114.0			$25.3			$28.9
Operating income at public currency (millions)		48.5			48.0			122.5			114.9			25.2			29.1

Fixed currency operating income change		2	%					8	%					(12)	%
Fixed currency operating income margin		20.1	%		21.1	%		18.1	%		17.9	%		9.1	%		10.5	%
Acquisition adjusted fixed currency operating income change		1	%					8	%					(12)	%	��
Acquisition adjusted fixed currency operating income margin		20.1	%		21.1	%		18.1	%		17.9	%		9.1	%		10.5	%
Public currency operating income change		1	%					7	%					(13)	%

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

Net Sales

Fixed currency sales for Other increased in ~~both~~ the ~~third~~first quarter ~~and first nine months~~ of ~~2019~~2020 with ~~strong~~modest gains in ~~both~~ Pest ~~Elimination and Colloidal Technologies.~~Elimination. At a regional level, the ~~third~~first quarter ~~and first nine months~~ of ~~2019~~2020 sales results showed ~~good~~ growth across all major regions.

At an operating segment level, Pest Elimination fixed currency sales increased ~~6% in the third quarter of 2019 and 7% (6% acquisition adjusted)~~2% in the first ~~nine months~~quarter of ~~2019~~2020 with sales growth in all major regions. Sales results reflect the negative impacts of COVID-19 primarily on China and North America sales in the quarter, where customer closures limited access for normal service. Colloidal Technologies Group fixed currency sales ~~increased 11% in the third quarter and 9%~~decreased 1% in the first ~~nine months~~quarter of ~~2019.~~2020. Textile Care fixed currency sales decreased 1% in the first quarter of 2020.

Operating Income

Acquisition adjusted fixed currency operating income margins for Other decreased ~~1.0 and increased 0.2~~1.4 percentage points during the ~~third~~first quarter ~~and first nine months~~ of ~~2019, respectively. Pricing and~~2020. Reduced productivity on lower sales ~~volume favorably impacted margins by approximately 2.5 and 2.7 percentage points for the third quarter and first nine months of 2019, respectively. Field investments~~growth negatively impacted margins by approximately ~~2.9 and 1.8~~2.6 percentage points for the ~~third~~first quarter ~~and~~of 2020. These costs were partially offset by improved pricing which positively impacted margins by approximately 1.5 percentage points for the first ~~nine months~~quarter of ~~2019, respectively.~~2020.

Corporate

Consistent with our internal management reporting, Corporate amounts in the table on page 39 include intangible asset amortization specifically from the Nalco merger 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 35.

4445

FINANCIAL POSITION, CASH FLOWS AND LIQUIDITY

Financial Position

Total assets were ~~$20.8~~$22.4 billion as of ~~September 30, 2019~~March 31, 2020 compared to total assets of ~~$20.1~~$20.9 billion as of December 31, ~~2018.~~2019.

Total liabilities were ~~$12.2~~$13.5 billion as of ~~September 30, 2019~~March 31, 2020 compared to total liabilities of ~~$12.0~~$12.1 billion as of December 31, ~~2018.~~2019. Total debt was ~~$6.7~~$7.8 billion as of ~~September 30, 2019~~March 31, 2020 and ~~$7.0~~$6.4 billion as of December 31, ~~2018.~~2019. See further discussion of our debt activity within the “Liquidity and Capital Resources” section of this MD&A.

Our net debt to earnings before interest, taxes, depreciation and amortization (“EBITDA”) is shown in the following table. EBITDA is a non-GAAP 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 for the period presented.

2019

2018

2020

2019

(ratio)

Net debt to EBITDA

2.1

2.3

2.0

2.1

(millions)

Total debt

$6,746.0

$7,104.2

$7,782.3

$6,354.1

Cash

135.9

203.6

1,661.9

186.4

Net debt

$6,610.1

$6,900.6

$6,120.4

$6,167.7

Net income including noncontrolling interest

$1,542.1

$1,608.5

$1,566.0

$1,492.5

Provision for income taxes

377.1

196.4

358.2

333.8

Interest expense, net

198.9

246.2

189.9

215.3

Depreciation

648.1

610.2

664.4

629.4

Amortization

318.3

318.0

319.7

316.6

EBITDA

$3,084.5

$2,979.3

$3,098.2

$2,987.6

Cash Flows

Operating Activities

Nine Months Ended

First Quarter Ended

September 30

March 31

(millions)

2019

2018

Change

2020

2019

Change

Cash provided by operating activities

$1,599.7

$1,450.4

$149.3

$371.8

$378.1

$(6.3)

We continue to generate strong 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.

