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Ecolab (NYSE:ECL)

Q4 2011 Earnings Call

February 28, 2012 1:00 pm ET

Executives

Michael Monahan - Vice President of External Relations

Douglas M. Baker - Chairman of The Board and Chief Executive Officer

Analysts

David L. Begleiter - Deutsche Bank AG, Research Division

Gary E. Bisbee - Barclays Capital, Research Division

Nathan Brochmann - William Blair & Company L.L.C., Research Division

Dmitry Silversteyn - Longbow Research LLC

Michael J. Harrison - First Analysis Securities Corporation, Research Division

David Ridley-Lane - BofA Merrill Lynch, Research Division

Lucy Watson - Jefferies & Company, Inc., Research Division

Andrew J. Wittmann - Robert W. Baird & Co. Incorporated, Research Division

Shlomo Rosenbaum - Stifel, Nicolaus & Co., Inc., Research Division

Rosemarie J. Morbelli - Gabelli & Company, Inc.

Brian Maguire - Goldman Sachs Group Inc., Research Division

Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division

Alina Khaykin

Operator

Welcome to the Ecolab Fourth Quarter 2011 Earnings Release Conference Call. [Operator Instructions] This call is being recorded. If you have any objections, you may disconnect at this time. I would like to turn the call over to Mr. Michael Monahan, Senior Vice President, External Relations. Sir, you may begin.

Michael Monahan

Thank you. Hello, everyone, and welcome to Ecolab's fourth quarter conference call. With me today is Doug Baker, Ecolab's Chairman and CEO. A copy of our earnings release and accompanying slides referenced in the teleconference are available on Ecolab's website at investor.ecolab.com.

Please take a moment to read the cautionary statements on Slide 12 stating that this teleconference and the slides include estimates of future performance. These are forward-looking statements, and actual results could differ materially from those projected. Factors that could cause actual results to differ are described in the section of our most recent Form 10-K under Item 1A, risk factors, in our fourth quarter earnings release and on Slide 2. We also refer you to the supplemental diluted earnings per share information in the release.

Starting with our overview in Slide 3, we delivered strong results once again in the fourth quarter. We leveraged our sales volume, growth, pricing and cost-efficiency work along with excellent acquisition performances to offset significantly higher delivered product cost to produce another strong double-digit increase in our adjusted earnings per share. In addition, note that we included one month of Nalco's U.S. results in our quarter, reflecting their operations in the period following our December 1 close.

Looking ahead, we expect to continue outperforming our combined markets and show good earnings gains in the first quarter and stronger growth for the full year as better sales growth, pricing, innovation, synergies and margin leverage more than offset lessening increases in delivered product cost and merger-related cost. Further, we expect 2012 will be our 10th year of double-digit adjusted EPS growth in the last 11, and we will do so while setting up further strong growth in the years ahead.

Moving to some highlights from the quarter and as discussed in our press release, reported fourth quarter earnings per share were $0.34. On an adjusted basis, excluding special gains and charges and discrete tax items from both years as well as the impact from the Nalco merger from 2011, fourth quarter 2011 earnings per share increased 17% to $0.70 which was the midpoint of our forecasted range. The adjusted earnings per share growth was driven by volume and pricing gains, new products and new accounts which, along with the strong performance from acquisitions, lower variable compensation and cost-savings actions, more than offset higher delivered product cost.

We enjoyed strong sales growth in our Food & Beverage and Kay businesses worldwide. Geographically, Latin America was strong, and our Canada operations also saw good gains. We continue to be aggressive, focusing on accelerating our top line growth as we emphasize our innovative product and service strengths to help drive increased market share in our core businesses and new account acquisition across all of our customer segments. We also continue to implement appropriate price increases to help offset higher delivered product cost.

We remain focused on expanding our margins, emphasizing productivity and efficiency improvements to help increase profitability as well as drive merger synergies. We are achieving excellent progress in our actions to improve profitability in our Europe business. We have seen the benefits of these actions in our results. Though, as we outlined in our last call, Europe's fourth quarter also reflected the impact of significantly higher raw material cost. We continue to expect strong margin improvement in the fourth quarter 2012 with further significant gains over the next several years. We also continue to make investments in key growth businesses and acquisitions to build future growth.

As announced in our January update, our work to integrate Ecolab and Nalco has gone very well. The merger bolsters our opportunity set for our customers and positions us as the leader in additional high-growth markets that leverage our mutual core strengths in product technology and sales and service execution. We look for the first quarter results to show upper single-digit sales growth led by global energy and our Asia Pacific and Latin America operations. This strong business performance will be impacted by the much higher depreciation and amortization expense from our merger in what is our seasonally slowest sales quarter.

As such, first quarter adjusted EPS is expected to be in the $0.46 to $0.49 range compared with adjusted EPS of $0.45 earned by legacy Ecolab in the first quarter of 2011. However, we expect the quarterly earnings growth rate to accelerate over the balance of the year as higher fixed depreciation and amortization and interest expense are offset by increasing benefits from synergies and cost reductions by seasonally higher revenues and by underlying business growth. We look for full-year earnings per share to rise 16% to 20% to the $2.95 to $3.05 range.

In summary, we expect 2012 to reflect another strong performance by Ecolab as we show accelerating quarterly earnings gains to once again deliver very attractive growth and shareholder returns this year and set the stage for improved results in the years ahead.

Slide 4 shows our adjusted income statement and Slide 5 shows our sales growth detail. Ecolab's reported consolidated sales for the fourth quarter, including the impact of Nalco, increased 17%. Excluding the impact of Nalco and the previously disclosed contract modification charge, legacy Ecolab's fixed currency fourth quarter sales increased 7%. Looking at the fixed currency components, volume and mix increased 2%, pricing rose 2% and acquisitions were 2%. Rounding accounts for the difference.

Sales for our U.S. Cleaning & Sanitizing operations rose 8%. Adjusted for acquisitions, sales increased 5%. Institutional sales grew 4% in the fourth quarter.

Sales initiatives targeting new accounts and effective product and service programs continue to lead our results and outperform mixed end markets. Shipments to our end-use customers continue to show steady sequential improvement. Lodging room demand continued to show good growth against tougher comparables, while food service foot traffic remains soft.

To drive our growth and improve on our industry leadership, we're introducing more new products that deliver increased value and reduced labor, water and energy cost for customers in our warewashing, laundry and housekeeping markets.

We have fully rolled out Solid Power XL, our new concentrated warewashing product that provides 50% more cleaning power per capsule. The Cleaning Caddy, which won an industry innovation award and provides customers with the ability to more easily and frequently clean their restroom with less downtime, thereby saving money and improving guest and employee satisfaction, had strong growth in the quarter.

Further, we are developing new programs with distributors to target regional and independent chains and drive better penetration and new account growth. We also continue to make additional investments in our sales and service force and leverage additional marketing initiatives to drive sales growth. We expect continued progress in the first quarter as these growth drivers and new initiatives and innovations help Institutional show steady sales gains and once again significantly outperform its markets.

