Market Overview

Ecolab Second Quarter Reported Diluted EPS $1.20; Adjusted Diluted EPS $1.27, +13%; Full Year 2018 Adjusted Diluted EPS Forecast $5.30 to $5.50 +13%-18%

Share:

Announces initiative to streamline organization and improve efficiency

Ecolab Inc. (NYSE:ECL):

SECOND QUARTER HIGHLIGHTS:

  • Reported diluted EPS $1.20, +20%.
  • Adjusted diluted EPS $1.27, +13%, excluding special gains and
    charges and discrete tax items.
  • Reported sales +7%. Acquisition adjusted fixed currency sales +5%
    with solid growth in all segments.
  • Strong sales gains, pricing, new product innovation and cost
    savings more than offset higher delivered product costs and
    investments in the business. Lower taxes also benefited the adjusted
    EPS gain.

2018 FORECAST:

  • 2018 adjusted diluted EPS forecast remains $5.30 to $5.50, +13% to
    18%, as improving volume and pricing growth in all segments are
    expected to more than offset higher delivered product costs to drive
    the strong earnings gain.

EFFICIENCY INITIATIVE ANNOUNCED:

  • Expected to realize $200 million of run rate cost savings by 2021.
 
    Second Quarter Ended June 30
Reported         Adjusted *    
(unaudited) Public Currency Rates % Public Currency Rates %
(millions, except per share) 2018     2017 Change 2018       2017 Change
Net sales $3,689.6 $3,460.0 7 % $3,689.6   $3,460.0 7 %
Operating income 494.6 419.6 18 % 506.6 480.8 5 %
Net income attributable to Ecolab 351.3 294.8 19 % 372.3 330.7 13 %
Diluted earnings per share $1.20 $1.00 20 % $1.27 $1.12 13 %
 
Adjusted *
Fixed Currency Rates * % Fixed Currency Rates %
2018 2017 Change 2018   2017 Change
Net sales $3,736.4 $3,585.4 4 % $3,736.4 $3,585.4 4 %
Operating income 500.9 435.8 15 % 512.9 497.0 3 %
*     See "Non-GAAP Financial Information" section of this release for
further discussion

New business gains, better pricing, product innovation and cost
efficiencies more than offset higher delivered product costs and
investments in the business, and along with a lower tax rate, yielded a
13% increase in second quarter 2018 adjusted diluted earnings per share.

CEO comment

Commenting on the quarter, Douglas M. Baker, Jr., Ecolab's chairman and
chief executive officer said, "Our business continues to improve. We
achieved another solid quarter, as strong sales actions and accelerated
pricing drove top line growth, delivering 5% acquisition adjusted fixed
currency growth. These attractive gains, along with cost efficiencies
and a reduced tax rate, more than offset continued rising delivered
product costs and yielded the 13% adjusted earnings per share growth.

"We expect these strong trends to continue in the second half, where we
anticipate fixed currency sales and margins to continue to strengthen
and deliver strong earnings per share growth. As our pricing and volumes
continue to accelerate, we expect to fully offset the higher delivered
product costs and unfavorable currency exchange that have developed
since our first quarter earnings report. This should drive margin
leverage versus last year, demonstrating the strength of our innovation
and the value our products and services create for our customers.

"In addition, following the last several years' investments in
enterprise systems and technology platforms, we are undertaking a
program to deliver $200 million of SG&A savings by 2021. This program
leverages our more than $600 million investment in technology, and will
streamline our organization, reduce complexity and improve our business
processes to help drive our future growth and margin expansion. Internal
teams will work through the balance of this year to develop final plans
for our global business structure and resource improvement. This program
will give us another important set of tools in addition to pricing to
protect and expand margins in an environment where we expect cost
inflation to remain a headwind for the foreseeable future. These efforts
will be the primary focus of and source for our cost savings activities
over the next several years as we reallocate our resources to pursuing
them.

"We continue to expect strong results for the full year 2018 as we work
to deliver attractive sales and earnings per share growth across all
segments while also investing for better growth in our future. We have
enhanced our industry leadership positions, building on our product and
service strengths, to improve customer results. We are also rapidly
developing our digital platforms that will bring our customers new
insights and predictivity to their operations, as well as improve our
service levels for them. We are excited about our opportunities, both
over the near and long term, and are determined to continue delivering
superior shareholder value."

Adoption of New Accounting Standards

Beginning in 2018, Ecolab adopted the new FASB revenue recognition and
pension accounting standards. We reclassified certain costs, primarily
compensation, from selling, general, and administrative (SG&A) expenses
to cost of sales (COS), to align with the costs of providing newly
classified service revenue upon adoption of the new revenue standard.
Adoption of the new revenue recognition standard reduced 2017 adjusted
diluted earnings per share by $0.01.

We also adopted the new pension accounting standard beginning in 2018,
recording the employee compensation cost of pension expense (the service
component) in COS and SG&A, while all other non-service components of
pension income are recorded below operating income in other
(income)/expense. We adopted the new standards retrospectively and
revised the 2016 and 2017 financial information to reflect the adoption
of the standards.

Second Quarter 2018 Consolidated Results

Ecolab's second quarter reported sales increased 7% and fixed currency
sales increased 4%. Acquisition and divestiture adjusted fixed currency
sales increased 5% when compared to the prior year.

