-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KCuuFiIWIq7NcoJ7tgN8i7P2VVF9z811UHT+0Tg/OSVutADKcE/yc0GXGdfMiYV2 WueVkxWlfNwnkBqLAaZRWA== 0000912057-00-021997.txt : 20000508 0000912057-00-021997.hdr.sgml : 20000508 ACCESSION NUMBER: 0000912057-00-021997 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000505 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: SEC FILE NUMBER: 001-09328 FILM NUMBER: 620467 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 10-Q 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 MARCH 31, 2000 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.) 370 Wabasha Street N., St. Paul, Minnesota 55102 - -------------------------------------------------------------------------------- (Address of principal executive offices)(Zip Code) 651-293-2233 ------------ (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 April 30, 2000. 129,658,718 shares of common stock, par value $1.00 per share. 1 PART I - FINANCIAL INFORMATION ECOLAB INC. CONSOLIDATED STATEMENT OF INCOME
First Quarter Ended March 31 (thousands, except per share) 2000 1999 ------------ --------- (unaudited) Net sales $ 526,260 $ 489,304 Cost of sales 236,484 220,425 Selling, general and administrative expenses 217,095 206,616 ------------ --------- Operating income 72,681 62,263 Interest expense, net 5,357 5,750 ------------ --------- Income before income taxes and equity in earnings of Henkel-Ecolab 67,324 56,513 Provision for income taxes 27,603 23,622 Equity in earnings of Henkel-Ecolab 2,891 2,147 ------------ --------- Net income $ 42,612 $ 35,038 ============ ========= Net income per common share Basic $ 0.33 $ 0.27 Diluted $ 0.32 $ 0.26 Dividends per common share $ 0.12 $ 0.105 Weighted-average common shares outstanding Basic 128,944 129,539 Diluted 133,330 134,626
The accompanying notes are an integral part of the consolidated financial statements. 2 ECOLAB INC. CONSOLIDATED BALANCE SHEET
March 31 December 31 (thousands) 2000 1999 ------------ ------------ (unaudited) ASSETS Current assets Cash and cash equivalents $ 22,764 $47,748 Accounts receivable, net 311,457 299,751 Inventories 184,175 176,369 Deferred income taxes 41,897 41,701 Other current assets 15,728 11,752 ------------ ----------- Total current assets 576,021 577,321 Property, plant and equipment, net 451,900 448,116 Investment in Henkel-Ecolab 211,818 219,003 Other assets 393,015 341,506 ----------- ----------- Total assets $1,632,754 $1,585,946 =========== ==========
The accompanying notes are an integral part of the consolidated financial statements. 3 ECOLAB INC. CONSOLIDATED BALANCE SHEET (Continued)
March 31 December 31 (thousands, except per share) 2000 1999 ------------ ------------ (unaudited) LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Short-term debt $ 139,990 $ 112,060 Accounts payable 118,502 122,701 Compensation and benefits 75,447 90,618 Income taxes 13,394 5,743 Other current liabilities 148,466 139,552 ---------- ------------ Total current liabilities 495,799 470,674 Long-term debt 171,382 169,014 Postretirement health care and pension benefits 97,370 97,527 Other liabilities 79,915 86,715 Shareholders' equity (common stock, par value $1.00 per share; shares outstanding: March 31, 2000 - 129,703; December 31, 1999 - 129,416) 788,288 762,016 ---------- ------------ Total liabilities and shareholders' equity $1,632,754 $1,585,946 ========== ===========
The accompanying notes are an integral part of the consolidated financial statements. 4 ECOLAB INC. CONSOLIDATED STATEMENT OF CASH FLOWS
First Quarter Ended March 31 (thousands) 2000 1999 ------------ ---------- (unaudited) OPERATING ACTIVITIES Net income $ 42,612 $ 35,038 Adjustments to reconcile net income to cash provided by operations: Depreciation 29,742 26,778 Amortization 6,657 5,939 Deferred income taxes (187) (1,582) Equity in earnings of Henkel-Ecolab (2,891) (2,147) Henkel-Ecolab royalties and dividends 248 2,751 Other, net (186) (130) Changes in operating assets and liabilities: Accounts receivable (7,521) (32,728) Inventories (3,757) (195) Other assets (2,296) (3,022) Accounts payable (7,590) (3,251) Other liabilities (7,602) 17,713 ----------- ---------- Cash provided by operating activities $ 47,229 $ 45,164 ----------- ----------
The accompanying notes are an integral part of the consolidated financial statements. (Continued) 5 ECOLAB INC. CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
First Quarter Ended March 31 (thousands) 2000 1999 ---------- ---------- (unaudited) INVESTING ACTIVITIES Capital expenditures $ (32,923) $ (29,337) Property disposals 512 687 Businesses acquired (40,328) (34,191) Other, net (37) ---------- ---------- Cash used for investing activities (72,739) (62,878) ---------- ---------- FINANCING ACTIVITIES Notes payable 25,408 11,122 Long-term debt borrowings 21,810 Long-term debt repayments (4,997) (603) Reacquired shares (8,306) (9,722) Cash dividends on common stock (15,526) (13,552) Other, net 3,435 6,106 ---------- ---------- Cash provided by financing activities 14 15,161 ---------- ---------- Effect of exchange rate changes on cash 512 (454) ---------- ---------- DECREASE IN CASH AND CASH EQUIVALENTS (24,984) (3,007) Cash and cash equivalents, beginning of period 47,748 28,425 ---------- ---------- Cash and cash equivalents, end of period $ 22,764 $ 25,418 ========== ==========
