0000031462-95-000016.txt : 19950809 0000031462-95-000016.hdr.sgml : 19950809 ACCESSION NUMBER: 0000031462-95-000016 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950808 SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ECOLAB INC CENTRAL INDEX KEY: 0000031462 STANDARD INDUSTRIAL CLASSIFICATION: SOAP, DETERGENT, CLEANING PREPARATIONS, PERFUMES, COSMETICS [2840] IRS NUMBER: 410231510 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09328 FILM NUMBER: 95559699 BUSINESS ADDRESS: STREET 1: ECOLAB CTR STREET 2: 370 N WABASHA ST CITY: ST PAUL STATE: MN ZIP: 55102 BUSINESS PHONE: 6122932233 FORMER COMPANY: FORMER CONFORMED NAME: ECONOMICS LABORATORY INC DATE OF NAME CHANGE: 19861203 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File No. 1-9328 ECOLAB INC. (Exact name of registrant as specified in its charter) Delaware 41-0231510 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Ecolab Center, St. Paul, Minnesota 55102 (Address of principal executive offices) (Zip Code) 612-293-2233 (Registrant's telephone number, including area code) (Not Applicable) (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of July 31, 1995. 64,415,414 shares of common stock, par value $1.00 per share. PART I - FINANCIAL INFORMATION ECOLAB INC. CONSOLIDATED STATEMENT OF INCOME
Second Quarter Ended June 30 (thousands, except per share) 1995 1994 (unaudited) Net Sales $333,414 $299,182 Cost of Sales 149,324 130,961 Selling, General and Administrative Expenses 143,748 132,259 Operating Income 40,342 35,962 Interest Expense, Net 2,444 3,303 Income Before Income Taxes and Equity in Earnings of Joint Venture 37,898 32,659 Provision for Income Taxes 15,235 12,108 Equity in Earnings of Henkel-Ecolab Joint Venture 3,175 3,211 Net Income $ 25,838 $ 23,762 Net Income Per Common Share $ 0.38 $ 0.35 Dividends Per Common Share $ 0.125 $ 0.11 Average Common Shares Outstanding 67,444 67,521 The second quarter ended June 30, 1994 has been restated. See notes to consolidated financial statements.
-2- ECOLAB INC. CONSOLIDATED STATEMENT OF INCOME
Six Months Ended Year Ended June 30 December 31 (thousands, except per share) 1995 1994 1994 (unaudited) Net Sales $642,974 $574,095 $1,207,614 Cost of Sales 287,943 252,014 533,143 Selling, General and Administrative Expenses 283,618 258,097 529,507 Merger Costs and Expenses 8,000 Operating Income 71,413 63,984 136,964 Interest Expense, Net 5,017 7,342 12,909 Income Before Income Taxes and Equity in Earnings of Joint Venture 66,396 56,642 124,055 Provision for Income Taxes 26,693 21,353 50,444 Equity in Earnings of Henkel-Ecolab Joint Venture 4,530 5,091 10,951 Net Income $ 44,233 $ 40,380 $ 84,562 Net Income Per Common Share $ 0.65 $ 0.60 $ 1.25 Dividends Per Common Share $ 0.25 $ 0.22 $ 0.455 Average Common Shares Outstanding 67,593 67,542 67,550 The six months ended June 30, 1994 has been restated. See notes to consolidated financial statements.
-3- ECOLAB INC. CONSOLIDATED BALANCE SHEET
June 30 June 30 December 31 (thousands) 1995 1994 1994 (unaudited) ASSETS Cash and cash equivalents $ 20,333 $ 65,300 $ 98,255 Accounts receivable, net 178,661 151,348 168,807 Inventories 108,878 98,748 100,015 Deferred income taxes 22,421 22,220 22,349 Other current assets 13,496 13,257 11,753 Current Assets 343,789 350,873 401,179 Property, Plant and Equipment, Net 263,320 230,178 246,191 Investment in Henkel-Ecolab Joint Venture 310,624 269,748 284,570 Other Assets 98,135 101,898 88,416 Total Assets $1,015,868 $952,697 $1,020,356 June 30, 1994 has been restated. See notes to consolidated financial statements.