Second quarter 2018 reported operating income increased 18%, fixed
currency operating income increased 15%, and adjusted and acquisition
adjusted fixed currency operating income both increased 3%. Pricing,
volume growth and cost savings initiatives more than offset the impact
of higher delivered product costs and investments in the business during
the quarter.

Other income, which primarily consists of the return on pension assets
and other costs of our pension obligations, increased 17% reflecting our
expected return on increased pension assets.

Reported net interest expense decreased in the quarter primarily
reflecting lower interest rate debt.

The reported income tax rate for the second quarter of 2018 was 22.8%
compared with the reported rate of 21.4% in the second quarter of 2017.
Excluding special gains and charges and discrete tax items, the adjusted
tax rate was 20.3% in the second quarter of 2018 compared with 24.2% for
the same period last year. The decrease in our adjusted tax rate was
primarily driven by changes in the U.S. tax law and global tax planning
strategies.

Second quarter 2018 reported net income attributable to Ecolab increased
19%. Excluding the impact of special gains and charges and discrete tax
items, adjusted net income attributable to Ecolab increased 13%.

Diluted earnings per share increased 20%. Adjusted diluted earnings per
share rose 13% when compared against second quarter 2017. Currency
translation had a $0.03 favorable impact on second quarter 2018 adjusted
diluted earnings per share.

Ecolab did not engage in open market repurchases of its common stock
during the second quarter of 2018.

Second Quarter 2018 Segment Review

 
Global Industrial
 
(unaudited)     Second Quarter Ended June 30         Acq. Adj.
(millions) 2018     2017 % Change % Change
 
Fixed currency
Sales $1,348.4 $1,267.0 6 % 5 %
Operating income 173.1 176.4 (2) % (2) %
Operating income margin 12.8 % 13.9 %
Acq. adj. operating income margin 13.0 % 14.0 %
 
Public currency
Sales $1,327.2 $1,208.7 10 %
Operating income 170.3 167.7 2 %

Global Industrial acquisition adjusted fixed currency sales rose 5% led
by Water, Food & Beverage and Life Sciences. All regions showed good
sales growth. Acquisition adjusted fixed currency operating income
decreased 2% as improved pricing and sales volume gains were more than
offset by higher delivered product costs and investments in the business.

 
Global Institutional
 
(unaudited)     Second Quarter Ended June 30         Acq. Adj.
(millions) 2018     2017 % Change % Change
 
Fixed currency
Sales $1,311.7 $1,262.8 4 % 3 %
Operating income 252.0 257.1 (2) % (2) %
Operating income margin 19.2 % 20.4 %
Acq. adj. operating income margin 19.3 % 20.4 %
 
Public currency
Sales $1,296.7 $1,217.7 6 %
Operating income 249.8 251.4 (1) %

Global Institutional acquisition adjusted fixed currency sales grew 3%
led by Specialty. Sales for the segment showed good growth in North
America and Asia Pacific. Acquisition adjusted fixed currency operating
income declined 2% as pricing and sales volume gains were more than
offset by investments in the business and higher delivered product costs.

 
Global Energy
 
(unaudited)     Second Quarter Ended June 30         Acq. Adj.
(millions) 2018     2017 % Change % Change
 
Fixed currency
Sales $854.0 $813.4 5 % 6 %
Operating income 91.4 72.1 27 % 29 %
Operating income margin 10.7 % 8.9 %
Acq. adj. operating income margin 10.8 % 8.9 %
 
Public currency
Sales $845.2 $797.4 6 %
Operating income 90.0 69.7 29 %

Global Energy acquisition adjusted fixed currency sales increased 6%
reflecting strong growth in the well stimulation business and moderate
gains in production and downstream. Acquisition adjusted fixed currency
operating income increased 29% as higher delivered product costs were
more than offset by volume gains, pricing, a favorable product mix and a
relatively favorable comparison to the year ago period; underlying
operating income growth is trending in the mid-teens.

 
Other
 
(unaudited)     Second Quarter Ended June 30         Acq. Adj.
(millions) 2018     2017 % Change % Change
 
Fixed currency
Sales $222.3 $242.2 (8) % 8 %
Operating income 39.3 34.2 15 % 17 %
Operating income margin 17.7 % 14.1 %
Acq. adj. operating income margin 18.3 % 16.8 %
 
Public currency
Sales $220.5 $236.2 (7) %
Operating income 39.1 33.6 16 %

Other segment acquisition adjusted fixed currency sales increased 8% as
Pest Elimination enjoyed strong growth, led by North America.
Acquisition and divestiture adjusted fixed currency operating income
increased 17% as pricing and sales volume gains more than offset
increased field-related costs. The Equipment Care business was sold on
November 1, 2017.

Corporate

The corporate segment expense includes amortization expense of $43
million in the second quarter of 2018 and $43 million in the second
quarter of 2017 related to the Nalco merger intangible assets. Corporate
segment operating income also includes net special charges of $12
million ($9 million after tax) primarily related to restructuring
activities.

Special gains and charges for the second quarter of 2017 were a net
charge of $61 million ($46 million after tax).

Efficiency Initiative

Ecolab has undertaken a comprehensive plan to leverage its recent
technology and systems investments and organizational changes in order
to streamline operations, improve sales growth and increase operating
efficiency while delivering better customer outcomes.