Kay's fourth quarter sales increased 9%. Quick service sales reflected strong shipments to current customers and to distributors. The food retail business rose modestly. We expect continued good new account gains in food retail, along with quick service sales to drive another year of upper single-digit sales growth for Kay in 2012. However, first quarter sales gains will be flattish, reflecting the timing of shipments to major customers.

Healthcare sales increased 35% with year-on-year O.R. Solutions growth of 13%. Excluding the acquisition of O.R. Solutions, sales increased 4% as good growth from instrument reprocessing, environmental hygiene and surgical drapes was slowed by continuing weak U.S. health care industry market trends.

We continue to see new account gains from our OptiPro Instrument Reprocessing line for central sterile and further good progress in our EnCompass Environmental Hygiene line for patient room hygiene. Further, O.R. Solutions continues to show strong growth. Looking ahead, first quarter sales are expected to show steady organic and strong reported sales gains.

Food & Beverage sales rose 6%. Sales increased in both segments, led by corporate account wins, pricing and product penetration. Food & Beverage will continue to focus on new account acquisition, pricing and new product sales to show continued solid growth in the first quarter of 2012.

Sales for U.S. Other Services rose 2% in the fourth quarter. Pest Elimination sales rose modestly as gains in food processing, healthcare, hospitality and food retail were mostly offset by slow and cautious conditions in other major end markets as well as reduced add-on service sales.

We are working to develop new products and program solutions to better meet our customer needs and differentiate our offerings. Recent new program launches, like Guardian Plus for full-service restaurants and bedbug treatments in non-hospitality markets, such as long-term care, retail and restaurants, are showing good results. We expect our new products and programs, along with aggressive selling, to help offset the soft market and yield sales improvement in 2012.

Sales for Equipment Care, formally called GCS, increased 4% in the quarter. Equipment Care again turned in a modest profit, its second quarter in a row. New account wins and appropriate pricing helped to drive the sales and profit gain. We remain focused on developing chain account relationships and driving sales through their regional and franchise organizations. We expect Equipment Care to again show strong sales growth and continued profit improvement in 2012.

Measured in fixed currencies, international sales increased 6%. Adjusted for acquisitions, sales increased 4%. Europe, Middle East and Africa sales rose 2% in the fourth quarter at fixed currency rates as we continue to offset softening end markets in the region. Europe's institutional fourth quarter sales were flat versus a year ago. New business gains among regional and local customers leveraged new products but were offset by weak demand, primarily in the Mediterranean countries.

Food & Beverage sales rose nicely over last year, reflecting market share gains. Food & Beverage continues to focus on corporate accounts, emphasizing cost savings benefits of our innovative products. Textile Care sales declined in the fourth quarter, reflecting soft work wear markets. We are using new products and technology to offset these market trends and improve Textile Care results.

Europe Healthcare sales showed a good increase led by gains in both the infection prevention and contamination control segments. Europe -- Pest Europe sales increased modestly as a continued focus on corporate accounts and new programs, along with continued operational improvements yielded the gain.

Our work to improve operating efficiency in our Europe operations is showing good progress. We continue to roll out our shared services strategy into new areas and processes and thereby, accelerate savings from our earlier work. In addition, recent actions include further consolidation of raw material suppliers in order to reduce complexity and leverage purchasing and the announced consolidation of facilities in our German offices and other countries to improve productivity and reduce cost.

Looking ahead, we expect Europe's first quarter to show continued modest fixed currency sales growth as it works through the softening and very challenging business environment. The persistent raw material increases in these tough economic conditions occurring in Europe's seasonally smallest sales quarter are likely to result in first quarter margin improvement showing a pause, but it should pick up again in the second quarter.

Asia Pacific sales grew 14% in fixed currencies. Adjusted for acquisitions, fixed currency sales grew 4%. We estimate the effects of the earthquake in Japan and floods in Thailand continue to impact results but reduced our fourth quarter -- and reduced our fourth quarter sales gain by about 2 percentage points.

Institutional sales adjusted for the Cleantec acquisition showed good growth. New programs and a focus on restaurant and lodging expansion in the emerging Asia markets helped offset the impact of earthquakes in Japan and New Zealand earlier this year. Food & Beverage sales also enjoyed strong organic growth, and the new account gains and new product penetration led the increase. Looking ahead, Asia Pacific expects continued strong sales growth in the first quarter of 2012.

Fourth quarter sales for Ecolab's Canadian operations increased 6% at fixed currency rates as solid growth in the core businesses drove results. Latin America reported a strong sales gain, rising 15% in fixed currencies as all divisions in that region grew double digits. Institutional growth was driven by new accounts, increased product penetration and continued success with global and regional accounts. Food & Beverage sales reflect strong demand in the beverage and brewing markets as well as the benefits of new accounts, and Pest Elimination sales showed a double-digit gain.

Overall, we expect attractive growth trends to continue in Latin America and yield another double-digit gain in the first quarter. We included Nalco's segment results in our fourth quarter financial statements only for the month following our merger. And these results were only for their U.S. operations, because our international businesses operate on a November 30 fiscal year. Obviously, any one-month period is not a good indicator of business performance. Therefore, we include the following qualitative comments regarding the full fourth quarter performance of Nalco's businesses on the Ecolab calendar basis in order to provide a continuity regarding their business progress. But also note, the fourth quarter results were affected by onetime events related to merger and integration activity.

Nalco sales for the full fourth quarter rose 13% to $1.2 billion in fixed currencies, excluding acquisitions. Adjusted for acquisitions and divestitures, fixed currency global water service sales increased 9% in the fourth quarter. Double-digit growth in mining led the quarter as new technology launches, recovering power plant demand and continued appropriate pricing drove sales. Light industry sales were essentially flat.

Regionally, growth was strong in the U.S., Latin America and Europe, while Asia Pacific was soft. We expect continued solid growth in the first quarter as further market penetration using our industry-leading 3D TRASAR technology and superior products and services should offset softer Europe as well as somewhat slower global primary metals and light manufacturing end markets.

Global sales for Paper Services slowed to low single-digit growth in the fourth quarter. Good growth in the U.S. and Latin America was partially offset by weakness in Asia Pacific and Europe, reflecting the slower graphic paper and packaging end markets and as year-end inventory control actions were implemented by a number of customers. We expect first quarter sales to show better growth driven by our targeted and differentiated technology offerings that will help us outpace the market.

Measured in fixed currencies, energy services global sales grew an impressive 21%, reflecting continued strong demand, market share gains and appropriate pricing. Strong double-digit growth in our upstream business reflected the continued success of our superior product technology and sales and service expertise, our ability to reliably supply customers to assure production mix innovation and our strategy to focus on products and services on harder to reach and harder to treat oil. Further, we benefited from the expansion of our operations in emerging countries as well as unconventional production in North America from shale and Canadian oil sands.

