Item 8. Financial Statements and Supplementary Data.

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Item 8. Financial Statements and Supplementary Data.

REPORTS OF MANAGEMENT

To our Shareholders:

Management’s Responsibility for Financial Statements

Management is responsible for the integrity and objectivity of the consolidated financial statements. The statements have been prepared in accordance with accounting principles generally accepted in the United States of America and, accordingly, include certain amounts based on management’s best estimates and judgments.

The Board of Directors, acting through its Audit Committee composed solely of independent directors, is responsible for determining that management fulfills its responsibilities in the preparation of financial statements and maintains internal control over financial reporting. The Audit Committee recommends to the Board of Directors the appointment of the Company’s independent registered public accounting firm, subject to ratification by the shareholders. It meets regularly with management, the internal auditors and the independent registered public accounting firm.

The independent registered public accounting firm has audited the consolidated financial statements included in this annual report and have expressed their opinion regarding whether these consolidated financial statements present fairly in all material respects our financial position and results of operation and cash flows as stated in their report presented separately herein.

Management’s Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of management, including the principal executive officer and principal financial officer, an evaluation of the design and operating effectiveness of internal control over financial reporting was conducted based on the 2013 framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the evaluation under the framework in Internal Control — Integrated Framework, management concluded that internal control over financial reporting was effective as of December 31, 2021.

On December 1, 2021, the Company completed the acquisition of Purolite. Refer to Note 4 of the Notes to the Consolidated Financial Statements for additional information. Based on the Securities and Exchange Commission staff guidance companies may exclude acquisitions from their assessment of internal control over financial reporting during the first year of an acquisition and management elected to exclude Purolite from its assessment of internal control over financial reporting as of December 31, 2021. Purolite’s total assets and total revenues, excluded from management’s assessment, represent approximately 2% and less than 1%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2021.

The Company’s independent registered public accounting firm, PricewaterhouseCoopers LLP, has audited the effectiveness of the Company’s internal control over financial reporting as of December 31, 2021 as stated in their report which is included herein.



Christophe Beck	Scott D. Kirkland
President and Chief Executive Officer	Chief Financial Officer

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of Ecolab Inc.

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Ecolab Inc. and its subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of income, of comprehensive income, of equity and of cash flows for each of the three years in the period ended December 31, 2021, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Change in Accounting Principle

As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. 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 audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

As described in Management’s Report on Internal Control Over Financial Reporting, management has excluded Purolite Corporation (“Purolite”) from its assessment of internal control over financial reporting as of December 31, 2021 because it was acquired by the Company in a purchase business combination during 2021. We have also excluded Purolite from our audit of internal control over financial reporting. Purolite is a wholly-owned subsidiary whose total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting represent approximately 2% and less than 1%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2021.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Goodwill Impairment Assessment – Downstream Reporting Unit

As described in Note 2 to the consolidated financial statements, the carrying value of goodwill was $8.1 billion as of December 31, 2021, a portion of which is allocated to the Downstream reporting unit. During the second quarter of 2021, management completed its annual goodwill impairment assessment for each of its eleven reporting units. The goodwill impairment assessment was completed using discounted cash flow analyses that incorporated assumptions, including future operating performance, long-term growth and discount rates. If the results of an annual or interim goodwill assessment demonstrate the carrying amount of a reporting unit is greater than its fair value, the Company will recognize an impairment loss for the amount by which the reporting unit’s carrying amount exceeds its fair value, but not to exceed the carrying amount of goodwill assigned to that reporting unit.

The principal considerations for our determination that performing procedures relating to the goodwill impairment assessment of the Downstream reporting unit is a critical audit matter are (i) the significant judgment by management when determining the fair value of the Downstream reporting unit; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumption related to the discount rate; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.

Acquisition of Purolite Corporation - Valuation of the U.S. customer relationships intangible asset

As described in Note 4 to the consolidated financial statements, on December 1, 2021, the Company acquired Purolite for total consideration of $3,698 million in cash, net of cash acquired. The acquisition resulted in $900 million of customer relationships intangible assets being recorded, a significant portion of which is allocated to the U.S. customer relationships intangible asset. The fair values of the customer relationships intangible assets acquired were estimated using discounted cash flow analyses. Significant inputs and assumptions used in the customer relationship intangible asset valuations include projected revenues, contributory asset charges, tax savings due to amortization, income tax rates, customer attrition rates and discount rates.

The principal considerations for our determination that performing procedures relating to the valuation of the acquired U.S. customer relationships intangible asset from the acquisition of Purolite is a critical audit matter are (i) the significant judgment by management when determining the fair value of the acquired U.S. customer relationships intangible asset; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to projected revenues, contributory asset charges, the tax savings due to amortization, the income tax rate, the customer attrition rate, and the discount rate; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the acquisition accounting, including controls over management’s valuation of the U.S. customer relationships intangible asset. These procedures also included, among others (i) reading the purchase agreement; (ii) testing management’s process for determining the fair value of the U.S. customer relationships intangible asset; (iii) evaluating the appropriateness of the discounted cash flow analysis; (iv) testing the completeness and accuracy of the underlying data used in the discounted cash flow analysis; and (v) evaluating the reasonableness of the significant assumptions used by management related to projected revenues, contributory asset charges, the tax savings due to amortization, the income tax rate, the customer attrition rate, and the discount rate. Evaluating management’s significant assumptions related to projected revenues and the income tax rate involved evaluating whether the significant assumptions used by management were reasonable considering (i) the current and past performance of Purolite; (ii) the consistency with external market and industry data; and (iii) whether these significant assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in evaluating (i) the appropriateness of the discounted cash flow analysis and (ii) the reasonableness of the significant assumptions related to contributory asset charges, the tax savings due to amortization, the customer attrition rate, and the discount rate.

/s/ PricewaterhouseCoopers LLP

Minneapolis, Minnesota

February 25, 2022

We have served as the Company’s auditor since 1970.

CONSOLIDATED STATEMENTS OF INCOME





(millions, except per share amounts)	2021		2020		2019

Product and equipment sales		$10,153.3		$9,466.6		$10,129.0
Service and lease sales		2,579.8		2,323.6		2,433.0
Net sales		12,733.1		11,790.2		12,562.0
Product and equipment cost of sales		6,100.9		5,481.3		5,617.5
Service and lease cost of sales		1,514.9		1,424.5		1,428.3
Cost of sales (including special charges (a))		7,615.8		6,905.8		7,045.8
Selling, general and administrative expenses		3,416.1		3,309.1		3,550.8
Special (gains) and charges		102.6		179.6		120.2
Operating income		1,598.6		1,395.7		1,845.2
Other (income) expense (b)		(33.9)		(55.9)		(77.0)
Interest expense, net (c)		218.3		290.2		190.7
Income before income taxes		1,414.2		1,161.4		1,731.5
Provision for income taxes		270.2		176.6		288.6
Net income from continuing operations, including noncontrolling interest		1,144.0		984.8		1,442.9
Net income from continuing operations attributable to noncontrolling interest		14.1		17.4		17.3
Net income from continuing operations attributable to Ecolab		1,129.9		967.4		1,425.6
Net income (loss) from discontinued operations, net of tax (Note 5) (d)		-		(2,172.5)		133.3
Net income (loss) attributable to Ecolab		$1,129.9		($1,205.1)		$1,558.9

Earnings (loss) attributable to Ecolab per common share
Basic
Continuing operations		$ 3.95		$ 3.37		$ 4.95
Discontinued operations		$ -		($ 7.57)		$ 0.46
Earnings attributable to Ecolab		$ 3.95		($ 4.20)		$ 5.41
Diluted
Continuing operations		$ 3.91		$ 3.33		$ 4.87
Discontinued operations		$ -		($ 7.48)		$ 0.46
Earnings attributable to Ecolab		$ 3.91		($ 4.15)		$ 5.33

Weighted-average common shares outstanding
Basic		286.3		287.0		288.1
Diluted		289.1		290.3		292.5

(a)	Cost of sales includes special charges of $91.9 in 2021, $39.3 in 2020, and $38.5 in 2019, which is included in product and equipment cost of sales. Cost of sales includes special charges of $2.0 in 2021 and $8.9 in 2020, which is included in service and lease cost of sales.

(b)	Other (income) expense includes special charges of $37.2 in 2021, $0.4 in 2020 and $9.5 in 2019.

(c)	Interest expense, net includes special charges of $33.1 in 2021, $83.8 in 2020, and $0.2 in 2019.

(d)	Net income (loss) from discontinued operations, net of tax includes noncontrolling interest of $2.2 in 2020.

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

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME




(millions)	2021		2020		2019

Net income (loss) attributable to Ecolab		$1,129.9		($1,205.1)		$1,558.9
Net income from continuing operations attributable to noncontrolling interest		14.1		17.4		17.3
Net income from discontinued operations attributable to noncontrolling interest		-		2.2		-
Net income (loss) attributable to Ecolab, including noncontrolling interest		$1,144.0		($1,185.5)		$1,576.2

Other comprehensive income (loss), net of tax

Foreign currency translation adjustments
Foreign currency translation		(10.9)		50.0		(45.1)
Separation of ChampionX		-		229.9		-
Gain (loss) on net investment hedges		51.6		(87.7)		31.4
Total foreign currency translation adjustments		40.7		192.2		(13.7)

Derivatives and hedging instruments		26.0		(17.0)		(3.4)

Pension and postretirement benefits
Current period net actuarial gain (loss)		204.8		(139.2)		(251.1)
Settlement charge		26.7		-		-
Pension and postretirement prior period service benefits		1.9		5.1		(0.3)
Amortization of net actuarial loss and prior period service credits, net		56.3		56.0		(0.2)
Total pension and postretirement benefits		289.7		(78.1)		(251.6)

Subtotal		356.4		97.1		(268.7)

Total comprehensive income (loss), including noncontrolling interest		1,500.4		(1,088.4)		1,307.5
Comprehensive income attributable to noncontrolling interest		10.9		21.4		15.4
Comprehensive income (loss) attributable to Ecolab		$1,489.5		($1,109.8)		$1,292.1

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

CONSOLIDATED BALANCE SHEET****S




(millions, except per share amounts)	2021		2020

ASSETS
Current assets
Cash and cash equivalents		$359.9		$1,260.2
Accounts receivable, net		2,478.4		2,273.8
Inventories		1,491.8		1,285.2
Other current assets		357.0		298.2
Total current assets		4,687.1		5,117.4
Property, plant and equipment, net		3,288.5		3,124.9
Goodwill		8,063.9		6,006.9
Other intangible assets, net		4,224.1		2,977.0
Operating lease assets		396.8		423.8
Other assets		546.0		476.0
Total assets		$21,206.4		$18,126.0

LIABILITIES AND EQUITY
Current liabilities
Short-term debt		$411.0		$17.3
Accounts payable		1,384.2		1,160.6
Compensation and benefits		509.5		469.3
Income taxes		104.3		96.1
Other current liabilities		1,144.2		1,188.9
Total current liabilities		3,553.2		2,932.2
Long-term debt		8,347.2		6,669.3
Postretirement health care and pension benefits		894.2		1,226.2
Deferred income taxes		622.0		483.9
Operating lease liabilities		282.6		300.5
Other liabilities		254.1		312.4
Total liabilities		13,953.3		11,924.5
Commitments and contingencies (Note 16)

Equity (a)
Common stock		364.1		362.6
Additional paid-in capital		6,464.6		6,235.0
Retained earnings		8,814.5		8,243.0
Accumulated other comprehensive loss		(1,634.8)		(1,994.4)
Treasury stock		(6,784.2)		(6,679.7)
Total Ecolab shareholders’ equity		7,224.2		6,166.5
Noncontrolling interest		28.9		35.0
Total equity		7,253.1		6,201.5
Total liabilities and equity		$21,206.4		$18,126.0

(a)	Common stock, 800.0 shares authorized, $1.00 par value, 286.9 shares outstanding at December 31, 2021 and 285.7 shares outstanding at December 31, 2020. Shares outstanding are net of treasury stock.

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

CONSOLIDATED STATEMENTS OF CASH FLOWS




(millions)	2021		2020		2019

OPERATING ACTIVITIES
Net income (loss) including noncontrolling interest		$1,144.0		($1,185.5)		$1,576.2
Less: Net income (loss) from discontinued operations including noncontrolling interest		-		(2,170.3)		133.3
Net income from continuing operations including noncontrolling interest		$1,144.0		$984.8		$1,442.9
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation		604.4		594.3		569.1
Amortization		238.7		218.4		206.2
Deferred income taxes		(1.1)		(45.8)		(22.1)
Share-based compensation expense		89.5		82.1		84.0
Pension and postretirement plan contributions		(60.2)		(70.7)		(186.0)
Pension and postretirement plan expense, net		42.4		42.0		22.6
Restructuring charges, net of cash paid		(41.7)		7.8		29.9
Debt refinancing		29.4		77.1		-
Other, net		15.9		61.0		17.6
Changes in operating assets and liabilities, net of effect of acquisitions:
Accounts receivable		(178.2)		155.6		(173.1)
Inventories		(73.0)		(179.5)		22.3
Other assets		(92.9)		42.3		(70.4)
Accounts payable		200.4		55.9		22.9
Other liabilities		144.3		(283.5)		80.8
Cash provided by operating activities - continuing operations		2,061.9		1,741.8		2,046.7
Cash provided by operating activities - discontinued operations		-		118.4		374.0
Cash provided by operating activities		2,061.9		1,860.2		2,420.7

INVESTING ACTIVITIES
Capital expenditures		(643.0)		(489.0)		(731.3)
Property and other assets sold		12.2		5.3		7.5
Acquisitions and investments in affiliates, net of cash acquired		(3,923.7)		(487.0)		(391.4)
Divestiture of businesses		-		116.2		6.8
Other, net		(25.2)		(3.2)		(21.2)
Cash used for investing activities - continuing operations		(4,579.7)		(857.7)		(1,129.6)
Cash provided by (used for) investing activities - discontinued operations		-		443.2		(69.5)
Cash used for investing activities		(4,579.7)		(414.5)		(1,199.1)

FINANCING ACTIVITIES
Net issuances (repayments) of commercial paper and notes payable		393.6		(65.5)		(252.0)
Long-term debt borrowings		2,775.0		1,855.9		-
Long-term debt repayments		(1,017.9)		(1,570.0)		(400.6)
Reacquired shares		(106.6)		(146.2)		(353.7)
Dividends paid		(566.4)		(560.8)		(552.9)
Exercise of employee stock options		143.5		241.5		186.8
Debt refinancing		(29.4)		(77.1)		-
Other, net		11.4		(18.0)		25.8
Cash provided by (used for) financing activities - continuing operations		1,603.2		(340.2)		(1,346.6)
Cash used for financing activities - discontinued operations		-		(1.6)		(3.0)
Cash provided by (used for) financing activities		1,603.2		(341.8)		(1,349.6)

Effect of exchange rate changes on cash and cash equivalents		14.3		(30.1)		20.4

(Decrease) increase in cash and cash equivalents		(900.3)		1,073.8		(107.6)
Cash and cash equivalents, beginning of period - continuing operations		1,260.2		118.8		243.2
Cash and cash equivalents, beginning of period - discontinued operations		-		67.6		50.8
Cash and cash equivalents, beginning of period		1,260.2		186.4		294.0
Cash and cash equivalents, end of period - continuing operations		359.9		1,260.2		118.8
Cash and cash equivalents, end of period - discontinued operations		-		-		67.6
Cash and cash equivalents, end of period		$359.9		$1,260.2		$186.4

SUPPLEMENTAL CASH FLOW INFORMATION
Income taxes paid		$275.7		$366.9		$337.4
Net interest paid		208.7		262.5		189.4

Presentation of 2019 cash flow has been conformed to the current year presentation. There was no change to cash provided by or (used for) operating activities, investing activities or financial activities.

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

CONSOLIDATED STATEMENTS OF EQUITY


	Year ended December 31, 2021, 2020 and 2019
(millions, except per share amounts)	Common Stock		Additional Paid-in Capital		Retained Earnings		AOCI (Loss)		Treasury Stock		Ecolab Shareholders' Equity		Non-Controlling Interest		Total Equity
Balance, 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						1,558.9						1,558.9		17.3		1,576.2
Comprehensive income (loss) activity								(266.8)				(266.8)		(1.9)		(268.7)
Cash dividends declared (b)						(533.1)						(533.1)		(25.1)		(558.2)
Changes in noncontrolling interests				0.2								0.2		(0.2)		0.0
Stock options and awards		2.6		273.7						3.1		279.4				279.4
Reacquired shares										(353.7)		(353.7)				(353.7)
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)						(4.3)						(4.3)				(4.3)
Net (loss) income						(1,205.1)						(1,205.1)		19.6		(1,185.5)
Comprehensive income (loss) activity								95.3				95.3		1.8		97.1
Cash dividends declared (b)						(541.3)						(541.3)		(21.0)		(562.3)
Separation of ChampionX				(8.5)						(1,051.4)		(1,059.9)		3.4		(1,056.5)
Changes in noncontrolling interests				17.6								17.6		(9.3)		8.3
Stock options and awards		3.0		318.8						3.3		325.1				325.1
Reacquired shares										(146.2)		(146.2)				(146.2)
Balance, December 31, 2020		362.6		6,235.0		8,243.0		(1,994.4)		(6,679.7)		6,166.5		35.0		6,201.5

Net income						1,129.9						1,129.9		14.1		1,144.0
Comprehensive income (loss) activity								359.6				359.6		(3.2)		356.4
Cash dividends declared (b)						(558.4)						(558.4)		(17.0)		(575.4)
Stock options and awards		1.5		229.6						2.1		233.2				233.2
Reacquired shares										(106.6)		(106.6)				(106.6)
Balance, December 31, 2021		$364.1		$6,464.6		$8,814.5		($1,634.8)		($6,784.2)		$7,224.2		$28.9		$7,253.1

	(a)	In 2019, 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 $1.95, $1.89, and $1.85 in 2021, 2020 and 2019, respectively.

	(c)	In 2020, 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.

Refer to Note 2 for additional information regarding adoption of new accounting standards.

COMMON STOCK ACTIVITY


	2021		2020		2019
	Common	Treasury	Common	Treasury	Common	Treasury
Year ended December 31	Stock	Stock	Stock	Stock	Stock	Stock
Shares, beginning of year	362,553,443	(76,801,025)	359,569,234	(71,159,472)	356,958,100	(69,243,979)
Stock options	1,270,757	29,684	2,577,231	35,122	2,220,815	41,575
Stock awards	315,162	17,760	406,978	40,122	390,319	29,173
Reacquired shares	-	(502,132)	-	(761,245)	-	(1,986,241)
Separation of ChampionX	-	-	-	(4,955,552)	-	-
Shares, end of year	364,139,362	(77,255,713)	362,553,443	(76,801,025)	359,569,234	(71,159,472)

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. NATURE OF BUSINESS

Ecolab is a global leader in water, hygiene and infection prevention solutions and services that protect people and vital resources. The Company delivers comprehensive solutions, data-driven insights and personalized service to advance food safety, maintain clean and safe environments, optimize water and energy use and improve operational efficiencies and sustainability for customers in the food, healthcare, hospitality and industrial markets in more than 170 countries.

