ANNUAL REPORT 2014
SOLUTIONS FOR THE WORLD’S BIGGEST CHALLENGES DRIVING RESULTS THROUGH
TECHNOLOGY
AND EXPERTISE.
ECOLAB OVERVIEW
A TRUSTED PARTNER AT MORE THAN 1 MILLION CUSTOMER LOCATIONS, ECOLAB IS THE
ECOLAB STOCK PERFORMANCE
GLOBAL LEADER IN WATER, HYGIENE AND ENERGY TECHNOLOGIES AND SERVICES THAT
PROTECT PEOPLE AND VITAL RESOURCES.
From restaurants and hotels to refineries and manufacturing facilities, Ecolab’s
47,000 associates work to deliver comprehensive solutions, expertise 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.
Ecolab’s 25,000 sales-and-service associates comprise the industry’s largest and
best-trained direct sales-and-service force, dedicated to helping customers manage
their cleaning, sanitizing or water and energy management challenges.
Headquartered in St. Paul, Minn., Ecolab common stock is listed and traded on the
New York Stock Exchange under the symbol ECL. For more company information,
visit www.ecolab.com or call 1.800.2.ECOLAB. Follow us on Twitter @ecolab or
Facebook at facebook.com/ecolab.
FORWARD-LOOKING STATEMENTS AND RISK FACTORS
We refer readers to the company’s disclosure entitled “Forward-Looking Statements
and Risk Factors,” which is located on page 30 of this Annual Report.
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1ST
2ND
3RD
4TH
1ST
2ND
3RD
4TH
1ST
2ND
3RD
4TH
1ST
2ND
3RD
4TH
BUSINESS MIX 2014
PERCENT OF TOTAL SALES
SALES BY REGION 2014
PERCENT OF TOTAL SALES
5%
OTHER
GLOBAL
ENERGY
30%
35%
GLOBAL
INDUSTRIAL
8%
ASIA
PACIFIC
12%
EUROPE,
MIDDLE EAST
AND AFRICA
24%
2014
$97.65
$111.83
101.82
107.31
101.26
111.57
118.46
115.39
2013
$71.99
$80.69
78.74
85.48
96.44
89.47
99.45
108.34
2012
$57.44
$62.86
59.81
61.66
63.42
2011
$46.80
49.97
43.81
47.27
LOW
68.55
68.96
72.79
$51.08
56.45
57.19
58.13
HIGH
LATIN
AMERICA
30%
GLOBAL
INSTITUTIONAL
56%
NORTH
AMERICA
2 ECOLAB ANNUAL REPORT 2014
SUMMARY
MILLIONS, EXCEPT PER SHARE
2014
2013
2012
2014
2013
PERCENT CHANGE
Net Sales
$14,280.5
$13,253.4
$11,838.7
8%
12%
Net Income Attributable to Ecolab
1,202.8
967.8
703.6
24
38
Percent of Sales
8.4 %
7.3 %
5.9 %
Diluted Net Income Attributable to
Ecolab per Common Share
Adjusted Diluted Net Income Attributable
to Ecolab per Common Share
(non-GAAP measure)
Diluted Weighted-Average Common
Shares Outstanding
Cash Dividends Declared per
Common Share
Cash Provided by Operating Activities
Capital Expenditures
3.93
4.18
3.16
2.35
24
3.54
2.98
18
305.9
305.9
298.9
1.1550
1,815.6
748.7
0.9650
1,559.8
625.1
0.8300
1,203.0
574.5
-
20
16
20
-
34
19
2
16
30
9
21
Ecolab Shareholders’ Equity
7,315.9
7,344.3
6,077.0
Return on Total Beginning Equity
16.5 %
15.8 %
12.2 %
Total Debt
6,569.4
6,904.5
6,541.9
(5)
6
Total Debt to Capitalization
47.1 %
48.2 %
51.5 %
Total Assets
$19,466.7
$19,636.5
$17,572.3
(1)%
12%
ECOLAB STOCK PERFORMANCE AND COMPARISON
I
E
C
R
P
K
C
O
T
S
B
A
L
O
C
E
$120
$110
$100
$90
$80
$70
$60
$50
2.10
1.90
1.70
1.50
1.30
1.10
0.90
S
E
C
D
N
I
I
0
0
5
P
&
S
,
B
A
L
O
C
E
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
2012
2013
2014
ECOLAB STOCK PRICE
ECOLAB
S&P 500
NET SALES
MILLIONS
2014
2013
2012
201 1
2010
$14,281
$13,253
$11,839
$6,799
$6,090
NET INCOME ATTRIBUTABLE TO ECOLAB
MILLIONS
2014
2013
2012
201 1
2010
$1,203
$968
$704
$463
$530
DILUTED NET INCOME ATTRIBUTABLE
TO ECOLAB PER SHARE
DOLLARS
2014
$3.93
2013
$3.16
2012
$2.35
201 1
$1.91
2010
$2.23
REPORTED
$4.18
$3.54
$2.98
$2.54
$2.23
ADJUSTED
(non-GAAP measure)*
DIVIDENDS DECLARED PER SHARE
DOLLARS
2014
2013
2012
201 1
2010
$1.155
$0.965
$0.830
$0.725
$0.640
* This Annual Report includes certain non-GAAP
financial measures. We refer readers to
the company’s disclosure entitled “Non-GAAP
Financial Measures,” which is located on
pages 29–30 of this Annual Report.
ECOLAB ANNUAL REPORT 2014 3
IF ANY YEAR PROVES THE VALUE
OF WHAT ECOLAB OFFERS, 2014 DID.
A LETTER FROM ECOLAB’S CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Brazil and much of Europe. We succeeded by staying focused
on serving our customers. Our model links our technology and
service expertise with training and information to solve problems
in a comprehensive and cost effective way. Our ongoing ability to
deliver the best results at the lowest total cost to the customer,
and reduce their labor, energy, waste and water use, continues to
make us a valuable partner.
We had very good performance across the metrics that matter
the most to us. We had strong sales, margin improvement, cost
efficiencies, capital returns and earnings growth, as well as
very good results in safety, business integration, innovation,
infrastructure efficiencies and talent development.
OUR ONGOING ABILITY TO DELIVER THE BEST
RESULTS AT THE LOWEST TOTAL COST TO THE
CUSTOMER, AND REDUCE THEIR LABOR, ENERGY,
WASTE AND WATER USE, CONTINUES TO MAKE
US A VALUABLE PARTNER.
DOING MORE FOR OUR CUSTOMERS
Throughout our company, we increasingly operated as One Ecolab,
leveraging the talent, insights, capabilities and innovation within
our businesses to do more for our customers. When we acquired
Nalco, we gained 3D TRASAR™, innovative technology that
continuously monitors to detect water quality issues, enabling
our customers to use water more efficiently and dramatically
reduce their water footprints. Last year, we combined 3D TRASAR
with our clean-in-place expertise to improve our offering to
food and beverage producers. This enables better cleaning and
increased production capacity while reducing water and energy
consumption. We also added solid chemistry to 3D TRASAR
for increased safety and sustainability benefits in our
institutional markets.
If any year proves the value of what Ecolab offers, 2014 did. Our
ability to help ensure clean water, safe food, abundant energy and
healthy environments has only become more relevant in a world
where concerns about water and energy availability, environmental
sustainability and public health are increasing.
Once again, our team made the difference. They were a powerful
and positive force behind the scenes in every industry we serve,
in every region in the world, partnering with our customers to
solve their most pressing challenges. Through the dedication of all
Ecolab associates, our company achieved outstanding results in
2014. We won significant new business, had a record year for new
product launches and accelerated sales. As a result, we leave 2014
with solid momentum.
STRONG PERFORMANCE IN 2014
Net sales of $14.3 billion were up 8 percent and adjusted earnings
per share rose 18 percent to $4.18 (reported diluted earnings per
share were up 24 percent to $3.93). Excluding acquisitions, sales
grew by 5 percent.
We achieved these results while managing in an uneven world,
moving ahead through a seemingly record number of major
geopolitical events and softness in key markets such as China,
4 ECOLAB ANNUAL REPORT 2014
UP
8%
NET SALES
$14.3
BILLION
ADJUSTED
DILUTED EARNINGS
PER SHARE
$4.18
UP
18%
Doing more with less has become essential in our times. Nowhere
is that more true than with water. Fresh water is increasingly
scarce and projections show demand significantly outstripping
supply in the years to come. Our core strength in helping
our customers reduce, reuse and recycle water is becoming
increasingly important. We are working hard to reduce the amount
of water used in every aspect of our customers’ operations (as well
as our own) and we see strong interest in water-saving solutions
across the board. Water stewardship continues to be a guiding
principle in our research and development work.
Because of the investments we’ve made in accelerating our
business, strengthening our capabilities and increasing our
efficiencies, we enter 2015 in a good position, with significant
opportunity in every market we serve. Our business is balanced
by geography, by market and by customer segment. This business
balance will be especially important as we move into 2015, which
like all years, presents its own set of challenges. This year, the
primary external factors that will impact our company are the
sharp decline in oil prices and the sharp increase in the value of
the U.S. dollar.
WE ENTER 2015 IN A GOOD POSITION, WITH
SIGNIFICANT OPPORTUNITY IN EVERY MARKET
WE SERVE.
PREPARED FOR 2015 CHALLENGES
Lower oil prices have both positive and negative effects for us,
and the ultimate impact on our business will be manageable.
On the downside, we expect slower growth in our Global Energy
segment. On the upside, many of the raw materials we buy will be
less expensive, which will reduce our product, transportation and
distribution costs. Consumers will have more money to spend, and
a healthier consumer economy creates more demand for many
of our products and services, particularly in the foodservice and
hospitality sectors.
The strong dollar presents a challenge because it will negatively
impact translation of our non-U.S. business results. Since we
principally produce where we sell, it does not create a competitive
challenge. However, it will likely have a real impact as we translate
profits, and we are working to offset that through a continued focus
on cost effectiveness everywhere we compete. We are confident
we will manage the year effectively and achieve another year of
superior growth.
Importantly, we will accomplish this while continuing to invest in the
foundations for future growth, including improving the information
systems that support our business teams, developing more robust
innovation pipelines, implementing a more efficient and effective
supply chain, developing our talent and continuing to build a safety
culture. We continue to take the long view as we chart our course.
Ecolab has a great track record of performance. That track record
comes from remembering that our job is to manage both for today
and for the future. Our ability to provide our customers with the
right technology and the right service while also enhancing our
capabilities for the future may not seem like a complicated formula,
but it is a successful one. And it is one we plan to continue to follow,
because we believe it is the best way of ensuring we remain a
company that our customers, our team, our shareholders and our
communities can count on, today and in the years to come.
Sincerely,
Douglas M. Baker, Jr.
Chairman and Chief Executive Officer
ECOLAB ANNUAL REPORT 2014 5
LEVERAGING THE ECOLAB
ADVANTAGE
Ecolab delivers industry-leading solutions and expertise to customers in every market we serve. Our technologies
help ensure safe food, prevent infection, improve water and energy management, increase operational efficiency
and preserve and protect natural resources.
Throughout 2014, we continued to expand our ability to serve customers as One Ecolab, leveraging the
capabilities, expertise and technology throughout our entire enterprise to meet more of our customers’ needs.
No company can match the depth of our knowledge and the breadth of solutions and service we provide. This is
the Ecolab advantage.
We are applying solutions from multiple Ecolab business segments in new ways and in new markets to better
serve customers. For example, we combined 3D TRASAR technology, developed by Nalco, with solid chemistry
technology from our Institutional business to improve on-site safety and sustainability. We also introduced
antimicrobial solutions from our Food & Beverage business to our Global Energy customers to treat water and
better protect equipment.
Our successes demonstrate the power of the Ecolab advantage and our enterprise value proposition.
Customers are realizing the benefits of our combined portfolio of solutions and expertise to help solve their
operational challenges.
INNOVATION
SPOTLIGHT
3D TRASARTM SOLID COOLING WATER PROGRAM
3D TRASARTM TECHNOLOGY FOR CIP
Nalco expanded its industry-leading 3D TRASAR
technology with the introduction of the 3D TRASAR
Solid Cooling Water Program for commercial buildings,
hotels, hospitals and educational facilities. The program
continuously monitors building cooling water systems
to detect water quality issues in real time and dispense
appropriate chemistry to optimize system performance,
reduce water and energy use and protect assets. The
combination of Ecolab’s solid chemistry technology
and innovative dispensing equipment with 3D TRASAR
technology improves on-site safety and provides
additional sustainability benefits.
For the food and beverage processing industry, we
launched 3D TRASAR technology for Clean-In-Place
(CIP) processes, which are critical to ensuring clean
and safe processing equipment. The technology offers
a constant CIP optimization program that utilizes
advanced sensors to monitor traced chemistry in
CIP systems and provide more in-depth visibility to
operational issues. The technology detects CIP system
variances, and Ecolab experts work with customers to
determine the corrective actions needed to improve
operational efficiency, enhance productivity and help
ensure safe food.
6 ECOLAB ANNUAL REPORT 2014
ADVANCING OUR COMMITMENT TO
INNOVATION
Ecolab’s commitment to innovation fuels our long-term growth and results in a broad range of solutions that
meet our customers’ operational and sustainability challenges. With 19 innovation and technical support facilities,
1,600 Research, Development and Engineering (RD&E) associates throughout the world and more than 6,700
patents, we develop high-performing solutions and technologies that provide value to our customers.
In 2014, we generated a record innovation pipeline, representing our sixth consecutive year of double-digit
innovation pipeline growth. We launched more new products than ever before — solutions that will help our
customers drive operational efficiency, product quality, safety and compliance while minimizing environmental
impact. We forecast the 2014 innovation pipeline will deliver $1 billion in new revenue in five years.
Our key RD&E focus areas include antimicrobial solutions for improving food safety and hygiene in a diverse range
of end-use markets, from food production and foodservice to hospitals; improving water quality and water reuse
to enable production efficiencies and asset integrity in a number of energy and industrial markets; leveraging
application and formulation expertise to enable energy production globally; and integrating chemistry, dispensing
and data analytics to optimize our program performance within customer locations.
INNOVATION
SPOTLIGHT
APEXTM WAREWASHING SYSTEM
RENEWIQTM OILFIELD WATER REUSE SOLUTIONS
The Apex warewashing system was launched in
Europe to provide restaurants, caterers and other
foodservice operators with excellent warewashing
results while reducing total operational costs. Apex
monitors critical warewashing in real time, allowing
users to better understand critical processes and
improve cleaning results while reducing water, energy
use and waste. Apex uses a unique combination of
products, equipment and consultative services to
address the operational challenges in foodservice
warewashing. The system’s solid detergent technology
reduces packaging by 95 percent compared to
traditional liquid detergents and helps to improve
operational safety.
Nalco Champion launched the RenewIQ line of oilfield
water reuse solutions to help operators reduce
freshwater consumption and associated handling
costs, from sourcing to disposal. This comprehensive
lifecycle program effectively cleans contaminants
across a wide range of applications and challenges,
including freshwater pretreatment, wellbore treatment
and flowback and produced water cleanup or reuse.
Built on an oxidation technology platform, the
RenewIQ solution is an effective, faster-acting, more
environmentally sustainable alternative to traditional
nonoxidizing biocides. Once their useful life is
complete, RenewIQ solution oxidizers degrade into
environmentally sustainable byproducts, including
vinegar and water, after treatment.
ECOLAB ANNUAL REPORT 2014 7
EXPANDING OUR CAPABILITIES
AND GROWING OUR BUSINESS
2014 BUSINESS HIGHLIGHTS
We opened our new European Innovation
Center in Monheim, Germany. One of six
innovation centers worldwide, it serves as
the company’s European RD&E hub. The
state-of-the-art facility houses a Technical
Center and a Customer Experience
Center, enabling customers to see and
understand the wide range of solutions
we provide.
We acquired a leading provider
of chemistry solutions for the
coal industry. With 2013 sales of
approximately $21 million, the business
expands our product portfolio targeting
the needs of the North American
coal industry.
We acquired a dairy hygiene chemical
business that provides cleaning and
sanitizing products for use on dairy farms
in the United States and Canada. With
2013 sales of approximately $25 million,
the acquisition strengthens the offerings
of our Food & Beverage business.
2014
2015
JANUARY FEBRUARY MARCH APRIL MAY JUNE JULY AUGUST SEPTEMBER OCTOBER NOVEMBER DECEMBER JANUARY FEBRUARY
We acquired one of Germany’s leading
commercial pest elimination service
providers. The transaction expanded our
footprint in Europe and further positioned
us as a global leader in commercial pest
elimination services.
Nalco Champion opened a new
manufacturing plant on Jurong Island,
Singapore. The 1,141,000-square-foot site
provides chemistry solutions for oil and
gas companies in the Eastern Hemisphere
and supports the continued growth of our
Global Energy segment.
The board of directors appointed
Tracy B. McKibben to the Ecolab board.
Ms. McKibben is founder and president of
MAC Energy Advisors LLC, a consulting
company that assists clients on alternative
energy and clean technology investments
and strategic opportunities. Prior to
founding MAC Energy Advisors,
Ms. McKibben served as managing director
and head of Environmental Banking
Strategy for Citigroup Global Markets.
8 ECOLAB ANNUAL REPORT 2014
DELIVERING STRONG
FINANCIAL PERFORMANCE
The Ecolab team delivered a very strong financial performance in 2014. We
aggressively expanded current customer relationships and won new business,
continued to implement effective strategies to drive sales and earnings growth,
and offset increased raw material costs and softness in several of our markets.
2014 FINANCIAL HIGHLIGHTS
We introduced an impressive lineup of new products, delivering innovative solutions that provide additional operational efficiencies, cost
savings and sustainability benefits for customers. We continued to improve our cost efficiency and productivity. We neared completion of our
work to integrate the Nalco and Champion businesses, and stayed on track to realize our growth and cost synergies. These actions combined
to further strengthen our current and future ability to deliver results for customers and our shareholders.
UP
8%
NET SALES
$14.3
BILLION
REPORTED DILUTED
EARNINGS
$3.93
PER SHARE
UP
24%
QUARTERLY CASH
DIVIDEND RATE
$1.32
PER COMMON SHARE
UP
20%
Reported net sales rose 8 percent to
$14.3 billion in 2014. When measured in
fixed currency rates, 2014 sales increased
9 percent compared to 2013 sales.
REPORTED
OPERATING INCOME
$2.0
BILLION
UP
25%
Reported operating income was
$2.0 billion in 2014, an increase of
25 percent. Excluding special gains and
charges and when measured in fixed
currency rates, 2014 adjusted fixed
currency operating income increased
17 percent over 2013 operating income.
Growth was driven largely by sales volume
and net pricing gains, net cost savings,
Nalco and Champion merger synergies,
and the net impact of acquisitions.
Reported diluted earnings per share (EPS)
were $3.93, an increase of 24 percent from
2013‘s reported EPS of $3.16. Amounts
for both 2014 and 2013 include special
gains and charges and discrete tax items.
Excluding these items, adjusted diluted
EPS increased 18 percent to $4.18 in 2014
compared to adjusted diluted EPS of
$3.54 in 2013.
CASH FLOW
FROM OPERATIONS
$1.8
BILLION
TOTAL DEBT
TO TOTAL
CAPITALIZATION
RATIO
47%
Cash flow from operations was $1.8 billion.
Total debt to total capitalization ratio was
47 percent, with our net debt equal to 2.2
times our EBITDA (earnings before interest,
taxes, depreciation and amortization). Our
debt rating remained within the investment
grade categories of the major rating
agencies during 2014.
We increased our quarterly cash dividend
rate, raising it 20 percent in December 2014
to an indicated annual payout of $1.32 per
common share. This represents Ecolab’s
23rd consecutive annual dividend rate
increase. We have paid a cash dividend
for 78 consecutive years.
UP
0.2%
SHARE PRICE
$104.52
Following 10 consecutive years in which our
shares outperformed the Standard & Poor’s
(S&P) 500, rising 198 percent over that
period compared with the S&P’s 70 percent
gain, Ecolab shares took a pause in 2014.
Our share price rose modestly in 2014,
+0.2 percent, compared with an 11 percent
increase by the S&P 500 index. Our
share performance has exceeded the
S&P 500 in 20 of the past 24 years, rising
3,835 percent compared with the S&P
500’s 524 percent increase.
ECOLAB ANNUAL REPORT 2014 9
AWARDS AND RECOGNITION
During 2014, Ecolab received recognition for innovation, service,
social responsibility and sustainability, including:
• Ecolab ranked second in the Barron’s 500, a ranking of the
500 largest publicly traded companies in the U.S. and Canada
that have made the most of their assets in recent years and
recorded a superior operating performance.
• Newsweek ranked Ecolab fourth on the U.S. 500 list
and sixth on the Global 500 list of the World’s Greenest
Companies. These rankings are based on an evaluation of the
environmental performance of the 500 largest publicly traded
companies globally (Global 500) and the 500 largest publicly
traded companies in the United States (U.S. 500).
• For the fourth consecutive year, Ecolab was named to
Forbes’ list of the World’s Most Innovative Companies.
Ecolab ranked 78th out of 100 companies.
• CR Magazine named Ecolab Chairman and CEO
Douglas M. Baker, Jr., a recipient of the 2014 Responsible
CEO of the Year award. The recognition honored Baker’s
leadership and vision behind the company’s commitment to
helping customers address the world’s most critical business
and environmental challenges.
• Ecolab was again named to the FTSE4Good Index for meeting
their globally recognized corporate social responsibility standards
related to environmental, social and governance practices.
• Ecolab was named to Corporate Knights Global 100 Index
of Most Sustainable Companies, an index of the top overall
sustainability performers in industrial sectors.
• Ecolab was one of only 10 organizations in 2014 to receive
the U.S. EPA’s Climate Leadership Award for Excellence in
Greenhouse Gas Management, which recognizes organizations
that publicly report and verify organization-wide greenhouse gas
inventories and achieve publicly set aggressive greenhouse gas
emissions reduction goals.
• For the eighth consecutive year, Ecolab was named to
Ethisphere Institute’s list of the World’s Most Ethical
Companies. The Ethisphere Institute is a leading international
organization dedicated to the creation, advancement and
sharing of best practices in business ethics, governance,
anti-corruption and sustainability.
• Ecolab ranked seventh in CR Magazine’s ranking of the
100 Best Corporate Citizens. The rankings are based on
disclosure, policies and performance across the following
categories: climate change, employee relations, environmental,
financial, governance, human rights and philanthropy.
• For the second consecutive year, Chief Executive Magazine
ranked Ecolab as one of the 40 Best Companies for
Leaders. The rankings are based on five criteria related to an
organization’s leadership development programs.
• In February 2015, Ecolab was named to Fortune’s 2015 list
of the World’s Most Admired Companies, ranking second in the
chemicals industry.
10 ECOLAB ANNUAL REPORT 2014
IN 2014, WE HELPED CUSTOMERS...
WASH MORE
THAN
31
BILLION
HANDS
CLEAN DAIRY
OPERATIONS TO
HELP PROCESS
330
BILLION
GLASSES
OF MILK
SOLVING GLOBAL CHALLENGES
SUSTAINABLY
Ecolab is committed to protecting people and vital resources, and helping
customers meet their business goals, sustainably.
Sustainability is core to our purpose at Ecolab and an integral part of our
business strategy. We help deliver solutions that make the world cleaner, safer
and healthier by partnering with customers at more than 1 million customer
locations around the world to tackle some of the world’s most pressing and
complex business and environmental challenges. Fundamental to our approach is
an understanding that real and lasting change is accelerated when economic and
environmental benefits align.
As the global population grows and our climate changes, demand for food, fresh
water and energy will continue to grow, and protection against infectious disease
will remain critical. We understand the complexities of this nexus, and we are
uniquely positioned to solve these challenges. Our solutions and services:
• Conserve water and optimize water quality
PROCESS
1.2
BILLION LOADS
OF LAUNDRY
• Save energy by enabling more efficient operations, or help ensure
more energy by maximizing oil and gas production
• Manage greenhouse gas emissions and improve indoor and outdoor
SUSTAINABLY
MANAGE WATER ON
100
OFFSHORE
PLATFORMS
WASH MORE
THAN
146
BILLION
PLATES
MANAGE
14
TRILLION
LITERS OF
WATER
air quality
• Help keep waste out of landfills
All industries will need to seek ways to do more with fewer natural resources
if both business and communities are going to prosper for the long term.
Transformational changes in how water is valued and managed are essential. To
help advance the innovations and investments required to reduce global water
use, we introduced the Water Risk Monetizer (www.waterriskmonetizer.com),
industry’s first water scarcity financial modeling tool available to all water users
at no cost.
Developed in partnership with Trucost, the global leader in valuing natural
capital, the Water Risk Monetizer determines a risk-adjusted price for water by
facility. It enables businesses to factor the potential impact of water risks into
decisions in the same way other risks are considered in planning and capital
allocation. The Water Risk Monetizer enables companies to make the business
case for investing in water management, reducing global fresh water use and
increasing demand for water-related innovation.
In 2014, we continued to align operational data and information from across our
company to better understand our impact. We also launched new sustainability
goals, continuing our commitment to strong environmental stewardship and
continuous improvement. We aim to achieve a 25 percent reduction in effluent
discharge and waste, a 20 percent reduction in water use and a 10 percent
reduction in greenhouse gas emissions by 2017 from a 2012 baseline.
While we are committed to running our own operations sustainably, we know our
biggest impact is through our work with our customers, helping them to meet
their sustainability goals.
PROTECTING PEOPLE AND VITAL RESOURCES
ECOLAB ANNUAL REPORT 2014 11
GLOBAL INDUSTRIAL
Provides water treatment and process applications, and cleaning and sanitizing
solutions primarily to large industrial customers within the manufacturing,
food and beverage processing, chemical, mining and primary metals, power
generation, pulp and paper, and commercial laundry industries. Operating units
within the Global Industrial reportable segment include Water, Food & Beverage,
Paper and Textile Care.
Operating under the Nalco name, the Water operating unit provides water
treatment products and programs to a wide range of industries for cooling water,
boiler water, process water and waste water applications. Food & Beverage
provides cleaners, sanitizers, antimicrobial solutions, lubricants, cleaning
systems, dispensers and chemical injectors, and animal health products
to dairy plants, dairy farms, breweries, soft-drink bottling plants, and
meat, poultry and other food processors. Paper provides water and
process applications for the pulp and paper industries, and Textile
Care provides wash process solutions for large-scale commercial
operations including uniform and linen rental, hospitality and
healthcare laundries.
GLOBAL INSTITUTIONAL
Provides specialized cleaning and sanitizing products to the
foodservice, hospitality, lodging, healthcare, government, education
and retail industries. Operating units within the Global Institutional
segment include Institutional, Specialty and Healthcare. The
Institutional operating unit provides specialized cleaners, sanitizers
and equipment for warewashing, on-premise laundries and general
food safety and housekeeping functions. Specialty supplies cleaning
and sanitizing products to quick service restaurants and food
retailers. Healthcare provides infection prevention and other offerings
to acute care hospitals and surgery centers.
GLOBAL ENERGY
Operating under the Nalco Champion name, serves the process chemical and
water treatment needs of the global petroleum and petrochemical industries
in both upstream and downstream applications. Global Energy is divided into an
Upstream group composed of the Wellchem and oilfield chemicals businesses,
and a Downstream group comprising the refinery and petrochemical processing
businesses. Global Energy provides a full range of process and water treatment
offerings to enhance customers’ production, asset integrity, recovery rates and
environmental compliance. Nalco Champion customers comprise nearly all of the
supermajor, major, independent and national oil companies.
OTHER
Provides pest elimination and kitchen equipment repair and maintenance through
the Pest Elimination and Equipment Care operating units. Pest Elimination
provides services designed to detect, eliminate and prevent pests in restaurants,
food and beverage processing plants, educational and healthcare facilities, hotels,
quick service restaurant and grocery operations, and other customers. Equipment
Care provides equipment repair, maintenance and preventive maintenance
services for the U.S. commercial foodservice industry.
SEGMENTS
Ecolab pursues a “Circle the
Customer – Circle the Globe”
strategy by providing a wide range
of innovative cleaning, sanitizing
and water and energy management
solutions and services designed to
meet the specific needs of customer
operations around the world. Through
this strategy and our varied product
and service mix, customers often
utilize the products or services of
several of our reportable segments.
12 ECOLAB ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION & ANALYSIS
The following management discussion and analysis (“MD&A”)
provides information that management believes is useful in
understanding the operating results, cash flows and financial
condition of Ecolab Inc. (“Ecolab”, “the company”, “we” or “our”).
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
level, and the quantitative impact of acquisitions and changes in
foreign currency at the 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 discussion should be read in conjunction with the consolidated
financial information and related notes included in this Annual
Report. Our consolidated financial statements are prepared in
accordance with accounting principles generally accepted in the
United States of America (“U.S. GAAP”). This discussion contains
various “Non-GAAP Financial Measures” and various “Forward-
Looking Statements” within the meaning of the Private Securities
Litigation Reform Act of 1995. We refer readers to the statements
and information set forth in the sections entitled Non-GAAP
Financial Measures and Forward-Looking Statements and Risk
Factors found on pages 29 and 30.
Comparability of Results
Statement of Income Data
Effective in the first quarter of 2014, certain employee-related
costs from our recently acquired businesses that were historically
presented within cost of sales (“COS”) were revised and reclassified
to selling, general and administrative expenses (“SG&A”) on the
Consolidated Statement of Income. These immaterial revisions were
made to conform with management’s view of the respective costs
within the global organizational model. Total costs reclassified were
$78.9 million and $98.1 million for the years ended December 31,
2013 and 2012, respectively.
Results for 2013 and 2012 have been revised to conform to the
current year presentation. The reclassification had no impact on
earnings, financial position or cash flows.
Reportable Segments and Operating Units
Effective in the first quarter of 2014, we made immaterial changes
to our reportable segments, including the movement of certain
customers between reportable segments, reflecting our continued
integration of businesses and consistency across our global markets
and customers. In addition, we made immaterial changes to the
way we measure and report segment operating income by updating
the internal allocations of certain supply chain and SG&A expenses
related to our centralized functions.
Segment results for 2013 and 2012 have been revised to conform to
the current year presentation. The changes had no impact on our
total reported net sales or total reported operating income.
Beginning in the first quarter of 2014, the term “Global” has been
removed from the description of our operating units. This change
had no impact on the underlying structure of the respective
operating units.
Fixed Currency Foreign Exchange Rates
We evaluate the sales and operating income performance of our
international operations based on fixed currency exchange rates,
which eliminate the impact of exchange rate fluctuations on our
international operations. Fixed currency amounts are updated
annually at the beginning of each year based on translation into
U.S. dollars at foreign currency exchange rates established by
management, with all periods presented using such rates. Fixed
currency exchange rates are generally based on existing market
rates at the time they are established.
Impact of Acquisitions and Divestitures
On April 10, 2013, we completed our acquisition of privately
held Champion Technologies and its related company Corsicana
Technologies (collectively “Champion”). The Champion business
became part of our Global Energy reportable segment in the second
quarter of 2013. The pro forma impact of the Champion acquisition
was not material to our consolidated financial statements; therefore,
pro forma information is not presented.
Our historical practice for providing growth rates adjusted for
immaterial acquisitions and divestitures has generally been to
exclude the results of the acquired business from the first twelve
months post acquisition and exclude the results of the divested
business from the twelve months prior to divestiture, thus allowing
for a more meaningful period-over-period comparison. Presentation
of acquisition adjusted growth rates, with the exception of the
Champion transaction, continues to be handled in such a way.
Specific to the Champion transaction, due to the rapid pace at
which the business has been integrated within our Global Energy
segment, including all customer selling activity, discrete financial
data specific to the legacy Champion business is no longer
available for post-acquisition periods. As such, to allow for the
most meaningful period-over-period comparison, specific to the
Champion transaction, Champion’s results for 2012 and the period
prior to acquisition in 2013 have been included for purposes of
providing acquisition adjusted growth rates. Throughout this MD&A,
reference to “acquisition adjusted” growth rates follows the above
methodology.
EXECUTIVE SUMMARY
Ecolab delivered a strong year in 2014, as solid sales growth and
adjusted operating income margin expansion produced an 18%
adjusted earnings per share gain.
Our solid acquisition adjusted fixed currency sales growth was the
result of our continued focus on innovative products and programs
to help customers obtain better results with lower total costs.
Through these, we drove new account gains across our segments.
We also continued to implement appropriate price increases to
help offset higher delivered product costs and investments in
our business, and we leveraged cost efficiencies and acquisition
synergies to deliver margin expansion and yield the adjusted
earnings per share gain.
Through these focused actions, we once again delivered outstanding
operating results for our shareholders in 2014 while continuing to build
our future opportunities. Our performance underscored the strength
and long-term potential of our business, our people and our strategies.
ECOLAB ANNUAL REPORT 2014 13
Sales: Reported sales increased 8% to $14.3 billion in 2014 from
$13.3 billion in 2013. Sales were negatively impacted by unfavorable
foreign currency exchange rates compared to the prior year. When
measured in fixed rates of foreign currency exchange, fixed currency
sales increased 9% compared to the prior year. Acquisition adjusted
fixed currency sales growth for 2014 was 5%. See the section
entitled Non-GAAP Financial Measures on pages 29-30 for further
information on our Non-GAAP measures and the Net Sales table on
page 17 and the Sales by Reportable Segment table on page 22 for
reconciliation information.
Gross Margin: Our reported gross margin was 46.2% of sales for
2014, which compared to 2013 reported gross margin of 46.0%.
Excluding the impact of special (gains) and charges included in cost
of sales from both 2014 and 2013, the adjusted gross margin was
46.3% for both years. Including the net impact of acquisitions and
divestitures, adjusted gross margins increased 0.4 percentage points
when comparing 2014 to 2013. See the section entitled Non-GAAP
Financial Measures on pages 29-30 for further information on our
Non-GAAP measures and the Cost of Sales and Gross Margin table on
page 18 for reconciliation information.
Operating Income: Reported operating income increased 25%
to $2.0 billion in 2014, compared to $1.6 billion in 2013. Adjusted
operating income, excluding the impact of special (gains) and
charges, increased 15% in 2014. Foreign currency had a negative
impact on operating income growth, as 2014 adjusted fixed currency
operating income increased 17% compared to the prior year. The
net impact of acquisitions and divestitures added approximately 2
percentage points to our 2014 adjusted fixed currency operating
income growth rate. See the section entitled Non-GAAP Financial
Measures on pages 29-30 for further information on our Non-GAAP
measures and the Operating Income table on page 20 and Operating
Income by Reportable Segment table on page 22 for reconciliation
information.
Earnings Per Share: Reported diluted earnings per share increased
24% to $3.93 in 2014 compared to $3.16 in 2013. Special (gains)
and charges had an impact on both years, driven primarily by
restructuring charges, Champion acquisition and integration costs
and Nalco Holding Company (“Nalco”) integration costs incurred
in both 2014 and 2013, settlements and other gains in 2014 and
Venezuela currency devaluation charges in 2013. Adjusted diluted
earnings per share, which exclude the impact of special (gains) and
charges and discrete tax items from both 2014 and 2013 increased
18% to $4.18 in 2014 compared to $3.54 in 2013. See the section
entitled Non-GAAP Financial Measures on pages 29-30 for further
information on our Non-GAAP measures, and the Diluted Earnings
Per Common Share table on page 21 for reconciliation information.
Cash Flow: Cash flow from operating activities was $1.8 billion in
2014 compared to $1.6 billion in 2013. We continued to generate
strong cash flow from operations, allowing us to fund our ongoing
operations, acquisitions, investments in the business, debt
repayments, pension obligations and return cash to our shareholders
through share repurchases and dividend payments. See the section
entitled Cash Flows on pages 25-26 for further information.
Balance Sheet: We remain committed to our stated objective of
having an investment grade balance sheet, supported by our current
rating of BBB+/Baa1 by the major ratings agencies, and to achieving
“A” range ratings metrics. We believe that our strong balance sheet
has allowed us continued access to capital at attractive rates.
Dividends: We increased our quarterly cash dividend 20% in
December 2014 to an indicated annual rate of $1.32 per share. The
increase represents our 23rd consecutive annual dividend rate
increase and the 78th consecutive year we have paid cash dividends.
14 ECOLAB ANNUAL REPORT 2014
Our outstanding dividend history reflects our continued growth
and development, strong cash flows, solid financial position and
confidence in our business prospects for the years ahead.
