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

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

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

The MD&A should be read in conjunction with both the unaudited consolidated financial information and related notes included in this Form 10-Q, and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2021. This discussion contains various Non-GAAP Financial Measures and also contains various Forward-Looking Statements within the meaning of the Private Securities Litigation Reform Act of 1995. We refer readers to the statements entitled “Non-GAAP Financial Measures” and “Forward-Looking Statements” located at the end of Part I of this report.

Comparability of Results

Purolite Acquisition

On December 1, 2021, we acquired Purolite Corporation (“Purolite”) for total consideration of $3.7 billion in cash. Purolite is a leading and fast-growing global provider of high-end ion exchange resins for the separation and purification of solutions for pharmaceutical and industrial applications. Headquartered in King of Prussia, Pennsylvania, Purolite operates in more than 30 countries. Purolite is reported within our Life Sciences operating segment. Acquisition and integration charges are recorded within special (gains) and charges. Amortization of acquisition-related intangible assets is recorded in the Corporate reportable segment.

Impact of Acquisitions and Divestitures

Acquisition adjusted growth rates exclude the results of our acquired businesses from the first twelve months post acquisition, the results of our divested businesses from the twelve months prior to divestiture and the Venezuelan results of operations from all comparable periods. As part of the separation of ChampionX in 2020, we entered into a Master Cross Supply and Product Transfer agreement with ChampionX to provide, receive or transfer certain products for a period up to 36 months. Sales of product to ChampionX under this agreement are recorded in product and equipment sales in the Corporate segment along with the related cost of sales. These transactions are removed from the consolidated results as part of the calculation of the impact of acquisitions and divestitures.

Fixed Currency Foreign Exchange Rates

Management evaluates the sales and operating income performance of our non-U.S. dollar functional currency international operations based on fixed currency exchange rates, which eliminate the impact of exchange rate fluctuations on our international operations. Fixed currency amounts are updated annually at the beginning of each year based on translation into U.S. dollars at foreign currency exchange rates established by management, with all periods presented using such rates. Public currency rate data provided within the “Segment Performance” section of this MD&A reflect amounts translated at actual public average rates of exchange prevailing during the corresponding period and is provided for informational purposes only.

OVERVIEW OF THE FIRST QUARTER ENDED MARCH 31, 2022

Sales Performance

When comparing first quarter 2022 against first quarter 2021, sales performance was as follows:

●	Reported net sales increased 13% to $3,267 million, fixed currency sales increased 16% and acquisition adjusted fixed currency sales increased 12%.

●	Fixed currency sales for our Global Industrial segment increased 12% to $1,557 million, as strong double-digit growth across all divisions was driven by accelerating pricing and new business wins.

●	Fixed currency sales for our Global Institutional & Specialty segment increased 19% to $1,005 million. Strong growth in the Institutional division reflected improved volume growth, good new business wins, new innovation and pricing. Specialty sales showed good growth as strong quickservice sales were partially offset by lower food retail sales.

●	Fixed currency sales for our Global Healthcare & Life Sciences segment increased 29% to $363 million. Acquisition adjusted fixed currency sales decreased 7% compared to a 14% increase last year when sales benefited from strong COVID-related demand.

●	Fixed currency sales and acquisition adjusted fixed currency sales for Other increased 12% to $296 million led by double-digit growth in Pest Elimination and Textile Care.

Financial Performance

When comparing first quarter 2022 against first quarter 2021, our financial performance was as follows:

●	Reported operating income decreased 14% to $255 million. Excluding the impact of special (gains) and charges from both 2022 and 2021 reported results, adjusted operating income increased 1% and our adjusted fixed currency operating income increased 4%.

●	Net income attributable to Ecolab decreased 11% to $172 million. Excluding the impact of special (gains) and charges and discrete tax items from both 2022 and 2021 reported results, our adjusted net income attributable to Ecolab increased 1%.

●

Reported diluted EPS of $0.60 decreased 10%. Excluding the impact of special (gains) and charges and discrete tax items from both 2022 and 2021 reported results, adjusted diluted EPS increased 1% to $0.82 in the first quarter of 2022. The earnings increase reflects accelerating pricing and strong volume growth which more than offset increases in delivered product costs and unfavorable currency translation.

●	Our reported tax rate was 20.7% during the first quarter of 2022, compared to 25.2% during the first quarter of 2021. Excluding the tax rate impact of special (gains) and charges and discrete tax items from both 2022 and 2021 results, our adjusted tax rate was 19.5% during the first quarter of 2022, compared to 19.7% during the first quarter of 2021.

RESULTS OF OPERATIONS

Net Sales


	First Quarter Ended
	March 31
(millions)	2022		2021		Change
Product and equipment sales		$2,624.1		$2,293.4
Service and lease sales		642.6		591.6
Reported GAAP net sales		$3,266.7		$2,885.0	13	%
Effect of foreign currency translation		(11.3)		(76.7)
Non-GAAP fixed currency sales		$3,255.4		$2,808.3	16	%

Product and sold equipment revenue is generated from providing cleaning, sanitizing and water treatment products or selling equipment used in combination with specialized products. Service and lease equipment revenue is generated from providing services or leasing equipment to customers. All of our sales are subject to the same economic conditions.

The percentage components of the period-over-period 2022 sales change are shown below:


	First Quarter Ended
	March 31
(percent)	2022
Volume		7	%
Price changes		5
Acquisition adjusted fixed currency sales change		12
Acquisitions and divestitures		4
Fixed currency sales change		16
Foreign currency translation		(2)
Reported GAAP net sales change		13	%

Amounts do not necessarily sum due to rounding.