The Company’s cleaning and sanitizing programs and products and pest elimination services support customers in the foodservice, food and beverage processing, hospitality, healthcare, government and education, retail, textile care and commercial facilities management sectors. The Company’s products and technologies are also used in water treatment, pollution control, energy conservation, refining, primary metals manufacturing, papermaking, mining and other industrial processes.

On June 3, 2020, the Company completed the separation of its Upstream Energy business (the “ChampionX business”) in a Reverse Morris Trust transaction (the “Transaction”) through the split-off of ChampionX Holding Inc. (“ChampionX”), formed by Ecolab as a wholly owned subsidiary to hold the ChampionX business, followed immediately by the merger (the “Merger”) of ChampionX with a wholly owned subsidiary of ChampionX Corporation (f/k/a Apergy Corporation, “Apergy”).

As discussed in Note 5 Discontinued Operations, during 2020, the ChampionX business met the criteria to be reported as discontinued operations because the separation of the ChampionX business was a strategic shift in business that had a major effect on the Company's operations and financial results. Therefore, the Company reported the historical results of ChampionX, including the results of operations, cash flows, and related assets and liabilities, as discontinued operations. Unless otherwise noted, the accompanying Notes to the Consolidated Financial Statements have all been revised to reflect the effect of the separation of ChampionX and all prior year balances have been revised accordingly to reflect continuing operations only.

Subsequent to the separation of ChampionX, effective the third quarter of 2020, the Company no longer reports the Upstream Energy segment, which previously held the ChampionX business. The Company is aligned into three reportable segments and Other.

Effective in the first quarter of 2020, and in anticipation of the separation of the Upstream Energy business, the Company created the Upstream and Downstream operating segments from the Global Energy operating segment, which was also a reportable segment. Subsequent to the separation of ChampionX, the Company no longer reports the Upstream Energy segment, which previously held the ChampionX business.

The Downstream operating segment has been aggregated into the Global Industrial reportable segment. 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 & 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, which is now being reported in Other, had previously been aggregated in the Global Industrial reportable segment. The Company also renamed the Global Institutional reportable segment to the Global Institutional & Specialty reportable segment. The Company made other immaterial changes, including the movement of certain customers and cost allocations between reportable segments.

On December 1, 2021, the Company acquired Purolite for total consideration of $3.7 billion in cash, net of cash acquired. Purolite is a leading and fast-growing global provider of high-end ion exchange resins for the separation and purification of solutions, that is highly complementary to our current offering and critical to safe, high quality drug production and biopharma product purification in the life sciences industries. It also provides purification and separation solutions for critical industrial markets like microelectronics, nuclear power and food and beverage. Headquartered in King of Prussia, Pennsylvania, Purolite operates in more than 30 countries. Purolite is reported within our Life Sciences operating segment.

The Company is aligned into three reportable segments: Global Industrial, Global Institutional & Specialty, and Global Healthcare & Life Sciences as discussed in Note 19 Operating Segments and Geographical Information. Operating segments that were not aggregated and do not exceed the quantitative criteria to be separately reported have been combined into Other.

Except for the changes due to adoption of the new accounting standards, the Company has consistently applied the accounting policies to all periods presented in these consolidated financial statements.

2. SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and all subsidiaries in which the Company has a controlling financial interest. Investments in companies, joint ventures or partnerships in which the Company does not have control but has the ability to exercise significant influence over operating and financial decisions, are reported using the equity method of accounting. The alternative method of accounting is used in circumstance where the Company’s investments in companies, joint ventures and partnerships neither provide it control or significant influence over the investee and for investments that do not have readily identifiable fair values. Investments accounted for under the alternative method are recorded at cost and adjusted for impairments, if any, or observable price changes of the same or similar securities issued by the investee. International subsidiaries are included in the financial statements on the basis of their U.S. GAAP November 30 fiscal year ends to facilitate the timely inclusion of such entities in the Company’s consolidated financial reporting. All intercompany transactions and profits are eliminated in consolidation.

Use of Estimates

The preparation of the Company’s financial statements requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from these estimates. The Company’s critical accounting estimates include revenue recognition, actuarially determined liabilities, income taxes, long-lived assets, intangible assets and goodwill.

In March 2020, coronavirus 2019 (“COVID-19”) was declared a pandemic by the World Health Organization. As the impact of the pandemic continues to evolve, estimates and assumptions about future events and their effects cannot be determined with certainty and therefore require judgment. These estimates and assumptions may change in future periods and will be recognized in the consolidated financial information as new events occur and additional information becomes known. To the extent actual results differ materially from those estimates and assumptions, the Company’s future financial statements could be affected.

Foreign Currency Translation

Financial position and reported results of operations of the Company’s non-U.S. dollar functional currency international subsidiaries are measured using local currencies as the functional currency. Assets and liabilities of these operations are translated at the exchange rates in effect at each fiscal year end. The translation adjustments related to assets and liabilities that arise from changes in exchange rates from period to period are included in accumulated other comprehensive loss in shareholders’ equity. Income statement accounts are translated at average rates of exchange prevailing during the year. As discussed in Note 19 Operating Segments and Geographic Information, the Company evaluates its international operations based on fixed rates of exchange; however, changes in exchange rates from period to period impact the amount of reported income from consolidated operations.

Concentration of Credit Risk

Credit risk represents the accounting loss that would be recognized at the reporting date if counterparties failed to perform as contracted. The Company believes the likelihood of incurring material losses due to concentration of credit risk is minimal. The principal financial instruments subject to credit risk are as follows:

Cash and Cash Equivalents - The Company maintains cash deposits with major banks, which from time to time may exceed insured limits. The possibility of loss related to financial condition of major banks has been deemed minimal. Additionally, the Company’s investment policy limits exposure to concentrations of credit risk and changes in market conditions.

Accounts Receivable - A large number of customers in diverse industries and geographies, as well as the practice of establishing reasonable credit lines, limits credit risk. Based on historical trends and experiences, the allowance for expected credit losses is adequate to cover expected credit risk losses.

Foreign Currency and Interest Rate Contracts and Derivatives - Exposure to credit risk is limited by internal policies and active monitoring of counterparty risks. In addition, the Company uses a diversified group of major international banks and financial institutions as counterparties. The Company does not anticipate nonperformance by any of these counterparties.

Cash and Cash Equivalents

Cash equivalents include highly-liquid investments with a maturity of three months or less when purchased.

Accounts Receivable and Allowance for Expected Credit Losses

Accounts receivable are carried at the invoiced amounts, less an allowance for expected credit losses, and generally do not bear interest. The Company’s allowance for expected credit losses estimates the amount of expected future credit losses by analyzing accounts receivable balances by age and applying historical write-off and collection experience. The Company’s estimates separately considered macroeconomic trends and specific circumstances and credit conditions of customer receivables. Account balances are written off against the allowance when it is determined the receivable will not be recovered.

The Company’s allowance for the expected return of products shipped and credits related to pricing or quantities shipped of $19 million, $16 million, and $17 million as of December 31, 2021, 2020, and 2019, respectively. Returns and credit activity is recorded directly as a reduction to revenue.

The following table summarizes the activity in the allowance for expected credit losses:



(millions)	2021		2020		2019

Beginning balance		$68.4		$38.8		$36.9
Adoption of new standard		-		4.3		-
Bad debt expense		15.0		57.7		21.5
Write-offs		(27.4)		(31.6)		(19.1)
Other (a)		(3.2)		(0.8)		(0.5)
Ending balance (b)		$52.8		$68.4		$38.8

(a)	Other amounts are primarily the effects of changes in currency translations and acquired balances.

(b)	The allowance for expected credit losses balances in 2021 and 2020 reflect increased reserves, primarily due to the Institutional customer base as a result of the COVID-19 pandemic.

Inventory Valuations

Inventories are valued at the lower of cost or net realizable value. Certain U.S. inventory costs are determined on a last-in, first-out (“LIFO”) basis. LIFO inventories represented 27% and 26% of consolidated inventories as of December 31, 2021 and 2020, respectively. All other inventory costs are determined using either the average cost or first-in, first-out (“FIFO”) methods. Inventory values at FIFO, as shown in Note 6, approximate replacement cost.

Property, Plant and Equipment

Property, plant and equipment assets are stated at cost. Merchandising and customer equipment consists principally of various dispensing systems for the Company’s cleaning and sanitizing products, warewashing machines and process control and monitoring equipment. Certain dispensing systems capitalized by the Company are accounted for on a mass asset basis, whereby equipment is capitalized and depreciated as a group and written off when fully depreciated. The Company capitalizes both internal and external costs to develop or purchase computer software. Costs incurred for data conversion, training and maintenance associated with capitalized software are expensed as incurred. Expenditures for major renewals and improvements, which significantly extend the useful lives of existing plant and equipment, are capitalized and depreciated. Expenditures for repairs and maintenance are charged to expense as incurred. Upon retirement or disposition of plant and equipment, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in income.

Depreciation is charged to operations using the straight-line method over the assets’ estimated useful lives ranging from 5 to 40 years for buildings and leasehold improvements, 3 to 20 years for machinery and equipment, 3 to 20 years for merchandising and customer equipment and 3 to 7 years for capitalized software. The straight-line method of depreciation reflects an appropriate allocation of the cost of the assets to earnings in proportion to the amount of economic benefits obtained by the Company in each reporting period. Depreciation expense was $604 million, $594 million and $569 million for 2021, 2020 and 2019, respectively.

Goodwill and Other Intangible Assets

Goodwill

Goodwill arises from the Company’s acquisitions and represents the excess purchase consideration transferred over the fair value of acquired net assets. The Company’s reporting units are its operating segments. The Company assesses goodwill for impairment on an annual basis during the second quarter. If circumstances change or events occur that demonstrate it is more likely than not that the carrying amount of a reporting unit exceeds its fair value, the Company completes an interim goodwill assessment of that reporting unit prior to the next annual assessment. If the results of an annual or interim goodwill assessment demonstrate the carrying amount of a reporting unit is greater than its fair value, the Company will recognize an impairment loss for the amount by which the reporting unit’s carrying amount exceeds its fair value, but not to exceed the carrying amount of goodwill assigned to that reporting unit.

During the second quarter of 2021, the Company completed its annual goodwill impairment assessment for each of its eleven reporting units using discounted cash flow analyses that incorporated assumptions, including future operating performance, long-term growth and discount rates. The Company’s goodwill impairment assessment for 2021 indicated the estimated fair values of each of its reporting units exceeded the carrying amounts of the respective reporting units by significant margins. Additionally, no events noted during the second half of 2021 indicated a need to update any of the Company’s analyses or conclusions reached in the second quarter of 2021 for any of its reporting units. There has been no impairment of goodwill in any of the periods presented.

The changes in the carrying amount of goodwill for each of the Company’s reportable segments are as follows:


			Global		Global
	Global		Institutional		Healthcare &
(millions)	Industrial		& Specialty		Life Sciences		Other		Total
December 31, 2019		$3,923.7		$548.2		$859.4		$237.8		$5,569.1
Current year business combinations (a)		275.7		-		-		-		275.7
Prior year business combinations (b)		-		-		0.6		-		0.6
Dispositions		(47.6)		-		-		-		(47.6)
Effect of foreign currency translation		136.1		15.9		49.8		7.3		209.1
December 31, 2020		$4,287.9		$564.1		$909.8		$245.1		$6,006.9
Current year business combinations (a)		6.9		17.2		2,123.2		-		2,147.3
Prior year business combinations (b)		(0.9)		-		-		-		(0.9)
Effect of foreign currency translation		(23.8)		(4.8)		(58.8)		(2.0)		(89.4)
December 31, 2021		$4,270.1		$576.5		$2,974.2		$243.1		$8,063.9

(a)

Represents goodwill associated with current and prior year acquisitions. For 2021, approximately $1,870 million of goodwill related to businesses acquired is expected to be tax deductible related to the acquisitions of Purolite and National Wiper Alliance, Inc. (refer to Footnote 4 for additional information). This amount of goodwill is subject to change in 2022 based on the finalization of purchase accounting for both transactions. For 2020, the goodwill related to businesses acquired is not tax deductible.

(b)	Represents 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 only indefinite life intangible asset, which is tested for impairment on an annual basis during the second quarter. During the second quarter of 2021, the Company completed its annual impairment assessment of the Nalco trade name using the relief from royalty discounted cash flow method, which incorporates assumptions, including future sales projections, royalty rates and discount rates. The Company’s Nalco trade name impairment assessment for 2021 indicated the estimated fair value of the Nalco trade name exceeded its $1.2 billion carrying amount by a significant margin. Additionally, no events during the second half of 2021 indicated a need to update the Company’s conclusions reached during the second quarter of 2021. There has been no impairment of the Nalco trade name intangible asset since it was acquired.

The Company’s intangible assets subject to amortization include customer relationships, trademarks, patents and other technology primarily acquired through business acquisitions. The fair value of intangible assets acquired in business acquisitions are estimated primarily using discounted cash flow methods at the time of acquisition. Intangible assets are amortized on a straight-line basis over their estimated lives. The weighted-average useful life of amortizable intangible assets was 15 and 14 years as of December 31, 2021 and 2020, respectively.

The weighted-average useful life by type of amortizable asset at December 31, 2021 is as follows:

(years)


Customer relationships		15
Trademarks		14
Patents		15
Other technology		12

The straight-line method of amortization reflects an appropriate allocation of the cost of the intangible assets to earnings in proportion to the amount of economic benefits obtained by the Company in each reporting period. The Company evaluates the remaining useful life of its intangible assets subject to amortization each reporting period to determine whether events and circumstances warrant a change to the estimated remaining period of amortization. If the estimate of an intangible asset’s remaining useful life is changed, the remaining carrying amount of the intangible asset will be amortized prospectively over the revised remaining useful life. Total amortization expense related to other intangible assets during the last three years and future estimated amortization is as follows:


(millions)
2019		$ 206
2020		219
2021		239
2022		314
2023		309
2024		302
2025		295
2026		283

Long-Lived Assets

The Company reviews its long-lived and amortizable intangible assets for impairment when significant events or changes in business circumstances indicate that the carrying amount of the assets, or asset group to which it is assigned, may not be recoverable. Such circumstances may include a significant decrease in the market price of an asset or asset group, a significant adverse change in the manner in which the asset or asset group is being used or history of cash flow losses associated with the use of an asset or asset group. Impairment losses could occur when the carrying amount of an asset or asset group exceeds the anticipated future undiscounted cash flows expected to result from the use of the asset or asset group and its eventual disposition. The amount of the impairment loss to be recorded, if any, is calculated by the excess of the asset’s or asset group’s carrying value over its fair value.

In addition, the Company periodically reassesses the estimated remaining useful lives of its long-lived assets. Changes to estimated useful lives would impact the amount of depreciation and amortization recorded in earnings. The Company has not experienced significant changes in the carrying amount or estimated remaining useful lives of its long-lived or amortizable intangible assets.

Rental and Leases

Change in Accounting Principle

The Company adopted Accounting Standards Codification Topic 842 Leases prospectively on January 1, 2019. The adoption changed the manner in which the Company accounts for leases. The accounting policy and Note 14 have been revised for the change on a prospective basis.

Lessee

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 evaluates whether the arrangement 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 Sheets.

Operating lease assets and operating lease liabilities are measured and recognized based on the present value of the future minimum lease payments over the estimated lease term at commencement date. The Company uses the rate implicit in the lease when available or determinable. When the rate implicit in the lease is not determinable, the Company uses its incremental borrowing rate based on the information available at commencement date to determine the present value of future payments. 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 does not record operating lease assets or liabilities for leases with terms of twelve months or less. Those lease payments will continue to be recognized in the Consolidated Statements of Income over the lease term as incurred.

Many of the Company’s leases include options to renew or cancel, which are at the Company’s sole discretion. Renewal terms 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 or cancel 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.

Lessor

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 18 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 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. Refer to Note 14 for additional information regarding rental and leases.

Income Taxes

Income taxes are recognized during the period in which transactions enter into the determination of financial statement income, with deferred income taxes provided for the tax effect of temporary differences between the carrying amount of assets and liabilities and their tax bases. The Company records a valuation allowance to reduce its deferred tax assets when uncertainty regarding their realizability exists. Relevant factors in determining the realizability of deferred tax assets include historical results, sources of future taxable income, the expected timing of the reversal of temporary differences, tax planning strategies and the expiration dates of the various tax attributes. The Company records liabilities for income tax uncertainties in accordance with the U.S. GAAP recognition and measurement criteria guidance. The Company has elected the period cost method and considers the estimated global intangible low taxed income (“GILTI”) impact in tax expense. The Company recognizes interest and penalties related to income tax uncertainties in our income tax provision.

Refer to Note 13 for additional information regarding income taxes.

Share-Based Compensation

The Company measures compensation expense for share-based awards at fair value at the date of grant and recognizes compensation expense over the service period for awards expected to vest. The majority of grants to retirement eligible recipients (age 55 with required years of service) are recorded to expense using the non-substantive vesting method and are fully expensed over a six-month period following the date of grant. In addition, the Company includes a forfeiture estimate in the amount of compensation expense being recognized based on an estimate of the number of outstanding awards expected to vest.

All excess tax benefits or deficiencies are recognized as discrete income tax items on the Consolidated Statements of Income. The extent of excess tax benefits is subject to variation in stock price and stock option exercises. Refer to Note 12 for additional information regarding equity compensation plans.

Restructuring Activities

The Company’s restructuring activities are associated with plans to enhance its efficiency, effectiveness and sharpen its competitiveness. These restructuring plans include net costs associated with significant actions involving employee-related severance charges, contract termination costs and asset write-downs and disposals. Employee termination costs are largely based on policies and severance plans, and include personnel reductions and related costs for severance, benefits and outplacement services. These charges are reflected in the quarter in which the actions are probable and the amounts are estimable, which typically is when management approves the associated actions. Contract termination costs include charges to terminate leases prior to the end of their respective terms and other contract termination costs. Asset write-downs and disposals include leasehold improvement write-downs, other asset write-downs associated with combining operations and disposal of assets. Refer to Note 3 for additional information regarding restructuring activities.

Revenue Recognition

Revenue is measured as the amount of consideration expected to be received in exchange for transferring goods or providing service.

