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)	2015			2014			2015			2014
Cost of sales
Restructuring charges	$	—		$	0.4		$	2.2		$	7.5
Venezuela currency devaluation	23.8			—			33.2			—
Recognition of inventory fair value step-up	—			0.4			—			0.4

Subtotal	23.8			0.8			35.4			7.9

Special (gains) and charges
Restructuring charges	12.1			6.3			33.1			34.9
Champion acquisition and integration costs	3.9			4.1			13.4			15.8
Nalco merger and integration costs	0.8			2.0			1.5			4.8
Venezuela currency devaluation	111.9			—			132.7			—
Loss on sale of business, litigation related charges and other settlements	14.0			(5.4		)	35.4			(25.0		)

Subtotal	142.7			7.0			216.1			30.5

Operating income subtotal	166.5			7.8			251.5			38.4


Net income attributable to noncontrolling interest
Venezuela currency devaluation	(11.1		)	—			(11.1		)	—


Total special (gains) and charges	$	155.4		$	7.8		$	240.4		$	38.4

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

The company’s restructuring activities are associated with plans to enhance its efficiency and effectiveness and sharpen its competitiveness. Its 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 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 within the Consolidated Statement of Income. Amounts included within 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 non-current liabilities on the Consolidated Balance Sheet.

Energy Restructuring Plan

In April 2013, following the completion of the acquisition of privately held Champion Technologies and its related company Corsicana Technologies (collectively “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 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. 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 company expects to incur total pre-tax restructuring charges of 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. Approximately $40 million ($25 million after tax) of charges are expected to be incurred in 2015. The company anticipates that approximately two-thirds of the remaining Energy Plan pre-tax charges will represent cash expenditures. Decisions for any remaining non-cash charges are expected to be made by the end of 2015, and estimates could vary depending on the actual actions taken.

The company recorded restructuring charges related to the Energy Restructuring Plan of $0.9 million ($0.6 million after tax) and $1.3 million ($0.7 million after tax) during the third quarter of 2015 and 2014, respectively. During the nine months ended September 30, 2015 and 2014, the company incurred charges of $15.0 million ($10.5 million after tax) and $8.9 million ($5.9 million after tax), 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 - 2014 Activity:
Recorded expense and accrual	$	30.8		$	4.2		$	1.9		$	36.9
Net cash payments	(29.6		)	—			(1.8		)	(31.4		)
Non-cash net charges	—			(4.2		)	—			(4.2		)
Effect of foreign currency translation	0.8			—			—			0.8

Restructuring liability, December 31, 2014	2.0			—			0.1			2.1

2015 Activity:
Recorded expense and accrual	14.1			0.1			0.8			15.0
Net cash payments	(9.0		)	3.9			(0.8		)	(5.9		)
Non-cash net charges	—			(4.0		)	—			(4.0		)
Effect of foreign currency translation	—			—			—			—

Restructuring liability, September 30, 2015	$	7.1		$	—		$	0.1		$	7.2

As shown in the previous table, net cash payments under the Energy Restructuring Plan were $5.9 million during the first nine months of 2015 and $31.4 million from 2013 through 2014. 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 the objectives of the plans discussed above were aligned, and consequently, the previously separate restructuring plans were 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, plant and distribution center locations.

The total pre-tax restructuring charges under the Combined Plan are expected to be approximately $400 million ($300 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. Approximately $50 million ($40 million after tax) of charges are expected to be incurred in 2015. The company anticipates that approximately one-half of the remaining Combined Plan pre-tax charges will represent net cash expenditures. Decisions for any remaining non-cash charges are expected to be made by the end of 2015, and estimates could vary depending on the actual actions taken.

The company recorded restructuring charges related to the Combined Plan of $11.2 million ($9.4 million after tax) and $5.4 million ($3.3 million after tax) during the third quarter of 2015 and 2014, respectively. During the nine months ended September 30, 2015 and 2014, the company incurred charges of $20.2 million ($15.7 million after tax) and $33.4 million ($27.0 million after tax), respectively.

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

	Combined Plan
	Employee
	Termination			Asset
(millions)	Costs			Disposals			Other			Total
2011 - 2014 Activity:
Recorded net expense and accrual	$	308.8		$	(1.2	)	$	43.6		$	351.2
Net cash payments	(242.4		)	11.7			(30.3		)	(261.0		)
Non-cash net charges	—			(10.5		)	(4.3		)	(14.8		)
Effect of foreign currency translation	(1.9		)	—			—			(1.9		)

Restructuring liability, December 31, 2014	64.5			—			9.0			73.5

2015 Activity:
Recorded net expense and accrual	18.9			0.2			1.1			20.2
Net cash payments	(28.3		)	4.6			(7.0		)	(30.7		)
Non-cash net charges	—			(4.8		)	—			(4.8		)
Effect of foreign currency translation	(5.5		)	—			—			(5.5		)

Restructuring liability, September 30, 2015	$	49.6		$	—		$	3.1		$	52.7

As shown in the previous table, net cash payments under the Combined Plan were $30.7 million during the first nine months of 2015 and $261.0 million from 2011 through 2014. 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.