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


	First Quarter Ended
	March 31
	2022				2021
			Gross				Gross
(millions/percent)	COS		Margin		COS		Margin
Product and equipment cost of sales		$1,695.6				$1,362.9
Service and lease cost of sales		377.8				349.1
Reported GAAP COS and gross margin		$2,073.4	36.5	%		$1,712.0	40.7	%
Special (gains) and charges		52.9				19.6
Non-GAAP adjusted COS and gross margin		$2,020.5	38.1	%		$1,692.4	41.3	%

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

Our reported gross margin was 36.5% and 40.7% for the first quarter of 2022 and 2021, respectively. Special (gains) and charges included in items impacting COS are shown within the “Special (Gains) and Charges” table below.

Excluding the impact of special (gains) and charges within COS, first quarter 2022 and 2021 adjusted gross margin was 38.1% and 41.3%, respectively.

Our adjusted gross margin decreased when comparing the first quarter of 2022 against the first quarter of 2021, primarily reflecting accelerating pricing that was more than offset by higher delivered product costs.

Selling, General and Administrative Expense

Selling, general and administrative (“SG&A”) expenses as a percentage of sales were 28.0% for the first quarter of 2022 compared to 29.9% for the first quarter of 2021. The SG&A ratio to sales in the first quarter of 2022 decreased as volume leverage and cost savings more than offset sales force investments.

Special (Gains) and Charges

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


	First Quarter Ended
	March 31
(millions)	2022		2021
Cost of sales
Restructuring activities		$2.6		$18.2
Acquisition and integration activities		27.6		-
COVID-19 activities, net		16.3		1.1
Russia/Ukraine charges		6.4		-
Other		-		0.3
Cost of sales subtotal		52.9		19.6

Special (gains) and charges
Restructuring activities		0.8		3.6
Acquisition and integration activities		7.5		1.2
COVID-19 activities, net		1.5		6.4
Russia/Ukraine charges		11.6		-
Other		2.7		1.6
Special (gains) and charges subtotal		24.1		12.8

Total special (gains) and charges		$77.0		$32.4

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

Restructuring activities

Restructuring activities relate to the Institutional Advancement Program, Accelerate 2020 and other immaterial restructuring programs which are described below. These activities have been included as a component of cost of sales, 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.

Further details related to our restructuring charges are included in Note 2.

Institutional Advancement Program

We approved a restructuring plan in 2020 focused on the Institutional business (“the Institutional Plan”) which is intended to enhance our Institutional sales and service structure and allow the sales team to capture share and penetration while maximizing service effectiveness by leveraging our ongoing investments in digital technology. In February 2021, we expanded the Institutional Plan, and we expect that these restructuring charges will be completed by 2023, with total anticipated costs of $65 million ($50 million after tax) or $0.17 per diluted share. The costs are expected to be primarily cash expenditures for severance and facility closures. We also anticipate non-cash charges related to equipment disposals. Actual costs may vary from these estimates depending on actions taken.

In the first quarter of 2022, we recorded restructuring charges of $1.4 million ($1.0 million after tax) or less than $0.01 per diluted share, primarily related to severance, disposals of equipment and office closures. We have recorded $49.2 million ($37.6 million after tax), or $0.13 per diluted share of cumulative restructuring charges under the Institutional Plan. The liability related to the Institutional Plan was $2.0 million as of March 31, 2022. The majority of the pretax charges represent net cash expenditures which are expected to be paid over a period of a few months to several quarters which continue to be funded from operating activities.

The Institutional Plan has delivered $45 million of cumulative cost savings with estimated annual cost savings of $50 million in continuing operations by 2024.

Accelerate 2020

During 2018, we formally commenced a restructuring plan Accelerate 2020 (“the Plan”), to leverage technology and system investments and organizational changes. The goals of the Plan are to further simplify and automate processes and tasks, reduce complexity and management layers, consolidated facilitates and focus on key long-term growth areas by further leveraging technology and structural improvements. During 2020, we expanded the Plan for additional costs and savings to further leverage the technology and structural improvements. Following the establishment of the separate Institutional Plan, we now expect that the restructuring activities will be completed by the end of 2022, with total anticipated costs of $255 million ($195 million after tax), or $0.67 per diluted share. Costs are expected to be primarily cash expenditures for severance costs and some facility closure costs relating to team reorganizations. Actual costs may vary from these estimates depending on actions taken.

We recorded restructuring charges of $0.3 million ($0.1 million after tax), or less than $0.01 per diluted share and $1.7 million ($1.4 million after tax), or less than $0.01 per diluted share in the first quarter of 2022 and 2021, respectively. The liability related to the Plan was $26.1 million as of the end of the first quarter of 2022. We have recorded $244.8 million ($190.1 million after tax), or $0.66 per diluted share, of cumulative restructuring charges under the Plan. The majority of the pretax charges represent net cash expenditures which are expected to be paid over a period of a few months to several quarters which continue to be funded from operating activities.

The Plan has delivered $308 million of cumulative cost savings with estimated annual cost savings of $315 million in continuing operations by 2022.

Other Restructuring Activities

During the first quarter of 2022 and 2021, we incurred restructuring charges of $1.7 million ($1.3 million after tax), or less than $0.01 per diluted share and $14.2 million ($10.8 million after tax), or $0.04 per diluted share, respectively, related to other immaterial restructuring activity. The charges primarily related to severance and asset write-offs.