We also enjoyed double-digit growth in our downstream business as we again outperformed the market through share gains that leveraged our industry-leading products, systems and services. We expect double-digit growth to continue in the first quarter as business fundamentals for upstream remains strong and offset slower downstream markets in Europe and North America. We're excited about the outlook, and we'll continue to focus efforts on new production, geographic expansion and building technical expertise as well as support infrastructure in the critical new growth markets.

Turning to margins in the income statement and Slide 6 of our presentation. Fourth quarter reported gross margins were 47.6%. Adjusted for Nalco results and the impact of special charges, gross margins were 49.4%, a decrease of 90 basis points from last year. The decrease in the adjusted gross margin primarily reflected the impact of higher delivered product cost, which more than offset the impact of volume and pricing gains from a gross margin perspective.

In absolute dollar terms, pricing equaled the higher delivered product cost in the fourth quarter. Further, it looks like the rate of year-over-year increase in those costs have slowed and that pricing and cost reduction actions we are taking will grow and drive comparable business gross margin expansion in the future quarters.

Reported SG&A expenses represent 35.3% of sales. Adjusted for the Nalco impact, currencies and special charges, SG&A expenses were 34.6% of sales, 220 basis points below last year. Leverage from the sales gains and acquisitions, lower variable compensation as well as cost savings efforts led the improvement.

Operating income for Ecolab's U.S. Cleaning & Sanitizing segment rose 27%. Adjusted for acquisitions, U.S. Cleaning & Sanitizing operating income increased 19%. Pricing, volume gains, lower variable compensation in comparison to a period that included a customer receivable write-down more than offset higher delivered product cost in the quarter.

Operating income for U.S. Other Services declined 2% as higher service delivery costs slightly offset pricing and variable compensation reductions. International fixed currency operating income increased 6% versus last year. Margins were steady as volume and pricing gains and improved efficiencies offset higher delivered product costs.

Only one month of Nalco's operating income was included in our fourth quarter reported results. For the full fourth quarter, Nalco's operating income was similar to last year. We do not believe the results to be meaningful in determining business trends since this period included a number of onetime events related to the merger close and integration activities. More importantly, first quarter trends show Nalco operating income improving sharply over last year, which is more consistent with the underlying business.

Corporate segment and tax rate are discussed in the press release. We repurchased 9.4 million shares during the fourth quarter. The net of this performance is that Ecolab's reported fourth quarter diluted earnings per share of $0.34 compared with $0.56 reported a year ago. When adjusted for special gains and charges and discrete tax items in both years, adjusted earnings increased 17% to $0.70 when compared with $0.60 earned a year ago.

Turning to Slide 7. Ecolab's balance sheet reflected the impact of the Nalco merger. Total debt to total capital was 57% at December 31 compared with 28% reported a year ago. Our net debt was 50%. This includes a payment for the 9 million shares purchased under our accelerated share repurchase program.

Turning to cash flow. Ecolab's cash from operations in the fourth quarter reflected Nalco merger-related payments of $79 million, a $30 million customer contract modification and other charges which lowered reported net income. Full year cash flow reflected these as well as a $100 million pension payment in the first quarter 2011. Also, please note we have separated depreciation and amortization expenses in Slide 7 for the purposes of this presentation. We redeemed Nalco's senior notes in January.

Slide 8 shows our short- and long-term debt following the transactions. Reflecting those transactions, our total debt to total capital was approximately 50% at January 31.

Looking ahead and as outlined in Slide 9, we continue to take aggressive actions to drive both our top and bottom line, expanding our market share and customer penetration as one company among major accounts, leveraging our leadership positions in key growth markets. We are using pricing and innovation to drive benefit margins and expect to more than offset delivered product cost through 2012. Our merger synergies, along with Europe's transformation work, continues to go well, and we expect to deliver on those aggressive goals while building growth for the future.

Looking at Ecolab's first quarter 2012 forecast described in Slide 10. We will continue to be aggressive in driving our business growth and look for our first quarter results to show upper single-digit sales gains led by global energy and our Asia Pacific and Latin America operations. This strong business performance will be impacted by the much higher depreciation and amortization and interest expense as well as increased share count from our merger in what is our seasonally lowest sales quarter. As such, adjusted first quarter diluted earnings per share are forecast to increase to the $0.46 to $0.49 range compared with the adjusted earnings per share of $0.45 earned last year.

However, we expect the quarterly earnings growth rate to accelerate through the rest of 2012 as the higher fixed depreciation and amortization and interest expense and shares are offset by the benefits of increasing synergies, cost reductions, seasonally higher revenues and growth of the underlying business. As a result, we continue to look for 2012 full year adjusted EPS to increase 16% to 20% to the $2.95 to $3.05 range.

Slide 11 shows an EPS bridge for the first quarter and the full year 2012 that details this outlook. Ecolab's legacy 2011 results are shown in the first row. Expected 2012 results, excluding shares and interest from our combined Ecolab and Nalco businesses, is shown on the next line. This is followed by the impact from the higher shares and interest expense from the merger. This nets to a strong base business growth in the 25% to 30% range throughout the period shown and reflects the addition of Nalco and the underlying strength of our business combination. Synergies will further benefit these results.

Purchase accounting will be a significant headwind on the seasonally smaller first quarter but represent a much smaller impact on earnings over the balance of the year due to the larger business base. Net, we look for strong business base growth to 2012 with adjusted diluted EPS showing accelerated growth through the remaining quarters.

In summary, as noted on Slide 12, we once again delivered on our forecast in the fourth quarter while offsetting higher-than-expected delivered product cost and while still investing in our future. We look for sales and profit growth to accelerate through 2012's quarters to produce another strong year and make it our tenth year of adjusted double-digit EPS growth out of the last 11 years.

And now, here's Doug Baker with some closing comments.

Douglas M. Baker

Thanks, Mike. Good afternoon, everybody. Look, I'll just have a few comments and then we'll open it up for Q&A.

So all in all, I feel very good about the way we finished the year. It was clearly on a positive note. It was our best adjusted EPS growth for the year of 17%. We had improving sales trends, which we expect to continue as we move into 2012. Pricing caught up to raws. We had great integration work. We closed on the Nalco merger. And most importantly, we didn't let this work on the Nalco merger distract the team, hence, the delivery of 17%.

I also feel good, about as good as you can feel in this world today, as we look to 2012 and beyond. The Nalco merger, I would have to characterize as going quite well. We like the business. We like the growth momentum. It's a great team. We've gotten to know the team much better. There's real upsides and synergies. Both growth and cost are real, and we believe we can get after these. There's great operating leverage in this business as we start laying on the Ecolab operating model, and there's great technology sharing opportunities going both ways, Nalco technology into some of the legacy Ecolab businesses and vice versa. So there's terrific opportunities as we foresaw when we put this together.