Comparability of cash generated from operating activities was impacted by fluctuations in accounts receivable, inventories and accounts payable (“working capital”). The cash flow impact from working capital accounts was driven by ~~changes in sales volumes and~~ timing of ~~collections; timing of purchases~~collections and sales volume along with production usage ~~levels; and volume of purchases and timing of payments.~~levels.

4546

Investing Activities

Nine Months Ended

First Quarter Ended

September 30

March 31

(millions)

2019

2018

Change

2020

2019

Change

Cash used for investing activities

$(929.2)

$(648.9)

$(280.3)

$(165.7)

$(477.4)

$311.7

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

Total cash paid for acquisitions, net of cash acquired and net of cash received from dispositions, during the first ~~nine months~~quarter in 2020 and 2019, ~~and 2018,~~ was ~~$380~~$2 million and ~~$68~~$282 million, respectively. Our acquisitions and divestitures ~~across 2019 and 2018~~ 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.

We continue to make capital investments in the business, including merchandising and customer equipment and manufacturing facilities. Total capital expenditures were ~~$550~~$161 million and ~~$634~~$187 million in the first ~~nine months~~quarter of ~~2019~~2020 and ~~2018,~~2019, respectively.

Financing Activities

Nine Months Ended

First Quarter Ended

September 30

March 31

(millions)

2019

2018

Change

2020

2019

Change

Cash used for financing activities

$(847.5)

$(819.5)

$(28.0)

Cash provided by (used for) financing activities

$1,265.8

$(117.5)

$1,383.3

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~~payments.

We issued $767 million of long-term debt in the first quarter of 2020. We repaid $300 million and ~~acquisition-related contingent considerations.~~$400 million of long-term debt in the first quarter of 2020 and 2019, respectively. The proceeds received from the debt issuances will be used for repayment of commercial paper and general corporate purposes. In addition, we had net issuances of commercial paper of $958 million and $488 million in the first quarter of 2020 and 2019, respectively.

Shares are repurchased for the purpose of partially offsetting the dilutive effect of our equity compensation plans and stock issued in acquisitions, to manage our capital structure and to efficiently return capital to shareholders. We repurchased a total of ~~$349~~$95 million and ~~$321~~$131 million of shares in the first ~~nine months~~quarter of ~~2019~~2020 and ~~2018,~~2019, respectively. Cash proceeds and tax benefits from stock option exercises provide a portion of the funding for repurchase activity.

The impact on financing cash flows of commercial paper and notes payable issuances and long-term debt borrowings and repayments are shown in the following table:

Nine Months Ended

First Quarter Ended

September 30

March 31

(millions)

2019

2018

Change

2020

2019

Change

Net issuances of commercial paper and notes payable

$149.5

$115.7

$33.8

Net issuances (repayments) of commercial paper and notes payable

$957.6

$487.9

$469.7

Long-term debt borrowings

766.6

Long-term debt repayments

(400.6)

(301.8)

(98.8)

(299.7)

(400.3)

100.6

4647

Liquidity and Capital Resources

We currently expect to fund the cash requirements which are reasonably foreseeable for the next twelve months, including scheduled debt repayments, new investments in the business, share repurchases, dividend payments, possible business acquisitions and pension and postretirement contributions with cash from operating activities, and as needed, additional short-term and/or long-term borrowings. We continue to expect our operating cash flow to remain strong.

As of ~~September 30, 2019,~~March 31, 2020, we had ~~$136~~$1,662 million of cash and cash equivalents on hand, of which ~~$77~~$208 million was held outside of the U.S.