The restructuring liability balance for all other restructuring plans excluding the Accelerate 2020 and Institutional Plan were $4.4 million and $4.6 million as of March 31, 2022 and December 31, 2021, respectively. The remaining liability is expected to be paid over a period of a few months to several quarters and will continue to be funded from operating activities. Cash payments during the first quarter of 2022 related to all other restructuring plans excluding the Accelerate 2020 and Institutional Plan were $1.9 million.

Acquisition and integration related costs

Acquisition and integration costs reported in product and equipment cost of sales on the Consolidated Statements of Income in the first quarter of 2022 include $27.6 million ($21.4 million after tax) or $0.07 per diluted share and are related to the recognition of fair value step-up in the Purolite inventory.

Acquisition and integration costs reported in special (gains) and charges on the Consolidated Statements of Income include $7.5 million ($5.5 million after tax) or $0.02 per diluted share in the first quarter of 2022. Charges are related to Purolite, Copal Invest NV, including its primary operating entity CID Lines (collectively, “CID Lines”), and Bioquell PLC (“Bioquell”) acquisitions and consist of integration costs, advisory and legal fees.

COVID-19 activities

We recorded $15.0 million in inventory reserves related to excess sanitizer inventory and estimated disposal costs during the first quarter of 2022. We recorded charges (gains) of ($0.5) million and $5.9 million during the first quarter of 2022 and 2021, respectively to protect the wages of certain employees directly impacted by the COVID-19 pandemic. We also recorded charges of $3.4 million and $3.5 million related to employee COVID-19 testing and related expenses during the first quarter of 2022 and 2021, respectively. In addition, we received subsidies and government assistance, which were recorded as a special (gains) of ($0.1) million and ($1.9) million during the first quarter of 2022 and 2021, 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 the COVID-19 pandemic were $13.3 million or $0.05 per diluted share and $4.9 million or $0.02 per diluted share during the first quarter of 2022 and 2021, respectively.

Russia/Ukraine charges

In light of Russia’s invasion of Ukraine and the sanctions against Russia by the United States and other countries, we have made the determination that we will limit our Russian business to operations that are essential to life, providing minimal support for our healthcare, life sciences, food and beverage and certain water businesses. We recorded charges of $18.0 million ($19.0 million after tax) or $0.07 per diluted share related to recoverability risk of certain assets in both Russia and Ukraine.

Other operating activities

Other special charges recorded in the first quarter of 2022 in special (gains) and charges on the Consolidated Statements of Income were $2.7 million ($2.0 million after tax) or less than $0.01 per diluted share primarily related to certain legal charges.

Other special charges of $1.9 million ($1.2 million after tax) or less than $0.01 per diluted share recorded in the first quarter of 2021 related to certain legal charges and tax consulting fees associated with the ChampionX separation, which are recorded in special (gains) and charges and product and equipment cost of sales on the Consolidated Statements of Income.

Operating Income and Operating Income Margin


	First Quarter Ended
	March 31
(millions)	2022			2021			Change
Reported GAAP operating income		$254.5			$297.3		(14)	%
Special (gains) and charges		77.0			32.4
Non-GAAP adjusted operating income		331.5			329.7		1	%
Effect of foreign currency translation		(2.8)			(13.2)
Non-GAAP adjusted fixed currency operating income		$328.7			$316.5		4	%

	First Quarter Ended
	March 31
(percent)	2022			2021
Reported GAAP operating income margin		7.8	%		10.3	%
Non-GAAP adjusted operating income margin		10.1	%		11.4	%
Non-GAAP adjusted fixed currency operating income margin		10.1	%		11.3	%

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

Our reported operating income decreased 14% in the first quarter of 2022, versus the comparable period of 2021. Our reported operating income for 2022 and 2021 was impacted by special (gains) and charges; excluding the impact of special (gains) and charges from 2022 and 2021 reported results, our adjusted operating income increased 1% in the first quarter of 2022.

As shown in the previous table, foreign currency had a 3 percentage points impact on adjusted operating income growth for the first quarter of 2022. Foreign currency had a 1 percentage points impact on adjusted operating income growth for the first quarter of 2021.

Other (income) expense


	First Quarter Ended
	March 31
(millions)	2022		2021		Change
Reported GAAP other (income) expense		($18.8)		($17.0)	11	%

Other income was $18.8 million and $17.0 million in the first quarter of 2022 and 2021, respectively.

Interest Expense, Net


	First Quarter Ended
	March 31
(millions)	2022		2021		Change
Reported GAAP interest expense, net		$53.0		$51.7	3	%

Reported net interest expense was $53.0 million and $51.7 million in the first quarter of 2022 and 2021, respectively. The increase in interest expense when comparing 2022 against 2021 was driven primarily by interest on new debt issued to fund the Purolite acquisition, partially offset by benefits from debt refinancing transactions completed last year.

Provision for Income Taxes

The following table provides a summary of our tax rate:


	First Quarter Ended
	March 31
(percent)	2022		2021
Reported GAAP tax rate	20.7	%	25.2	%
Tax rate impact of:
Special (gains) and charges	(0.9)		-
Discrete tax items	(0.3)		(5.5)
Non-GAAP adjusted tax rate	19.5	%	19.7	%

Our reported tax rate was 20.7% and 25.2% for the first quarter of 2022 and 2021, respectively. The change in our tax rate for the first quarter of 2022 versus the comparable period of 2021 was driven primarily by discrete tax items and special (gains) and charges. The change in our tax rate includes the tax impact of special (gains) and charges and discrete tax items, which have impacted the comparability of our historical reported tax rates, as amounts included in our special (gains) and charges are derived from tax jurisdictions with rates that vary from our tax rate, and discrete tax items are not necessarily consistent across periods. The tax impact of special (gains) and charges and discrete tax items will likely continue to impact comparability of our reported tax rate in the future.