So looking at 2012, we've got the makings for another very good year. We've got accelerating businesses from a top line standpoint, great market positions. I tell you, our teams are quite focused on getting after what they need to, driving new business, driving innovation, executing. There are upsides in cost savings and synergies and possibly pricing should the market or the raw material markets go against us. So net, we have a lot to do, no doubt about it, but we really do see a path to upper-teens-EPS type delivery in 2012.

So with that as a backdrop, we'll open it up for Q&A.

Question-and-Answer Session

Operator

[Operator Instructions] First question does come from David Begleiter with Deutsche Bank.

David L. Begleiter - Deutsche Bank AG, Research Division

Doug, you mentioned some upside on Nalco synergies, both cost and growth. Can you quantify when that -- when you might be able to raise actually the cost synergies going forward from the $150 million level?

Douglas M. Baker

Yes. Well, Dave, we actually had an announcement earlier in the month where we've raised it up to $250 million on a going basis. And so this year, it went from roughly $35 million to $75 million anticipated synergies. And I guess what I was alluding to in the opening comments is as we continue to push and look for this, there are going to be additional cost savings opportunities, and it's going to start to becoming difficult to distinguish between cost savings and synergies as we go forward. But the point is there are additional opportunities in our business should we need to get after them.

David L. Begleiter - Deutsche Bank AG, Research Division

And just on European margins in 2011 and '12, can you comment on where they ended 2011? And obviously, they'll be flattish in Q1, but the target for 2012 European margins for Ecolab?

Douglas M. Baker

Yes. We were up for the year in 2011 versus 2010. It's a little north of 60 basis points. I think it was 65 basis points. Now I will tell you that was shy of the 100-basis-point target that we gave at the beginning of 2011. And fundamentally, what happened was the Renaissance work, which was a codename that we have for the restructure activity, more than delivered against its plan, but it was offset by significantly higher raw materials. We anticipate the pricing will catch raws in the second half in Europe, and we expect that we will see the 200-basis-point increase in 2012 versus 2011 that we talked about last year.

Operator

The next question comes from Gary Bisbee with Barclays Capital.

Gary E. Bisbee - Barclays Capital, Research Division

Can you give us any commentary on just timing of the cost savings within the year? Would it be more prudent to expect that much more than half of that falls in the second half of the year? Or sort of any comments on that.

Douglas M. Baker

Yes. Gary, I think there's 2 things. Yes, most of it is going to be in the second half. That's simply how cost savings come on, and you got 2 factors when it comes to synergies. We have cost to achieve, i.e. we have a dedicated team. The team is going to be at its largest point at the beginning of the year and at the smallest number at the end of the year. So the cost to achieve end up declining throughout the year, and obviously, the growth synergies grow throughout the year. So you're net increases quite dramatically quarter-by-quarter. So if you look at page -- Slide 11 of the deck that we also sent out as part of the earnings release just before this call, we talk about a $0.02 contribution from synergies, net synergies in Q1 and $0.16 for the next 3 quarters. And obviously, the $0.16 builds. It's not a straight average over the 3.

Gary E. Bisbee - Barclays Capital, Research Division

Okay. And then if I could just try to get a little more color on Europe. I think I heard some weakness in the legacy businesses and in volumes in the Mediterranean countries, but the overall growth you reported was positive and solid. And how was Northern Europe looking? Has the trend really weakened quite a bit versus what maybe you were seeing 2 months ago? And I guess just any update on how you feel about growing that business this year.

Douglas M. Baker

Yes. I guess the unfortunate part was we expected Europe growth to be improving this year if you had a solid footing, but we don't have a solid footing. So all the work we've done in terms of capturing new business and the rest is really neutralizing what I call market degradation. So in total, for the year, we expect the same kind of growth in 2012 that we saw in 2011, so a couple of points of sales growth. So not a terrible story, but it's a little frustrating given all the good work that's been done by that team.

Operator

The next question comes from Nate Brochmann with William Blair & Company.

Nathan Brochmann - William Blair & Company L.L.C., Research Division

Now that you've obviously had some more time to spend, as you said, Doug, with the Nalco folks, what are some of the surprises and/or negatives that you've seen in terms of going forward with the business, not only just the combination but just in terms of what Nalco brings to the table?

Douglas M. Baker

Yes. I would say there's a long list. I think when we got in here, we knew there was a number of similarities. Business model, that fit is exactly as we thought it was. We look at the business very similarly. There's great customer focus I think on both sides from Ecolab and Nalco legacy. They focus on their field like we do. They drive innovation similarly. The talent is quite strong. So we believed it was. And I would say as we've been working together, we feel terrific about that. And synergies, as we've already gone through, are quite real, and we've increased the cost. On differences -- and I don't know that these are necessarily surprises, but you never know exactly where these opportunities are going to be. I would say Ecolab has driven over the years, and we haven't had any ownership disruptions or anything else. We really developed I would say a very strong operating discipline and operating model, and we felt that was going to add value. Erik and his team agreed as we went through it in the fall, and I think that's really going to play out. So the fact that we go through these monthly reviews, we ask for a re-forecasting every month, we want to understand where the good news and bad news is on every business every month as we look out so people have the opportunity of time to get after things thoughtfully rather than just reacting day to day. And I think that type of discipline, and I think their team would echo this, is going to be positive. On the other side, they've got much better safety discipline, and so their safety metrics -- ours aren't bad, but theirs are outstanding. And so we also see great opportunity in leveraging their know-how in that area in particular, because that's not only going to be good for our team and for our people, but it's also going to be good for our P&L.

Nathan Brochmann - William Blair & Company L.L.C., Research Division

Great. And then just kind of one directional thing on the raw material prices. Relative to your original guidance when you gave that out in mid-January, a little over a month ago, are raws are getting worse or about the same from your expectations?

Douglas M. Baker

Well, versus my hope, they're always worse. I'm looking for the crater in the economy to take off, but that hasn't yet happened. I would say they're probably modestly worse in some areas, raw materials. And I would say at the same time, currency is probably modestly better over the same period of time. So as we go through this, we anticipate that we're going to have surprises. If I took you back to last year, we completely got raw materials wrong. And I would say we anticipated modest raw material increase in 2011, and we got modest times 4 or 5. And so we had to overcome that in a number of areas, and I think we did quite successfully. So I think we're looking at this year understanding that we might be -- we're going to be wrong on something. It might be, again, raw materials. And I would say the team is all over driving pricing and making sure that we got safe outlets to offset any kind of raw material increases.

Operator

The next question comes from Dmitry Silversteyn, Longbow Research.

Dmitry Silversteyn - Longbow Research LLC

Just a couple of questions if I may as a lot have been answered. I thought I heard in Mike's prepared comments that you expect a pretty meaningful margin expansion in the fourth quarter of 2012. First of all, is that correct? And secondly, what's going to be the driver of that?

Michael Monahan

Dmitry, there was no comment about fourth quarter 2012. We said that for example, Nalco's business is having a strong first quarter operating income performance. That was about as far as we went.