Internal teams will work through the balance of this year to develop
final plans for global resource and business structure improvement, to
be implemented in 2019 and 2020. Our plans will leverage technology and
structural improvements to simplify and automate processes and tasks,
reduce complexity and management layers, consolidate facilities and
focus on key long-term growth areas, thereby creating a leaner, more
productive and more empowered business structure.

The efficiency initiative and other cost savings actions are expected to
be completed by the end of 2020 and are expected to result in
approximately $200 million of SG&A savings by 2021.

In connection with these actions, Ecolab expects to incur pre-tax
charges of $170 million ($130 million after tax) over the next 3 years,
beginning with $10 million of charges in the second quarter of 2018. The
charges are expected to be primarily related to team reorganizations and
some facility closures.

Business Outlook

2018

Ecolab continues to expect full year 2018 adjusted diluted earnings per
share in the $5.30 to $5.50 range, representing a 13% to 18% increase
over 2017.

When compared with our 2017 performance, we expect improved acquisition
adjusted fixed currency sales growth in all of our segments. Versus the
comparable measures last year, we anticipate slightly lower adjusted
gross margin as volume gains, pricing and cost efficiency actions nearly
offset higher delivered product costs (which are expected to show
somewhat moderating increases in the fourth quarter), with a lower SG&A
ratio to sales, higher other income, and lower interest expense and a
lower adjusted tax rate versus 2017 reflecting the impact of the
recently enacted U.S. Tax Cuts and Jobs Act and tax planning.

We expect special charges in 2018 to be $0.30 to $0.40 per share
principally related to the charges for the efficiency initiative, a
previously announced $25 million funding commitment to the Ecolab
Foundation, as well as integration of previously announced acquisitions.
In addition, the discrete tax item related to excess tax benefits on
share-based compensation is expected to be favorable. Other than this
discrete tax item and special gains and charges noted above, other such
amounts are not currently quantifiable.

At current rates of exchange, we expect foreign currency translation to
have an approximate $0.02 benefit to diluted earnings per share versus
the previously expected $0.10 benefit.

Our detailed outlook for the full year of 2018 (which reflects adoption
of the new accounting standards) is as follows:

 
Adjusted Gross Margin, excluding special gains and charges     41% to 42%
SG&A % of Sales approx. 27%
Other income and expense approx. $80 million
Interest expense, net approx. $230 million
Adjusted tax rate approx. 21%
Noncontrolling interest approx. $0.05
Adjusted EPS, excluding special gains and charges $5.30 to $5.50
Diluted shares approx. 293 million
 

Reported 2017 diluted earnings per share of $5.12 included special gains
and charges and discrete tax items. Excluding these items, 2017 adjusted
diluted earnings per share were $4.68.

2018 — Third Quarter

Ecolab expects third quarter 2018 adjusted diluted earnings per share in
the $1.49 to $1.57 range, rising 8% to 14% compared with adjusted
diluted earnings per share of $1.38 a year ago.

Versus the comparable measures last year, we expect year-on-year
acquisition adjusted fixed currency sales growth in all our segments.
Volume gains and higher pricing are expected to more than offset
significantly higher delivered product costs in the quarter (which are
expected to represent an approximate $0.15 per share year-on-year
negative cost impact on third quarter earnings, or about double their
impact on the second quarter results). We expect consolidated gross
margin and the SG&A ratio to sales to be similar to last year, higher
other income and an improved adjusted tax rate versus 2017 resulting
from the new U.S. tax law referenced above and tax planning.

We expect special charges in the third quarter of 2018 to be $0.10 to
$0.15 per share principally related to the aforementioned efficiency
initiative and integration of previously announced acquisitions. In
addition, the discrete tax item related to excess tax benefits on
share-based compensation is expected to be favorable. Other than this
discrete tax item and special gains and charges noted above, other such
expected amounts are not currently quantifiable.

At current rates of exchange, we expect foreign currency to be
unfavorable $0.01 per share in the third quarter.

Our detailed outlook for the third quarter of 2018 (which reflects
adoption of the new accounting standards) is as follows:

 
Adjusted Gross Margin, excluding special gains and charges     approx. 42%
SG&A % of Sales approx. 26%
Other income and expense approx. $20 million
Interest expense, net approx. $60 million
Adjusted tax rate approx. 21%
Noncontrolling interest approx. $0.02
Adjusted EPS, excluding special gains and charges $1.49 to $1.57
Diluted shares approx. 293 million
 

Reported third quarter 2017 diluted earnings per share of $1.34 included
special gains and charges and discrete tax items. Excluding these items,
third quarter 2017 adjusted diluted earnings per share were $1.38.

About Ecolab

A trusted partner at nearly three million customer locations, Ecolab
(ECL) is the global leader in water, hygiene and energy technologies and
services that protect people and vital resources. With annual sales of
$14 billion and 48,000 associates, Ecolab delivers comprehensive
solutions, data-driven insights and on-site service to promote safe
food, maintain clean environments, optimize water and energy use, and
improve operational efficiencies for customers in the food, healthcare,
energy, hospitality and industrial markets in more than 170 countries
around the world. For more Ecolab news and information, visit www.ecolab.com.

Ecolab will host a live webcast to review the second quarter earnings
announcement and earnings guidance today at 1:00 p.m. Eastern Time. The
webcast, along with related materials, will be available to the public
on Ecolab's website at www.ecolab.com/investor.
A replay of the webcast and related materials will be available at that
site. Listening to the webcast requires Internet access, the Windows
Media Player or another compatible streaming media player.