Restructuring Initiatives: During 2014 we continued to undergo
activities under our two active restructuring plans; the Energy
Restructuring Plan and the Combined Restructuring Plan as defined
and discussed within the section entitled Restructuring Charges
on page 19. The individual plans remain focused on the original
initiatives of strengthening our position in the fast growing global
energy market, reducing our global workforce, and optimizing and
simplifying our supply chain, distribution center locations and other
facilities. Both plans are expected to be substantially completed
by the end of 2015, although certain actions will likely continue
into 2016.
Champion Acquisition Integration: The integration of the Champion
business into our Global Energy segment has continued to progress
well, with synergy targets in line with expectations, as indicated
by the strong acquisition adjusted fixed currency sales growth,
acquisition adjusted operating income growth and expanded
acquisition adjusted operating income margins within our Global
Energy segment.
CRITICAL ACCOUNTING ESTIMATES
Our consolidated financial statements are prepared in accordance
with U.S. GAAP. We have adopted various accounting policies to
prepare the consolidated financial statements in accordance with U.S.
GAAP. Our significant accounting policies are disclosed in Note 2 of
the Notes to the Consolidated Financial Statements (“Notes”).
Preparation of our consolidated financial statements, in conformity
with U.S. GAAP, requires us to make estimates and assumptions that
affect the amounts reported in the consolidated financial statements
and accompanying notes. Estimates are considered to be critical if
they meet both of the following criteria: (1) the estimate requires
assumptions to be made about matters that are highly uncertain at
the time the accounting estimate is made, and (2) different estimates
that the company reasonably could have used for the accounting
estimate in the current period, or changes in the accounting estimate
that are reasonably likely to occur from period to period, have a
material impact on the presentation of the company’s financial
condition or results of operations.
Besides estimates that meet the “critical” estimate criteria, we
make many other accounting estimates in preparing our financial
statements and related disclosures. All estimates, whether or not
deemed critical, affect reported amounts of assets, liabilities,
revenues or expenses as well as disclosures of contingent assets and
liabilities. Estimates are based on experience and other information
available prior to the issuance of the financial statements. Materially
different results can occur as circumstances change and additional
information becomes known, even from estimates not deemed
critical. Our critical accounting estimates include the following:
Revenue Recognition
We recognize revenue on product sales at the time evidence of an
arrangement exists, title to the product and risk of loss transfers
to the customer, the price is fixed and determinable and collection
is reasonably assured. We recognize revenue on services as they
are performed. While we employ a sales and service team to ensure
our customers’ needs are best met in a high quality way, the vast
majority of our revenue is generated from product sales. Outside of
the service businesses and service offerings discussed in Note 17, any
other services are either incidental to a product sale and not sold
separately or are insignificant.
Our sales policies do not provide for general rights of return. We
record estimated reductions to revenue for customer programs
and incentive offerings including pricing arrangements, promotions
and other volume-based incentives at the time the sale is recorded.
We also record estimated reserves for anticipated uncollectible
accounts and for product returns and credits at the time of sale, as
discussed below. Depending on market conditions, we may increase
customer incentive offerings, which could reduce gross profit
margins at the time the incentive is offered.
Valuation Allowances and Accrued Liabilities
Allowances for Doubtful Accounts
We estimate our allowance for doubtful accounts by analyzing
accounts receivable balances by age and applying historical
write-off and collection trend rates. In addition, our estimates
also include separately providing for customer balances based on
specific circumstances and credit conditions, and when it is deemed
probable that the balance is uncollectible. We estimate our sales
returns and allowances by analyzing historical returns and credits,
and apply these trend rates to calculate estimated reserves for
future credits. Actual results could differ from these estimates under
different assumptions.
Our allowance for doubtful accounts balance was $77 million and
$81 million, as of December 31, 2014 and 2013, respectively. These
amounts include our allowance for sales returns and credits of
$15 million and $14 million as of December 31, 2014 and 2013,
respectively. Our bad debt expense as a percent of reported net
sales was 0.2% in both 2014 and 2013, and 0.3% in 2012. We believe
that it is reasonably likely that future results will be consistent with
historical trends and experience. However, if the financial condition
of our customers were to deteriorate, resulting in an inability to
make payments, or if unexpected events, economic downturns,
or significant changes in future trends were to occur, additional
allowances may be required.
Accrued Liabilities
Our business and operations are subject to extensive environmental
laws and regulations governing, among other things, air emissions,
wastewater discharges, the use and handling of hazardous
substances, waste disposal and the investigation and remediation
of soil and groundwater contamination. As with other companies
engaged in similar manufacturing activities and providing similar
services, some risk of environmental liability is inherent in our
operations.
We record liabilities related to pending litigation, environmental
claims and other contingencies when a loss is probable and can be
reasonably estimated. Estimates used to record such liabilities are
based on our best estimate of probable future costs. We record the
amounts that represent the points in the range of estimates that
we believe are most probable or the minimum amount when no
amount within the range is a better estimate than any other amount.
Potential insurance reimbursements generally are not anticipated
in our accruals for environmental liabilities or other insured losses.
Expected insurance proceeds are recorded as receivables when
recovery is probable. While the final resolution of litigation and
environmental contingencies could result in amounts different than
current accruals, and therefore have an impact on our consolidated
financial results in a future reporting period, we believe the ultimate
outcome will not have a significant effect on our consolidated
financial position. For additional information on our commitments
and contingencies, see Note 15.
Actuarially Determined Liabilities
Pension and Postretirement Healthcare Benefit Plans
The measurement of our pension and postretirement benefit
obligations are dependent on a variety of assumptions determined
by management and used by our actuaries. These assumptions
affect the amount and timing of future contributions and expenses.
The significant assumptions used in developing the required
estimates are the discount rate, expected return on assets,
projected salary and health care cost increases and mortality table.
• The discount rate assumptions for the U.S. plans are assessed
using a yield curve constructed from a subset of bonds yielding
greater than the median return from a population of non-callable,
corporate bond issues rated Aa by Moody’s Investor Services
or AA by Standard & Poors. The discount rate is calculated
by matching the plans’ projected cash flows to the bond yield
curve. In determining our U.S. pension obligations for 2014, our
discount rate decreased to 4.14% from 4.92% at year-end 2013.
In determining our U.S. postretirement health care obligation for
2014, our discount rate decreased to 4.08% from 4.77% at year-
end 2013.
• The expected return on plan assets reflects asset allocations,
investment strategies and views of investment advisors, and
represents our expected long-term return on plan assets. Our
weighted-average expected return on U.S. plan assets used
for determining both the 2014 and 2015 U.S. pension and U.S.
postretirement health care expenses was 7.75%.
• Projected salary and health care cost increases are based on our
long-term actual experience, the near term outlook and assumed
inflation. Our weighted-average projected salary increase was
4.32% as of both December 31, 2014 and 2013.
• The mortality tables were updated to the RP-2014 tables, with
new mortality projection scale MP-2014, in determining our U.S.
pension and U.S. postretirement health care obligation for 2014.
The effects of actual results differing from our assumptions, as
well as changes in assumptions, are reflected in the unrecognized
actuarial loss and amortized over future periods and, therefore,
will generally affect our recognized expense in future periods.
Significant differences in actual experience or significant changes
in assumptions may materially affect future pension and other
postretirement obligations. The unrecognized net actuarial loss on
our U.S. qualified and non-qualified pension plans increased to $556
million as of December 31, 2014 from $258 million as of December
31, 2013 (both before tax), primarily due to a decrease in our
discount rate and adoption of an updated mortality table.
The effect of a decrease in the discount rate or decrease in the
expected return on assets assumption as of December 31, 2014, on
the December 31, 2014 funded status and 2015 expense is shown
below, assuming no changes in benefit levels and no amortization of
gains or losses for our significant U.S. plans:
MILLIONS
EFFECT ON U.S. PENSION PLANS
ASSUMPTION
ASSUMPTION
CHANGE
INCREASE IN
RECORDED
OBLIGATION
HIGHER
2015
EXPENSE
Discount rate
Expected return on assets
-0.25 pts
-0.25 pts
$71.5
N/A
$4.7
$4.3
MILLIONS
ASSUMPTION
EFFECT ON U.S. POSTRETIREMENT
HEALTH CARE BENEFITS PLANS
ASSUMPTION
CHANGE
INCREASE IN
RECORDED
OBLIGATION
HIGHER
2015
EXPENSE
Discount rate
Expected return on assets
-0.25 pts
-0.25 pts
$7.8
N/A
$1.6
$0.1
ECOLAB ANNUAL REPORT 2014 15
Our international pension obligations and underlying plan assets
represent approximately one third of our global pension plans, with
the majority of the amounts held in the U.K. and Eurozone countries.
We use assumptions similar to our U.S. plan assumptions to measure
our international pension obligations. However, the assumptions
used vary by country based on specific local country requirements
and information.
settlement with a taxing authority. We adjust these reserves in light
of changing facts and circumstances. During interim periods, this
expected annual rate is then applied to our year-to-date operating
results. In the event that there is a significant discrete item
recognized in our interim operating results, the tax attributable to
that item would be separately calculated and recorded in the same
period.
See Note 16 for further discussion concerning our accounting
policies, estimates, funded status, planned contributions and
overall financial positions of our pension and postretirement plan
obligations.
Self Insurance
Globally we have high deductible insurance policies for property
and casualty losses. We are insured for losses in excess of these
deductibles and have recorded both a liability and an offsetting
receivable for amounts in excess of these deductibles. We are self-
insured for health care claims for eligible participating employees,
subject to certain deductibles and limitations. We determine our
liabilities for claims on an actuarial basis. A change in these actuarial
assumptions would cause reported results to differ.
Restructuring
Our restructuring activities are associated with plans to enhance
our efficiency, effectiveness and sharpen the competitiveness of our
businesses. These restructuring plans include costs associated with
significant actions involving employee-related severance charges,
contract termination costs and asset write-downs and disposals.
Employee termination costs are largely based on policies and
severance plans, and include personnel reductions and related costs
for severance, benefits and outplacement services. These charges
are reflected in the quarter in which the actions are probable and
the amounts are estimable, which is generally when management
approves the associated actions. Contract termination costs include
charges to terminate leases prior to the end of their respective
terms and other contract termination costs. Asset write-downs and
disposals include leasehold improvement write-downs, other asset
write-downs associated with combining operations and disposal of
assets.
Restructuring charges have been included as a component of both
cost of sales and special (gains) and charges on the Consolidated
Statement of Income. Amounts included as a component of
cost of sales include supply chain and other asset write-downs
associated with combining operations. Restructuring liabilities have
been classified as a component of both other current and other
noncurrent liabilities on the Consolidated Balance Sheet. During
2014, we incurred $83 million under our two active restructuring
plans (Combined and Energy). Our restructuring liability balance
was $76 million and $81 million as of December 31, 2014 and 2013,
respectively. For additional information on our current restructuring
activities, see Note 3.
Income Taxes
Judgment is required to determine the annual effective income tax
rate, deferred tax assets and liabilities, any valuation allowances
recorded against net deferred tax assets and uncertain tax
positions.
Effective Income Tax Rate
Our effective income tax rate is based on annual income, statutory
tax rates and tax planning available in the various jurisdictions in
which we operate. Our annual effective income tax rate includes
the impact of reserve provisions. We recognize the largest amount
of tax benefit that is greater than 50% likely of being realized upon
16 ECOLAB ANNUAL REPORT 2014
Tax regulations require items to be included in our tax returns
at different times than the items are reflected in our financial
statements. As a result, the effective income tax rate reflected
in our financial statements differs from that reported in our tax
returns. Some of these differences are permanent, such as expenses
that are not deductible on our tax return, and some are temporary
differences, such as depreciation expense.
Deferred Tax Assets and Liabilities and Valuation Allowances
Temporary differences create deferred tax assets and liabilities.
Deferred tax assets generally represent items that can be used as a
tax deduction or credit in our tax return in future years for which we
have already recorded the tax benefit in our income statement. We
establish valuation allowances for our deferred tax assets when the
amount of expected future taxable income is not likely to support
the utilization of the entire deduction or credit. Relevant factors in
determining the realizability of deferred tax assets include historical
results, future taxable income, the expected timing of the reversal
of temporary differences, tax planning strategies and the expiration
dates of the various tax attributes. We anticipate that approximately
one-half of our December 31, 2014 valuation allowance balance may
be released during 2015 based on income trends in the underlying
foreign entities. Deferred tax liabilities generally represent items for
which we have already taken a deduction in our tax return, but have
not yet recognized that tax benefit in our financial statements.
U.S. deferred income taxes are not provided on certain unremitted
foreign earnings that are considered permanently reinvested.
Undistributed earnings of foreign subsidiaries are considered to
have been reinvested indefinitely or are available for distribution
with foreign tax credits available to offset the amount of applicable
income tax and foreign withholding taxes that might be payable on
earnings. It is impractical to determine the amount of incremental
taxes on an ongoing basis that might arise if all undistributed
earnings were distributed.
Uncertain Tax Positions
A number of years may elapse before a particular tax matter, for
which we have established a reserve, is audited and finally resolved.
The number of tax years with open tax audits varies depending
on the tax jurisdiction. The Internal Revenue Service (“IRS”) has
completed its examinations of our federal income tax returns
through 2010. Our Ecolab U.S. (including Nalco) income tax returns
for the years 2011 and 2012 are currently under audit. The audit of
the legacy Champion U.S. income tax return for the year 2012 has
not yet begun. In addition to the U.S. federal examinations, we have
ongoing audit activity in several U.S. state and foreign jurisdictions.
The tax positions we take are based on our interpretations of
tax laws and regulations in the applicable federal, state and
international jurisdictions. We believe that our tax returns properly
reflect the tax consequences of our operations, and that our
reserves for tax contingencies are appropriate and sufficient for the
positions taken. Because of the uncertainty of the final outcome of
these examinations, we have reserved for potential reductions of
tax benefits (including related interest and penalties) for amounts
that do not meet the more-likely-than-not thresholds for recognition
and measurement as required by authoritative guidance. The tax
reserves are reviewed throughout the year, taking into account new
legislation, regulations, case law and audit results. Settlement of any particular issue could result in offsets to other balance sheet accounts,
cash payments or receipts and/or adjustments to tax expense. The majority of our tax reserves are presented in the balance sheet within
other non-current liabilities. Our gross liability for uncertain tax positions was $79 million and $99 million as of December 31, 2014 and 2013,
respectively. For additional information on income taxes, see Note 12.
Long-Lived Assets, Intangible Assets and Goodwill
Long-Lived and Intangible Assets
We periodically review our long-lived and amortizable intangible assets, the net value of which was $6.6 billion and $6.8 billion as of December
31, 2014 and 2013, respectively, for impairment and to assess whether significant events or changes in business circumstances indicate that
the carrying value of the assets may not be recoverable. Such circumstances may include a significant decrease in the market price of an
asset, a significant adverse change in the manner in which the asset is being used or in its physical condition or history of operating or cash
flow losses associated with the use of the asset. Impairment losses could occur when the carrying amount of an asset exceeds the anticipated
future undiscounted cash flows expected to result from the use of the asset and its eventual disposition. The amount of the impairment loss to
be recorded, if any, is calculated as the excess of the asset’s carrying value over its estimated fair value. In addition, we periodically reassess
the estimated remaining useful lives of our long-lived assets. Changes to estimated useful lives would impact the amount of depreciation and
amortization expense recorded in earnings. We have experienced no significant changes in the carrying value or estimated remaining useful
lives of our long-lived or amortizable intangible assets.
As part of the Nalco merger, we added the “Nalco” trade name as an indefinite life intangible asset, the total value of which was $1.2 billion
as of December 31, 2014 and 2013. The carrying value of the indefinite life trade name was subject to annual impairment testing, using the
qualitative assessment method, during the second quarter of 2014. Based on this testing, no adjustment to the carrying value was necessary.
Additionally, based on the current and expected performance of our operating units, updating the impairment testing during the second half of
2014 was not deemed necessary.
Goodwill
We had total goodwill of $6.7 billion and $6.9 billion as of December 31, 2014 and 2013, respectively. We test our goodwill for impairment at the
reporting unit level on an annual basis during the second quarter. Our reporting units are aligned with our ten operating segments.
We used a “step zero” qualitative test to assess all ten of our reporting units given the substantial levels of headroom and other strong
qualitative factors. Qualitative testing evaluated factors including, but not limited to, economic, market and industry conditions, cost factors
and the overall financial performance of the reporting unit. Based on the “step zero” testing performed, no adjustment to the carrying value of
goodwill was necessary. In addition, we noted no changes in events or circumstances which would have required us to complete the two-step
quantitative goodwill impairment analysis for any of the assessed reporting units.
If circumstances change significantly, we would also test a reporting unit for impairment during interim periods between the annual tests.
Based on the current and expected performance of our reporting units, updating the impairment testing during the second half of 2014 was not
deemed necessary.
The Nalco and Champion transactions resulted in the addition of $4.5 billion and $1.0 billion of goodwill, respectively, within the Energy, Water
and Paper reporting units. Subsequent performance of these reporting units relative to projections used in our purchase price allocation could
result in impairment if there is either underperformance by the reporting unit or if the carrying value of the reporting unit were to fluctuate
significantly due to reasons that did not proportionately increase fair value.
RESULTS OF OPERATIONS
Net Sales
MILLIONS
Reported GAAP net sales
Effect of foreign currency translation
Non-GAAP fixed currency sales
2014
2013
2012
$ 14,280.5
(45.7)
$ 14,234.8
$ 13,253.4
(221.5)
$ 13,031.9
$ 11,838.7
(253.0)
$ 11,585.7
PERCENT CHANGE
2014
2013
8%
12%
9% 13%
Reported net sales for 2014 increased 8%, as growth continued to be impacted by the Champion acquisition. Foreign currency negatively
impacted sales growth in 2014 as fixed currency sales increased 9%. Acquisition adjusted fixed currency sales increased 5% in 2014.
Reported net sales for 2013 increased 12%, with growth benefiting from the inclusion of the Champion business in our results beginning in the
second quarter of 2013. Foreign currency negatively impacted sales growth in 2013 as fixed currency sales increased 13%. Acquisition adjusted
fixed currency sales increased 5% in 2013.
The percentage change components of the year-over-year sales increase are as follows:
PERCENT
Volume
Price changes
Acquisition adjusted fixed currency sales increase
Acquisitions & divestitures
Fixed currency sales increase
Foreign currency translation
Reported GAAP net sales increase
2014
4%
1
5
4
9
(1)
8%
2013
4%
1
5
8
13
(1)
12%
ECOLAB ANNUAL REPORT 2014 17
Cost of Sales and Gross Margin
MILLIONS/PERCENT
Reported GAAP COS and gross margin
Special (gains) and charges
Non-GAAP adjusted COS and gross margin
2014
2013
COS
$ 7,679.1
14.3
$ 7,664.8
GROSS
MARGIN
46.2%
0.1
46.3%
COS
$ 7,161.2
43.2
$ 7,118.0
GROSS
MARGIN
46.0%
0.3
46.3%
2012
COS
$ 6,385.4
93.9
$ 6,291.5
GROSS
MARGIN
46.1%
0.8
46.9%
Our COS values and corresponding gross profit margin (“gross margin”) are shown in the previous table. Our gross margin is defined as sales
less cost of sales divided by sales.
Our reported gross margin was 46.2%, 46.0% and 46.1% for 2014, 2013 and 2012, respectively. Our 2014, 2013 and 2012 reported gross
margins across 2013 and 2014 were negatively impacted by special (gains) and charges of $14.3 million, $43.2 million and $93.9 million,
respectively. Special (gains) and charges items impacting COS are shown within the special (gains) and charges table below.
Excluding the impact of special (gains) and charges, our adjusted gross margin was 46.3% for both 2014 and 2013. The adjusted gross margin
across 2014 and 2013 was impacted by continued growth within Global Energy, including the impact of the Champion acquisition, which
generally has a lower gross margin compared to our other segments, which offset pricing gains. Including the net impact of acquisitions and
divestitures, our adjusted gross margin increased 0.4 percentage points in 2014.
Excluding the impact of special (gains) and charges, our 2013 adjusted gross margin of 46.3% compared against a 2012 adjusted gross margin
of 46.9%. The decrease was due primarily to growth within Global Energy, including the impact of the Champion acquisition. These negative
impacts were partially offset by pricing gains, synergies and cost savings. Including the net impact of acquisitions and divestitures, our
adjusted gross margin was flat comparing 2013 to 2012.
Selling, General and Administrative Expenses
PERCENT
2014
2013
2012
SG&A Ratio
32.1%
32.9%
33.9%
The decrease in SG&A ratio (SG&A expenses as a percentage of reported net sales) across the periods was driven by leverage from increased
sales, net synergies and cost savings. Including the net impact of acquisitions and divestitures, our SG&A ratio decreased 0.8 percentage
points and 1.1 percentage points when comparing 2014 against 2013 and 2013 against 2012, respectively, which is generally consistent with the
trend in the table above.
Special (Gains) and Charges
Special (gains) and charges reported on the Consolidated Statement of Income included the following items:
MILLIONS
Cost of sales
Restructuring charges
Recognition of inventory fair value step-up
Subtotal
Special (gains) and charges
Restructuring charges
Champion acquisition and integration costs
Nalco merger and integration costs
Venezuela currency devaluation
Gain on sale of businesses, litigation activity, settlements and other gains
Subtotal
Operating income subtotal
Interest expense, net
Acquisition debt costs
Debt extinguishment costs
Subtotal
Net income attributable to noncontrolling interest
Venezuela currency devaluation
Recognition of Nalco inventory fair value step-up
Subtotal
2014
2013
2012
$ 13.9
0.4
14.3
69.2
19.9
8.5
-
(28.8)
68.8
$ 6.6
36.6
43.2
83.4
49.7
18.6
23.2
(3.6)
171.3
$ 22.7
71.2
93.9
116.6
18.3
70.9
-
(60.1)
145.7
83.1
214.5
239.6
-
-
-
-
-
-
2.5
-
2.5
(0.5)
-
(0.5)
1.1
18.2
19.3
-
(4.5)
(4.5)
Total special (gains) and charges
$ 83.1
$ 216.5
$ 254.4
18 ECOLAB ANNUAL REPORT 2014
For segment reporting purposes, special (gains) and charges have
been included in our corporate segment, which is consistent with our
internal management reporting.
Restructuring Charges
Energy Restructuring Plan
In April 2013, following the completion of the Champion acquisition,
we commenced plans to undertake restructuring and other cost-
saving actions to realize our acquisition-related cost synergies as
well as streamline and strengthen our position in the fast growing
global energy market (the “Energy Restructuring Plan”). Actions
associated with the acquisition to improve the effectiveness and
efficiency of the business continue to include a reduction of the
combined business’s current global workforce. Actions also include
leveraging and simplifying our global supply chain, including
the reduction of plant, distribution center and redundant facility
locations and product line optimization.
The total pre-tax restructuring charges under the Energy
Restructuring Plan are expected to be approximately $80 million
($55 million after tax). The restructuring charges are expected to be
substantially complete by the end of 2015, although certain actions
will likely continue into 2016. We anticipate that approximately
$60 million of the $80 million pre-tax charges will represent cash
expenditures. The remaining pre-tax charges represent estimated
asset write-downs and disposals. No decisions have been made
regarding any additional asset disposals and estimates could vary
depending on the actual actions taken.
As a result of activities under the Energy Restructuring Plan, we
recorded restructuring charges of $9.5 million ($6.4 million after
tax) or $0.02 per diluted share and $27.4 million ($19.4 million after
tax) or $0.06 per diluted share during 2014 and 2013, respectively.
Cash payments under the Energy Restructuring Plan during 2014
and 2013 were $13.9 million and $17.5 million, respectively. The
majority of cash payments under this plan are related to severance,
with the current accrual expected to be paid over a period of a few
months to several quarters. Cash payments in 2015 are expected to
remain at a consistent level with 2014. We anticipate the remaining
cash expenditures will be funded from operating activities.
During 2014 the Energy Restructuring Plan achieved approximately
$55 million of incremental savings as compared to 2013. We
anticipate cumulative cost savings from this plan, along with
synergies achieved in connection with the acquisition, of $125 million
in 2015 with annualized cost savings and synergies of $150 million
by the end of 2015.
Combined Restructuring Plan
In February 2011, we commenced a comprehensive plan to
substantially improve the efficiency and effectiveness of our
European business, as well as undertake certain restructuring
activities outside of Europe, historically referred to as the 2011
Restructuring Plan.
Additionally in January 2012, following the merger with Nalco, we
formally commenced plans to undertake restructuring actions
related to the reduction of our global workforce and optimization of
our supply chain and office facilities, including planned reductions of
plant and distribution center locations, historically referred to as the
Merger Restructuring Plan.
During the first quarter of 2013, we determined that because the
objectives of the plans discussed above were aligned, the previously
separate restructuring plans should be combined into one plan.
The combined restructuring plan (the “Combined Plan”) combines
opportunities and initiatives from both plans and continues to follow
the original format of the Merger Restructuring Plan by focusing
on global actions related to optimization of our supply chain and
office facilities, including reductions of the global work force and
plant and distribution center locations. During the fourth quarter of
2014, we identified additional opportunities to optimize our supply
chain, increase efficiency and effectiveness and reduce workforce,
which increased total planned charges under the Combined Plan
from $330 million ($245 million after tax) to $390 million ($295
million after tax). As a result of activities under the Combined Plan,
we recorded restructuring charges of $73.5 million ($58.5 million
after tax) or $0.19 per diluted share and $63.6 million ($48.3
million after tax) or $0.16 per diluted share during 2014 and 2013,
respectively. The remaining restructuring charges are expected
to be substantially complete by the end of 2015, although certain
actions will likely continue into 2016.
We anticipate that approximately two-thirds of the remaining
Combined Plan pre-tax charges will represent net cash expenditures.
No decisions have been made regarding any non-cash expenses and
estimates could vary depending on the actual actions taken.
Net cash payments under the Combined Plan were $68.8 million
during 2014 and $192.2 million across 2011 to 2013. The majority of
cash payments under the Combined Plan are related to severance,
with the current accrual expected to be paid over a period of a few
months to several quarters. Cash payments in 2015 are expected
to remain consistent with 2014. We anticipate the remaining cash
expenditures will continue to be funded from operating activities.
During 2014, the Combined Plan achieved approximately $80
million of incremental savings as compared to 2013. Cumulative cost
savings and synergies from the Combined Plan of $335 million in
2014 are consistent with expectations. We anticipate an increase in
the annualized cost savings through 2016 from $395 million to $420
million based on the additional restructuring activities identified
during the fourth quarter of 2014.
Restructuring charges have been included as a component of both
cost of sales and special (gains) and charges on the Consolidated
Statement of Income. Further details related to our restructuring
charges are included in Note 3.
Non-Restructuring Special (Gains) and Charges
Champion acquisition and integration costs
As a result of the Champion acquisition completed in 2013, we
incurred charges of $19.9 million ($12.8 million after tax) or $0.04
per diluted share, $88.8 million ($61.4 million after tax) or $0.20 per
diluted share and $19.4 million ($16.7 million) or $0.06 per diluted
share, during 2014, 2013 and 2012, respectively.
Champion acquisition and integration related costs have been
included as a component of cost of sales, special (gains) and charges
and net interest expense on the Consolidated Statement of Income.
Amounts within cost of sales include the recognition of fair value
step-up in Champion international inventory, which is maintained
on a FIFO basis, and Champion U.S. inventory which was associated
with the adoption of LIFO and integration into an existing LIFO pool.
Amounts within special (gains) and charges include acquisition costs,
advisory and legal fees and integration charges. Amounts within
net interest expense include the interest expense through the April
2013 close date of the Champion transaction of the company’s $500
million public debt issuance in December 2012 as well as amortizable
fees to secure term loans and short-term debt, all of which were
initiated to fund the Champion acquisition.
ECOLAB ANNUAL REPORT 2014 19
Nalco merger and integration costs
As a result of the Nalco merger completed in 2011, we incurred charges of $8.5 million ($7.0 million after tax), or $0.02 per diluted share, $18.6
million ($14.2 million after tax), or $0.05 per diluted share and $155.8 million ($113.7 million after tax), or $0.38 per diluted share during 2014,
2013 and 2012, respectively.
Nalco merger and integration charges have been included as a component of cost of sales, special (gains) and charges, net interest expense
and net income (loss) attributable to noncontrolling interest on the Consolidated Statement of Income. Amounts within cost of sales and
net income (loss) attributable to noncontrolling interest include recognition of fair value step-up in Nalco international inventory which is
maintained on a FIFO basis. Amounts within special (gains) and charges include merger and integration charges. Amounts within net interest
expense include a loss on the extinguishment of Nalco’s senior notes.
Venezuelan currency devaluation
On February 8, 2013, the Venezuelan government devalued its currency, the Bolivar Fuerte. As a result of the devaluation, in 2013, we
recorded a charge of $22.7 million ($16.1 million after tax) or $0.05 per diluted share, due to the remeasurement of the local balance sheet.
As a result of the ownership structure of our operations in Venezuela, we also reflected the impact of the devaluation as a component of net
income (loss) attributable to noncontrolling interest on the Consolidated Statement of Income.
Other special (gains) and charges
During 2014, we recorded a special gain of $28.4 million ($23.3 million after tax), or $0.08 per diluted share, as a result of a favorable
licensing settlement and other settlement gains, the consolidation of the Emirates National Chemicals Company LLC (“Emochem”) entity and
removal of the corresponding equity method investment and the disposition of a business.
During 2012, we recorded a net special gain of $60.1 million ($35.7 million after tax), or $0.12 per diluted share, related to the sale of our
Vehicle Care division, the receipt of additional payments related to the sale of an investment in a U.S. business originally sold prior to 2012 and
litigation-related charges.
Further details related to our non-restructuring special (gains) and charges are included in Note 3.
Operating Income and Operating Income Margin
MILLIONS
Reported GAAP operating income
Special (gains) and charges
Non-GAAP adjusted operating income
Effect of foreign currency translation
Non-GAAP adjusted fixed currency operating income
2014
2013
2012
$ 1,955.0
83.1
2,038.1
(3.2)
$ 2,034.9
$ 1,560.6
214.5
1,775.1
(35.5)
$ 1,739.6
$ 1,289.3
239.6
1,528.9
(42.0)
$ 1,486.9
PERCENT CHANGE
2014
2013
25%
21%
15
16
17%
17%
PERCENT
Reported GAAP operating income margin
Non-GAAP adjusted operating income margin
Non-GAAP adjusted fixed currency operating income margin
2014
13.7%
14.3%
14.3%
2013
11.8%
13.4%
13.3%
2012
10.9%
12.9%
12.8%
Reported operating income increased 25% when comparing 2014 to 2013 and increased 21% when comparing 2013 to 2012. Our reported
operating income for 2014, 2013 and 2012 was impacted by special (gains) and charges. Excluding the impact of special (gains) and charges
from all three years, 2014 adjusted operating income increased 15% when compared to 2013 adjusted operating income and 2013 adjusted
operating income increased 16% when compared to 2012 adjusted operating income. As shown in the previous table, foreign currency
translation had a negative impact on operating income growth for both 2014 and 2013, as adjusted fixed currency operating income increased
17% for both comparable periods.
The 2014 and 2013 adjusted fixed currency operating income increase of 17% for both comparable periods and the improving trend in our
adjusted fixed currency operating income margin, were driven primarily by sales volume increases, pricing gains, net cost savings and
synergies.
The net impact of acquisitions and divestitures added approximately 2 percentage points to both our 2014 and 2013 adjusted fixed currency
operating income growth rates.
Interest Expense, Net
MILLIONS
2014
2013
2012
Reported GAAP interest expense, net
Special (gains) and charges
Non-GAAP adjusted interest expense, net $ 256.6
$ 256.6
-
$ 262.3
2.5
$ 259.8
$ 276.7
19.3
$ 257.4
PERCENT CHANGE
2013
2014
(2)%
(5)%
(1)%
1%
Reported net interest expense totaled $256.6 million, $262.3 million and $276.7 million during 2014, 2013 and 2012, respectively.
Special (gains) and charges reported within net interest expense impacted 2013 and 2012, and included the interest expense through the April
2013 close date of the Champion acquisition of our $500 million public debt issuance in December 2012, as well as amortizable fees to secure
term loans and short-term debt, all of which were initiated to fund the Champion acquisition. Special (gains) and charges within net interest
20 ECOLAB ANNUAL REPORT 2014
during 2012 also included a net loss on the extinguishment of Nalco’s
senior notes, which were assumed as part of the merger.
The decrease in 2014 adjusted net interest expense compared
to 2013 adjusted net interest expense was due primarily to lower
comparable outstanding debt, offset partially by increased net
expense related to our hedging program and other interest-related
fees.
The small increase in 2013 adjusted net interest expense compared
to 2012 adjusted net interest expense was due primarily to interest
associated with debt issued in connection with the Champion
acquisition, offset by decreased borrowings across our international
operations, lower U.S. commercial paper borrowings and legacy
Nalco debt extinguishments in early 2012.
Provision for Income Taxes
The following table provides a summary of our tax rate:
PERCENT
Reported GAAP tax rate
Tax rate impact of:
Special gains and charges
Discrete tax items
2014
28.0%
2013
2012
25.0%
30.7%
(0.1)
(0.7)
0.4
2.7
(1.5)
0.7
Non-GAAP adjusted tax rate
27.2%
28.1%
29.9%
Our reported tax rate for 2014, 2013 and 2012 includes the tax impact
of special gains and charges and discrete tax items. Depending on the
nature of our special gains and charges and discrete tax items, our
reported tax rate may not be consistent on a period to period basis,
as amounts included in our special gains and charges are derived
from tax jurisdictions with rates that vary from our overall non-GAAP
adjusted tax rate.
Our 2014 reported tax rate includes $21.6 million of net tax benefits
on special gains and charges and $13.2 million of discrete tax items
net expense. Our 2013 reported tax rate includes $60.1 million of net
tax benefits on special gains and charges and $41.7 million of discrete
tax items net benefits. Our 2012 reported tax rate includes $59.4
million of net tax benefits on special gains and charges and $9.2
million of discrete tax items net benefits. The corresponding impact
of these items to the reported tax rate is shown in the table above.
Discrete tax items net expense in 2014 was driven primarily by an
update to non-current tax liabilities for certain global tax audits,
an adjustment related to the re-characterization of intercompany
payments between our U.S. and foreign affiliates, the remeasurement
of certain deferred tax assets and liabilities resulting from changes
in our deferred state tax rate, recognizing adjustments from filing
our 2013 U.S. federal and state tax returns, net changes of valuation
allowances based on the realizability of foreign deferred tax assets
and the impact from other foreign country audit settlements.
Discrete tax items net benefits in 2013 were driven primarily by
the net release of valuation allowances related to the realizability
of foreign deferred tax assets of $11.5 million, the remeasurement
of certain deferred tax assets and liabilities of $11.3 million and
recognizing adjustments from filing our 2012 U.S. federal and state
tax returns of $11.0 million. The remaining net discrete tax items
relate primarily to recognizing settlements related to prior year
income tax audits, law changes within a foreign jurisdiction, the
retroactive extension during first quarter 2013 of the U.S. R&D
credit for 2012, foreign audit adjustments and other adjustments to
deferred tax assets and liabilities.
Discrete tax items net benefits in 2012 were based largely on
benefits related to remeasurement of certain deferred tax assets
and liabilities resulting from changing tax jurisdictions, recognizing
adjustments from filing our 2011 U.S. federal tax return as well
as a release of a valuation allowance related to a capital loss
carryforward. Discrete tax items benefits were partially offset by the
remeasurement of certain deferred tax assets and liabilities resulting
from changes in local country tax rates and state and foreign country
audit settlements and adjustments.
The decrease in the 2014 adjusted tax rate compared to 2013 was
due primarily to global tax planning actions and favorable geographic
income mix. The decrease in the 2013 adjusted tax rate compared to
2012 was due primarily to global tax planning actions, extension of
the R&D credit and favorable geographic income mix.
Net Income Attributable to Ecolab
MILLIONS
2014
2013
2012
PERCENT CHANGE
2013
2014
Reported GAAP net income
$ 1,202.8 $ 967.8 $ 703.6 24%
38%
Adjustments:
Special (gains) and charges,
after tax
Discrete tax net expense
61.5
156.4 195.0
(benefit)
13.2
(41.7)
(9.2)
Non-GAAP adjusted
net income
$ 1,277.5 $ 1,082.5 $ 889.4 18%
22%
Diluted Earnings Attributable to Ecolab
Per Common Share (EPS)
DOLLARS
2014
2013
2012
2014
2013
PERCENT CHANGE
Reported GAAP diluted EPS $ 3.93 $ 3.16 $ 2.35
24% 34%
Adjustments:
Special (gains) and charges
Discrete tax net expense
0.20
0.51
0.65
(benefit)
0.04
(0.14)
(0.03)
Non-GAAP adjusted diluted
EPS
$ 4.18 $ 3.54 $ 2.98
18% 19%
Note: Per share amounts do not necessarily sum due to rounding.