As of ~~September 30, 2019,~~March 31, 2020, we have a $2.0 billion multi-year credit facility which expires in November 2022. The credit facility has been established with a diverse syndicate of banks and supports our U.S. and Euro commercial paper programs. The maximum aggregate amount of commercial paper that may be issued under our U.S. commercial paper program and our Euro commercial paper program may not exceed $2.0 billion. At the end of the ~~third~~first quarter of ~~2019,~~2020, we had ~~$384~~$298 million (€~~358~~270 million) of commercial paper outstanding under our Euro program and ~~$75~~$703 million outstanding under our U.S. program. There were no borrowings under our credit facility as of ~~September 30, 2019~~March 31, 2020 or ~~2018.~~2019. As of ~~September 30, 2019,~~March 31, 2020, both programs were rated A-2 by Standard & Poor’s, P-2 by Moody’s and ~~F-2~~F-1 by Fitch.

In ~~October 2019, Fitch upgraded its rating~~April 2020, we executed a $500 million 364-day revolving credit agreement to be used for general corporate purposes with a diverse syndicate of banks to provide for further liquidity over the ~~programs~~next twelve months in response to ~~F-1.~~the coronavirus pandemic. In addition, we executed and have drawn on a $305 million term credit agreement to be repaid in the second quarter of 2020.

Our long-term debt issuance and repayment activity through the first ~~nine~~three months of ~~2019~~2020 and ~~2018~~2019 is discussed in the Cash Flows – Financing Activities section of this MD&A.

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

The schedule of contractual obligations included in the Financial Position and Liquidity section of our Form 10-K for the year ended December 31, ~~2018~~2019 disclosed total notes payable and long-term debt due within one year of ~~$577~~$326 million. As of ~~September 30, 2019,~~March 31, 2020, the total notes payable and long-term debt due within one year decreased to ~~$319~~$37 million. The commercial paper outstanding as of ~~September 30, 2019~~March 31, 2020 increased to ~~$459~~$1,001 million. The commercial paper outstanding as of December 31, ~~2018~~2019 was ~~$165~~$55 million.

In the third quarter of 2019 and 2018 we recorded a one-time transition tax expense of $4 million and $5 million, respectively. In the first nine months of 2019 and 2018 we recorded a one-time transition tax expense of $3 million and $34 million, respectively. The one-time transition tax was primarily due to the issuance of technical guidance during the quarter.

Our gross liability for uncertain tax positions was ~~$38~~$25 million as of ~~September 30, 2019~~March 31, 2020 and ~~$50~~$28 million as of December 31, ~~2018.~~2019. 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

Energy Markets

Coronavirus disease 2019 (COVID-19)

~~Our~~

In March 2020, the coronavirus disease 2019 (COVID-19) was declared a pandemic by the World Health Organization. The COVID-19 pandemic is affecting major economic and financial markets, while industries are facing the challenges with the economic conditions resulting from efforts to address the pandemic. As the spread of the pandemic increases, many countries have required companies to limit or suspend business operations and have implemented travel restrictions. These conditions have had and will continue to have a negative impact on market conditions and customer demand throughout the world. We anticipate adverse impacts and disruptions in our restaurant, lodging and entertainment-related business operations, with limited or no adverse impacts on certain other parts of our business, supply chain and business continuity plans from COVID-19 restrictions; certain of our business will benefit from increased cleanings and sanitizing product demand. The ongoing effects of the global ~~footprint~~COVID-19 outbreak and ~~broad business portfolio within~~reduction in oil prices to current levels could result in a global recession.

We anticipate a reduction to our 2020 results of operations and operating cash flows due to lower market demand, but we are not yet able to estimate the ~~Global Energy segment,~~full impact of the coronavirus outbreak as it continues to spread globally. While we continue to provide cleaning, disinfection programs and increased sanitizing protocols in response to the pandemic in healthcare, quick-service and food and beverage plant customers, we anticipate products and services provided to the full-service restaurant, hospitality, lodging and entertainment industries will decline in the upcoming quarter due to the regulatory and organizational mandates that have been put in place. We have taken, and are continuing to take, steps to reduce costs, including reductions in capital expenditures, as well as our execution capabilities, are expected to provide the required resilience to outperform in the current market. As such, we continue to remain confident in the long-term growth prospects of the segment.other ongoing cost initiatives.