We recognized net tax expenses related to discrete tax items of $1.0 million in the first quarter of 2022. This included share-based compensation excess tax benefits of $2.9 million. Additionally, the Company recognized discrete tax expense of $3.9 million primarily due to audit settlements, reserves for uncertain tax positions, prior year return adjustments, repricing of deferred tax balances, and other changes in estimates.

We recognized total net tax expense related to discrete tax items of $16.1 million in the first quarter of 2021. This included a non-recurring, non-cash deferred tax charge of $25.1 million associated with transferring certain intangible property between affiliates. The first quarter share-based compensation excess tax benefit was $6.6 million. The remaining discrete benefit of $2.4 million was due to other foreign and U.S. changes in estimates during the quarter.

The decrease in the first quarter of 2022 adjusted tax rate compared to 2021 was primarily due to the geographic mix of income and tax planning.

Net Income Attributable to Ecolab


	First Quarter Ended
	March 31
(millions)	2022		2021		Change
Reported GAAP net income attributable to Ecolab		$171.9		$193.6	(11)	%
Adjustments:
Special (gains) and charges, after tax		63.6		24.2
Discrete tax net expense		1.0		16.1
Non-GAAP adjusted net income attributable to Ecolab		$236.5		$233.9	1	%

Diluted EPS


	First Quarter Ended
	March 31
(dollars)	2022		2021		Change
Reported GAAP diluted EPS		$0.60		$ 0.67	(10)	%
Adjustments:
Special (gains) and charges, after tax		0.22		0.08
Discrete tax net expense		-		0.06
Non-GAAP adjusted diluted EPS		$0.82		$ 0.81	1	%

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

Currency translation had a unfavorable impact of approximately $(0.03) per share on diluted EPS for the first quarter of 2022, when compared to the comparable periods of 2021.

SEGMENT PERFORMANCE

The non-U.S. dollar functional international amounts included within our reportable segments are based on translation into U.S. dollars at the fixed currency exchange rates used by management for 2022. The difference between the fixed currency exchange rates and the actual currency exchange rates is reported as “effect of foreign currency translation” in the following tables. All other accounting policies of the reportable segments are consistent with U.S. GAAP and the accounting policies described in Note 2 of our Annual Report on Form 10-K for the year ended December 31, 2021. Additional information about our reportable segments is included in Note 15.

Fixed currency net sales and operating income for the first quarter of 2022 and 2021 for our reportable segments are shown in the following tables:


Net Sales	First Quarter Ended
	March 31
(millions)	2022		2021		Change
Global Industrial		$1,557.0		$1,384.9	12	%
Global Institutional & Specialty		1,005.1		844.1	19
Global Healthcare & Life Sciences		362.6		281.1	29
Other		296.0		265.4	12
Corporate		34.7		32.8	6
Subtotal at fixed currency		3,255.4		2,808.3	16
Effect of foreign currency translation		11.3		76.7
Consolidated reported GAAP net sales		$3,266.7		$2,885.0	13	%

Operating Income	First Quarter Ended
	March 31
(millions)	2022		2021		Change
Global Industrial		$189.2		$209.8	(10)	%
Global Institutional & Specialty		110.8		61.9	79
Global Healthcare & Life Sciences		44.1		42.6	4
Other		37.2		32.3	15
Corporate		(129.6)		(62.5)	107
Subtotal at fixed currency		251.7		284.1	(11)
Effect of foreign currency translation		2.8		13.2
Consolidated reported GAAP operating income		$254.5		$297.3	(14)	%

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


	First Quarter Ended
	March 31
Net Sales	2022			2021
(millions)	Fixed Currency	Impact of Acquisitions and Divestitures	Acquisition Adjusted	Fixed Currency	Impact of Acquisitions and Divestitures	Acquisition Adjusted
Global Industrial	$1,557.0	($5.9)	$1,551.1	$1,384.9	$-	$1,384.9
Global Institutional & Specialty	1,005.1	-	1,005.1	844.1	-	844.1
Global Healthcare & Life Sciences	362.6	(101.9)	260.7	281.1	-	281.1
Other	296.0	-	296.0	265.4	-	265.4
Corporate	34.7	(34.7)	-	32.8	(32.8)	-
Subtotal at fixed currency	3,255.4	(142.5)	3,112.9	2,808.3	(32.8)	2,775.5
Effect of foreign currency translation	11.3			76.7
Total reported net sales	$3,266.7			$2,885.0

Operating Income	2022			2021
(millions)	Fixed Currency	Impact of Acquisitions and Divestitures	Acquisition Adjusted	Fixed Currency	Impact of Acquisitions and Divestitures	Acquisition Adjusted
Global Industrial	$189.2	($0.8)	$188.4	$209.8	$-	$209.8
Global Institutional & Specialty	110.8	-	110.8	61.9	-	61.9
Global Healthcare & Life Sciences	44.1	(19.6)	24.5	42.6	-	42.6
Other	37.2	-	37.2	32.3	-	32.3
Corporate	(52.6)	22.9	(29.7)	(30.1)	-	(30.1)
Non-GAAP adjusted fixed currency operating income	328.7	2.5	331.2	316.5	-	316.5
Special (gains) and charges	77.0			32.4
Subtotal at fixed currency	251.7			284.1
Effect of foreign currency translation	2.8			13.2
Total reported operating income	$254.5			$297.3

Unless otherwise noted, the following segment performance commentary compares the first quarter of 2022 against the first quarter of 2021.