(Continued) -4- ECOLAB INC. CONSOLIDATED BALANCE SHEET, Continued
June 30 June 30 December 31 (thousands, except per share) 1995 1994 1994 (unaudited) LIABILITIES AND SHAREHOLDERS' EQUITY Short-term debt $ 49,213 $ 19,302 $ 41,820 Accounts payable 71,936 72,745 76,905 Compensation and benefits 48,142 42,631 56,445 Income taxes 15,588 19,331 13,113 Other current liabilities 75,110 61,360 65,382 Current Liabilities 259,989 215,369 253,665 Long-Term Debt 130,150 121,398 105,393 Postretirement Health Care and Pension Benefits 77,533 81,413 70,882 Other Liabilities 129,628 110,756 128,608 Shareholders' Equity (common stock, par value $1.00 per share; shares outstanding: June 30, 1995 - 64,391; June 30, 1994 - 67,444; December 31, 1994 - 67,671) 418,568 423,761 461,808 Total Liabilities and Shareholders' Equity $1,015,868 $952,697 $1,020,356 June 30, 1994 has been restated. See notes to consolidated financial statements.
-5- ECOLAB INC. CONSOLIDATED STATEMENT OF CASH FLOWS
Six Months Ended Year Ended June 30 December 31 (thousands) 1995 1994 1994 (unaudited) OPERATING ACTIVITIES Net income $44,233 $40,380 $ 84,562 Adjustments to reconcile net income to cash provided by operating activities: Depreciation 32,235 28,341 56,867 Amortization 6,657 4,902 10,002 Deferred income taxes (393) (184) 2,352 Equity in earnings of joint venture, net of royalties received (1,526) (1,725) (5,273) Other, net 147 (765) 415 Changes in operating assets and liabilities: Accounts receivable (8,542) (5,467) (18,952) Inventories (7,716) (15,266) (14,285) Other assets (10,620) (7,745) (7,222) Accounts payable (5,779) 927 1,587 Other liabilities 3,550 36,788 44,293 Cash provided by continuing operations 52,246 80,186 154,346 Cash provided by discontinued operations 15,000 Cash provided by operating activities $52,246 $80,186 $169,346 Bracketed amounts indicate a use of cash. The six months ended June 30, 1994 has been restated. See notes to consolidated financial statements.
(Continued) -6- ECOLAB INC. CONSOLIDATED STATEMENT OF CASH FLOWS, Continued
Six Months Ended Year Ended June 30 December 31 (thousands) 1995 1994 1994 (unaudited) INVESTING ACTIVITIES Capital expenditures $(49,097) $(40,027) $ (88,457) Property disposals 772 1,348 4,836 Sale of investments in securities 9 5,022 Other, net (4,786) 5,653 459 Cash used for investing activities (53,111) (33,017) (78,140) FINANCING ACTIVITIES Notes payable 5,802 830 8,512 Long-term debt, net 24,564 (11,174) (14,621) Reacquired shares (89,676) (6,253) (7,889) Dividends (16,994) (14,011) (27,851) Kay shareholder distributions (426) (2,288) Other, net (709) 1,651 3,301 Cash used for financing activities (77,013) (29,383) (40,836) Effect of exchange rate changes on cash (44) (1,118) (757) INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (77,922) 16,668 49,613 Cash and Cash Equivalents, at beginning of period 98,255 48,632 48,642 Cash and Cash Equivalents, at end of period $ 20,333 $ 65,300 $ 98,255 Bracketed amounts indicate a use of cash. The six months ended June 30, 1994 has been restated. See notes to consolidated financial statements.