Global Economies

Approximately half of our sales are outside of the U.S. Our international operations subject us to changes in economic conditions and foreign currency exchange rates as well as political uncertainty in some countries which could impact future operating results.

Argentina has continued to experience negative economic trends, evidenced by multiple periods of increasing inflation rates, devaluation of the peso, and increasing borrowing rates. Argentina is classified as a highly inflationary economy in accordance with U.S. GAAP, and the U.S. dollar is the functional currency for our subsidiaries in Argentina. During the first ~~nine months~~quarter of ~~2019,~~2020, sales in Argentina represented less than 1% of our consolidated sales. Assets held in Argentina at the end of the ~~third~~first quarter represented less than 1% of our consolidated assets.

Brexit Referendum

~~On March 29, 2017,~~Effective January 31, 2020, the ~~United Kingdom (“~~U.K.~~”) government gave formal notice~~ left the European Union. The U.K.’s relationship with the EU will no longer be governed by the EU Treaties, but instead by the terms of the Withdrawal Agreement agreed between the U.K. and the EU in late 2019. The Withdrawal Agreement provides for a “transition” period, which commenced the moment the U.K. left the EU and is currently set to end on December 31, 2020. At the end of the transition period, there may be significant changes to the ~~European Union (“EU”) to begin the process of negotiating the~~ U.K.’s ~~exit (“Brexit”) from~~business environment. While the ~~EU. The~~ effects of Brexit will depend on any agreements the U.K. makes to retain access to ~~the~~ EU markets ~~either during a transitional period~~ or ~~more permanently. The negotiations might also impact various tax reliefs and exemptions that apply~~the failure to ~~transactions~~reach such agreements, the uncertainties created by Brexit, any resolution between the U.K. and ~~EU. In~~EU countries or the ~~longer term,~~failure to reach any ~~impact from Brexit on~~such resolutions, could adversely affect our ~~U.K. operations will depend, in part, on the outcome of tariff, trade, regulatory,~~relationships with customers, suppliers and ~~other negotiations. The Brexit deadline continues to be extended~~employees and ~~we continue to monitor the status of tax law changes and tax treaty negotiations at the U.K. and EU. For the nine months ended September 30, 2019, net sales of~~could adversely affect our ~~U.K. operations were approximately 2% of our consolidated net sales.~~business.

NEW ACCOUNTING PRONOUNCEMENTS

For information on new accounting pronouncements, ~~see~~refer to Note 1817 to the Consolidated Financial Statements.

SUBSEQUENT EVENTS

~~In October 2019,~~During the ~~United Kingdom’s Competition~~first quarter of 2020, we reached an agreement to purchase CID Lines, a leading global provider of livestock biosecurity and ~~Markets Authority (CMA) announced the results of its review of our~~hygiene solutions. The acquisition ~~of Holchem Group Limited (“Holchem”), a UK based cleaning products business acquired~~is expected to close in the ~~fourth~~second quarter of ~~2018, that requires us~~2020 and is subject to ~~divest Holchem. We disagree~~various regulatory clearances.

In April 2020, we executed a $500 million 364-day revolving credit agreement to be used for general corporate purposes with a diverse syndicate of banks. In addition, we executed and have drawn on a $305 million term credit agreement to be repaid in the decision and continue to believe the UK market will remain highly competitive following the acquisition. We are reviewing the full report in detail and are considering options and next steps, including an appealsecond quarter of ~~the decision.~~ 2020.

NON-GAAP FINANCIAL MEASURES

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

●

Fixed currency sales

●

Acquisition adjusted fixed currency sales

●

Adjusted cost of sales

●

Adjusted gross margin

●

Fixed currency operating income

●

Fixed currency operating income margin

●

Adjusted operating income

●

Adjusted operating income margin

●

Adjusted fixed currency operating income

●

Adjusted fixed currency operating income margin

●

Acquisition adjusted fixed currency operating income

●

Acquisition adjusted fixed currency operating income margin

●

~~EBITDA~~Adjusted interest expense, net

●

~~Adjusted interest expense, net~~EBITDA

●

Adjusted tax rate

●

Adjusted net income attributable to Ecolab

●

Adjusted diluted EPS

We provide these measures as additional information regarding our operating results. We use these non-GAAP measures internally to evaluate our performance and in making financial and operational decisions, including with respect to incentive compensation. We believe that our presentation of these measures provides investors with greater transparency with respect to our results of operations and that these measures are useful for period-to-period comparison of results.