Global Industrial


	First Quarter Ended
	March 31
	2022			2021
Sales at fixed currency (millions)		$1,557.0			$1,384.9
Sales at public currency (millions)		1,565.7			1,431.0

Volume		5	%
Price changes		7	%
Acquisition adjusted fixed currency sales change		12	%
Acquisitions and divestitures		-	%
Fixed currency sales change		12	%
Foreign currency translation		(3)	%
Public currency sales change		9	%

Operating income at fixed currency (millions)		$189.2			$209.8
Operating income at public currency (millions)		191.4			220.3

Fixed currency operating income change		(10)	%
Fixed currency operating income margin		12.2	%		15.1	%
Acquisition adjusted fixed currency operating income change		(10)	%
Acquisition adjusted fixed currency operating income margin		12.1	%		15.1	%
Public currency operating income change		(13)	%

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

Net Sales

Fixed currency sales for Global Industrial increased in the first quarter of 2022, as strong double-digit growth across all divisions was driven by accelerating pricing and new business wins.

All operating segments enjoyed double-digit growth, Water fixed currency sales increased 12% (11% acquisition adjusted) in the first quarter of 2022, as accelerating pricing and new business wins leveraged recovering markets. Light and heavy industry water treatment sales were led by strong gains across all end markets. Mining showed very strong growth benefiting from our strategic shift toward high-value metals and fertilizers and away from coal. Food & Beverage fixed currency sales increased 10% in the first quarter of 2022, reflecting accelerating pricing. Downstream fixed currency sales increased 16% in the first quarter of 2022, driven by accelerating pricing, growth in additives, and good new business wins. Paper fixed currency sales increased 16% in the first quarter of 2022, driven by strong new business wins, accelerating pricing and improved market trends.

Operating Income

Fixed currency operating income and fixed currency operating income margins decreased for Global Industrial in the first quarter of 2022.

Acquisition adjusted fixed currency operating income margins decreased 3.0 percentage points during the first quarter of 2022, as the 10.2 percentage point negative impacts of significantly higher delivered product costs and unfavorable mix were partially offset by the 7.5 percentage point positive impacts of accelerating pricing and increased volume.

Global Institutional & Specialty


	First Quarter Ended
	March 31
	2022			2021
Sales at fixed currency (millions)		$1,005.1			$844.1
Sales at public currency (millions)		1,007.0			857.4

Volume		15	%
Price changes		4	%
Acquisition adjusted fixed currency sales change		19	%
Acquisitions and divestitures		-	%
Fixed currency sales change		19	%
Foreign currency translation		(1)	%
Public currency sales change		17	%

Operating income at fixed currency (millions)		$110.8			$61.9
Operating income at public currency (millions)		111.1			62.0

Fixed currency operating income change		79	%
Fixed currency operating income margin		11.0	%		7.3	%
Acquisition adjusted fixed currency operating income change		79	%
Acquisition adjusted fixed currency operating income margin		11.0	%		7.3	%
Public currency operating income change		79	%

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

Net Sales

Fixed currency sales for Global Institutional & Specialty increased in the first quarter of 2022.

At an operating segment level, Institutional fixed currency sales increased 26% in the first quarter of 2022, driven by improved volume gains, good new business wins, new innovation and pricing. Specialty fixed currency sales increased 5% in the first quarter of 2022, as strong quickservice sales more than offset lower food retail sales.

Operating Income

Fixed currency operating income and fixed currency operating income margins increased for our Global Institutional & Specialty segment in the first quarter of 2022.

Acquisition adjusted fixed currency operating income margins increased 3.7 percentage points during the first quarter of 2022, as the 9.9 percentage point positive impacts from increased volume and accelerating pricing more than offset the 5.7 percentage point negative impacts of higher delivered product costs and sales force investments.

Global Healthcare & Life Sciences


	First Quarter Ended
	March 31
	2022			2021
Sales at fixed currency (millions)		$362.6			$281.1
Sales at public currency (millions)		362.8			292.7

Volume		(10)	%
Price changes		3	%
Acquisition adjusted fixed currency sales change		(7)	%
Acquisitions and divestitures		36	%
Fixed currency sales change		29	%
Foreign currency translation		(4)	%
Public currency sales change		24	%

Operating income at fixed currency (millions)		$44.1			$42.6
Operating income at public currency (millions)		44.2			45.0

Fixed currency operating income change		4	%
Fixed currency operating income margin		12.2	%		15.2	%
Acquisition adjusted fixed currency operating income change		(42)	%
Acquisition adjusted fixed currency operating income margin		9.4	%		15.2	%
Public currency operating income change		(2)	%

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

Net Sales

Acquisition adjusted fixed currency sales for the Global Healthcare & Life Sciences decreased in the first quarter of 2022 compared to a 14% increase last year when sales benefited from strong COVID-related demand.

At an operating segment level, Healthcare fixed currency sales decreased 6% (9% acquisition adjusted) in the first quarter of 2022, reflecting the impact of customer sanitizer inventory reductions from the large COVID orders in first quarter 2021. Life Sciences fixed currency sales increased 155% (2% acquisition adjusted) in the first quarter of 2022, reflecting the acquisition of Purolite. The Life Sciences’ business excluding the acquisition of Purolite grew modestly reflecting the comparison against a very strong 2021 period as well as COVID-related new business start-up delays by customers in 2022’s first quarter. Purolite showed strong sales led by robust bioprocessing sales.