Cautionary Statements Regarding Forward-Looking
Information

This communication contains certain statements relating to future events
and our intentions, beliefs, expectations and predictions for the future
which are forward-looking statements as that term is defined in the
Private Securities Litigation Reform Act of 1995. Words or phrases such
as "will likely result," "are expected to," "will continue," "is
anticipated," "we believe," "we expect," "estimate," "project," "may,"
"will," "intend," "plan," "believe," "target," "forecast" (including the
negative or variations thereof) or similar terminology used in
connection with any discussion of future plans, actions or events
generally identify forward-looking statements. These forward-looking
statements include, but are not limited to, statements regarding our
financial and business performance and prospects, including forecasted
2018 third quarter and full-year financial and business results,
including sales growth, adjusted gross margin, SG&A ratios to sales,
interest expense, adjusted tax rate, noncontrolling interest, adjusted
diluted earnings per share and diluted shares outstanding, volume,
pricing, delivered product costs, global economic environment,
investments in digital technology and information technology systems,
foreign currency, special gains and charges and quantifiable discrete
tax items; actions and impact associated with adoption of new accounting
standards and timing, amount and type of restructuring or efficiency
initiative costs and savings from restructuring or efficiency initiative
activities. These statements are based on the current expectations of
management of the company. There are a number of risks and uncertainties
that could cause actual results to differ materially from the
forward-looking statements included in this communication. In
particular, 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.

Additional risks and uncertainties that may affect operating results and
business performance are set forth under Item 1A of our most recent Form
10-K, and our other public filings with the Securities and Exchange
Commission (the "SEC") and include the vitality of the markets we serve,
including the impact of oil price fluctuations on the markets served by
our Global Energy segment; the impact of economic factors such as the
worldwide economy, capital flows, interest rates and foreign currency
risk, including reduced sales and earnings in other countries resulting
from the weakening of local currencies versus the U.S. dollar; our
ability to execute key business initiatives, including upgrades to our
information technology systems; potential information technology
infrastructure failures and cybersecurity attacks; our ability to
attract and retain high caliber management talent to lead our business;
exposure to global economic, political and legal risks related to our
international operations including trade sanctions; our ability to
develop competitive advantages through innovation and to commercialize
digital solutions; 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;
difficulty in procuring raw materials or fluctuations in raw material
costs; pressure on operations from consolidation of customers, vendors
or competitors; the occurrence of litigation or claims, including
related to the Deepwater Horizon oil spill; restraints on pricing
flexibility due to contractual obligations; our ability to acquire
complementary businesses and to effectively integrate such businesses;
changes in tax law and unanticipated tax liabilities; potential loss of
deferred tax assets or increase in deferred tax liabilities; our
substantial indebtedness; public health epidemics; potential losses
arising from the impairment of goodwill or other assets; potential
chemical spill or release; potential class action lawsuits; the loss or
insolvency of a major customer or distributor; acts of war or terrorism;
natural or man-made disasters; water shortages; severe weather
conditions; and other uncertainties or risks reported from time to time
in our reports to the SEC. In light of these risks, uncertainties,
assumptions and factors, the forward-looking events discussed in this
communication may not occur. We caution that undue reliance should not
be placed on forward-looking statements, which speak only as of the date
made. Ecolab does not undertake, and expressly disclaims, any duty to
update any forward-looking statement whether as a result of new
information, future events or changes in expectations, except as
required by law.

Non-GAAP Financial Information

This news release and certain of the accompanying tables include
financial measures that have not been calculated in accordance with
accounting principles generally accepted in the U.S. ("GAAP"). These
non-GAAP financial 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 fixed currency operating income
  • adjusted fixed currency operating income margin
  • acquisition adjusted fixed currency operating income
  • acquisition adjusted fixed currency operating income margin
  • adjusted tax rate
  • adjusted net income attributable to Ecolab
  • adjusted diluted earnings per share

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 adjusted financial measures for cost of sales, gross
margin, operating income and interest expense exclude the impact of
special (gains) and charges, and our non-GAAP measures for tax rate, net
income attributable to Ecolab and diluted earnings per share 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 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.

We evaluate the performance of our international operations based on
fixed currency rates of foreign exchange, which eliminate the
translation impact of exchange rate fluctuations on our international
results. Fixed currency amounts included in this release are based on
translation into U.S. dollars at the fixed foreign currency exchange
rates established by management at the beginning of 2018. We also
provide our segment results based on public currency rates for
informational purposes.

Acquisition adjusted growth rates exclude the results of any acquired
business from the first twelve months post acquisition and exclude the
results of divested businesses from the previous twelve months prior to
divestiture. Acquisition adjusted growth rates also exclude sales to our
Venezuelan deconsolidated subsidiaries from both the current period and
comparable period of the prior year.

These non-GAAP financial measures are not in accordance with, or an
alternative to, 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 GAAP measures included in this
news release. Reconciliations of our non-GAAP measures are included in
the following "Supplemental Non-GAAP Reconciliations" and "Supplemental
Diluted Earnings per Share Information" tables included in this news
release.