Product and Sold Equipment

Revenue from product and sold equipment is recognized when obligations under the terms of a contract with the customer are satisfied, which generally occurs with the transfer of the product or delivery of the equipment.

Service and Lease Equipment

Revenue from service and leased equipment is recognized when the services are provided, or the customer receives the benefit from the leased equipment, which is over time. Service revenue is recognized over time utilizing an input method and aligns with when the services are provided. Typically, revenue is recognized 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.

Other Considerations

Contracts with customers may include multiple performance obligations. For contracts with multiple performance obligations, the consideration is allocated between products and services based on their stand-alone selling prices. Stand-alone selling prices are generally based on the prices charged to customers or using an expected cost plus margin. Judgment is used in determining the amount of service that is embedded within the Company’s contracts, which is based on the amount of time spent on the performance obligation activities. The level of effort, including the estimated margin that would be charged, is used to determine the amount of service revenue. Depending on the terms of the contract, the Company may defer the recognition of revenue when a future performance obligation has not yet occurred.

Taxes assessed by a governmental authority that are both imposed on, and concurrent with, a specific revenue-producing transaction, which are collected by the Company from a customer, are excluded from revenue. Shipping and handling costs associated with outbound freight are recognized in cost of sales when control over the product has transferred to the customer.

Other estimates used in recognizing revenue include allocating variable consideration to customer programs and incentive offerings, including pricing arrangements, promotions and other volume-based incentives at the time the sale is recorded. These estimates are based primarily on historical experience and anticipated performance over the contract period. Based on the certainty in estimating these amounts, they are included in the transaction price of the contracts and the associated remaining performance obligations. The Company recognizes revenue when collection of the consideration expected to be received in exchange for transferring goods or providing services is probable.

The Company’s revenue policies do not provide for general rights of return. Estimates used in recognizing revenue include the delay between the time that products are shipped and when they are received by customers, when title transfers and the amount of credit memos issued in subsequent periods. Depending on market conditions, the Company may increase customer incentive offerings, which could reduce gross profit margins over the term of the incentive.

Earnings Per Common Share

The difference in the weighted average common shares outstanding for calculating basic and diluted earnings attributable to Ecolab per common share 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 earnings attributable to Ecolab per common share because they would not have had a dilutive effect.

The computations of the basic and diluted earnings attributable to Ecolab per share amounts were as follows:




(millions, except per share)	2021		2020		2019

Net income from continuing operations attributable to Ecolab		$1,129.9		$967.4		$1,425.6
Net loss from discontinued operations		-		(2,172.5)		133.3
Net income (loss) attributable to Ecolab		$1,129.9		($1,205.1)		$1,558.9

Weighted-average common shares outstanding
Basic		286.3		287.0		288.1
Effect of dilutive stock options and units		2.8		3.3		4.4
Diluted		289.1		290.3		292.5

Earnings (loss) attributable to Ecolab per common share
Basic EPS
Continuing operations		$ 3.95		$ 3.37		$ 4.95
Discontinued operations		$ -		($ 7.57)		$ 0.46
Earnings (loss) attributable to Ecolab		$ 3.95		($ 4.20)		$ 5.41
Diluted EPS
Continuing operations		$ 3.91		$ 3.33		$ 4.87
Discontinued operations		$ -		($ 7.48)		$ 0.46
Earnings (loss) attributable to Ecolab		$ 3.91		($ 4.15)		$ 5.33

Anti-dilutive securities excluded from the computation of diluted EPS		1.9		1.9		1.1

Amounts do not necessarily sum due to rounding.

Assets Held for Sale

Assets and liabilities are classified as held for sale and presented separately on the balance sheet when all of the following criteria for a plan of sale have been met: (1) management, having the authority to approve the action, commits to a plan to sell the assets; (2) the assets are available for immediate sale, in their present condition, subject only to terms that are usual and customary for sales of such assets; (3) an active program to locate a buyer and other actions required to complete the plan to sell the assets have been initiated; (4) the sale of the assets is probable and is expected to be completed within one year; (5) the assets are being actively marketed for a price that is reasonable in relation to their current fair value; and (6) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or the plan will be withdrawn. The ChampionX business met the criteria to be held for sale immediately prior to the Separation. The ChampionX business was previously recorded in the Global Energy reportable segment, which became the Upstream Energy reportable segment beginning in 2020 and subsequently has been reported in discontinued operations. The assets and liabilities held for sale are recorded on the Company’s Consolidated Balance Sheets as current assets of discontinued operations, long-term assets of discontinued operations, current liabilities of discontinued operations and long-term liabilities of discontinued operations, respectively.

Discontinued Operations

Discontinued operations comprise those activities that were disposed of during the period or which were classified as held for sale at the end of the period and represent a strategic shift that has or will have a major effect on the Company’s operations and financial results. The ChampionX business met the criteria to be reported as discontinued operations because it was a strategic shift in business that had a major effect on the Company’s operations and financial results. The ChampionX business is presented on the Consolidated Statements of Income as discontinued operations. Refer to Note 5, Discontinued Operations, for additional information.

Other Significant Accounting Policies

The following table includes a reference to additional significant accounting policies that are described in other notes to the financial statements, including the note number:


Policy		Note
Fair value measurements		8
Derivatives and hedging transactions		9
Share-based compensation		12
Research and development expenditures		15
Legal contingencies		16
Pension and post-retirement benefit plans		17
Reportable segments		19

New Accounting Pronouncements


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



ASU 2020-04 - Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting ASU 2021-01 - Reference Rate Reform (Topic 848): Scope	March 2020	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 met when accounting for contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform.	Application of guidance is optional until the options and expedients expire on December 31, 2022.	The Company has not elected any expedients and adoption of this standard is not expected to have a material impact on the Company's financial statements.

ASU 2021-08 - Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers	October 2021	Update to improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to the recognition of an acquired contract liability and payment terms and their effect on subsequent revenue recognized by the acquirer.	January 1, 2023	The Company is currently evaluating any potential future impacts on the Company's financial statements.

ASU 2021 -10 - Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance	November 2021	Update to increase the transparency of government assistance including the disclosure of the types of assistance, an entity’s accounting for the assistance, and the effect of the assistance on an entity’s financial statements.	January 1, 2022	The Company is currently evaluating any potential future impacts on the Company's financial statements.


Standards that were adopted:
	Date of		Date of	Effect on the
Standard	Issuance	Description	Adoption	Financial Statements

ASU 2019-12 - Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes	December 2019	Simplifies the accounting for income taxes by removing certain exceptions to the general principles related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and recognition of deferred tax liabilities for outside basis differences. 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, 2021	Adoption of this standard did not have a material impact on the Company's financial statements.

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.

3. SPECIAL (GAINS) AND CHARGES

Special (gains) and charges reported on the Consolidated Statements of Income included the following:



(millions)	2021		2020		2019
Cost of sales
Restructuring activities		$24.7		$7.4		$20.4
Acquisition and integration activities		4.2		3.9		7.6
COVID-19 activities, net		64.7		12.5		-
Other		0.3		24.4		10.5
Cost of sales subtotal		93.9		48.2		38.5

Special (gains) and charges
Restructuring activities		11.9		71.4		93.2
Acquisition and integration activities		29.9		8.5		5.6
Disposal and impairment activities		-		41.4		-
COVID-19 activities, net		42.4		23.6		-
Other		18.4		34.7		21.4
Special (gains) and charges subtotal		102.6		179.6		120.2

Operating income subtotal		196.5		227.8		158.7

Other (income) expense		37.2		0.4		9.5
Interest expense, net		33.1		83.8		0.2

Total special (gains) and charges		$266.8		$312.0		$168.4

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

Restructuring Activities

Restructuring activities are primarily related to the Institutional Advancement Program and Accelerate 2020, both of which are described below. These activities have been included as a component of cost of sales, special (gains) and charges and other (income) expense on the Consolidated Statements of Income. Restructuring liabilities have been classified as a component of other current and other noncurrent liabilities on the Consolidated Balance Sheets.

Institutional Advancement Program

The Company approved a restructuring plan in 2020 focused on the Institutional business (“the Institutional Plan”) which is intended to enhance our Institutional sales and service structure and allow the sales team to capture share and penetration while maximizing service effectiveness by leveraging our ongoing investments in digital technology. In February 2021, the Company expanded the Institutional Plan, and expect that these restructuring charges will be completed by 2023, with total anticipated costs of $65 million ($50 million after tax). The costs are expected to be primarily cash expenditures for severance and facility closures. The Company also anticipates non-cash costs related to equipment disposals. Actual costs may vary from these estimates depending on actions taken.

Certain activities contemplated in this Institutional Plan were previously approved in 2020 and included as part of Accelerate 2020. These activities were reclassified to the Institutional Plan. During 2021 and 2020, the Company recorded restructuring charges of $12.6 million ($10.2 million after tax) and $35.2 million ($26.4 million after tax), respectively, primarily related to severance, disposals of equipment and office closures. The Company has recorded $47.8 million ($36.6 million after tax) of cumulative restructuring charges under the Institutional Plan. The liability related to the Institutional Plan was $5.1 million and $24.7 million as of December 31, 2021 and 2020, respectively, and is expected to be paid over a period of a few months to several quarters and will continue to be funded from operating activities.

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


	Employee
	Termination		Asset
(millions)	Costs		Disposals		Other		Total
2020 Activity
Recorded expense and accrual		$25.6		$-		$9.6		$35.2
Net cash payments		(0.9)		-		(9.6)		(10.5)
Restructuring liability, December 31, 2020		24.7		-		-		24.7

2021 Activity
Recorded expense (income) and accrual		(1.8)		8.5		5.9		12.6
Net cash payments		(19.0)		-		(4.7)		(23.7)
Non-cash net charges		-		(8.5)		-		(8.5)
Restructuring liability, December 31, 2021		$3.9		$-		$1.2		$5.1

Accelerate 2020

During 2018, the Company formally commenced a restructuring plan Accelerate 2020 (“the Plan”), to leverage technology and systems investments and organizational changes. The goal of the Plan is to further simplify and automate processes and tasks, reduce complexity and management layers, consolidate facilities and focus on key long-term growth areas by further leveraging technology and structural improvements. During 2020, the Company expanded the Plan for additional costs and savings to further leverage the technology and structural improvements. Following the establishment of the separate Institutional Plan, the Company now expects that the restructuring activities will be completed by the end of 2022, with total anticipated costs of $255 million ($195 million after tax) when revised for continuing operations. The remaining costs are expected to be primarily cash expenditures for severance costs and some facility closure costs relating to team reorganizations. Actual costs may vary from these estimates depending on actions taken.

The Company recorded restructuring charges of $5.3 million ($6.2 million after tax), $41.8 million ($33.0 million after tax) and $113.0 million ($86.5 million after tax) in 2021, 2020 and 2019, respectively, primarily related to severance. Of these expenses, $0.3 million ($0.2 million after tax) and $2.0 million ($1.5 million after tax) during 2020 and 2019, respectively, is recorded in other (income) expense and related to pension settlements and curtailments. The liability related to this Restructuring Plan was $32.7 million and $71.8 million as of December 31, 2021 and 2020, respectively. The remaining liability is expected to be paid over a period of a few months to several quarters and will continue to be funded from operating activities. The Company has recorded $244.5 million ($190.0 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
	Termination		Asset
(millions)	Costs		Disposals		Other		Total
Restructuring liability, December 31, 2018		$57.5		$-		$3.1		$60.6
2019 Activity
Recorded expense		102.3		0.2		10.5		113.0
Net cash payments		(65.3)		1.2		(10.1)		(74.2)
Non-cash charges		-		(1.4)		(2.0)		(3.4)
Effect of foreign currency translation		(0.5)		-		-		(0.5)
Restructuring liability, December 31, 2019		94.0		-		1.5		95.5

2020 Activity
Recorded expense		29.5		7.8		4.5		41.8
Net cash payments		(56.8)		-		(1.0)		(57.8)
Non-cash charges		-		(7.8)		-		(7.8)
Effect of foreign currency translation		0.1		-		-		0.1
Restructuring liability, December 31, 2020		66.8		-		5.0		71.8

2021 Activity
Recorded expense		4.3		0.3		0.7		5.3
Net cash payments		(39.1)		-		(5.0)		(44.1)
Non-cash charges		-		(0.3)		-		(0.3)
Restructuring liability, December 31, 2021		$32.0		$-		$0.7		$32.7

Other Restructuring Activities

During 2021, the Company recorded restructuring charges of $18.7 million ($17.0 million after tax), related to other immaterial restructuring activity. The charges are primarily related to severance and asset write-offs. During 2020, the Company incurred restructuring charges of $1.8 million ($1.2 million after tax) related to other immaterial restructuring activity. The charges are comprised of severance, asset disposals, and consulting fees. During 2019, net restructuring gains related to restructuring plans entered into prior to 2018 were $1.5 million ($1.1 million after tax).

The restructuring liability balance for all other restructuring plans excluding Accelerate 2020 and the Institutional Plan was $4.6 million and $5.9 million as of December 31, 2021 and 2020, 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 2021 related to all other restructuring plans excluding the Accelerate 2020 and Institutional Plan were $10.5 million.

Acquisition and integration related costs

Acquisition and integration costs reported in special (gains) and charges on the Consolidated Statements of Income include $29.9 million ($23.5 million after tax) in 2021. Charges are related to the Purolite Corporation (“Purolite”), Copal Invest NV, including its primary operating entity CID Lines (collectively, “CID Lines”), and Bioquell PLC (“Bioquell”) acquisitions and consist of integration costs and advisory and legal fees. Acquisition and integration costs reported in product and equipment cost of sales on the Consolidated Statements of Income in 2021 include $4.2 million ($3.3 million after tax) and are related to the recognition of fair value step-up in the Purolite inventory. In conjunction with its acquisitions, the Company incurred $0.8 million ($0.6 million after tax) of special (gains) and charges reported in interest expense in 2021.

During 2020, acquisition and integration costs reported in special (gains) and charges on the Consolidated Statements of Income include $8.5 million ($6.9 million after tax). Charges are related to the CID Lines, Bioquell and the Laboratoires Anios (“Anios”) acquisitions and consist of integration costs and advisory and legal fees. Acquisition and integration costs reported in product and equipment cost of sales on the Consolidated Statements of Income in 2020 include $3.9 million ($3.2 million after tax) and are related to recognition of fair value step-up in CID Lines inventory, severance and the closure of a facility. In conjunction with its acquisitions, the Company incurred $0.7 million ($0.6 million after tax) of special (gains) and charges reported in interest expense in 2020.

During 2019, acquisition and integration costs reported in special (gains) and charges on the Consolidated Statements of Income include $5.6 million ($4.1 million after tax). Charges are primarily related to the Bioquell and Anios acquisitions and consist of integration costs, advisory and legal fees. Acquisition and integration costs reported in product and equipment cost of sales on the Consolidated Statements of Income in 2019 include $7.6 million ($5.6 million after tax) and are related to recognition of fair value step-up in the Bioquell inventory and facility closure costs. In conjunction with the acquisitions, the Company incurred $0.2 million ($0.1 million after tax) of special (gains) and charges reported in interest expense in 2019.

Disposal and impairment charges

Disposal and impairment charges reported in special (gains) and charges on the Consolidated Statements of Income include $41.4 million ($41.5 million after tax) in 2020. During 2020, the Company recorded a $28.6 million ($28.6 million after tax) impairment for a minority equity method investment due to the COVID-19 impact on the economic environment and the liquidity of the minority equity method investment. In addition, the Company recorded charges of $12.8 million ($12.9 million after tax) related to the disposal of Holchem Group Limited (“Holchem”) for the loss on sale and related transaction fees during 2020.

COVID-19 activities

Customer demand for sanitizer products surged at the outset of COVID-19. The Company worked hard to meet the rapidly increasing demand and sold the vast majority of the sanitizer inventory. However, COVID-19 variant-related delays of customer’s reopening and consumer activity resulted in a small portion of excess sanitizer inventory. The Company recorded inventory reserves of $60 million during 2021 for excess sanitizer inventory and estimated disposal costs. The Company recorded charges of $36.8 million and $57.1 million during 2021 and 2020, respectively, to protect the wages of certain employees directly impacted by the COVID-19 pandemic. The Company recorded charges related to the COVID-19 pandemic of $16.5 million and $2.4 million related to employee COVID-19 testing and related expenses during 2021 and 2020, respectively. In addition, the Company received subsidies and government assistance, which were recorded as a special (gain) of ($6.2) million and ($23.4) million during 2021 and 2020, respectively. COVID-19 pandemic charges are recorded in product and equipment cost of sales, service and lease cost of sales, and special (gains) and charges on the Consolidated Statements of Income. Total after tax net charges (gains) related to COVID-19 pandemic were $81.3 million and $27.4 million during 2021 and 2020, respectively.

Other operating activities

Other operating activities recorded in special charges of $0.3 million ($0.2 million after tax), $24.4 million ($16.0 million after tax) and $10.5 million ($7.1 million after tax), during 2021, 2020 and 2019, respectively, recorded in product and equipment cost of sales on the Consolidated Statements of Income primarily related to a Healthcare product recall in Europe.

Other operating activities recorded in special charges of $18.4 million ($14.1 million after tax) in 2021, $34.7 million ($33.9 million after tax) in 2020 and $21.4 million ($16.2 million after tax) in 2019 relate primarily to legal reserves and certain legal charges, which are

recorded in special (gains) and charges on the Consolidated Statements of Income. The Company also recorded a $7.2 million special charge in 2020 related to the separation of ChampionX as a tax expense on the Consolidated Statements of Income.

Other (income) expense

During 2021, the Company incurred settlement expense of $37.2 million ($28.7 million after tax) related to U.S. pension plan lump-sum payments to retirees. During 2020 and 2019, the Company recorded other expense of $0.4 million ($0.3 million after tax) and $9.5 million ($7.2 million after tax) related to pension curtailments and settlements due to the ChampionX separation and Accelerate 2020. These charges have been included as a component of other (income) expense on the Consolidated Statements of Income.

Interest expense, net

During 2021 and 2020, the Company recorded special charges of $32.3 million ($28.4 million after tax) and $83.1 million ($64.0 million after tax), respectively, in interest expense on the Consolidated Statements of Income related to debt refinancing charges. During 2021, 2020 and 2019, an immaterial amount of interest expense was also recorded due to acquisition and integration costs.

4. ACQUISITIONS AND DISPOSITIONS

Acquisitions

The Company makes business acquisitions that align with its strategic business objectives. The assets and liabilities of acquired businesses are recorded in the Consolidated Balance Sheets at fair value as of their acquisition date. The purchase price allocation is based on estimates of the fair value of assets acquired, liabilities assumed and consideration paid. Purchase consideration is reduced by the amount of cash or cash equivalents acquired. Acquisitions during 2021, 2020 and 2019 were not significant to the Company’s consolidated financial statements; therefore, pro forma financial information is not presented.