Reported net income attributable to Ecolab totaled $1,202.8 million,
$967.8 million and $703.6 million during 2014, 2013 and 2012,
respectively, which resulted in reported diluted earnings per share of
$3.93, $3.16 and $2.35 for the corresponding periods.
Amounts for 2014, 2013 and 2012 include special (gains) and charges
and discrete tax items. Excluding special (gains) and charges and
the impact of discrete tax items from 2014, 2013 and 2012, adjusted
net income and adjusted diluted earnings per share both increased
18% when comparing 2014 to 2013 and increased 22% and 19%,
respectively, when comparing 2013 to 2012.
Currency translation had an unfavorable impact of approximately
$0.07 per share on reported and adjusted diluted earnings per
share for 2014 compared to 2013. Currency translation had an
unfavorable impact of approximately $0.04 per share on reported
and adjusted diluted earnings per share for 2013 compared to
2012. The unfavorable currency translation excludes the impact
of the Venezuela devaluation in 2013 as the U.S. dollar is used as
the functional currency for our subsidiaries in Venezuela. See the
section entitled Global Economic and Political Environment on pages
28 and 29 for further discussion regarding Venezuela.
Segment Performance
As discussed at the beginning of this MD&A, effective in the first
quarter of 2014, we made immaterial changes to our reportable
segments, including the movement of certain customers between
reportable segments, to reflect our continued integration of
businesses and consistency across our global markets and
customers. In addition, we made immaterial changes to the way
we measure and report segment operating income by updating
the internal allocations of certain supply chain and SG&A expenses
related to our centralized functions.
ECOLAB ANNUAL REPORT 2014 21
NET SALES
MILLIONS
Global Industrial
Global Institutional
Global Energy
Other
Subtotal at fixed currency
$
2014
4,886.7
4,314.5
4,283.3
750.3
14,234.8
$
2013
4,742.8
4,152.5
3,427.3
709.3
13,031.9
$
2012
4,614.1
4,017.5
2,223.5
730.6
11,585.7
PERCENT CHANGE
2014
2013
3%
4
25
6
9
3%
3
54
(3)
13
Effect of foreign currency translation
45.7
221.5
253.0
Total reported net sales
$ 14,280.5
$ 13,253.4
$ 11,838.7
8%
12%
OPERATING INCOME
MILLIONS
Global Industrial
Global Institutional
Global Energy
Other
Corporate
Subtotal at fixed currency
2014
2013
2012
$
642.6
821.2
634.9
116.5
(263.4)
1,951.8
$ 603.0
768.2
458.9
104.1
(409.1)
1,525.1
$
542.2
703.0
336.9
107.5
(442.3)
1,247.3
PERCENT CHANGE
2014
2013
7%
7
38
12
11%
9
36
(3)
28
22
Effect of foreign currency translation
3.2
35.5
42.0
Total reported operating income
$ 1,955.0
$ 1,560.6
$ 1,289.3
25%
21%
NET SALES
Sales at fixed currency (millions)
Percentage change at fixed
currency
Acquisition adjusted percentage
change at fixed currency
Percentage change at public
currency
OPERATING INCOME
Operating income at fixed
currency (millions)
Percentage change at fixed
currency
Acquisition adjusted percentage
change at fixed currency
Percentage change at public
currency
Operating income margin at
fixed currency
2014
2013
2012
$ 4,886.7 $ 4,742.8 $ 4,614.1
3%
3%
1%
3%
2%
2%
$
642.6 $ 603.0 $ 542.2
7%
6%
3%
11%
11%
10%
13.1%
12.7%
11.8%
2014 NET SALES MIX
PERCENT
OPERATING UNIT
Textile Care 6%
Paper
17%
Food & Beverage
34%
GEOGRAPHIC
Latin America
11%
Asia Pacific 19%
EMEA
28%
43%
Water
42%
North America
22 ECOLAB ANNUAL REPORT 2014
Segment results for 2013 and 2012 have been revised to conform to the current year presentation. The changes had no impact on our consolidated sales or operating income. For additional information on the revisions to our segments, see Note 17.Beginning in the first quarter of 2014, the term “Global” has been removed from the description of our ten operating units. This change had no impact on the underlying structure of the respective operating units.The 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 2014. 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 of the company described in Note 2. Additional information about our reportable segments is included in Note 17.Fixed currency net sales and operating income for 2014, 2013 and 2012 for our reportable segments are shown in the tables below.GLOBAL INDUSTRIALNet SalesFixed currency sales for our Global Industrial segment increased 3% in 2014, with the increase driven by both volume increases and pricing gains. At a regional level, the 2014 sales increase was impacted by double-digit growth in Latin America, with modest gains in Asia Pacific, North America and Europe, Middle East, Africa (“EMEA”). Fixed currency sales increased 3% in 2013. As shown in the previous table, acquisitions had a small impact on sales growth, with the increase driven by both pricing gains and volume increases. At a regional level, the 2013 sales increase was impacted by good growth in Latin America and Asia Pacific and modest gains in North America and EMEA.
At an operating unit level, Water fixed currency sales increased 5% in 2014 (increase of 4% acquisition adjusted), led by gains in the heavy,
light and mining industries. Fixed currency sales increased 2% in 2013, led by growth in heavy industries, offset partially by declines in mining
and a de-emphasis of equipment sales, impacting the comparison against 2012. Food & Beverage fixed currency sales increased 4% in 2014
(increase of 3% acquisition adjusted), driven by gains in the agri, dairy and beverage & brewing markets. Fixed currency sales increased 7% in
2013, (increase of 4% acquisition adjusted) driven by gains in the beverage & brewing, dairy and agri markets. Paper fixed currency sales were
flat in 2014 (decrease of 1% acquisition adjusted) with continued unfavorable volume impact from below capacity plant utilization at customer
locations and customer plant closures. Fixed currency sales increased 2% in 2013, impacted by increased product penetration, partially offset
by lower plant utilization at customer locations. Textile Care fixed currency sales decreased 1% in 2014, impacted by continued lower sales in
EMEA. Fixed currency sales decreased 2% in 2013 as pricing gains and new product penetration in North America were more than offset by
lower sales in EMEA.
Operating Income
Fixed currency operating income for our Global Industrial segment increased 7% in 2014. As shown in the previous table, acquisitions had
a small impact on operating income growth. The operating income margin increased 0.4 percentage points. The fixed currency operating
income growth and improved operating income margins benefited from sales volume increases, pricing gains and net cost savings. Fixed
currency operating income for our Global Industrial segment increased 11% in 2013. The operating income margin increased 0.9 percentage
points. The fixed currency operating income growth and improved operating income margin were driven primarily from pricing gains, sales
volume increases and cost savings actions.
GLOBAL INSTITUTIONAL
NET SALES
Sales at fixed currency (millions)
Percentage change at fixed
currency
Acquisition adjusted percentage
change at fixed currency
Percentage change at public
currency
OPERATING INCOME
Operating income at fixed
currency (millions)
Percentage change at fixed
currency
Acquisition adjusted percentage
change at fixed currency
Percentage change at public
currency
Operating income margin at
fixed currency
2014
2013
2012
$ 4,314.5 $ 4,152.5 $ 4,017.5
4%
4%
3%
3%
3%
3%
$
821.2 $ 768.2 $ 703.0
7%
7%
6%
9%
9%
9%
2014 NET SALES MIX
PERCENT
OPERATING UNIT
Healthcare 14%
Specialty
19%
GEOGRAPHIC
Latin America
4%
Asia Pacific 8%
EMEA
23%
67% Institutional
19.0%
18.5%
17.5%
65%
North America
Net Sales
Fixed currency sales for our Global Institutional segment increased 4% in 2014 and 3% in 2013, with the increase in both years driven by
volume increases and pricing gains. At a regional level, the 2014 sales increase was led by strong growth in Latin America, and good gains in
Asia Pacific and North America, which collectively offset slightly lower sales in EMEA. The 2013 sales increase was impacted by double-digit
growth in Latin America and good gains in both North America and Asia Pacific, which collectively offset lower sales in EMEA.
At an operating unit level, Institutional fixed currency sales increased 3% in 2014 (increase of 4% acquisition adjusted including the impact
of a small divestiture during 2014), as sales initiatives, targeting new accounts and effective product programs continued to drive the sales
gains. Lodging room demand increased moderately, while foodservice foot traffic remained soft. Fixed currency sales increased 2% in 2013,
benefiting from new accounts and sales initiatives. Specialty fixed currency sales increased 8% in 2014, driven by continued solid results from
our quick service and food retail businesses, benefiting from new accounts and increased product penetration. Fixed currency sales increased
12% in 2013, as both our quick service and food retail businesses had double-digit sales growth. Healthcare fixed currency sales increased 1%
in 2014, driven by new account growth and product introductions. Fixed currency sales increased 2% in 2013 as growth in surgical drapes and
contamination control were slowed by weakness in the overall U.S. and EMEA healthcare markets.
Operating Income
Fixed currency operating income for our Global Institutional segment increased 7% in 2014 and the operating income margin increased 0.5
percentage points. Fixed currency operating income for our Global Institutional segment increased 9% in 2013 and the operating income
margin increased 1.0 percentage points. The fixed currency operating income growth and improved operating income margin across both 2014
and 2013 were driven primarily by the net impact of pricing gains, sales volume increases and net cost savings.
ECOLAB ANNUAL REPORT 2014 23
GLOBAL ENERGY
NET SALES
Sales at fixed currency (millions)
Percentage change at fixed
currency
Acquisition adjusted percentage
change at fixed currency
Percentage change at public
currency
OPERATING INCOME
Operating income at fixed
currency (millions)
Percentage change at fixed
currency
Acquisition adjusted percentage
change at fixed currency
Percentage change at public
currency
Operating income margin at
fixed currency
Net Sales
2014
2013
2012
$ 4,283.3 $ 3,427.3 $ 2,223.5
2014 NET SALES MIX
PERCENT
GEOGRAPHIC
25%
10%
23%
54%
11%
53%
Latin America
8%
Asia Pacific 10%
$
634.9 $ 458.9 $ 336.9
38%
31%
35%
36%
23%
37%
14.8%
13.4%
15.2%
EMEA
25%
57%
North America
Fixed currency sales for our Global Energy segment increased 25% in 2014 and 54% in 2013, with sales growth comparability impacted by the
Champion acquisition. Acquisition adjusted fixed currency sales increased 10% in 2014 and 11% in 2013.
The increase in 2014 acquisition adjusted fixed currency sales reflected double-digit growth in our upstream business, led by strong
international performance and good growth in North America. Deepwater and on-shore conventional sources continued to produce solid
results. Sales growth in our downstream business resulted from improved international performance and continued market share gains in
North America. The increase in 2013 acquisition adjusted fixed currency sales reflected double-digit growth in our upstream business resulting
from strong performance in high growth energy sources including deepwater, shale and oil sands accounts as well as strong results from
on-shore conventional sources. Sales for our downstream business had good gains, resulting from market share gains and increased North
America refining.
Operating Income
Fixed currency operating income for our Global Energy segment increased 38% in 2014 and 36% in 2013. Our operating income margin
increased 1.4 percentage points in 2014 and decreased 1.8 percentage points in 2013. Our operating income growth comparability and
corresponding operating income margins were impacted by the Champion acquisition including the corresponding intangible asset
amortization. Acquisition adjusted fixed currency operating income increased 31% in 2014 and 23% in 2013. Our operating income margin
adjusted for acquisitions increased 2.3 percentage points in 2014 and increased 1.2 percentage points in 2013.
The increase in full year 2014 acquisition adjusted fixed currency operating income and gains in operating income margin adjusted for
acquisitions were largely driven by sales volume increases and business mix changes, with the corresponding benefit to operating income. The
remainder of the increase can largely be attributed to the net impact of pricing gains, synergies, investments in the business and other costs.
The increase in 2013 acquisition adjusted fixed currency operating income and gains in operating income margin adjusted for acquisitions
were the result of sales volume increases and business mix changes, pricing gains and synergies.
OTHER
NET SALES
Sales at fixed currency (millions)
Percentage change at fixed
currency
Acquisition adjusted percentage
change at fixed currency
Percentage change at public
currency
OPERATING INCOME
Operating income at fixed
currency (millions)
Percentage change at fixed
currency
Acquisition adjusted percentage
change at fixed currency
Percentage change at public
currency
Operating income margin at
fixed currency
24 ECOLAB ANNUAL REPORT 2014
2014
2013
2012
$
750.3 $ 709.3 $ 730.6
6%
5%
6%
(3)%
6%
(3)%
2014 NET SALES MIX
PERCENT
OPERATING UNIT
Equipment Care
21%
$
116.5 $ 104.1 $
107.5
GEOGRAPHIC
Latin America 6%
12%
12%
12%
(3)%
8%
(4)%
15.5%
14.7%
14.7%
Asia Pacific
7%
EMEA
19%
79%
Pest Elimination
68%
North America
Net Sales
Fixed currency sales for our Other segment increased 6% in 2014. As
shown in the previous table, acquisitions and divestitures had a small
impact on sales growth, with the increase driven primarily by pricing
and volume increases. At a regional level, the 2014 sales increase
was led by double-digit gains in Latin America and strong growth
in Asia Pacific. North America and EMEA had good sales gains.
Fixed currency sales decreased 3% in 2013. Acquisition adjusted
fixed currency sales growth, including the impact of the Vehicle
Care divestiture in late 2012, was 6% for 2013, driven by pricing and
volume increases. At a regional level, the 2013 acquisition adjusted
sales increase was impacted by strong growth in Asia Pacific, good
gains in both Latin America and North America and moderate growth
in EMEA.
At an operating unit level, Pest Elimination fixed currency sales
increased 6% in 2014 (increase of 5% acquisition adjusted)
benefiting from gains in the food and beverage and foodservice
markets. Fixed currency sales increased 5% in 2013, with sales
gains in the food and beverage, healthcare and foodservice markets
leading the growth. Market penetration and sales of innovative
service offerings and technologies benefited results across the
comparable periods. Equipment Care fixed currency sales increased
7% in 2014 and 8% in 2013, with service and installed parts sales
increases benefiting growth in both years.
Operating Income
Fixed currency operating income for our Other segment increased
12% in 2014. The operating income margin increased 0.8 percentage
points. The increase in fixed currency operating income and
improved operating income margin were impacted largely by pricing
and sales volume growth, which more than offset other costs. Fixed
currency operating income for our Other segment decreased 3%
in 2013. The operating income margin was consistent across 2013
and 2012. Acquisition adjusted fixed currency operating income,
including the impact of the Vehicle Care divestiture, increased 8%.
Our operating income margin adjusted for acquisitions increased 0.3
percentage points in 2013. The increase in acquisition adjusted fixed
currency operating income and gains in operating income margin
adjusted for acquisitions were driven by pricing and sales volume
increases, which more than offset other costs.
CORPORATE
Consistent with the company’s internal management reporting, the
Corporate segment includes intangible asset amortization specifically
from the Nalco merger and in 2013 and 2012 certain integration
costs for both the Nalco and Champion transactions. The Corporate
segment also includes special (gains) and charges reported on the
Consolidated Statement of Income. Items included within special
(gains) and charges are shown in the table on page 18.
FINANCIAL POSITION & LIQUIDITY
Financial Position
Total assets were $19.5 billion as of December 31, 2014, compared to
total assets of $19.6 billion as of December 31, 2013. The increase in
assets from acquisitions and ongoing business activities was offset
by intangible asset amortization and the negative impact of foreign
currency exchange rates on the value of our foreign assets translated
into U.S. dollars as of year end 2014.
Total liabilities were $12.1 billion as of December 31, 2014, compared
to total liabilities of $12.2 billion as of December 31, 2013. Total
debt was $6.6 billion as of December 31, 2014 and $6.9 billion as of
December 31, 2013. 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”) and net debt to adjusted EBIDTA are
shown in the following table. We view our net debt to EBITDA and
net debt to adjusted EBITDA ratios as important indicators of our
creditworthiness.
EBITDA and adjusted EBITDA are non-GAAP measures. As shown
below, EBITDA is defined as net income including non-controlling
interest plus provision for income taxes, net interest expense,
depreciation and amortization. Adjusted EBITDA is defined as EBITDA
plus special (gains) and charges impacting EBITDA.
2014
2013
2012
2.2
2.2
2.8
2.5
2.7
2.4
2014
2013
2012
$ 6,569.4 $ 6,904.5 $ 6,541.9
1,157.8
$ 6,359.8 $ 6,565.3 $ 5,384.1
339.2
209.6
$ 1,222.2 $ 973.6 $
476.2
256.6
558.1
313.9
2,827.0
324.7
262.3
514.2
302.0
2,376.8
701.3
311.3
276.7
468.2
246.3
2,003.8
83.1
239.6
$ 2,910.1 $ 2,591.3 $ 2,243.4
214.5
RATIO
Net debt to EBITDA
Net debt to adjusted EBITDA
MILLIONS
NET DEBT
Total debt
Cash
Net debt
EBITDA
Net income including
non-controlling interest
Provision for income taxes
Interest expense, net
Depreciation
Amortization
EBITDA
Special (gains) and charges
impacting EBITDA
Adjusted EBITDA
Cash Flows
Operating Activities
MILLIONS
2014
2013
2012
DOLLAR CHANGE
2013
2014
Cash provided by
operating activities $ 1,815.6 $ 1,559.8 $ 1,203.0 $ 255.8 $ 356.8
We continue to generate strong cash flow from operations, allowing
us to fund our ongoing operations, acquisitions, investments in the
business, debt repayments, pension obligations and return cash to
our shareholders through dividend payments and share repurchases.
Comparability of cash generated from operating activities across
2012 to 2014 was impacted by numerous factors, including the
following:
• Increased income, primarily driven by the impact of the Champion
acquisition as well as lower comparable special (gains) and
charges.
• Fluctuations in accounts receivable, inventories and accounts
payable (“working capital”), the combination of which increased
$212 million, $127 million and $113 million in 2014, 2013 and 2012
respectively. The cash flow impact across the three years from
accounts receivable was driven by increased sales volumes and
timing of collections. The cash flow impact across the three
years from inventories was impacted by timing of purchases and
production and usage levels, and from accounts payable was
impacted by volume of purchases and timing of payments.
• We had certain non-recurring payments in 2013 related to liabilities
assumed with the Champion acquisition.
ECOLAB ANNUAL REPORT 2014 25
• Pension and postretirement plan contributions, cash activity
related to restructuring, cash paid for income taxes and cash paid
for interest are shown in the following table.
MILLIONS
2014
2013
2012
DOLLAR CHANGE
2013
2014
Pensions and
postretirement plan
contributions
Restructuring payments
Income tax payments
Interest payments
$ 76.7 $ 80.0 $ 254.9
72.7
120.6
222.6
434.2
279.0
258.9
82.7
522.0
255.5
$
(3.3) $ (174.9)
(37.9)
47.9
87.8
211.6
(3.4)
(20.1)
Of the pension and postretirement plan contributions shown in
the previous table, $150 million in 2012 represented voluntary
contributions to our U.S. pension plans. We made no voluntary
contributions in 2014 or 2013.
Investing Activities
MILLIONS
2014
2013
2012
DOLLAR CHANGE
2013
2014
Cash used
for investing
activities
$ (848.3) $ (2,087.7) $ (487.9) $ 1,239.4 $ (1,599.8)
Cash used for investing activities is primarily impacted by the timing
of business acquisitions and dispositions as well as from capital
investments in the business.
Total cash paid for acquisitions, net of cash acquired and net of cash
received from dispositions, in 2014 and 2013 was $72 million and
$1.4 billion, respectively. Total cash received from dispositions, net of
acquisitions during 2012, was $88 million.
The Champion acquisition accounted for $1.3 billion of the net cash
paid for acquisitions in 2013. The net cash received from dispositions
in 2012 was driven primarily by the sale of our Vehicle Care division.
Other immaterial acquisitions and divestitures across 2014, 2013 and
2012 are discussed further in Note 4.
We continue to target strategic business acquisitions which
complement our growth strategy and expect to continue to make
capital investments and acquisitions in the future to support our
long-term growth.
We continue to make capital investments in the business, including
process control and monitoring equipment, equipment used by our
customers to dispense our products and manufacturing facilities.
Total capital expenditures, including software, were $794 million,
$662 million and $608 million in 2014, 2013 and 2012, respectively.
Financing Activities
MILLIONS
2014
2013
2012
DOLLAR CHANGE
2013
2014
Cash used for
financing
activities
$ (1,071.0) $
(292.6) $ (1,393.6) $
(778.4) $ 1,101.0
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, dividend payments and acquisition-related
contingent consideration.
Our 2014 financing activities included the repayment of $400 million
of term loan borrowings, over the course of 2014, and the scheduled
repayment of our $500 million Senior Notes in December 2014,
originally issued in December 2011. Net borrowings of commercial
paper and notes payable led to a net cash inflow of $600 million
during 2014.
26 ECOLAB ANNUAL REPORT 2014
Our 2013 financing activities included $900 million of term loan
borrowings initiated in connection with the Champion transaction,
the repayment of our 125 million Series A euro notes ($170 million)
in December 2013, the redemption of debt acquired through the
Champion transaction and repayment of $100 million of term loan
borrowings. Net repayments of commercial paper and notes payable
led to a net cash outflow of $278 million during 2013.
Our 2012 financing activities included $1,695 million of long-term
debt repayments, primarily related to the redemption of Nalco’s
senior notes in January 2012. Partially offsetting the debt repayment,
we separately issued $500 million of senior notes in public debt
offerings in August 2012 and December 2012. Net repayments of
commercial paper and notes payable led to a net cash outflow of
$387 million during 2012.
Shares are repurchased for the purpose of partially offsetting the
dilutive effect of our equity compensation plans and stock issued in
acquisitions and to efficiently return capital to shareholders.
During 2014, 2013 and 2012, we had $429 million, $308 million and
$210 million of share repurchases, respectively. Cash proceeds and
tax benefits from stock option exercises provide a portion of the
funding for repurchase activity.
In December 2014, we increased our indicated annual dividend
rate by 20%. This represents the 23rd consecutive year we have
increased our dividend. We have paid dividends on our common
stock for 78 consecutive years. Cash dividends declared per share of
common stock, by quarter, for each of the last three years were as
follows:
FIRST
QUARTER
SECOND
QUARTER QUARTER
THIRD
FOURTH
QUARTER
YEAR
2014
20 1 3
20 12
$0.2750
0.2300
0.2000
$0.2750
0.2300
0.2000
$0.2750
0.2300
0.2000
$0.3300 $ 1.1550
0.9650
0.2750
0.8300
0.2300
Comparability of dividends paid across 2012 to 2014 was impacted
by the dividend rate increase noted in the above table, as well as the
payment timing of dividends declared in the fourth quarter of 2012
and 2013.
Financing activities for 2014 also included an acquisition-related
contingent consideration payment of $86 million made to Champion’s
former shareholders.
Liquidity and Capital Resources
We currently expect to fund all of our cash requirements which
are reasonably foreseeable for 2015, including scheduled debt
repayments, new investments in the business, share repurchases,
dividend payments, possible business acquisitions and pension
contributions, with cash from operating activities, cash reserves
available in certain foreign jurisdictions and additional short-term
and/or long-term borrowings. We continue to expect our operating
cash flow to remain strong.
As of December 31, 2014, we had $209.6 million of cash and cash
equivalents on hand, of which $192.6 million was held outside of the
U.S. Cash and cash equivalents held in Venezuela as of December 31,
2014 make up approximately one-third of the amount held outside
of the U.S. See the section entitled Global Economic and Political
Environment on pages 28-29 for further discussion regarding
Venezuela.
We have recorded deferred tax liabilities of $37.4 million and $94.5
million as of December 31, 2014 and 2013, respectively, for pre-
acquisition foreign earnings associated with the Nalco merger and
Champion acquisition that we intend to repatriate. These liabilities
were recorded as part of the respective purchase price accounting of
each transaction. We consider the remaining portion of our foreign
earnings to be indefinitely reinvested in foreign jurisdictions and
we have no intention to repatriate such funds. We continue to be
focused on building our business in high growth global markets and
these funds are available for use by our international operations. To
the extent the remaining portion of the foreign earnings would be
repatriated, such amounts would be subject to income tax or foreign
withholding tax liabilities that may be fully or partially offset by
foreign tax credits, both in the U. S. and in various applicable foreign
jurisdictions.
In December 2014, we increased our multi-year credit facility
from $1.5 billion to $2.0 billion and extended the maturity date
from September 2016 to December 2019. Our credit facility has
been established with a diverse syndicate of banks. There were no
borrowings under our credit facilities as of December 31, 2014 or 2013.
The credit facility supports our $2.0 billion U.S. commercial paper
program, which was increased to $2.0 billion from $1.5 billion
following the increase of our multi-year credit facility, and our $200
million European commercial paper program. Combined borrowing
under these two commercial paper programs may not exceed $2.0
billion. As of December 31, 2014, we had $888 million in outstanding
U.S. commercial paper, with an average annual interest rate of 0.5%,
and no amounts outstanding under our European commercial paper
program. As of December 31, 2014, both programs were rated A-2 by
Standard & Poor’s and P-2 by Moody’s.
Additionally, we have other committed and uncommitted credit
lines of $697 million with major international banks and financial
institutions to support our general global funding needs, including
with respect to bank supported letters of credit, performance bonds
and guarantees. Approximately $446 million of these credit lines was
unutilized and available for use as of year-end 2014.
We repaid $400 million of term loan borrowing over the course of
2014 and in December 2014, we repaid our $500 million senior notes,
originally issued in December 2011.
As of December 31, 2014, Standard & Poor’s and Moody’s rated
our long-term credit at BBB+ (positive outlook) and Baa1 (negative
outlook), respectively. In January 2015, Moody’s changed its outlook
from negative to stable. A reduction in our long-term credit ratings
could limit or preclude our ability to issue commercial paper under
our current programs. A credit rating reduction could also adversely
affect our ability to renew existing, or negotiate new, credit facilities
in the future and could increase the cost of these facilities. Should
this occur, we could seek additional sources of funding, including
issuing additional term notes or bonds. In addition, we have the
ability, at our option, to draw upon our $2.0 billion of committed
credit facility prior to termination.
We are in compliance with our debt covenants and other
requirements of our credit agreements and indentures.
A schedule of our obligations as of December 31, 2014 under various
notes payable, long-term debt agreements, operating leases with
noncancelable terms in excess of one year and interest obligations
are summarized in the following table:
MILLIONS
PAYMENTS DUE BY PERIOD
CONTRACTUAL
OBLIGATIONS
Notes payable
Commercial paper
Long-term debt
Capital lease
obligations
Operating leases
Interest*
Total contractual
cash obligations
LESS
THAN
1 YEAR
$
62
888
752
4
133
178
2–3
YEARS
$
-
-
2,367
1
219
286
4–5
MORE
THAN
YEARS 5 YEARS
$
-
-
250
1
153
221
$
-
-
2,242
3
158
1,050
TOTAL
$
62
888
5,611
9
663
1,735
$ 8,968
$ 2,017
$ 2,873
$ 625
$ 3,453
* Interest on variable rate debt was calculated using the interest rate at
year-end 2014.
As of December 31, 2014, our gross liability for uncertain tax
positions was $79 million. We are not able to reasonably estimate
the amount by which the liability will increase or decrease over an
extended period of time or whether a cash settlement of the liability
will be required. Therefore, these amounts have been excluded from
the schedule of contractual obligations.
We are not required to make any contributions to our U.S. pension
and postretirement healthcare benefit plans in 2015, based on
plan asset values as of December 31, 2014. We are required to fund
certain international pension benefit plans in accordance with local
legal requirements. We estimate contributions to be made to our
international plans will approximate $45 million in 2015. These
amounts have been excluded from the schedule of contractual
obligations.
We lease certain sales and administrative office facilities, distribution
centers, research and manufacturing facilities and other equipment
under longer-term operating leases. Vehicle leases are generally
shorter in duration. Vehicle leases have guaranteed residual value
requirements that have historically been satisfied primarily by the
proceeds on the sale of the vehicles.
Except for the approximately $251 million utilized under the bank
lines noted previously supporting domestic and international
commercial relationships and transactions, we do not have significant
unconditional purchase obligations or significant other commercial
commitments.
Off-Balance Sheet Arrangements
Other than operating leases, we do not have any off-balance
sheet financing arrangements. See Note 13 for information on our
operating leases. Through the normal course of business, we have
established various joint ventures that have not been consolidated
within our financial statements as we are not the primary beneficiary.
The joint ventures help us meet local ownership requirements,
achieve quicker operational scale, expand our ability to provide
customers a more fully integrated offering or provide other benefits
to our business or customers. These entities have not been utilized
as special purposes entities, which are sometimes established for the
purpose of facilitating off-balance sheet financial arrangements or
other contractually narrow or limited purposes. As such, we are not
exposed to any financing, liquidity, market or credit risk that could
arise if we had engaged in such relationships.
New Accounting Pronouncements
Information regarding new accounting pronouncements is included in
Note 2.
ECOLAB ANNUAL REPORT 2014 27
Market Risk
We enter into contractual arrangements (derivatives) in the ordinary
course of business to manage foreign currency exposure and interest
rate risks. We do not enter into derivatives for speculative or trading
purposes. Our use of derivatives is subject to internal policies
that provide guidelines for control, counterparty risk and ongoing
monitoring and reporting and is designed to reduce the volatility
associated with movements in foreign exchange and interest rates on
our income statement and cash flows.
We enter into foreign currency forward contracts to hedge certain
intercompany financial arrangements, and to hedge against the
effect of exchange rate fluctuations on transactions related to cash
flows denominated in currencies other than U.S. dollars. We use
net investment hedges, including our €175 million debt, as hedging
instruments to manage risks associated with our investments in
foreign operations.
We manage interest expense using a mix of fixed and floating rate
debt. To help manage borrowing costs, we may enter into interest
rate swap agreements. Under these arrangements, we agree to
exchange, at specified intervals, the difference between fixed and
floating interest amounts calculated by reference to an agreed-upon
notional principal amount. As of December 31, 2014, we had interest
rate swaps outstanding with notional values of $725 million and
€400 million. As of December 31, 2013, we did not have any interest
rate swaps outstanding.
See Note 8 for further information on our hedging activity.
Based on a sensitivity analysis (assuming a 10% adverse change in
market rates) of our foreign exchange and interest rate derivatives
and other financial instruments, changes in exchange rates or
interest rates would not materially affect our financial position
and liquidity. The effect on our results of operations would be
substantially offset by the impact of the hedged items.
Global Economic and Political Environment
Oil Markets and Global Energy Investments
During 2014, approximately 30% of our sales were generated from
our Global Energy segment, the results of which, as noted further
below, are subject to volatility in the oil and gas commodity markets.
Energy Markets
Oil prices have decreased during the fourth quarter of 2014 due to
increased supply from North America and the OPEC countries, as
oil producing countries have shifted focus from protecting prices
to protecting market share. In response to the falling oil prices,
the industry is reducing exploration and production investments.
However, demand for oil and energy consumption has remained
stable.
Our global footprint and broad business portfolio within the Global
Energy segment, as well as our strong execution capabilities are
expected to provide the required resilience to outperform in the
current market. Though lower oil prices will slow our Global Energy
segment results, the underlying operations are heavily weighted to
the recurring revenue production and refining businesses. As such,
we do not currently expect lower oil prices to have a significant
impact on the long-term performance of our Global Energy segment.
Additionally, as petroleum based materials are key inputs to many of
our chemical products, lower oil prices will provide benefits across
our segments in the form of lower raw material costs. In addition,
it is likely we would experience improved Institutional markets as
consumers have more discretionary income due to lower energy
prices.
28 ECOLAB ANNUAL REPORT 2014
Energy Investments
We have a joint venture in Kazakhstan, which we acquired as part of
the Champion transaction that holds a contract to supply production
chemicals for use in the Kashagan oil project, a Caspian Sea shallow-
water oil field. The startup of production at the Kashagan project
has been significantly delayed and output was indefinitely halted
after pipeline failures were discovered in October 2013. We have
approximately $25 million invested in this joint venture, related to
inventory, imported in anticipation of production. We anticipate that
the pipelines will be repaired and production restarted; however, if
this does not occur, or does not occur in a timely manner, we believe
the impact of such events would not have a material adverse effect
on our consolidated financial position or results of operations.
Global Economies
Approximately half of our sales are outside of the United States.
Our international operations subject us to changes in economic
conditions and foreign currency exchange rates, as well as political
uncertainty in some countries, which all could impact future
operating results.
Global Foreign Currency Markets
During 2014, the U.S. dollar strengthened against most global
currencies, impacting our comparative results for 2014. We expect
this trend to continue into 2015, leading to a significantly challenging
comparison for 2015 against prior years. As previously noted within
the section entitled Market Risk, we utilize our derivative program
to mitigate risks associated with foreign currency exposure and our
investments in foreign operations.
European Environment
Economic conditions in Europe have remained challenging, with
sovereign debt issues, high levels of unemployment and large trade
deficits leading to currency fluctuations and diminished credit
availability. While such factors could negatively impact our customers
located both within Europe and other geographic areas, we currently
do not foresee any specific credit or market risks that would have a
significant impact to our future results of operations.
Russia and Ukraine
The recent political turmoil, economic sanctions, as well as the
depressed oil markets, have led to foreign currency pressure as
well as higher localized interest rates within Russia and Ukraine. We
have experienced no significant impact from these trends, and will
continue to monitor the economic and political trends within the
region. Net sales within Russia and Ukraine are approximately 1% of
our reported net sales.
Venezuela Foreign Currency Translation
Venezuela is a country experiencing a highly inflationary economy
as defined under U.S. GAAP. As a result, the U.S. dollar is the
functional currency for our subsidiaries in Venezuela. Any currency
remeasurement adjustments for non-dollar denominated monetary
assets and liabilities held by our subsidiaries and other transactional
foreign exchange gains and losses are reflected in earnings.
On February 8, 2013, the Venezuelan government devalued its
currency, the Bolivar Fuerte (“bolivar”) from 4.30 bolivars to 1 U.S.
dollar to 6.30 bolivars to 1 U.S. dollar, resulting in a charge during
2013 of $22.7 million ($16.1 million after tax), recorded within special
(gains) and charges.
In 2013, the Venezuelan government created a new foreign exchange
mechanism known as the “Complementary System of Foreign
Currency Acquirement” (“SICAD 1”). It operates similar to an auction
system and allows entities to exchange a limited number of bolivars
for U.S. dollars at a bid rate established via weekly auctions under
SICAD 1. As of November 30, 2014, the fiscal year end for our
international operations, the SICAD 1 exchange rate closed at 12.0
bolivars to 1 U.S. dollar. We do not use the SICAD 1 rate or expect to
use the SICAD 1 currency exchange mechanism.
In January 2014, the Venezuelan government announced the
replacement of the Commission for the Administration of Foreign
Exchange (“CADIVI”) with a new foreign currency administration,
the National Center for Foreign Commerce (“CENCOEX”). During the
year ended November 30, 2014, we continued to obtain approvals
and authorization to pay amounts at the CENCOEX fixed currency
exchange rate of 6.30 bolivars to 1 U.S. dollar, however at a slightly
lower rate. As the fixed currency exchange rate of 6.30 bolivars to
1 U.S. dollar remained legally available to us and we continued to
transact at this rate, we continued to remeasure the net monetary
assets of our Venezuela subsidiaries at this rate.
In March 2014, the Venezuelan government introduced an additional
currency exchange auction mechanism (“SICAD 2”). At November
30, 2014, the SICAD 2 exchange rate closed at 49.98 bolivars to 1 U.S.
dollar. In February 2015, SICAD 2 was replaced by a free-floating rate,
the Marginal Currency System (“SIMADI”), with an exchange rate
upon introduction of approximately 170 bolivars to 1 U.S. dollar.
Depending on the ultimate transparency, liquidity and availability of
the various Venezuelan exchange markets, it is possible that in future
periods, we may need to remeasure a portion or substantially all of
our net monetary balances at a rate other than the official rate of
6.30 bolivars to 1 U.S. dollar currently being used. Assuming these
rates are higher than the official exchange rate at the time our net
monetary assets are remeasured, this could result in an additional
devaluation charge. In addition, operating results translated using
a higher rate than the official rate could result in a reduction in
earnings.