-7- ECOLAB INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Consolidated Financial Statements The unaudited consolidated statements of income for the second quarter and the six months ended June 30, 1995 and 1994, reflect, in the opinion of management, all adjustments necessary for a fair statement of the results of operations for the interim periods. The results of operations for any interim period are not necessarily indicative of results for the full year. All financial data as of June 30 and for the second quarter and six month periods then ended have been restated for the pooling of interests treatment of the Company's December 1994 merger with Kay Chemical Company and affiliates. The consolidated balance sheet data as of December 31, 1994 and the related consolidated statements of income and cash flows data for the year then ended were derived from audited consolidated financial statements, but do not include all disclosures required by generally accepted accounting principles. The unaudited consolidated financial statements should be read in conjunction with the financial statements and notes thereto incorporated in the Company's Annual Report on Form 10-K for the year ended December 31, 1994. Coopers & Lybrand L.L.P., the Company's independent accountants, have performed a limited review of the interim financial information included herein. Their report on such review accompanies this filing. Balance Sheet Information
June 30 June 30 December 31 (thousands) 1995 1994 1994 (unaudited) Accounts Receivable, Net Accounts receivable $ 187,426 $ 159,539 $ 177,510 Allowance for doubtful accounts (8,765) (8,191) (8,703) Total $ 178,661 $ 151,348 $ 168,807 Inventories Finished goods $ 47,323 $ 46,275 $ 42,955 Raw materials and parts 65,045 55,092 60,251 Excess of fifo cost over lifo cost (3,490) (2,619) (3,191) Total $ 108,878 $ 98,748 $ 100,015 Property, Plant and Equipment, Net Land $ 6,783 $ 6,566 $ 6,348 Buildings and leaseholds 110,733 106,867 107,259 Machinery and equipment 180,003 167,683 174,203 Merchandising equipment 271,217 234,195 257,766 Construction in progress 7,537 3,302 6,236 576,273 518,613 551,812 Accumulated depreciation and amortization (312,953) (288,435) (305,621) Total $ 263,320 $ 230,178 $ 246,191
-8- ECOLAB INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Balance Sheet Information (Continued)
June 30 June 30 December 31 (thousands) 1995 1994 1994 (unaudited) Other Assets Intangible assets, net $ 43,044 $ 39,758 $ 37,549 Investments in securities 5,000 9,007 5,000 Deferred income taxes 26,609 28,507 26,212 Other 23,482 24,626 19,655 Total $ 98,135 $101,898 $ 88,416 Short-Term Debt Notes payable $ 32,550 $ 17,065 $ 25,302 Long-term debt, current maturities 16,663 2,237 16,518 Total $ 49,213 $ 19,302 $ 41,820 Shareholders' Equity Common stock $ 69,902 $ 69,673 $ 69,659 Additional paid-in capital 167,127 161,363 164,858 Retained earnings 285,605 229,103 257,462 Deferred compensation (4,013) (1,739) (4,192) Cumulative translation 21,865 (1,319) 6,756 Treasury stock (121,918) (33,320) (32,735) Total $418,568 $423,761 $461,808
Interest expense related to all debt was $7,770,000 and $8,592,000 for the six months ended June 30, 1995 and 1994, respectively, and $16,213,000 for the year ended December 31, 1994. Other noncurrent liabilities included income taxes payable of $94 million at June 30, 1995 and December 31, 1994, and $79 million at June 30, 1994. During June 1995, shareholders' equity decreased due to the purchase of 3.5 million shares of the Company's common stock at $25.00 per share pursuant to the terms of a "Dutch Auction" self-tender offer. -9- ECOLAB INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Kay Merger In connection with the Company's December 1994 merger with Kay Chemical Company, $8.0 million of merger costs and expenses ($6.9 million after-tax) were incurred and charged to expense in the fourth quarter of 1994. Also, Kay was a Subchapter S Corporation for income tax purposes and, accordingly, did not pay U.S. federal income taxes. Kay has been included in the Company's U.S. federal income tax return effective December 7, 1994 and, therefore, a net deferred tax liability and corresponding charge to income tax expense of $1.3 million was recorded in the fourth quarter of 1994. The table below includes unaudited pro forma net income and net income per share amounts which reflect the elimination of the nonrecurring merger costs and expenses in 1994 and pro forma adjustments to present income taxes on the basis on which they are being reported subsequent to the merger.