Operating Income

Fixed currency operating income increased and fixed currency operating income margins decreased for our Global Healthcare & Life Sciences segment in the first quarter of 2022.

Acquisition adjusted fixed currency operating income margins decreased 5.8 percentage points during the first quarter of 2022, as the 6.8 percentage point negative impacts from volume declines due to strong comparison last year and higher delivered product costs were partially offset by the 2.3 percentage point positive impact from accelerating pricing.

Other


	First Quarter Ended
	March 31
	2022			2021
Sales at fixed currency (millions)		$296.0			$265.4
Sales at public currency (millions)		296.4			270.7

Volume		8	%
Price changes		4	%
Acquisition adjusted fixed currency sales change		12	%
Acquisitions and divestitures		-	%
Fixed currency sales change		12	%
Foreign currency translation		(2)	%
Public currency sales change		9	%

Operating income at fixed currency (millions)		$37.2			$32.3
Operating income at public currency (millions)		37.5			32.9

Fixed currency operating income change		15	%
Fixed currency operating income margin		12.6	%		12.2	%
Acquisition adjusted fixed currency operating income change		15	%
Acquisition adjusted fixed currency operating income margin		12.6	%		12.2	%
Public currency operating income change		14	%

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

Net Sales

Fixed currency sales for Other increased in the first quarter of 2022, led by double-digit gains in Pest Elimination and Textile Care.

At an operating segment level, Pest Elimination fixed currency sales increased 11% in the first quarter of 2022, reflecting continued strong growth in hospitality, restaurants and food retail. Textile Care fixed currency sales increased 15% in the first quarter of 2022. Colloidal Technologies Group fixed currency sales increased 3% in the first quarter of 2022.

Operating Income

Fixed currency operating income and fixed currency operating income margins for Other increased in the first quarter of 2022.

Acquisition adjusted fixed currency operating income margins increased 0.4 percentage points during the first quarter of 2022, as the 3.3 percentage point positive impact from accelerating pricing was partially offset by the 2.7 percentage point negative impact of higher delivered product costs.

Corporate

Consistent with our internal management reporting, Corporate amounts in the table on page 36 include sales to ChampionX in accordance with the long-term supply agreement entered into with the Transaction post-separation, as discussed in Note 14, intangible asset amortization specifically from the Nalco and Purolite acquisitions and special (gains) and charges that are not allocated to our reportable segments. Items included within special (gains) and charges are shown in the table on page 32.

FINANCIAL POSITION, CASH FLOWS AND LIQUIDITY

Financial Position

Total assets were $21.1 billion as of March 31, 2022 compared to total assets of $21.2 billion as of December 31, 2021.

Total liabilities were $14.0 billion as of March 31, 2022 compared to total liabilities of $14.0 billion as of December 31, 2021. Total debt was $8.8 billion as of March 31, 2022 and $8.8 billion as of December 31, 2021. See further discussion of our debt activity within the “Liquidity and Capital Resources” section of this MD&A.

Our net debt to earnings before interest, taxes, depreciation and amortization (“EBITDA”) is shown in the following table. EBITDA is a non-GAAP measures discussed further in the “Non-GAAP Financial Measures” section of this MD&A.

The inputs to EBITDA reflect the trailing twelve months of activity for the period presented:


	2022		2021
(ratio)
Net debt to EBITDA		3.5		3.4

(millions)
Total debt		$8,760.3		$8,758.2
Cash		99.4		359.9
Net debt		$8,660.9		$8,398.3

Net income including noncontrolling interest		$1,122.2		$1,144.0
Provision for income taxes		249.7		270.2
Interest expense, net		219.6		218.3
Depreciation		608.9		604.4
Amortization		253.7		238.7
EBITDA		$2,454.1		$2,475.6

Cash Flows

Operating Activities


	First Quarter Ended
	March 31
(millions)	2022		2021		Change
Cash provided by operating activities		$170.1		$295.3		($125.2)

We continue to generate cash flow from operations, allowing us to fund our ongoing operations, acquisitions, investments in the business and pension obligations along with returning cash to our shareholders through dividend payments and share repurchases. Cash provided by operating activities decreased $125 million in the first quarter of 2022 compared to the first quarter of 2021, driven primarily by an $88 million increase in working capital excluding the impact of non-cash special charges, and $37 million higher bonus payments. The increase in working capital is primarily driven by higher sales volumes.

Investing Activities


	First Quarter Ended
	March 31
(millions)	2022		2021		Change
Cash used for investing activities		($129.2)		($192.4)		$63.2

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

We continue to make capital investments in the business, including merchandising equipment, manufacturing equipment and facilities. Total capital expenditures were $149 million and $102 million in the first quarter of 2022 and 2021, respectively.

Total cash paid for acquisitions, net of cash acquired along with net cash received from dispositions, during the first quarter of 2021 was $88 million. Our acquisitions and are discussed further in Note 3. We continue to target strategic business acquisitions which complement our growth strategy and expect to continue to make capital investments and acquisitions in the future to support our long-term growth.

Financing Activities


	First Quarter Ended
	March 31
(millions)	2022		2021		Change
Cash used for financing activities		($305.3)		($183.1)		($122.2)

Our cash flows from financing activities primarily reflect the issuances and repayment of debt, common stock repurchases, proceeds from common stock issuances related to our equity incentive programs and dividend payments.

We had net issuances of commercial paper and notes payable of $82 million and $6 million in the first quarter of 2022 and 2021, respectively.