The accompanying notes are an integral part of the consolidated financial statements. 6 ECOLAB INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. CONSOLIDATED FINANCIAL STATEMENTS The unaudited consolidated financial statements for the first quarter ended March 31, 2000 and 1999, reflect, in the opinion of management, all adjustments necessary for a fair presentation of the financial position, results of operations and cash flows of the Company for the interim periods. These adjustments consisted of normal, recurring items. The financial results for any interim period are not necessarily indicative of results for the full year. The consolidated balance sheet data as of December 31, 1999 were derived from audited consolidated financial statements, but do not include all disclosures required by accounting principles generally accepted in the United States. 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, 1999. PricewaterhouseCoopers LLP, the Company's independent accountants, have performed limited reviews of the interim financial information included herein. Their report on such reviews accompanies this filing. 2. BALANCE SHEET INFORMATION
March 31 December 31 (thousands) 2000 1999 ------------ ------------ (unaudited) Accounts Receivable, Net Accounts receivable $ 328,263 $ 320,720 Allowance for doubtful accounts (16,806) (20,969) ---------- ---------- Total $ 311,457 $ 299,751 ========== ========== Inventories Finished goods $ 78,629 $ 71,395 Raw materials and parts 107,016 106,239 Excess of fifo cost over lifo cost (1,470) (1,265) ---------- ---------- Total $ 184,175 $ 176,369 ========== ========== Property, Plant and Equipment, Net Land $ 13,194 $ 13,516 Buildings and leaseholds 162,864 162,955 Machinery and equipment 274,727 273,101 Merchandising equipment 502,205 492,160 Construction in progress 17,890 15,522 ---------- ---------- 970,880 957,254 Accumulated depreciation and amortization (518,980) 509,138) ---------- ---------- Total $ 451,900 $ 448,116 ========== ==========
7 ECOLAB INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 2. BALANCE SHEET INFORMATION (Continued)
March 31 December 31 (thousands) 2000 1999 ----------- ----------- (unaudited) Other Assets Intangible assets, net $ 299,609 $ 249,756 Deferred income taxes 24,887 24,591 Other 68,519 67,159 ----------- ---------- Total $ 393,015 $ 341,506 =========== ========== Short-Term Debt Notes payable $ 124,742 $ 96,992 Long-term debt, current maturities 15,248 15,068 ----------- ---------- Total $ 139,990 $ 112,060 =========== ========== Shareholders' Equity Common stock $ 146,097 $ 145,556 Additional paid-in capital 238,894 223,290 Retained earnings 783,634 756,601 Deferred compensation (12,025) (13,714) Accumulated other comprehensive income: translation (69,207) (59,363) Treasury stock (299,105) (290,354) ----------- ---------- Total $ 788,288 $ 762,016 =========== ==========
Interest expense was $5,938,000 and $6,211,000 for the first quarter ended March 31, 2000 and 1999, respectively. 8 ECOLAB INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 3. COMPREHENSIVE INCOME Comprehensive income for the Company includes net income and foreign currency translation adjustments which are charged or credited to the accumulated other comprehensive income account within shareholders' equity. Comprehensive income for the quarters ended March 31, 2000 and 1999 was as follows:
First Quarter Ended March 31 (thousands) 2000 1999 ---------- ---------- (unaudited) Net income $ 42,612 $ 35,038 Foreign currency translation (9,844) (17,657) ---------- --------- Comprehensive income $ 32,768 $ 17,381 ========== =========
4. BUSINESS ACQUISITIONS In February 2000, the Company issued 424,111 shares of common stock plus other cash consideration to acquire Southwest Sanitary Distributing Company (SSDC) of Carrollton, Texas. SSDC is a provider of cleaning and sanitizing products to the quickservice (fast-food) restaurant industry and has become part of the Company's Kay division. Annual sales of SSDC were approximately $24 million in 1999. In February 2000, the Company also acquired Spartan de Chile Limitada and Spartan de Argentina S.A. Both companies are leaders in the institutional and industrial cleaning and sanitizing markets in their countries. Annual sales for the combined companies were approximately $20 million in 1999 and these acquisitions have become part of the Company's Latin America division. These acquisitions have been accounted for as purchases and, accordingly, the results of their operations have been included in the financial statements of the Company from the dates of acquisition. Net sales and operating income of these businesses are not significant to the Company's consolidated results of operations, financial position and cash flows. 9 ECOLAB INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 5. NET INCOME PER COMMON SHARE The computations of the basic and diluted net income per share amounts for the Company's operations were as follows:
First Quarter Ended March 31 (thousands, except per share) 2000 1999 ----------- ----------- (unaudited) Net income $ 42,612 $ 35,038 ---------- ---------- Weighted-average common shares outstanding Basic (actual shares outstanding) 128,944 129,539 Effect of dilutive stock options and awards 4,386 5,087 ---------- ---------- Diluted 133,330 134,626 ========== ========== Net income per common share Basic $ 0.33 $ 0.27 Diluted $ 0.32 $ 0.26
Stock options to purchase approximately 3.7 million shares and 2.2 million shares for the first quarter ended March 31, 2000 and 1999, respectively, were not dilutive and, therefore, were not included in the computations of diluted net income per common share amounts. 6. OPERATING SEGMENTS The Company's operating segments have generally similar products and services and the Company is organized to manage its operations geographically. The Company's operating segments have been aggregated into three reportable segments. The "United States Cleaning & Sanitizing" segment provides cleaning and sanitizing products and services to United States markets through its Institutional, Kay, Textile Care, Professional Products, Water Care, Vehicle Care and Food & Beverage operations. The "United States Other Services" segment includes all other U.S. operations of the Company. This segment provides pest elimination, equipment repair and maintenance, and commercial dishwashing services through its Pest Elimination, GCS and Jackson operations. The Company's "International Cleaning & Sanitizing" segment provides cleaning and sanitizing product and service offerings to international markets in Asia Pacific, Latin America, Africa, Canada, and through its Export operations. 10 ECOLAB INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 6. OPERATING SEGMENTS (CONTINUED) The Company evaluates the performance of its international operations based on fixed management currency exchange rates. All other accounting policies of the reportable segments are consistent with accounting principles generally accepted in the United States and the accounting policies of the Company. The profitability of the Company's operating segments is evaluated by management based on operating income. Intersegment sales and transfers were not significant. Financial information for each of the Company's reportable segments is as follows:
First Quarter Ended March 31 (thousands) 2000 1999 ---------- ----------- (unaudited) Net Sales United States Cleaning & Sanitizing $ 360,387 $ 336,822 Other Services 54,548 47,328 ---------- ---------- Total 414,935 384,150 International Cleaning & Sanitizing 111,708 106,067 Effect of Foreign Currency Translation (383) (913) ---------- ---------- Consolidated $ 526,260 $ 489,304 ========== ========== Operating Income United States Cleaning & Sanitizing $ 53,858 $ 50,863 Other Services 5,434 4,551 ---------- ---------- Total 59,292 55,414 International Cleaning & Sanitizing 10,858 8,151 Corporate income (expense) 2,584 (1,099) Effect of Foreign Currency Translation (53) (203) ---------- ---------- Consolidated $ 72,681 $ 62,263 ========== ==========
The International Cleaning & Sanitizing amounts included above are based on translation into U.S. dollars at the fixed currency exchange rates used by management for 2000. Corporate income (expense), which normally represents only overhead costs directly related to Henkel-Ecolab, also included the recognition of $3.8 million of income related to net reductions in damages claimed in environmental matters in the first quarter of 2000. 11 ECOLAB INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 7. EQUITY IN EARNINGS OF HENKEL-ECOLAB Certain financial data of Henkel-Ecolab and the components of the Company's equity in earnings of Henkel-Ecolab for the quarters ended March 31, 2000 and 1999 were:
First Quarter Ended March 31 (thousands) 2000 1999 ----------- ----------- (unaudited) Henkel-Ecolab Net sales $ 212,121 $ 223,185 Gross profit 119,512 124,673 Income before income taxes 14,575 11,941 Net income $ 8,250 $ 6,913 Ecolab equity in earnings Ecolab equity in net income $ 4,125 $ 3,457 Ecolab royalty income from Henkel-Ecolab, net of income taxes 525 706 Amortization expense for the excess of cost over the underlying net assets of Henkel-Ecolab (1,759) (2,016) ---------- -------- Equity in earnings of Henkel-Ecolab $ 2,891 $ 2,147 ========== ========