We do not provide reconciliations for non-GAAP estimates on a
forward-looking basis (including those contained in this report) when we
are unable to provide a meaningful or accurate calculation or estimation
of reconciling items and the information is not available without
unreasonable effort. This is due to the inherent difficulty of
forecasting the timing and amount of various items that have not yet
occurred, are out of our control and/or cannot be reasonably predicted,
and that would impact reported earnings per share and the reported tax
rate, the most directly comparable forward-looking GAAP financial
measures to adjusted earnings per share and the adjusted tax rate. For
the same reasons, we are unable to address the probable significance of
the unavailable information.

(ECL-E)

 
ECOLAB INC.
CONSOLIDATED STATEMENT OF INCOME

(unaudited)

 
    Second Quarter Ended         Six Months Ended    
June 30 % June 30 %
(millions, except per share) 2018     2017 Change 2018     2017 Change
 
Product and equipment sales $3,048.2 $2,847.2 $5,895.4 $5,445.0
Service and lease sales 641.4 612.8     1,265.1 1,177.4    
Net sales 3,689.6 3,460.0 7 % 7,160.5 6,622.4 8 %
Product and equipment cost of sales 1,751.9 1,660.0 3,448.5 3,157.3
Service and lease cost of sales 404.2 385.4     789.7 739.9    
Cost of sales (1) 2,156.1 2,045.4 5 % 4,238.2 3,897.2 9 %
Selling, general and administrative expenses 1,026.8 958.2 7 % 2,035.3 1,905.4 7 %
Special (gains) and charges (1) 12.1 36.8 (67) % 38.1 43.0 (11) %
Operating income 494.6 419.6 18 % 848.9 776.8 9 %
Other (income) expense (19.6) (16.8) 17 % (39.0) (33.6) 16 %
Interest expense, net 56.3 59.6 (6) % 112.7 122.1 (8) %
Income before income taxes 457.9 376.8 22 % 775.2 688.3 13 %
Provision for income taxes 104.3 80.5 30 % 173.4 134.7 29 %
Net income including noncontrolling interest 353.6 296.3 19 % 601.8 553.6 9 %
Net income attributable to noncontrolling interest 2.3 1.5     3.2 4.8    
Net income attributable to Ecolab $351.3 $294.8 19 % $598.6 $548.8 9 %
 
Earnings attributable to Ecolab per common share
Basic $1.22 $1.02 20 % $2.07 $1.89 10 %
Diluted $1.20 $1.00 20 % $2.04 $1.86 10 %
 
Weighted-average common shares outstanding
Basic 288.8 289.8 0 % 288.7 290.2 (1) %
Diluted 293.3 294.1 0 % 293.0 294.6 (1) %
 
 
(1) Special (gains) and charges in the Consolidated Statement of
Income above include the following:
 
Second Quarter Ended Six Months Ended
June 30 June 30
(millions) 2018 2017 2018 2017
 
Cost of sales
Restructuring activities 0.4 2.2 0.4 2.2
Acquisition and integration activities (0.5) 11.1 (0.5) 12.6
Other - 11.1 - 11.1
Subtotal (a) (0.1) 24.4 (0.1) 25.9
 
Special (gains) and charges
Restructuring activities 8.9 30.8 9.2 30.5
Acquisition and integration activities 1.8 4.6 2.3 10.9
Venezuela related gain - (5.3) - (5.3)
Other 1.4 6.7 26.6 6.9
Subtotal 12.1 36.8 38.1 43.0
         
Total special (gains) and charges $12.0 $61.2 $38.0 $68.9
(a)     Special (gains) and charges of ($0.1) million and $24.4 million in
the second quarter of 2018 and 2017, respectively and ($0.1) million
and $25.9 million for the first six months of 2018 and 2017,
respectively, were recorded in product and equipment cost of sales
 
 
ECOLAB INC.
REPORTABLE SEGMENT INFORMATION

(unaudited)

 
    Second Quarter Ended June 30
Fixed Currency Rates     Public Currency Rates
        %         %
(millions) 2018 2017 Change 2018 2017 Change
Net Sales
Global Industrial $1,348.4 $1,267.0 6 % $1,327.2 $1,208.7 10 %
Global Institutional 1,311.7 1,262.8 4 % 1,296.7 1,217.7 6 %
Global Energy 854.0 813.4 5 % 845.2 797.4 6 %
Other 222.3 242.2 (8) % 220.5 236.2 (7) %
Subtotal at fixed currency rates 3,736.4 3,585.4 4 % 3,689.6 3,460.0 7 %
Currency impact (46.8) (125.4) *   - - *  
Consolidated reported GAAP net sales $3,689.6 $3,460.0 7 % $3,689.6 $3,460.0 7 %
 
Operating Income
Global Industrial $173.1 $176.4 (2) % $170.3 $167.7 2 %
Global Institutional 252.0 257.1 (2) % 249.8 251.4 (1) %
Global Energy 91.4 72.1 27 % 90.0 69.7 29 %
Other 39.3 34.2 15 % 39.1 33.6 16 %
Corporate (54.9) (104.0) *   (54.6) (102.8) *  
Subtotal at fixed currency rates 500.9 435.8 15 % 494.6 419.6 18 %
Currency impact (6.3) (16.2) *   - - *  
Consolidated reported GAAP operating income $494.6 $419.6 18 % $494.6 $419.6 18 %
 