Dmitry Silversteyn - Longbow Research LLC

Okay. I have to go back in the transcript, Mike, but I just had a jot in my notes that talked about 2012.

Michael Monahan

The other side, Dmitry, is if you look at that slide, the EPS bridge Doug referenced earlier, it's very clear that we do look for accelerating earnings growth as we go through the year and such that as you get to the second half, the growth will be much stronger than the first half.

Dmitry Silversteyn - Longbow Research LLC

But -- so cost synergy is not up. Comp is getting better. Correct?

Douglas M. Baker

Yes. No. So if we mentioned Q4 margin in 2012 increasing, that wasn't intentional. So I would say we expect margins to increase throughout the year. They will accelerate principally because some of the fixed cost that we alluded to earlier represent a smaller percent of the base as you go throughout the year, and you also have increasing benefits from synergies.

Dmitry Silversteyn - Longbow Research LLC

Got it. So the purchase accounting impact of about $0.12 a quarter, it looks like, from the deal, is that going to be accounted in the individual reported business units? Or is that going to be all lumped into the corporate and other expense line? How do you see that being distributed amongst the P&L items?

Douglas M. Baker

We're going to put it in corporate other.

Dmitry Silversteyn - Longbow Research LLC

Okay. So it will all be just an increase in corporate and other. Okay, very good.

Douglas M. Baker

Yes. Otherwise, we have a feeling it's going to be too difficult to discern what's going on in the businesses year-on-year.

Dmitry Silversteyn - Longbow Research LLC

Absolutely. Agreed. The -- you mentioned kind of your outlook on the raw material cost and the fact that, obviously, nobody's got a crystal ball when it comes to that. You have a multiyear pricing strategy to recover raw material spikes when they do occur. Is -- given that the economy is softening around the globe, and we kind of get into this part of the year, and people start pushing through pricing, and customers start pushing back on pricing, is the dynamic changing at all? Are customers sort of forgetting the fact that you're still trying to recapture the 2010, 2011 price increases in 2012? Or has that just been so well ingrained that it just goes through without issue?

Douglas M. Baker

Yes. I would say, Dmitry, all you can ever say about pricing is it's very hard to get. With that said, both the Nalco business throughout '11 ended up I think with 5% pricing in the fourth quarter. And for the year, it was north of 3%, but you can see that it accelerated throughout the year. And on the Ecolab side, not nearly as robust but 1% pricing for the year, 2% for the fourth quarter, so also accelerating. We mentioned -- I did in my opening comments that pricing-based net raw material cost for Ecolab in the fourth quarter, which is what we had forecast in our third quarter call. So we're at equilibrium right now at work [ph] on the Ecolab side. Nalco really crossed that path in the third quarter as they really saw the price hikes hit them fourth quarter of last year, so they hit earlier than they did on our businesses. So going forward, we're going to be as reasonably aggressive as we go out there, and you got to make trade-off calls as you go seek pricing with customers. I would say every business knows that raw materials remains a risk. It's unquantifiable, truth be known. So we got to get after it early and make sure that we offset it and learn from last year, where we ended up delivering our number, but we had to overcome a real surprise in raw materials, and we don't have the same fact hit it this year.

Dmitry Silversteyn - Longbow Research LLC

Got it. Got it. Okay. And then just a couple of bookkeeping questions. I know you're going to be repurchasing about $1 billion worth of your shares in 2012. So I'm assuming that's where all the cash is going to go, and we should not model much of a debt reduction during the year.

Douglas M. Baker

Yes, that's correct.

Dmitry Silversteyn - Longbow Research LLC

Okay. And what is your CapEx and tax expectations for 2012 for the combined companies?

Douglas M. Baker

Yes. CapEx is $650 million, and tax is going to be right around 30%.

Operator

The next question comes from Mike Harrison with First Analysis.

Michael J. Harrison - First Analysis Securities Corporation, Research Division

Just wanted to come back to Europe a little bit. You commented that the Institutional business there was flat, but growth overall was 2%. I think of Institutional as being about half or maybe slightly more than that of the business. So was the remaining business up around 4%? And I guess how do you account for the discrepancy? Or maybe a little more detail on what's going on in the institutional side that it's growing at a significantly slower rate.

Douglas M. Baker

Yes. Well, Mike, I mean, I guess yes on the balance of the business is up roughly 4%. Healthcare led it with 5%. F&B was around 4%, et cetera, so stronger growth outside of Institutional. Institutional is a collection of businesses. There's no doubt as you go through it Institutional had more exposure in some of the southern countries that were hit hardest given the preponderance of hospitality in Italy and Spain. So they've got a little bit worse geographic mix than some of the other businesses. With that said, I think the Institutional team -- we had a new leader go in there at the beginning of last year -- has I think gotten a much clearer plan of attack of what they want to get after. And we're also seeing Institutional, we are going to be willing to sacrifice volume for margin in that business as we go forward, and what we're really interested in driving is profitable growth there. And if we've got business that does not make sense to us, i.e., it's not worth the squeeze, we are not going to be afraid to exit it, because we want to get that business righted and get the profit correct.

Michael J. Harrison - First Analysis Securities Corporation, Research Division

Did -- was there some intentional volume pruning that impacted this quarter? And if so, how much was that?

Douglas M. Baker

Yes. There was a little bit, but not -- I wouldn't say that was the overarching story. I would say there was some up in the U.K. But by and large, I think what you see is a business that is somewhat depressed given its geographic mix, but we would expect better outcome this year going forward. And we will be very clear if we've got some pruning and what that impact is as we go forward. I can't lay the flat growth at the heels or at the feet of pruning yet.

Michael J. Harrison - First Analysis Securities Corporation, Research Division

Okay. And then on the Asia Pacific, even with the adjustments for Japan, it is showing kind of more moderate growth rates than we've come to expect there. Is there anything that's fundamentally changed in that region in terms of competition or other market dynamics that we can't see that business get back to the kind of high single-digit rates that we have seen in the past?

Douglas M. Baker

Well, I'm -- if we're talking about Japan -- I mean, Japan was down 2% for the year. It obviously was impacted significantly by, right, the huge crisis it went through: tsunami, earthquake, et cetera. We will expect Japan, Korea, which we put together, to be low single-digit growth, which is what it was historically for us. China, our greater China had another very good year, plus 20% growth. But fourth quarter was not its strongest quarter, and we see that growth rebuilding as we move into '12. It was double digit but not nearly at the 20% rate.

Michael J. Harrison - First Analysis Securities Corporation, Research Division

And then last question. I was hoping you could explain again why the international side of Nalco -- was it just completely not included in your reported Q4 results and kind of how it's going to be reporting going forward, I guess?

Douglas M. Baker

Yes. We basically work to get the Nalco international business lined up with the Ecolab international business. The Ecolab international businesses are on a -- not on a calendar fiscal but on a December-November fiscal. And so it's got a one-month lag, if you will, versus the north -- or the U.S. business, and so that's why it wasn't reported in that period. So you will have, in 2012, 12 months of both Nalco international, Nalco domestic, Ecolab domestic, Ecolab international.