At March 31, 2000, the Company's investment in Henkel-Ecolab included approximately $106 million of unamortized excess of the Company's investment over its equity in Henkel-Ecolab's net assets. This excess is being amortized on a straight-line basis over estimated economic useful lives of up to 30 years. 8. REVENUE RECOGNITION In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101, which summarizes certain of the staff's views in applying generally accepted accounting principles to revenue recognition in financial statements. The Company is in the process of analyzing the requirements of the Bulletin and is required to comply with the Bulletin by the second quarter of 2000. 12 REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Directors Ecolab Inc. We have reviewed the accompanying consolidated balance sheet of Ecolab Inc. as of March 31, 2000, and the related consolidated statements of income and of cash flows for the three-month periods ended March 31, 2000 and 1999. 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 auditing standards generally accepted in the United States, 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 accounting principles generally accepted in the United States. We have previously audited, in accordance with auditing standards generally accepted in the United States, the consolidated balance sheet as of December 31, 1999, and the related consolidated statements of income, of comprehensive income and shareholders' equity and of cash flows for the year then ended (not presented herein); and in our report dated February 28, 2000, 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, 1999, is fairly presented, in all material respects, in relation to the consolidated balance sheet from which it has been derived. /s/ PricewaterhouseCoopers LLP PRICEWATERHOUSECOOPERS LLP Saint Paul, Minnesota April 20, 2000 13 ECOLAB INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis provides information that management believes is useful in understanding the Company's operating results, cash flows and financial condition. The discussion should be read in conjunction with the consolidated financial statements and related notes included in this Form 10-Q. The following discussion contains various "Forward-Looking Statements" within the meaning of the Private Securities Litigation Reform Act of 1995. We refer readers to the Company's statement entitled "Forward-Looking Statements and Risk Factors" beginning on page 18 of this report. Additional risk factors may be described from time to time in Ecolab's filings with the Securities and Exchange Commission. RESULTS OF OPERATIONS - FIRST QUARTER ENDED MARCH 31, 2000 Consolidated net sales for the first quarter ended March 31, 2000 were $526 million, an increase of 8 percent over net sales of $489 million in the first quarter of last year. Businesses acquired in the first quarter of 2000 and the annualized effect of businesses acquired in 1999 accounted for approximately one-fourth of the growth in consolidated net sales. Changes in currency translation had an insignificant effect on sales. The growth in sales also reflected benefits from new products, new customers, investments in the growth and training of the sales-and-service force, and a continuation of generally good conditions in the hospitality and lodging industries in the United States. For the first quarter of 2000, the gross profit margin was 55.1 percent of net sales, up slightly from last year's first quarter gross profit margin of 55.0 percent. The increase in gross profit margin reflected increased sales of higher margin products for the Company's U.S. core operations and sales volume growth of new products, which were partially offset by poor results from the Company's Professional Products operations and the effects of the lower gross profit margins of businesses acquired. Selling, general and administrative expenses were 41.3 percent of consolidated net sales for the first quarter of 2000, a decrease from 42.2 percent of net sales in the comparable quarter of last year. Selling, general and administrative expenses for the first quarter of 2000 included $3.8 million of income related to favorable settlements anticipated on environmental claims, which more than offset $1.7 million of bad debt expense related to a bankruptcy filing by AmeriServe, a large distributor for the Company. Excluding these unusual items, selling, general and administrative expenses were 41.6 percent of consolidated net sales in the first quarter of 2000. This improvement in the selling, general and administrative expense margin reflected the benefits of cost controls, lower expenses related to retirement plans, synergies from the integration of businesses acquired and strong sales growth. These benefits were partially offset by continued investments 14 ECOLAB INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) RESULTS OF OPERATIONS - FIRST QUARTER ENDED MARCH 31, 2000 (continued) in the growth and training of the sales-and-service force. The Company expects to continue investing in its sales-and-service force, including investments in training and productivity. Net income for the first quarter ended March 31, 2000 totaled $43 million, an increase of 22 percent over net income of $35 million in the first quarter of 1999. On a per share basis, diluted net income per common share was $0.32 for the first quarter of 