Six Months Ended June 30
Fixed Currency Rates Public Currency Rates
% %
(millions) 2018 2017 Change 2018 2017 Change
Net Sales
Global Industrial $2,589.8 $2,445.3 6 % $2,553.2 $2,322.9 10 %
Global Institutional 2,529.7 2,377.4 6 % 2,502.9 2,292.2 9 %
Global Energy 1,701.1 1,589.1 7 % 1,688.1 1,555.3 9 %
Other 419.7 464.0 (10) % 416.3 452.0 (8) %
Subtotal at fixed currency rates 7,240.3 6,875.8 5 % 7,160.5 6,622.4 8 %
Currency impact (79.8) (253.4) *   - - *  
Consolidated $7,160.5 $6,622.4 8 % $7,160.5 $6,622.4 8 %
 
Operating Income
Global Industrial $303.0 $312.0 (3) % $298.1 $293.2 2 %
Global Institutional 450.7 443.9 2 % 447.6 435.7 3 %
Global Energy 162.3 143.0 13 % 160.5 139.5 15 %
Other 66.4 61.3 8 % 66.1 60.6 9 %
Corporate (124.0) (154.7) *   (123.4) (152.2) *  
Subtotal at fixed currency rates 858.4 805.5 7 % 848.9 776.8 9 %
Currency impact (9.5) (28.7) *   - - *  
Consolidated $848.9 $776.8 9 % $848.9 $776.8 9 %
*     Not meaningful.

As shown in the "Fixed Currency Rates" tables above, we evaluate the
performance of our international operations based on fixed currency
exchange rates, which eliminate the impact of exchange rate fluctuations
on our international operations. Amounts shown in the "Public Currency
Rates" tables above reflect amounts translated at actual public average
rates of exchange prevailing during the corresponding period, and are
provided for informational purposes. The difference between the fixed
currency exchange rates and the public currency exchange rates is
reported as "Currency impact" in the "Fixed Currency Rates" tables above.

The Corporate segment includes amortization from the Nalco merger
intangible assets. The Corporate segment also includes special (gains)
and charges reported on the Consolidated Statement of Income.

 
ECOLAB INC.
CONSOLIDATED BALANCE SHEET

(unaudited)

 
    June 30     December 31     June 30
(millions) 2018 2017 2017
Assets
Current assets
Cash and cash equivalents $54.2 $211.4 $260.7
Accounts receivable, net 2,635.4 2,571.4 2,444.2
Inventories 1,557.6 1,446.5 1,470.4
Other current assets 360.7   365.0   354.8
Total current assets 4,607.9 4,594.3 4,530.1
 
Property, plant and equipment, net 3,758.7 3,707.1 3,497.4
Goodwill 7,190.9 7,167.1 7,003.8
Other intangible assets, net 3,909.8 4,017.6 4,061.6
Other assets 484.3   477.4   431.1
Total assets $19,951.6   $19,963.5   $19,524.0
 
Liabilities and Equity
Current liabilities
Short-term debt $874.5 $564.4 $1,770.6
Accounts payable 1,242.1 1,177.1 1,123.6
Compensation and benefits 477.7 549.4 445.4
Income taxes 44.6 183.6 53.0
Other current liabilities 984.9   1,000.7   968.0
Total current liabilities 3,623.8 3,475.2 4,360.6
 
Long-term debt 6,343.1 6,758.3 5,909.3
Postretirement health care and pension benefits 981.0 1,025.5 1,040.1
Deferred income taxes 688.3 635.4 1,018.9
Other liabilities 406.9   415.3   238.2
Total liabilities 12,043.1 12,309.7 12,567.1
 
Equity
Common stock 355.9 354.7 354.1
Additional paid-in capital 5,545.6 5,435.7 5,375.5
Retained earnings 8,329.9 8,011.6 7,281.4
Accumulated other comprehensive loss (1,592.7) (1,643.4) (1,644.5)
Treasury stock (4,789.2)   (4,575.0)   (4,478.6)
Total Ecolab shareholders' equity 7,849.5 7,583.6 6,887.9
Noncontrolling interest 59.0   70.2   69.0
Total equity 7,908.5   7,653.8   6,956.9
Total liabilities and equity $19,951.6   $19,963.5   $19,524.0
 
 
ECOLAB INC.
SUPPLEMENTAL NON-GAAP RECONCILIATIONS

(unaudited)

 
    Second Quarter Ended     Six Months Ended
June 30 June 30
(millions, except percent and per share) 2018     2017 2018     2017
 
Net sales
Reported GAAP net sales $3,689.6 $3,460.0 $7,160.5 $6,622.4
Effect of foreign currency translation 46.8   125.4   79.8   253.4  
Non-GAAP fixed currency sales 3,736.4 3,585.4 7,240.3 6,875.8
Effect of acquisitions and divestitures (37.8)   (63.2)   (115.1)   (116.2)  
Non-GAAP acquisition adjusted fixed currency sales $3,698.6   $3,522.2   $7,125.2   $6,759.6  
 
Cost of sales
Reported GAAP cost of sales $2,156.1 $2,045.4 $4,238.2 $3,897.2
Special (gains) and charges (0.1)   24.4   (0.1)   25.9  
Non-GAAP cost of sales $2,156.2   $2,021.0   $4,238.3   $3,871.3  
 
Gross margin
Reported GAAP gross margin 41.6 % 40.9 % 40.8 % 41.2 %
Non-GAAP adjusted gross margin 41.6 % 41.6 % 40.8 % 41.5 %
 
