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SPECIAL (GAINS) AND CHARGES

12 Months Ended

Dec. 31, 2020

3. SPECIAL (GAINS) AND CHARGES

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



(millions)	2020		2019		2018
Cost of sales
Restructuring activities		$7.4		$20.4		$5.4
Acquisition and integration activities		3.9		7.6		(0.6)
COVID-19 activities, net		12.5		-		-
Other		24.4		10.5		-
Cost of sales subtotal		48.2		38.5		4.8

Special (gains) and charges
Restructuring activities		71.4		93.2		75.9
Acquisition and integration activities		8.5		5.6		8.8
Disposal and impairment activities		41.4		-		-
COVID-19 activities, net		23.6		-		-
Other		34.7		21.4		28.0
Special (gains) and charges subtotal		179.6		120.2		112.7

Operating income subtotal		227.8		158.7		117.5

Interest expense, net		83.8		0.2		0.3
Other (income) expense		0.4		9.5		-

Total special (gains) and charges		$312.0		$168.4		$117.8

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

Restructuring Activities

Restructuring activities are primarily related to the Institutional Advancement Program and Accelerate 2020, both of which are described below. Restructuring activities have been included as a component of both cost of sales, special (gains) and charges and other (income) expense on the Consolidated Statement of Income. Restructuring liabilities have been classified as a component of other current and other noncurrent liabilities on the Consolidated Balance Sheet.

Institutional Advancement Program

During 2020, the Company approved a restructuring plan focused on the Institutional business (“the Institutional Plan”) which is intended to enhance our Institutional sales and service structure and allow the sales team to capture share and penetration while maximizing service effectiveness by leveraging our ongoing investments in digital technology. In February 2021, the Company expanded the Institutional Plan, and expect that these restructuring charges will be completed by 2023, with total anticipated costs of $80 million ($60 million after tax). The costs are expected to be primarily cash expenditures for severance and facility closures. We also anticipate non-cash costs related to equipment disposals. We expect total program savings of approximately $50 million by the end of 2024. Actual costs may vary from these estimates depending on actions taken.

Certain activities contemplated in this Institutional Plan were previously approved in 2020 and included as part of Accelerate 2020 announced in 2018. These activities have been reclassified to the Institutional Plan. The Company recorded restructuring charges, including those reclassified from Accelerate 2020, of $35.2 million ($26.4 million after tax) primarily related to severance and costs to support the transition to the new sales structure. All of these charges are recorded within the Special (gains) and charges line on the Consolidated Statement of Income. The liability related to the Institutional Plan was $24.7 million as of December 31, 2020 and is expected to be paid over a period of a few months to several quarters and will continue to be funded from operating activities.

Restructuring activity related to the Institutional Plan since inception of the underlying actions includes the following:

Employee

Termination

Asset

(millions)

Costs

Disposals

Other

Total

2020 Activity

Recorded expense (income) and accrual

$25.6

$9.6

$35.2

Net cash payments

(0.9)

(9.6)

(10.5)

Non-cash net charges

Effect of foreign currency translation

Restructuring liability, December 31, 2020

$24.7

Accelerate 2020

During 2018, the Company formally commenced a restructuring plan Accelerate 2020 (“the Plan”), to leverage technology and systems investments and organizational changes. The goal of the Plan is to simplify and automate processes and tasks, reduce complexity and management layers, consolidate facilities and focus on key long-term growth areas by further leveraging technology and structural improvements. In the third quarter of 2020, the Company expanded the Plan for additional costs and savings to further leverage the technology and structural improvements. Following the establishment of the separate Institutional Program, the Company now expects that the restructuring activities will be completed by the end of 2022, with total anticipated costs of $255 million ($195 million after tax) over this period of time, when revised for continuing operations. The costs are expected to be primarily cash expenditures for severance costs and some facility closure costs relating to team reorganizations. Actual costs may vary from these estimates depending on actions taken.

The Company recorded restructuring charges of $41.8 million ($33.0 million after tax), $113.0 million ($86.5 million after tax) and $84.4 million ($64.3 million after tax) in 2020, 2019 and 2018, respectively, primarily related to severance. Of these expenses, $0.3 million ($0.2 million after tax) and $2.0 million ($1.5 million after tax) during 2020 and 2019, respectively, is recorded in other income expense and related to pension settlements and curtailments. The liability related to this Restructuring Plan was $71.8 million and $95.5 million as of December 31, 2020 and 2019, respectively. The remaining liability is expected to be paid over a period of a few months to several quarters and will continue to be funded from operating activities. The Company has recorded $239.2 million ($183.8 million after tax) of cumulative restructuring charges under the Plan.

Restructuring activity related to the Plan since inception of the underlying actions includes the following:



	Employee
	Termination		Asset
(millions)	Costs		Disposals		Other		Total
2018 Activity
Recorded expense		$80.2		$-		$4.2		$84.4
Net cash payments		(22.2)		-		(1.1)		(23.3)
Non-cash charges		-		-		-		0.0
Effect of foreign currency translation		(0.5)		-		-		(0.5)
Restructuring liability, December 31, 2018		57.5		-		3.1		60.6

2019 Activity
Recorded expense		102.3		0.2		10.5		113.0
Net cash payments		(65.3)		1.2		(10.1)		(74.2)
Non-cash charges		-		(1.4)		(2.0)		(3.4)
Effect of foreign currency translation		(0.5)		-		-		(0.5)
Restructuring liability, December 31, 2019		94.0		-		1.5		95.5

2020 Activity
Recorded expense		29.5		7.8		4.5		41.8
Net cash payments		(56.8)		-		(1.0)		(57.8)
Non-cash charges		-		(7.8)		-		(7.8)
Effect of foreign currency translation		0.1		-		-		0.1
Restructuring liability, December 31, 2020		$66.8		$-		$5.0		$71.8

Other Restructuring Activities

During 2020, the Company incurred restructuring charges of $1.8 million ($1.2 million after tax) related to an immaterial restructuring plan. The charges are comprised of severance, asset disposals, and consulting fees. During 2019, net restructuring gains related to restructuring plans entered into prior to 2018 were $1.5 million ($1.1 million after tax). The gains recorded were due to finalizing estimates upon completion of projects. During 2018, the Company recorded restructuring charges of $3.1 million ($2.4 million after tax).

