2. Special (Gains) and Charges

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

	Third Quarter Ended						Nine Months Ended
	September 30						September 30
(millions)	2013			2012			2013			2012
Cost of sales
Restructuring charges	$	1.9		$	1.7		$	5.5		$	9.6
Recognition of Champion inventory fair value step-up	4.4			—			18.0			—
Recognition of Nalco inventory fair value step-up	—			1.5			—			72.7
Subtotal	6.3			3.2			23.5			82.3

Special (gains) and charges
Restructuring charges	11.9			20.8			75.4			73.2
Champion acquisition and integration costs	10.7			3.8			42.5			3.8
Nalco merger and integration costs	5.3			16.4			13.5			47.0
Venezuela currency devaluation	(0.1		)	—			23.3			—
Gain on sale of business	—			(13.0		)	—			(13.0		)
Litigation related charges and other	—			—			(3.6		)	—
Subtotal	27.8			28.0			151.1			111.0

Operating income subtotal	34.1			31.2			174.6			193.3

Interest expense, net
Acquisition debt costs	—			—			2.5			—
Debt extinguishment costs	—			—			—			18.2
Subtotal	—			—			2.5			18.2

Net income attributable to noncontrolling interest
Venezuela currency devaluation	—			—			(0.5		)	—
Recognition of Nalco inventory fair value step-up	—			—			—			(4.5		)
Subtotal	—			—			(0.5		)	(4.5		)

Total special (gains) and charges	$	34.1		$	31.2		$	176.6		$	207.0

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

The company incurs net costs for restructuring activities associated with plans to enhance its efficiency and 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 when the actions are probable and the amounts are estimable, which typically is when management approves the associated actions. Contract termination costs include charges to terminate leases prior to the end of their respective terms and other contract terminations. 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 related severance and other asset write-downs associated with combining operations. Restructuring liabilities have been classified as a component of other current liabilities on the Consolidated Balance Sheet.

Energy Restructuring Plan

On April 10, 2013, the company completed its acquisition of privately held Champion Technologies and its related company Corsicana Technologies (collectively “Champion”).

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 include a reduction of the combined business’s current global workforce by approximately 500 positions. A number of these reductions are expected to be achieved through eliminating open positions and attrition. The company also anticipates leveraging and simplifying its 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 company expects to incur pretax restructuring charges of approximately $80 million ($55 million after tax) under the Energy Restructuring Plan through the completion of the Plan in 2015. Approximately $30 million ($20 million after tax) of those charges are expected to occur in 2013.

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 for any asset disposals and estimates could vary depending on the actual actions taken.

As a result of restructuring activities under the Energy Restructuring Plan, the company recorded restructuring charges of $8.4 million ($6.7 million after tax) and $20.6 million ($14.3 million after tax), during the third quarter and nine months ended September 30, 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			Asset
(millions)	Costs			Disposals			Other			Total

2013 Activity:
Recorded expense and accrual	$	19.4		$	0.8		$	0.4		$	20.6
Cash payments	(12.9		)	—			(0.4		)	(13.3		)
Non-cash charges	—			(0.8		)	—			(0.8		)
Effect of foreign currency translation	(0.1		)	—			—			(0.1		)
Restructuring liability, September 30, 2013	$	6.4		$	—		$	—		$	6.4

Cash payments under the Energy Restructuring Plan during 2013 were $13.3 million. The majority of cash payments under this Plan are related to severance, with the current accrual expected to be paid over the next twelve months.

Combined Restructuring Plan

In February 2011, the company commenced a comprehensive plan to substantially improve the efficiency and effectiveness of its European business, sharpen its competitiveness and accelerate its growth and profitability. Additionally, restructuring has been and will continue to be undertaken outside of Europe (collectively, the “2011 Restructuring Plan”). Total anticipated charges under this Plan from 2011 through 2013 were expected to be $150 million ($125 million after tax). Through 2012, $134 million of charges ($100 million after tax) were incurred.

In January 2012, following the merger with Nalco Holding Company (“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 (the “Merger Restructuring Plan”). Total anticipated charges from 2012 through 2013 were expected to be $180 million ($120 million after tax) under this Plan. Through 2012, $80 million of charges ($59 million after tax) were incurred.

During the first quarter of 2013, as the company considered opportunities to enhance the efficiency and effectiveness of its operations, it 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”) combined opportunities and initiatives from both plans and is expected to be mostly completed by the end of 2013, with carryover of some projects and expenditures into 2014. The Combined Plan 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 plant and distribution center locations and the global workforce. After combining the plans, and through the completion of the Combined Plan, the company expects to incur total pretax restructuring charges of approximately $100 million ($70 million after tax), of which approximately $70 million ($50 million after tax) will be incurred in 2013.