As of November 30, 2014, we have $104 million of net monetary
assets denominated in bolivars that were required to be remeasured
to U.S. dollars. If we determine our net monetary assets should be
remeasured in a subsequent period, we could recognize a currency
devaluation pre-tax loss of up to $104 million based on the November
30, 2014 net monetary assets. This loss would be a component of
special (gains) and charges within our Consolidated Statement of
Income.
Net sales within Venezuela are approximately 1% of our reported net
sales. Assets held in Venezuela at November 30, 2014 represented
less than 2% of our reported total assets.
Subsequent Events
In December 2014, subsequent to our fiscal year end for international
operations, we entered into a licensing agreement and business
acquisition with Aseptix Health Sciences NV. Pre-acquisition sales of
the business are less than $1 million.
Also in December 2014, subsequent to our fiscal year end for
international operations, we acquired Commercial Pest Control Pty
Ltd, an Australian commercial pest control company. Pre-acquisition
sales of the business are less than $1 million.
In January 2015, we issued $600 million of debt securities in a public
offering, consisting of $300 million that mature in 2018 at a rate
of 1.55% and $300 million that mature in 2020 at a rate 2.25%.
The proceeds were used to repay a portion of our outstanding
commercial paper and for general corporate purposes.
In January 2015, we entered into interest rate swap agreements that
converted our $300 million 1.55% debt discussed above, our $250
million 3.69% debt and a portion of our $1.25 billion 3.00% debt
from fixed rates to floating or variable interest rates. Also in January
2015, we entered into forward contracts with notional values of €360
million to hedge an additional portion of our new investments in euro
functional currency subsidiaries.
We repaid our $250 million 4.88% notes at maturity in February
2015.
In February 2015, our Board of Directors authorized the repurchase
of up to 20 million additional shares of our common stock, including
shares to be repurchased under Rule 10b5-1. In February 2015
we entered into an accelerated stock repurchase with a financial
institution to repurchase $300 million of our common stock.
Non-GAAP Financial Measures
This MD&A includes financial measures that have not been calculated
in accordance with 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
• Adjusted operating income
• Adjusted operating income margin
• Adjusted fixed currency operating income
• Adjusted fixed currency operating income margin
• EBITDA
• Adjusted EBITDA
• Adjusted net interest expense
• Adjusted tax rate
• Adjusted net income
• 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.
We include in special (gains) and charges items that are unusual in
nature and significant in amount. In order to better allow investors
to compare underlying business performance period-to-period,
we provide adjusted cost of sales, adjusted gross margin, adjusted
operating income, adjusted operating income margin, adjusted fixed
currency operating income, adjusted fixed currency operating income
margin, adjusted net interest expense, adjusted net income and
adjusted diluted earnings per share, which exclude special (gains) and
charges and discrete tax items. The exclusion of special (gains) and
charges and discrete tax items in such adjusted amounts help provide
a better understanding of underlying business performance.
EBITDA is defined as net income including non-controlling interest
plus provision for income taxes, net interest expense, depreciation
and amortization. Adjusted EBITDA is defined as EBITDA plus
special (gains) and charges impacting operating income. EBITDA
and adjusted EBITDA are used as inputs to our net debt to EBITDA
and net debt to adjusted EBITDA ratios, which we view as important
indicators of our creditworthiness.
The adjusted tax rate measure promotes period-to-period
comparability of the underlying effective tax rate because it excludes
the tax rate impact of special (gains) and charges and discrete tax
items which do not necessarily reflect costs associated with historical
trends or expected future results.
ECOLAB ANNUAL REPORT 2014 29
We evaluate the performance of our international operations based
on fixed currency rates of foreign exchange. Fixed currency sales,
acquisition adjusted fixed currency sales, fixed currency operating
income and adjusted fixed currency operating income measures
eliminate the impact of exchange rate fluctuations on our sales,
acquisition adjusted sales, operating income and adjusted operating
income, respectively, and promote a better understanding of our
underlying sales and operating income trends. Fixed currency
amounts are based on translation into U.S. dollars at fixed foreign
currency exchange rates established by management at the
beginning of 2014.
Acquisition adjusted growth rates generally exclude the results of any
acquired business from the first twelve months post acquisition and
exclude the results of divested businesses from the twelve months
prior to divestiture. Champion is an exception. Due to the rapid
pace at which the business has been integrated within our Global
Energy segment, including all customer selling activity, discrete
financial data specific to the legacy Champion business is no longer
available for post-acquisition periods. As such, to allow for the most
meaningful period-over-period comparison, specific to the Champion
transaction, Champion’s results for 2012 and the period prior to
acquisition in 2013 have been included for purposes of providing
acquisition adjusted growth rates.
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 and Risk Factors
This MD&A and other portions of this Annual Report to Shareholders
contain various “Forward-Looking Statements” within the meaning
of the Private Securities Litigation Reform Act of 1995. These
statements include expectations concerning items such as:
• amount, funding and timing of cash expenditures, scope, timing,
costs, benefits, synergies and headcount impact of our restructuring
initiatives
• utilization of recorded restructuring liabilities
• capital investments and strategic business acquisitions
• share repurchases
• impact of Venezuela currency remeasurement
• payments under operating leases
• borrowing capacity
• global market risk
• impact of oil price fluctuations and expectations concerning
production at certain projects
• targeted credit rating metrics
• long-term potential of our business
• impact of changes in exchange rates and interest rates
• leveraging and simplifying global supply chain
• losses due to concentration of credit risk
• recognition of share-based compensation expense
• future benefit plan payments
• amortization expense
• benefits of and synergies from the Champion transaction
• bad debt experiences and customer credit worthiness
• disputes, claims and litigation
• environmental contingencies
• returns on pension plan assets
• future cash flow and uses for cash
• dividends
30 ECOLAB ANNUAL REPORT 2014
• debt repayments
• contributions to pension and postretirement healthcare plans
• liquidity requirements and borrowing methods
• impact of credit rating downgrade
• impact of new accounting pronouncements
• tax deductibility of goodwill
• non performance of counterparties
• income taxes, including valuation allowances, loss carryforwards,
unrecognized tax benefits and uncertain tax positions
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 the
company’s 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.
Some of the factors which could cause results to differ from those
expressed in any forward-looking statements are set forth under
Item 1A of our Form 10-K for the year ended December 31, 2014,
entitled Risk Factors, 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 a potential currency devaluation
in Venezuela and reduced sales and earnings in other countries
resulting from the weakening of local currencies versus the U.S.
dollar; our ability to attract and retain high caliber management
talent to lead our business; our ability to execute key business
initiatives; potential information technology infrastructure failures;
exposure to global economic, political and legal risks related to our
international operations including with respect to our operations in
Russia; 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; the occurrence
of litigation or claims, including related to the Deepwater Horizon
oil spill; our ability to develop competitive advantages through
innovation; difficulty in procuring raw materials or fluctuations
in raw material costs; our substantial indebtedness; our ability to
acquire complementary businesses and to effectively integrate
such businesses; restraints on pricing flexibility due to contractual
obligations; pressure on operations from consolidation of customers,
vendors or competitors; public health epidemics; potential losses
arising from the impairment of goodwill or other assets; potential loss
of deferred tax 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. In
addition, we note that our stock price can be affected by fluctuations
in quarterly earnings. 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.
CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31 (MILLIONS, EXCEPT PER SHARE AMOUNTS)
2014
2013
2012
Net sales
Operating expenses
Cost of sales (including special charges of $14.3, $43.2 and $93.9 in 2014,
2013 and 2012, respectively)
Selling, general and administrative expenses
Special (gains) and charges
Operating income
Interest expense, net (including special charges of $2.5 and $19.3 in 2013 and
2012, respectively)
Income before income taxes
Provision for income taxes
Net income including noncontrolling interest
Less: Net income (loss) attributable to noncontrolling interest (including special
charges of $0.5 and $4.5 in 2013 and 2012, respectively)
$ 14,280.5
$ 13,253.4
$ 11,838.7
7,679.1
4,577.6
7,161.2
4,360.3
68.8
171.3
6,385.4
4,018.3
145.7
1,955.0
1,560.6
1,289.3
256.6
1,698.4
476.2
1,222.2
19.4
262.3
1,298.3
324.7
973.6
5.8
276.7
1,012.6
311.3
701.3
(2.3)
Net income attributable to Ecolab
$ 1,202.8
$
967.8
$
703.6
Earnings attributable to Ecolab per common share
Basic
Diluted
Dividends declared per common share
Weighted-average common shares outstanding
Basic
Diluted
$
$
4.01
3.93
$ 1.1550
300.1
305.9
$
$
3.23
3.16
$ 0.9650
299.9
305.9
$
$
2.41
2.35
$ 0.8300
292.5
298.9
The accompanying notes are an integral part of the consolidated financial statements.
ECOLAB ANNUAL REPORT 2014 31
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
YEAR ENDED DECEMBER 31 (MILLIONS)
Net income including noncontrolling interest
Other comprehensive income (loss), net of tax
Foreign currency translation adjustments
Foreign currency translation
Gain (loss) on net investment hedges
Derivatives and hedging instruments
Pension and postretirement benefits
Current period net actuarial income (loss)
Pension and postretirement prior period service costs and benefits adjustments
Amortization of net actuarial loss and prior service costs included in net periodic pension
and postretirement costs
Subtotal
Total comprehensive income, including noncontrolling interest
Less: Comprehensive income (loss) attributable to noncontrolling interest
2014
2013
2012
$
1,222.2
$
973.6
$
701.3
(350.3)
34.7
(315.6)
(240.0)
(11.4)
(251.4)
3.9
7.0
(354.8)
(0.6)
12.1
(343.3)
(655.0)
567.2
11.1
337.2
(1.0)
46.7
382.9
138.5
1,112.1
(10.2)
4.8
9.8
14.6
(0.1)
(184.0)
21.8
31.0
(131.2)
(116.7)
584.6
(4.2)
Comprehensive income attributable to Ecolab
$
556.1
$
1,122.3
$
588.8
The accompanying notes are an integral part of the consolidated financial statements.
32 ECOLAB ANNUAL REPORT 2014
CONSOLIDATED BALANCE SHEET
DECEMBER 31 (MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
2014
2013
ASSETS
Current assets
Cash and cash equivalents
Accounts receivable, net
Inventories
Deferred income taxes
Other current assets
Total current assets
Property, plant and equipment, net
Goodwill
Other intangible assets, net
Other assets
Total assets
LIABILITIES AND EQUITY
Current liabilities
Short-term debt
Accounts payable
Compensation and benefits
Income taxes
Other current liabilities
Total current liabilities
Long-term debt
Postretirement health care and pension benefits
Other liabilities
Total liabilities
Equity(a)
Common stock
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Treasury stock
Total Ecolab shareholders’ equity
Noncontrolling interest
Total equity
Total liabilities and equity
$
209.6
$
339.2
2,626.7
1,466.9
183.2
384.7
4,871.1
3,050.6
6,717.0
4,456.8
371.2
2,568.0
1,321.9
163.0
306.3
4,698.4
2,882.0
6,862.9
4,785.3
407.9
$ 19,466.7
$ 19,636.5
$
1,705.4
$
861.0
1,162.4
560.4
88.6
869.8
4,386.6
4,864.0
1,188.5
1,645.5
12,084.6
347.7
4,874.5
5,555.1
(951.9)
(2,509.5)
7,315.9
66.2
7,382.1
1,021.9
571.1
80.9
953.8
3,488.7
6,043.5
795.6
1,899.3
12,227.1
345.1
4,692.0
4,699.0
(305.2)
(2,086.6)
7,344.3
65.1
7,409.4
$ 19,466.7
$ 19,636.5
(a)Common stock, 800.0 million shares authorized, $1.00 par value, 299.9 million shares outstanding at December 31, 2014, 301.1 million shares outstanding at
December 31, 2013. Shares outstanding are net of treasury stock.
The accompanying notes are an integral part of the consolidated financial statements.
ECOLAB ANNUAL REPORT 2014 33
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31 (MILLIONS)
OPERATING ACTIVITIES
Net income including noncontrolling interest
Adjustments to reconcile net income including noncontrolling interest
to cash provided by operating activities:
Depreciation
Amortization
Deferred income taxes
Share-based compensation expense
Excess tax benefits from share-based payment arrangements
Pension and postretirement plan contributions
Pension and postretirement plan expense
Restructuring, net of cash paid
Venezuela currency devaluation
(Gain) loss on sale of businesses
Other, net
Changes in operating assets and liabilities, net of effect of acquisitions:
Accounts receivable
Inventories
Other assets
Accounts payable
Other liabilities
2014
2013
2012
$ 1,222.2
$
973.6
$
701.3
558.1
313.9
(121.5)
71.1
(55.9)
(76.7)
83.9
0.3
-
(4.8)
7.8
(175.4)
(210.8)
(106.3)
174.7
135.0
514.2
302.0
(130.5)
69.6
(36.6)
(80.0)
142.4
(39.8)
23.2
1.9
16.4
(147.4)
(30.5)
(68.7)
50.6
(0.6)
468.2
246.3
(3.2)
65.8
(50.1)
(254.9)
114.6
66.6
-
(89.3)
5.6
(189.7)
(2.0)
18.6
79.0
26.2
Cash provided by operating activities
1,815.6
1,559.8
1,203.0
INVESTING ACTIVITIES
Capital expenditures
Capitalized software expenditures
Property and other assets sold
Businesses acquired and investments in affiliates, net of cash acquired
Divestiture of businesses
Deposit into acquisition related escrow
Release from acquisition related escrow
Other, net
Cash used for investing activities
FINANCING ACTIVITIES
Net issuances (repayments) of commercial paper and notes payable
Long-term debt borrowings
Long-term debt repayments
Reacquired shares
Dividends paid
Exercise of employee stock options
Excess tax benefits from share-based payment arrangements
Acquisition related liabilities and contingent consideration
Acquisition of noncontrolling interests
Other, net
Cash used for financing activities
Effect of exchange rate changes on cash and cash equivalents
Decrease in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
SUPPLEMENTAL CASH FLOW INFORMATION
Income taxes paid
Interest paid
The accompanying notes are an integral part of the consolidated financial statements.
34 ECOLAB ANNUAL REPORT 2014
(748.7)
(45.2)
10.9
(82.6)
10.4
(9.4)
8.7
7.6
(625.1)
(37.2)
18.1
(1,437.7)
(8.3)
(10.5)
13.0
-
(574.5)
(33.0)
15.9
(43.0)
130.7
(1.3)
17.3
-
(848.3)
(2,087.7)
(487.9)
599.6
-
(907.8)
(428.6)
(344.4)
65.4
55.9
(98.7)
(8.4)
(4.0)
(278.3)
900.1
(511.2)
(307.6)
(218.1)
97.0
36.6
(11.3)
-
0.2
(1,071.0)
(292.6)
(387.3)
1,001.2
(1,694.9)
(209.9)
(306.8)
163.7
50.1
-
-
(9.7)
(1,393.6)
(7.3)
(685.8)
1,843.6
(25.9)
(129.6)
339.2
209.6
$
1.9
(818.6)
1,157.8
$
339.2
$ 1,157.8
$
522.0
$
434.2
255.5
258.9
$
222.6
279.0
CONSOLIDATED STATEMENT OF EQUITY
MILLIONS
COMMON
STOCK
ADDITIONAL
PAID-IN
CAPITAL
ECOLAB SHAREHOLDERS
ACCUMULATED
OTHER
RETAINED
EARNINGS
TOTAL ECOLAB
COMPREHENSIVE TREASURY SHAREHOLDERS’
STOCK
INCOME (LOSS)
EQUITY
NON-
CONTROLLING
INTEREST
TOTAL
EQUITY
Balance December 31, 2011
$ 336.1
$ 3,980.8
$ 3,559.9
$
(344.9)
$ (1,865.2)
$ 5,666.7
$ 74.4
$ 5,741.1
Net income (loss)
Comprehensive income (loss) activity
Total comprehensive income (loss)
Cash dividends declared
Nalco merger
Stock options and awards
Reacquired shares
6.0
0.3
260.7
7.3
703.6
(242.9)
(114.8)
703.6
(114.8)
588.8
(242.9)
0.3
274.0
(209.9)
(2.3)
(1.9)
(4.2)
(3.9)
16.8
701.3
(116.7)
584.6
(246.8)
17.1
274.0
(209.9)
7.3
(217.2)
Balance December 31, 2012
342.1
4,249.1
4,020.6
(459.7)
(2,075.1)
6,077.0
83.1
6,160.1
Net income
Comprehensive income (loss) activity
Total comprehensive income (loss)
Cash dividends declared
Champion acquisition
Stock options and awards
Reacquired shares
967.8
(289.4)
154.5
967.8
154.5
1,122.3
(289.4)
543.0
199.0
(307.6)
5.8
(16.0)
(10.2)
(11.4)
3.6
973.6
138.5
1,112.1
(300.8)
546.6
199.0
(307.6)
284.9
11.2
(307.6)
258.1
184.8
3.0
Balance December 31, 2013
345.1
4,692.0
4,699.0
(305.2)
(2,086.6)
7,344.3
65.1
7,409.4
Net income
Comprehensive income (loss) activity
Total comprehensive income (loss)
Cash dividends declared
Champion acquisition
Acquisition of noncontrolling interests
Stock options and awards
Reacquired shares
1,202.8
1,202.8
19.4
1,222.2
(646.7)
(346.7)
(646.7)
556.1
(346.7)
(0.3)
191.1
(428.6)
(8.3)
11.1
(14.0)
(2.9)
6.9
(655.0)
567.2
(360.7)
(2.9)
6.6
191.1
(428.6)
5.7
(428.6)
(0.3)
182.8
2.6
Balance December 31, 2014
$ 347.7
$ 4,874.5
$ 5,555.1
$
(951.9)
$ (2,509.5)
$ 7,315.9
$ 66.2
$ 7,382.1
COMMON STOCK ACTIVITY
YEAR ENDED DECEMBER 31
(SHARES)
COMMON
STOCK
TREASURY
STOCK
COMMON
STOCK
TREASURY
STOCK
COMMON
STOCK
TREASURY
STOCK
2014
2013
2012
Shares, beginning of year
345,101,009
(43,965,830)
342,106,581
(47,384,557)
336,088,243
(44,113,799)
Stock options, shares
Stock awards, net issuances
1,850,757
773,022
122,455
8,231
2,206,661
787,767
254,680
11,008
6,596,444
5,430,997
208,239
587,341
(21,257)
(4,037,188)
(3,443,405)
(3,457,740)
Champion acquisition
Reacquired shares
Shares, end of year
347,724,788
(47,872,332)
345,101,009
(43,965,830)
342,106,581
(47,384,557)
The accompanying notes are an integral part of the consolidated financial statements.
ECOLAB ANNUAL REPORT 2014 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS
Ecolab Inc. (“Ecolab” or “the company”) is the global leader in
water, hygiene and energy technologies and services that protect
people and vital resources. The company delivers comprehensive
solutions and on-site service to ensure 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.
The company’s cleaning and sanitizing programs and products,
pest elimination services, and equipment maintenance and repair
services support customers in the foodservice, food and beverage
processing, hospitality, healthcare, government and education,
retail, textile care and commercial facilities management sectors.
The company’s products and technologies are also used in water
treatment, pollution control, energy conservation, oil production
and refining, steelmaking, papermaking, mining and other industrial
processes.
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the
company and all subsidiaries in which the company has a controlling
financial interest. Investments in companies, joint ventures or
partnerships in which the company does not have control, but
has the ability to exercise significant influence over operating
and financial policies, are reported using the equity method.
International subsidiaries are included in the financial statements
on the basis of their U.S. GAAP November 30 fiscal year-ends to
facilitate the timely inclusion of such entities in the company’s
consolidated financial reporting. All intercompany transactions and
profits are eliminated in consolidation.
Revisions
Effective in the first quarter of 2014, certain employee-related
costs from the company’s recently acquired businesses that
were historically presented within cost of sales were revised
and reclassified to SG&A on the Consolidated Statement of
Income. These immaterial revisions were made to conform with
management’s view of the respective costs within the global
organizational model. Total costs reclassified were $78.9 million
and $98.1 million for the years ended December 31, 2013 and 2012,
respectively.
Results for 2013 and 2012 have been revised to conform to the
current year presentation. The reclassification had no impact on
earnings, financial position or cash flows.
Use of Estimates
The preparation of the company’s financial statements requires
management to make certain estimates and assumptions that affect
the reported amounts of assets and liabilities as of the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ
from these estimates. The company’s critical accounting estimates
include revenue recognition, valuation allowances and accrued
liabilities, actuarially determined liabilities, restructuring, income
taxes and long-lived assets, intangible assets and goodwill.
Foreign Currency Translation
Financial position and reported results of operations of the
company’s international subsidiaries are measured using local
currencies as the functional currency. Assets and liabilities of these
operations are translated at the exchange rates in effect at each
fiscal year end. The translation adjustments related to assets and
liabilities that arise from the use of differing exchange rates from
period to period are included in accumulated other comprehensive
income (loss) in shareholders’ equity. Income statement accounts
are translated at average rates of exchange prevailing during the
year. The company evaluates its International operations based
on fixed rates of exchange; however, the different exchange rates
from period to period impact the amount of reported income from
consolidated operations. The foreign currency fluctuations of any
foreign subsidiaries that operate in highly inflationary environments
are included in results of operations. Further details related to the
highly inflationary environment in Venezuela are included in Note 3.
Concentration of Credit Risk
Credit risk represents the accounting loss that would be recognized
at the reporting date if counterparties failed to perform as
contracted. The company believes the likelihood of incurring
material losses due to concentration of credit risk is remote. The
principal financial instruments subject to credit risk are as follows:
Cash and Cash Equivalents - The company maintains cash deposits
with major banks, which from time to time may exceed insured
limits. The possibility of loss related to financial condition of major
banks has been deemed minimal. Additionally, the company’s
investment policy limits exposure to concentrations of credit risk
and changes in market conditions.
Accounts Receivable - A large number of customers in diverse
industries and geographies, as well as the practice of establishing
reasonable credit lines, limits credit risk. Based on historical trends
and experiences, the allowance for doubtful accounts is adequate to
cover potential credit risk losses.
Foreign Currency Contracts and Derivatives - Exposure to credit risk
is limited by internal policies and active monitoring of counterparty
risks. In addition, the company selects a diversified group of major
international banks and financial institutions as counterparties.
The company does not anticipate nonperformance by any of
these counterparties.
Cash and Cash Equivalents
Cash equivalents include highly-liquid investments with a maturity of
three months or less when purchased.
Accounts Receivable and Allowance For
Doubtful Accounts
Accounts receivable are carried at their face amounts less an
allowance for doubtful accounts. Accounts receivable are recorded
at the invoiced amount and generally do not bear interest. The
company estimates the balance of allowance for doubtful accounts
by analyzing accounts receivable balances by age and applying
historical write-off and collection trend rates. The company’s
estimates include separately providing for customer balances based
on specific circumstances and credit conditions, and when it is
deemed probable that the balance is uncollectible. Account balances
are charged off against the allowance when it is determined the
receivable will not be recovered.
36 ECOLAB ANNUAL REPORT 2014
The company’s allowance for doubtful accounts balance also includes an allowance for the expected return of products shipped and credits
related to pricing or quantities shipped of $15 million, $14 million and $13 million as of December 31, 2014, 2013 and 2012, respectively. Returns
and credit activity is recorded directly to sales.
The following table summarizes the activity in the allowance for doubtful accounts:
MILLIONS
Beginning balance
Bad debt expense
Write-offs
Other(a)
Ending balance
2014
$ 81
23
(20)
(7)
$ 77
2013
$ 73
28
(21)
1
$ 81
2012
$ 49
37
(13)
-
$ 73
(a) Other amounts are primarily the effects of changes in currency translations
and the impact of allowance for returns and credits.
Inventory Valuations
Inventories are valued at the lower of cost or market. Certain U.S. inventory costs are determined on a last-in, first-out (LIFO) basis. LIFO
inventories represented 37% and 34% of consolidated inventories as of December 31, 2014 and 2013, respectively. LIFO inventories include
certain legacy Nalco U.S. inventory acquired at fair value as part of the Nalco merger. All other inventory costs are determined using either
the average cost or first-in, first-out (FIFO) methods. Inventory values at FIFO, as shown in Note 5, approximate replacement cost.
Property, Plant and Equipment
Property, plant and equipment assets are stated at cost. Merchandising and customer equipment consists principally of various dispensing
systems for the company’s cleaning and sanitizing products, dishwashing machines and process control and monitoring equipment. Certain
dispensing systems capitalized by the company are accounted for on a mass asset basis, whereby equipment is capitalized and depreciated
as a group and written off when fully depreciated. The company capitalizes both internal and external costs of development or purchase of
computer software for internal use. Costs incurred for data conversion, training and maintenance associated with capitalized software are
expensed as incurred. Expenditures for major renewals and improvements, which significantly extend the useful lives of existing plant and
equipment, are capitalized and depreciated. Expenditures for repairs and maintenance are charged to expense as incurred. Upon retirement
or disposition of plant and equipment, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized in income.
Depreciation is charged to operations using the straight-line method over the assets’ estimated useful lives ranging from 5 to 40 years
for buildings and leasehold improvements, 3 to 18 years for machinery and equipment and 3 to 10 years for merchandising and customer
equipment and capitalized software. Total depreciation expense was $558 million, $514 million and $468 million for 2014, 2013 and 2012,
respectively.
Goodwill and Other Intangible Assets
Goodwill
Goodwill represents the excess of the purchase price over the fair value of identifiable net assets acquired. The company’s reporting units are
aligned with its ten operating segments.
During the second quarter of 2014, the company completed its annual test for goodwill impairment. The company used a “step zero”
qualitative test to assess all ten of its reporting units given substantial levels of headroom and other strong qualitative indicators. Qualitative
testing evaluated factors including, but not limited to, economic, market and industry conditions, cost factors and the overall financial
performance of the reporting units. Based on the “step zero” testing performed, no adjustment to the carrying value of goodwill was
necessary. Additionally, the company noted no changes in events or circumstances which would have required the completion of the two-step
quantitative goodwill impairment analysis for any of the assessed reporting units.
If circumstances change significantly, the company would also test a reporting unit’s goodwill for impairment during interim periods between
its annual tests. Based on the current and expected performance of the company’s reporting units, updating the impairment testing during
the second half of 2014 was not deemed necessary. There has been no impairment of goodwill since the adoption of Financial Accounting
Standards Board (“FASB”) guidance for goodwill and other intangibles on January 1, 2002.
The Nalco and Champion transactions resulted in the addition of $4.5 billion and $1.0 billion of goodwill, respectively, within the Energy, Water
and Paper reporting units. Subsequent performance of these reporting units relative to projections used for the purchase price allocation of
goodwill could result in an impairment if there is either underperformance by the reporting unit or if the carrying value of the reporting unit
were to fluctuate significantly due to reasons that did not proportionately change fair value.
ECOLAB ANNUAL REPORT 2014 37
The changes in the carrying amount of goodwill for each of the company’s reportable segments are as follows:
MILLIONS
December 31, 2012
Acquisitions(a)
Dispositions
Effect of foreign currency translation
December 31, 2013
Current year acquisitions(a)
Prior year acquisitions(b)
Dispositions
Reclassifications(c)
Effect of foreign currency translation
GLOBAL
INDUSTRIAL
$ 2,751.6
33.9
(2.1)
(53.9)
2,729.5
18.5
(0.1)
-
(28.9)
(76.8)
GLOBAL
INSTITUTIONAL
$ 720.6
-
-
(14.0)
706.6
-
-
(0.4)
5.0
(20.0)
GLOBAL
ENERGY
$ 2,325.3
1,037.9
-
(57.0)
3,306.2
9.9
16.9
-
23.9
(94.8)
OTHER
$ 123.0
-
-
(2.4)
120.6
4.6
-
(0.2)
-
(3.5)
TOTAL
$ 5,920.5
1,071.8
(2.1)
(127.3)
6,862.9
33.0
16.8
(0.6)
-
(195.1)
December 31, 2014
$ 2,642.2
$ 691.2
$ 3,262.1
$
121.5
$ 6,717.0
(a) For 2014, the company expects $20.7 million of the goodwill related to businesses acquired to be tax deductible. For 2013, none of the goodwill related to
businesses acquired is expected to be tax deductible.
(b) Represents purchase price allocation adjustments for 2013 acquisitions deemed preliminary as of December 31, 2013.
(c) Represents immaterial transfers related to certain changes to the company’s reportable segments during the first quarter of 2014.
Other Intangible Assets
As part of the Nalco merger, the company added the “Nalco” trade name as an indefinite life intangible asset. During the second quarter of
2014, using the qualitative assessment method, the company completed its annual test for indefinite life intangible asset impairment. Based
on this testing, no adjustment to the $1.2 billion carrying value of this asset was necessary. Additionally, based on the ongoing performance of
its operating units, updating the impairment testing during the second half of 2014 was not deemed necessary. There has been no impairment
of the Nalco trade name intangible asset since it was acquired.
Intangible assets subject to amortization primarily include customer relationships, trademarks, patents and other technology. The fair value of
identifiable intangible assets is estimated based upon discounted future cash flow projections and other acceptable valuation methods. Other
intangible assets are amortized on a straight-line basis over their estimated economic lives. The weighted-average useful life of amortizable
intangible assets was 14 years as of December 31, 2014 and 2013.
The weighted-average useful life by type of amortizable asset at December 31, 2014 is as follows:
NUMBER OF YEARS
Customer relationships
Trademarks
Patents
Other technology
14
14
14
8
The straight-line method of amortization reflects an appropriate allocation of the cost of the intangible assets to earnings in proportion to
the amount of economic benefits obtained by the company in each reporting period. The company evaluates the remaining useful life of its
intangible assets that are being amortized each reporting period to determine whether events and circumstances warrant a change to the
remaining period of amortization. If the estimate of an intangible asset’s remaining useful life is changed, the remaining carrying amount
of the intangible asset will be amortized prospectively over that revised remaining useful life. Total amortization expense related to other
intangible assets during the last three years and future estimated amortization is as follows:
MILLIONS
2012
2013
2014
2015
2016
2017
2018
2019
$ 237
293
305
299
295
292
286
273
Long-Lived Assets
The company periodically reviews its long-lived and amortizable intangible assets for impairment and assesses whether significant events or
changes in business circumstances indicate that the carrying value of the assets may not be recoverable. Such circumstances may include
a significant decrease in the market price of an asset, a significant adverse change in the manner in which the asset is being used or in its
physical condition or history of operating or cash flow losses associated with the use of an asset. An impairment loss may be recognized when
the carrying amount of an asset exceeds the anticipated future undiscounted cash flows expected to result from the use of the asset and its
eventual disposition. The amount of the impairment loss to be recorded, if any, is calculated by the excess of the asset’s carrying value over its
fair value. In addition, the company periodically reassesses the estimated remaining useful lives of its long-lived assets. Changes to estimated
useful lives would impact the amount of depreciation and amortization recorded in earnings. The company has not experienced significant
changes in the carrying value or estimated remaining useful lives of its long-lived or amortizable intangible assets.
38 ECOLAB ANNUAL REPORT 2014
Asset Retirement Obligations
The fair value of a liability for an asset retirement obligation
associated with the retirement of tangible long-lived assets is
recognized in the period in which it is incurred if a reasonable
estimate of fair value can be made. The liability is adjusted to
its present value in subsequent periods as accretion expense is
recorded. The corresponding asset retirement costs are capitalized
as part of the carrying amount of the related long-lived asset
and depreciated over the asset’s useful life. The company’s asset
retirement obligation liability was $9.5 million and $10.5 million,
respectively, at December 31, 2014 and 2013.
Income Taxes
Income taxes are recognized during the period in which transactions
enter into the determination of financial statement income,
with deferred income taxes being provided for the tax effect of
temporary differences between the carrying amount of assets and
liabilities and their tax bases. The company records a valuation
allowance to reduce its deferred tax assets when uncertainty
regarding their realizability exists. Deferred income taxes are
provided on the undistributed earnings of foreign subsidiaries
except to the extent such earnings are considered to be permanently
reinvested in the subsidiary.
The company records liabilities for income tax uncertainties
in accordance with the recognition and measurement criteria
prescribed in authoritative guidance issued by the FASB.
See Note 12 for additional information regarding income taxes.
Restructuring Activities
The company’s restructuring activities are associated with
plans to enhance its efficiency, effectiveness and sharpen its
competitiveness. These restructuring plans include net costs
associated with significant actions involving employee-related
severance charges, contract termination costs and asset write-
downs and disposals. Employee termination costs are largely based
on policies and severance plans, and include personnel reductions
and related costs for severance, benefits and outplacement services.
These charges are reflected in the quarter in which the actions are
probable and the amounts are estimable, which is generally when
management approves the associated actions. Contract termination
costs include charges to terminate leases prior to the end of their
respective terms and other contract termination costs. Asset write-
downs and disposals include leasehold improvement write-downs,
other asset write-downs associated with combining operations and
disposal of assets.
See Note 3 for additional information regarding restructuring.
Revenue Recognition
The company recognizes revenue on product sales at the time
evidence of an arrangement exists, title to the product and risk of
loss transfers to the customer, the price is fixed and determinable
and collection is reasonably assured. The company recognizes
revenue on services as they are performed. While the company
employs a sales and service team to ensure customer’s needs are
best met in a high quality way, the vast majority of the company’s
revenue is generated from product sales. Outside of the service
businesses and service offerings discussed in Note 17, any other
services are either incidental to a product sale and not sold
separately or are insignificant.
The company’s sales policies do not provide for general rights of
return. Critical estimates used in recognizing revenue include the
delay between the time that products are shipped, when they are
received by customers, when title transfers and the amount of
credit memos issued in subsequent periods. The company records
estimated reductions to revenue for customer programs and
incentive offerings, including pricing arrangements, promotions
and other volume-based incentives at the time the sale is recorded.
The company also records estimated reserves for anticipated
uncollectible accounts and for product returns and credits at the
time of sale. Depending on market conditions, the company may
increase customer incentive offerings, which could reduce gross
profit margins at the time the incentive is offered.
Earnings Per Common Share
The computations of the basic and diluted earnings attributable to
Ecolab per share amounts were as follows:
MILLIONS
EXCEPT PER SHARE
2014
2013
2012
Net income attributable to Ecolab
$ 1,202.8
$ 967.8
$ 703.6
Weighted-average common
shares outstanding
Basic
Effect of dilutive stock
options, units and awards
Diluted
Earnings attributable to
Ecolab per common share
Basic
Diluted
Anti-dilutive securities
excluded from the computation
of earnings per share
300.1
299.9
292.5
5.8
6.0
6.4
305.9
305.9
298.9
$
$
4.01 $
3.23 $
3.93 $
3.16 $
2.41
2.35
3.4
1.8
2.6
Other Significant Accounting Policies
The following table includes a reference to additional significant
accounting policies that are described in other notes to the financial
statements, including the note number and first page of the note:
POLICY
Fair value measurements
Derivatives and hedging transactions
Share-based compensation
Legal contingencies
Pension and post-retirement benefit plans
Reportable segments
NOTE
7
8
11
15
16
17
PAGE
47
48
51
54
56
61
ECOLAB ANNUAL REPORT 2014 39
New Accounting Pronouncements
STANDARD
DATE OF
ISSUANCE
DESCRIPTION
DATE OF
ADOPTION
EFFECT ON THE
FINANCIAL STATEMENTS
STANDARDS THAT ARE NOT YET ADOPTED
ASU 2014-08—Presentation of Financial
Statements (Topic 205): Reporting Dis-
continued Operations and Disclosures of
Disposals of Components of an Entity
April 2014 Updated criteria for determining which disposals
should be presented as discontinued operations
as well as modifications to the related disclosure
requirements.
January 1,
2015
The company does not expect the updated
guidance to have a material impact on
future financial statements.
ASU 2014-09—Revenue from Contracts
with Customers (Topic 606)
May 2014 Recognition standard contains principles for
entities to apply to determine the measurement
of revenue and timing of when the revenue is
recognized. The underlying principle of the
updated guidance will have entities recognize
revenue to depict the transfer of goods or
services to customers at an amount that is
expected to be received in exchange for those
goods or services.
January 1,
2017
The company is currently evaluating the
impact of adoption.
ASU 2014-15—Presentation of Financial
Statements—Going Concern (Subtopic
205-40): Disclosure of Uncertainties about
an Entity’s Ability to Continue as a Going
Concern
August
2014
Management’s responsibility to evaluate
whether there is substantial doubt about the
organization’s ability to continue as a going
concern and to provide related footnote
disclosures.