Operating income
Reported GAAP operating income $494.6 $419.6 $848.9 $776.8
Effect of foreign currency translation 6.3   16.2   9.5   28.7  
Non-GAAP fixed currency operating income 500.9 435.8 858.4 805.5
Special (gains) and charges 12.0   61.2   38.0   68.9  
Non-GAAP adjusted fixed currency operating income 512.9 497.0 896.4 874.4
Effect of acquisitions and divestitures (0.7)   (1.8)   (4.4)   (6.0)  
Non-GAAP acquisition adjusted fixed currency operating income $512.2   $495.2   $892.0   $868.4  
 
Operating income margin
Reported GAAP operating income margin 13.4 % 12.1 % 11.9 % 11.7 %
Non-GAAP adjusted fixed currency operating income margin 13.7 % 13.9 % 12.4 % 12.7 %
 
 
ECOLAB INC.
SUPPLEMENTAL NON-GAAP RECONCILIATIONS

(unaudited)

 
    Second Quarter Ended     Six Months Ended
June 30 June 30
(millions, except percent and per share) 2018     2017 2018     2017
 
Net Income Attributable to Ecolab
Reported GAAP net income attributable to Ecolab $351.3 $294.8 $598.6 $548.8
Special (gains) and charges, after tax 8.9 45.6 28.6 50.8
Discrete tax net expense (benefit) 12.1   (9.7)   12.0   (32.5)  
Non-GAAP adjusted net income attributable to Ecolab $372.3   $330.7   $639.2   $567.1  
 
Diluted Earnings per Share Attributable to Ecolab ("EPS")
Reported GAAP diluted EPS $1.20 $1.00 $2.04 $1.86
Special (gains) and charges, after tax 0.03 0.16 0.10 0.17
Discrete tax net expense (benefit) 0.04   (0.03)   0.04   (0.11)  
Non-GAAP adjusted diluted EPS $1.27   $1.12   $2.18   $1.92  
 
Provision for Income Taxes
Reported GAAP tax rate 22.8 % 21.4 % 22.4 % 19.6 %
Special gains and charges 0.1 0.6 0.1 0.6
Discrete tax items (2.6)   2.2   (1.5)   4.3  
Non-GAAP adjusted tax rate 20.3 % 24.2 % 21.0 % 24.5 %
 
 
ECOLAB INC.
SUPPLEMENTAL NON-GAAP RECONCILIATIONS

(unaudited)

 
    Second Quarter Ended June 30
2018     2017
    Impact of         Impact of    
Fixed

Acquisitions and

Acquisition Fixed

Acquisitions and

Acquisition
(millions) Currency Divestitures Adjusted Currency Divestitures Adjusted
Net Sales
Global Industrial $1,348.4 ($21.4) $1,327.0 $1,267.0 ($8.5) $1,258.5
Global Institutional 1,311.7 (5.2) 1,306.5 1,262.8 - 1,262.8
Global Energy 854.0 - 854.0 813.4 (8.7) 804.7
Other 222.3   (11.2)   211.1 242.2   (46.0)   196.2
Subtotal at fixed currency rates 3,736.4 (37.8) 3,698.6 3,585.4 (63.2) 3,522.2
Currency impact (46.8)   (125.4)  
Consolidated reported GAAP net sales $3,689.6   $3,460.0  
 
Operating Income
Global Industrial $173.1 ($0.9) $172.2 $176.4 ($0.1) $176.3
Global Institutional 252.0 0.2 252.2 257.1 - 257.1
Global Energy 91.4 0.8 92.2 72.1 (0.4) 71.7
Other 39.3 (0.8) 38.5 34.2 (1.3) 32.9
Corporate (42.9)   -   (42.9) (42.8)   -   (42.8)
Adjusted at fixed currency rates 512.9 (0.7) 512.2 497.0 (1.8) 495.2
Special (gains) and charges 12.0   61.2  
Reported OI at fixed currency rates 500.9 435.8
Currency impact (6.3)   (16.2)  
Consolidated reported GAAP operating income $494.6   $419.6  
 
Six Months Ended June 30
2018 2017
Impact of Impact of
Fixed Acquisitions and Acquisition Fixed Acquisitions and Acquisition
(millions) Currency Divestitures Adjusted Currency Divestitures Adjusted
Net Sales
Global Industrial $2,589.8 ($45.3) $2,544.5 $2,445.3 ($10.1) $2,435.2
Global Institutional 2,529.7 (50.2) 2,479.5 2,377.4 (0.1) 2,377.3
Global Energy 1,701.1 (0.3) 1,700.8 1,589.1 (13.9) 1575.2
Other 419.7   (19.3)   400.4 464.0   (92.1)   371.9
Subtotal at fixed currency rates 7,240.3 (115.1) 7,125.2 6,875.8 (116.2) 6,759.6
Currency impact (79.8)   (253.4)  
Consolidated reported GAAP net sales $7,160.5   $6,622.4  
 
Operating Income
Global Industrial $303.0 ($1.8) $301.2 $312.0 ($0.4) $311.6
Global Institutional 450.7 (3.4) 447.3 443.9 0.1 444.0
Global Energy 162.3 1.5 163.8 143.0 (1.1) 141.9
Other 66.4 (0.7) 65.7 61.3 (4.6) 56.7
Corporate (86.0)   -   (86.0) (85.8)   -   (85.8)
Adjusted at fixed currency rates 896.4 (4.4) 892.0 874.4 (6.0) 868.4
Special (gains) and charges 38.0   68.9  
Reported OI at fixed currency rates 858.4 805.5
Currency impact (9.5)   (28.7)  
Consolidated reported GAAP operating income $848.9   $776.8  

ECOLAB INC.
SUPPLEMENTAL DILUTED EARNINGS PER SHARE
INFORMATION

(unaudited)

The table below provides a reconciliation of diluted earnings per share,
as reported, to the non-GAAP measure of adjusted diluted earnings per
share.