Operator

The next question comes from David Ridley-Lane with Merrill Lynch.

David Ridley-Lane - BofA Merrill Lynch, Research Division

Yes. Pricing rounded up to 2% in the fourth quarter. Are we likely to -- given that the pricing momentum continues up, are we likely to see that go to 3% some time in 2012?

Douglas M. Baker

No, I don't think so. We may see -- I'd say that was a round up. And you may see a round down, but they're both going to be 2%. So we expect more pricing, but we don't think it's going to go tip into the 3%.

David Ridley-Lane - BofA Merrill Lynch, Research Division

Okay. And you've talked a lot about the sort of timing and pacing of the cost synergies. Any thought on or any comments you can give on the revenue synergies? How much of that is going to happen in 2012? Are you going to sort of take a year just to get everything running well before targeting accounts for cross-selling? Or...

Douglas M. Baker

Yes. Our commitment is a very conservative 0 impact in 2012. So we know that number is wrong. I mean, there will be something, but I think what we're trying to signal is that's going to take some time. I would say there has been very good work already laid out, literally plant by plant. We have identified every plant opportunity, because F&B and then Textile are going to be our first focus areas, every plant opportunity that Ecolab has, where the opportunity is for the WPS business, i.e. the Nalco business. So there's a lot of work done, but we really do believe that it's going to take some time. There will be certainly some impact this year, but we think the material impact is going to be '13, '14 and '15.

Operator

The next question comes from Laurence Alexander with Jefferies.

Lucy Watson - Jefferies & Company, Inc., Research Division

This is Lucy Watson on for Laurence. What was your consolidated pro forma gross margin for Ecolab and Nalco in Q4? And I guess as a follow up, what is baked into your 2012 full year expectation for gross margin?

Douglas M. Baker

Yes. On -- so we don't have a pro forma Q4 margin. For that -- we do on sales and all the rest. And I would only just say the Nalco business, we were changing the calendar years on the international business. We were going through the balance sheet stuff and everything else. You got a mix there. What we've been really focused on, on the Nalco business is the line between Q3 earnings and Q4 earnings -- or Q1 earnings, and that's what we're really focused on. And Q1 looks good, fine, in line of our sight expectations. So for the year, I guess the question was -- what number are you looking for? Gross margins for the combined business?

Lucy Watson - Jefferies & Company, Inc., Research Division

Yes.

Douglas M. Baker

47%.

Michael Monahan

And Lucy, we expect to have pro formas out in the next few weeks. That would give you the 2011 margins, but those will be forthcoming.

Lucy Watson - Jefferies & Company, Inc., Research Division

Okay. And moving to the cash flow statement, what will be -- I guess will you be making any pension contributions? And what is the cash restructuring charge for 2012?

Douglas M. Baker

I'll do the pension. Mike can do the restructuring. We're going to -- we've got a requirement of about $109 million globally for pension contributions. We may make north of that, but we haven't made that determination, dependent on do we think it's a smart use of cash. In terms of restructure expense, I think it was -- yes. The total restructure is $125 million for the year. That includes both Renaissance, which was announced last year and the Nalco merger.

Michael Monahan

And Renaissance is the Europe restructuring.

Lucy Watson - Jefferies & Company, Inc., Research Division

And that's a cash number?

Douglas M. Baker

Yes.

Operator

The next question comes from Andrew Wittmann with Robert W. Baird.

Andrew J. Wittmann - Robert W. Baird & Co. Incorporated, Research Division

Most of my questions have been asked and answered, but I did want to just check in on the balance sheet a little bit here. Clearly, lots of moves on the debt side of the capital structure here. Are those moves now done? And if so, can you also just remind us what the weighted average cost of debt is here?

Douglas M. Baker

Yes. The weighted average cost of debt is 3.5%, which is a number that we gave last July, and it's where we netted out. By and large, yes, the debt is in place, and we don't plan on significant moves this year. There is also, as we mentioned earlier, no plan to have dramatic debt paid down this year, but we will -- in out years '13 and '14, as we move forward, we do expect our ratio, our EBITDA ratio to be down at about the 2.6% range by year end.

Andrew J. Wittmann - Robert W. Baird & Co. Incorporated, Research Division

And then just as it relates to M&A, Doug, it sounded like you didn't rule out the possibility of still looking at deals even though the capital structure is a little bit more elevated today. Can you just talk a little bit about what you're seeing out there and maybe what some of your priorities are now post Nalco? Or is that Nalco related acquisitions, does that take a higher priority? Clearly, Healthcare always has been. Just a couple of thoughts that might be helpful.

Douglas M. Baker

Yes. We -- in our cash modeling and plan, we have included some money for continued bolt-on acquisitions. I would say if you go through the priority order, certainly, with the addition of energy and WPS, those guys enter into the conversation in terms of priorities. But I would say, we will look at opportunities, but I would expect these to be more in keeping with our history pre-Nalco merger, i.e. attractive bolt-ons where we think we can really drive both accretion and great returns. And I'd say one of the great stories last year for legacy Ecolab was the 3 businesses that we bought at the very beginning of the year performed exceedingly well. I mean, we had we thought pretty challenging plans, and we crushed them. We had excellent results both on the top line and earnings from those acquisitions as we found more synergy opportunities throughout the year and frankly, had better growth than anticipated.

Operator

The next question comes from Shlomo Rosenbaum with Stifel, Nicolaus.

Shlomo Rosenbaum - Stifel, Nicolaus & Co., Inc., Research Division

Just in terms of the longer-term revenue synergies, I want to follow up on that line of questioning. I would think that this is a lot more of what you guys were thinking about in terms of doing the Nalco merger. And given that the merger closed about 3 months ago, have you had a chance to kind of joint market the Ecolab-Nalco in the Food & Beverage area? And I want you to talk a little bit about the receptivity and how long it takes to go ahead and close the deals, what the sales cycles are like.

Douglas M. Baker

Yes, great question. We have, in fact, made a number of joint calls at a number of our very large customers. And I guess reception is, as we anticipated, very positive. And so the minute the deal was announced, we had very favorable reaction from our customers, because they really understand the nexus of cleaning, food safety and water, in particular. So that's gone very well. I answered the other, where we've committed to 0 growth synergy contribution in 2012, and it's about as conservative a number as you can get. I mean, truth is we've already sold a couple. They weren't huge, but we've already had some successes. And I would say the team is probably further along in the planning than I would have anticipated last July simply because we had the time, in between before closing and after and we had early determination from Hart-Scott-Rodino, so we got on it quicker. So we've talked about $0.5 billion. We said it would take us to I think 2015 to realize that. I think the $0.5 billion is very real. And obviously, we hope to get to it quicker not later, and I would say early returns are positive.