The company anticipates that approximately $80 million of the total Combined Plan pre-tax charges will represent net cash expenditures. The remaining pre-tax charges represent estimated asset write-downs and disposals. No decisions have been made for any remaining asset disposals and estimates could vary depending on the actual actions taken.

As a result of restructuring activities under the Combined Plan, the company recorded restructuring charges of $5.3 million ($2.1 million after tax) and $60.5 million ($42.5 million after tax), during the third quarter and nine months ended September 30, 2013, respectively.

Restructuring charges and activity related to Combined Plan since inception of the underlying actions include the following:

	Combined Plan
	Employee
	Termination			Asset
(millions)	Costs			Disposals			Other			Total

2011 Activity:
Recorded expense and accrual	$	67.1		$	0.5		$	7.1		$	74.7
Cash payments	(22.5		)	—			(2.6		)	(25.1		)
Non-cash charges	—			(0.5		)	—			(0.5		)
Effect of foreign currency translation	(2.2		)	—			—			(2.2		)
Restructuring liability, December 31, 2011	42.4			—			4.5			46.9

2012 Activity:
Recorded expense and accrual	126.1			3.2			10.1			139.4
Cash payments	(62.0		)	—			(3.3		)	(65.3		)
Non-cash charges	—			(3.2		)	(3.9		)	(7.1		)
Effect of foreign currency translation	(0.7		)	—			—			(0.7		)
Restructuring liability, December 31, 2012	105.8			—			7.4			113.2

2013 Activity:
Recorded net expense and accrual	52.0			(2.9		)	11.4			60.5
Net cash payments	(76.7		)	5.9			(10.0		)	(80.8		)
Non-cash net charges	—			(3.0		)	(0.4		)	(3.4		)
Effect of foreign currency translation	1.0			—			—			1.0
Restructuring liability, September 30, 2013	$	82.1		$	—		$	8.4		$	90.5

Asset disposals include a gain of $5.1 million from the sale of a plant in California during the third quarter of 2013.

Net cash payments under the Combined Plan were $80.8 million, $65.3 million and $25.1 million for the first nine months of 2013, full year 2012 and full year 2011, 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.

Nalco Restructuring Plan

Prior to the Nalco merger, Nalco conducted various restructuring programs to redesign and optimize its business and work processes (the “Nalco Restructuring Plan”). As of September 30, 2013 and December 31, 2012, the remaining liability balance related to the Nalco Restructuring Plan was $2.1 million and $3.4 million, respectively. Cash payments during the nine months of 2013 related to this Plan were $1.1 million. The company expects to substantially utilize the remaining liability by the end of 2014.

Non-restructuring Special (Gains) and Charges

Champion acquisition and integration costs

As a result of the company’s efforts to acquire Champion and post acquisition integration costs, the company incurred charges of $15.1 million ($10.3 million after tax) and $63.0 million ($44.9 million) during the third quarter and nine months ended September 30, 2013, respectively. During both the third quarter and nine months ended September 30, 2012, the company incurred charges of $3.8 million ($3.3 million after tax) related to advisory and legal fees.

Champion acquisition 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. 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 Champion transaction of the company’s $500 million public debt issuance in December 2012 as well as 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 3.

Nalco merger and integration costs

As a result of the Nalco merger completed in 2011, the company incurred charges of $5.3 million ($3.5 million after tax) and $17.9 million ($11.8 million after tax) during the third quarter of 2013 and 2012, respectively. During the nine months ended September 30, 2013 and 2012, the company incurred charges of $13.5 million ($9.2 million after tax) and $133.4 million ($98.3 million after tax), respectively.

Nalco related special charges for 2013 have been included as a component of special (gains) and charges on the Consolidated Statement of Income, and include integration charges. Nalco related special charges for 2012 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 the 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 for 2012 include a loss on the extinguishment of Nalco’s senior notes, which were assumed as part of the merger.

Venezuelan currency devaluation

On February 8, 2013, the Venezuelan government devalued its currency, the Bolivar Fuerte. As a result of the devaluation, during the first quarter of 2013, the company recorded a charge of $22.9 million ($15.0 million after tax), reflected as a component of special (gains) and charges, due to the remeasurement of the local balance sheet. Due to the ownership structure in place in Venezuela, the company also reflected a portion of 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 the third quarter of 2012, the company received additional payments related to the sale of an investment in a U.S. business, originally sold prior to 2012. The corresponding gain recognized during the third quarter of 2012 was recorded in special (gains) and charges.