2021 Activity

Purolite Acquisition

On December 1, 2021, the Company acquired Purolite for total consideration of $3,698 million in cash, net of cash acquired. Purolite is a leading and fast-growing global provider of resins for the separation and purification of solutions that is highly complementary to our current offering and critical to safe, high quality drug production and biopharma product purification in the life sciences industries. It also provides purification and separation solutions for critical industrial markets like microelectronics, nuclear power and food and beverage. Prior to acquisition, Purolite prepared its consolidated financial statements pursuant to the requirements of UK GAAP.

The Purolite acquisition has been accounted for as a business combination with the assets acquired and liabilities assumed recognized at fair value as of the acquisition date. The fair values of intangible assets acquired were estimated using discounted cash flow analyses appropriate for the nature of the asset that incorporated projections of future cash flows and other valuation assumptions. Significant inputs and assumptions used in our customer relationship intangible asset valuations include projected revenues, contributory asset charges, tax savings due to amortization, income tax rates, customer attrition rates and discount rates. Significant inputs and assumptions to our tradename and acquired asset intangible asset valuations include projected revenues, asset life cycle, royalty rates, tax saving due to amortization, income tax rates, discount rates and estimated useful lives. Fair value measurements of certain tangible assets, definite-lived intangible assets, lease right of use assets and liabilities, net pension liabilities, carry over tax attributes, deferred income taxes, income tax uncertainties, and goodwill are preliminary and subject to changes as the information necessary to complete the valuations are obtained and analyzed. Accordingly, purchase accounting for this transaction is not yet complete pending finalization of these valuations and completion of comprehensive accounting policy consistency review. The amounts recorded reflect the Company’s best estimates as of December 31, 2021 and are subject to change.

The Company incurred certain transaction and integration costs associated with the acquisition that were expensed and are reflected in the Consolidated Statements of Income. Further information related to the Company’s special (gains) and charges is included in Note 3.

The following table summarizes the preliminary value of Purolite assets acquired and liabilities assumed, net of cash acquired, as of the acquisition date:


(millions)	2021
Tangible assets		$417.6
Identifiable intangible assets
Customer relationships		900.0
Trade names		222.0
Acquired technologies		287.0
Other assets		4.4
Total assets acquired		1,831.0

Goodwill		2,014.0

Total liabilities		146.6
Net consideration transferred to sellers		$3,698.4

Tangible assets acquired primarily consist of accounts receivable of $65.3 million, property, plant and equipment of $175.1 million and inventory of $163.4 million. Liabilities assumed primarily consist of deferred tax liabilities of $67.6 million and current liabilities of $62.0 million. Identified intangible assets primarily consist of customer relationships, trade names, and acquired technologies and are being amortized over average lives of 17, 14, and 14 years, respectively, with a weighted average life of 16 years.

Goodwill of $2,014.0 million arising from the acquisition consists largely of the synergies and economies of scale expected through adding complementary geographies and innovative products to our Life Sciences businesses. Purolite became part of the Global Healthcare & Life Sciences reportable segment. Approximately $1,810 million of goodwill is expected to be deductible for income tax purposes. The amount of tax deductible goodwill is subject to change as purchase accounting is finalized.

Other Acquisitions

On December 1, 2020, the Company acquired VanBaerle Hygiene AG (“VanBaerle”), a Switzerland-based business which sells cleaning products and related services to restaurants, long-term care facilities, hotels and laundries primarily for institutional applications. VanBaerle became part of the Global Institutional & Specialty reporting segment. The purchase price included immaterial amounts of holdback and contingent consideration, portions of which were settled prior to December 31, 2021. Unsettled amounts are recorded within other liabilities on the Consolidated Balance Sheets as of December 31, 2021.

On February 1, 2021, the Company acquired TechTex Holdings Limited (“TechTex”), a U.K.-based business which sells wet and dry wipes and other nonwovens products primarily for life sciences and healthcare applications. TechTex became part of the Global Healthcare & Life Sciences reporting segment. The purchase price included an immaterial holdback amount that was settled prior to December 31, 2021.

On July 1, 2021, the Company acquired National Wiper Alliance, Inc. (“NWA”), a U.S.-based business which sells wipes for healthcare and institutional applications. NWA became part of the Global Healthcare & Life Sciences reporting segment.

On September 1, 2021, the Company acquired EPN Water Col, Ltd. (“EPN”), a South Korean-based business which sells chemical products and manages installations at water treatment chemical injection facilities. EPN became part of the Global Industrial reporting segment.

Purchase accounting for the VanBearle acquisition was finalized in the fourth quarter of 2021 and no further purchase accounting adjustments will be recorded. The purchase accounting for acquisitions other than VanBaerle are preliminary and subject to change as the Company finalizes the valuation of certain tangible assets, definite-lived intangible assets, lease right of use assets and liabilities, carry over tax attributes, deferred income taxes, income tax uncertainties and goodwill. The Company does not expect any of the goodwill related to its acquisitions of VanBaerle, TechTex, or EPN to be tax deductible, whereas the goodwill arising from the acquisition of NWA is expected to be tax deductible.

2020 Activity

CID Lines Acquisition

During 2020, the Company acquired CID Lines for total consideration of $506.9 million in cash. CID Lines had annualized pre-acquisition sales of approximately $110 million and is a leading global provider of livestock biosecurity and hygiene solutions based in Belgium.

The CID Lines acquisition has been accounted for as a business combination with the assets acquired and liabilities assumed recognized at fair value as of the acquisition date. The Company incurred certain transaction and integration costs associated with the acquisition that were expensed and are reflected in the Consolidated Statements of Income. Further information related to the Company’s special (gains) and charges is included in Note 3.

The following table summarizes the preliminary value of CID Lines assets acquired and liabilities assumed as of the acquisition date:


(millions)	2020
Tangible assets		$54.1
Identifiable intangible assets
Customer relationships		147.5
Trademarks		58.6
Acquired technologies and product registrations		47.7
Total assets acquired		307.9

Goodwill		274.8

Total liabilities		97.2
Net consideration transferred to sellers		$485.5

Tangible assets acquired primarily consist of accounts receivable of $30.1 million, property, plant and equipment of $7.7 million and inventory of $16.3 million. Liabilities assumed primarily consist of deferred tax liabilities of $64.8 million and current liabilities of $32.4 million. Identified intangible assets primarily consist of customer relationships, trademarks, and acquired technology and product registrations and are being amortized over average lives of 14, 14, and 16 years, respectively.

Goodwill of $274.8 million arising from the acquisition consists largely of the synergies and economies of scale expected through adding complementary geographies and innovative products to our Food and Beverage businesses. CID Lines became part of the Global Industrial reportable segment. None of the goodwill recognized from the acquisition is expected to be deductible for income tax purposes.

During 2021, the Company recorded purchase accounting adjustments that decreased goodwill recognized from the acquisition of CID Lines by $0.9 million. Purchase accounting was finalized in the second quarter of 2021 and no further purchase accounting adjustments will be recorded for the CID Lines acquisition.

2019 Activity

During 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 is a part of the Global Healthcare & Life Sciences reportable segment. During 2018, the Company deposited $179.3 million (£140.5 million) in an escrow account that was released upon closing of the transaction in February 2019.

The Company also acquired Lobster Ink, a leading provider of end-to-end online customer training solutions. This acquired business became part of the Global Institutional & Specialty reportable segment. The purchase price included an earn-out based on the achievement of a revenue threshold in any of the three fiscal years following the acquisition. The acquisition date fair value of the earn-out was reflected in the overall purchase consideration exchanged for the acquisition and recorded as contingent consideration. There is no contingent consideration liability remaining as of December 31, 2021.

The Company also 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 & Specialty reportable segment.

The Company also acquired Gallay Medical & Scientific which sells, installs, and services medical equipment and associated chemistry primarily for hospitals, healthcare facilities, and dental clinics. The acquired business is a part of the Global Healthcare & Life Sciences reportable segment.

Pre-acquisition sales for the businesses acquired in 2019 were $134 million.

Purchase accounting for these acquisitions was finalized in 2020 resulting in insignificant purchase price adjustments being recorded.

Acquisitions

The components of the cash paid for other acquisitions, excluding the Purolite and CID Lines acquisitions (as further disclosed above), for 2021, 2020 and 2019, are shown in the following table:



(millions)	2021		2020		2019
Net tangible assets (liabilities) acquired		$5.2		$-		($8.0)

Identifiable intangible assets
Customer relationships		80.6		-		115.7
Trademarks		4.7		-		24.1
Non-compete agreements		3.0		-		-
Other technology		1.5		-		48.9
Total intangible assets		89.8		-		188.7

Goodwill		133.4		-		234.8
Total aggregate purchase price		228.4		-		415.5

Acquisition-related liabilities and contingent consideration (a)		(4.4)		-		(24.1)
Net cash paid for acquisitions, including acquisition-related
liabilities and contingent consideration		$224.0		$-		$391.4

(a)Subsequent to the acquisitions, $1.4 in contingent consideration was remitted to the seller during 2021 and is included in investing activities on the Consolidated Statement of Cash Flows.

During 2020, the Company recorded purchase accounting adjustments associated with its 2019 acquisitions. As a result of these purchase accounting adjustments, the net intangible assets and goodwill recognized from these acquisitions increased by $0.9 million and $0.6 million, respectively. In conjunction with the finalization of its purchase accounting, the Company made $3.5 million of acquisition-related payments which primarily consisted of the release of holdback liabilities and payment of contingent consideration. The 2019 acquisition-related liabilities primarily consist of holdback liabilities and contingent considerations.

The weighted average useful lives of definite-lived intangible assets acquired from other acquisitions were 13,14, and 12 years as of December 31, 2021, 2020 and 2019, respectively.

Dispositions

In the second quarter of 2020, the Company completed the sale of Holchem, a U.K. based supplier of hygiene and cleaning products and services for the food and beverage, foodservice and hospitality industries for total consideration of $106.6 million. Consideration consisted of $55.4 million of cash and the receipt of notes valued at $51.2 million from the acquirer. In the fourth quarter of 2020, all outstanding principal and interest on the notes was paid by the acquirer. After the recognition of transaction costs, the Company recognized an after-tax loss of $12.8 million, which was classified within special charges in the Consolidated Statements of Income. Annual sales of Holchem were approximately $55 million and were included in the Global Industrial reportable segment prior to disposition.

As discussed in Note 5, the ChampionX separation met the criteria to be reported as discontinued operations. No other dispositions were significant to the Company’s consolidated financial statements for 2021, 2020 or 2019.

5. Discontinued Operations

On June 3, 2020, the Company effected the split-off of ChampionX through an offer to exchange (the “Exchange Offer”) all shares of ChampionX common stock owned by Ecolab for outstanding shares of Ecolab common stock. In the Exchange Offer, which was oversubscribed, the Company accepted approximately 5.0 million shares of Ecolab common stock in exchange for approximately 122.2 million shares of ChampionX common stock. In the Merger, each outstanding share of ChampionX common stock was converted into the right to receive one share of Apergy common stock, and ChampionX survived the Merger as a wholly owned subsidiary of ChampionX Corporation. In connection with and in accordance with the terms of the Transaction, prior to the consummation of the Exchange Offer and the Merger, ChampionX distributed $527.4 million in cash to Ecolab.

The following is a summary of the assets and liabilities transferred to ChampionX as part of the separation:



(millions)
Assets:
Cash and cash equivalent			$60.6
Current assets			810.5
Non-current assets			3,222.3
			4,093.4
Liabilities:
Current liabilities			313.0
Non-current liabilities			293.7
			606.7

Net assets distributed to ChampionX			($3,486.7)
Fair value of shares exchanged			1,051.4
Cash received from ChampionX			527.4
Consideration received less net assets			(1,907.9)

ChampionX cumulative translation adjustment ("CTA") write-off			(229.9)
Loss on separation			($2,137.8)

The Company accounted for this transaction as a sale and recognized a loss based on ChampionX net assets exceeding the effective proceeds.

The ChampionX business, as discussed in Note 1, met the criteria to be reported as discontinued operations because the separation of the ChampionX business was a strategic shift in business that had a major effect on the Company’s operations and financial results. The historical financial results of the ChampionX business are reflected in the Company’s consolidated financial statements as discontinued operations, for all periods presented, and assets and liabilities were retrospectively reclassified as assets and liabilities of discontinued operations.

Summarized results of the Company’s discontinued operations are as follows:



(millions)	2021		2020		2019

Product and equipment sales		$-		$858.9		$2,109.9
Service and lease sales		-		99.6		234.4
Net sales		-		958.5		2,344.3
Product and equipment cost of sales		-		621.7		1,488.9
Service and lease cost of sales		-		80.4		188.7
Cost of sales (including special charges)		-		702.1		1,677.6
Selling, general and administrative expenses		-		180.5		406.7
Special (gains) and charges		-		2,221.7		91.4
Operating income		-		(2,145.8)		168.6
Other (income) expense		-		0.3		0.7
Interest expense (income), net		-		0.2		0.5
Income before income taxes		-		(2,146.3)		167.4
Provision for income taxes		-		24.0		34.1
Net loss including noncontrolling interest		-		(2,170.3)		133.3
Net income attributable to noncontrolling interest		-		2.2		-
Net loss from discontinued operations, net of tax		$-		($2,172.5)		$133.3

Special (gains) and charges of $2,221.7 million and $91.4 million in 2020 and 2019, respectively, primarily relate to the loss on sale, professional fees incurred to support the Transaction and restructuring charges specifically related to the ChampionX business. These charges have been included as a component of both cost of sales and special (gains) and charges in discontinued operations.

The Company also recognized discrete tax expense primarily related to friction costs associated with ChampionX separation activity of $22.7 million during 2020 that is allocated within discontinued operations tax expense.

In connection with the Transaction, the Company entered into agreements with ChampionX and Apergy to effect the separation and to provide a framework for the relationship following the separation, which included a Separation and Distribution Agreement, an Intellectual Property Matters Agreement, an Employee Matters Agreement, a Transition Services Agreement, and a Tax Matters Agreement. Transition services primarily involve the Company providing certain services to ChampionX related to general and administrative services for terms of up to 18 months following the separation. The amounts billed for transition services provided under the above agreements were $12.5 million and $14.3 million during 2021 and 2020, respectively.

The Company also entered into a Master Cross Supply and Product Transfer agreement with ChampionX to provide, receive or transfer certain products for a period up to 36 months. Sales of product to ChampionX under this agreement are recorded in product and equipment sales in the Corporate segment along with the related cost of sales, while purchases from ChampionX are recorded in inventory. Sales of product to ChampionX post-separation for 2021 and 2020 were $139.4 million and $99.7 million, respectively. As of December 31, 2021, the Company had an outstanding accounts receivable balance for sales of product to ChampionX of $17.9 million.

6. BALANCE SHEET INFORMATION



	December 31		December 31
(millions)	2021		2020
Accounts receivable, net
Accounts receivable		$2,549.9		$2,358.1
Allowance for expected credit losses and other accruals		(71.5)		(84.3)
Total		$2,478.4		$2,273.8

Inventories
Finished goods		$1,010.6		$789.6
Raw materials and parts		596.1		511.2
Inventories at FIFO cost		1,606.7		1,300.8
FIFO cost to LIFO cost difference		(114.9)		(15.6)
Total		$1,491.8		$1,285.2

Other current assets
Prepaid assets		$121.2		$99.1
Taxes receivable		151.3		168.6
Derivative assets		61.4		3.2
Other		23.1		27.3
Total		$357.0		$298.2

Property, plant and equipment, net
Land		$159.2		$159.7
Buildings and leasehold improvements		1,134.1		1,060.0
Machinery and equipment		1,968.7		1,830.1
Merchandising and customer equipment		2,708.2		2,691.0
Capitalized software		884.6		820.8
Construction in progress		325.0		219.8
		7,179.8		6,781.4
Accumulated depreciation		(3,891.3)		(3,656.5)
Total		$3,288.5		$3,124.9

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		3,444.6		2,530.9
Trademarks		561.1		348.0
Patents		496.3		492.5
Other technology		527.2		240.1
		5,029.2		3,611.5
Accumulated amortization
Customer relationships		(1,440.9)		(1,319.1)
Trademarks		(170.3)		(155.0)
Patents		(269.3)		(244.6)
Other technology		(154.6)		(145.8)
		(2,035.1)		(1,864.5)
Net intangible assets subject to amortization		2,994.1		1,747.0
Total		$4,224.1		$2,977.0

Other assets
Deferred income taxes		$120.6		$163.2
Pension		114.6		33.0
Derivative asset		29.4		-
Other		281.4		279.8
Total		$546.0		$476.0



	December 31		December 31
(millions)	2021		2020
Other current liabilities
Discounts and rebates		$341.1		$304.1
Dividends payable		146.3		137.2
Interest payable		47.7		51.7
Taxes payable, other than income		154.2		151.8
Derivative liabilities		-		25.8
Restructuring		39.1		98.1
Contract liability		91.7		80.4
Operating lease liabilities		115.1		125.6
Other		209.0		214.2
Total		$1,144.2		$1,188.9

Accumulated other comprehensive income (loss)
Unrealized gain (loss) on derivative financial instruments, net of tax		$4.9		($21.1)
Unrecognized pension and postretirement benefit expense, net of tax		(632.8)		(935.2)
Cumulative translation, net of tax		(1,006.9)		(1,038.1)
Total		($1,634.8)		($1,994.4)

7. DEBT AND INTEREST

Short-term Debt

The following table provides the components of the Company’s short-term debt obligations, along with applicable interest rates as of December 31, 2021 and 2020:


	2021				2020
			Average				Average
	Carrying		Interest		Carrying		Interest
(millions)	Value		Rate		Value		Rate
Short-term debt
Commercial paper		$400.0	0.28	%		$-	-	%
Notes payable		8.5	7.95	%		15.5	7.07	%
Long-term debt, current maturities		2.5				1.8
Total		$411.0				$17.3

Line of Credit

As of December 31, 2021, the Company had in place a $2.0 billion multi-currency revolving credit facility which expires in April 2026. The credit facility has been established with a diverse syndicate of banks and supports the Company’s U.S. and Euro commercial paper programs. There were no borrowings under the Company’s credit facility as of December 31, 2021 and 2020.

The Company has $338 million of available bank supported letters of credit, surety bonds and guarantees available in support of its commercial business transactions of which $118 million is outstanding as of December 31, 2021.

During the fourth quarter of 2021, the Company utilized a $3.0 billion delayed draw term loan to fund the Purolite acquisition. The Company repaid the $3.0 billion during the fourth quarter of 2021 with no amounts outstanding at December 31, 2021.