Shares are repurchased for the purpose of partially offsetting the dilutive effect of our equity compensation plans, to manage our capital structure and to efficiently return capital to shareholders. We reacquired a total of $262 million and $62 million of shares in the first quarter of 2022 and 2021, respectively. Cash proceeds and tax benefits from stock option exercises provide a portion of the funding for repurchase activity.

There was no long-term debt issuance or repayment activity through the first quarter of 2022 or 2021.

The impact on financing cash flows of commercial paper and notes payable issuances are shown in the following table:


	First Quarter Ended
	March 31
(millions)	2022		2021		Change
Net issuances of commercial paper and notes payable		$82.1		$5.8		$76.3

Liquidity and Capital Resources

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

As of March 31, 2022, we had $99 million of cash and cash equivalents on hand, of which $65 million was held outside of the U.S. We will continue to evaluate our cash position in light of future developments.

As of March 31, 2022, we have a $2.0 billion multi-year credit facility which expires in April 2026. The credit facility has been established with a diverse syndicate of banks and supports our U.S. and Euro commercial paper programs. The maximum aggregate amount of commercial paper that may be issued under our U.S. commercial paper program and our Euro commercial paper program may not exceed $2.0 billion. At the end of the first quarter of 2022, we had $475 million outstanding commercial paper under our U.S. program and no outstanding commercial paper under our Euro program. There were no borrowings under our credit facility as of March 31, 2022 or 2021. As of March 31, 2022, both programs were rated A-2 by Standard & Poor’s, P-2 by Moody’s and F-1 by Fitch.

There was no long-term debt issuance or repayment activity through the first quarter of 2022 or 2021.

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

The schedule of contractual obligations included in the Financial Position and Liquidity section of our Form 10-K for the year ended December 31, 2021 disclosed total notes payable and long-term debt due within one year of $11 million. As of March 31, 2022, the total notes payable and long-term debt due within one year was $18 million. There was $475 million commercial paper outstanding as of March 31, 2022 and $400 million as of December 31, 2021.

Our gross liability for uncertain tax positions was $24 million as of March 31, 2022 and $25 million as of December 31, 2021. We are not able to reasonably estimate the amount by which the liability will increase or decrease over time; however, at this time, we do not expect significant payments related to these obligations within the next year.

GLOBAL ECONOMIC ENVIRONMENT

Coronavirus disease 2019 (COVID-19)

In March 2020, the coronavirus disease 2019 (COVID-19) was declared a pandemic by the World Health Organization. The COVID-19 pandemic is continuing to affect major economic and financial markets and industries are facing the challenges with the economic conditions resulting from efforts to address the pandemic, including supply shortages, inflation and other challenges, such as those resulting from the introduction of vaccination mandates. While many government restrictions in the U.S. have eased, restrictions on activities continue in many other regions, particularly those where vaccination rates lag, continuing to impact consumer activity in those regions. Concerns remain that our markets could see a resurgence of cases triggering additional government mandated lockdowns or similar restrictions on activity, for example due to the emergence of a variant against which existing vaccines are not as effective or which may be more easily transmitted, particularly to those unvaccinated. These conditions have had and will continue to have a negative impact on market conditions and customer demand throughout the world.

Global Economies

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

We expect substantial raw material and cost inflation to remain a challenge for the balance of the year. We are continuing to drive additional structural pricing and we have begun implementing energy-related surcharges in the second quarter to offset the recent surge in delivered product cost inflation. We expect our pricing actions, along with continued volume growth and our other cost savings and productivity improvement efforts, to successfully offset the recent delivered product cost increases.

Argentina is classified as a highly inflationary economy in accordance with U.S. GAAP, and the U.S. dollar is the functional currency for our subsidiaries in Argentina. During the first quarter of 2022, sales in Argentina represented less than 1% of our consolidated sales. Assets held in Argentina at the end of the first quarter of 2022 represented less than 1% of our consolidated assets. Turkey was also classified as a highly inflationary economy in accordance with U.S. GAAP. During the first quarter of 2022, sales in Turkey represented less than 1% of our consolidated sales. Assets held in Turkey at the end of the first quarter of 2022 represented less than 1% of our consolidated assets.

In light of Russia’s invasion of Ukraine and the sanctions against Russia by the United States and other countries, we have made the determination that we will limit our Russian business to operations that are essential to life, providing minimal support for our healthcare, life sciences, food and beverage and certain water businesses. We may further narrow our presence in Russia depending on future developments. Our Russian and Ukraine operations represented approximately 1% of our 2021 annual sales. We recorded charges of $18.0 million ($19.0 million after tax) related to recoverability risk of certain assets in both Russia and Ukraine.

NEW ACCOUNTING PRONOUNCEMENTS

For information on new accounting pronouncements, refer to Note 17 to the Consolidated Financial Statements.

SUBSEQUENT EVENTS

In April 2022, we entered into an interest rate swap agreement that converted $250 million of our 4.80% debt from a fixed interest rate to a floating interest rate. The interest rate swap is designated as a fair value hedge.

NON-GAAP FINANCIAL MEASURES

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

	●	Fixed currency sales

	●	Acquisition adjusted fixed currency sales

	●	Adjusted cost of sales

	●	Adjusted gross margin

	●	Fixed currency operating income

	●	Fixed currency operating income margin

	●	Adjusted operating income

	●	Adjusted operating income margin

	●	Adjusted fixed currency operating income

	●	Adjusted fixed currency operating income margin

	●	Acquisition adjusted fixed currency operating income

	●	Acquisition adjusted fixed currency operating income margin

	●	EBITDA

	●	Adjusted tax rate

	●	Adjusted net income attributable to Ecolab

	●	Adjusted diluted EPS

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

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

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

We evaluate the performance of our international operations based on fixed currency rates of foreign exchange. Fixed currency amounts included in this Form 10-Q are based on translation into U.S. dollars at the fixed foreign currency exchange rates established by management at the beginning of 2022. We also provide our segment results based on public currency rates for informational purposes.