Non-restructuring Special (Gains) and Charges

Champion acquisition and integration costs

As a result of the Champion acquisition completed in 2013, the company incurred charges of $3.9 million ($2.4 million after tax) and $4.1 million ($2.7 million after tax) during the third quarter of 2015 and 2014, respectively. During the nine months ended September 30, 2015 and 2014, the company incurred charges of $13.4 million ($8.4 million after tax) and $15.8 million ($10.2 million after tax), respectively.

Champion related special charges for 2015 and 2014 include integration costs and have been included as a component of special (gains) and charges on the Consolidated Statement of Income.

Nalco merger and integration costs

As a result of the Nalco merger completed in 2011, the company incurred charges of $0.8 million ($0.6 million after tax) and $2.0 million ($2.0 million after tax) during the third quarter of 2015 and 2014, respectively. During the nine months ended September 30, 2015 and 2014, the company incurred charges of $1.5 million ($1.2 million after tax) and $4.8 million ($4.0 million after tax), respectively.

Nalco related special charges for 2015 and 2014 include integration costs and have been included as a component of special (gains) and charges on the Consolidated Statement of Income.

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 the company’s subsidiaries and other transactional foreign exchange gains and losses are reflected in earnings.

In 2013, the Venezuelan government established 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 Bolivares Fuertes (“bolivar”) for U.S. dollars at a bid rate established via weekly auctions. As of August 31, 2015, the fiscal quarter end for the company’s international operations, the SICAD 1 exchange rate closed at 12.8 bolivares 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 Commission for the Administration of Foreign Exchange (“CADIVI”) with a new foreign currency administration, the National Center for Foreign Commerce (“CENCOEX”), which did not impact the fixed currency exchange rate of 6.3 bolivares to 1 U.S. dollar. In March 2014, the Venezuelan government introduced an additional currency exchange auction mechanism (“SICAD 2”), which operated similar to SICAD 1. In February 2015, SICAD 2 was replaced by a free-floating rate, the Marginal Currency System (“SIMADI”), with an exchange rate at August 31, 2015 of 199.7 bolivares to 1 U.S. dollar.

The company closely monitors the complex economic and political conditions with respect to its operations in Venezuela, which are aligned to five of its ten operating units.

The company’s third quarter 2015 Consolidated Balance Sheet reflects the remeasurement of its Venezuelan Food & Beverage and Institutional net assets and bolivar portion of its Venezuelan Energy net assets at the SIMADI exchange rate. Under current contract agreements, certain Energy transactions are completed in U.S. dollars, making that portion of the company’s operations in Venezuela less dependent on the bolivar to U.S. dollar exchange rate. The company previously reflected, as of the second quarter of 2015, its Venezuelan Water and Paper net assets at the SIMADI exchange rate. The company believes that based on the underlying transactions, the application of the SIMADI rate better represents the economics of its bolivar operations noted above.

As a result, the company recorded charges of $124.6 million ($124.6 million after tax) and $154.8 million ($154.8 million after tax) during the third quarter and first nine months of 2015, respectively, including the remeasurement of its monetary assets and impairment of certain other net assets. As a result of the ownership structure of the company’s Food & Beverage and Institutional operations in Venezuela, it reflected a portion of the devaluation impact as a component of net income (loss) attributable to noncontrolling interest on the Consolidated Statement of Income.

As of August 31, 2015, the company had net assets of approximately $100 million within its Venezuelan operations. Included within this amount is approximately $30 million of property, plant and equipment and other intangible assets as well as approximately $65 million of goodwill. The remainder is largely made up of U.S. dollar accounts receivable and inventory, offset by approximately $80 million of intercompany payables to the U.S. While these intercompany balances offset in consolidation, were the company to deconsolidate its Venezuelan operations in the future, its total exposure would increase by $80 million. The majority of the net assets are aligned to the company’s Energy operating unit.

During the first nine months of 2015, net sales within Venezuela represented approximately 2% of the company’s consolidated net sales. Assets held in Venezuela at August 31, 2015 represented approximately 1% of the company’s consolidated assets.

Other special (gains) and charges

During the third quarter of 2015, the company recognized a net charge of $14.0 million ($7.8 million after tax), related to litigation related charges and the recovery of funds deposited into escrow as part of the Champion transaction. During the first nine months of 2015, the company recognized a net charge of $35.4 million ($21.1 million after tax), including the Champion escrow recovery, recognition of a loss on the sale of a portion of its Ecovation business, and other litigation related charges.

The company recognized other special gains of $5.0 million ($3.1 million after tax) and $24.6 million ($19.5 million after tax) during the third quarter and the first nine months of 2014, respectively. The gain recognized in the third quarter of 2014 resulted from the consolidation of the Emirates National Chemicals Company LLC (“Emochem”) entity and removal of the corresponding equity method investment. The gains recognized during the first six months of 2014 related to a favorable licensing settlement and other settlement gains.