The Company had a $305 million term credit agreement and drew on and repaid $303 million during the second quarter of 2020. The credit agreement expired in June 2020.

Commercial Paper

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

The Company had $400 million outstanding commercial paper under its U.S. program as of December 31, 2021 and no outstanding commercial paper under its Euro or U.S. program as of December 31, 2020.

As of December 31, 2021, the Company’s short-term borrowing program was rated A-2 by Standard & Poor’s, P-2 by Moody’s and F-1 by Fitch.

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 December 31, 2021 and 2020, the Company had $8.5 million and $15.5 million, respectively, outstanding under these credit lines. Approximately $1,628 million and $1,734 million of these credit lines were available for use as of December 31, 2021 and 2020, respectively.

Long-term Debt

The following table provides the components of the Company’s long-term debt obligations, along with applicable interest rates as of December 31, 2021 and 2020:


		2021								2020
				Stated		Effective				Stated		Effective
	Maturity	Carrying		Interest		Interest		Carrying		Interest		Interest
(millions)	by Year	Value		Rate		Rate		Value		Rate		Rate

Long-term debt
Public notes (2021 principal amount)
Five year 2017 senior notes ($500 million)	2022		$-	-	%	-	%		$498.6	2.38	%	2.55	%
Seven year 2016 senior notes ($400 million)	2023		-	-	%	-	%		399.0	3.25	%	3.49	%
Two year 2021 senior notes ($500 million)	2023		497.2	0.90	%	1.19	%		-	-	%	-	%
Seven year 2016 senior notes (€575 million)	2024		649.3	1.00	%	1.19	%		682.0	1.00	%	1.18	%
Ten year 2015 senior notes (€575 million)	2025		649.7	2.63	%	2.87	%		682.9	2.63	%	2.85	%
Ten year 2016 senior notes ($750 million)	2026		744.9	2.70	%	2.89	%		745.3	2.70	%	2.93	%
Ten year 2017 senior notes ($500 million)	2027		488.4	3.25	%	2.89	%		496.0	3.25	%	3.37	%
Six Year 2021 senior notes ($500 million)	2027		495.7	1.65	%	1.84	%		-	-	%	-	%
Ten year 2020 senior notes ($698 million)	2030		709.1	4.80	%	4.06	%		765.2	4.80	%	4.64	%
Ten year 2020 senior notes ($600 million)	2031		593.4	1.30	%	1.39	%		594.4	1.30	%	1.34	%
Eleven year 2021 senior notes ($650 million)	2032		644.0	2.13	%	2.24	%		-	-	%	-	%
Thirty year 2011 senior notes ($389 million)	2041		384.3	5.50	%	5.63	%		452.2	5.50	%	5.56	%
Thirty year 2016 senior notes ($200 million)	2046		197.2	3.70	%	3.81	%		246.4	3.70	%	3.76	%
Thirty year 2017 senior notes ($484 million)	2047		424.3	3.95	%	4.80	%		611.9	3.95	%	4.16	%
Thirty year 2020 senior notes ($500 million)	2050		490.4	2.13	%	2.24	%		490.1	2.13	%	2.15	%
Thirty year 2021 senior notes ($850 million)	2051		838.5	2.70	%	2.78	%		-	-	%	-	%
Thirty-four year 2021 senior notes ($685 million)	2055		535.3	2.75	%	3.87	%		-	-	%	-	%
Finance lease obligations and other			8.0						7.1
Total debt			8,349.7						6,671.1
Long-term debt, current maturities			(2.5)						(1.8)
Total long-term debt			$8,347.2						$6,669.3

Public Notes

In August 2021, the Company completed a private offering of a $300 million aggregate principal 34-year fixed rate notes with a coupon rate of 2.75% (“New 34-year Notes”). Immediately following the offering, the Company completed a private offering to exchange a portion of the outstanding senior notes due 2030, 2041, 2046, 2047 (“Old Notes”), for $385 million of New 34-year Notes. In connection with the exchange offering, $387 million of Old Notes were validly tendered and subsequently cancelled.

In December 2021, the Company issued $2.5 billion in notes to repay the $3.0 billion delayed draw term loan used to fund the Purolite acquisition. These notes were comprised of $500 million 0.9% notes due 2023, $500 million 1.65% notes due 2027, $650 million 2.125% notes due 2032, and $850 million 2.7% notes due 2051.

During the fourth quarter of 2021, pursuant to a registration rights agreement pertaining to the New 34-year Notes, the Company filed a registration statement regarding an offer to exchange each series of the New 34-year Notes for new issues of notes registered under the U.S. Securities Act of 1933, as amended. The registration statement was declared effective, and substantially all of the New 34-year Notes were exchanged. The terms of each series of the new notes are substantially identical to the terms of the applicable series of New 34-year Notes, except that the new notes are registered as mentioned above and the transfer restrictions and registration rights and related special interest provisions applicable to the New 34-year Notes do not apply to the new notes.

The New 34-year Notes bear a lower fixed coupon rate on an extended maturity date, compared with the Old Notes that were exchanged. There were no other significant changes to the terms between the Old Notes and the New 34-year Notes. The exchange was accounted for as a debt modification, and there were cash payments to the note holders of $118 million as a result of the exchange. Existing deferred financing costs associated with the Old Notes, as well as discounts associated with the New 34-year Notes aggregating $143 million, are being amortized over the term of the New 34-year Notes and recorded as interest expense.

In September 2021, the Company completed the retirement of the $500 million 2.375% Notes due 2022 and the $400 million 3.25% Notes due 2023 which was accounted for as a debt extinguishment. A make-whole premium of $25.0 million was expensed immediately and is reflected as a financing cash flow activity.

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

Covenants and Future Maturities

The Company is in compliance with all covenants under the Company’s outstanding indebtedness at December 31, 2021.

As of December 31, 2021, the aggregate annual maturities of long-term debt for the next five years were:


(millions)
2022			$ 2
2023			500
2024			650
2025			651
2026			745

Net Interest Expense

Interest expense and interest income incurred during 2021, 2020 and 2019 were as follows:



(millions)	2021		2020		2019
Interest expense		$230.6		$304.8		$214.4
Interest income		(12.3)		(14.6)		(23.7)
Interest expense, net		$218.3		$290.2		$190.7

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

During 2021, the Company issued, exchanged and retired certain long-term debt, incurring debt refinancing charges of $32.3 million ($28.4 million after tax), which are included as a component of interest expense, net on the Consolidated Statements of Income.

During 2020, the Company retired certain long-term debt, and incurred debt refinancing charges of $83.1 million ($64.0 million after tax), which are included as a component of interest expense, net on the Consolidated Statements of Income.

8. FAIR VALUE MEASUREMENTS

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

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

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

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

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

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


	December 31, 2021
(millions)	Carrying		Fair Value Measurements
	Amount		Level 1		Level 2		Level 3
Assets
Foreign currency forward contracts		$94.5		$-		$94.5		$-
Interest rate swap agreements		1.8		-		1.8		-
Cross-currency swap derivative contracts		9.4		-		$9.4		-

Liabilities
Foreign currency forward contracts		12.6		-		12.6		-
Interest rate swap agreements		10.1		-		10.1		-
Cross-currency swap derivative contracts		1.6		-		1.6		-


	December 31, 2020
(millions)	Carrying		Fair Value Measurements
	Amount		Level 1		Level 2		Level 3
Assets
Foreign currency forward contracts		$15.5		$-		$15.5		$-

Liabilities
Foreign currency forward contracts		69.9		-		69.9		-

The carrying value of foreign currency forward contracts are at fair value, which are determined based on foreign currency exchange rates as of the balance sheet date and classified within Level 2. The carrying value of interest rate swap contracts are at fair value, which are determined based on current forward interest rates as of the balance sheet date and are classified within Level 2. The cross-currency swap derivative contract is used to partially hedge the Company’s net investments in foreign operations against adverse movements in exchange rates between the U.S. dollar and the Euro. The carrying value of the cross-currency swap derivative contract is at fair value, which is determined based on the income approach with the relevant interest rates and foreign currency current exchange rates and forward curves as inputs as of the balance sheet date and is classified within Level 2. For purposes of fair value disclosure above, derivative values are presented gross. Further discussion of gross versus net presentation of the Company's derivatives within Note 9.

Contingent consideration obligations are recognized and measured at fair value at the acquisition date and thereafter until settlement or expiration. Contingent consideration is classified within Level 3 as the underlying fair value is determined using income-based valuation approaches appropriate for the terms and conditions of each respective contingent consideration. The consideration expected to be transferred is based on the Company’s expectations of various financial measures. The ultimate payment of contingent consideration could deviate from current estimates based on the actual results of these financial measures. Contingent consideration during 2021, 2020 and 2019 were not significant to the Company’s consolidated financial statements.

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

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


	December 31, 2021				December 31, 2020
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Long-term debt, including current maturities		$8,349.7		$9,085.3		$6,671.1		$7,704.4

9. DERIVATIVES AND HEDGING TRANSACTIONS

The Company uses foreign currency forward contracts, interest rate swap agreements, cross-currency swap derivative contracts and foreign currency debt to manage risks associated with foreign currency exchange rates, interest rates and net investments in foreign operations. The Company does not hold derivative financial instruments of a speculative nature or for trading purposes. The Company records derivatives as assets and liabilities 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, no cash collateral had been received or pledged related to the underlying derivatives.

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

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


	Derivative Assets				Derivative Liabilities
	December 31		December 31		December 31		December 31
(millions)	2021		2020		2021		2020
Derivatives designated as hedging instruments
Foreign currency forward contracts		$44.7		$8.1		$2.6		$54.3
Interest rate swap agreements		1.8		-		10.1		-
Cross-currency swap derivative contracts		9.4		-		1.6		-

Derivatives not designated as hedging instruments
Foreign currency forward contracts		49.8		7.4		10.0		15.6
Gross value of derivatives		105.7		15.5		24.3		69.9

Gross amounts offset in the Consolidated Balance Sheets		(14.9)		(12.3)		(14.9)		(12.3)
Net value of derivatives		$90.8		$3.2		$9.4		$57.6

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


	Notional Values
		December 31	December 31
(millions)		2021	2020

Foreign currency forward contracts		$ 4,059		$ 3,702
Interest rate swap agreements		1,250		-
Cross-currency swap derivative contracts		482		-

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, intercompany loans, management fee and other payments. These forward contracts are designated as cash flow hedges. The changes in fair value of these contracts are recorded in accumulated other comprehensive income (loss) (“AOCI”) until the hedged items affect earnings, at which time the gain or loss is reclassified into the same line item in the Consolidated Statements of Income as the underlying exposure being hedged. Cash flow hedged transactions impacting AOCI are forecasted to occur within the next two 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 Statements 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 Statements 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 Statements of Income is recorded in AOCI.

Fair Value Hedges

The Company manages interest expense using a mix of fixed and floating rate debt. To help manage exposure to interest rate movements and to reduce borrowing costs, the Company may enter into interest rate 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 (income) expense and is offset by the gain or loss of the underlying debt instrument, which also is recorded in interest (income) expense. These fair value hedges are highly effective and thus, there is no impact on earnings due to hedge ineffectiveness.

In March 2021, the Company entered into an interest rate swap agreement that converted $250 million of its 3.25% debt from a fixed interest rate to a floating interest rate. In July 2021, the Company entered into an interest rate swap agreement that converted the remaining $250 million of its 3.25% debt from a fixed interest rate to a floating interest rate. In September 2021, the Company entered into an interest rate swap agreement that converted $250 million of its 4.80% debt from a fixed interest rate to a floating interest rate. In October 2021, the Company entered into an interest rate swap agreement that converted $250 million of its 2.70% debt from a fixed interest rate to a floating interest rate. In December 2021, the Company entered into an interest rate swap agreement that converted $250 million of its 1.30% debt from a fixed interest rate to a floating interest rate. All of these interest rate swaps are designated as fair value hedges.

The following amounts were recorded in the Consolidated Balance Sheets related to cumulative basis adjustments for fair value hedges:


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
(millions)	2021		2020		2019		2021		2020		2019
Long-term debt		$1,235.6		$-		$-		$12.1		$-		$-

Net Investment Hedges

The Company designates its outstanding €1,150 million ($1,299 million as of year-end 2021) senior notes (“Euronotes”) and related accrued interest as a hedge of its Euro denominated exposures from the Company’s investments in certain of its Euro denominated functional currency subsidiaries. Certain Euro commercial paper was also designated as a hedge of existing foreign currency exposures and matured in the third quarter of 2020.

In July and December of 2021, the Company entered into a cross-currency swap derivative contracts with a notional amount of €300 million and €125 million, respectively, both maturing in 2030. The cross-currency swap derivative contracts are designated as net investment hedge of the Company’s Euro denominated exposures from the Company’s investments in certain of its Euro denominated functional currency subsidiaries. The cross-currency swap derivative contracts exchange fixed-rate payments in one currency for fixed-rate payments in another currency. As of December 31, 2021, the Company had a €425 million ($482 million) cross-currency swap derivative contract outstanding as a hedge of the Company’s net investment in foreign operations. The changes in the spot rate of these instruments are recorded in AOCI in stockholders’ equity, partially offsetting the foreign currency translation adjustment of the Company’s related net investment that is also recorded in AOCI. Any ineffective portions of net investment hedges are reclassified from AOCI into earnings during the period of change. The interest income or expense from these swaps are recorded in interest expense on the accompanying Consolidated Statements of Income consistent with the classification of interest expense attributable to the underlying debt.

The revaluation gains and losses on the Euronotes and cross-currency swap derivative, 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:



(millions)	2021		2020		2019
Revaluation gain (loss), net of tax:
Euronotes		$45.3		($87.7)		$31.4
Cross-currency swap derivative contracts		6.3		-		-
Total revaluation gain (loss), net of tax		$51.6		($87.7)		$31.4

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:



	2021				2020				2019
(millions)		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		($11.0)	$47.6	$-		$10.1	($108.3)	$-		$15.4	$39.5	$-
Amount excluded from the assessment of effectiveness recognized in earnings based on changes in fair value		-	-	21.0		-	-	27.5		-	-	28.7
Interest rate swap agreements
Amount of gain (loss) reclassified from AOCI to income		-	-	(2.3)		-	-	(2.4)		-	-	(0.9)

Gain (loss) on derivatives not designated as hedging instruments:
Foreign currency forward contracts
Amount of gain (loss) recognized in income (a)		-	73.7	-		-	(12.3)	-		-	30.0	(0.1)
Total gain (loss) of all derivative instruments		($11.0)	$121.3	$18.7		$10.1	($120.6)	$25.1		$15.4	$69.5	$27.7

	(a)	Gain (loss) on derivatives not designated as hedging instruments recognized in income recorded in SG&A includes discontinued operations of $(2.5) and $(5.1) for the years ended December 31, 2020 and 2019, respectively.

10. OTHER COMPREHENSIVE INCOME (LOSS) INFORMATION

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

The following table provides other comprehensive income (loss) information related to the Company’s derivatives and hedging instruments and pension and postretirement benefits. Refer to Note 9 for additional information related to the Company’s derivatives and hedging transactions. Refer to Note 17 for additional information related to the Company’s pension and postretirement benefits activity.



(millions)	2021		2020		2019
Derivative and Hedging Instruments
Unrealized gain (loss) on derivative & hedging instruments
Amount recognized in AOCI		$87.5		($93.3)		$78.1
Loss (gain) reclassified from AOCI into income
COS		11.0		(10.1)		(15.4)
SG&A		(47.6)		108.3		(39.5)
Interest (income) expense, net		(18.7)		(25.1)		(27.8)
		(55.3)		73.1		(82.7)
Other activity		(1.7)		(0.3)		0.8
Tax impact		(4.5)		3.5		0.4
Net of tax		$26.0		($17.0)		($3.4)

Pension and Postretirement Benefits
Amount recognized in AOCI
Current period net actuarial gain (loss)		$270.7		($189.9)		($326.3)
Amount reclassified from AOCI into income
Settlement charge		38.8		-		-
Amortization of net actuarial loss and prior period service credits, net		78.6		68.1		0.4
		388.1		(121.8)		(325.9)
Tax impact		(98.4)		43.7		74.3
Net of tax		$289.7		($78.1)		($251.6)

11. SHAREHOLDERS’ EQUITY

Authorized common stock, par value $1.00 per share, was 800 million shares at December 31, 2021, 2020 and 2019. Treasury stock is stated at cost. Dividends declared per share of common stock were $1.95 for 2021, $1.89 for 2020 and $1.85 for 2019.

The Company has 15 million shares, without par value, of authorized but unissued and undesignated preferred stock.

Share Repurchase Authorization

In February 2015, the Company’s Board of Directors authorized the repurchase of up to 20 million additional shares of its common stock, including shares to be repurchased under Rule 10b5-1. As of December 31, 2021, 5,850,187 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 2021, 2020 and 2019, the Company reacquired 502,132, 761,245 and 1,986,241 shares, respectively, of its common stock, of which 389,759, 565,064 and 1,846,384, respectively, related to share repurchases through open market or private purchases, and 112,373, 196,181 and 139,857, respectively, related to shares withheld for taxes on exercise of stock options and vesting of stock awards and units.

Separation of ChampionX

On June 3, 2020, the Company effected the split-off of ChampionX through the Exchange Offer and all shares of ChampionX common stock owned by Ecolab were exchanged for outstanding shares of Ecolab common stock. In the Exchange Offer, which was oversubscribed, the Company accepted 4,955,552 shares of Ecolab common stock in exchange for approximately 122,200,000 shares of ChampionX common stock.

12. EQUITY COMPENSATION PLANS

The Company’s equity compensation plans provide for grants of stock options, performance-based restricted stock units (“PBRSUs”) and non-performance-based restricted stock units (“RSUs”) and restricted stock awards (“RSAs”). Common shares available for grant as of December 31, 2021, 2020 and 2019 were 7,544,458, 8,644,262 and 9,029,645, respectively. The Company generally issues authorized but previously unissued shares to satisfy stock option exercises and stock award vesting.

The Company’s annual long-term incentive share-based compensation program is made up of 50% stock options and 50% PBRSUs. The Company also periodically grants RSUs. Total compensation expense related to all share-based compensation plans was $89 million ($75 million net of tax benefit), $81 million ($68 million net of tax benefit) and $84 million ($70 million net of tax benefit) for 2021, 2020 and 2019, respectively. As of December 31, 2021, there was $123 million of total measured but unrecognized compensation expense related to non-vested share-based compensation arrangements granted under all of the Company’s plans. That cost is expected to be recognized over a weighted-average period of 2.6 years.

