OPERATING SEGMENTS

6 Months Ended

Jun. 30, 2020

OPERATING SEGMENTS

OPERATING SEGMENTS

16. OPERATING SEGMENTS

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

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

Comparability of Reportable Segments

The ChampionX business was previously recorded in the Global Energy reportable segment and has been reported in discontinued operations. The Downstream operating segment, which was previously included in the Global Energy reportable segment has been aggregated into the Global Industrial reportable segment. The table below reflects the elimination of the Global Energy reportable segment and creation of the Downstream operating segment, which is reported in the Global Industrial reportable segment. Also, in the first quarter of 2020, the Company announced leadership changes which allow for shared oversight and focus on the Healthcare and Life Sciences operating segments and established the Global Healthcare and Life Sciences reportable segment. This segment is comprised of the Healthcare operating segment which was previously aggregated in the Global Institutional reportable segment and the Life Sciences operating segment which was previously aggregated in the Global Industrial reportable segment. Additionally, the table reflects the Textile Care operating segment being reported in Other, which had previously been aggregated in the Global Industrial reportable segment. The Company made other immaterial changes, including the movement of certain customers and cost allocations between reportable segments. These changes are presented in "Segment Change" columns of the table below.

The Company evaluates the performance of its non-U.S. dollar functional currency international operations based on fixed currency exchange rates, which eliminates the impact of exchange rate fluctuations on its international operations. Fixed currency amounts are updated annually at the beginning of each year based on translation into U.S. dollars at foreign currency exchange rates established by management, with all periods presented using such rates. The “Fixed Currency Rate Change” column shown in the following table reflects the impact on previously reported values related to fixed currency exchange rates established by management at the beginning of 2020, rather than the 2019 established rates. The difference between the fixed currency exchange rates and the actual currency exchange rates is reported within the “Effect of foreign currency translation” row in the table below.

The ChampionX business, which includes the direct revenues, operating expenses and certain other expenses directly attributable to the ChampionX business, is reflected in the Company’s historical financial statements as discontinued operations. Allocations of overhead expenses included in historical Upstream Energy segment results are reallocated to the remaining segments. These changes are presented in the “Discontinued operations and related allocation changes” columns in the table below.

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

	December 31, 2019
									Discontinued
	2019 Reported					Fixed	2019 Reported		Operations and	2019 Revised
	Valued at 2019		Segment		Currency		Valued at 2020		Related Allocation	Valued at 2020
(millions)	Management Rates		Change		Rate Change		Management Rates		Charges	Management Rates
Net Sales
Global Industrial		$5,569.9		$479.2		$(52.7)		$5,996.4	$(1.8)	$5,994.6
Global Institutional		5,235.5		(800.1)		(23.3)		4,412.1	-	4,412.1
Global Healthcare and Life Sciences		-		991.7		(12.7)		979.0	-	979.0
Upstream Energy		-		2,350.0		2.9		2,352.9	(2,352.9)	-
Global Energy		3,334.0		(3,334.0)		-		-	-	-
Other		907.5		313.2		(9.0)		1,211.7	-	1,211.7
Subtotal at fixed currency rates		15,046.9		-		(94.8)		14,952.1	(2,354.7)	12,597.4
Effect of foreign currency translation		(140.6)		-		94.8		(45.8)	10.4	(35.4)
Consolidated reported GAAP net sales		$14,906.3		$-		$-		$14,906.3	$(2,344.3)	$12,562.0
Operating Income
Global Industrial		$854.7		$133.4		$(7.5)		$980.6	$(77.9)	$902.7
Global Institutional		1,042.2		(93.4)		(1.5)		947.3	(7.5)	939.8
Global Healthcare and Life Sciences		-		136.7		(1.6)		135.1	(10.6)	124.5
Upstream Energy		-		188.2		(0.3)		187.9	(187.9)	-
Global Energy		379.1		(379.1)		-		-	-	-
Other		167.3		14.2		(0.9)		180.6	(13.6)	167.0
Corporate		(409.1)		-		1.2		(407.9)	128.2	(279.7)
Subtotal at fixed currency rates		2,034.2		-		(10.6)		2,023.6	(169.3)	1,854.3
Effect of foreign currency translation		(20.4)		-		10.6		(9.8)	0.7	(9.1)
Consolidated reported GAAP operating income		$2,013.8		$-		$-		$2,013.8	$(168.6)	$1,845.2

Reportable Segment Information

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

	Second Quarter Ended				Six Months Ended
	June 30				June 30
(millions)	2020		2019		2020		2019
Net Sales
Global Industrial		$1,475.6		$1,500.7		$2,919.2		$2,897.7
Global Institutional		722.4		1,112.5		1,794.5		2,132.7
Global Healthcare and Life Sciences		307.6		252.8		554.1		479.8
Other		247.1		306.2		524.7		580.9
Corporate		12.3		-		12.3		-
Subtotal at fixed currency rates		2,765.0		3,172.2		5,804.8		6,091.1
Effect of foreign currency translation		(79.3)		(3.1)		(98.5)		2.7
Consolidated reported GAAP net sales		$2,685.7		$3,169.1		$5,706.3		$6,093.8
Operating Income
Global Industrial		$283.0		$220.9		$489.6		$382.3
Global Institutional		(37.0)		234.4		145.4		409.2
Global Healthcare and Life Sciences		65.6		31.2		88.5		56.0
Other		21.3		41.8		42.9		67.5
Corporate		(126.7)		(62.7)		(181.3)		(136.1)
Subtotal at fixed currency rates		206.2		465.6		585.1		778.9
Effect of foreign currency translation		(14.2)		(1.2)		(16.9)		(0.9)
Consolidated reported GAAP operating income		$192.0		$464.4		$568.2		$778.0

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

Consistent with the Company’s internal management reporting, Corporate amounts in the table above include sales to ChampionX in accordance with the long-term supply agreement entered into with the Transaction, as discussed in Note 4. Corporate also includes intangible asset amortization specifically from the Nalco merger and special (gains) and charges, as discussed in Note 2, that are not allocated to the Company’s reportable segments.