January 1,
2017
The company does not expect the guidance
to have an impact on future financial
statements.
ASU 2014-16—Derivatives and Hedging
(Topic 815): Determining Whether the
Host Contract in a Hybrid Financial
Instrument Issued in the Form of a Share
is More Akin to Debt or to Equity
November
2014
For hybrid financial instruments issued in
the form of a share, an entity (an issuer or an
investor) should determine the nature of the
host contract by considering all stated and
implied substantive terms and features of the
basis of relevant facts and circumstances.
January 1,
2015
The company does not expect the updated
guidance to have a material impact on
future financial statements.
ASU 2015-01—Income Statement -
Extraordinary and Unusual Items
(Subtopic 225-20): Simplifying Income
Statement Presentation by Eliminating
the Concept of Extraordinary Items
January
2015
Entities should no longer segregate
extraordinary and unusual items from the
results of ordinary operations on the Income
Statement and should no longer disclose the
applicable income taxes and earnings-per-share
data for applicable extraordinary items.
January 1,
2016
The company does not expect the updated
guidance to have an impact on future
financial statements.
STANDARDS THAT WERE ADOPTED
ASU 2013-05—Foreign Currency Matters
(Topic 830): Parent’s Accounting for the
Cumulative Translation Adjustment upon
Derecognition of Certain Subsidiaries or
Groups of Assets within a Foreign Entity
or of an Investment in a Foreign Entity
ASU 2013-11—Income Taxes (Topic 740):
Presentation of an Unrecognized Tax
Benefit When a Net Operating Loss
Carryforward, a Similar Tax Loss, or a Tax
Credit Carryforward Exists
March 2013 Resolve diversity in practice regarding the re-
lease of the cumulative translation adjustment
into net income when a parent either sells a part
or all of its investments in a foreign entity. In
addition, the standard resolves diversity in prac-
tice for the treatment of business combinations
achieved in stages involving a foreign entity.
January 1,
2014
The adoption did not impact the company’s
consolidated financial statements and is
not expected to have a material impact on
future financial statements.
July 2013 Presentation of an unrecognized tax benefit when
a net operating loss carryforward, a similar tax
loss or a tax credit carryforward exists.
January 1,
2014
The adoption did not have a material impact
on the company’s consolidated financial
statements.
ASU 2014-17—Business Combinations
(Topic 805): Pushdown Accounting (A
consensus of the FASB Emerging Issues
Task Force)
November
2014
An acquired entity has the option to apply
pushdown accounting in its stand-alone financial
statements upon occurrence of a change-in-
control event.
November
2014
The adoption did not impact the company’s
consolidated financial statements and is
not expected to have a material impact on
future financial statements.
No other new accounting pronouncement issued or effective has had or is expected to have a material impact on the company’s consolidated
financial statements.
40 ECOLAB ANNUAL REPORT 2014
3. SPECIAL (GAINS) AND CHARGES
Special (gains) and charges reported on the Consolidated Statement
of Income included the following:
MILLIONS
Cost of sales
Restructuring charges
Recognition of inventory fair value
step-up
Subtotal
Special (gains) and charges
Restructuring charges
Champion acquisition and
integration costs
Nalco merger and integration costs
Venezuela currency devaluation
Gain on sale of businesses, litigation
2014
2013
2012
$
13.9
$
6.6
$ 22.7
0.4
14.3
69.2
19.9
8.5
-
36.6
43.2
71.2
93.9
49.7
18.6
23.2
18.3
70.9
-
83.4
116.6
MILLIONS
activity, settlements and other gains
Subtotal
(28.8)
68.8
(3.6)
171.3
(60.1)
145.7
Operating income subtotal
83.1
214.5
239.6
Interest expense, net
Acquisition debt costs
Debt extinguishment costs
Subtotal
Net income attributable to
noncontrolling interest
Venezuela currency devaluation
Recognition of inventory
fair value step-up
Subtotal
Total special (gains) and charges
$
-
-
-
-
2.5
-
2.5
1.1
18.2
19.3
(0.5)
-
-
-
83.1
-
(0.5)
$ 216.5
(4.5)
(4.5)
$ 254.4
For segment reporting purposes, special (gains) and charges are
included in the Corporate segment, which is consistent with the
company’s internal management reporting.
Restructuring charges
Restructuring charges have been included as a component of both
cost of sales and special (gains) and charges on the Consolidated
Statement of Income. Amounts included as a component of cost of
sales include supply chain related severance and other asset write-
downs associated with combining operations. Restructuring liabilities
have been classified as a component of both other current and other
noncurrent liabilities on the Consolidated Balance Sheet.
Energy Restructuring Plan
In April 2013, following the completion of the acquisition of
Champion, the company commenced plans to undertake
restructuring and other cost-saving actions to realize its acquisition-
related cost synergies as well as streamline and strengthen Ecolab’s
position in the fast growing global energy market (the “Energy
Restructuring Plan”). Actions associated with the acquisition to
improve the effectiveness and efficiency of the business continue
to include a reduction of the combined business’s current global
workforce. Actions also include leveraging and simplifying its global
supply chain, including the reduction of plant, distribution center and
redundant facility locations and product line optimization.
The total pre-tax restructuring charges under the Energy
Restructuring Plan are expected to be approximately $80 million
($55 million after tax). The restructuring charges are expected
to be substantially complete by the end of 2015, although certain
actions will likely continue into 2016. The company anticipates
that approximately $60 million of the $80 million of the pre-tax
charges represent cash expenditures. The remaining pre-tax charges
represent estimated asset write-downs and disposals. No decisions
have been made regarding any additional asset disposals and
estimates could vary depending on the actual actions taken.
As a result of activities under the Energy Restructuring Plan, the
company recorded restructuring charges of $9.5 million ($6.4 million
after tax) and $27.4 million ($19.4 million after tax) during 2014 and
2013, respectively.
Restructuring charges and activity related to the Energy
Restructuring Plan since inception of the underlying actions include
the following:
Energy Restructuring Plan
EMPLOYEE
TERMINATION
COSTS
ASSET
DISPOSALS
OTHER
TOTAL
2013 ACTIVITY
Recorded expense and
accrual
Cash payments
Non-cash charges
Effect of foreign currency
translation
Restructuring liability,
December 31, 2013
2014 ACTIVITY
Recorded expense and
accrual
Cash payments
Non-cash charges
Effect of foreign currency
translation
Restructuring liability,
December 31, 2014
$ 22.9
(16.7)
-
$
3.6
-
(3.6)
$
0.9
(0.8)
-
$ 27.4
(17.5)
(3.6)
0.6
6.8
7.9
(12.9)
-
0.2
$
2.0
$
-
-
0.6
-
(0.6)
-
-
-
0.1
0.6
6.9
1.0
(1.0)
-
9.5
(13.9)
(0.6)
-
0.2
$
0.1
$
2.1
As shown in the previous table, cash payments under the Energy
Restructuring Plan were $13.9 million and $17.5 million for 2014 and
2013, respectively. The majority of cash payments under this plan are
related to severance, with the current accrual expected to be paid
over a period of a few months to several quarters.
Combined Restructuring Plan
In February 2011, the company commenced a comprehensive plan to
substantially improve the efficiency and effectiveness of its European
business, as well as undertake certain restructuring activities outside
of Europe, historically referred to as the 2011 Restructuring Plan.
Additionally, in January 2012, following the merger with Nalco, the
company formally commenced plans to undertake restructuring
actions related to the reduction of its global workforce and
optimization of its supply chain and office facilities, including planned
reductions of plant and distribution center locations, historically
referred to as the Merger Restructuring Plan.
During the first quarter of 2013, the company determined that
because the objectives of the plans discussed above were aligned,
the previously separate restructuring plans should be combined into
one plan.
The combined restructuring plan (the “Combined Plan”) combines
opportunities and initiatives from both plans and continues to follow
the original format of the Merger Restructuring Plan by focusing on
global actions related to optimization of the supply chain and office
facilities, including reductions of the global workforce and plant and
distribution center locations. During the fourth quarter of 2014, the
company identified additional opportunities to optimize its supply
chain, increase efficiency and effectiveness and reduce workforce,
which increased total planned charges under the Combined Plan from
$330 million ($245 million after tax) to $390 million ($295 million
after tax).
The restructuring charges are expected to be substantially complete by
the end of 2015, although certain actions will likely continue into 2016.
ECOLAB ANNUAL REPORT 2014 41
The company anticipates that approximately two-thirds of the
remaining Combined Plan pre-tax charges will represent net cash
expenditures. No decisions have been made regarding any additional
non-cash charges and estimates could vary depending on the actual
actions taken.
As a result of activities under the Combined Plan, the company
recorded restructuring charges of $73.5 million ($58.5 million after
tax) and $63.6 million ($48.3 million after tax) during 2014 and 2013,
respectively.
Restructuring charges and activity related to the Combined Plan
since inception of the underlying actions include the following:
MILLIONS
2011-2013 ACTIVITY
Recorded net expense
and accrual
Net cash payments
Non-cash net charges
Effect of foreign currency
translation
Restructuring liability,
December 31, 2013
2014 ACTIVITY
Recorded net expense
and accrual
Net cash payments
Non-cash net charges
Effect of foreign currency
translation
Restructuring liability,
December 31, 2014
Combined Plan
EMPLOYEE
TERMINATION
COSTS
ASSET
DISPOSALS
OTHER
TOTAL
$
$ 248.2
(182.2)
-
(1.2)
9.1
(7.9)
$ 30.7
(19.1)
(4.3)
$ 277.7
(192.2)
(12.2)
(0.1)
65.9
60.6
(60.2)
-
(1.8)
$ 64.5
$
-
-
-
2.6
(2.6)
-
-
-
(0.1)
7.3
73.2
12.9
(11.2)
-
73.5
(68.8)
(2.6)
-
(1.8)
$
9.0
$ 73.5
As shown in the previous table, net cash payments under the
Combined Plan were $68.8 million during 2014 and $192.2 million
across 2011 to 2013. The majority of cash payments under this Plan
are related to severance, with the current accrual expected to be paid
over a period of a few months to several quarters.
Asset disposals in 2013 include gains of $7.4 million from the sale
of facilities.
Non-restructuring special (gains) and charges
Champion acquisition costs
As a result of the Champion acquisition completed in 2013, the
company incurred charges of $19.9 million ($12.8 million after tax),
$88.8 million ($61.4 million after tax) and $19.4 million ($16.7 million
after tax) during 2014, 2013 and 2012, respectively.
Champion related costs have been included as a component of
cost of sales, special (gains) and charges and net interest expense
on the Consolidated Statement of Income. Amounts within cost
of sales include the recognition of fair value step-up in Champion
international inventory, which is maintained on a FIFO basis, and
Champion U.S. inventory, which was associated with the adoption
of LIFO and integration into an existing LIFO pool. Amounts within
special (gains) and charges include acquisition costs, advisory and
legal fees and integration charges. Amounts within net interest
expense include the interest expense through the close date of the
Champion transaction of the company’s $500 million public debt
issuance in December 2012 as well as amortizable fees to secure
term loans and short-term debt, all of which were initiated to fund the
Champion acquisition. Further information related to the acquisition
of Champion is included in Note 4.
42 ECOLAB ANNUAL REPORT 2014
Nalco merger and integration costs
As a result of the Nalco merger completed in 2011, the company
incurred charges of $8.5 million ($7.0 million after tax), $18.6 million
($14.2 million after tax) and $155.8 million ($113.7 million after tax),
during 2014, 2013 and 2012, respectively.
Nalco merger and integration charges have been included as a
component of cost of sales, special (gains) and charges, net interest
expense and net income (loss) attributable to noncontrolling interest
on the Consolidated Statement of Income. Amounts within cost of
sales and net income (loss) attributable to noncontrolling interest
include recognition of fair value step-up in Nalco international
inventory which is maintained on a FIFO basis. Amounts within
special (gains) and charges include merger and integration
charges. Amounts within net interest expense include a loss on the
extinguishment of Nalco’s senior notes, which were assumed as part
of the merger. Further information related to the Nalco merger is
included in Note 4.
Venezuelan currency devaluation
Venezuela is a country experiencing a highly inflationary economy as
defined under U.S. GAAP. As a result, the U.S. dollar is the functional
currency for the company’s subsidiaries in Venezuela. Any currency
remeasurement adjustments for non-dollar denominated monetary
assets and liabilities held by our subsidiaries and other transactional
foreign exchange gains and losses are reflected in earnings.
On February 8, 2013, the Venezuelan government devalued its
currency from 4.30 bolivars to 1 U.S. dollar to 6.30 bolivars to 1 U.S.
dollar, resulting in a charge during 2013 of $22.7 million ($16.1 million
after tax), due to the remeasurement of the local balance sheet. As
a result of the ownership structure of our operations in Venezuela,
the company also reflected a portion of the devaluation impact as
a component of net income (loss) attributable to noncontrolling
interest on the Consolidated Statement of Income.
In 2013, the Venezuelan government created a new foreign exchange
mechanism known as SICAD 1. It operates similar to an auction
system and allows entities to exchange a limited number of bolivars
for U.S. dollars at a bid rate established via weekly auctions under
SICAD 1. As of November 30, 2014, the fiscal year end for the
company’s international operations, the SICAD 1 exchange rate closed
at 12.0 bolivars to 1 U.S. dollar. The company does not use the SICAD 1
rate or expect to use the SICAD 1 currency exchange mechanism.
In January 2014, the Venezuelan government announced
the replacement of the CADIVI with a new foreign currency
administration, CENCOEX. During 2014, the company continued to
obtain approvals and authorization to pay amounts at the CENCOEX
fixed currency exchange rate of 6.30 bolivars to 1 U.S. dollar, however
at a slightly lower rate. As the fixed currency exchange rate of
6.30 bolivars to 1 U.S. dollar remained legally available to it and the
company continued to transact at this rate, the company continued
to remeasure the net monetary assets of its Venezuela subsidiaries
at this rate.
In March 2014, the Venezuelan government introduced SICAD 2.
At November 30, 2014, the SICAD 2 exchange rate closed at 49.98
bolivars to 1 U.S. dollar. In February 2015, SICAD 2 was replaced by
SIMADI, with an exchange rate upon introduction of approximately
170 bolivars to 1 U.S. dollar.
As of November 30, 2014, the company had $104 million of net
monetary assets denominated in bolivars that were required to
be remeasured to U.S. dollars. Net sales within Venezuela are
approximately 1% of the company’s consolidated net sales. Assets
held in Venezuela at November 30, 2014 represented less than 2% of
the company’s consolidated assets.
Other special (gains) and charges
During 2014, the company recorded a special gain of $28.4 million
($23.3 million after tax) as a result of a favorable licensing settlement
and other settlement gains, the consolidation of the Emochem entity
and removal of the corresponding equity method investment and the
disposition of a business.
During 2012, the company recorded a net special gain of $60.1
million ($35.7 million after tax) related to the sale of its Vehicle Care
division, the receipt of additional payments related to the sale of
an investment in a U.S. business, originally sold prior to 2012 and
litigation-related charges.
4. ACQUISITIONS AND DISPOSITIONS
Champion transaction of the company’s $500 million public debt
issuance in December 2012 as well as amortizable fees to secure
term loans and short-term debt, all of which were initiated to fund the
Champion acquisition.
The company funded the initial cash component of the merger
consideration through a $900 million unsecured term loan, initiated
in April 2013, the proceeds from the December 2012 issuance of
$500 million 1.450% senior notes and commercial paper borrowings
backed by its syndicated credit facility. See Note 6 for further
discussion on the company’s debt.
The Champion acquisition has been accounted for using the
acquisition method of accounting, which requires, among other
things, that most assets acquired and liabilities assumed be
recognized at fair value as of the acquisition date.
Acquisitions
Ecolab makes acquisitions that align with the company’s strategic
business objectives. The assets and liabilities of the acquired entities
have been recorded as of the acquisition date, at their respective
fair values, and are consolidated with the company. The purchase
price allocation is based on estimates of the fair value of assets
acquired and liabilities assumed. The results of operations related
to each acquired entity have been included in the results of the
company from the date each entity was acquired. The aggregate
purchase price of acquisitions has been reduced for any cash or cash
equivalents acquired with the acquisition.
The following table summarizes the value of Champion assets
acquired and liabilities assumed as of December 31, 2013. During
2013, adjustments of $37.1 million were made to the preliminary
purchase price allocation of the assets and liabilities assumed with a
corresponding adjustment to goodwill.
Also summarized in the table, during the first quarter of 2014, net
adjustments of $16.9 million were made to the value of Champion
assets acquired and liabilities assumed. As the adjustments were not
significant, they have been recorded in 2014 and are not reflected
in the 2013 Consolidated Balance Sheet. Purchase price allocations
were finalized during the first quarter of 2014.
Champion Acquisition
On April 10, 2013, the company completed its acquisition of
Champion, a global energy specialty products and services company
delivering its offerings to the oil and gas industry. The total fair
value of cash and stock consideration transferred to acquire all of
Champion’s stock was approximately $2.1 billion. Champion’s sales for
the business acquired by the company were approximately $1.3 billion
in 2012. The business became part of the company’s Global Energy
reportable segment in the second quarter of 2013.
Pursuant to terms of the acquisition agreement, the final
consideration transferred to acquire all of Champion’s stock was as
follows:
MILLIONS, EXCEPT PER SHARE
Cash consideration
Stock consideration
Ecolab shares issued at closing
Ecolab’s closing stock price on April 10, 2013
Total value of stock consideration
Total fair value of cash and stock consideration
$ 1,511.7
6.6
82.31
$
$
543.0
$ 2,054.7
The company deposited approximately $100 million of the
above stock consideration in an escrow account to fund post-
closing adjustments to the consideration and covenant and
other indemnification obligations of the acquired entity’s former
stockholders for a period of two years following the effective date of
the acquisition.
The company incurred certain acquisition related costs associated
with the transaction that were expensed as incurred and are
reflected in the Consolidated Statement of Income. Amounts included
in cost of sales relate to recognition of fair value step-up in Champion
international inventory, which is maintained on a FIFO basis and
Champion U.S. inventory, which was associated with the adoption of
LIFO and integration into an existing LIFO pool. Amounts included in
special (gains) and charges include acquisition costs, advisory and
legal fees and integration charges. Amounts included in net interest
expense include the interest expense through the close date of the
MILLIONS
ALLOCATION
AT DECEMBER 31,
2013
PURCHASE ALLOCATION
AT MARCH 31,
2014
PRICE
ADJUSTMENTS
FINAL
Current assets
Property, plant and equipment
Other assets
Identifiable intangible assets:
Customer relationships
Trademarks
Other technology
$ 592.3
357.8
16.2
$
(4.5)
(2.5)
0.1
$
840.0
120.0
36.5
-
-
-
587.8
355.3
16.3
840.0
120.0
36.5
Total assets acquired
1,962.8
(6.9)
1,955.9
Current liabilities
Long-term debt
Net deferred tax liability
Noncontrolling interests and
other liabilities
409.5
70.8
427.4
3.6
-
9.3
30.5
(2.9)
Total liabilities and noncontrolling
interests assumed
938.2
Goodwill
Total aggregate purchase price
1,030.1
2,054.7
10.0
16.9
-
413.1
70.8
436.7
27.6
948.2
1,047.0
2,054.7
Future consideration
payable to sellers
(86.4)
86.4
-
Total consideration transferred $ 1,968.3
$ 86.4
$ 2,054.7
The adjustments to the purchase price allocation during the first
quarter of 2014 primarily related to estimated liabilities, updated
property, plant and equipment values and deferred taxes.
In accordance with the acquisition agreement, except under limited
circumstances, the company was required to pay an additional
amount in cash, up to $100 million in the aggregate, equal to 50%
of the incremental tax on the merger consideration as a result of
increases in applicable gains and investment taxes after December
31, 2012. In January 2014, in accordance with the above discussion,
an additional payment of $86.4 million was made to the acquired
entity’s former stockholders.
The customer relationships, trademarks and other technology are
being amortized over weighted average lives of 14, 12 and 7 years,
respectively.
ECOLAB ANNUAL REPORT 2014 43
Goodwill is calculated as the excess of consideration transferred
over the fair value of identifiable net assets acquired and represents
the expected synergies and other benefits of combining the
operations of Champion with the operations of the company’s
existing Global Energy business. Key areas of cost synergies include
leveraging and simplifying the global supply chain, including the
reduction of plant and distribution center locations and product line
optimization, as well as the reduction of other redundant facilities.
The results of Champion’s operations have been included in the
company’s consolidated financial statements since the close of the
acquisition in April 2013. Due to the rapid pace at which the business
has been integrated with the company’s Global Energy segment,
including all customer selling activity, discrete financial data specific
to the legacy Champion business is no longer available for post-
acquisition periods.
Based on applicable accounting and reporting guidance, the
Champion acquisition is not material to the company’s consolidated
financial statements; therefore, pro forma financial information has
not been presented.
Other acquisition activity
Subsequent Event Activity
In December 2014, subsequent to the company’s fiscal year end
for international operations, the company entered into a licensing
agreement and business acquisition with Aseptix Health Sciences
NV. With pre-acquisition sales of less than $1 million, the acquired
business will become part of the company’s Global Institutional
reportable segment during the first quarter of 2015.
Also in December 2014, subsequent to the company’s fiscal year end
for international operations, the company acquired Commercial Pest
Control Pty Ltd, an Australian commercial pest control company.
With pre-acquisition sales of less than $1 million, the acquired
business will become part of the company’s Other segment during
the first quarter of 2015.
2014 Activity
In December 2013, subsequent to the company’s fiscal year end for
international operations, the company completed the acquisition of
AkzoNobel’s Purate business (“Purate”). Headquartered in Sweden,
Purate specializes in global antimicrobial water treatment. Pre-
acquisition annual sales of the business were approximately $23
million. The acquired business became part of the company’s Global
Industrial reportable segment during the first quarter of 2014.
In March 2014, the company acquired AK Kraus & Hiller
Schädlingsbekämpfung, one of Germany’s leading commercial pest
elimination service providers. Pre-acquisition annual sales of the
business were approximately $4 million. The business became part
of the company’s Other segment during the second quarter of 2014.
In March 2014, the company purchased the remaining interest
in a joint venture held in South Africa. The transaction was not
significant to the company’s operations.
In June 2014, the company purchased the remaining interest in a
joint venture in Indonesia. The transaction was not significant to the
company’s operations.
In July 2014, the company obtained control of Emochem, a joint
venture in the United Arab Emirates through an amendment in
the related shareholder agreements. This amendment resulted in
the company consolidating the entity and removing the related
equity method investment. The transaction was not significant to
the company’s operations. As discussed in Note 3, the company
44 ECOLAB ANNUAL REPORT 2014
recognized a $5.0 million gain during the third quarter of 2014 as a
result of this transaction.
In July 2014, the company acquired the chemical division of AKJ
Industries, a leading provider of chemical solutions in the coal
industry in the U.S. Pre-acquisition annual sales of the business
were approximately $21 million. The business became part of the
company’s Global Industrial reportable segment during the third
quarter of 2014.
In September 2014, the company acquired certain assets from Oksa
Kimya Sanayii. Based in Turkey, the transaction was not significant
to the company’s operations.
In November 2014, the company acquired the dairy hygiene chemical
businesses of EXL Laboratories, LLC and Hyprod Canada, providers
of cleaning and sanitizing products for use on dairy farms in the
U.S. and Canada. Pre-acquisition annual sales of the businesses
were approximately $25 million. The business became part of the
company’s Global Industrial reportable segment during the fourth
quarter of 2014.
2013 Activity
In January 2013, the company completed the acquisition of
Mexico-based Quimiproductos S.A. de C.V. (“Quimiproductos”), a
wholly-owned subsidiary of Fomento Economico Mexicano, S.A.B.
de C.V. (commonly known as FEMSA). Quimiproductos produces
and supplies cleaning, sanitizing and water treatment goods and
services to breweries and beverage companies located in Mexico
and Central and South America. Pre-acquisition annual sales of the
business were approximately $43 million. Approximately $8 million
of the purchase price was placed in an escrow account for potential
indemnification purposes related to general representations and
warranties. During the third quarter of 2014, the escrow balance was
paid to the seller. The business became part of the company’s Global
Industrial reportable segment during the first quarter of 2013.
In April 2013, the company completed the acquisition of Russia-
based OOO Master Chemicals (“Master Chemicals”). Master
Chemicals sells oil field chemicals to oil and gas producers located
throughout Russia and parts of the Ukraine. Pre-acquisition annual
sales of the business were approximately $29 million. Approximately
$3 million of the purchase price was placed in an escrow account
for indemnification purposes related to general representations
and warranties. The business became part of the company’s Global
Energy reportable segment during the second quarter of 2013.
2012 Activity
In December 2011, subsequent to the company’s fiscal year end for
international operations, the company completed the acquisition
of Esoform SpA, an independent Italian healthcare manufacturer
focused on infection prevention and personal care. Based outside of
Venice, Italy, with pre-acquisition annual sales of approximately $12
million, the business is included in the company’s Global Institutional
reportable segment.
Also in December 2011, the company completed the acquisition of
the InsetCenter pest elimination business in Brazil. Pre-acquisition
annual sales of the acquired business were approximately $6 million.
The business operations and staff have been integrated with the
company’s existing Brazil Pest Elimination business, and is included
in the company’s Other segment.
In March 2012, the company acquired Econ Indústria e Comércio
de Produtos de Higiene e Limpeza Ltda., a provider of cleaning
and sanitizing products and services to the Brazilian foodservice
industry. Based in Sao Paulo, Brazil, its pre-acquisition annual
sales were approximately $9 million. The business operations have
been integrated within the company’s existing Brazil Institutional
business and its results are part of the company’s Global Institutional
reportable segment.
Other Acquisition Activity
The other acquisitions during 2014, 2013 and 2012 discussed
above were not material to the company’s consolidated financial
statements; therefore, pro forma financial information has not
been presented. The aggregate purchase price of acquisitions has
been reduced for any cash or cash equivalents acquired with the
acquisitions. Based upon purchase price allocations, the components
of the aggregate purchase prices of 2014, 2013 and 2012 acquisitions,
excluding the Champion transaction, are shown in the following table.
MILLIONS
2014
2013
2012
Net tangible assets acquired (liabilities
assumed) including impact of joint
venture consolidation activity
Identifiable intangible assets
Customer relationships
Patents
Trademarks
Other technology
Total intangible assets
Goodwill
Total aggregate purchase price
Acquisition related liabilities and
contingent consideration
Liability for indemnification, net
Net cash paid for acquisitions,
$
9.5
$
(2.8)
$
(1.0)
32.0
-
3.4
4.5
39.9
32.9
82.3
12.3
8.7
58.8
1.4
-
1.0
61.2
41.7
100.1
11.3
2.4
8.4
2.8
0.5
0.3
12.0
23.3
34.3
(2.6)
16.0
including contingent consideration
$ 103.3
$ 113.8
$
47.7
The 2014 and 2013 contingent consideration activity primarily relates
to payments on legacy Nalco acquisitions. The 2012 contingent
consideration relates to immaterial acquisitions completed during the
year.
The weighted average useful lives of identifiable intangible assets
acquired, excluding the Champion transaction, was 10 years as of
December 31, 2014, and 13 years as of both December 2013 and 2012.
Dispositions
In April 2014, the company sold an immaterial business in Italy that
was part of the company’s Global Institutional reportable segment.
In November 2014, the company sold an immaterial business in New
Zealand that was part of the company’s Other segment.
In August 2013, the company sold substantially all the equipment
design and build business of its Mobotec air emissions control
business. The Mobotec equipment design and build business had 2012
sales of approximately $27 million, which were within the company’s
Global Industrial reportable segment. The company has retained
Mobotec’s chemical business.
In December 2012, the company completed the sale of its Vehicle
Care division for $116.9 million, resulting in a gain of $76.3 million,
recorded in special (gains) and charges. Vehicle Care sales were
approximately $65 million in 2011, and were included in the
company’s Other reportable segment. Net cash proceeds were used
to repay debt and for general corporate purposes.
During the third quarter of 2012, the company received additional
payments of $13.0 million related to the sale of an investment in a
U.S. business, originally sold prior to 2012. The corresponding gain
of $13.0 million recognized during the third quarter of 2012 was
recorded in special (gains) and charges.
5. BALANCE SHEET INFORMATION
DECEMBER 31 (MILLIONS)
2014
2013
Accounts receivable, net
Accounts receivable
Allowance for doubtful accounts
Total
Inventories
Finished goods
Raw materials and parts
Inventories at FIFO cost
Excess of FIFO cost over LIFO cost
Total
Property, plant and equipment, net
Land
Buildings and improvements
Leasehold improvements
Machinery and equipment
Merchandising and customer
equipment
Capitalized software
Construction in progress
Accumulated depreciation
Total
Other intangible assets, net
Cost of intangible assets not subject
to amortization:
Trade names
Cost of intangible assets subject
to amortization:
Customer relationships
Trademarks
Patents
Other technology
Accumulated amortization:
Customer relationships
Trademarks
Patents
Other technology
Total
Other assets
Deferred income taxes
Deferred financing costs
Pension
Other
Total
Other current liabilities
Discounts and rebates
Dividends payable
Interest payable
Taxes payable, other than income
Derivative liabilities
Restructuring
Future consideration payable to
Champion sellers
Other
Total
Other liabilities
Deferred income taxes
Income taxes payable – noncurrent
Restructuring
Other
Total
Accumulated other comprehensive
loss
Unrealized gain (loss) on derivative
financial instruments, net of tax
Unrecognized pension and
postretirement benefit expense,
net of tax
Cumulative translation, net of tax
Total
$
$
$
$
$
2,704.2
(77.5)
2,626.7
1,044.1
447.3
1,491.4
(24.5)
1,466.9
199.9
759.9
84.6
1,858.1
1,917.5
443.9
277.5
5,541.4
(2,490.8)
3,050.6
$
$
$
$
$
$
$
2,648.9
(80.9)
2,568.0
953.3
391.0
1,344.3
(22.4)
1,321.9
191.4
666.0
87.9
1,677.5
1,802.8
435.4
291.6
5,152.6
(2,270.6)
2,882.0
$
1,230.0
$
1,230.0
$
$
$
$
$
$
$
$
3,385.7
311.1
434.5
214.0
4,345.3
(794.6)
(91.5)
(124.9)
(107.5)
4,456.8
71.5
27.1
15.9
256.7
371.2
255.4
99.1
18.9
122.6
52.1
66.3
-
255.4
869.8
1,415.8
86.4
9.3
134.0
1,645.5
$
$
$
$
$
$
$
3,455.6
308.1
425.6
210.2
4,399.5
(594.9)
(70.4)
(95.7)
(83.2)
4,785.3
54.5
31.7
90.2
231.5
407.9
263.2
82.8
19.6
115.3
14.2
68.3
86.4
304.0
953.8
1,661.3
90.2
12.9
134.9
$
1,899.3
$
(2.7)
$
(6.6)
(552.5)
(396.7)
(951.9)
$
(235.0)
(63.6)
(305.2)
$
ECOLAB ANNUAL REPORT 2014 45
6. DEBT AND INTEREST
The following table provides the components of the company’s short-term debt obligations, along with applicable interest rates as of
December 31, 2014 and 2013:
MILLIONS,
EXCEPT INTEREST RATES
2014
2013
AVERAGE
INTEREST
RATE
AVERAGE
INTEREST
RATE
PAYABLE
PAYABLE
Short-term debt
Commercial paper
Notes payable
Long-term debt, current maturities
Total
0.46%
9.65%
$
887.8
62.1
755.5
$ 1,705.4
0.34%
9.43%
$ 304.8
50.9
505.3
$ 861.0
In December 2014, the company increased its multi-year credit facility from $1.5 billion to $2.0 billion and extended the maturity date from
September 2016 to December 2019. The credit facility has been established with a diverse syndicate of banks and supports the company’s
$2.0 billion U.S. commercial paper program, which was increased to $2.0 billion from $1.5 billion following the increase in the multi-year
credit facility, and the company’s $200 million European commercial paper program. Combined borrowing under these two commercial paper
programs may not exceed $2.0 billion. The company’s U.S. commercial paper program, as shown in the previous table, had $888 million
and $305 million outstanding as of December 31, 2014 and 2013, respectively. The company had no commercial paper outstanding under its
European program at December 31, 2014 or 2013.
As of December 31, 2014, the company’s short-term borrowing program was rated A-2 by Standard & Poor’s and P-2 by Moody’s.
The following table provides the components of the company’s long-term debt obligations, along with applicable interest rates as of December
31, 2014 and 2013:
MILLIONS, EXCEPT INTEREST RATES
Long-term debt
Description / 2014 Principal Amount
Three year 2011 senior notes ($0 million)
Seven year 2008 senior notes ($250 million)
Three year 2012 senior notes ($500 million)
Series B private placement senior notes (€175 million)
Five year 2011 senior notes ($1.25 billion)
Term loan ($400 million)
Five year 2012 senior notes ($500 million)
Series A private placement senior notes ($250 million)
Ten year 2011 senior notes ($1.25 billion)
Series B private placement senior notes ($250 million)
Thirty year 2011 senior notes ($750 million)
Capital lease obligations
Other
Total debt
Long-term debt, current maturities
Total long-term debt
Term Loans
MATURITY
BY YEAR
CARRYING
VALUE
2014
AVERAGE
INTEREST
RATE
EFFECTIVE
INTEREST
RATE
2013
AVERAGE
INTEREST
RATE
EFFECTIVE
INTEREST
RATE
CARRYING
VALUE
-
4.88%
1.00%
4.59%
3.00%
1.29%
1.45%
3.69%
4.35%
4.32%
5.50%
-
4.99%
1.02%
4.67%
3.04%
1.29%
0.93%
5.15%
4.36%
4.32%
5.53%
2014
2015
2015
2016
2016
2016
2017
2018
2021
2023
2041
$
-
250.0
500.0
217.9
1,249.1
400.0
497.6
250.0
1,249.4
250.0
743.1
9.3
3.1
5,619.5
(755.5)
$ 4,864.0
2.38%
4.88%
1.00%
4.59%
3.00%
1.33%
1.45%
3.69%
4.35%
4.32%
5.50%
2.40%
4.99%
1.02%
4.67%
3.04%
1.33%
1.47%
5.15%
4.36%
4.32%
5.53%
$ 499.9
249.7
499.9
237.8
1,248.6
800.0
499.7
250.0
1,249.3
250.0
742.8
12.7
8.4
6,548.8
(505.3)
$ 6,043.5
In November 2012, the company entered into a $900 million term loan credit agreement with various banks. In April 2013, in connection with
the close of the Champion transaction, the company initiated term loan borrowings of $900 million. Under the agreement, the term loan bears
interest at a floating base rate plus a credit rating based margin. The term loan can be repaid in part or in full at any time without penalty, but
in any event must be repaid in full by April 2016. In February 2014, April 2014 and September 2014, the company repaid $100 million, $150
million and $150 million, respectively, of term loan borrowings. In September 2013, the company repaid $100 million of term loan borrowings.
Public Notes
In January 2015, subsequent to the company’s year end, the company issued $600 million of debt securities in a public offering consisting
of $300 million that mature in 2018 at a rate of 1.55% and $300 million that mature in 2020 at a rate of 2.25%. The proceeds were used to
repay a portion of the company’s outstanding commercial paper and for general corporate purposes.
In December 2012, in a public offering, the company issued $500 million of debt securities that mature in 2017 at a rate of 1.45%. The
proceeds were used to finance a portion of the cash consideration paid in connection with the Champion acquisition.
In August 2012, in a public offering, the company issued $500 million of debt securities that mature in 2015 at a rate of 1.00%. The proceeds
were used to refinance outstanding commercial paper and for general corporate purposes.
In December 2011, the company issued $3.75 billion of debt securities in a public debt offering. The offering was a multi-tranche transaction
consisting of three, five, ten and thirty year maturities. Interest rates range from 2.38% to 5.50%. The proceeds were used to repay
outstanding commercial paper, which was issued to fund a portion of the cash component of the Nalco merger, repay the Nalco term loans and
46 ECOLAB ANNUAL REPORT 2014
fund share repurchases. The $500 million 2.38% notes were repaid
at maturity in December 2014.
As of December 31, 2014, the aggregate annual maturities of long-
term debt for the next five years were:
In February 2008, the company issued and sold $250 million
aggregate principal amount of senior unsecured notes that mature
in 2015 at a rate of 4.88% in a public debt offering. The proceeds
were used to refinance outstanding commercial paper and for
general corporate purposes. The $250 million 4.88% notes were
repaid at maturity in February 2015, subsequent to the company’s
year end.