Stock Options

Stock options are granted to purchase shares of the Company’s stock at the average daily share price on the date of grant. These options generally expire within ten years from the grant date. The Company generally recognizes compensation expense for these awards on a straight-line basis over the three year vesting period. Stock option grants to retirement eligible recipients are attributed to expense using the non-substantive vesting method.

A summary of stock option activity and average exercise prices is as follows:


	2021			2020			2019
	Number of	Exercise		Number of	Exercise		Number of	Exercise
	Options	Price (a)		Options	Price (a)		Options	Price (a)
Outstanding, beginning of year	6,802,415		$ 144.20	9,042,320		$ 121.72	10,516,633		$ 108.28
Granted	812,853		223.85	931,750		220.95	879,862		184.31
Exercised	(1,306,998)		110.91	(2,733,130)		97.52	(2,270,374)		82.93
Canceled	(91,109)		192.49	(91,660)		166.67	(83,801)		143.08
Separation of ChampionX	-		-	(346,865)		126.37	-		-
Outstanding, end of year	6,217,161		$ 160.91	6,802,415		$ 144.20	9,042,320		$ 121.72
Exercisable, end of year	4,604,922		$ 141.21	5,051,927		$ 125.08	7,048,422		$ 109.34
Vested and expected to vest, end of year	6,083,642		$ 159.79

	(a)	Represents weighted average price per share.

The total aggregate intrinsic value of options (the amount by which the stock price exceeded the exercise price of the option on the date of exercise) that were exercised during 2021, 2020 and 2019 was $148 million, $299 million and $227 million, respectively.

The total aggregate intrinsic value of options outstanding as of December 31, 2021 was $456 million, with a corresponding weighted-average remaining contractual life of 6.5 years. The total aggregate intrinsic value of options exercisable as of December 31, 2021 was $429 million, with a corresponding weighted-average remaining contractual life of 5.6 years. The total aggregate intrinsic value of options vested and expected to vest as of December 31, 2021 was $453 million, with a corresponding weighted-average remaining contractual life of 6.5 years.

The lattice (binomial) option-pricing model is used to estimate the fair value of options at grant date. The Company’s primary employee option grant occurs during the fourth quarter. The weighted-average grant-date fair value of options granted and the significant assumptions used in determining the underlying fair value of each option grant, on the date of grant were as follows:


	2021			2020			2019
Weighted-average grant-date fair value of options
granted at market prices		$ 47.65			$ 44.16			$ 40.30
Assumptions
Risk-free rate of return		1.2	%		0.5	%		1.6	%
Expected life		6	years		6	years		6	years
Expected volatility		23.0	%		23.0	%		23.0	%
Expected dividend yield		0.9	%		0.9	%		1.0	%

The risk-free rate of return is determined based on a yield curve of U.S. treasury rates from one month to ten years and a period commensurate with the expected life of the options granted. Expected volatility is established based on historical volatility of the Company’s stock price. The expected dividend yield is determined based on the Company’s annual dividend amount as a percentage of the average stock price at the time of the grant.

PBRSUs, RSUs and RSAs

The expense associated with PBRSUs is based on the average of the high and low share price of the Company’s common stock on the date of grant, adjusted for the absence of future dividends. The awards vest based on the Company achieving a defined performance target and with continued service for a three year period. Upon vesting, the Company issues shares of its common stock such that one award unit equals one share of common stock. The Company assesses the probability of achieving the performance target and recognizes expense over the three year vesting period when it is probable the performance target will be met. PBRSU awards granted to retirement eligible recipients are attributed to expense using the non-substantive vesting method. The awards are generally subject to forfeiture in the event of termination of employment.

The expense associated with shares of non-performance based RSUs and RSAs is based on the average of the high and low share price of the Company’s common stock on the date of grant, adjusted for the absence of future dividends and is amortized on a straight-line basis over the periods during which the restrictions lapse. The Company currently has RSUs that vest over periods between 12 and 60 months. The awards are generally subject to forfeiture in the event of termination of employment.

A summary of non-vested PBRSUs and restricted stock activity is as follows:


	PBRSU	Grant Date		RSAs and	Grant Date
	Awards	Fair Value (a)		RSUs	Fair Value (a)
December 31, 2018	1,267,353		$ 126.75	246,469		$ 127.09
Granted	207,704		178.20	102,941		177.38
Vested / Earned	(334,351)		114.38	(64,597)		119.08
Canceled	(23,808)		135.70	(19,300)		124.77
December 31, 2019	1,116,898		$ 139.83	265,513		$ 149.46
Granted	202,187		215.23	62,693		203.09
Vested / Earned	(333,676)		112.78	(81,150)		130.72
Canceled	(26,285)		157.32	(15,996)		162.51
Separation of ChampionX	(44,494)		142.10	(67,377)		161.82
December 31, 2020	914,630		$ 165.76	163,683		$ 172.92
Granted	176,297		223.77	130,807		211.12
Vested / Earned	(271,731)		131.74	(48,977)		160.84
Canceled	(30,667)		178.46	(13,239)		192.12
December 31, 2021	788,529		$ 189.96	232,274		$ 195.95

(a)	Represents weighted average price per share.

13. INCOME TAXES

Income before income taxes consisted of:


(millions)	2021		2020		2019
United States (U.S.)		$277.7		$100.5		$787.1
International		1,136.5		1,060.9		944.4
Total		$1,414.2		$1,161.4		$1,731.5

The provision (benefit) for income taxes consisted of:


(millions)	2021		2020		2019
U.S. federal and state		$30.9		($43.9)		$134.4
International		240.2		259.8		176.3
Total current		271.1		215.9		310.7
U.S. federal and state		3.6		12.0		37.9
International		(4.5)		(51.3)		(60.0)
Total deferred		(0.9)		(39.3)		(22.1)
Provision for income taxes		$270.2		$176.6		$288.6

The Company’s overall net deferred tax assets and deferred tax liabilities were comprised of the following:


December 31 (millions)	2021		2020
Deferred tax assets
Pension and post-retirement benefits		$136.8		$234.3
Other accrued liabilities		135.6		154.7
Lease liability		101.3		95.5
Credit carryforwards		81.8		76.6
Loss carryforwards		59.6		63.4
Share-based compensation		44.7		44.8
Deferred income		44.8		12.8
Other, net		71.0		64.2
Valuation allowance		(50.3)		(45.3)
Total deferred tax assets		625.3		701.0
Deferred tax liabilities
Intangible assets		(631.0)		(598.9)
Property, plant and equipment		(333.5)		(317.8)
Lease asset		(100.3)		(95.4)
Financing		(34.2)		-
Other, net		(27.7)		(9.6)
Total deferred tax liabilities		(1,126.7)		(1,021.7)
Net deferred tax liabilities balance		($501.4)		($320.7)

As of December 31, 2021, the Company has tax effected federal, state and international net operating loss carryforwards of $3.1 million, $20.4 million and $36.1 million, respectively, which will be available to offset future taxable income. The federal and state loss carryforwards of $23.5 million expire from 2022 to 2042. The international loss carryforwards of $5.8 million expire from 2022 to 2042 and $30.3 million have no expiration. The tax loss carryforwards expiring in 2022 are not material.

Additionally, the Company has $81.8 million of credit carryforwards that are primarily related to U.S. foreign tax credits and various state credits. The U.S. foreign tax credit carryforwards of $49.4 million expire from 2028 to 2030 and the state credit carryforwards of $25.7 million expire from 2022 to 2036. The tax credit carryforwards expiring in 2022 are not material.

The Company has valuation allowances on certain deferred tax assets of $50.3 million and $45.3 million at December 31, 2021 and 2020, respectively. The increase in valuation allowance from year end 2020 to year end 2021 was primarily due to U.S. state tax attributes.

In 2021, the Company obtained tax benefits from a tax holiday in the Dominican Republic. The Company received a permit of operation, which expires in April 2036, from the National Council of Free Zones of Exportation for the Dominican Republic. Companies operating under the Free Zones are not subject to income tax in the Dominican Republic on export income. The tax reduction as the result of the tax holidays for 2021 was $2.9. million ($0.01 per diluted share), 2020 was $26.9 million ($0.09 per diluted share) and 2019 was $29.2 million ($0.10 per diluted share). The Company had a tax incentive awarded by the Singapore Economic Development Board. This incentive provided for a preferential 10% tax rate on certain headquarter income which expired in January 2021.

A reconciliation of the statutory U.S. federal income tax rate to the Company’s effective income tax rate is as follows:


	2021		2020		2019
Statutory U.S. rate	21.0	%	21.0	%	21.0	%
State income taxes, net of federal benefit	0.6		0.4		1.8
Foreign operations	(0.6)		(1.3)		5.5
Excess stock benefits	(2.0)		(4.9)		(2.4)
R&D credit	(1.3)		(1.1)		(1.0)
Foreign derived intangible income	(1.6)		(0.2)		(0.2)
Change in valuation allowance	0.5		0.6		(8.2)
One-time transfer of intangibles	1.8		-		-
Other, net	0.7		0.7		0.2
Effective income tax rate	19.1	%	15.2	%	16.7	%

The change in the Company’s effective income tax rate includes the tax impact of special (gains) and charges and discrete tax items, which have impacted the comparability of the Company’s historical effective income tax rates, as amounts included in special (gains) and charges are derived from tax jurisdictions with rates that vary from the statutory U.S. rate, and discrete tax items are not necessarily consistent across periods. The tax impact of special (gains) and charges and discrete tax items will likely continue to impact comparability of the Company’s effective income tax rate in the future.

The Company’s 2021 effective tax rate of 19.1% includes $53.3 million of net tax benefits on special (gains) and charges, and net tax expense of $5.8 million associated with discrete items. During 2021, the Company recorded a discrete tax benefit of $29.1 million related to share-based compensation excess tax benefits. The extent of excess tax benefits is subject to variation in stock price and award exercises. Additionally, the Company recorded $34.9 million discrete tax charges including a non-cash deferred tax charge of $25.1 million associated with transferring certain intangible property between affiliates. The remaining $9.8 million tax expense primarily relates to the filing of federal, state and foreign tax returns and other income tax adjustments including the impact of changes in tax laws, audit settlements and other changes in estimates.

The Company’s 2020 effective tax rate of 15.2% includes $57.9 million of net tax benefits on special (gains) and charges, and net tax benefits of $55.8 million associated with discrete items. During 2020, the Company recorded a discrete tax benefit of $57.3 million related to share-based compensation excess tax benefits. The Company recorded changes in reserves in non-U.S. and U.S. jurisdictions due to audit settlements and the expiration of statutes of limitations which resulted in a $9.8 million tax benefit. Additionally, the Company recognized a net tax expense of $11.3 million primarily related to the filing of prior year federal, state and foreign tax returns and other income tax adjustments.

The Company’s 2019 effective tax rate of 16.7% includes $40.1 million of net tax benefits on special (gains) and charges, net tax benefits of $54.6 million associated with discrete tax items and $3.1 million of net benefit associated with updates to the one-time transition tax in the U.S. During 2019, the Company recorded a discrete tax benefit of $42.3 million related to share-based compensation excess tax benefits. The Company recognized $15.6 million tax benefit related to changes in local tax law, which primarily includes $30.4 million benefit due to the passage of the Swiss Tax Reform and AHV Financing Act, a Swiss federal tax law, offset by a tax expense of $10.2 million due to the release of the final Treasury Regulation governing taxation of foreign dividends. The Company recorded changes in reserves in non-U.S. and U.S. jurisdictions due to audit settlements and statutes of limitations which resulted in a $13.8 million tax benefit. The Company finalized the 2015 and 2016 IRS audit in 2019, which resulted in a discrete tax expense of $11.0 million. The remaining discrete tax expense was primarily related to changes in estimates in non-U.S. jurisdictions.

The Company recorded a preliminary deferred tax liability of $19.3 million as part of purchase accounting in 2021 associated with the pre-acquisition undistributed earnings of Purolite that are not considered permanently reinvested. The Company continues to assert permanent reinvestment of the undistributed earnings of international affiliates unless the earnings can be remitted in a net income tax benefit or tax-neutral manner. If there are policy changes, the Company would record the applicable taxes in the period of change. Due to the complexity of the legal entity structure, the number of legal entities and jurisdictions involved, and the complexity of the laws and regulations, the Company believes it is not practicable to estimate the amount of additional taxes which may be payable upon distribution of these undistributed earnings. Accordingly, no deferred taxes have been provided for withholding taxes or other taxes on permanently reinvested earnings.

A reconciliation of the beginning and ending amount of gross liability for unrecognized tax benefits is as follows:


(millions)	2021		2020		2019
Balance at beginning of year		$20.7		$27.0		$49.0
Additions based on tax positions related to the current year		3.8		3.3		2.1
Additions for tax positions of prior years		3.0		-		1.0
Current year acquisitions		4.4		-		-
Reductions for tax positions of prior years		-		(1.1)		(18.4)
Reductions for tax positions due to statute of limitations		(3.0)		(9.1)		(5.7)
Settlements		(3.7)		-		(0.6)
Foreign currency translation		(0.1)		0.6		(0.4)
Balance at end of year		$25.1		$20.7		$27.0

The total amount of unrecognized tax benefits, if recognized would affect the effective tax rate by $22.8 million as of December 31, 2021, $18.3 million as of December 31, 2020 and $23.7 million as of December 31, 2019.

The Company files U.S. federal income tax returns and income tax returns in various U.S. state and non- U.S. jurisdictions. With few exceptions, the Company is no longer subject to state and foreign income tax examinations by tax authorities for years before 2017. The IRS has completed examinations of the Company’s U.S. federal income tax returns through 2016, and the years 2017 and 2018 are currently under audit. In addition to the U.S. federal examination, there is ongoing audit activity in several U.S. state and foreign jurisdictions. The Company anticipates changes to uncertain tax positions due to closing of various audits and statutes closing on years mentioned above. The Company does not believe these changes will result in a material impact during the next twelve months. Decreases in the Company’s gross liability could result in offsets to other balance sheet accounts, cash payments, and adjustments to tax expense. The occurrence of these events and/or other events not included above within the next twelve months could change depending on a variety of factors.

The Company recognizes interest and penalties related to unrecognized tax benefits in its provision for income taxes. During 2021, 2020 and 2019 the Company released $0.9 million, $2.0 million and $1.9 million related to interest and penalties, respectively. The Company had $3.2 million, $4.1 million and $6.1 million of accrued interest, including minor amounts for penalties, at December 31, 2021, 2020, and 2019, respectively.

14. RENTALS 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. Certain of the Company’s lease arrangements are finance leases, which are immaterial individually and in the aggregate.

The Company’s operating lease cost was as follows:


(millions)		2021				2020				2019
Operating lease cost*			$179.4				$183.8				$179.8

*Includes immaterial short-term and variable lease costs

Future maturity of operating lease liabilities as of December 31, 2021 is as follows:



(millions)
2022			138
2023			93
2024			64
2025			45
2026			29
Thereafter			81
Total lease payments			450
Less: imputed interest			52
Present value of lease liabilities			$ 398

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



	December 31		December 31		December 31
	2021		2020		2019

Weighted-average remaining lease terms (years)		5.99		5.52		5.83

Weighted-average discount rate		3.07%		3.72%		4.00%

The Company’s other lease information was as follows:



	December 31		December 31		December 31
(millions)	2021		2020		2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases		$157.0		$164.2		$159.0

Leased assets obtained in exchange for new operating lease liabilities		116.8		60.4		116.5

Lessor

The Company leases warewashing and water treatment equipment to customers under operating leases.

Gross assets under operating leases recorded in Property, plant and equipment, net is $1,223.3 million and $1,190.3 million, and related accumulated depreciation is $767.3 million and $646.1 million, as of December 31, 2021 and 2020, respectively.

The Company’s operating lease revenue was as follows:


(millions)		2021				2020				2019
Operating lease revenue*			$412.5				$356.3				$412.7

*Includes immaterial variable lease revenue

Revenue from operating leases for existing contracts as of December 31, 2021 is as follows:



(millions)
2022			350
2023			253
2024			193
2025			119
2026			49
Thereafter			20
Total lease revenue			$ 984

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.

15. RESEARCH AND DEVELOPMENT EXPENDITURES

Research expenditures that relate to the development of new products and processes, including significant improvements and refinements to existing products, are expensed as incurred. Such costs were $186 million in 2021, $185 million in 2020 and $190 million in 2019. The Company did not participate in any material customer sponsored research during any of the years.

16. COMMITMENTS AND CONTINGENCIES

The Company is subject to various claims and contingencies related to, among other things, workers’ compensation, general liability (including product liability), automobile claims, health care claims, environmental matters and lawsuits. The Company is also subject to various claims and contingencies related to income taxes, which are discussed in Note 13. The Company also has contractual obligations including lease commitments, which are discussed in Note 14.

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

In Re TPC Group Litigation

On November 27, 2019, a Butadiene production plant owned and operated by TPC Group, Inc. in Port Neches, Texas, experienced an explosion and fire that resulted in personal injuries, the release of chemical fumes and extensive property damage to the plant and surrounding areas in and near Port Neches, Texas.

Nalco Company LLC, a subsidiary of Ecolab, supplied process chemicals to TPC used in TPC’s production processes. Nalco did not operate, manage, maintain or control any aspect of TPC’s plant operations.

In connection with its provision of process chemicals to TPC, Nalco has been named in numerous lawsuits stemming from the plant explosion. Nalco has been named a defendant, along with TPC and other defendants, in multi-district litigation (“MDL”) proceedings pending in Orange County, Texas, alleging among other things claims for personal injury, property damage and business losses (In re TPC Group Litigation – A2020-0236-MDL, Orange County, Texas). In addition, numerous other lawsuits have been filed against Nalco, including TPC Group v. Nalco, E0208239, Jefferson County, Texas, a subrogation claim by TPC’s insurers seeking reimbursement for property damage losses. Over 5,000 plaintiffs (including the subrogation matter) currently have claims against Nalco in over 175 individual lawsuits.

All of these cases make similar allegations and seek damages for personal injury, property damage, business losses and other damages, including exemplary damages. The Company expects all these cases will be consolidated for pretrial purposes into the Orange County MDL referenced above. Due to the large number of plaintiffs, the early stage of the litigation and the fact that many of the claims do not specify an amount of damages, any estimate of any loss or range of losses cannot be made at this time.

The Company believes these claims asserted against Nalco Company LLC are without merit and intend to defend the claims vigorously. The Company also believes the claims should be covered by insurance subject to deductibles. However, the Company cannot predict the outcome of these lawsuits, the involvement the Company might have in these matters in the future or the potential for future litigation.

Environmental Matters

The Company is currently participating in environmental assessments and remediation at approximately 30 locations, the majority of which are in the U.S., and environmental liabilities have been accrued reflecting management’s best estimate of future costs. Potential insurance reimbursements are not anticipated in the Company’s accruals for environmental liabilities.