2000 and increased 23 percent over diluted net income of $0.26 per share in the first quarter of last year. Excluding the unusual items mentioned above, diluted net income per common share was $0.31 per share for an increase of 19 percent over the first quarter of last year. These earnings improvements reflected strong double-digit growth in operating income, a lower effective income tax rate, and double-digit growth in the Company's equity in earnings of Henkel-Ecolab. As stated in the Company's news release dated April 20, 2000, the Company believes diluted net income per share for the full year in the $1.50 per share range will be achievable for 2000. Sales of the Company's United States Cleaning & Sanitizing operations were $360 million, an increase of 7 percent compared with sales of $337 million in the first quarter of last year. Sales benefited from double-digit growth in sales of Kay operations and good growth from Institutional and Food & Beverage businesses. Growth also reflected benefits from sales of new products, new customers, investments in the sales-and-service force and generally good conditions in the hospitality and lodging industries. Business acquisitions accounted for approximately 25 percent of the growth in U.S. Cleaning & Sanitizing sales. Selling price increases during the first quarter of 2000 were not significant. Sales of the Company's Institutional operations increased 7 percent for the first quarter of 2000. Institutional's results included strong double-digit growth in its specialty program and good growth in its Raburn/Equipment businesses. Kay's U.S. operations reported sales growth of 26 percent for the first quarter. Excluding the acquisition of SSDC, Kay's sales increased 13 percent with continued double-digit growth in its food retail services business and good results in sales to its core quickservice customers. Textile Care sales were flat for the first quarter of 2000. Textile Care continues to experience pressures from consolidations in the commercial laundry market and a difficult pricing environment. The Company expects the U.S. Textile Care business to continue to experience challenging market conditions over the near term. Sales of Professional Products operations were down 7 percent reflecting lower specialty product sales, distributor sales and sales to government and education markets. Water Care sales increased 4 percent for the first quarter with good growth in sales to the food and beverage, hospitality and commercial laundry markets. The Company's Food & Beverage operations reported sales growth of 5 percent with good growth in sales to the food, meat and beverage 15 ECOLAB INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) RESULTS OF OPERATIONS - FIRST QUARTER ENDED MARCH 31, 2000 (continued) processing markets. Vehicle Care sales increased 30 percent for the first quarter of 2000. When adjusted for the impact of the Blue Coral acquisition in 1999, sales were flat principally due to unusual weather conditions, which depressed car wash usage. For the first quarter ended March 31, 2000, sales of the Company's United States Other Services operations increased 15 percent to $55 million. Pest Elimination sales increased 11 percent for the first quarter with double-digit sales in most areas of their business. GCS Service sales increased 24 percent for the first quarter of 2000. Excluding the effects of an acquisition in late 1999, sales increased 14 percent. The Company is focusing on coordinating GCS operations with other Ecolab businesses and expanding operations to provide national coverage. Management rate sales for the Company's International Cleaning & Sanitizing operations were $112 million for the first quarter of 2000, an increase of 5 percent over sales of $106 million in the comparable quarter of last year. The growth in sales in Latin America along with the benefits of business acquisitions are the primary reasons for this increase. Sales in the Asia Pacific region were flat for the first quarter. Double-digit sales increases in East Asia were offset by lower sales in Japan and Australia. Latin America sales rose 22 percent for the quarter with especially strong results in Mexico and improved growth in Brazil. Sales in Canada increased 7 percent with good growth in sales to both the institutional and food & beverage markets. Operating income of the Company's United States Cleaning & Sanitizing operations was $54 million for the first quarter of 2000, an increase of 6 percent over operating income of $51 million in the first quarter of last year. The operating income margin for the U.S. Cleaning & Sanitizing operations decreased to 14.9 percent of sales from 15.1 percent of net sales in the first quarter of 1999. Operating income margins benefited from strong core operations, higher sales volume, sales of new products and cost controls, but were offset by the impact of a $1.7 million bad debt expense from a major distributor, poor results of Professional Products operations, and investments in the