The restructuring liability balance for all other restructuring plans excluding Accelerate 2020 and the Institutional Plan was $5.9 million and $7.7 million as of December 31, 2020 and 2019, respectively. The reduction in liability was driven primarily by severance payments. The remaining liability is expected to be paid over a period of a few months to several quarters and will continue to be funded from operating activities. Cash payments during 2020 related to these restructuring plans were $2.7 million.

Acquisition and integration related costs

Acquisition and integration costs reported in special (gains) and charges on the Consolidated Statement of Income in 2020 include $8.5 million ($6.9 million after tax). Charges are related to Copal Invest NV, including its primary operating entity CID Lines (collectively, “CID Lines”), Bioquell, PLC (“Bioquell”) and the Laboratoires Anios (“Anios”) acquisition and consist of integration costs, advisory and legal fees. Acquisition and integration costs reported in product and equipment cost of sales on the Consolidated Statement of Income in 2020 include $3.9 million ($3.2 million after tax) and are related to recognition of fair value step-up in CID Lines inventory, severance and the closure of a facility. In conjunction with its acquisitions, the Company incurred $0.7 million ($0.6 million after tax) of interest expense in 2020.

During 2019, acquisition and integration costs reported in special (gains) and charges on the Consolidated Statement of Income in 2019 include $5.6 million ($4.1 million after tax). Charges are primarily related to the Bioquell and Anios acquisitions and consist of integration costs, advisory and legal fees. Acquisition and integration costs reported in product and equipment cost of sales on the Consolidated Statement of Income in 2019 include $7.6 million ($5.6 million after tax) and are related to recognition of fair value step-up in the Bioquell inventory and facility closure costs. In conjunction with the acquisitions, the Company incurred $0.2 million ($0.1 million after tax) of interest expense in 2019.

During 2018, acquisition and integration costs reported in special (gains) and charges on the Consolidated Statement of Income included $8.8 million ($6.1 million after tax). Charges are primarily related to Anios integration costs, advisory and legal fees. The acquisition and integration gain reported in product and equipment cost of sales on the Consolidated Statement of Income in 2018 relate to changes in estimates related to an early lease exit. In conjunction with its acquisitions, the Company incurred $0.3 million ($0.2 million after tax) of interest expense in 2018.

Disposal and impairment charges

Disposal and impairment charges reported in special (gains) and charges on the Consolidated Statement of Income include $41.4 million ($41.5 million after tax) in 2020. During 2020, the Company recorded a $28.6 million ($28.6 million after tax) impairment for a minority equity method investment due to the COVID-19 impact on the economic environment and the liquidity of the minority equity method investment. In addition, the Company recorded charges of $12.8 million ($12.9 million after tax) related to the disposal of Holchem Group Limited (“Holchem”) for the loss on sale and related transaction fees during 2020.

COVID-19

During 2020, the Company recorded charges of $57.1 million to protect the pay for certain employees directly impacted by the COVID-19 pandemic. In addition, the Company received subsidies and government assistance, which was recorded as a special (gain) of ($23.4) million during 2020. Finally, the Company recorded testing charges related to the COVID-19 pandemic of $2.4 million. COVID-19 pandemic charges are recorded in product and equipment sales, service and lease sales, and special (gains) and charges on the Consolidated Statement of Income. Total after tax net charges (gains) related to COVID-19 pandemic were $27.4 million.

Other

During 2020 and 2019, the Company recorded special charges of $24.4 million ($16.0 million after tax) and $10.5 million ($7.1 million after tax), respectively, recorded in product and equipment cost of sales on the Consolidated Statement of Income primarily related to a Healthcare product recall in Europe.

Other special charges of $34.7 million ($33.9 million after tax) recorded in 2020 and $21.4 million ($16.2 million after tax) recorded in 2019 relate primarily to legal charges for specific legal cases and a specific legal reserve, which are recorded in special (gains) and charges on the Consolidated Statement of Income. The Company also recorded a $7.2 million special charge related to the separation of ChampionX as a tax expense on the Consolidated Statement of Income.

During 2018, the Company recorded other special charges of $28.0 million ($21.2 million after tax) which primarily consisted of a $25.0 million ($18.9 million after tax) commitment to the Ecolab Foundation. Other charges, primarily litigation related charges, were minimal and have been included as a component of special (gains) and charges on the Consolidated Statement of Income.

Other (Income) Expense

During 2020 and 2019, the Company recorded other expense of $0.4 million ($0.3 million after tax) and $9.5 million ($7.2 million after tax) related to pension curtailments and settlements due to the ChampionX separation and Accelerate 2020 as discussed further above. These charges have been included as a component of other income expense on the Consolidated Statement of Income.

Interest Expense, net

During 2020, the Company recorded special charges of $83.1 million ($64.0 million after tax) in interest expense on the Consolidated Statement of Income related to debt refinancing charges. During 2020, 2019 and 2018, an immaterial amount of interest expense was also recorded due to acquisition and integration costs.