17. RETIREMENT PLANS

Pension and Postretirement Health Care Benefits Plans

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

The non-qualified plans are not funded and the recorded benefit obligation for the non-qualified plans was $114 million and $134 million at December 31, 2021 and 2020, respectively. The measurement date used for determining the U.S. pension plan assets and obligations is December 31.

International plans are funded based on local country requirements. The measurement date used for determining the international pension plan assets and obligations is November 30, the fiscal year end of the Company’s international subsidiaries.

The U.S. postretirement health care plans are contributory based on years of service and choice of coverage (family or single), with retiree contributions adjusted annually. The measurement date used to determine the U.S. postretirement health care plan assets and obligations is December 31. Certain employees outside the U.S. are covered under government-sponsored programs, which are not required to be fully funded. The expense and obligation for providing international postretirement health care benefits are not significant.

The following table sets forth financial information related to the Company’s pension and postretirement health care plans:


	U.S.				International				U.S. Postretirement
	Pension				Pension				Health Care
(millions)	2021		2020		2021		2020		2021		2020
Accumulated benefit obligation, end of year		$2,462.7		$2,728.4		$1,696.2		$1,759.8		$155.4		$172.4
Projected benefit obligation
Projected benefit obligation, beginning of year		$2,728.4		$2,562.5		$1,834.2		$1,667.6		$172.4		$165.7
Service cost		43.9		68.4		31.4		30.8		1.0		1.2
Interest cost		51.4		70.3		17.3		22.3		2.9		4.4
Participant contributions		-		-		2.9		2.6		3.3		3.8
Curtailments and settlements		(35.3)		(0.6)		(24.8)		(34.3)		-		-
Plan amendments		-		-		0.7		(1.7)		-		-
Actuarial (gain) loss		(79.6)		241.8		(25.3)		83.6		(12.1)		12.2
Assumed through acquisitions		-		-		34.0		-		-		-
Other events		-		-		4.3		0.3		-		-
Benefits paid		(246.1)		(214.0)		(43.7)		(39.6)		(12.1)		(14.9)
Foreign currency translation		-		-		(51.3)		102.6		-		-
Projected benefit obligation, end of year		$2,462.7		$2,728.4		$1,779.7		$1,834.2		$155.4		$172.4

Plan assets
Fair value of plan assets, beginning of year		$2,372.9		$2,292.9		$1,148.0		$1,027.1		$5.7		$6.1
Actual returns on plan assets		276.8		281.3		107.5		87.7		0.6		0.8
Company contributions		8.5		13.3		40.7		41.3		11.0		13.7
Participant contributions		-		-		2.9		2.6		-		-
Acquired through acquisitions		-		-		12.9				-		-
Curtailments and settlements		(35.3)		(0.6)		(24.8)		(25.7)		-		-
Benefits paid		(246.1)		(214.0)		(43.7)		(39.6)		(12.1)		(14.9)
Foreign currency translation		-		-		(23.6)		54.6		-		-
Fair value of plan assets, end of year		$2,376.8		$2,372.9		$1,219.9		$1,148.0		$5.2		$5.7
Funded Status, end of year		($85.9)		($355.5)		($559.8)		($686.2)		($150.2)		($166.7)

Amounts recognized in the Consolidated Balance Sheets:
Other assets		$28.2		$-		$86.5		$37.0		$-		$-
Other current liabilities		(14.8)		(14.7)		(27.0)		(24.0)		(5.5)		(5.5)
Postretirement healthcare and pension benefits		(99.3)		(340.8)		(619.3)		(699.2)		(144.7)		(161.2)
Net liability		($85.9)		($355.5)		($559.8)		($686.2)		($150.2)		($166.7)

Amounts recognized in accumulated other comprehensive loss (income):
Unrecognized net actuarial loss (gain)		$396.8		$691.3		$485.7		$595.6		($11.7)		$1.3
Unrecognized net prior service costs (benefits)		(25.8)		(32.7)		(0.2)		(1.2)		-		-
Tax (benefit) expense		(95.3)		(165.1)		(117.8)		(151.9)		1.2		(2.0)
Accumulated other comprehensive loss (income), net of tax		$275.7		$493.5		$367.7		$442.5		($10.5)		($0.7)

Change in accumulated other comprehensive loss (income):
Amortization of net actuarial (gain) loss		($56.2)		($51.8)		($28.7)		($29.5)		($0.7)		($0.1)
Amortization of prior service costs		6.9		7.4		0.1		(0.2)		-		11.0
Current period net actuarial loss (gain)		(203.0)		113.3		(56.1)		66.4		(12.3)		11.9
Current period prior service costs		-		-		0.7		(1.7)		-		-
Curtailments and settlements		(35.3)		(2.7)		(3.5)		(2.2)		-		-
Tax (benefit) expense		69.8		(16.0)		25.4		(22.3)		3.2		(5.4)
Foreign currency translation		-		-		(12.7)		33.3		-		-
Other comprehensive loss (income)		($217.8)		$50.2		($74.8)		$43.8		($9.8)		$17.4

Estimate amounts in accumulated other comprehensive loss expected to be reclassified to net period cost during 2022 are as follows:


					U.S. Post-
	U.S.		International		Retirement
(millions)	Pension		Pension		Health Care
Net actuarial loss		$39.9		$24.1		$0.7
Net prior service benefits		(4.6)		(0.2)		-
Total		$35.3		$23.9		$0.7

Service cost is included with employee compensation cost in cost of sales and selling, general and administrative expenses in the Consolidated Statements of Income while all non-service components are included in other (income) expense in the Consolidated Statements of Income.

The aggregate projected benefit obligation, accumulated benefit obligation and fair value of pension plan assets for plans with accumulated benefit obligations in excess of plan assets were as follows:


December 31, (millions)	2021		2020
Aggregate projected benefit obligation		$1,022.3		$4,155.4
Accumulated benefit obligation		964.5		4,098.6
Fair value of plan assets		280.9		3,085.2

These plans include the U.S. non-qualified pension plans which are not funded as well as various international pension plans which are funded consistent with local practices and requirements. As of December 31, 2021, the U.S. qualified plan had plan assets in excess of the aggregate projected benefit obligation and the accumulated benefit obligation.

For the year ended December 31, 2021, the year-over-year decrease in our net benefit obligation was primarily due to the impacts of discounting projected benefit payments. Increased yields on investment grade corporate bonds used to derived out discount rates increased year-over-year. Additionally, the fair value of our pension assets increased year-over-year as asset returns outpaced pension distributions due to strong returns for equities and fixed income investments.

For the year ended December 31, 2020, the most significant driver of the increases in benefit obligations for the plans was the higher actuarial losses experienced by the majority of the Company’s plans. The pension plans incurred actuarial losses primarily due to decreases in bond yields that resulted in decreases to many of the plans’ discount rates.

Net Periodic Benefit Costs and Plan Assumptions

Pension and postretirement health care benefits expense for the Company’s operations are as follows:


	U.S.						International						U.S. Postretirement
	Pension						Pension						Health Care
(millions)	2021		2020		2019		2021		2020		2019		2021		2020		2019
Service cost (a)		$43.9		$68.4		$72.8		$31.4		$30.8		$30.2		$1.0		$1.2		$1.4
Interest cost on benefit obligation		51.4		70.3		89.0		17.3		22.3		31.2		2.9		4.4		5.6
Expected return on plan assets		(152.3)		(152.9)		(149.5)		(70.7)		(63.9)		(59.9)		(0.4)		(0.4)		(0.4)
Recognition of net actuarial loss (gain)		56.7		51.9		23.6		28.7		26.1		16.3		0.7		0.1		(4.1)
Amortization of prior service benefit		(6.9)		(7.4)		(11.5)		(0.1)		(0.1)		(0.9)		-		(11.0)		(23.2)
Curtailments and settlements (b)		35.3		2.5		9.1		3.5		2.2		(1.9)		-		-		0.3
Total expense (benefit)		$28.1		$32.8		$33.5		$10.1		$17.4		$15.0		$4.2		($5.7)		($20.4)

	(a)	Service cost includes discontinued operations of $2.5 and $7.8 for the years ended December 31, 2020 and 2019, respectively.

	(b)	Settlement expense of $37.2 million was recognized as special charges in 2021.

During 2021, the Company incurred settlement expense of $35.3 million ($26.8 million after tax) related to U.S. pension plan lump-sum payments to retirees. During 2020 and 2019, the Company recorded other expense of $0.4 million ($0.3 million after tax) and $9.5 million ($7.2 million after tax) related to pension curtailments and settlements due to the ChampionX separation and Accelerate 2020 as discussed further above. These charges have been included as a component of other (income) expense on the Consolidated Statements of Income.


Plan Assumptions	U.S.						International						U.S. Postretirement
	Pension						Pension						Health Care
(percent)	2021		2020		2019		2021		2020		2019		2021		2020		2019
Weighted-average actuarial assumptions
used to determine benefit obligations
as of year end:
Discount rate	2.86	%	2.48	%	3.20	%	1.45	%	1.13	%	1.52	%	2.75	%	2.37	%	3.16	%
Projected salary increase	4.03		4.03		4.03		2.42		2.12		2.50
Weighted-average actuarial assumptions
used to determine net cost:
Interest credit rate for cash balance plans	0.87		1.81		N/A		N/A		N/A		N/A		N/A		N/A		N/A
Discount rate	2.49		3.20		4.34		1.37		1.84		2.66		2.37		3.16		4.29
Expected return on plan assets	7.00		7.25		7.25		6.24		6.24		6.66		7.00		7.25		7.25
Projected salary increase	4.03		4.03		4.03		2.31		2.81		2.70

The discount rate assumptions for the U.S. plans are developed using a bond yield curve constructed from a population of high-quality, non-callable, corporate bond issues with maturities ranging from six months to thirty years. A discount rate is estimated for the U.S. plans and is based on the durations of the underlying plans.

The Company measures service and interest costs by applying the specific spot rates along that yield curve to the plans’ liability cash flows. The Company believes this approach provides a more precise measurement of service and interest costs by aligning the timing of the plans’ liability cash flows to the corresponding spot rates on the yield curve.

The expected long-term rate of return used for the U.S. plans is based on the pension plan’s asset mix. The Company considers expected long-term real returns on asset categories, expectations for inflation, and estimates of the impact of active management of the assets in determining the final rate to use. The Company also considers historical returns.

The expected long-term rate of return used for the Company’s international plans is determined in each local jurisdiction and is based on the assets held in that jurisdiction, the expected rate of returns for the type of assets held and any guaranteed rate of return provided by the investment. The other assumptions used to measure the international pension obligations, including discount rate, vary by country based on specific local requirements and information.

The Company uses most recently available mortality tables as of the respective U.S. and international measurement dates.

For postretirement benefit measurement purposes as of December 31, 2021, the annual rates of increase in the per capita cost of covered health care were assumed to be 6.75% for pre-65 costs and 7.25% for post-65 costs. The rates are assumed to decrease each year until they reach 4.5% in 2029 and remain at those levels thereafter. Health care costs for certain employees which are eligible for subsidy by the Company are limited by a cap on the subsidy.

Plan Asset Management

The Company’s U.S. investment strategy and policies are designed to maximize the possibility of having sufficient funds to meet the long-term liabilities of the qualified pension plan, while achieving a balance between the goals of asset growth of the qualified pension plan and keeping risk at a reasonable level. Current income is not a key goal of the policy.

The asset allocation position reflects the Company’s ability and willingness to accept relatively more short-term variability in the performance of the qualified pension plan asset portfolio in exchange for the expectation of better long-term returns, lower pension costs and better funded status in the long run. The qualified pension plan’s asset are diversified across a number of asset classes and securities. Selected individual portfolios within the asset classes may be undiversified while maintaining the diversified nature of total plan assets. The Company has no significant concentration of risk in its U.S. qualified pension plan assets.

Assets of funded retirement plans outside the U.S. are managed in each local jurisdiction and asset allocation strategy is set in accordance with local rules, regulations and practice. Therefore, no overall target asset allocation is presented. Although non-U.S. equity securities are all considered international for the Company, some equity securities are considered domestic for the local plan. The funds are invested in a variety of equities, bonds and real estate investments and, in some cases, the assets are managed by insurance companies which may offer a guaranteed rate of return. The Company has no significant concentration of risk in the assets of its international pension plans.

The fair value hierarchy is used to categorize investments measured at fair value in one of three levels in the fair value hierarchy. This categorization is based on the observability of the inputs used in valuing the investments. Refer to Note 8 for definitions of these levels.

The fair value of the Company’s U.S. qualified pension plan assets are as follows:


	Fair Value as of						Fair Value as of
(millions)	December 31, 2021						December 31, 2020
	Level 1		Level 2		Total		Level 1		Level 2		Total
Cash		$43.6		$-		$43.6		$38.3		$-		$38.3
Equity securities:
Large cap equity		412.2		-		412.2		610.0		-		610.0
Small cap equity		21.3		40.7		62.0		36.5		68.3		104.8
International equity		62.9		28.0		90.9		95.8		42.9		138.7
Fixed income:
Core fixed income		510.7		589.7		1,100.4		360.3		327.8		688.1
High-yield bonds		49.0		-		49.0		76.3		-		76.3
Emerging markets		-		36.6		36.6		-		55.6		55.6
Total investments at fair value		1,099.7		695.0		1,794.7		1,217.2		494.6		1,711.8
Investments measured at NAV						587.3						666.9
Total		$1,099.7		$695.0		$2,382.0		$1,217.2		$494.6		$2,378.7

The Company had no Level 3 assets as part of its U.S. qualified pension plan assets as of December 31, 2021 or 2020.

The allocation of the Company’s U.S. qualified pension plan assets plans are as follows:


	Target Asset
Asset Category	Allocation				Percentage
	Percentage				of Plan Assets

December 31	2021		2020		2021		2020

Cash	-	%	-	%	2	%	2	%
Equity securities:
Large cap equity	21		27		17		26
Small cap equity	3		4		3		4
International equity	10		16		10		15
Fixed income:
Core fixed income	48		30		46		29
High-yield bonds	3		4		2		3
Emerging markets	4		2		2		2
Other:
Real estate	3		6		4		7
Private equity	5		8		11		9
Distressed debt	3		3		3		3
Total	100	%	100	%	100	%	100	%

The fair value of the Company’s international plan assets for its defined benefit pension plans are as follows:


	Fair Value as of			Fair Value as of
(millions)	December 31, 2021			December 31, 2020
	Level 1	Level 2	Total	Level 1	Level 2	Total
Cash	$7.2	$-	$7.2	$11.0	$-	$11.0
Equity securities:
International equity	-	490.1	490.1	-	467.0	467.0
Fixed income:
Corporate bonds	9.7	220.0	229.7	9.1	218.6	227.7
Government bonds	7.2	298.5	305.7	6.8	241.9	248.7
Insurance company accounts	-	121.2	121.2	-	149.6	149.6
Total investments at fair value	24.1	1,129.8	1,153.9	26.9	1,077.1	1,104.0
Investments measured at NAV			66.0			44.0
Total	$24.1	$1,129.8	$1,219.9	$26.9	$1,077.1	$1,148.0

The Company had no Level 3 assets as part of its international plan assets as of December 31, 2021 or 2020.

The allocation of plan assets of the Company’s international plan assets for its defined benefit pension plans are as follows:


	Percentage
Asset Category	of Plan Assets

December 31	2021		2020

Cash	1	%	1	%
Equity securities:
International equity	40		40
Fixed income:
Corporate bonds	19		20
Government bonds	25		22
Total fixed income	44		42
Other:
Insurance contracts	10		14
Debt securities	2		2
Real estate	3		1
Total	100	%	100	%

Cash Flows

As of year-end 2021, the Company’s estimate of benefits expected to be paid in each of the next five fiscal years and in the aggregate for the five fiscal years thereafter for the Company’s pension and postretirement health care benefit plans are as follows:


(millions)	All Plans
2022		$ 225
2023		234
2024		241
2025		248
2026		246
2027 - 2031		1,208

Depending on plan funding levels, the U.S. qualified pension plan provides certain terminating participants with an option to receive their pension benefits in the form of lump sum payments.

The Company is currently in compliance with all funding requirements of its U.S. pension and postretirement health care plans. The Company is required to fund certain international pension benefit plans in accordance with local legal requirements. There were no voluntary contributions made to its non-contributory qualified U.S. pension plan. In September of 2019, the Company made a voluntary contribution of $120 million to its non-contributory qualified U.S. pension plan. The Company estimates contributions to be made to its international plans will approximate $49 million in 2022.

The Company seeks to maintain an asset balance that meets the long-term funding requirements identified by the projections of the pension plan’s actuaries while simultaneously satisfying the fiduciary responsibilities prescribed in ERISA. The Company also takes into consideration the tax deductibility of contributions to the benefit plans.

Savings Plan and ESOP

The Company provides a 401(k) savings plan for the majority of its U.S. employees under the Company’s 401(k) savings plans, the Ecolab Savings Plan and ESOP (the “Ecolab Savings Plan”).

Effective December 31, 2020, the Ecolab Savings Plan and ESOP for Traditional Benefit Employees (the “Traditional Plan”) merged into and became part of the Ecolab Savings Plan. Following the merger, participants in the Traditional Plan became participants in the Ecolab Savings Plan and $1,710 million of net assets of the Traditional Plan transferred to the Ecolab Savings Plan.

Under the Ecolab Savings Plan, Employee before-tax contributions of up to 4% of eligible compensation are matched 100% by the Company and employee before-tax contributions over 4% and up to 8% of eligible compensation are matched 50% by the Company.

The Company’s matching contributions are 100% vested immediately. The Company’s matching contribution expense was $78 million, $72 million and $76 million in 2021, 2020 and 2019, respectively.

18. REVENUES

Revenue Recognition

Product and Sold Equipment

Product revenue is generated from sales of cleaning, sanitizing, water treatment, process treatment and colloidal silica products. In addition, the Company sells equipment which may be used in combination with its specialized products. Revenue recognized from product and 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. Global Industrial segment services are associated with water treatment and paper process applications. Global Institutional & Specialty services include cleaning and sanitizing programs and wash process solutions. Global Healthcare & Life Sciences segment services include pharmaceutical, personal care, infection and containment control solutions. Revenues included in Other primarily related to services designed to detect, eliminate and prevent pests. Service revenue is recognized over time utilizing an input method and aligns with when the services are provided. Typically, revenue is recognized over time using costs incurred to date because the effort provided by the field selling and service organization represents services provided, which corresponds with the transfer of control. Revenue recognized from leased equipment primarily relates to warewashing and water treatment equipment recognized on a straight-line basis over the length of the lease contract pursuant to Topic 842 Leases. In the second quarter ended June 30, 2020, the Company provided a one-time lease billing suspension of approximately $38 million to certain restaurant customers within the Institutional Segment, in recognition of the impact of the COVID-19 pandemic. There was no substantial change to the consideration expected to be received under the lease arrangement. Refer to Note 14 for additional information related to lease equipment.