Shlomo Rosenbaum - Stifel, Nicolaus & Co., Inc., Research Division

So is -- are sales cycles in that side -- if you closed a few, are sales cycles shorter than 3 months? Or is it that you were able to start on them earlier? Or like what's preventing you from going ahead and just going through your base in a more widespread manner to accelerate those sales synergies?

Douglas M. Baker

Yes. I mean, typically, the sales cycle is anywhere from 6 months. It can go as long as 18 months. We just sold a big piece of business not related to this that I think we've been calling on for 12 years. So that would be the extreme case. So typically, 6 to 18 months in the industries that we're talking about. Why did we get a few of them? I mean, sometimes you're lucky. You walk in, it's the right time. Or you got an overwhelmingly powerful relationship that accelerates the cycle, but that's not typical. And so it's going to take some time for these things to come through. I would say while we always gripe about how long the sales cycle is, this is also why our business is sticky. Once you're in there, you become very ingrained in the operations. You end up installing equipment that becomes really a critical part of our customers' operation, and so it takes a while to separate this type of business. And so it typically works on our advantage as we're the share leader. But when you're going after new business, you got to go through this type of process to prove your capabilities, prove that you're not going to have any issues before they give you the business, hence the light commitment year one.

Shlomo Rosenbaum - Stifel, Nicolaus & Co., Inc., Research Division

Okay. Just one last one. If you could just comment a little bit about the ability to take the 3D TRASAR technology into the other Ecolab products in your client base and what you're seeing initially on that.

Douglas M. Baker

Yes. We love that technology. I would say we're all over it. The first priority is going to be in our Food & Beverage business, and we think there's great applications. Even before the merger, Nalco was working on 3D TRASAR for cleaning-in-place technology. Cleaning-in-place technology is really Ecolab F&B's kind of core technology. And so being able to, if you will, meld that work with work that was going on in the F&B side previously gives us a real leg up. So there's some exciting areas to get after. And F&B is priority #1, but we think 3D TRASAR will make a big difference.

Operator

The next question comes from Rosemarie Morbelli with Gabelli & Company.

Rosemarie J. Morbelli - Gabelli & Company, Inc.

Doug, could you talk a little bit about how long do you think it will take to get the Nalco sales force and planning process rather in line with yours and therefore, eliminate any surprises, which has been one concern when you first announced the acquisition?

Douglas M. Baker

Yes. I think from a operating review standpoint, we've already been through a couple of months of reviews. And I think that's going to be steady progress, but it's going to take months, a couple of quarters as we go through it. That doesn't mean that we expect a bunch of surprises in the meantime, but certainly, you don't snap your fingers and have this kind of sense change. With that said, there's a couple of things. I think the Nalco businesses had very good control about what's going on in their business, great analytics, and a lot of what we're doing is really just kind of the forced discipline of sitting down routinely, asking questions going out a number of months. How do you play out these different scenarios? How does it look? How do you react to these? And all it really is set to do is to force the businesses to look out multiple quarters, while they're also obviously focusing at the quarter at hand. And so I think that doesn't take forever, but it certainly takes more than 2 meetings.

Rosemarie J. Morbelli - Gabelli & Company, Inc.

Sure. Then looking at your expectations in terms of the details that you gave us for the first quarter and going back at your expectations given in January, are you planning in getting to the levels you gave us in January by the end of the year? For example, the gross margin, you expect to be 46% in the first quarter, and you have 47% to 48%. And I understand that things are going to improve as you go along throughout the year. Do you think you can still reach those targets either on the gross margin and on the SG&A by the time you reach the fourth quarter?

Douglas M. Baker

Yes. Rosemarie, the 47% net range that we gave in the January remains what we expect for the year. And I would say we always have lower margin in the first quarter, because it's the lowest volume quarter. We just don't have the same absorption that you do on the coming quarters.

Rosemarie J. Morbelli - Gabelli & Company, Inc.

Right. But do you still think you can reach that particular level for the year as a whole, which means that you will be substantially higher than the 47% to 48% in the last 2 quarters possibly?

Douglas M. Baker

Yes. Our highest margins would be anticipated in the -- by the end of the year.

Rosemarie J. Morbelli - Gabelli & Company, Inc.

And the same question applies to SG&A? You can also, by the end of the year, get to the 32% to 33%?

Douglas M. Baker

Yes, that's our expectation. It has not changed from the January announcement. And SG&A will come down as synergies build throughout the year. They principally show up in SG&A.

Rosemarie J. Morbelli - Gabelli & Company, Inc.

Why is the interest expense higher than what you were anticipating? I mean in January, you had all of that data in hand.

Douglas M. Baker

Based on the share -- the interest rate difference is principally as a result of the share buyback.

Rosemarie J. Morbelli - Gabelli & Company, Inc.

Okay. And you are buying back fewer -- 2 million fewer shares than you were previously anticipating? Or are you still expecting the 295 million shares by the end of the year?

Douglas M. Baker

I think that, Rosemarie, on the share buyback announcement, which we made last fall, after we announced the merger in July, we talked about a $1 billion share buyback is I think how we articulated the scale. And we said that we would complete it by the end of 2012.

Rosemarie J. Morbelli - Gabelli & Company, Inc.

Okay. And then lastly, if I may. Could you give us your assumption at the -- for the first quarter? If you don't get above the low end of your assumptions at the $0.46 level, what do you think -- what are you expecting to go wrong which will prevent you from getting any higher than that?

Douglas M. Baker

You mean why do we have a range?

Rosemarie J. Morbelli - Gabelli & Company, Inc.

No, not whether you have a range, but what are the assumptions behind the low end of the range.

Douglas M. Baker

Well, I mean when you're in here, there's a lot of things that you're estimating: raw material prices, FX, right, distributor inventory volumes. They really are related to consumption patterns, et cetera. And so you've got all those factors going in, and certainly, we try to be clear and work hard to do what we say. So those are what I would call some of the external factors that can have an impact on the quarter that are not easily predictable in a short period of time but are more easily predictable over a longer period of time.

Operator

The next question comes from Bob Koort with Goldman Sachs.

Brian Maguire - Goldman Sachs Group Inc., Research Division

This is actually Brian Maguire on for Bob. Just wanted to dig in a little bit on your comment on Nalco earnings accelerating in the first quarter, and it sounds like they're showing some pretty solid year-over-year growth here. Can you kind of just talk about the component to that? Is it the sales actually accelerating? Or is it more the raw material cost and pressures coming off?

Douglas M. Baker

Yes. I think you've got a couple of things going on. We mentioned that pricing was accelerating throughout the year. So obviously, you had strong pricing in Q4, that extends into Q1. You had some raw material decline in price for them in Q4. Some of that shows up in Q1 as it moves throughout the system and -- but the most important component is growth. All right. We've had -- as you could see, they came into the year with pretty strong sales momentum, and they're going against their lowest quarter in Q1 last year at the base.