Second Quarter Six Months Year Ended Ended June 30 Ended June 30 December 31 (thousands except per share) 1994 1994 1994 Net income As reported $ 23,762 $ 40,380 $ 84,562 Merger costs and expenses 6,900 Kay net deferred tax liability 1,300 Kay Subchapter S status (806) (1,130) (2,298) Pro forma $ 22,956 $ 39,250 $ 90,464 Net income per common share As reported $ 0.35 $ 0.60 $ 1.25 Pro forma $ 0.34 $ 0.58 $ 1.34
-10- ECOLAB INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Net Income Per Common Share Net income per common share amounts are computed by dividing net income by the weighted average number of common shares outstanding. Stock options did not have a significant dilutive effect. Geographic Segments The Company is a global developer of premium cleaning, sanitizing and maintenance products and services for the hospitality, institutional and industrial markets. Customers include hotels, restaurants, foodservice, healthcare and educational facilities, quick-service (fast food) restaurants, dairy plants and farms, and food and beverage processors around the world. International consists of Canadian, Asia Pacific, Latin American and Kay's international operations. In addition, the Company and Henkel KGaA of Dusseldorf, Germany, each have a 50% economic interest in the Henkel-Ecolab joint venture which operates institutional and industrial cleaning and sanitizing businesses in Europe. Information concerning the Company's equity in earnings of the Henkel-Ecolab joint venture is provided in a separate note to the consolidated financial statements.
Second Quarter Six Months Year Ended Ended June 30 Ended June 30 December 31 (thousands) 1995 1994 1995 1994 1994 (unaudited) (unaudited) Net Sales United States $255,030 $234,832 $497,256 $451,687 $ 942,070 International 78,384 64,350 145,718 122,408 265,544 Total $333,414 $299,182 $642,974 $574,095 $1,207,614 Operating Income United States $ 35,937 $ 34,857 $ 65,462 $ 60,792 $ 134,510 International 5,619 2,317 8,314 5,397 14,838 Corporate (1,214) (1,212) (2,363) (2,205) (12,384) Total $ 40,342 $ 35,962 $ 71,413 $ 63,984 $ 136,964
-11- ECOLAB INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Equity in Earnings of Henkel-Ecolab Joint Venture The Company's equity in earnings of the Henkel-Ecolab joint venture for the second quarter and six months ended June 30, 1995 and 1994 and for the year ended December 31, 1994 was:
Second Quarter Six Months Year Ended Ended June 30 Ended June 30 December 31 (thousands) 1995 1994 1995 1994 1994 (unaudited) (unaudited) Joint venture Net sales $238,289 $189,699 $438,771 $364,767 $776,647 Gross profit 133,641 107,933 245,175 205,095 440,993 Income before income taxes 14,034 14,546 22,617 23,596 48,389 Net income $ 7,696 $ 7,615 $ 11,987 $ 12,014 $ 26,109 Ecolab equity in earnings Ecolab equity in net income $ 3,848 $ 3,927 $ 5,994 $ 6,247 $ 13,605 Ecolab royalty income from joint venture, net of income taxes 1,707 1,331 3,117 2,877 5,745 Amortization expense for the excess of cost over the underlying net assets of the joint venture (2,380) (2,047) (4,581) (4,033) (8,399) Equity in earnings of Henkel-Ecolab joint venture $ 3,175 $ 3,211 $ 4,530 $ 5,091 $ 10,951
At June 30, 1995, the Company's investment in the Henkel-Ecolab joint venture included approximately $200 million for the unamortized excess of the Company's investment over its equity in the joint venture's net assets. This excess is being amortized on a straight-line basis over estimated economic useful lives of up to 30 years. -12- REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Board of Directors Ecolab Inc. We have reviewed the accompanying consolidated balance sheet of Ecolab Inc. as of June 30, 1995 and 1994, and the related consolidated statements of income for the three-month and six-month periods ended June 30, 1995 and 1994, and the consolidated statement of cash flows for the six-month periods ended June 30, 1995 and 1994. These financial statements are the responsibility of the Company's management. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to the accompanying consolidated financial statements for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet as of December 31, 1994, and the related consolidated statements of income, shareholders' equity and cash flows for the year then ended (not presented herein); and in our report dated February 27, 1995, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 1994, and the related consolidated statements of income and cash flows for the year then ended is fairly presented, in all material respects, in relation to the consolidated balance sheet and statements of income and cash flows from which it has been derived. /s/ Coopers & Lybrand L.L.P COOPERS & LYBRAND L.L.P. Saint Paul, Minnesota July 20, 1995 -13- ECOLAB INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations - Second Quarter And Six Months Ended June 30, 1995 Net sales for the second quarter ended June 30, 1995 were $333 million, an increase of 11 percent over net sales of $299 million in the second quarter of last year. For the first six months of 1995, net sales were $643 million and increased 12 percent over sales of $574 million in the first six months of last year. Both the Company's United States and International operations contributed to these sales improvements. The gross profit margin for the second quarter of 1995 was 55.2 percent of net sales, compared to a gross profit margin of 56.2 percent of net sales in the second quarter of last year. For the six month period, the 1995 gross profit margin declined to 55.2 percent of net sales from 56.1 percent of net sales during the first six months of last year. The decreases in the gross profit margins for 1995 reflect increased raw material costs. In addition, selling price increases have been limited during 1995 due to competitive pressures in several of the markets in which the Company does business. Recently, raw material costs have stabilized; however, management continues to focus on competition in the marketplace to minimize any impact on overall operating results. For the second quarter of 1995, selling, general and administrative expenses totaled $144 million, or 43.1 percent of net sales and increased 9 percent over selling, general and administrative expenses of $132 million or 44.2 percent of net sales in the second quarter of 1994. Selling, general and administrative expenses totaled $284 million or 44.1 percent of net sales for the first six months of 1995, an increase of 10 percent over selling, general and administrative expenses of $258 million or 45.0 percent of net sales in the first six months of last year. The decreases in the ratios of these expenses to net sales were primarily due to strong sales during 1995 and to the Company's continued cost control efforts. Net income for the second quarter of 1995 was $26 million or $0.38 per share compared to net income of $24 million or $0.35 per share in the second quarter of last year. Net income was $44 million or $0.65 per share for the first six months of 1995 and compared to net income of $40 million, or $0.60 per share in the first six months of last year. These comparisons of net income were unfavorably affected by the loss of Kay's Subchapter S income tax status for 1995. Prior to its merger with Ecolab in December 1994, Kay was a Subchapter S corporation for federal income tax purposes and, therefore, did not pay U.S. income taxes. Effective -14- ECOLAB INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) with the merger, Kay has been included in the Company's U.S. federal income tax return and, therefore, income tax expense no longer reflects the Subchapter S related tax benefit. On a pro forma basis, after adjustment to increase income tax expense in the second quarter of 1994 as if Kay was a tax paying entity, second quarter 1995 net income of $26 million increased 13 percent over last year's pro forma net income of $23 million. Second quarter 1995 net income per share of $0.38 increased 12 percent over pro forma net income per share of $0.34 for the second quarter of last year. For the first six months, net income of $44 million represented an increase of 13% over pro forma net income of $39 million in the first six months of last year and net income per share of $0.65 increased 12 percent over pro forma net income per share of $0.58. These net income improvements reflected the benefits of higher sales, cost controls and reduced net interest expense. Net sales for the Company's United States operations totaled $255 million for the second quarter of 1995, a 9 percent increase over United States sales of $235 million in the second quarter of last year. United States sales for the first six months of 1995 were $497 million and increased 10 percent over sales of $452 million for the comparable period of last year. United States sales continued to benefit from increased product volumes, new product introductions, an increased sales and service force and the general economic recovery in the hospitality and lodging industries. Sales of the U.S. Institutional Division increased 6 percent for the second quarter and 8 percent for the first six months due to good warewashing product sales and double digit growth in Institutional's Ecotemp warewashing program and in specialty product