Practical Expedients and Exemptions

The revenue standard can be applied to a portfolio of contracts with similar characteristics if it is reasonable that the effects of applying the standard at the portfolio level would not be significantly different than applying the standard at the individual contract level. The Company applies the portfolio approach primarily within each operating segment by geographical region. Application of the portfolio approach was focused on those characteristics that have the most significant accounting consequences in terms of their effect on the timing of revenue recognition or the amount of revenue recognized. The Company determined the key criteria to assess with respect to the portfolio approach, including the related deliverables, the characteristics of the customers and the timing and transfer of goods and services, which most closely aligned within the operating segments. In addition, the accountability for the business operations, as well as the operational decisions on how to go to market and the product offerings, are performed at the operating segment level.

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. Corporate segment includes sales to ChampionX under the Master Cross Supply and Product Transfer agreements entered into as part of the ChampionX Separation. For more information about the Company’s reportable segments, refer to Note 19.

Net sales at public exchange rates by reportable segment are as follows:



(millions)	2021		2020		2019
Global Industrial
Product and sold equipment		$5,372.0		$5,052.3		$5,174.1
Service and lease equipment		865.8		818.5		806.1
Global Institutional & Specialty
Product and sold equipment		3,265.5		2,968.7		3,701.9
Service and lease equipment		690.4		584.5		699.6
Global Healthcare & Life Sciences
Product and sold equipment		1,068.9		1,071.4		890.6
Service and lease equipment		112.7		110.5		82.2
Other
Product and sold equipment		308.9		274.5		362.4
Service and lease equipment		909.7		809.8		845.1
Corporate
Product and sold equipment		138.0		99.7		-
Service and lease equipment		1.2		0.3		-
Total
Total product and sold equipment		$10,153.3		$9,466.6		$10,129.0
Total service and lease equipment		2,579.8		2,323.6		2,433.0

Net sales at public exchange rates by geographic region are as follows:


	Global Industrial						Global Institutional & Specialty
(millions)	2021		2020		2019		2021		2020		2019

United States		$2,603.0		$2,564.3		$2,668.1		$2,721.8		$2,400.4		$3,021.3
Europe		1,367.1		1,262.6		1,204.2		557.9		510.3		622.3
Asia Pacific		802.5		747.2		774.3		201.2		203.9		235.7
Latin America		551.5		491.7		525.8		135.0		128.3		162.2
Greater China		394.9		333.0		325.4		132.3		114.9		119.4
India, Middle East and Africa		344.4		314.1		319.0		44.2		39.8		52.2
Canada		174.4		157.9		163.4		163.5		155.6		188.4
Total		$6,237.8		$5,870.8		$5,980.2		$3,955.9		$3,553.2		$4,401.5

	Global Healthcare & Life Sciences						Other
(millions)	2021		2020		2019		2021		2020		2019

United States		$442.3		$432.6		$410.3		$719.9		$645.7		$710.8
Europe		647.2		643.6		513.8		264.9		228.8		268.4
Asia Pacific		59.6		69.8		22.5		72.4		64.8		74.5
Latin America		1.8		6.1		4.5		50.4		50.3		50.2
Greater China		6.3		3.6		2.0		80.0		63.4		66.5
India, Middle East and Africa		18.1		19.8		14.5		11.6		14.4		18.0
Canada		6.3		6.4		5.2		19.4		16.9		19.1
Total		$1,181.6		$1,181.9		$972.8		$1,218.6		$1,084.3		$1,207.5

	Corporate
(millions)	2021		2020		2019

United States		$98.2		$75.2		$-
Europe		3.9		4.8		-
Asia Pacific		5.5		2.8		-
Latin America		24.6		13.1		-
Greater China		2.3		0.9		-
India, Middle East and Africa		3.4		2.5		-
Canada		1.3		0.7		-
Total		$139.2		$100.0		$-

Net sales by geographic region were determined based on origin of sale. There were no sales from a single foreign country or individual customer that were material to the Company’s consolidated net sales. Sales of warewashing products were approximately 10%, 11%, and 13% of consolidated net sales in 2021, 2020 and 2019, 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.


	December 31		December 31
(millions)	2021		2020

Contract liability as of beginning of the year		$80.4		$76.7

Revenue recognized in the year from:
Amounts included in the contract liability at the beginning of the year		(80.4)		(76.7)

Increases due to billings excluding amounts recognized as revenue during the year ended		91.6		79.8
Business combinations		0.1		0.6

Contract liability as of end of year		$91.7		$80.4

19. OPERATING SEGMENTS AND GEOGRAPHIC INFORMATION

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

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

The Company’s operating segments are aggregated as follows:

Global Industrial

Includes the Water, Food & Beverage, Paper, and Downstream operating segments. It provides water treatment and process applications, and cleaning and sanitizing solutions primarily to large industrial customers within the manufacturing, food and beverage processing, transportation, chemical, primary metals and mining, power generation, pulp and paper, commercial laundry, global petroleum and petrochemical industries. The underlying operating segments exhibit similar manufacturing processes, distribution methods and economic characteristics.

Global Institutional & Specialty

Includes the Institutional and Specialty operating segments. It provides specialized cleaning and sanitizing products to the foodservice, hospitality, lodging, government and education and retail industries. The underlying operating segments exhibit similar manufacturing processes, distribution methods and economic characteristics.

Global Healthcare & Life Sciences

Includes the Healthcare and Life Sciences operating segments. It provides specialized cleaning and sanitizing products to the healthcare, personal care and pharmaceutical industries. The underlying operating segments exhibit similar manufacturing processes, distribution methods and economic characteristics.

Other

Includes the Pest Elimination operating segment which provides services to detect, eliminate and prevent pests, such as rodents and insects, the CTG operating segment which produces and sells colloidal silica, which is comprised of nano-sized particles of silica in water used primarily for binding and polishing applications and the Textile Care operating segment which provides products and services that manage the entire wash process through custom designed programs, premium products, dispensing equipment, water and energy management and reduction, and real time data management.

Corporate

Consistent with the Company’s internal management reporting, Corporate amounts in the table below include sales to ChampionX under the Master Cross Supply and Product Transfer agreements entered into as part of the ChampionX Separation, as discussed in Note 5. Corporate also includes intangible asset amortization specifically from the Nalco merger and special (gains) and charges, as discussed in Note 3, that are not allocated to the Company’s reportable segments.

Comparability of Reportable Segments

Effective in the first quarter of 2020, and in anticipation of the separation of the Upstream Energy business, the Company created the Upstream and Downstream operating segments and reporting units from the Global Energy operating segment and reporting unit, which was also a reportable segment. The Downstream operating segment, which was previously included in the Global Energy reportable segment has been aggregated into the Global Industrial reportable segment. The table below reflects the elimination of the Global Energy reportable segment and creation of the Downstream operating segment. 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 & 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 also renamed the Global Institutional reportable segment to the Global Institutional & Specialty reportable segment. The Company made other immaterial changes, including the movement of certain customers and cost allocations between reportable segments. These changes are reflected in the “Segment Change” column in the table below. Subsequent to the separation of ChampionX, the Company no longer reports the Upstream Energy segment, which is reflected in discontinued operations.

The ChampionX business, which includes the direct revenues, operating expenses and certain other expenses directly attributable to the ChampionX business, is reflected in the Company’s historical financial statements as discontinued operations. Allocations of overhead expenses included in historical Upstream Energy segment results are reallocated to the remaining segments. These changes are presented in the “Discontinued operations and related allocation changes” columns in 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 eliminate the impact of exchange rate fluctuations on its international operations. Fixed currency amounts are updated annually at the beginning of each year based on translation into U.S. dollars at foreign currency exchange rates established by management, with all periods presented using such rates. The “Fixed Currency Rate Change” column shown in the following table reflects the impact on previously reported values related to fixed currency exchange rates established by management at the beginning of 2021 and have been updated from the 2020 rates reflected in the Company’s 2020 Form 10-K. The difference between the fixed currency exchange rates and the actual currency exchanges rates is reported within the “Effect of foreign currency translation” row in the table below. The “Other” column in the table reflects immaterial changes between segments, primarily cost allocations.

The impact of the preceding changes on previously reported full year 2020 and 2019 reportable segment net sales and operating income is summarized as follows:


	December 31, 2020

	2020 Reported					Fixed	2020 Reported
	Valued at 2020				Currency		Valued at 2021
(millions)	Management Rates		Other		Rate Change		Management Rates
Net Sales
Global Industrial		$5,959.9		($3.7)		$92.0		$6,048.2
Global Institutional & Specialty		3,577.2		9.3		42.5		3,629.0
Global Healthcare & Life Sciences		1,189.1		3.7		48.3		1,241.1
Other		1,093.3		(9.3)		19.4		1,103.4
Corporate		102.4		-		(1.8)		100.6
Subtotal at fixed currency rates		11,921.9		-		200.4		12,122.3
Effect of foreign currency translation		(131.7)		-		(200.4)		(332.1)
Consolidated reported GAAP net sales		$11,790.2		$-		$-		$11,790.2

Operating Income
Global Industrial		$1,106.0		($0.2)		$17.3		$1,123.1
Global Institutional & Specialty		321.9		(0.3)		2.4		324.0
Global Healthcare & Life Sciences		207.6		0.7		10.0		218.3
Other		131.5		(0.2)		1.5		132.8
Corporate		(347.5)		-		(2.2)		(349.7)
Subtotal at fixed currency rates		1,419.5		-		29.0		1,448.5
Effect of foreign currency translation		(23.8)		-		(29.0)		(52.8)
Consolidated reported GAAP operating income		$1,395.7		$-		$-		$1,395.7


	December 31, 2019
									Discontinued
	2019 Reported					Fixed	2019 Reported		Operations and	2019 Revised
	Valued at 2019		Segment		Currency		Valued at 2020		Related Allocation	Valued at 2020
(millions)	Management Rates		Change		Rate Change		Management Rates		Charges	Management Rates
Net Sales
Global Industrial		$5,569.9		$479.2		($52.7)		$5,996.4	($1.8)	$5,994.6
Global Institutional & Specialty		5,235.5		(800.1)		(23.3)		4,412.1	-	4,412.1
Global Healthcare & Life Sciences		-		991.7		(12.7)		979.0	-	979.0
Upstream Energy		-		2,350.0		2.9		2,352.9	(2,352.9)	-
Global Energy		3,334.0		(3,334.0)		-		-	-	-
Other		907.5		313.2		(9.0)		1,211.7	-	1,211.7
Subtotal at fixed currency rates		15,046.9		-		(94.8)		14,952.1	(2,354.7)	12,597.4
Effect of foreign currency translation		(140.6)		-		94.8		(45.8)	10.4	(35.4)
Consolidated reported GAAP net sales		$14,906.3		$-		$-		$14,906.3	($2,344.3)	$12,562.0

Operating Income
Global Industrial		$854.7		$133.4		($7.5)		$980.6	($77.9)	$902.7
Global Institutional & Specialty		1,042.2		(93.4)		(1.5)		947.3	(7.5)	939.8
Global Healthcare & Life Sciences		-		136.7		(1.6)		135.1	(10.6)	124.5
Upstream Energy		-		188.2		(0.3)		187.9	(187.9)	-
Global Energy		379.1		(379.1)		-		-	-	-
Other		167.3		14.2		(0.9)		180.6	(13.6)	167.0
Corporate		(409.1)		-		1.2		(407.9)	128.2	(279.7)
Subtotal at fixed currency rates		2,034.2		-		(10.6)		2,023.6	(169.3)	1,854.3
Effect of foreign currency translation		(20.4)		-		10.6		(9.8)	0.7	(9.1)
Consolidated reported GAAP operating income		$2,013.8		$-		$-		$2,013.8	($168.6)	$1,845.2

Reportable Segment Information

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


	Net Sales						Operating Income (Loss)
(millions)	2021		2020		2019		2021		2020		2019

Global Industrial		$6,304.9		$6,048.2		$6,087.9		$1,031.0		$1,123.1		$921.3
Global Institutional & Specialty		3,978.2		3,629.0		4,477.2		556.9		324.0		945.8
Global Healthcare & Life Sciences		1,195.4		1,241.1		1,017.6		160.9		218.3		129.2
Other		1,226.9		1,103.4		1,220.5		187.3		132.8		169.7
Corporate		139.4		100.6		-		(318.6)		(349.7)		(283.6)
Subtotal at fixed currency		12,844.8		12,122.3		12,803.2		1,617.5		1,448.5		1,882.4
Effect of foreign currency translation		(111.7)		(332.1)		(241.2)		(18.9)		(52.8)		(37.2)
Consolidated reported GAAP		$12,733.1		$11,790.2		$12,562.0		$1,598.6		$1,395.7		$1,845.2

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

The Company has an integrated supply chain function that serves all of its reportable segments. As such, asset and capital expenditure information by reportable segment has not been provided and is not available, since the Company does not produce or utilize such information internally. In addition, although depreciation and amortization expense is a component of each reportable segment’s operating results, it is not discretely identifiable.

Geographic Information

Long-lived assets, which includes property, plant and equipment and right of use assets, at public exchange rates by geographic region are as follows:


	Long-Lived Assets, net

(millions)	2021		2020
United States		$2,416.4		$2,375.2
Europe		580.7		523.7
Asia Pacific		237.1		245.0
Greater China		186.4		136.4
Latin America		137.9		138.4
Canada		66.5		72.2
India, Middle East and Africa		60.2		57.8
Total		$3,685.2		$3,548.7

Geographic data for long-lived assets is based on physical location of those assets. Refer to Note 18 for net sales by geographic region.

20. QUARTERLY FINANCIAL DATA (UNAUDITED)


	First		Second		Third		Fourth
(millions, except per share)	Quarter		Quarter		Quarter		Quarter		Year
2021
Net sales		$2,885.0		$3,162.7		$3,320.8		$3,364.6		$12,733.1
Operating expenses
Cost of sales (a)		1,712.0		1,844.0		2,016.7		2,043.1		7,615.8
Selling, general and administrative expenses		862.9		853.3		832.0		867.9		3,416.1
Special (gains) and charges		12.8		17.6		6.3		65.9		102.6
Operating income		297.3		447.8		465.8		387.7		1,598.6
Other (income) expense (b)		(17.0)		2.5		(13.0)		(6.4)		(33.9)
Interest expense, net (c)		51.7		45.6		76.4		44.6		218.3
Income before income taxes		262.6		399.7		402.4		349.5		1,414.2
Provision for income taxes		66.1		86.1		73.8		44.2		270.2
Net income including noncontrolling interest		196.5		313.6		328.6		305.3		1,144.0
Net income attributable to noncontrolling interest		2.9		2.8		4.1		4.3		14.1
Net income attributable to Ecolab		$193.6		$310.8		$324.5		$301.0		$1,129.9

Earnings attributable to Ecolab per common share
Basic		$ 0.68		$ 1.09		$ 1.13		$ 1.05		$ 3.95
Diluted		$ 0.67		$ 1.08		$ 1.12		$ 1.04		$ 3.91

Weighted-average common shares outstanding
Basic		286.0		286.0		286.4		286.7		286.3
Diluted		288.8		288.8		289.2		289.5		289.1

2020
Net sales		$3,020.6		$2,685.7		$3,018.6		$3,065.3		$11,790.2
Operating expenses
Cost of sales (a)		1,720.2		1,635.7		1,769.6		1,780.3		6,905.8
Selling, general and administrative expenses		908.3		788.6		802.6		809.6		3,309.1
Special (gains) and charges		15.9		69.4		35.0		59.3		179.6
Operating income		376.2		192.0		411.4		416.1		1,395.7
Other (income) expense (b)		(15.4)		(15.1)		(15.1)		(10.3)		(55.9)
Interest expense, net (c)		48.3		58.7		134.8		48.4		290.2
Income before income taxes		343.3		148.4		291.7		378.0		1,161.4
Provision for income taxes		47.0		14.1		42.4		73.1		176.6
Net income from continuing operations, including noncontrolling interest		296.3		134.3		249.3		304.9		984.8
Net income from continuing operations attributable to noncontrolling interest		4.3		5.4		3.1		4.6		17.4
Net income from continuing operations attributable to Ecolab		292.0		128.9		246.2		300.3		967.4
Net income (loss) from discontinued operations, net of tax (d)		(8.6)		(2,163.9)		-		-		(2,172.5)
Net income (loss) attributable to Ecolab		$283.4		($2,035.0)		$246.2		$300.3		($1,205.1)

Earnings (loss) attributable to Ecolab per common share
Basic
Continuing operations		$ 1.01		$ 0.45		$ 0.86		$ 1.05		$ 3.37
Discontinued operations		($ 0.03)		($ 7.51)		$ -		$ -		($ 7.57)
Earnings (loss) attributable to Ecolab		$ 0.98		($ 7.06)		$ 0.86		$ 1.05		($ 4.20)
Diluted
Continuing operations		$ 1.00		$ 0.44		$ 0.85		$ 1.04		$ 3.33
Discontinued operations		($ 0.03)		($ 7.42)		$ -		$ -		($ 7.48)
Earnings (loss) attributable to Ecolab		$ 0.97		($ 6.98)		$ 0.85		$ 1.04		($ 4.15)
Weighted-average common shares outstanding
Basic		288.8		288.2		285.4		285.6		287.0
Diluted		292.6		291.5		288.4		288.7		290.3

Per share amounts do not necessarily sum due to changes in the calculation of shares outstanding for each discrete period and rounding. Gross profit is calculated as net sales minus cost of sales. As discussed in Note 5, the ChampionX separation met the criteria to be reported as discontinued operations and prior periods have been conformed to current period presentation.

	(a)	Cost of sales includes special charges of $19.6, $3.7, $52.9 and $17.7 in Q1, Q2, Q3 and Q4 of 2021, respectively, and $9.1, $27.0, $9.5 and $2.6 in Q1, Q2, Q3 and Q4 of 2020, respectively.

	(b)	Other (income) expense includes special charges of $19.6, $7.0 and $10.6 in Q2, Q3 and Q4 of 2021, respectively, and $0.4 in Q4 of 2020.

	(c)	Interest expense, net includes special charges of $32.3 and $0.8 in Q3 and Q4 of 2021, respectively, and $0.7 and $83.1 in Q2 and Q3 of 2020, respectively.

	(d)	Net income from discontinued operations, net of tax includes noncontrolling interest of $2.5 and ($0.3) in Q1 and Q2 of 2020, respectively.

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