The series of notes issued by the company in January 2015,
December 2012, August 2012 and December 2011, pursuant to
public debt offerings (the “Public Notes”) may be redeemed by the
company at its option at redemption prices that include accrued and
unpaid interest and a make-whole premium. Upon the occurrence
of a change of control accompanied by a downgrade of the Public
Notes below investment grade rating, within a specified time period,
the company will be required to offer to repurchase the Public Notes
at a price equal to 101% of the aggregate principal amount thereof,
plus any accrued and unpaid interest to the date of repurchase.
The Public Notes are senior unsecured and unsubordinated
obligations of the company and rank equally with all other senior
and unsubordinated indebtedness of the company.
Private Notes
In October 2011, the company entered into a Note Purchase
Agreement to issue and sell $500 million private placement senior
notes, split into two series: $250 million of seven year notes that
mature in 2018 at a rate of 3.69% and $250 million of twelve year
notes that mature in 2023 at a rate of 4.32%. Both series of the
notes were funded in November 2011. The proceeds were used
for general corporate purposes, including partially funding the
Nalco merger.
In July 2006, the company entered into a Note Purchase Agreement
to issue and sell €175 million ($218 million as of December 31, 2014)
private placement Series B Senior Notes that mature in 2016 at a
rate of 4.59%. The notes were issued in December 2006.
The series of notes issued by the company in December 2006
and November 2011 pursuant to private debt offerings (the
“Private Notes”) may be redeemed by the company at its option at
redemption prices that include accrued and unpaid interest and a
make-whole premium. Upon the occurrence of specified changes
of control involving the company, the company will be required to
offer to repurchase the Private Notes at a price equal to 100% of the
aggregate principal amount thereof, plus any accrued and unpaid
interest to the date of repurchase. Additionally, the company will
be required to make a similar offer to repurchase the Private Notes
upon the occurrence of specified merger events or asset sales
involving the company, when accompanied by a downgrade of the
Private Notes below investment grade rating, within a specified
time period.
The Private Notes are unsecured senior obligations of the company
and rank equal in right of payment with all other senior indebtedness
of the company. The Private Notes shall be unconditionally
guaranteed by subsidiaries of the company in certain circumstances,
as described in the note purchase agreements as amended.
Covenants and Future Maturities
The company is in compliance with all covenants under the
company’s outstanding indebtedness at December 31, 2014.
MILLIONS
2015
2016
2017
2018
2019
$
756
1,869
499
250
1
Net Interest Expense
Interest expense and interest income incurred during 2014, 2013 and
2012 were as follows:
MILLIONS
2014
2013
2012
Interest expense
Interest income
Interest expense, net
$ 268.0
(11.4)
$ 256.6
$ 272.8
(10.5)
$ 285.6
(8.9)
$ 262.3
$ 276.7
Interest expense generally includes the expense associated with
the interest on the company’s outstanding borrowings. Interest
expense also includes the amortization of debt issuance costs and
debt discounts, which are both recognized over the term of the
related debt.
7. FAIR VALUE MEASUREMENTS
The company’s financial instruments include cash and cash
equivalents, investments held in rabbi trusts, accounts receivable,
accounts payable, contingent consideration obligations, commercial
paper, notes payable, foreign currency forward contracts, interest
rate swap contracts and long-term debt.
Fair value is defined as the exit price, or the amount that would be
received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants as of the measurement
date. A hierarchy has been established for inputs used in measuring
fair value that maximizes the use of observable inputs and
minimizes the use of unobservable inputs by requiring that the most
observable inputs be used when available. The hierarchy is broken
down into three levels:
Level 1 - Inputs are quoted prices in active markets that are
accessible at the measurement date for identical assets or liabilities.
Level 2 - Inputs include observable inputs other than quoted prices
in active markets.
Level 3 - Inputs are unobservable inputs for which there is little or
no market data available.
The carrying amount and the estimated fair value for assets and
liabilities measured on a recurring basis were:
DECEMBER 31 (MILLIONS)
2014
CARRYING
AMOUNT
FAIR VALUE MEASUREMENTS
LEVEL 2
LEVEL 1
LEVEL 3
Assets:
Investments held in
rabbi trusts
Foreign currency forward
contracts
Contingent consideration
Liabilities:
Foreign currency forward
contracts
Interest rate swap
contracts
Contingent consideration
$
3.4 $
3.4 $
-
$
-
75.5
0.3
27.9
24.2
1.6
-
-
-
-
-
75.5
-
27.9
24.2
-
-
0.3
-
-
1.6
ECOLAB ANNUAL REPORT 2014 47
DECEMBER 31 (MILLIONS)
2013
8. DERIVATIVES AND HEDGING TRANSACTIONS
CARRYING
AMOUNT
FAIR VALUE MEASUREMENTS
LEVEL 2
LEVEL 1
LEVEL 3
Assets:
Investments held
in rabbi trusts
Foreign currency forward
contracts
Liabilities:
Foreign currency forward
contracts
Contingent consideration
Future consideration payable
to Champion sellers
$
4.3 $
4.3 $
-
$
20.2
14.2
16.4
86.4
-
-
-
-
20.2
14.2
-
-
-
-
-
16.4
86.4
Investments held in rabbi trusts are classified within level 1 because
they are valued using quoted prices in active markets. The carrying
value of foreign currency forward contracts is at fair value, which
is determined based on foreign currency exchange rates as of the
balance sheet date, and is classified within level 2. The carrying
value of interest rate swap contracts is at fair value, which is
determined based on current interest rates and forward interest
rates as of the balance sheet date and is classified within level 2. The
future consideration payable to Champion sellers was valued using
level 3 inputs, and as discussed in Note 4 was paid in January 2014.
Contingent consideration obligations are recognized and measured
at fair value at the acquisition date. Contingent consideration is
classified within level 3 as the underlying fair value is measured
based on the probability-weighted present value of the consideration
expected to be transferred. The consideration expected to
be transferred is based on the company’s expectations of
various financial measures. The ultimate payment of contingent
consideration could deviate from current estimates based on the
actual results of these financial measures. Changes in the fair value
of contingent consideration obligations during 2014 and 2013 were
as follows:
MILLIONS
Contingent consideration at
beginning of year
Amount recognized at
transaction date
Losses (gains) recognized in earnings
Settlements
Foreign currency translation
Contingent consideration at
end of year
2014
2013
$
16.4
$
27.3
(0.4)
(0.4)
(14.3)
-
-
0.4
(11.3)
-
$
1.3
$ 16.4
The carrying values of accounts receivable, accounts payable,
cash and cash equivalents, commercial paper and notes payable
approximate fair value because of their short maturities, and as such
are classified within level 1.
The fair value of long-term debt is based on quoted market prices for
the same or similar debt instruments. The carrying amount and the
estimated fair value of long-term debt, including current maturities,
held by the company were:
DECEMBER 31 (MILLIONS)
2014
2013
CARRYING
AMOUNT
FAIR
VALUE
CARRYING
AMOUNT
FAIR
VALUE
Long-term debt
(including current
maturities)
$ 5,619.5
$ 5,980.9
$ 6,548.8
$ 6,766.0
48 ECOLAB ANNUAL REPORT 2014
The company uses foreign currency forward contracts, interest rate
swaps and foreign currency debt to manage risks associated with
foreign currency exchange rates, interest rates and net investments
in foreign operations. The company does not hold derivative
financial instruments of a speculative nature or for trading purposes.
The company records all derivatives as assets and liabilities on the
balance sheet at fair value. Changes in fair value are recognized
immediately in earnings unless the derivative qualifies and is
designated as a hedge. Cash flows from derivatives are classified
in the statement of cash flows in the same category as the cash
flows from the items subject to designated hedge or undesignated
(economic) hedge relationships. The company evaluates hedge
effectiveness at inception and on an ongoing basis. If a derivative
is no longer expected to be effective, hedge accounting is
discontinued. Hedge ineffectiveness, if any, is recorded in earnings.
The company is exposed to credit risk in the event of
nonperformance of counterparties for foreign currency forward
exchange contracts and interest rate swap agreements. The
company monitors its exposure to credit risk by using credit
approvals and credit limits and by selecting major international
banks and financial institutions as counterparties. The company
does not anticipate nonperformance by any of these counterparties,
and therefore, recording a valuation allowance against the
company’s derivative balance is not considered necessary.
Cash Flow Hedges
The company utilizes foreign currency forward contracts to
hedge the effect of foreign currency exchange rate fluctuations
on forecasted foreign currency transactions, including: inventory
purchases and intercompany royalty and management fee
payments. These forward contracts are designated as cash flow
hedges. The effective portions of the changes in fair value of these
contracts are recorded in accumulated other comprehensive income
(“AOCI”) until the hedged items affect earnings, at which time the
gain or loss is reclassified into the same line item in the Consolidated
Statement of Income as the underlying exposure being hedged. All
hedged transactions are forecasted to occur within the next twelve
months.
The company occasionally enters into forward starting interest rate
swap agreements to manage interest rate exposure. In September
2014, the company entered into a series forward starting swap
agreements to hedge against changes in interest rates that could
impact a future debt issuance. The underlying loss recognized in
2014 was recorded in AOCI.
In September 2014, the company entered into a series of forward
starting interest rate swap agreements in connection with its U.S.
public debt issuance completed in January 2015. The interest rate
swap agreements were designated and effective as cash flow hedges
of the expected interest payments related to the anticipated debt
issuance. The underlying loss recognized in 2014 was recorded in
AOCI, and will be recognized as part of interest expense over the
remaining life of the notes as the forecasted interest transactions
occur. The swap contracts closed in January 2015 in conjunction
with the debt issuance discussed in Note 6.
In 2011, the company entered into and subsequently closed a
series of forward starting swap agreements in connection with the
issuance of its private placement debt during the fourth quarter of
2011. In 2006, the company entered into and subsequently closed
a series of forward starting swap contracts related to the issuance
of its senior euro notes. The amounts recorded in AOCI for both
the 2011 and 2006 transactions are recognized as part of interest
expense over the remaining life of the notes as the forecasted
interest transactions occur.
The company did not have any forward starting interest rate swap
agreements outstanding at December 31, 2013 and 2012.
The impact on AOCI and earnings from derivative contracts that
qualified as cash flow hedges was as follows:
MILLIONS
LOCATION
2014
2013
2012
Unrealized gain (loss)
recognized into AOCI
(effective portion)
Foreign currency forward
contracts
AOCI (equity)
$ 26.7
$ 4.7
$ (1.9)
Interest rate swap
contracts
Gain (loss) recognized in
income (effective portion)
Foreign currency forward
contracts
Interest rate swap
contracts
AOCI (equity)
Total
(22.1)
4.6
-
4.7
-
(1.9)
Sales
Cost of sales
SG&A
Total
-
6.1
1.5
7.6
-
(0.8)
-
(0.8)
(0.1)
2.0
0.2
2.1
Interest expense, net
(4.1)
(4.1)
(4.1)
Total
$ 3.5
$ (4.9) $ (2.0)
Gains and losses recognized in income related to the ineffective
portion of the company’s cash flow hedges were insignificant during
2014, 2013 and 2012.
Fair Value Hedges
The company manages interest expense using a mix of fixed
and floating rate debt. To help manage exposure to interest rate
movements and to reduce borrowing costs, the company may
enter into interest rate swaps under which the company agrees to
exchange, at specified intervals, the difference between fixed and
floating interest amounts calculated by reference to an agreed upon
notional principal amount. The mark-to-market of these fair value
hedges is recorded as gains or losses in interest expense and is
offset by the gain or loss of the underlying debt instrument, which
also is recorded in interest expense. These fair value hedges are
highly effective and thus, there is no impact on earnings due to
hedge ineffectiveness.
In May 2014, the company entered into an interest rate swap
agreement that converted its $500 million 1.45% debt from a fixed
rate to a floating or variable interest rate. The interest rate swap was
designated as a fair value hedge.
The impact on earnings from derivative contracts that qualified as
fair value hedges was as follows:
MILLIONS
LOCATION
2014
2013
2012
Gain (loss) on derivative
recognized income
Interest rate swap
Gain (loss) on hedged item
recognized income
Interest rate swap
Interest expense,
net
$ (2.1) $
-
$
-
a portion of its $1.25 billion 3.00% debt from fixed rates to floating
or variable interest rates. The interest rate swaps were designated
as fair value hedges.
Net Investment Hedges
The company designates its outstanding €175 million ($218 million
as of December 31, 2014) senior notes (“euro notes”) and related
accrued interest as a hedge of existing foreign currency exposures
related to net investments the company has in certain euro
denominated functional currency subsidiaries. Prior to maturing
in December 2013, the Ecolab Series A euro denominated senior
notes were also designated as a hedge of existing foreign currency
exposures.
In the third quarter of 2012, the company entered into forward
contracts with a notional amount of €100 million to hedge an
additional portion of the company’s net investment in euro
functional subsidiaries. The forward contracts were closed during
the second quarter of 2013.
In the second half of 2014, the company entered into forward
contracts with total notional values of €75 million and €495 million,
respectively, to hedge an additional portion of its net investment in
euro denominated functional currency subsidiaries. The €75 million
hedge was closed during the fourth quarter of 2014. The €495
million hedge remained open as of December 31, 2014.
In January 2015, subsequent to the company’s year end, it entered
into forward contracts with notional values of €360 million, to
hedge an additional portion of its net investments in euro functional
subsidiaries.
The revaluation gains and losses on the euro notes and of the
forward contracts, which are designated and effective as hedges of
the company’s net investments, have been included as a component
of the cumulative translation adjustment account.
Total revaluation gains and losses related to the euro notes and
forward contracts charged to shareholders’ equity were as follows:
MILLIONS
2014
2013
2012
Revaluation gains (losses), net of tax
$ 34.7
$
(11.4) $
9.8
Derivatives Not Designated as Hedging Instruments
The company also uses foreign currency forward contracts to offset
its exposure to the change in value of certain foreign currency
denominated assets and liabilities held at foreign subsidiaries,
primarily receivables and payables, which are remeasured at the
end of each period. Although the contracts are effective economic
hedges, they are not designated as accounting hedges. Therefore,
changes in the value of these derivatives are recognized immediately
in earnings, thereby offsetting the current earnings effect of the
related foreign currency denominated assets and liabilities.
The impact on earnings from derivative contracts that are not
designated as hedging instruments was as follows:
MILLIONS
LOCATION
2014
2013
2012
Gain (loss) recognized in income
Foreign currency forward
contracts
SG&A
$
8.6 $
(1.4) $ (0.9)
Interest expense,
net
$ 2.1
$
-
$
-
Interest expense, net
(9.0)
(6.6)
(7.0)
Total
$
(0.4) $
(8.0) $ (7.9)
In January 2015, subsequent to the company’s year end, it entered
into interest rate swap agreements that converted its $300 million
1.55% debt issued in January 2015, its $250 million 3.69% debt and
The amounts recognized in SG&A above offset the earnings impact
of the related foreign currency denominated assets and liabilities.
ECOLAB ANNUAL REPORT 2014 49
The amounts recognized in interest expense above represent
the component of the hedging gains (losses) attributable to the
difference between the spot and forward rates of the hedges as a
result of interest rate differentials.
Derivative Summary
The following table summarizes the fair value of the company’s
outstanding derivatives. The amounts represent gross values of
derivative assets and liabilities and are included in other current
assets and other current liabilities on the Consolidated Balance
Sheet.
MILLIONS
2014
2013
2014
2013
ASSET DERIVATIVES
LIABILITY DERIVATIVES
Derivatives designated
as hedging instruments:
Foreign currency
forward contracts
$ 17.9
$
4.4
$ 0.6
$
1.1
MILLIONS
2014
2013
2012
Derivative & Hedging Instruments
Unrealized gains (losses) on
derivative & hedging instruments
Amount recognized in AOCI
(Gains) losses reclassified from AOCI
into income
Sales
Cost of sales
SG&A
Interest expense, net
Translation & other insignificant
activity
Tax impact
Net of tax
$
Pension & Postretirement Benefits
Amount recognized in AOCI
$
4.6 $
4.7 $
(1.9)
-
(6.1)
(1.5)
4.1
(3.5)
-
2.8
3.9
-
0.8
-
4.1
4.9
0.9
(3.5)
0.1
(2.0)
(0.2)
4.1
2.0
0.5
(0.7)
$
7.0
$
(0.1)
Current period net actuarial income
(loss) and prior service costs
$ (517.7) $ 528.2
$ (238.6)
Interest rate swap
contracts
Derivatives not designated
as hedging instruments:
Foreign currency
forward contracts
Total
-
-
24.2
-
Amount reclassified from AOCI
Amortization of net actuarial loss
and prior service costs and
benefits adjustments
57.6
15.8
$ 75.5
$ 20.2
27.3
$ 52.1
13.1
$ 14.2
Tax impact
Net of tax
17.5
(500.2)
156.9
72.9
601.1
(218.2)
50.3
(188.3)
57.1
$ (343.3) $ 382.9
$ (131.2)
The company’s derivative transactions are subject to master netting
arrangements that allow the company to net settle contracts with
the same counterparties. These arrangements generally do not
call for collateral. Had the company elected to offset amounts in
its Consolidated Balance Sheet, it would have a net asset of $23.4
million and $6.0 million as of December 31, 2014 and December 31,
2013, respectively.
The company had foreign currency forward exchange contracts
with notional values that totaled approximately $2.8 billion and $2.0
billion at December 31, 2014 and December 31, 2013, respectively,
interest rate swap agreements with notional values of $725 million
and €400 million at December 31, 2014, and net investment hedges,
excluding the euro denominated debt, with notional values of €495
million at December 31, 2014.
9. OTHER COMPREHENSIVE INCOME (LOSS) INFORMATION
Comprehensive income (loss) includes net income, foreign
currency translation adjustments, unrecognized gains and losses
on securities, defined benefit pension and postretirement plan
adjustments, gains and losses on derivative instruments designated
and effective as cash flow hedges and non-derivative instruments
designated and effective as foreign currency net investment
hedges that are charged or credited to the accumulated other
comprehensive loss account in shareholders’ equity.
The following table provides other comprehensive income (loss)
information related to the company’s derivatives and hedging
instruments and pension and postretirement benefits.
See Note 8 for additional information related to the company’s
derivatives and hedging transactions. See Note 16 for additional
information related to the company’s recognition of net actuarial
losses and amortization of prior service benefits.
The derivative (gains) losses reclassified from AOCI into income,
net of tax, were $(3.0) million, $3.2 million and $1.1 million in 2014,
2013 and 2012, respectively. The pension and postretirement losses
reclassified from AOCI into income, net of tax, were $12.1 million,
$46.4 million and $35.0 million in 2014, 2013 and 2012, respectively.
10. SHAREHOLDERS’ EQUITY
Authorized common stock, par value $1.00 per share, was 800
million shares at December 31, 2014, 2013 and 2012. Treasury stock
is stated at cost. Dividends declared per share of common stock
were $1.1550 for 2014, $0.9650 for 2013 and $0.8300 for 2012.
The company has 15 million shares, without par value, of authorized
but unissued and undesignated preferred stock. The company’s
former shareholder rights agreement was amended in December
2012 and the rights agreement was terminated as of December 31,
2012. Prior to termination of the rights agreement, 0.4 million shares
of preferred stock were designated as Series A Junior Participating
Preferred Stock and were reserved for issuance in connection with
the rights agreement, with the remaining 14.6 million shares of
preferred stock being undesignated. Following termination of the
rights agreement, a Certificate of Elimination of the Series A Junior
Participating Preferred Stock was filed on January 2, 2013 with
the Delaware Secretary of State to restore the 0.4 million shares
designated as Series A Junior Participating Preferred Stock to the
status of undesignated preferred stock.
Champion Acquisition
On April 10, 2013, the company issued 6,596,444 shares of
common stock for the stock consideration portion of the Champion
acquisition. Of the total shares issued, the company deposited
1,258,115 shares, or approximately $100 million of the total
consideration, into an escrow fund to satisfy adjustments to the
consideration and indemnification obligations of the acquired
company’s stockholders. Further information related to the
acquisition of Champion is included in Note 4.
50 ECOLAB ANNUAL REPORT 2014
Share Repurchases
In May 2011, the company’s Board of Directors authorized the repurchase of up to 15 million shares of common stock, including shares to be
repurchased under Rule 10b5-1. This repurchase authorization was completed in May 2014. In August 2011, the Finance Committee of the
company’s Board of Directors, via delegation by the company’s Board of Directors, authorized the repurchase of an additional 10 million
common shares which was contingent upon completion of the merger with Nalco. In February 2015, subsequent to the company’s year end,
the company’s Board of Directors authorized the repurchase of up to 20 million additional shares of its common stock, including shares to
be repurchased under Rule 10b5-1. In February 2015, the company entered into an accelerated stock repurchase with a financial institution to
repurchase $300 million of its common stock.
In accordance with its share repurchase program through open market or private purchases, the company reacquired 3,547,334 shares,
3,096,464 shares and 2,600,569 shares of its common stock in 2014, 2013 and 2012, respectively. The number of shares repurchased in 2013
includes 1,258,115 shares the company repurchased from the Champion escrow account, with the cash paid to the beneficial shareholders
deposited back into escrow. As of December 31, 2014, 9,166,298 shares remained to be repurchased under the company’s repurchase
authorization. The company intends to repurchase all shares under its authorization, for which no expiration date has been established, in
open market or privately negotiated transactions, subject to market conditions.
The company also reacquired 489,854, 346,941 and 734,857 shares withheld for taxes related to the exercise of stock options and the vesting
of stock awards and units in 2014, 2013 and 2012, respectively.
11. EQUITY COMPENSATION PLANS
The company measures compensation expense for share-based awards at fair value at the date of grant and recognizes compensation
expense over the service period for awards expected to vest. The majority of grants to retirement eligible recipients (age 55 with required
years of service) are attributed to expense using the non-substantive vesting method and are fully expensed over a six month period following
the date of grant. In addition, the company includes a forfeiture estimate in the amount of compensation expense being recognized based on
an estimate of the number of outstanding awards expected to vest.
The company’s equity compensation plans provide for grants of stock options, restricted stock awards and restricted stock unit awards.
Common shares available for grant as of December 31, 2014, 2013 and 2012 were 17,999,689, 20,269,664 and 5,316,532, respectively.
Common shares available for grant reflect 17 million shares approved by shareholders in May 2013 for issuance under the plans. The company
generally issues authorized but previously unissued shares to satisfy stock option exercises. The company has a share repurchase program
and generally repurchases shares on the open market to help offset the dilutive effect of share-based compensation.
The company’s annual long-term incentive share-based compensation program is made up of 50% stock options and 50% performance-based
restricted stock units (“PBRSU”). The company also grants non-performance based restricted stock units (“RSU”), and has a limited number of
non-performance based restricted stock awards (“RSA”) outstanding.
Total compensation expense related to all share-based compensation plans was $71 million ($49 million net of tax benefit), $70 million ($48
million net of tax benefit) and $66 million ($45 million net of tax benefit) for 2014, 2013 and 2012, respectively.
As of December 31, 2014, there was $128 million of total measured but unrecognized compensation expense related to non-vested share-based
compensation arrangements granted under all of the company’s plans. That cost is expected to be recognized over a weighted-average period
of 2.1 years.
Stock Options
Options are granted to purchase shares of the company’s stock at the average daily share price on the date of grant. These options generally
expire within ten years from the grant date. The company generally recognizes compensation expense for these awards on a straight-line basis
over the three year vesting period. As previously noted, stock option grants to retirement eligible recipients are attributed to expense using
the non-substantive vesting method.
A summary of stock option activity and average exercise prices is as follows:
Outstanding, beginning of year
Granted
Exercised
Canceled
Outstanding, end of year
Exercisable, end of year
Vested and expected to vest, end of year
(a)Represents weighted average price.
2014
2013
2012
NUMBER OF
OPTIONS
EXERCISE
PRICE(a)
NUMBER OF
OPTIONS
EXERCISE
PRICE(a)
NUMBER OF
OPTIONS
EXERCISE
PRICE(a)
13,926,256
1,645,937
(2,316,918)
(85,499)
13,169,776
9,820,826
12,944,608
$ 55.66
107.63
44.79
83.81
$ 63.88
$ 52.21
$ 63.35
15,125,156
1,640,210
(2,583,026)
(256,084)
13,926,256
10,233,265
$ 48.29
101.22
40.68
63.00
$ 55.66
$ 46.33
20,126,579
2,238,267
(6,774,032)
(465,658)
15,125,156
11,036,700
$ 41.45
71.17
35.16
53.61
$ 48.29
$ 42.77
ECOLAB ANNUAL REPORT 2014 51
The total aggregate intrinsic value of options (the amount by which the stock price exceeded the exercise price of the option on the date of
exercise) that were exercised during 2014, 2013 and 2012 was $150 million, $123 million and $211 million, respectively.
The total aggregate intrinsic value of options outstanding as of December 31, 2014 was $548 million, with a corresponding weighted-average
remaining contractual life of 6.3 years. The total aggregate intrinsic value of options exercisable as of December 31, 2014 was $520 million,
with a corresponding weighted-average remaining contractual life of 5.3 years. The total aggregate intrinsic value of options vested and
expected to vest as of December 31, 2014 was $545 million, with a corresponding weighted-average remaining contractual life of 6.2 years.
The lattice (binomial) option-pricing model is used to estimate the fair value of options at grant date. The company’s primary employee option
grant occurs during the fourth quarter. The weighted-average grant-date fair value of options granted and the significant assumptions used in
determining the underlying fair value of each option grant, on the date of grant were as follows:
Weighted-average grant-date fair value of options granted at market prices
Assumptions
Risk-free rate of return
Expected life
Expected volatility
Expected dividend yield
2014
$ 23.18
2013
$ 22.53
2012
$ 13.77
1.8%
6 years
22.9%
1.2%
1.8%
6 years
23.0%
1.1%
0.9%
6 years
22.8%
1.3%
The risk-free rate of return is determined based on a yield curve of U.S. treasury rates from one month to ten years and a period
commensurate with the expected life of the options granted. Expected volatility is established based on historical volatility of the company’s
stock price. The expected dividend yield is determined based on the company’s annual dividend amount as a percentage of the average stock
price at the time of the grant.
Restricted Stock Units and Awards
The expense associated with PBRSUs is based on the average of the high and low share price of the company’s common stock on the date
of grant, adjusted for the absence of future dividends. The awards vest based on the company achieving a defined performance target and
with continued service for a three year period. Upon vesting, the company issues shares of its common stock such that one award unit equals
one share of common stock. The company assesses the probability of achieving the performance target and recognizes expense over the
three year vesting period when it is probable the performance target will be met. PBRSU awards granted to retirement eligible recipients are
attributed to expense using the non-substantive vesting method. The awards are generally subject to forfeiture in the event of termination
of employment.
The expense associated with shares of non-performance based RSUs and RSAs is based on the average of the high and low share price of the
company’s common stock on the date of grant, adjusted for the absence of future dividends and is amortized on a straight-line basis over the
periods during which the restrictions lapse. The company currently has RSUs and RSAs that vest over periods between 12 and 84 months. The
awards are generally subject to forfeiture in the event of termination of employment.
A summary of non-vested PBRSUs and restricted stock activity is as follows:
December 31, 2011
Granted
Vested / Earned
Canceled
December 31, 2012
Granted
Vested / Earned
Canceled
December 31, 2013
Granted
Vested / Earned
Canceled
December 31, 2014
(a)Represents weighted average price.
PBRSU
AWARDS
2,140,665
454,620
(285,249)
(218,764)
2,091,272
342,207
(594,366)
(88,844)
1,750,269
373,337
(503,324)
(27,048)
1,593,234
GRANT
DATE FAIR
VALUE(a)
$ 50.68
68.63
55.62
53.14
$ 53.65
99.63
47.60
57.71
$ 64.49
103.10
47.98
74.09
$ 78.59
RSAs AND
RSUs
1,016,660
230,193
(362,926)
(86,714)
797,213
109,212
(249,093)
(35,311)
622,021
109,665
(306,830)
(23,785)
401,071
GRANT
DATE FAIR
VALUE(a)
$ 53.67
64.10
53.80
52.03
$ 56.79
90.56
53.59
56.20
$ 64.04
102.62
55.83
73.01
$ 80.33
52 ECOLAB ANNUAL REPORT 2014
12. INCOME TAXES
Income before income taxes consisted of:
MILLIONS
2014
2013
2012
United States
International
Total
$
937.7
760.7
$
725.8
572.5
$ 594.8
417.8
$ 1,698.4
$ 1,298.3
$ 1,012.6
The provision for income taxes consisted of:
MILLIONS
Federal and state
International
Total current
Federal and state
International
Total deferred
$
2014
2013
2012
$
344.3
253.4
597.7
(67.7)
(53.8)
(121.5)
$
301.3
153.8
455.1
(124.0)
(6.5)
(130.5)
141.3
173.2
314.5
31.7
(34.9)
(3.2)
Provision for income taxes
$
476.2
$
324.7
$
311.3
The company’s overall net deferred tax assets and deferred tax
liabilities were comprised of the following:
DECEMBER 31 (MILLIONS)
2014
2013
Deferred tax assets
Other accrued liabilities
Loss carryforwards
Share-based compensation
Pension and other comprehensive income
Foreign tax credits
Other, net
Valuation allowance
Total
Deferred tax liabilities
Property, plant and equipment basis
differences
Intangible assets
Unremitted foreign earnings
Other, net
Total
$
122.9
86.0
70.9
357.3
15.6
78.2
(74.2)
656.7
269.2
1,392.2
37.4
126.1
1,824.9
$
125.9
106.3
70.1
160.9
29.9
150.0
(88.3)
554.8
287.3
1,488.0
94.5
132.0
2,001.8
Net deferred tax liabilities balance
$ (1,168.2)
$
(1,447.0)
As of December 31, 2014 the company has tax effected federal,
state and international net operating loss carryforwards of
approximately $1 million, $6 million and $79 million, respectively,
which will be available to offset future taxable income. The state loss
carryforwards expire from 2015 to 2034. For the international loss
carryforwards, $41 million expire from 2015 to 2024 and $38 million
have no expiration.
The company has recorded a $74 million valuation allowance on
certain deferred tax assets based on management’s determination
that it is more likely than not that the tax benefits will not be utilized.
The company anticipates that approximately one-half of the December
31, 2014 valuation allowance balance may be released during 2015
based on the income trends in the underlying foreign entities.
The company’s U.S. foreign tax credit carryforward of $16 million
has a ten-year carryforward period and will expire between 2019 and
2024 if not utilized.
The company has a tax holiday in one foreign jurisdiction that
resulted in tax reductions during 2014, 2013 and 2012. The company
received a permit of operation, which expires in July 2021, from the
National Council of Free Zones of Exportation for the Dominican
Republic. Companies operating under the Free Zones are not subject
to income tax in the Dominican Republic on export income. The tax
reduction as the result of the permit for 2014 was $4.6 million, or
approximately $0.01 per diluted share. The impact of the tax holiday
was similar during 2013 and 2012.
A reconciliation of the statutory U.S. federal income tax rate to the
company’s effective income tax rate is as follows:
Statutory U.S. rate
State income taxes, net
of federal benefit
Foreign operations
Domestic manufacturing deduction
R&D credit
Change in valuation allowance
Nondeductible deal costs
Audit settlements and refunds
Other, net
Effective income tax rate
2014
35.0%
1.6
(6.1)
(2.0)
(0.7)
(0.1)
-
0.2
0.1
28.0%
2013
35.0%
1.1
(4.5)
(2.6)
(1.4)
(1.0)
0.2
(0.8)
(1.0)
25.0%
2012
35.0%
1.1
(3.0)
(2.6)
-
-
0.5
0.1
(0.4)
30.7%
As of December 31, 2014 and 2013, the company has recorded
deferred tax liabilities of $37.4 million and $94.5 million, respectively,
on foreign earnings of the legacy Nalco entities and legacy Champion
entities that the company intends to repatriate. The deferred tax
liabilities originated based on purchase accounting decisions made
in connection with the Nalco merger and Champion acquisition and
were the result of extensive studies required to calculate the impact
at the purchase date.
U.S. deferred income taxes are not provided on certain other
unremitted foreign earnings that are considered permanently
reinvested which as of December 31, 2014 and 2013 were
approximately $1.8 billion and $1.6 billion, respectively. These
earnings are considered to be reinvested indefinitely or available
for distribution with foreign tax credits to offset the amount of
applicable income tax and foreign withholding taxes that may be
payable on remittance. It is impractical due to the complexities
associated with its hypothetical calculation to determine the amount
of incremental taxes that might arise if all undistributed earnings
were distributed.
The company files income tax returns in the U.S. federal jurisdiction
and various U.S. state and international jurisdictions. With few
exceptions, the company is no longer subject to state and foreign
income tax examinations by tax authorities for years before 2011.
The IRS has completed examinations of the company’s U.S. federal
income tax returns through 2010. The Ecolab (including Nalco)
U.S. income tax returns for the years 2011 and 2012 are currently
under audit. The audit of legacy Champion U.S. income tax return
for the year 2012 has not yet begun. In addition to the U.S. federal
examination, there is ongoing audit activity in several U.S. state
and foreign jurisdictions. The company anticipates changes to
its uncertain tax positions due to closing of various audit years
mentioned above. The company does not believe these changes
will result in a material impact during the next twelve months.
Decreases in the company’s gross liability could result in offsets to
other balance sheet accounts, cash payments, and/or adjustments
to tax expense. The occurrence of these events and/or other events
not included above within the next twelve months could change
depending on a variety of factors and result in amounts different
from above.
During 2014, the company recognized discrete tax items net expense
of $13.2 million. The net expense in 2014 was driven primarily by
an update to non-current tax liabilities for certain global tax audits,
an adjustment related to the re-characterization of intercompany
payments between our U.S. and foreign affiliates, the remeasurement
of certain deferred tax assets and liabilities resulting from changes
in our deferred state tax rate, recognizing adjustments from filing
our 2013 U.S. federal and state tax returns, net changes of valuation
allowances based on the realizability of foreign deferred tax assets
and the impact from other foreign country audit settlements.
ECOLAB ANNUAL REPORT 2014 53
During 2013, the company recognized discrete tax items net benefits
of $41.7 million. The net benefit in 2013 was driven primarily by
the net release of valuation allowances related to the realizability
of foreign deferred tax assets of $11.5 million, the remeasurement
of certain deferred tax assets and liabilities of $11.3 million and
recognizing adjustments from filing our 2012 U.S. federal and state
tax returns of $11.0 million. The remaining discrete tax items relate
primarily to recognizing settlements related to prior year income
tax audits, law changes within a foreign jurisdiction, the retroactive
extension during first quarter 2013 of the U.S. R&D credit for 2012,
foreign audit adjustments and other adjustments to deferred tax
assets and liabilities.
During 2012, the company recognized discrete tax items net
benefits of $9.2 million. The net benefit in 2012 was based largely
on benefits related to remeasurement of certain deferred tax assets
and liabilities resulting from changing tax jurisdictions, recognizing
adjustments from filing the company’s 2011 U.S. federal tax return
as well as a release of a valuation allowance related to a capital loss
carryforward. Discrete tax items benefits were partially offset by the
remeasurement of certain deferred tax assets and liabilities resulting
from changes in local country tax rates, state and foreign country
audit settlements and adjustments.
A reconciliation of the beginning and ending amount of gross liability
for unrecognized tax benefits is as follows:
MILLIONS
Balance at beginning of year
Additions based on tax positions related
to the current year
Additions for tax positions of prior years
Reductions for tax positions of prior years
Reductions for tax positions due to
statute of limitations
Settlements
Assumed in connection with the
Champion acquisition
Assumed in connection with the
Nalco merger
Foreign currency translation
2014
2013
2012
$ 98.7
$ 93.1 $ 89.5
5.3
5.2
(17.8)
(0.2)
(9.0)
-
-
(3.5)
9.1
6.1
(15.6)
(3.6)
(0.7)
9.8
-
0.5
7.5
5.0
(3.4)
(0.8)
(8.0)
-
7.8
(4.5)
Balance at end of year
$ 78.7
$ 98.7 $ 93.1
All tax positions included in the gross liability for unrecognized tax
benefits balance at December 31, 2014, depending on the ultimate
resolution, could impact the annual effective tax rate in future
periods.
The company recognizes penalties and interest related to
unrecognized tax benefits in the company’s provision for income
taxes. During 2014, 2013 and 2012, the company accrued $7 million,
$2 million and $3 million in interest and penalties, respectively. The
company had approximately $14 million and $12 million of accrued
interest, including minor amounts for penalties, at December 31, 2014
and 2013, respectively.