Our non-GAAP financial measures for cost of sales, gross margin and operating income exclude the impact of special (gains) and charges, and our non-GAAP measures for tax rate, net income attributable to Ecolab and diluted EPS further exclude the impact of discrete tax items. We include items within special (gains) and charges and discrete tax items that we believe can significantly affect the period-over-period assessment of operating results and not necessarily reflect costs and/or income associated with historical trends and future results. After tax special (gains) and charges are derived by applying the applicable local jurisdictional tax rate to the corresponding pre-tax special (gains) and charges.

EBITDA is defined as the sum of net income including noncontrolling interest, provision for income taxes, net interest expense, depreciation and amortization. EBITDA is used in our net debt to EBITDA ratio, which we view as important indicators of the operational and financial health of our organization.

We evaluate the performance of our international operations based on fixed currency rates of foreign exchange. Fixed currency amounts included in this Form 10-Q are based on translation into U.S. dollars at the fixed foreign currency exchange rates established by management at the beginning of ~~2019.~~2020.

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.

These non-GAAP measures are not in accordance with, or an alternative to U.S. GAAP, and may be different from non-GAAP measures used by other companies. Investors should not rely on any single financial measure when evaluating our business. We recommend that investors view these measures in conjunction with the U.S. GAAP measures included in this MD&A and we have provided reconciliations of reported U.S. GAAP amounts to the non-GAAP amounts.

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 2, contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include the effects of the COVID-19 pandemic, anticipated ~~spin-off~~separation of our Upstream Energy business into a new stand-alone company and the expected form, timing and tax ~~effects;~~effects thereof and the subsequent merger of the Upstream Energy business with Apergy Corporation; expectations concerning timing, amount and type of restructuring costs and savings from restructuring activities; tax deductibility of goodwill; capital investments and acquisitions; amortization expense; non-performance of financial counterparties; payments and contributions to pension and postretirement health care benefit plans; impact of tax reform; 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; impact of oil price fluctuations, ~~comparative performance~~on the demand for the products and ~~prospects~~services of ~~businesses in~~ our ~~Global~~Upstream Energy ~~segment;~~business; implementation of ERP system upgrade; and doing business relating to Iran.

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 the duration of the outbreak, government response to the outbreak, the success of mitigation strategies, the ability of our customers to ramp up operations and the frequency of additional outbreaks; the proposed ~~spin-off~~separation and merger of the Upstream Energy business with Apergy Corporation may not be consummated within the anticipated period or at ~~all~~all; and the ultimate results of any restructuring 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 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 ~~entitled Risk Factors,~~ of our most recent Form 10-K, ~~for~~and our other public filings with the ~~year ended December 31, 2018,~~Securities and Exchange Commission (the "SEC"), and include the effects of the coronavirus (COVID-19) pandemic; the vitality of the markets we serve, including the impact of oil and natural gas price fluctuations and duration on the ~~markets served by~~profitability and financial stability of the customers of our ~~Global Energy segment;~~businesses serving the upstream and downstream oil and gas industry; the impact of economic factors such as the worldwide economy, capital flows, interest rates, ~~and~~ foreign currency risk ~~including~~and reduced sales and earnings in ~~other countries~~our international operations resulting from the weakening of local currencies versus the U.S. dollar; our ability to execute key business initiatives, including ~~upgrades to~~restructurings and our ~~information technology systems;~~Enterprise Resource Planning system upgrades; potential information technology infrastructure failures ~~and cybersecurity attacks;~~or breaches in data security; our ability to achieve the ~~possibility that the proposed spin-off~~intended benefits of our plan to separate our Upstream Energy business ~~will not be consummated within the anticipated time period or at all~~ and ~~the potential that the Upstream Energy business and Ecolab will not realize all of the expected benefits of the spin-off;~~combine it with Apergy Corporation; our ability to attract, retain and ~~retain~~develop high caliber management talent to lead our business; our ability to ~~develop competitive advantages through~~successfully compete with respect to value, innovation and ~~to commercialize digital solutions;~~customer support; exposure to global economic, political and legal risks related to our international ~~operations including trade sanctions;~~operations; difficulty in procuring raw materials or fluctuations in raw material costs; pressure on operations from consolidation of customers ~~vendors~~ or ~~competitors;~~vendors; 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;~~products and to labor and employment, as well as to the conduct of our business generally; the occurrence of litigation or claims, including the pending lawsuits against certain of our subsidiaries related to the Deepwater Horizon oil ~~spill;~~spill or class action lawsuits; restraints on pricing flexibility due to contractual obligations; our ability to acquire complementary businesses and to effectively integrate such businesses; changes in tax ~~law~~laws and unanticipated tax liabilities; potential loss of deferred tax ~~assets or increase in deferred tax liabilities;~~assets; our ~~substantial~~indebtedness, and any