sales. The Pest Elimination Division continued its pattern of double digit sales growth with a 12 percent sales increase over last year for both the second quarter and six- month periods. The Textile Care Division reported 6 percent sales growth for both the second quarter and the six months, with growth in the commercial laundry, healthcare and hospitality markets. Sales of the Janitorial Division decreased 3 percent for the second quarter and increased 5 percent for the first six months of 1995. Janitorial products sold through distributors enjoyed good growth for both the second quarter and six month periods; however, sales of the division's Signature Label program compared against a strong second quarter of last year. The Klenzade Division reported sales growth of 13 percent for the second quarter and 14 percent for the six months with strong growth in all of its major markets, principally due to new customers and new product introductions. Sales of Kay's U.S. operations increased 10 percent for the second quarter and 11 percent for the first six months due to good growth in the large fast food chains which Kay serves and to new customers. Sales of the recently formed Water Care Division were not significant during the first half of 1995. -15- ECOLAB INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Second quarter 1995 operating income for the Company's U.S. operations was $36 million, an increase of 3 percent over operating income of $35 million in the second quarter of last year. For the first six months of 1995, U.S. operating income was $65 million and increased 8 percent over operating income of $61 million for the comparable period of last year. Operating income growth of the U.S. Institutional Division was flat for both the second quarter and six month periods. All of the Company's other U.S. businesses recorded double digit operating income growth for both the second quarter and six month periods with the exceptions of the Klenzade Division with solid single digit growth for the second quarter and the start-up Water Care operations. The operating income margins for the Company's United States operations were 14.1 percent for the second quarter compared to 14.8 percent for the second quarter of last year and 13.2 percent for the first six months of 1995 compared to 13.5 percent for the same period of last year. Operating income for 1995 reflected strong sales which were offset by higher raw material costs, competitive pricing pressures and the annualized effect of last year's investments in the sales and service force. Sales of the Company's International Operations totaled $78 million for the second quarter ended June 30, 1995, an increase of 22 percent over sales of $64 million for the second quarter of 1994. For the six-month period, International sales of $146 million increased 19 percent over sales of $122 million for the comparable period of last year. Changes in currency translation effected certain regions of International's operations; however, did not have a significant impact on overall International sales growth. International's Asia Pacific region reported sales growth of 24 percent for the second quarter and 20 percent for the first six months of 1995 with good growth in Japan and double digit growth in East Asia. Sales in China decreased due to difficult local economic and business conditions. Sales in the Asia Pacific region also benefited from changes in currency translation. Sales for the Latin American region increased 25 percent for the second quarter and 27 percent for the six- month period. The sales increases included a continuation of significantly improved results in Brazil due to management changes and an improved economic environment. Sales in Mexico grew at approximately a 10 percent rate for each period in local currencies; however, these improvements were more than offset by the negative effects of the devaluation of the Mexican Peso. Sales in Canada increased 3 percent for the second quarter of 1995 and were not impacted by currency rate changes. Canada had 5 percent sales growth for the six-month period in local currency; however, due to the negative effects of currency translation, reported sales increased by only 2 percent. Sales of Kay's international operations increased 31 percent for the second quarter and 19 percent for the six months, as Kay continued to expand its offerings to the various international locations in which its existing customers operate. -16- ECOLAB INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) The Company's International Operations reported operating income for the second quarter of $6 million, a 143 percent increase