13. RENTALS AND LEASES
The company leases sales and administrative office facilities,
distribution centers, research and manufacturing facilities, as well
as vehicles and other equipment under operating leases. Total rental
expense under the company’s operating leases was $237 million in
2014, $217 million in 2013 and $183 million in 2012. As of December
31, 2014, identifiable future minimum payments with non-cancelable
terms in excess of one year were:
54 ECOLAB ANNUAL REPORT 2014
MILLIONS
2015
2016
2017
2018
2019
Thereafter
Total
$ 133
116
103
86
67
158
$ 663
The company enters into operating leases for vehicles whose non-
cancelable terms are one year or less in duration with month-to-
month renewal options. These leases have been excluded from the
table above. The company estimates payments under such leases
will approximate $58 million in 2015. These vehicle leases have
guaranteed residual values that have historically been satisfied by
the proceeds on the sale of the vehicles.
14. RESEARCH EXPENDITURES
Research expenditures that relate to the development of new
products and processes, including significant improvements and
refinements to existing products, are expensed as incurred. Such
costs were $197 million in 2014, $188 million in 2013 and $183 million
in 2013. The company did not participate in any material customer
sponsored research during 2014, 2013 or 2012.
15. COMMITMENTS AND CONTINGENCIES
The company is subject to various claims and contingencies related
to, among other things, workers’ compensation, general liability
(including product liability), automobile claims, health care claims,
environmental matters and lawsuits. The company is also subject to
various claims and contingencies related to income taxes, which are
covered in Note 12. The company also has contractual obligations
including lease commitments, which are covered in Note 13.
The company records liabilities where a contingent loss is probable
and can be reasonably estimated. If the reasonable estimate of a
probable loss is a range, the company records the most probable
estimate of the loss or the minimum amount when no amount within
the range is a better estimate than any other amount. The company
discloses a contingent liability even if the liability is not probable
or the amount is not estimable, or both, if there is a reasonable
possibility that a material loss may have been incurred.
Insurance: Globally, the company has high deductible insurance
policies for property and casualty losses. The company is insured
for losses in excess of these deductibles, subject to policy terms
and conditions and has recorded both a liability and an offsetting
receivable for amounts in excess of these deductibles. The company
is self-insured for health care claims for eligible participating
employees, subject to certain deductibles and limitations. The
company determines its liabilities for claims on an actuarial basis.
Litigation and Environmental Matters: The company and
certain subsidiaries are party to various lawsuits, claims and
environmental actions that have arisen in the ordinary course of
business. These include from time to time antitrust, commercial,
patent infringement, product liability and wage hour lawsuits, as
well as possible obligations to investigate and mitigate the effects
on the environment of the disposal or release of certain chemical
substances at various sites, such as Superfund sites and other
operating or closed facilities. The company has established accruals
for certain lawsuits, claims and environmental matters. The company
currently believes that there is not a reasonably possible risk of
material loss in excess of the amounts accrued related to these legal
matters. Because litigation is inherently uncertain, and unfavorable
rulings or developments could occur, there can be no certainty that
the company may not ultimately incur charges in excess of recorded
liabilities. A future adverse ruling, settlement or unfavorable
development could result in future charges that could have a material
adverse effect on the company’s results of operations or cash flows
in the period in which they are recorded. The company currently
believes that such future charges related to suits and legal claims,
if any, would not have a material adverse effect on the company’s
consolidated financial position.
Environmental Matters
The company is currently participating in environmental assessments
and remediation at approximately 35 locations, most of which are in
the U.S., and environmental liabilities have been accrued reflecting
management’s best estimate of future costs. Potential insurance
reimbursements are not anticipated in the company’s accruals for
environmental liabilities.
Matters Related to Wage Hour Claims
In Cooper v. Ecolab Inc., California State Court —Superior Court-
Los Angeles County, case no. BC486875, the plaintiffs sought
certification of a purported class of terminated California employees
of any business for alleged violation of statutory obligations
regarding payment of accrued vacation upon termination. The
company reached a preliminary settlement with the plaintiffs,
which was approved by the court on March 17, 2014. The settlement
amount, which was not material to the company’s operations or
financial position, was paid in June 2014.
The company is a defendant in six other pending wage hour lawsuits
claiming violations of the Fair Labor Standards Act (“FLSA”) or a
similar state law. Of these six suits, two have been certified for class
action status. Ross (formerly Icard) v. Ecolab, U.S. District Court —
Northern District of California, case no. C 13-05097 PJH, an action
under California state law, has been certified for class treatment of
California Institutional employees. In Cancilla v. Ecolab, U.S. District
Court - Northern District of California, case no. CV 12-03001, the
Court conditionally certified a nationwide class of Pest Elimination
Service Specialists for alleged FLSA violations. The suit also seeks
a purported California sub-class for alleged California wage hour
law violations and certifications of classes for state law violations
in Washington, Colorado, Maryland, Illinois, Missouri, Wisconsin
and North Carolina. A third pending suit, Charlot v. Ecolab Inc., U.S.
District Court-Eastern District of New York, case no. CV 12-04543,
seeks nationwide class certification of Institutional employees for
alleged FLSA violations as well as purported state sub-classes
in New York, New Jersey, Washington and Pennsylvania alleging
violations of state wage hour laws. A fourth pending suit, Schneider
v. Ecolab, Circuit Court of Cook County, Illinois, case no. 2014 CH 193,
seeks certification of a class of Institutional employees for alleged
violations of Illinois wage and hour laws. A fifth pending suit, Martino
v. Ecolab, Santa Clara County California Superior Court, seeks
certification of a California state class of Institutional employees
for alleged violations of California wage and hour laws. The Martino
case has been removed to the United States District Court for the
Northern District of California. A sixth pending suit, LaValley v.
Ecolab, United States District Court for the District of Minnesota,
seeks certification of a class of Territory Representatives for alleged
violations of the FLSA and New York state wage and hour laws.
Matters Related to Deepwater Horizon Incident Response
On April 22, 2010, the deepwater drilling platform, the Deepwater
Horizon, operated by a subsidiary of BP plc, sank in the Gulf of
Mexico after a catastrophic explosion and fire that began on April 20,
2010. A massive oil spill resulted. Approximately one week following
the incident, subsidiaries of BP plc, under the authorization of the
responding federal agencies, formally requested Nalco Company,
now an indirect subsidiary of Ecolab, to supply large quantities of
COREXIT® 9500, a Nalco oil dispersant product listed on the U.S.
EPA National Contingency Plan Product Schedule. Nalco Company
responded immediately by providing available COREXIT and
increasing production to supply the product to BP’s subsidiaries
for use, as authorized and directed by agencies of the federal
government throughout the incident. Prior to the incident, Nalco and
its subsidiaries had not provided products or services or otherwise
had any involvement with the Deepwater Horizon platform. On July
15, 2010, BP announced that it had capped the leaking well, and
the application of dispersants by the responding parties ceased
shortly thereafter.
On May 1, 2010, the President appointed retired U.S. Coast Guard
Commandant Admiral Thad Allen to serve as the National Incident
Commander in charge of the coordination of the response to the
incident at the national level. The EPA directed numerous tests of all
the dispersants on the National Contingency Plan Product Schedule,
including those provided by Nalco Company, “to ensure decisions
about ongoing dispersant use in the Gulf of Mexico are grounded
in the best available science.” Nalco Company cooperated with this
testing process and continued to supply COREXIT, as requested by BP
and government authorities. After review and testing of a number of
dispersants, on September 30, 2010, and on August 2, 2010, the EPA
released toxicity data for eight oil dispersants.
The use of dispersants by the responding parties was one tool used
by the government and BP to avoid and reduce damage to the Gulf
area from the spill. Since the spill occurred, the EPA and other
federal agencies have closely monitored conditions in areas where
dispersant was applied. Nalco Company has encouraged ongoing
monitoring and review of COREXIT and other dispersants and has
cooperated fully with the governmental review and approval process.
However, in connection with its provision of COREXIT, Nalco Company
has been named in several lawsuits as described below.
Cases arising out of the Deepwater Horizon accident were
administratively transferred for pre-trial purposes to a judge in the
United States District Court for the Eastern District of Louisiana with
other related cases under In Re: Oil Spill by the Oil Rig “Deepwater
Horizon” in the Gulf of Mexico, on April 20, 2010, Case No. 10-md-
02179 (E.D. La.) (“MDL 2179”).
Putative Class Action Litigation
Nalco Company was named, along with other unaffiliated defendants,
in six putative class action complaints related to the Deepwater
Horizon oil spill: Adams v. Louisiana, et al., Case No. 11-cv-01051
(E.D. La.); Elrod, et al. v. BP Exploration & Production Inc., et al.,
12-cv-00981 (E.D. La.); Harris, et al. v. BP, plc, et al., Case No.
2:10-cv-02078-CJBSS (E.D. La.); Irelan v. BP Products, Inc., et al.,
Case No. 11-cv-00881 (E.D. La.); Petitjean, et al. v. BP, plc, et al., Case
No. 3:10-cv-00316-RS-EMT (N.D. Fla.); and, Wright, et al. v. BP, plc,
et al., Case No. 1:10-cv-00397-B (S.D. Ala.). The cases were filed on
behalf of various potential classes of persons who live and work
in or derive income from the effected Coastal region. Each of the
actions contains substantially similar allegations, generally alleging,
among other things, negligence relating to the use of our COREXIT
dispersant in connection with the Deepwater Horizon oil spill. The
plaintiffs in these putative class action lawsuits are generally seeking
awards of unspecified compensatory and punitive damages, and
attorneys’ fees and costs. These cases have been consolidated in
MDL 2179.
ECOLAB ANNUAL REPORT 2014 55
Other Related Claims Pending in MDL 2179
Nalco Company was also named, along with other unaffiliated
defendants, in 23 complaints filed by individuals: Alexander, et al.
v. BP Exploration & Production, et al., Case No. 11-cv-00951 (E.D.
La.); Best v. British Petroleum plc, et al., Case No. 11-cv-00772 (E.D.
La.); Black v. BP Exploration & Production, Inc., et al. Case No. 2:11-
cv- 867, (E.D. La.); Brooks v. Tidewater Marine LLC, et al., Case
No. 11-cv- 00049 (S.D. Tex.); Capt Ander, Inc. v. BP, plc, et al., Case
No. 4:10-cv-00364-RH-WCS (N.D. Fla.); Coco v. BP Products North
America, Inc., et al. (E.D. La.); Danos, et al. v. BP Exploration et al.,
Case No. 00060449 (25th Judicial Court, Parish of Plaquemines,
Louisiana); Doom v. BP Exploration & Production, et al. , Case
No. 12-cv-2048 (E.D. La.); Duong, et al., v. BP America Production
Company, et al., Case No. 13-cv-00605 (E.D. La.); Esponge v. BP,
P.L.C., et al., Case No. 0166367 (32nd Judicial District Court,
Parish of Terrebonne, Louisiana); Ezell v. BP, plc, et al., Case No.
2:10-cv-01920-KDE-JCW (E.D. La.); Fitzgerald v. BP Exploration, et
al., Case No. 13-cv-00650 (E.D. La.); Hill v. BP, plc, et al., Case No.
1:10-cv-00471-CG-N (S.D. Ala.); Hogan v. British Petroleum Exploration
& Production, Inc., et al., Case No. 2012-22995 (District Court, Harris
County, Texas); Hudley v. BP, plc, et al., Case No. 10-cv-00532-N (S.D.
Ala.); In re of Jambon Supplier II, L.L.C., et al., Case No. 12-426 (E.D.
La.); Kolian v. BP Exploration & Production, et al. , Case No. 12-cv-
2338 (E.D. La.); Monroe v. BP, plc, et al., Case No. 1:10-cv-00472-M
(S.D. Ala.); Pearson v. BP Exploration & Production, Inc., Case No.
2:11-cv-863, (E.D. La.); Shimer v. BP Exploration and Production, et
al, Case No. 2:13-cv-4755 (E.D. La.); Top Water Charters, LLC v. BP,
P.L.C., et al., No. 0165708 (32nd Judicial District Court, Parish of
Terrebonne, Louisiana); Toups, et al. v Nalco Company, et al., Case
No. 59-121 (25th Judicial District Court, Parish of Plaquemines,
Louisiana); and, Trehern v. BP, plc, et al., Case No. 1:10-cv-00432-
HSO-JMR (S.D. Miss.). The cases were filed on behalf of individuals
and entities that own property, live, and/or work in or derive income
from the effected Coastal region. Each of the actions contains
substantially similar allegations, generally alleging, among other
things, negligence relating to the use of our COREXIT dispersant
in connection with the Deepwater Horizon oil spill. The plaintiffs
in these lawsuits are generally seeking awards of unspecified
compensatory and punitive damages, and attorneys’ fees and costs.
Pursuant to orders issued by the court in MDL 2179, the claims were
consolidated in several master complaints, including one naming
Nalco Company and others who responded to the Gulf Oil Spill
(known as the “B3 Master Complaint”). On May 18, 2012, Nalco filed a
motion for summary judgment against the claims in the “B3” Master
Complaint, on the grounds that: (i) Plaintiffs’ claims are preempted
by the comprehensive oil spill response scheme set forth in the Clean
Water Act and National Contingency Plan; and (ii) Nalco is entitled
to derivative immunity from suit. On November 28, 2012, the Court
granted Nalco’s motion and dismissed with prejudice the claims in the
“B3” Master Complaint asserted against Nalco. The Court held that
such claims were preempted by the Clean Water Act and National
Contingency Plan. Because claims in the “B3” Master Complaint
remain pending against other defendants, the Court’s decision is
not a “final judgment” for purposes of appeal. Under Federal Rule of
Appellate Procedure 4(a), plaintiffs will have 30 days after entry of
final judgment to appeal the Court’s decision.
Nalco Company, the incident defendants and the other responder
defendants have been named as first party defendants by
Transocean Deepwater Drilling, Inc. and its affiliates (the “Transocean
Entities”) (In re the Complaint and Petition of Triton Asset Leasing
GmbH, et al, MDL No. 2179, Civil Action 10-2771). In April and May
2011, the Transocean Entities, Cameron International Corporation,
Halliburton Energy Services, Inc., M-I L.L.C., Weatherford U.S.,
56 ECOLAB ANNUAL REPORT 2014
L.P. and Weatherford International, Inc. (collectively, the “Cross
Claimants”) filed cross claims in MDL 2179 against Nalco Company
and other unaffiliated cross defendants. The Cross Claimants
generally allege, among other things, that if they are found liable for
damages resulting from the Deepwater Horizon explosion, oil spill
and/or spill response, they are entitled to indemnity or contribution
from the cross defendants.
In April and June 2011, in support of its defense of the claims against
it, Nalco Company filed counterclaims against the Cross Claimants.
In its counterclaims, Nalco Company generally alleges that if it is
found liable for damages resulting from the Deepwater Horizon
explosion, oil spill and/or spill response, it is entitled to contribution
or indemnity from the Cross Claimants.
In December 2012 and January 2013, the MDL 2179 court issued final
orders approving two settlements between BP and Plaintiffs’ Class
Counsel: (1) a proposed Medical Benefits Class Action Settlement;
and (2) a proposed Economic and Property Damages Class Action
Settlement. Pursuant to the proposed settlements, class members
agree to release claims against BP and other released parties,
including Nalco Energy Services, LP, Nalco Holding Company, Nalco
Finance Holdings LLC, Nalco Finance Holdings Inc., Nalco Holdings
LLC and Nalco Company.
Other Related Actions
In March 2011, Nalco Company was named, along with other
unaffiliated defendants, in an amended complaint filed by an
individual in the Circuit Court of Harrison County, Mississippi,
Second Judicial District (Franks v. Sea Tow of South Miss, Inc., et
al., Cause No. A2402-10-228 (Circuit Court of Harrison County,
Mississippi)). The amended complaint generally asserts, among other
things, negligence and strict product liability claims relating to the
plaintiff’s alleged exposure to chemical dispersants manufactured
by Nalco Company. The plaintiff seeks unspecified compensatory
damages, medical expenses, and attorneys’ fees and costs. Plaintiff’s
allegations place him within the scope of the MDL 2179 Medical
Benefits Class. In approving the Medical Benefits Settlement,
the MDL 2179 Court barred Medical Benefits Settlement class
members from prosecuting claims of injury from exposure to oil and
dispersants related to the Response. As a result of the MDL court’s
order, on April 11, 2013, the Mississippi court stayed proceedings in
the Franks case. The Franks case was dismissed in May 2014.
The company believes the claims asserted against Nalco Company
are without merit and intends to defend these lawsuits vigorously.
The company also believes that it has rights to contribution and/
or indemnification (including legal expenses) from third parties.
However, the company cannot predict the outcome of these lawsuits,
the involvement it might have in these matters in the future, or the
potential for future litigation.
16. RETIREMENT PLANS
Pension and Postretirement Health Care
Benefits Plans
The company has a non-contributory qualified defined benefit
pension plan covering the majority of its U.S. employees. The
company also has U.S. non-contributory non-qualified defined benefit
plans, which provide for benefits to employees in excess of limits
permitted under its U.S. pension plans. Certain legacy Champion
employees became eligible to participate in the U.S. qualified and
non-qualified pension plans on January 1, 2014. The non-qualified
plans are not funded and the recorded benefit obligation for the non-
qualified plans was $113 million and $96 million at December 31, 2014
and 2013, respectively. The measurement date used for determining
the U.S. pension plan assets and obligations is December 31.
Various international subsidiaries have defined benefit pension plans. International plans are funded based on local country requirements.
The measurement date used for determining the international pension plan assets and obligations is November 30, the fiscal year-end of the
company’s international affiliates.
The company provides postretirement health care benefits to certain U.S. employees. The corresponding plans are contributory based
on years of service and choice of coverage (family or single), with retiree contributions adjusted annually. The measurement date used to
determine the U.S. postretirement health care plan assets and obligations is December 31. Certain employees outside the U.S. are covered
under government-sponsored programs, which are not required to be fully funded. The expense and obligation for providing international
postretirement health care benefits are not significant.
The following table sets forth financial information related to the company’s pension and postretirement health care plans:
MILLIONS
U.S.
PENSION(a)
INTERNATIONAL
PENSION
2014
2013
2014
2013
U.S. POSTRETIREMENT
HEALTH CARE
2014
2013
Accumulated Benefit Obligation, end of year
$ 2,075.0
$ 1,748.1
$ 1,304.6
$ 1,124.5
$
240.4
$
234.1
1,886.3
66.4
90.0
-
-
-
-
329.4
-
(119.4)
-
2,105.1
68.6
84.7
-
-
-
-
(270.5)
-
(101.6)
-
2,252.7
1,886.3
1,633.5
307.3
9.7
-
-
-
(101.6)
-
1,848.9
1,848.9
136.4
5.7
-
-
-
(119.4)
-
1,871.6
(381.1)
-
(9.6)
(371.5)
(381.1)
555.8
(40.6)
(201.8)
Projected Benefit Obligation
Projected benefit obligation, beginning of year
Service cost
Interest
Participant contributions
Medicare subsidies received
Curtailments and settlements
Plan amendments
Actuarial loss (gain)
Assumed through acquisitions
Benefits paid
Foreign currency translation
Projected benefit obligation, end of year
Plan Assets
Fair value of plan assets, beginning of year
Actual returns on plan assets
Company contributions
Participant contributions
Assumed through acquisitions
Settlements
Benefits paid
Foreign currency translation
Fair value of plan assets, end of year
Funded Status, end of year
Amounts recognized in Consolidated Balance Sheet:
Other assets
Other current liabilities
Postretirement healthcare and pension benefits
Net liability
Amounts recognized in Accumulated
Other Comprehensive Loss (Income):
Unrecognized net actuarial loss
Unrecognized net prior service benefits
Tax benefit
Accumulated other comprehensive loss (income),
net of tax
Change in Accumulated Other Comprehensive
Loss (Income):
Amortization of net actuarial loss
Amortization of prior service costs (benefits)
Current period net actuarial loss (gain)
Current period prior service costs (benefits)
Settlement
Tax expense (benefit)
Foreign currency translation
Other comprehensive loss (income)
(a) Includes qualified and non-qualified plans
1,243.6
32.2
49.8
3.6
-
(15.9)
0.1
248.8
(0.2)
(38.1)
(99.0)
1,424.9
787.6
108.6
52.8
3.6
-
(12.8)
(38.1)
(54.0)
847.7
1,180.6
36.0
47.2
3.7
-
(7.3)
2.2
(11.1)
8.5
(39.2)
23.0
1,243.6
689.3
64.7
52.6
3.7
5.9
(1.5)
(39.2)
12.1
787.6
234.1
4.3
10.8
10.4
2.0
-
0.9
-
-
(22.1)
-
240.4
14.8
0.9
18.2
1.5
-
-
(22.1)
-
13.3
281.5
5.9
10.8
9.6
0.7
-
-
(52.2)
-
(22.2)
-
234.1
15.1
2.8
17.7
1.4
-
-
(22.2)
-
14.8
(37.4)
(577.2)
(456.0)
(227.1)
(219.3)
58.6
(6.8)
(89.2)
(37.4)
258.1
(47.5)
(85.9)
15.9
(15.7)
(577.4)
(577.2)
31.6
(14.6)
(473.0)
(456.0)
358.0
(2.6)
(93.4)
198.5
(3.0)
(56.1)
313.4
124.7
262.0
139.4
(23.7)
6.9
321.4
-
-
(115.9)
-
188.7
(62.3)
6.9
(447.7)
-
(0.9)
187.1
-
(316.9)
(9.1)
(0.1)
194.8
0.1
-
(37.3)
(25.8)
122.6
(17.7)
1.4
(28.7)
2.2
-
11.0
4.1
(27.7)
-
(7.0)
(220.1)
(227.1)
(33.6)
-
10.7
(22.9)
8.2
0.3
0.5
0.9
-
(3.7)
-
6.2
-
(6.0)
(213.3)
(219.3)
(42.3)
(1.2)
14.4
(29.1)
(0.6)
0.3
(54.0)
-
-
20.1
-
(34.2)
ECOLAB ANNUAL REPORT 2014 57
Estimated amounts in accumulated other comprehensive loss expected to be reclassified to net period cost during 2015 are as follows:
MILLIONS
Net actuarial loss (gain)
Net prior service costs (benefits)
Total
(a) Includes qualified and non-qualified plans
U.S.
PENSION (a)
$
$
48.5
(6.9)
41.6
INTERNATIONAL
PENSION
U. S. POSTRETIREMENT
HEALTH CARE
$
$
16.9
(0.1)
16.8
$
$
(6.2)
(0.1)
(6.3)
The aggregate projected benefit obligation, accumulated benefit obligation and fair value of pension plan assets for plans with accumulated
benefit obligations in excess of plan assets were as follows:
DECEMBER 31 (MILLIONS)
Aggregate projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
2014
$ 3,272.1
3,011.9
2,315.7
$
2013
869.2
794.9
309.9
These plans include the U.S. non-qualified pension plans which are not funded as well as the U.S. qualified pension plan. These plans also
include various international pension plans which are funded consistent with local practices and requirements.
Net Periodic Benefit Costs
Pension and postretirement health care benefits expense for the company’s operations are as follows:
U.S.
PENSION(a)
INTERNATIONAL
PENSION
U.S. POSTRETIREMENT
HEALTH CARE
MILLIONS
2014
2013
2012
2014
2013
2012
2014
2013
2012
Service cost – employee benefits
earned during the year
$ 66.4
$ 68.6
$ 50.5
$ 32.2
$ 36.0
$ 29.6
$
4.3
$
5.9
$
5.1
Interest cost on benefit obligation
90.0
84.7
89.3
Expected return on plan assets
(128.4)
(130.1)
(127.1)
Recognition of net actuarial loss
23.7
62.3
45.1
Amortization of prior service
cost (benefit)
Settlements/Curtailments
(6.9)
-
(6.9)
0.9
(4.2)
2.4
49.8
(54.6)
7.0
0.4
(1.3)
47.2
48.3
(46.9)
(42.3)
11.3
(0.3)
(0.3)
3.9
0.2
1.6
10.8
(1.0)
(8.2)
(0.3)
-
10.8
(1.1)
0.6
(0.3)
-
12.9
(1.2)
0.4
0.1
-
Total expense
$ 44.8
$
79.5
$ 56.0
$ 33.5
$ 47.0
$ 41.3
$
5.6
$
15.9
$
17.3
(a) Includes qualified and non-qualified plans
Plan Assumptions
PERCENT
Weighted-average actuarial
assumptions used to determine
benefit obligations as of
year end:
Discount rate
Projected salary increase
Weighted-average actuarial
assumptions used to determine
net cost:
Discount rate
Expected return on plan assets
Projected salary increase
U.S.
PENSION(a)
INTERNATIONAL
PENSION
U.S. POSTRETIREMENT
HEALTH CARE
2014
2013
2012
2014
2013
2012
2014
2013
2012
4.14%
4.32
4.92%
4.32
4.14%
4.32
3.02%
2.66
4.09%
2.73
4.04%
2.74
4.08%
4.77%
3.95%
4.92
7.75
4.32
4.14
8.25
4.32
4.85
8.25
4.08
4.45
6.90
3.58
4.34
6.79
3.70
5.17
6.87
3.59
4.77
7.75
3.95
8.25
4.80
8.25
(a) Includes qualified and non-qualified plans
The discount rate assumptions for the U.S. plans are developed using a bond yield curve constructed from a population of high-quality, non-
callable, corporate bond issues with maturities ranging from six months to thirty years. A discount rate is estimated for the U.S. plans and is
based on the durations of the underlying plans.
The expected long-term rate of return used for the U.S. plans is based on the pension plan’s asset mix. The company considers expected long-
term real returns on asset categories, expectations for inflation, and estimates of the impact of active management of the assets in coming to
the final rate to use. The company also considers actual historical returns.
58 ECOLAB ANNUAL REPORT 2014
The expected long-term rate of return used for the company’s
international plans is determined in each local jurisdiction and is
based on the assets held in that jurisdiction, the expected rate of
returns for the type of assets held and any guaranteed rate of return
provided by the investment. The other assumptions used to measure
the international pension obligations, including discount rate, vary
by country based on specific local requirements and information.
As previously noted, the measurement date for these plans is
November 30.
For postretirement benefit measurement purposes as of December
31, 2014, the annual rates of increase in the per capita cost of
covered health care were assumed to be 7.5%. The rates are
assumed to decrease each year until they reach 5% in 2023 and
remain at those levels thereafter. Health care costs for certain
employees which are eligible for subsidy by the company are limited
by a cap on the subsidy.
Assumed health care cost trend rates have an effect on the amounts
reported for the company’s U.S. postretirement health care benefits
plan. A one-percentage point change in the assumed health care cost
trend rates would have the following effects:
MILLIONS
Effect on total of service and
interest cost components
Effect on postretirement
benefit obligation
1–PERCENTAGE POINT
INCREASE
DECREASE
$
(0.1)
$
0.1
1.0
(1.5)
Plan Asset Management
The company’s U.S. investment strategy and policies are designed
to maximize the possibility of having sufficient funds to meet the
long-term liabilities of the pension fund, while achieving a balance
between the goals of asset growth of the plan and keeping risk at
a reasonable level. Current income is not a key goal of the policy.
The asset allocation position reflects the ability and willingness to
accept relatively more short-term variability in the performance of
the pension plan portfolio in exchange for the expectation of better
long-term returns, lower pension costs and better funded status in
the long run.
The pension fund is diversified across a number of asset classes and
securities. Selected individual portfolios within the asset classes may
be undiversified while maintaining the diversified nature of total plan
assets. The company has no significant concentration of risk in its
U.S. plan assets.
Assets of funded retirement plans outside the U.S. are managed
in each local jurisdiction and asset allocation strategy is set in
accordance with local rules, regulations and practice. Therefore,
no overall target asset allocation is presented. Although non-U.S.
equity securities are all considered international for the company,
some equity securities are considered domestic for the local plan.
The funds are invested in a variety of equities, bonds and real
estate investments and, in some cases, the assets are managed
by insurance companies which may offer a guaranteed rate of
return. The company has no significant concentration of risk in its
international plan assets.
The discussion that follows references the fair value measurements
in terms of levels 1, 2 and 3. See Note 7 for definitions of these levels.
Plan assets by level are as follows:
Level 1 - Cash, and certain equity securities and fixed income: Valued
at the quoted market prices of shares held by the plans at year-end in
the active market on which the individual securities are traded.
Level 2 - Real estate, insurance contracts, and certain equity
securities and fixed income: Valued based on inputs other than
quoted prices that are observable for the securities.
Level 3 - Hedge funds and private equity: Valued based on the net
asset values of the underlying partnerships. The net asset values
of the partnerships are based on the fair values of the underlying
investments of the partnerships. Quoted market prices are used
to value the underlying investments of the partnerships, where
available.
U.S. Assets
The allocation and fair value of the company’s U.S. plan assets for its
defined benefit pension and postretirement health care benefit plans
are as follows:
ASSET
CATEGORY
DECEMBER 31 (%)
Equity securities:
Large cap equity
Small cap equity
International equity
Fixed income:
Core fixed income
High-yield bonds
Emerging markets
Other:
Real estate
Hedge funds
Private equity
TARGET
ASSET
ALLOCATION
PERCENTAGE
2013
2014
PERCENTAGE
OF PLAN ASSETS
2014
2013
34%
9
13
34%
9
13
37%
9
13
37%
11
14
18
5
2
4
9
6
18
5
2
4
9
6
18
5
2
4
8
4
17
5
2
3
8
3
Total
100%
100%
100%
100%
LEVEL 1
7.4
$
693.5
174.9
246.2
344.7
90.5
29.4
MILLIONS
Cash
Equity securities:
Large cap equity
Small cap equity
International equity
Fixed income:
Core fixed income
High-yield bonds
Emerging markets
Other:
Real estate
Hedge funds
Private equity
Other
FAIR VALUE AS OF
DECEMBER 31, 2014
LEVEL 2
LEVEL 3
TOTAL
7.4
$
693.5
174.9
246.2
344.7
90.5
29.4
72.6
152.0
73.4
0.3
$ 72.6
0.3
$ 152.0
73.4
Total
$1,586.6
$ 72.9
$ 225.4
$ 1,884.9
LEVEL 1
3.1
$
695.2
196.9
258.5
323.2
88.4
29.8
MILLIONS
Cash
Equity securities:
Large cap equity
Small cap equity
International equity
Fixed income:
Core fixed income
High-yield bonds
Emerging markets
Other:
Real estate
Hedge funds
Private equity
Other
FAIR VALUE AS OF
DECEMBER 31, 2013
LEVEL 2
LEVEL 3
TOTAL
3.1
$
695.2
196.9
258.5
323.2
88.4
29.8
64.7
148.5
54.9
0.5
$ 64.7
0.5
$ 148.5
54.9
Total
$ 1,595.1
$ 65.2
$ 203.4
$ 1,863.7
ECOLAB ANNUAL REPORT 2014 59
For those assets that are valued using significant unobservable
inputs (level 3), the following is a rollforward of the significant
activity for the year:
MILLIONS
Balance at December 31, 2012
Unrealized gains
Realized gains
Purchases, sales and settlements, net
Transfers in and/or out
Balance at December 31, 2013
Unrealized gains
Realized gains
Purchases, sales and settlements, net
Transfers in and/or out
HEDGE
FUNDS
$ 134.6
13.9
-
-
-
$ 148.5
3.5
-
-
-
PRIVATE
EQUITY
$ 48.2
6.2
3.6
(3.1)
-
$ 54.9
2.5
10.0
6.0
-
Balance at December 31, 2014
$ 152.0
$ 73.4
The company is responsible for the valuation process and seeks to
obtain quoted market prices for all investments. When quoted market
prices are not available, a number of methodologies are used to
establish fair value estimates, including discounted cash flow models,
prices from recently executed transactions of similar securities or
broker/dealer quotes using market observable information to the
extent possible. The company reviews the values generated by those
models for reasonableness and, in some cases, further analyzes and
researches values generated to ensure their accuracy, which includes
reviewing other publicly available information.
International Assets
The allocation of plan assets and fair value of the company’s
international plan assets for its defined benefit pension plans are as
follows:
PERCENTAGE
OF PLAN ASSETS
2014
2013
1%
1%
43
22
19
41
13
2
43
21
18
39
15
2
100%
100%
ASSET
CATEGORY
DECEMBER 31 (%)
Cash
Equity securities:
International equity
Fixed income:
Corporate bonds
Government bonds
Total fixed income
Other:
Insurance contracts
Real estate
Total
MILLIONS
Cash
Equity securities:
International equity
Fixed income:
Corporate bonds
Government bonds
Other:
Insurance contracts
Real estate
Other
FAIR VALUE AS OF
DECEMBER 31, 2014
LEVEL 2
LEVEL 3
LEVEL 1
7.2
$
$ 363.5
5.1
7.7
184.2
156.7
109.8
12.7
0.3
0.5
TOTAL
7.2
$
363.5
189.3
164.4
109.8
12.7
0.8
$ 847.7
Total
$ 20.5
$ 827.2
60 ECOLAB ANNUAL REPORT 2014
MILLIONS
Cash
Equity securities:
International equity
Fixed income:
Corporate bonds
Government bonds
Other:
Insurance contracts
Real estate
Other
FAIR VALUE AS OF
DECEMBER 31, 2013
LEVEL 2
LEVEL 3
LEVEL 1
3.6
$
$ 342.5
5.5
8.7
162.1
134.6
116.2
11.4
0.4
2.6
Total
$ 20.4
$ 767.2
TOTAL
3.6
$
342.5
167.6
143.3
116.2
11.4
3.0
$ 787.6
Multiemployer Plan
The company has historically contributed to a multiemployer defined
benefit pension plan (“MEPP”) under the terms of a collective-
bargaining agreement that covers certain union-represented former
employees. The company contributed $0.2 million and $0.5 million
during 2013 and 2012, respectively to its MEPP. No contributions were
made during 2014.
During the fourth quarter of 2012, the company determined that
a withdrawal from the MEPP was probable and based on the
underfunded status of the MEPP recorded an estimated withdrawal
liability of $4.7 million. During 2013, the company withdrew from
the MEPP and as of December 31, 2014, the present value of the
company’s withdrawal liability to the MEPP was $4.5 million.
The risks of participating in a MEPP are different from single-
employer pension plans such that assets contributed to the MEPP by
one employer may be used to provide benefits to employees of other
participating employers. Additionally, if a participating employer
stops contributing to the MEPP, the unfunded obligations of the plan
may be borne by the remaining participating employers. Participation
in the MEPP is not considered significant to the company.
Cash Flows
As of year-end 2014, the company’s estimate of benefits expected
to be paid in each of the next five fiscal years and in the aggregate
for the five fiscal years thereafter for the company’s pension and
postretirement health care benefit plans are as follows:
MILLIONS
2015
2016
2017
2018
2019
ALL PLANS
$ 159
MEDICARE SUBSIDY
RECEIPTS
$
1
170
177
185
203
-
-
-
-
-
2020-2024
1,176
Depending on plan funding levels, the U.S. defined benefit qualified
pension plan provides certain terminating participants with an option
to receive their pension benefits in the form of lump sum payments.
The company is currently in compliance with all funding requirements
of its U.S. pension and postretirement health care plans.
No voluntary contributions were made to the merged U.S. pension
plan during 2014 and 2013. Based on plan asset values as of
December 31, 2011, the company was required to make contributions
of $38 million to its Nalco U.S. pension plan during 2012. During 2012,
a total of $180 million was funded to the Nalco U.S. pension plan.
The company seeks to maintain an asset balance that meets the
long-term funding requirements identified by the projections of the
pension plan’s actuaries while simultaneously satisfying the fiduciary
responsibilities prescribed in ERISA. The company also takes into
consideration the tax deductibility of contributions to the benefit
plans.
The company is not aware of any expected refunds of plan assets
within the next twelve months from any of its existing U.S. or
international pension or postretirement benefit plans.
17. OPERATING SEGMENTS AND GEOGRAPHIC INFORMATION
The company’s organizational structure consists of global business
unit and global regional leadership teams. The company’s ten
operating units, which are also operating segments, follow
its commercial and product-based activities and are based on
engagement in business activities, availability of discrete financial
information and review of operating results by the Chief Operating
Decision Maker at the identified operating unit level.
Savings Plan, ESOP and Profit Sharing
The company provides a 401(k) savings plan for the majority of its
U.S. employees.