sales-and-service force to support new business development. Excluding the impact of the $1.7 million bad debt charge, operating income increased 9 percent for the first quarter and operating margins rose to 15.4 percent in the quarter from 1999's 15.1 percent. First quarter 2000 operating income of United States Other Services rose 19 percent to $5.4 million with strong performances by both Pest Elimination and GCS. The operating income margin for U.S. Other Services increased to 10.0 percent of net sales from 9.6 percent in the first quarter of last year. 16 ECOLAB INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) RESULTS OF OPERATIONS - FIRST QUARTER ENDED MARCH 31, 2000 (continued) Operating income of International Cleaning & Sanitizing operations was $11 million for the first quarter, an increase of 33 percent over first quarter 1999 operating income of $8 million. The operating income margin improved to 9.7 percent of net sales in the first quarter of 2000 from 7.7 percent in the comparable period of last year. Significant operating income growth and operating income margin improvement in Latin America and Canada contributed to this increase. Operating income in the Asia Pacific region was flat for the first quarter. The Company's equity in earnings of Henkel-Ecolab were $2.9 million for the first quarter ended March 31, 2000, and increased 35 percent over $2.1 million of equity in earnings in the first quarter of last year. Earnings of Henkel-Ecolab reflected strong sales, favorable margins, and cost controls which more than offset investments in the sales-and-service force. Henkel-Ecolab sales, although not consolidated, increased 9 percent for the first quarter of 2000 when measured in Deutsche marks. Corporate operating income was $2.6 million for the first quarter ended March 31, 2000. Corporate operations, which normally represents only overhead costs directly related to Henkel-Ecolab, also included the recognition of $3.8 million of income related to net reductions in damages claimed in environmental matters in the first quarter of 2000. Net interest expense totaled $5.4 million for the first quarter, a decrease of 7 percent from net interest expense of $5.8 million in the first quarter of 1999. This decrease is primarily due to reduced debt levels. The provision for income taxes for the first quarter of 2000 reflected an estimated annual effective income tax rate of 41.0 percent, down from the first quarter of 1999 estimated annual effective rate of 41.8 percent. This decrease was principally due to lower anticipated overall effective rates on earnings of international operations for 2000. 17 ECOLAB INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) FINANCIAL POSITION AND LIQUIDITY Total assets were $1.6 billion at March 31, 2000, an increase of 3 percent over total assets at year-end 1999. The increase in March 31, 2000 other assets over year-end 1999 was principally due to intangible assets added through business acquisitions. Total debt was $311 million at March 31, 2000, up from total debt of $281 million at year-end 1999. This increase in total debt was principally due to business acquisitions. The ratio of total debt to capitalization was 28 percent at March 31, 2000, compared with 27 percent at December 31, 1999. Cash provided by operating activities totaled $47 million, an increase of 5 percent over $45 million in the first quarter of last year. Operating cash flows for 2000 reflected strong earnings performance and the additional cash flows from businesses acquired. The Company reacquired 222,700 shares of its common stock during the first quarter of 2000 under its two authorized share repurchase programs. The Company maintains a share repurchase program which is intended to offset the dilutive effect of shares issued for employee benefit plans. The Company also reacquires shares for general corporate purposes under a separate program established in 1995. At March 31, 2000, there were approximately 3.0 million shares remaining to be purchased under this general program. The Company anticipates that it will continue to periodically reacquire shares under its share repurchase programs. FORWARD-LOOKING STATEMENTS AND RISK FACTORS The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. In this report on Form 10-Q, management discusses expectations regarding future performance of the Company which may include anticipated financial performance including year 2000 earnings per share expectations, business prospects, in particular for the Textile Care and GCS divisions, investments in the sales-and-service force, continuation of share repurchases, and similar matters. Without limiting the foregoing, words or phrases such as "will likely result," "are expected to," "will continue," "is anticipated," "we believe," "estimate," "project" (including the negative or variations thereof) or similar terminology, generally identify forward-looking statements. 