failure to comply with the covenants that apply to our indebtedness; public health ~~epidemics;~~outbreaks, epidemics or pandemics, such as the current outbreak of COVID-19; potential losses arising from the impairment of goodwill or other assets; potential chemical spill or release; ~~potential 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; and other uncertainties or risks reported from time to time in our reports to the SEC. There can be no assurances that our earnings levels will meet investors’ expectations. Except as may be required under applicable law, we do not undertake, and expressly disclaim, any duty to update our Forward-Looking Statements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

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

Item 4. Controls and Procedures

As of ~~September 30, 2019,~~March 31, 2020, we carried out an evaluation, under the supervision and with the participation of our management, including the Chairman of the Board and Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation, our Chairman of the Board and Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures are effective.

During the period January 1 through ~~September 30, 2019,~~March 31, 2020, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

We are continuing our implementation of anour enterprise resource planning (“ERP”) system ~~upgrade we began in 2018,~~upgrades, which ~~is occurring~~are expected to occur in phases over the next several years. ~~This upgrade,~~These upgrades, which ~~includes~~include supply chain and certain finance functions, isare expected to improve the efficiency of certain financial and related transactional processes. ~~The upgrade~~We are also making changes to our system in order to support our separation of the ChampionX business. These upgrades of the ERP ~~system~~systems will affect the processes that constitute our internal control over financial reporting and will require testing for effectiveness.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

Note ~~17,~~16, entitled “Commitments and Contingencies” located under Part I, Item 1 of this Form 10-Q is incorporated herein by reference.

Item 1A. Risk Factors

In our report on Form 10-K for the year ended December 31, ~~2018,~~2019, filed with the Securities and Exchange Commission on ~~March 1, 2019,~~February 28, 2020, we identify under Item 1A important factors which could affect our financial performance and could cause our actual results for future periods to differ materially from our anticipated results or other expectations, including those expressed in any forward-looking statements made in this Form 10-Q. See the section entitled Forward-Looking Statements located on page 4950 of this Form 10-Q. We may also refer to such disclosure to identify factors that may cause results to differ from those expressed in other forward-looking statements made in oral presentations, including telephone conferences and/or webcasts open to the public.

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

Severe public health outbreaks, epidemics or pandemics, such as coronavirus (COVID-19), may materially and adversely impact our business.

Our business could be materially and adversely affected by the effect of a public health outbreak, epidemic or pandemic. The United States and other countries have experienced, and may experience in the future, public health outbreaks such as COVID-19, Zika virus, Avian Flu, SARS and H1N1 influenza. A prolonged occurrence of a contagious disease such as these could result in a significant downturn in the foodservice, hospitality, energy and travel industries, or economies generally, and also may result in health or other government authorities imposing restrictions on travel further impacting our end markets. Any of these events could result in a significant drop in demand for some of our products and services and materially and adversely affect our business.