On January 1, 2013, a new plan benefiting active employees accruing
final average pay or legacy cash balance pension benefits under the
Ecolab Pension Plan was spun off from the Ecolab Savings Plan and
ESOP (the “Ecolab Plan”) and into the Ecolab Savings Plan and ESOP
for Traditional Benefit Employees (the “New Plan”). Under the New
Plan, 401(k) contributions of up to 3% of eligible compensation are
matched 100% by the company and 401(k) contributions over 3% and
up to 5% of eligible compensation are matched 50% by the company.
All other active legacy Ecolab U.S. employees remain in the Ecolab
Plan and beginning January 1, 2013, received a 100% match on
401(k) contributions of up to 4% of eligible compensation and a 50%
match on 401(k) contributions of over 4% and up to 8% of eligible
compensation.
On August 2, 2013, the legacy Nalco Company Profit Sharing and
Savings Plan (the “Nalco Plan”) merged into and became part of the
Ecolab Plan and eligible legacy Nalco employees began receiving
matching contributions as discussed above. Prior to the merger of
the plans, beginning January 1, 2013, eligible legacy Nalco employees
received a 100% match on 401(k) contributions of up to 4% of
eligible compensation and a 50% match on 401(k) contributions of
over 4% and up to 8% of eligible compensation. Prior to January 1,
2013, the Nalco Plan provided for matching contributions of up to 4%
of eligible compensation for employees who elected to contribute to
401(k) accounts and annual profit sharing contributions based on the
company’s financial performance. Profit sharing contributions were
no longer made for plan years after December 31, 2012.
On December 31, 2013, the legacy Champion Permian Mud Service,
Inc. 401(k) Savings Plan (the “Permian Plan”) merged into and
became part of the Ecolab Plan and eligible legacy Champion
employees began receiving matching contributions as discussed
above. Prior to January 1, 2014, the Champion Plan provided a
discretionary matching contribution of 100% on 401(k) contributions
of up to 3% of eligible compensation and 50% on 401(k)
contributions of over 3% and up to 6% of eligible compensation.
The company’s matching contributions are 100% vested immediately.
The company’s matching contribution expense was $67 million in
2014. The company’s matching contribution expense for legacy
Ecolab and legacy Nalco employees was $54 million and $43
million in 2013 and 2012, respectively. The company’s profit sharing
expense for legacy Nalco employees was $13 million in 2012. Ecolab’s
matching contribution to the Permian Plan during 2013, from the
close of the Champion acquisition in April 2013 to December 2013,
was $5 million.
Eight of the company’s ten operating units have been aggregated
into three reportable segments based on similar economic
characteristics and future prospects, nature of the products and
production processes, end-use markets, channels of distribution
and regulatory environment. The company’s reportable segments
are Global Industrial, Global Institutional and Global Energy. The
company’s two operating units that are primarily fee-for-service
businesses have been combined into the Other segment and do
not meet the quantitative criteria to be separately reported. The
company reports the Other segment as a reportable segment as it
considers information regarding its two underlying operating units as
useful in understanding its consolidated results.
Our ten operating units are aggregated as follows:
Global Industrial – Includes the Water, Food & Beverage, Paper and
Textile Care operating units. It provides water treatment and process
applications, and cleaning and sanitizing solutions primarily to large
industrial customers within the manufacturing, food and beverage
processing, chemical, mining and primary metals, power generation,
pulp and paper, and commercial laundry industries. The underlying
operating units exhibit similar manufacturing processes, distribution
methods and economic characteristics.
Global Institutional - Includes the Institutional, Specialty and
Healthcare operating units. It provides specialized cleaning
and sanitizing products to the foodservice, hospitality, lodging,
healthcare, government and education and retail industries. The
underlying operating units exhibit similar manufacturing processes,
distribution methods and economic characteristics.
Global Energy - Includes the Energy operating unit. It serves
the process chemicals and water treatment needs of the global
petroleum and petrochemical industries in both upstream and
downstream applications.
Other - Includes the Pest Elimination and Equipment Care operating
units, which provide pest elimination and kitchen repair and
maintenance. Its two operating units are primarily fee-for-service
businesses.
Reportable Segment Information
Effective in the first quarter of 2014, the company made immaterial
changes to its reportable segments, including the movement of
certain customers between reportable segments to reflect its
continued integration of businesses and consistency across its global
markets and customers. In addition, the company’s management
made immaterial changes to the way it measures and reports
segment operating income by updating the internal allocations of
certain supply chain and SG&A expenses related to its centralized
functions.
ECOLAB ANNUAL REPORT 2014 61
The company evaluates the performance of its international operations within its reportable segments based on fixed currency exchange
rates which eliminate the impact of exchange rate fluctuations on its international operations. 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 of the company described in Note 2.
Fixed currency amounts for the “Previously Reported” values shown in the 2013 and 2012 sections of the following tables are based on
translation into U.S. dollars at fixed foreign currency exchange rates established by management at the beginning of 2013. The “Changes
in Currency Rates” column reflects the impact on previously reported values related to fixed currency exchange rates established by
management at the beginning of 2014. The “Segment Changes” column reflects the segment changes discussed above. Presenting the
“Revised” column at 2014 management rates was done to allow for consistent comparisons against 2014 results.
The following table presents net sales and operating income (loss) by reportable segment, including the impact of the preceding changes on
previously reported 2013 and 2012 reportable segment values:
2013
CHANGES IN
2014
PREVIOUSLY CURRENCY SEGMENT
CHANGES
REPORTED
RATES
REVISED
2012
CHANGES IN
PREVIOUSLY CURRENCY SEGMENT
REPORTED
RATES
CHANGES REVISED
$ 4,886.7
4,314.5
4,283.3
750.3
$ 4,905.1
4,202.5
3,532.8
715.0
$
(149.3) $
(55.4)
(113.1)
(5.7)
(13.0) $ 4,742.8
4,152.5
3,427.3
709.3
5.4
7.6
-
$ 4,762.2
4,063.2
2,275.4
736.3
$
(137.4)
(48.2)
(60.2)
(5.6)
$
(10.7) $ 4,614.1
4,017.5
2,223.5
730.6
2.5
8.3
(0.1)
14,234.8
13,355.4
(323.5)
13,031.9
11,837.1
(251.4)
45.7
currency translation
Total reported net sales $ 14,280.5
(102.0)
$ 13,253.4
323.5
-
$
221.5
$ 13,253.4
1.6
$ 11,838.7
$
642.6
821.2
634.9
116.5
(263.4)
$
637.3
764.5
492.1
97.9
(411.6)
(27.1) $
(11.7)
(19.2)
0.4
2.5
(7.2) $
15.4
(14.0)
5.8
-
603.0
768.2
458.9
104.1
(409.1)
$ 569.5
700.7
360.7
103.0
(442.3)
-
-
-
$
$
1,951.8
1,580.2
(55.1)
3.2
(19.6)
55.1
-
-
-
1,525.1
1,291.6
(44.3)
35.5
(2.3)
44.3
$ 1,560.6
$ 1,289.3
$
-
$
operating income
$ 1,955.0
$ 1,560.6
$
-
$
$
$
$
$
251.4
-
(22.9)
(11.8)
(8.7)
(0.9)
-
-
-
-
11,585.7
253.0
$ 11,838.7
(4.4) $ 542.2
703.0
14.1
336.9
(15.1)
107.5
5.4
(442.3)
-
-
-
-
1,247.3
42.0
$ 1,289.3
MILLIONS
Net Sales
Global Industrial
Global Institutional
Global Energy
Other
Subtotal at fixed
currency
Effect of foreign
Operating Income (Loss)
Global Industrial
Global Institutional
Global Energy
Other
Corporate
Subtotal at fixed
currency rates
Effect of foreign
currency translation
Total reported
The profitability of the company’s operating units is evaluated by management based on operating income. The company has no
intersegment revenues.
Consistent with the company’s internal management reporting, the Corporate segment includes intangible asset amortization specifically from
the Nalco merger and in 2013 and 2012 certain integration costs for both the Nalco and Champion transactions. The Corporate segment also
includes special (gains) and charges, as discussed in Note 3, reported on the Consolidated Statement of Income.
The company has an integrated supply chain function that serves all of its reportable segments. As such, asset and capital expenditure
information by reportable segment has not been provided and is not available, since the company does not produce or utilize such information
internally. In addition, although depreciation and amortization expense is a component of each reportable segment’s operating results, it is
not discretely identifiable.
The company had one class of products which comprised 10% or more of consolidated net sales in any of the last three years. Sales of
warewashing products were approximately 10% and 11% of consolidated net sales in 2013 and 2012, respectively.
The vast majority of the company’s revenue is driven by the sale of its chemical products, with any corresponding service generally
considered incidental to the product sale. The exception to this is the Pest Elimination and Equipment Care operating units, which are within
the Other segment and as previously noted, are primarily fee-for-service businesses. In addition, the Global Industrial, Global Institutional and
Global Energy reportable segments derive a small amount of revenue directly from service offerings. All other service based revenue
is insignificant.
Total service revenue at public exchange rates by reportable segment is shown below.
MILLIONS
Global Industrial
Global Institutional
Global Energy
Other
62 ECOLAB ANNUAL REPORT 2014
Service Revenue
2013
2012
2014
$ 53.2
$ 51.9
$ 48.3
31.1
27.0
23.8
294.1
179.3
156.0
655.1
619.4
590.1
Geographic Information
Net sales and long-lived assets at public exchange rates by geographic region are as follows:
MILLIONS
United States
EMEA
Asia Pacific
Latin America
Canada
Total
2014
Net Sales
2013
2012
Long-Lived Assets, net
2014
2013
$ 7,233.6
$ 6,696.0
$ 5,865.3
$ 8,677.2
$ 8,755.8
3,470.6
3,255.0
1,685.9
1,631.8
1,177.4
713.0
1,022.6
648.0
3,027.9
1,586.8
849.7
509.0
2,066.8
2,339.8
779.8
732.0
2,180.2
2,368.6
832.4
801.1
$ 14,280.5
$ 13,253.4
$ 11,838.7
$ 14,595.6
$ 14,938.1
Net sales by geographic region were determined based on origin of sale. Geographic data for long-lived assets is based on physical location
of those assets. There were no sales from a single foreign country or individual customer that were material to the company’s consolidated
net sales.
18. QUARTERLY FINANCIAL DATA (UNAUDITED)
MILLIONS, EXCEPT PER SHARE
2014
Net sales
Cost of sales (including special charges of $6.0, $1.1, $0.8 and
$6.4 in Q1, Q2, Q3 and Q4, respectively)
Selling, general and administrative expenses
Special (gains) and charges
Operating income
Interest expense, net
Income before income taxes
Provision for income taxes
Net income including noncontrolling interest
Less: Net income attributable to noncontrolling interest
Net income attributable to Ecolab
Earnings attributable to Ecolab per common share
Basic
Diluted
Weighted-average common shares outstanding
Basic
Diluted
2013
Net sales
Cost of sales (including special charges of $2.0, $15.2, $6.3 and
$19.7 in Q1, Q2, Q3 and Q4, respectively)
Selling, general and administrative expenses
Special (gains) and charges
Operating income
Interest expense, net (including special charges of $2.2 and $0.3
in Q1 and Q2, respectively)
Income before income taxes
Provision for income taxes
Net income including noncontrolling interest
Less: Net income attributable to noncontrolling interest
(including special charges of $0.5 in Q1)
Net income attributable to Ecolab
Earnings attributable to Ecolab per common share
Basic
Diluted
Weighted-average common shares outstanding
Basic
Diluted
FIRST
QUARTER
SECOND
QUARTER
THIRD
QUARTER
FOURTH
QUARTER
YEAR
$ 3,336.6
$ 3,568.2
$ 3,694.9
$ 3,680.8
$ 14,280.5
1,819.2
1,136.9
29.6
350.9
65.1
285.8
91.3
194.5
3.5
191.0
0.64
0.62
300.6
306.5
$
$
$
1,909.4
1,152.7
(6.1)
512.2
66.2
446.0
131.0
315.0
3.6
311.4
1.04
1.02
299.6
305.2
$
$
$
1,970.6
1,145.9
7.0
571.4
63.3
508.1
138.7
369.4
4.5
364.9
1,979.9
1,142.1
38.3
520.5
62.0
458.5
115.2
343.3
7.8
335.5
$
7,679.1
4,577.6
68.8
1,955.0
256.6
1,698.4
476.2
1,222.2
19.4
$ 1,202.8
1.22
1.19
$
$
1.12
1.10
$
$
4.01
3.93
300.0
305.7
300.1
305.6
300.1
305.9
$
$
$
$ 2,872.1
$ 3,337.8
$ 3,484.0
$ 3,559.5
$ 13,253.4
1,539.7
1,021.0
49.7
261.7
61.5
200.2
39.2
161.0
1.4
159.6
0.54
0.53
295.4
300.9
$
$
$
1,810.2
1,101.7
73.6
352.3
66.2
286.1
70.3
215.8
2.7
213.1
0.71
0.69
301.5
307.4
$
$
$
1,866.1
1,114.1
27.8
476.0
1,945.2
1,123.5
20.2
470.6
67.6
403.0
113.4
289.6
2.5
287.1
67.0
409.0
101.8
307.2
(0.8)
308.0
1.02
1.00
301.2
307.2
$
$
$
$
$
$
7,161.2
4,360.3
171.3
1,560.6
262.3
1,298.3
324.7
973.6
5.8
967.8
$
0.95
0.93
$
$
3.23
3.16
301.2
307.5
299.9
305.9
Per share amounts do not necessarily sum due to changes in the calculation of shares outstanding for each discrete period and rounding.
ECOLAB ANNUAL REPORT 2014 63
REPORTS OF MANAGEMENT
To our Shareholders:
Management’s Responsibility for
Financial Statements
Management is responsible for the integrity and objectivity of the
consolidated financial statements. The statements have been prepared in
accordance with accounting principles generally accepted in the United
States of America and, accordingly, include certain amounts based on
management’s best estimates and judgments.
The Board of Directors, acting through its Audit Committee composed
solely of independent directors, is responsible for determining that
management fulfills its responsibilities in the preparation of financial
statements and maintains internal control over financial reporting. The
Audit Committee recommends to the Board of Directors the appointment
of the company’s independent registered public accounting firm, subject
to ratification by the shareholders. It meets regularly with management,
the internal auditors and the independent registered public accounting
firm.
The independent registered public accounting firm has audited the
consolidated financial statements included in this annual report and have
expressed their opinion regarding whether these consolidated financial
statements present fairly in all material respects our financial position
and results of operation and cash flows as stated in their report presented
separately herein.
Management’s Report on Internal Control
Over Financial Reporting
Management is responsible for establishing and maintaining adequate
internal control over financial reporting, as such term is defined
in Exchange Act Rule 13a-15(f). Under the supervision and with the
participation of management, including the principal executive officer
and principal financial officer, an evaluation of the design and operating
effectiveness of internal control over financial reporting was conducted
based on the 2013 framework in Internal Control – Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on the evaluation under the framework in Internal
Control – Integrated Framework, management concluded that internal
control over financial reporting was effective as of December 31, 2014.
On April 10, 2013, the company completed its acquisition of privately held
Champion Technologies and its related company Corsicana Technologies
(collectively “Champion”). See Note 4 to the Consolidated Financial
Statements for additional information. The legacy Champion businesses
have been included in management’s assessment of internal controls over
financial reporting as of December 31, 2014.
The company’s independent registered public accounting firm,
PricewaterhouseCoopers LLP, has audited the effectiveness of the
company’s internal control over financial reporting as of December 31,
2014 as stated in their report which is included herein.
Douglas M. Baker, Jr.
Chairman and Chief Executive Officer
Daniel J. Schmechel
Chief Financial Officer
64 ECOLAB ANNUAL REPORT 2014
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of Ecolab Inc.:
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, comprehensive income, equity and
cash flows present fairly, in all material respects, the financial position of Ecolab Inc. and its subsidiaries at December 31, 2014 and 2013, and the results
of their operations and their cash flows for each of the three years in the period ended December 31, 2014 in conformity with accounting principles
generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2014, based on criteria established in Internal Control - Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in 2013. The Company’s management is responsible for these financial statements, for
maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting,
included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on these
financial statements and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in
accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal
control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made
by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining
an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design
and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered
necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s
internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a
material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
PricewaterhouseCoopers LLP
Minneapolis, Minnesota
February 27, 2015
ECOLAB ANNUAL REPORT 2014 65
SUMMARY OPERATING AND FINANCIAL DATA
DECEMBER 31 (MILLIONS, EXCEPT PER SHARE AND EMPLOYEES)
OPERATIONS
Net sales
United States (including special (gains) and charges(1))
International (at average rates of currency exchange)
Total
Cost of sales (including special (gains) and charges(2)(3))
Selling, general and administrative expenses(3)
Special (gains) and charges
Operating income
Interest expense, net (including special (gains) and charges(4))
Income before income taxes
Provision for income taxes
Net income including noncontrolling interest
Less: Net income (loss) attributable to noncontrolling interest
(including special (gains) and charges(5))
Net income attributable to Ecolab
Earnings per share, as reported (GAAP)
Diluted - net income
Earnings per share, as adjusted (Non-GAAP)(6)
Diluted - net income
Weighted-average common shares outstanding – basic
Weighted-average common shares outstanding – diluted
SELECTED INCOME STATEMENT RATIOS
Gross margin
Selling, general and administrative expenses
Operating income
Income before income taxes
Net income attributable to Ecolab
Effective income tax rate
FINANCIAL POSITION
Current assets
Property, plant and equipment, net
Goodwill, intangible and other assets
Total assets
Current liabilities
Long-term debt
Postretirement health care and pension benefits
Other liabilities
Total liabilities
Ecolab shareholders’ equity
Noncontrolling interest
Total equity
Total liabilities and equity
SELECTED CASH FLOW INFORMATION
Cash provided by operating activities
Depreciation and amortization
Capital expenditures
Cash dividends declared per common share
SELECTED FINANCIAL MEASURES/OTHER
Total debt
Total debt to capitalization
Book value per common share
Return on beginning equity
Dividends per share/diluted earnings per common share
Net interest coverage
Year end market capitalization
Annual common stock price range
Number of employees
2014
2013
2012
2011
$
$
$
$
$
$
$
$
$
$
$
$
7,233.6
7,046.9
14,280.5
7,679.1
4,577.6
68.8
1,955.0
256.6
1,698.4
476.2
1,222.2
19.4
1,202.8
3.93
4.18
300.1
305.9
46.2%
32.1
13.7
11.9
8.4
28.0%
4,871.1
3,050.6
11,545.0
19,466.7
4,386.6
4,864.0
1,188.5
1,645.5
12,084.6
7,315.9
66.2
7,382.1
19,466.7
1,815.6
872.0
748.7
1.1550
6,569.4
47.1%
24.40
$
$
$
$
$
$
$
$
$
$
$
$
6,696.0
6,557.4
13,253.4
7,161.2
4,360.3
171.3
1,560.6
262.3
1,298.3
324.7
973.6
5.8
967.8
3.16
3.54
299.9
305.9
46.0%
32.9
11.8
9.8
7.3
25.0%
4,698.4
2,882.0
12,056.1
19,636.5
3,488.7
6,043.5
795.6
1,899.3
12,227.1
7,344.3
65.1
7,409.4
19,636.5
1,559.8
816.2
625.1
0.9650
6,904.5
48.2%
24.39
$
$
$
$
$
$
$
$
$
$
$
$
5,865.3
5,973.4
11,838.7
6,385.4
4,018.3
145.7
1,289.3
276.7
1,012.6
311.3
701.3
(2.3)
703.6
2.35
2.98
292.5
298.9
46.1%
33.9
10.9
8.6
5.9
30.7%
4,892.0
2,409.1
10,271.2
17,572.3
3,052.7
5,736.1
1,220.5
1,402.9
11,412.2
6,077.0
83.1
6,160.1
17,572.3
1,203.0
714.5
574.5
0.8300
6,541.9
51.5%
20.62
16.5%
29.4%
7.6
$
31,340.6
$ 118.46-97.65
47,430
15.8%
30.5%
5.9
$
31,399.4
$ 108.34-71.99
45,415
12.2%
35.3%
4.7
$
21,190.5
$ 72.79-57.44
40,860
$
$
$
$
$
$
$
$
$
$
$
3,551.2
3,247.3
6,798.5
3,475.6
2,438.1
131.0
753.8
74.2
679.6
216.3
463.3
0.8
462.5
1.91
2.54
236.9
242.1
48.9%
35.9
11.1
10.0
6.8
31.8%
5,396.0
2,295.4
10,493.3
18,184.7
3,166.3
6,613.2
1,173.4
1,490.7
12,443.6
5,666.7
74.4
5,741.1
18,184.7
685.5
395.7
341.7
0.7250
7,636.2
$
57.1%
19.41
21.7%
38.0%
10.2
$
16,879.0
$ 58.13-43.81
40,200
On April 10, 2013 and on December 1, 2011, the company completed its acquisition of Champion and merger with Nalco, respectively, which significantly impacts the
comparability of certain 2011 through 2014 financial data against prior years. (1)U.S. Net sales includes special charges of $29.6 in 2011. (2)Cost of sales includes special charges
of $14.3 in 2014, $43.2 in 2013, $93.9 in 2012, $8.9 in 2011, $12.6 in 2009 and ($0.1) in 2004. (3) Effective in the first quarter of 2014, certain employee related costs from the
company’s recently acquired business that were historically presented within cost of sales were revised and reclassified to SG&A. These immaterial revisions were made to
66 ECOLAB ANNUAL REPORT 2014
2010
2009
2008
2007
2006
2005
2004
$
$
$
$
$
$
$
$
$
$
3,170.4
2,919.3
6,089.7
3,013.8
2,261.6
7.5
806.8
59.1
747.7
216.6
513.1
0.8
530.3
2.23
2.23
233.4
237.6
50.5%
37.1
13.2
12.3
8.7
29.0%
1,869.9
1,148.3
1,854.0
4,872.2
1,324.8
656.4
565.8
192.2
2,739.2
2,129.2
3.8
2,133.0
4,872.2
950.4
347.9
260.5
0.6400
$
845.6
$
28.4%
9.16
26.5%
28.7%
13.7
$
11,723.3
$ 52.46-40.66
26,494
$
$
$
$
$
$
$
$
$
$
$
3,112.7
2,787.9
5,900.6
2,978.0
2,174.2
67.1
681.3
61.2
620.1
201.4
418.7
1.4
417.3
1.74
1.99
236.7
239.9
49.5%
36.8
11.5
10.5
7.1
32.5%
1,814.2
1,176.2
2,030.5
5,020.9
1,250.2
868.8
603.7
288.6
3,011.3
2,000.9
8.7
2,009.6
5,020.9
695.0
334.3
252.5
0.5750
967.3
$
$
$
$
$
$
$
$
$
$
$
3,130.1
3,007.4
6,137.5
3,141.6
2,257.2
25.9
712.8
61.6
651.2
202.8
448.4
0.3
448.1
1.80
1.86
245.4
249.3
48.8%
36.8
11.6
10.6
7.3
31.1%
1,691.1
1,135.2
1,930.6
4,756.9
1,441.9
799.3
680.2
256.5
3,177.9
1,571.6
7.4
1,579.0
4,756.9
753.2
334.7
326.7
0.5300
1,138.2
$
$
$
$
$
$
$
$
$
$
$
2,801.3
2,668.3
5,469.6
2,691.7
2,089.2
19.7
669.0
51.0
618.0
189.1
428.9
1.7
427.2
1.70
1.66
246.8
251.8
50.8%
38.2
12.2
11.3
7.8
30.6%
1,717.3
1,083.4
1,922.1
4,722.8
1,518.3
599.9
418.5
243.2
2,779.9
1,935.7
7.2
1,942.9
4,722.8
797.6
291.9
306.5
0.4750
1,003.4
$
$
$
$
$
$
$
$
$
$
$
2,562.8
2,333.0
4,895.8
2,416.1
1,866.7
613.0
44.4
568.6
198.6
370.0
1.4
368.6
1.43
1.43
252.1
257.1
50.7%
38.1
12.5
11.6
7.5
34.9%
1,853.6
951.6
1,614.2
4,419.4
1,502.8
557.1
420.2
252.7
2,732.8
1,680.2
6.4
1,686.6
4,419.4
627.6
268.6
287.9
0.4150
1,066.1
$
$
$
$
$
$
$
$
$
$
$
$
32.5%
8.46
26.6%
33.1%
11.1
$
10,547.4
$ 47.88-29.27
25,931
$
41.9%
6.65
23.1%
29.4%
11.6
$
8,301.7
$ 52.35-29.56
26,568
$
34.1%
7.84
25.4%
27.9%
13.1
$
12,639.9
$ 52.78-37.01
26,052
$
38.7%
6.69
22.4%
29.0%
13.8
$
11,360.4
$ 46.40-33.64
23,130
$
31.1%
6.49
20.0%
29.5%
12.3
$
9,217.8
$ 37.15-30.68
22,404
2,327.4
2,207.4
4,534.8
2,248.8
1,743.0
543.0
44.2
498.8
178.7
320.1
0.6
319.5
1.23
1.24
255.7
260.1
50.4%
38.4
12.0
11.0
7.0
35.8%
1,421.7
868.0
1,506.9
3,796.6
1,119.4
519.4
302.0
201.7
2,142.5
1,649.2
4.9
1,654.1
3,796.6
590.1
256.9
268.8
0.3625
$
$
$
$
$
$
$
$
2,135.7
2,049.3
4,185.0
2,033.5
1,656.1
4.5
490.9
45.3
445.6
161.9
283.7
1.0
282.7
1.09
1.09
257.6
260.4
51.4%
39.6
11.7
10.6
6.8
36.3%
1,279.1
867.0
1,570.1
3,716.2
939.6
645.5
270.9
257.3
2,113.3
1,598.1
4.8
1,602.9
3,716.2
$
570.9
247.0
275.9
$ 0.3275
746.3
$
701.6
30.4%
$ 6.21
21.4%
30.0%
10.8
$ 9,047.5
$ 35.59-26.12
21,338
conform with management’s view of the respective costs within the global organizational model. Total costs reclassified were $78.9 and $98.1 in 2013 and 2012, respectively.
(4)Interest expense, net includes special charges of $2.5 in 2013, $19.3 in 2012 and $1.5 in 2011. (5)Net income attributable to noncontrolling interest includes special charges of
$0.5 in 2013 and $4.5 in 2012. (6)Earnings per share, as adjusted (Non-GAAP) amounts exclude the impact of special (gains) and charges, discrete tax items and for 2011, post
merger legacy Nalco activity.
ECOLAB ANNUAL REPORT 2014 67
INVESTOR INFORMATION
ANNUAL MEETING
Ecolab’s annual meeting of stockholders will be held on Thursday,
May 7, 2015, at 10 a.m. in the Auditorium of the Landmark Center,
75 West 5th Street, St. Paul, MN 55102.
COMMON STOCK
Stock trading symbol ECL. Ecolab common stock is listed and traded
on the New York Stock Exchange (NYSE). Ecolab stock also is traded
on an unlisted basis on certain other exchanges. Options are traded
on the NYSE.
Ecolab common stock is included in the S&P 500 Materials sector
of the Global Industry Classification Standard.
As of January 30, 2015, Ecolab had 7,135 shareholders of record.
The closing stock price on the NYSE on January 30, 2015, was
$103.77 per share.
DIVIDEND POLICY
Ecolab has paid common stock dividends for 78 consecutive years.
Quarterly cash dividends are typically paid on the 15th of January,
April, July and October, or the ensuing business day.
DIVIDEND REINVESTMENT PLAN
Stockholders of record may elect to reinvest their dividends. Plan
participants may also elect to purchase Ecolab common stock
through this service.
To enroll in the plan, stockholders may contact the plan sponsor,
Computershare, for a brochure and enrollment form.
GOVERNANCE
Disclosures concerning our board of directors’ policies, governance
principles and corporate ethics practices, including our Code of
Conduct, are available online at www.ecolab.com/investors/
corporate-governance.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
PricewaterhouseCoopers LLP
225 South Sixth Street
Minneapolis, MN 55402
INVESTOR INQUIRIES
Securities analysts, portfolio managers and representatives of
financial institutions should contact:
Ecolab Investor Relations
370 Wabasha Street North
St. Paul, MN 55102
Phone: 651.250.2545
INVESTOR RESOURCES
SEC FILINGS: Copies of Ecolab’s Form 10-K, 10-Q and 8-K reports
as filed with the Securities and Exchange Commission are available
free of charge. These documents may be obtained on our website at
www.ecolab.com/investor promptly after such reports are filed with,
or furnished to, the SEC, or by contacting:
Ecolab Inc.
Attn: Corporate Secretary
370 Wabasha Street North
St. Paul, MN 55102
Email: investor.info@ecolab.com
REDUCE, RE-USE, RECYCLE
If you received multiple copies of this report, you may have duplicate investment
accounts. Help save resources. Please contact your broker or the transfer agent
to request assistance with consolidating any duplicate accounts.
All product names appearing in the text of this Annual Report are the
trademarks, brand names, service marks or copyrights of Ecolab USA Inc.
or affiliated Ecolab group companies.
68 ECOLAB ANNUAL REPORT 2014
INVESTMENT PERFORMANCE
The following chart assumes investment of $100 in Ecolab Common
Stock, the Standard & Poor’s 500 Index and the company’s
self-selected composite peer group indices for 2013 and 2014
on January 1, 2010, and daily reinvestment of all dividends.
300
200
100
S
R
A
L
L
O
D
0
2009
2010
201 1
2012
2013
2014
Ecolab Inc.
S&P 500 Index
2014 Peer Group
2013 Peer Group
In 2013, Ecolab utilized competitive data from a comparison group of
19 companies (the “2013 Peer Group”) for purposes of benchmarking
compensation for certain executives. In 2014, Ecolab revised its
comparison group by adding one non-U.S. company with U.S.-based
compensation disclosure and significant peer group overlaps (the
“2014 Peer Group”). Therefore, in the performance graph above,
Ecolab has presented the total return performance for both the 2013
Peer Group and the 2014 Peer Group indices. Further information
regarding the 2013 Peer Group and the 2014 Peer Group can be found
below and in Ecolab’s proxy statement for the annual meeting to be
held on May 7, 2015.
COMMON 2013 AND 2014 PEERS:
3M Co.
Air Products and Chemicals Inc.
Airgas Inc.
Ashland Inc.
Baker Hughes Inc.
Cameron International Corp.
Celanese Corp.
Danaher Corp.
Dow Chemical Company
E.I. du Pont de Nemours and Co.
Eastman Chemical Co.
Halliburton Co.
Monsanto Co.
National Oilwell Varco Inc.
PPG Industries Inc.
Praxair Inc.
Schlumberger Ltd.
Sealed Air Corp.
Sherwin-Williams Co.
NEW 2014 PEER:
Weatherford International plc
TRANSFER AGENT, REGISTRAR
AND DIVIDEND PAYING AGENT
Stockholders of record may
contact the transfer agent,
Computershare Trust Company,
N.A., to request assistance with
a change of address, transfer of
share ownership, replacement of
lost stock certificates, dividend
payment or tax reporting issues.
If your Ecolab stock is held in
a bank or brokerage account,
please contact your bank or
broker for assistance.
COURIER ADDRESS:
Computershare Trust
Company, N.A.
211 Quality Circle, Suite 210
College Station, TX 77845
GENERAL CORRESPONDENCE AND
DIVIDEND REINVESTMENT PLAN
CORRESPONDENCE:
Computershare Trust
Company, N.A.
P.O. Box 30170
College Station, TX 77842-3170
WEBSITE:
www.computershare.com/ecolab
TELEPHONE: 1.312.360.5203 or
1.800.322.8325
HEARING IMPAIRED: 1.312.588.4110
Computershare provides
telephone assistance to
stockholders Monday through
Friday from 8 a.m. to 8 p.m. and
Saturday from 9 a.m. to 5 p.m.
(Eastern Time). Around-the-clock
service also is available online
and via the telephone Interactive
Voice Response system.
BOARD OF DIRECTORS
Douglas M. Baker, Jr.
Chairman of the Board and Chief Executive Officer,
Ecolab Inc., Director since 2004
Barbara J. Beck
Chief Executive Officer, Learning Care Group Inc.
(early education/child care provider), Director
since 2008, Safety, Health and Environment and
Governance Committees
Leslie S. Biller
Chief Executive Officer of Harborview Capital
(private investment and consulting company),
Director since 1997, Compensation and
Finance* Committees
Carl M. Casale
President and Chief Executive Officer of CHS Inc.
(global agribusiness), Director since 2013, Audit and
Safety, Health and Environment Committees
Stephen I. Chazen
President and Chief Executive Officer of Occidental
Petroleum Corporation (oil, natural gas and
chemical producer), Director since 2013, Audit and
Finance Committees
*Denotes committee chair
Jerry A. Grundhofer
Chairman Emeritus and retired Chairman of
the Board, US Bancorp (financial services),
Director since 1999, Compensation* and
Finance Committees
Robert L. Lumpkins
Chairman of the Board, The Mosaic Company
(crop and animal nutrition products and services),
Director since 1999, Audit and Safety, Health and
Environment* Committees
Arthur J. Higgins
Consultant, Blackstone Healthcare Partners of
The Blackstone Group (asset management and
advisory firm), Director since 2010, Compensation
and Governance Committees
Tracy B. McKibben
Founder and President, MAC Energy Advisors LLC
(consulting company for alternative energy and
clean technology investments), Director since
February 2015, Audit and Finance Committees
Joel W. Johnson
Retired Chairman and Chief Executive Officer,
Hormel Foods Corporation (food products), Director
since 1996, Audit* and Governance Committees
Michael Larson
Chief Investment Officer to William H. Gates III
and Business Manager of Cascade Investment LLC,
Director since 2012, Finance and Safety, Health
and Environment Committees
Jerry W. Levin
Chairman, Wilton Brands Inc. (consumer products),
Director since 1992, Compensation and Governance*
Committees and Lead Director
Victoria J. Reich
Former Senior Vice President and Chief Financial
Officer, United Stationers Inc. (wholesale distributor
of business products), Director since 2009, Audit
and Safety, Health and Environment Committees
Suzanne M. Vautrinot
President of Kilovolt Consulting Inc. and a retired
Major General of United States Air Force, Director
since February 2014, Audit and Finance Committees
John J. Zillmer
Retired President and Chief Executive Officer,
Univar Inc. (industrial chemicals and related
specialty services), Director since 2006,
Compensation and Governance Committees
COMMUNICATION WITH DIRECTORS
Stakeholders and other interested parties, including our investors and associates, with
substantive matters requiring the attention of our board (e.g., governance issues or potential
accounting, control or auditing irregularities) may use the contact information for our board
located on our website at www.ecolab.com/investors/corporate-governance.
Matters not requiring the direct attention of our board — such as employment inquiries, sales
solicitations, questions about our products and other such matters — should be submitted to
the company’s management at our St. Paul headquarters.
In addition to online communication,
interested parties may direct
correspondence to our board at:
Ecolab Inc.
Attn: Corporate Secretary
370 Wabasha Street North
St. Paul, MN 55102
CORPORATE OFFICERS
Martha Goldberg Aronson
Executive Vice President and President —
Global Healthcare
Douglas M. Baker, Jr.
Chairman of the Board and
Chief Executive Officer
Christophe Beck
Executive Vice President and President — Regions
Larry L. Berger
Executive Vice President and
Chief Technical Officer
Alex N. Blanco
Executive Vice President and
Chief Supply Chain Officer
Darrell Brown
Executive Vice President and President — Europe
Angela M. Busch
Senior Vice President — Corporate Development
Ching-Meng Chew
Vice President and Treasurer
Thomas W. Handley
President and Chief Operating Officer
Michael A. Hickey
Executive Vice President and President —
Global Institutional
Bryan L. Hughes
Senior Vice President and Corporate Controller
Roberto Inchaustegui
Executive Vice President and President —
Global Services and Specialty
Laurie M. Marsh
Executive Vice President — Human Resources
Michael C. McCormick
Chief Compliance Officer and
Assistant Secretary
Stewart H. McCutcheon
Executive Vice President and
Chief Information Officer
Judy M. McNamara
Vice President — Tax
Timothy P. Mulhere
Executive Vice President and President —
Global Water and Process Services
Daniel J. Schmechel
Chief Financial Officer
James J. Seifert
Executive Vice President, General Counsel
and Secretary
Elizabeth Simermeyer
Senior Vice President —
Global Marketing and Communications
Stephen M. Taylor
Executive Vice President and President —
Nalco Champion
James H. White
Executive Vice President and President —
Latin America
Jill S. Wyant
Executive Vice President and President —
Global Food & Beverage
ECOLAB ANNUAL REPORT 2014 69
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