Brian Maguire - Goldman Sachs Group Inc., Research Division

Yes. And it looked like pretty strong growth out of energy, continued growth there. So for 2012 as a whole, are you looking for Nalco sales to grow kind of like 1.5x legacy Ecolab sales growth?

Douglas M. Baker

Well, you got a mix -- I mean, they're going to be -- it's going to be a faster growth business principally because of energy, right? The energy business is -- as we just talked about in Q4, is growing at 20%. So I would say for the combined businesses, we expect to be in the mid to upper part of our 6% to 8% organic growth position for the year. That's where we ended the year, and we expect to realize that for the full year next year as well.

Brian Maguire - Goldman Sachs Group Inc., Research Division

Okay. Got it. And just on Slide 11, the EPS walk is very helpful. And you can see pretty clearly, they're about a $0.50-per-share purchase accounting hit. So it looks like the cash EPS is maybe actually closer to $3.50. Looking out a little bit further beyond '12, I know it's hard to look into '13. But just as -- how does that purchase accounting kind of roll off? Or would there be a big drop-off from '12 to '13 there such that you get some EPS growth benefit there?

Douglas M. Baker

Yes. Well, I'm 53, and I don't expect to see us roll off. It'll take a long -- it takes quite a while, 8 years or so. So I mean 8 years to 12 years, when the different length of it. So it takes a while. So it's certainly not going to be a story in '13, '14.

Brian Maguire - Goldman Sachs Group Inc., Research Division

Okay. Got it. And just one last one just on the European sales. Obviously, the macro, we understand, is weak but just curious if you've seen any kind of attrition or lost sales opportunities because of the Renaissance work you're doing there. Any kind of decline in service levels from some of that restructuring?

Douglas M. Baker

Yes. No. I'd say as we went through and talked about Renaissance, I think the riskiest part of our European restructuring is when we went through the EBS through SAP implementation, and that really went quite well. What we're doing here is really back office restructuring, i.e. where are we paying bills and where are we managing credit out of it and issuing invoices. Customers never care if you issue an invoice late as you long as you get the shipment there. So we haven't had really any problems, and so I would say the sales is not a result of Renaissance. I would say the sales, right now, we would expect it to be accelerating given the business we've put on. And unfortunately, I think the ground that we gained was a little bit washed away through some of the challenges in Europe. The good news is we expect to continue to have favorable top line growth, which is critical if we want to continue to see strong OI margin improvement.

Operator

The next question comes from Jeff Zekauskas with JPMorgan.

Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division

In the purchase accounting adjustment of $0.48, that's about $142 million after tax. And so if what we did is we taxed that at 30%, the pretax number would be $202 million. So is there a different tax rate that's applied to the accounting adjustment? Is the accounting adjustment all amortization? Or is there something else in there that's meaningful?

Douglas M. Baker

Jeff, I would say I think when you have -- it's roughly 300 million shares. You may be using last year's share count, because it's $165 million. Right?

Michael Monahan

Jeff, you need to use the last year's share count of 240 million.

Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division

Okay. And what was your fully diluted share count as of the end of 2011, actual?

Michael Monahan

236 million is the actual shares.

Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division

I mean after you issued all of the Nalco shares, if you didn't take an average total but looked at it on a...

Michael Monahan

Yes. Let me get back to you on the actual. I don't have that number here. We've just got weighted average.

Operator

The next question comes from John McNulty with Credit Suisse.

Alina Khaykin

This is actually Alina Khaykin sitting in for John. Just a quick question. What are your thoughts on the potential divestiture of the Paper segment now that you've owned Nalco for a while and kind of had time to look at the businesses?

Douglas M. Baker

Okay. Well, you're right. We have owned it for 90 days. I guess as we said, we were asked this question quite frequently post announcement. And at the time, we would say, "Look, we love the water. We love the energy. That's why we really went after this merger." Paper is part of the package, and as kind of an add-on, it's pretty good. It makes money. It's got a great team, positioned quite attractively given the business and everything else. Our focus this year is really not immediately portfolio review by any stretch. It is getting on the business, making sure we integrate successfully, taking accounts that we make. We've got to capture the hearts of the Nalco folks and bring them on to the Ecolab team. So it's really an operating focus. And so any portfolio work we're going to do is probably going to be in our traditional fourth quarter, which is when we, every year, review our complete portfolio, preparing for a strategic review with the board. And so that's the focus. From now on, the only thing I'll be able to do when asked about this is the same comment I'd have on any other business or any other acquisition target, which is we just don't want to go speculate on it. We have had a history of we're not afraid to exit businesses that we don't think fit nor are we afraid to buy businesses that we think do fit. So I think we've been pretty good stewards, making sure that we got a robust portfolio, and I don't expect that to change as we go forward.

Operator

The next question, which is a follow-up, comes from Gary Bisbee with Barclays Capital.

Gary E. Bisbee - Barclays Capital, Research Division

Just one question on -- trying to get my expectations to the right place -- on the segment margins for the Nalco businesses. They looked higher than I think what they would have been if you've been including the administrative cost and the other expense that the company used to support segments from the -- differently from the segment profit. Is that because this is only the U.S. business? And can you directionally give us any guidance on how we might think about the operating margins for those 3 segments looking as you're going to be reporting them?

Douglas M. Baker

Yes. So one, I wouldn't pay much attention to the December number. It was a U.S.-only number. They have higher margins in the U.S. anyway. It's not indicative of the global margin. Probably that 4-week period is probably not indicative of anything to be honest. So I wouldn't go use that to try to forecast what's going on. What we anticipate is we think their margins, the WPS and energy margins as well as Institutional, F&B and others, will be enhanced by the synergy work we're doing, because the G&A overhead cost that these businesses are all going to have to carry is going to be lower as a percentage of sales. And so we know that automatically starts driving enhanced operating income margins. We will report operating income margins by business, including for Nalco, going forward, because we have worked to allocate cost in the fairest manner. You only know it's fair when everybody's upset, by the way. And so we have everybody upset now, so we've got the allocation perfectly tuned. But we think it's important to get these things allocated and make sure people understand what cost they're bearing and incurring as we go forward. So all that work's been done, and going forward, you'll see operating income. We will work to give you year-on-year comparisons and all the rest on this as well, all right, so that there's real transparency. And late-breaking news, Jeff. We do have our share count now for year end, which is 292 million. Now that's -- which is not diluted, but that's the count. We will get you diluted down the road.

Operator

The last question does come from Dmitry Silversteyn with Longbow Research.

Dmitry Silversteyn - Longbow Research LLC

Actually, my question has been answered.

Michael Monahan

Okay. Well, if there's no more question, we want to thank everyone for their time today. We appreciate your participation. Also, one last thing I'd like to mention is that we will be holding the tour of our NRA national Restaurant Show booth on May 7. We'll have more details as we get closer. In the meantime, if there's any questions, please contact Nicole or me in my office. So thanks again, everyone, and have a terrific day.

Operator

Thank you for your participation in today's conference call. The call has concluded. You may go ahead and disconnect at this time.

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