In December 2019, a novel strain of coronavirus, which causes COVID-19, emerged in Wuhan, Hubei Province, China. While initially the COVID-19 outbreak was largely concentrated in China and caused significant disruptions to its economy and businesses elsewhere with significant supply chain relationships with China, it has now spread to many other countries, and infections have been reported globally, including in the United States. Government actions to reduce novel coronavirus transmissions by limiting social interactions have significantly impacted our restaurant and hospitality customers, negatively affecting demand for our products in these segments. The extent of the negative impact of the COVID-19 pandemic on our results of operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the economic impact and the duration of the outbreak, new information that may emerge concerning the severity of COVID-19 and the actions to contain the novel coronavirus or treat its impact, among others. The novel coronavirus has had a negative impact on market conditions and customer demand, particularly from our restaurant and hospitality industry customers, and could adversely affect our supply chain as a result of, among other factors, energy price volatility. We anticipate that the slowdown in business activity in our end markets as a result of the COVID-19 pandemic will negatively impact our results of operations, but we are not yet able to estimate the extent of the negative impact on our results of operations due to the pandemic's rapidly evolving and expanding effects and government actions to control its transmission.

Trends in crude oil and natural gas prices may affect the profitability and financial stability of the customers of our businesses serving the upstream and downstream oil and gas industry and therefore the demand for, and profitability of our products and services, which could have a material adverse effect on our business, results of operations and financial condition.

The oil and gas industry is cyclical in nature and experiences periodic downturns of varying length and severity. The oil and gas industry experienced a significant downturn in 2015 and 2016 as a result of a sharp decline in crude oil prices. Crude oil prices slightly recovered in late 2016 and into 2017 but experienced a volatile decline again during late 2018. Price volatility continued throughout 2019 and, partially due to the emergence of the COVID-19 pandemic and failure of the Organization of the Petroleum Exporting Countries (“OPEC”) and other major producers to agree on production cuts, has become more extreme in 2020. Demand for our products and services is sensitive to the level of capital spending by oil and natural gas companies and the corresponding drilling and production activity. The level of drilling and production activity and refining and petrochemical processing are directly affected by trends in crude oil and natural gas prices, which are influenced by numerous factors affecting the supply and demand for oil and gas, many of which are beyond our control. For example, in March 2020, members of OPEC and Russia considered extending their previously agreed oil production cuts and potentially making additional oil production cuts. However, these negotiations were unsuccessful. As a result, Saudi Arabia announced a significant reduction in its export prices and Russia announced the expiration of all agreed oil production cuts between members of OPEC and Russia. Following these announcements, and also as a result of the increased global scale and severity of the COVID-19 outbreak during this period, global oil and natural gas prices declined sharply. While a deal to cut production has since been announced by OPEC and its allies, the situation has resulted in a significant downturn in the industry. Such a downturn could result in the reduction in demand for our products and services and could have a material adverse effect on our business, results of operations, financial condition and cash flows.

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

Number of shares

Maximum number of

Number of shares

Maximum number of

Total

purchased as part

shares that may

Total

purchased as part

shares that may

number of

Average price

of publicly

yet be purchased

number of

Average price

of publicly

yet be purchased

shares

paid per

announced plans

under the plans

shares

paid per

announced plans

under the plans

Period

purchased

⁽¹⁾

share

⁽²⁾

or programs

⁽³⁾

or programs

⁽³⁾

purchased

⁽¹⁾

share

⁽²⁾

or programs

⁽³⁾

or programs

⁽³⁾

July 1-31, 2019

$ -

6,820,810

August 1-31, 2019

5,663

203.3008

6,820,810

September 1-30, 2019

6,820,810

January 1-31, 2020

372,764

$189.1359

372,764

6,432,246

February 1-29, 2020

124,496

196.4491

6,432,246

March 1-31, 2020

6,432,246

Total

5,663

$203.3008

6,820,810

497,260

$190.9669

372,764

6,432,246

(1)	Includes ~~5,663~~124,496 shares reacquired from employees and/or directors as swaps for the cost of stock options, or shares surrendered to satisfy minimum statutory tax obligations under our stock incentive plans.

(2)	The average price paid per share includes brokerage commissions associated with publicly announced plan purchases plus the value of such other reacquired shares.

(3)

As announced on February 24, 2015, our Board of Directors authorized the repurchase of up to 20,000,000 shares. Subject to market conditions, we expect to repurchase all shares under the open authorizations, for which no expiration date has been established, in open market or privately negotiated transactions, including pursuant to Rule 10b5-1.