over the second quarter of last year and six-month operating income of $8 million, a 54 percent increase over the comparable period of last year. International operating income margins improved significantly, reaching 7.2 percent for the second quarter of 1995 compared to 3.6 percent for the second quarter of 1994 and 5.7 percent for the first six months versus 4.4 percent in the prior year. International operating income comparisons for the second quarter benefited from a $1 million charge which was incurred in the second quarter of last year due to the government's new economic and monetary plan in Brazil. For the six months, operating income in 1995 was negatively affected by a $0.9 million pre-tax charge in the first quarter of 1995 related to the devaluation of the Mexican peso. International's operating income growth included significantly improved results in Brazil and double digit growth in the Asia Pacific region and in Kay's international operations. Operating income in Canada declined for both the second quarter and six-month periods. International's operating income growth is expected to moderate during the second half of 1995 due to comparisons against last year's stronger operating results in Brazil. The Company reported equity in earnings of the Henkel-Ecolab joint venture of $3 million for the second quarter, virtually unchanged from last year, and $5 million for the six-month period, an 11 percent decrease from the comparable period of last year. These results, which were favorably affected by currency rate changes, reflected the weak conditions in the European hospitality industry, particularly in the joint venture's key market of Germany. Recent management changes have been made at the joint venture; however, the Company anticipates that its equity in the earnings of the joint venture will be below last year's levels for the second half of 1995. Corporate operating expense was $1 million for the second quarter and $2 million for the first six months of 1995. Corporate operating expense represented overhead costs directly related to the joint venture. Net interest expense was $2 million for the second quarter and $5 million for the first six months of 1995 and declined significantly from the comparable periods of last year. These decreases were principally due to interest income earned on higher levels of cash and cash equivalents. The provision for income taxes for both the second quarter and first six months of 1995 reflected an estimated effective rate of 40.2 percent and compared to 37.1 percent for the second quarter and 37.7 percent for the first six months of last year. These increases reflect the loss of Kay's Subchapter S status. On a pro forma basis, including an adjustment to increase income tax expense in 1994 as if Kay were a tax-paying entity, the estimated annual effective income tax rates were approximately 40 percent for both periods and were essentially equivalent to the 1995 rate. -17- ECOLAB INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Financial Position and Liquidity During June 1995, Ecolab purchased approximately 3.5 million shares (approximately 5 percent of the Company's total outstanding shares) of the Company's common stock. These shares were purchased at a price of $25.00 per share pursuant to the terms of a "Dutch Auction" self-tender offer. The total purchase price for these shares was approximately $89 million and was funded by excess cash and by approximately $30 million of borrowings under the Company's credit agreements. Although the timing of the share purchase had virtually no impact on net income per share for the second quarter and six-month periods of 1995, the Company's per share earnings will benefit slightly during the second half of 1995 due to the lower level of shares outstanding. In addition, the Company may purchase approximately 2.5 million additional shares from time to time through open and privately negotiated transactions to complete the remaining portion of a six million share repurchase program which was authorized by the Company's Board of Directors in May 1995. Total debt at June 30, 1995 was $179 million, an increase of $32 million from total debt of $147 million at year end 1994. The ratio of total debt to capitalization rose to 30 percent at June 30, 1995 from 24 percent at year end 1994. The increase in the ratio of total debt to capitalization was due to the decrease in shareholders' equity which resulted from the purchase of common stock, as well as from the higher debt levels. Cash provided by continuing operations was $52 million for the six months ended June 30, 1995 compared to operating cash flows