                           
First Second Six Third Nine Fourth
Quarter Quarter Months Quarter Months Quarter Year
Ended Ended Ended Ended Ended Ended Ended
Mar. 31 June 30 June 30 Sept. 30 Sept. 30 Dec. 31 Dec. 31
2017 2017 2017 2017 2017 2017 2017
Diluted earnings per share, as reported (U.S. GAAP) $0.86 $1.00 $1.86 $1.34 $3.20 $1.92 $5.12
Adjustments:
Special (gains) and charges (1) 0.02 0.16 0.17 0.01 0.18 0.01 0.19
Discrete tax expense (benefits) (2) (0.08) (0.03)   (0.11) 0.03 (0.08) 0.54 (0.63)
Adjusted diluted earnings per share (Non-GAAP) $0.80 $1.12 $1.92 $1.38 $3.30 $1.38 $4.68
 
    First     Second     Six     Third     Nine     Fourth    
Quarter Quarter Months Quarter Months Quarter Year
Ended Ended Ended Ended Ended Ended Ended
Mar. 31 June 30 June 30 Sept. 30 Sept. 30 Dec. 31 Dec. 31
2018 2018 2018 2018 2018 2018 2018
Diluted earnings per share, as reported (U.S. GAAP) $0.84 $1.20 $2.04
Adjustments:
Special (gains) and charges (3) 0.07 0.03 0.10
Discrete tax expense (benefits) (4) 0.00 0.04 0.04        
Adjusted diluted earnings per share (Non-GAAP) $0.91 $1.27 $2.18        

Per share amounts do not necessarily sum due to changes in shares
outstanding and rounding.

(1) Special (gains) and charges for 2017 included acquisition and
integration costs of $5.3 million, $10.0 million, $1.4 million, and $1.8
million, net of tax, in the first, second, third and fourth quarters,
respectively. Special (gains) and charges for 2017 also included
restructuring gains of $0.2 million, and charges of $24.5 million, $1.7
million and $6.4 million, net of tax, in the first, second, third and
fourth quarters, respectively. Special (gains) and charges for 2017 also
included a gain of $3.3 million, $2.0 million and $1.9 million, net of
tax, during the second, third and fourth quarters, respectively, related
to the recovery of previously written off Venezuelan intercompany
receivables. Special (gains) and charges for 2017 also included charges
of $14.4 million, net of tax, related to a Global Energy vendor contract
termination and litigation charges in the second quarter, litigation
charges of $1.4 million, net of tax, in the third quarter, and $3.1
million, net of tax, primarily related to impairment of plant assets,
litigation charges and settlement in the fourth quarter. The fourth
quarter 2017 special (gains) and charges also included a gain on sale of
Equipment Care of $12.4 million, net of tax, and the charges on
exchanged and extinguished debt of $13.6 million, net of tax, which were
partially offset by tax benefits on the repatriation of cash to the U.S.
of $7.8 million, net of tax.

(2) Discrete tax expense (benefits) were primarily driven by $16.0
million, $10.8 million, $2.4 million and $10.4 million of tax benefits
associated with stock compensation excess tax benefits in the first,
second, third and fourth quarters, respectively. The remaining $6.8
million discrete tax benefits in the first quarter were driven primarily
by the release of reserves for uncertain tax positions due to the
expiration of statute of limitations in non-U.S. jurisdictions. The
second quarter 2017 discrete tax expense of $1.1 million was driven
primarily by the release of reserves for uncertain tax positions due to
the expiration of statute of limitations in non-U.S. jurisdictions. The
third quarter 2017 discrete tax expense of $10.7M was driven primarily
by recognizing adjustments from filing our 2016 U.S. federal income tax
return. The fourth quarter discrete tax benefits were driven primarily
by $319.0 million benefit for repricing of U.S. deferred tax positions
to the U.S. tax reform rate along with the stock compensation excess tax
benefits, partially offset by $160.1 million expense for the U.S. tax
reform one time repatriation tax on foreign earnings.

(3) Special (gains) and charges for 2018 primarily includes a commitment
to the Ecolab Foundation in first quarter of $18.9 million, net of tax.
Special (gains) and charges also include restructuring activities of
$0.3 million and $7.0 million, net of tax, in the first and second
quarter, respectively, acquisition and integration costs of $0.3 million
and $0.9 million, net of tax, in the first and second quarters,
respectively, and litigation and other charges of $0.3 million and $1.0
million, net of tax, in the first and second quarters, respectively.

(4) Discrete tax expense (benefits) were primarily driven by $6.8
million and $6.0 million of tax benefits associated with stock
compensation excess tax benefits in the first and second quarters,
respectively, adjustments to the estimate for the U.S. tax reform one
time repatriation tax expense of $11.3 million and $18.2 million in the
first and second quarters, respectively, and $4.6 million and $0.1M of
other tax benefits in the first and second quarters, respectively.

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