5052

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Iran Threat Reduction and Syria Human Rights Act of 2012

Under the Iran Threat Reduction and Syria Human Rights Act of 2012, which added Section 13(r) of the Securities Exchange Act of 1934, the Company is required to disclose in its periodic reports if it or any of its affiliates knowingly engaged in certain activities, transactions or dealings relating to Iran or with entities or individuals designated pursuant to certain Executive Orders. Disclosure is required even where the activities are conducted outside the U.S. by non-U.S. affiliates in compliance with applicable law, and even if the activities are not covered or prohibited by U.S. law.

As authorized by the U.S. Treasury’s Office of Foreign Assets Control (OFAC), a non-U.S. subsidiary of the Company completed sales of products used for process and water treatment applications in upstream oil and gas production related to the operation of and production from the Rhum gas field off the Scottish coast (Rhum) totaling ~~$0.3~~$0.1 million during the subsidiary’s fiscal ~~third~~first quarter ended ~~August 31, 2019,~~February 29, 2020 and additional sales of such products totaling $0.1 million during ~~September 2019.~~March 2020. The net profit before taxes associated with these sales for each period were ~~$0.1 million and nominal, respectively.~~nominal. Rhum is jointly owned by Serica Energy plc and Iranian Oil Company (U.K.) Limited. Our non-U.S. subsidiary intends to continue the Rhum-related activities, consistent with a specific license obtained from OFAC by its customers, and such activities may require additional disclosure pursuant to the abovementioned statute.

Item 6. Exhibits


Exhibit No.	Document	Method of Filing

(a)	The following documents are filed as exhibits to this report:
(4.1)	Eighth Supplemental Indenture, dated March 24, 2020, between Ecolab Inc. and Wells Fargo Bank, National Association, as Trustee.	Incorporated herein by reference to Exhibit 4.2 of our Form 8-K filed on March 24, 2020.

(4.2)	Form of 4.800% Notes due 2030.	Included in Exhibit (4.1) above.

(10.1)	Employment Transition Agreement dated as of March 11, 2020 between Ecolab Inc. and Jill Wyant.	Filed herewith electronically.
(15.1)	Letter regarding unaudited interim financial information.	Filed herewith electronically.
(31.1)	Rule 13a - 14(a) CEO Certification.	Filed herewith electronically.
(31.2)	Rule 13a - 14(a) CFO Certification.	Filed herewith electronically.
(32.1)	Section 1350 CEO and CFO Certifications.	Filed herewith electronically.
(101.INS) ~~(101.SCH)~~ ~~(101.CAL)~~ ~~(101.DEF)~~ ~~(101.LAB)~~ ~~(101.PRE)~~ ~~(104)~~	Inline XBRL Instance Document –�� the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.	Filed herewith electronically.
(101.SCH)	Inline XBRL Taxonomy Extension Schema.	Filed herewith electronically.
(101.CAL)	Inline XBRL Taxonomy Extension Calculation Linkbase.	Filed herewith electronically.
(101.DEF)	Inline XBRL Taxonomy Extension Definition Linkbase.	Filed herewith electronically.
(101.LAB)	Inline XBRL Taxonomy Extension Label Linkbase.	Filed herewith electronically.
(101.PRE)	Inline XBRL Taxonomy Extension Presentation Linkbase.	Filed herewith electronically.

(104)

Cover Page Interactive Data File.

~~Filed herewith electronically.~~

Formatted as Inline XBRL and contained in Exhibit 101.

5154

SIGNATURE

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


	ECOLAB INC.


Date: ~~October 31, 2019~~May 7, 2020	By:	/s/ Scott D. Kirkland
		Scott D. Kirkland
		Senior Vice President and Corporate Controller
		(duly authorized officer and
		Chief Accounting Officer)

5255



(millions)
Remainder of 2019			$ 38
2020			164
2021			134
2022			96
2023			55
2024			33
Thereafter			117
Total lease payments			637
Less: imputed interest			66
Present value of lease liabilities			$ 571


(millions)
2019			$ 172
2020			141
2021			108
2022			72
2023			37
Thereafter			104
Total			$ 634



(millions)
Remainder of 2019			$ 92
2020			345
2021			264
2022			194
2023			116
2024			44
Thereafter			13
Total lease revenue			$ 1,068