of $80 million for the first six months of last year. Cash provided by continuing operations ("Other Liabilities") for the first six months of 1994 included a one-time benefit from the receipt of an $18 million income tax refund related to prior years. In July 1995, the Company obtained commitments for a private placement debt arrangement with a group of insurance companies. Under the arrangement, the Company expects to incur $75 million of long-term debt in January 1996 at an interest rate of 7.19 percent and for a term of ten years. Proceeds from the debt will be used for general corporate purposes. -18- PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders The Company's Annual Meeting of Stockholders was held on May 12, 1995. At the meeting, 90.43 percent of the outstanding shares of the Company's voting stock was represented in person or by proxy. The first proposal voted upon was the election of four Class III Directors for a term ending at the annual meeting in 1998. The four persons nominated by the Company's Board of Directors received the following votes and were elected: FOR WITHHELD Pierson M. Grieve 61,088,190 280,357 Philip L. Smith 61,115,938 252,609 Hugo Uyterhoeven 61,130,453 238,094 Albrecht Woeste 61,109,117 259,430 In addition, the terms of office of the following directors continued after the meeting: Class I Directors for a term ending at the annual meeting in 1996 - James J. Howard, Jerry W. Levin, Reuben F. Richards, Richard L. Schall and Roland Schulz; and Class II Directors for a term ending in 1997 - Ruth S. Block, Russell G. Cleary, Allan L. Schuman and Michael E. Shannon. The second proposal voted upon was the approval of the Ecolab Inc. 1995 Non-Employee Director Stock Option Plan. The plan was approved as follows: FOR AGAINST ABSTAIN 54,577,423 5,938,987 852,137 The third proposal voted upon was the ratification of the appointment of Coopers & Lybrand L.L.P. as the Company's independent accountants for the year ending December 31, 1995. The appointment was ratified as follows: FOR AGAINST ABSTAIN 61,110,275 180,686 77,586 As to each proposal, there were no broker non-votes. -19- Item 6. Exhibits and Reports on Form 8-K (a) The following documents are filed as exhibits to this report: (15) Letter regarding unaudited interim financial information. (27) Financial Data Schedule (b) Reports on Form 8-K: During the quarter ended June 30, 1995, the Company filed three Current Reports on Form 8-K, dated May 12, May 17 and June 15, 1995, reporting, respectively: (i) announcement of a six million share repurchase program including a three million share self-tender offer; (ii) commencement of the three million share "Dutch Auction" self-tender offer; and (iii) preliminary results of the "Dutch Auction" self-tender offer. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized. ECOLAB INC. Date: August 8, 1995 By: /s/ Michael E. Shannon Michael E. Shannon Vice Chairman, Chief Financial and Administrative Officer (duly authorized officer and Principal Financial Officer) -20- EX-15 2 Exhibit (15) Securities and Exchange Commission 450 Fifth Street N.W. Washington, DC 10549 RE: Ecolab Inc. Registration Statements on Form S-8 (Registration Nos. 2-60010; 2-74944; 33-1664; 33-41828; 2-90702; 33-18202; 33-55986; 33-56101 33-26241; 33-34000; 33-56151; 33-39228; 33-56125 33-55984; 33-60266; 33-65364; and 33-59431) and Ecolab Inc. Registration Statement on Form S-3 (Registration No. 33-57197) We are aware that our report dated July 20,1995, on our reviews of interim financial information of Ecolab Inc. for the periods ended June 30, 1995 and 1994, and included in the Company's quarterly report on Form 10-Q for the quarter ended June 30, 1995, is incorporated by reference in these registration statements. Pursuant to Rule 436(c) under the Securities Act of 1933, this report should not be considered a part of the registration statements prepared or certified by us within the meaning of Sections 7 and 11 of that Act. /s/Coopers & Lybrand L.L.P. COOPERS & LYBRAND L.L.P. Saint Paul, Minnesota August 8,1995 EX-27 3
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AS OF JUN-30-1995 AND THE RELATED STATEMENTS OF INCOME AND CASH FLOWS FOR THE SIX-MONTH PERIOD THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY TO SUCH FINANCIAL STATEMENTS. 0000031462 ECOLAB INC. 1,000 6-MOS DEC-31-1995 JUN-30-1995 20,333 0 187,426 8,765 108,878 343,789 576,273 312,953 1,015,868 259,989 130,150 69,902 0 0 348,666 1,015,868 642,974 642,974 287,943 287,943 283,618 0 7,770 66,396 26,693 44,233 0 0 0 44,233 0.65 0 The amount of "LOSS-PROVISION" is not significant and has been included in "OTHER-EXPENSES."