Our reportable segments do not include the impact of intangible asset amortization from the Nalco and Purolite transactions or the impact of special (gains) and charges as these are not allocated to the Company’s reportable segments.

Acquisition adjusted growth rates exclude the results of our acquired businesses from the first twelve months post acquisition, exclude the results of our divested businesses from the twelve months prior to divestiture and the Venezuelan results of operations from all comparable periods. In addition, as part of the separation of ChampionX in 2020, we entered into a Master Cross Supply and Product Transfer agreement with ChampionX to provide, receive or transfer certain products for a period up to 36 months. Sales of product to ChampionX under this agreement are recorded in product and equipment sales in the Corporate segment along with the related cost of sales. These transactions are removed from the consolidated results as part of the calculation of the impact of acquisitions and divestitures.

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

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 2, contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include the COVID-19 pandemic outlook; business performance and prospects; expectations concerning timing, amount and type of restructuring costs and savings from restructuring activities; delivered product cost inflation, pricing actions, volume growth, cost savings and productivity improvements; Russian operations; tax deductibility of goodwill; capital investments, acquisitions and share repurchases; amortization expense; non-performance of financial counterparties; payments and contributions to pension and postretirement health care benefit plans; the impact of lawsuits, claims and environmental matters; impact of new accounting pronouncements; cash flows, borrowing capacity and funding of cash requirements; payments related to uncertain tax positions; and implementation of ERP system upgrade.

Without limiting the foregoing, words or phrases such as “will likely result,” “are expected to,” “will continue,” “is anticipated,” “we believe,” “we expect,” “estimate,” “project” (including the negative or variations thereof) or similar terminology, generally identify forward-looking statements. Forward-looking statements may also represent challenging goals for us. These statements, which represent our expectations or beliefs concerning various future events, are based on current expectations that involve a number of risks and uncertainties that could cause actual results to differ materially from those of such forward-looking statements. In particular, the effects of the COVID-19 pandemic depend on numerous factors, including the severity of the disease, the duration of the outbreak, the distribution and efficacy of vaccines, the likelihood of a resurgence of the outbreak, including as result of emerging variants, actions that may be taken by governmental authorities intended to minimize the spread of the pandemic, including vaccination mandates, or to stimulate the economy, and other unintended consequences. Further, the ultimate results of any restructuring or efficiency initiative, integration and business improvement actions, including cost synergies, depend on a number of factors, including the development of final plans, the impact of local regulatory requirements regarding employee terminations, the time necessary to develop and implement the restructuring or efficiency initiative and other business improvement initiatives and the level of success achieved through such actions in improving competitiveness, efficiency and effectiveness. We caution that undue reliance should not be placed on such forward-looking statements, which speak only as of the date made.

Some of the factors which could cause results to differ materially from those expressed in any forward-looking statements are set forth under Item 1A of our most recent Form 10-K, as updated by Item 1A of this Form 10-Q, and our other public filings with the Securities and Exchange Commission (the "SEC"), and include the effects and duration of the COVID-19 pandemic, including the impact of vaccination mandates; difficulty in procuring raw materials or fluctuations in raw material costs; the vitality of the markets we serve; the impact of economic factors such as the worldwide economy, capital flows, interest rates, foreign currency risk, and reduced sales and earnings in our international operations resulting from the weakening of local currencies versus the U.S. dollar; information technology infrastructure failures or breaches in data security; our ability to attract, retain and develop high caliber management talent to lead our business and successfully execute organizational change and changing labor market dynamics in the wake of the COVID-19 pandemic; exposure to global economic, political and legal risks related to our international operations, including the impact of sanctions or other actions taken by the U.S. or other countries, and retaliatory measures taken by Russia in response, in connection with the conflict in Ukraine; public health outbreaks, epidemics or pandemics, such as the current outbreak of COVID-19; our ability to execute key business initiatives, including restructurings and our Enterprise Resource Planning system upgrades; our ability to successfully compete with respect to value, innovation and customer support; pressure on operations from consolidation of customers or vendors; restraints on pricing flexibility due to contractual obligations and our ability to meet our contractual commitments; realization of anticipated benefits of the Purolite acquisition; our ability to acquire complementary businesses and to effectively integrate such businesses; the costs and effects of complying with laws and regulations, including those relating to the environment and to the manufacture, storage, distribution, sale and use of our products, as well as to the conduct of our business generally, including labor and employment and anti-corruption; potential chemical spill or release; potential to incur significant tax liabilities or indemnification liabilities relating to the separation and split-off of our ChampionX business; the occurrence of litigation or claims, including class action lawsuits; the loss or insolvency of a major customer or distributor; repeated or prolonged government and/or business shutdowns or similar events; acts of war or terrorism; natural or man-made disasters; water shortages; severe weather conditions; changes in tax laws and unanticipated tax liabilities; potential loss of deferred tax assets; our indebtedness, and any failure to comply with covenants that apply to our indebtedness; potential losses arising from the impairment of goodwill or other assets; and other uncertainties or risks reported from time to time in our reports to the SEC. There can be no assurances that our earnings levels will meet investors’ expectations. Except as may be required under applicable law, we do not undertake, and expressly disclaim, any duty to update our Forward-Looking Statements.

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