18 ECOLAB INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) FORWARD-LOOKING STATEMENTS AND RISK FACTORS (continued) Forward-looking statements represent challenging goals for the Company. As such, they are based on certain assumptions and estimates and are subject to certain risks and uncertainties. The Company cautions that undo reliance should not be placed on such forward-looking statements which speak only as of the date made. In order to comply with the terms of the safe harbor, the Company hereby identifies important factors which could affect the Company's financial performance and could cause the Company's actual results for future periods to differ materially from the anticipated results or other expectations expressed in the forward-looking statements. These factors should be considered, together with any similar risk factors or other cautionary language, which may be made in the section of this report containing the forward-looking statement. Risks and uncertainties that may affect operating results and business performance include: restraints on pricing flexibility due to competitive factors and customer consolidations, cost increases due to higher oil prices, availability of adequate and reasonably priced raw materials; the occurrence of capacity constraints, or the loss of a key supplier, which in either case limit the production of certain products; the effects of acquisitions and difficulties in carrying out the Company's acquisition strategy, including difficulties in rationalizing acquired businesses and in realizing related cost savings and other benefits; the costs and effects of complying with (i) the significant environmental laws and regulations which apply to the Company's operations and facilities, (ii) government regulations relating to the manufacture, storage, distribution and labeling of the Company's products, and (iii) changes in tax, fiscal, governmental and other regulatory policies; economic factors such as the worldwide economy, interest rates, currency movements, euro conversion and the development of markets; the occurrence of (i) litigation or claims, (ii) natural or manmade disasters, and (iii) severe weather conditions affecting the food service and the hospitality industry; loss of, or changes in, executive management; the Company's ability to continue product introductions and technological innovations; and other uncertainties or risks reported from time to time in the Company's reports to the Securities and Exchange Commission. In addition, the Company notes that its stock price can be affected by fluctuations in quarterly earnings. Despite favorable year over year quarterly comparisons in recent years, there can be no assurances that earnings will continue to increase or that the degree of improvement will meet investors' expectations. 19 PART II. - OTHER INFORMATION Item 2(c) RECENT SALES OF UNREGISTERED SECURITIES On February 22, 2000, the Company issued 424,111 shares of Common Stock to the three owners of Southwest Sanitary Distributing Company ("SSDC") in a private transaction as partial consideration for the acquisition of SSDC. The transaction was exempt from registration pursuant to Section 4(2) of the Securities Act of 1933. 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) No reports on Form 8-K were filed during the quarter ended March 31, 2000. 20 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: May 5, 2000 By: /s/ S.L. Fritze ------------------------------- Steven L. Fritze Vice President and Controller (duly authorized officer and Principal Accounting Officer) 21 EXHIBIT INDEX EXHIBIT NO. DOCUMENT METHOD OF FILING (15) Letter regarding unaudited Filed herewith interim financial information electronically (27) Financial Data Schedule Filed herewith electronically 22 EX-15 2 EXHIBIT 15 Exhibit (15) May 5, 2000 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; 333-95043; 33-26241; 33-34000; 33-56151; 333-18627; 33-39228; 33-56125; 333-70835; 33-60266; 333-95041; 33-65364; 33-59431; 333-18617; 333-79449; 333-21167; 333-35519; 333-40239; 333-95037; 333-50969; and 333-62183) and Registration Statements on Form S-3 (Registration Nos. 333-14771 and 333-35378). Commissioners: We are aware that our report dated April 20, 2000, on our reviews of interim financial information of Ecolab Inc. for the periods ended March 31, 2000 and 1999 and included in the Company's quarterly report on Form 10-Q for the quarter ended March 31, 2000, is incorporated by reference in Ecolab Inc.'s Registration Statements listed above. Yours very truly, /s/PricewaterhouseCoopers LLP PRICEWATERHOUSECOOPERS LLP EX-27 3 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AS OF MAR-31-2000 AND THE RELATED STATEMENTS OF INCOME AND CASH FLOWS FOR THE THREE MONTH PERIOD THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 22,764 0 328,263 16,806 184,175 576,021 970,880 518,980 1,632,754 495,799 171,382 0 0 146,097 642,191 1,632,754 526,260 526,260 236,484 236,484 217,095 0 5,938 67,324 27,603 42,612 0 0 0 42,612 0.33 0.32 THE AMOUNT OF "LOSS PROVISION" IS NOT SIGNIFICANT AND HAS BEEN INCLUDED IN "OTHER EXPENSES"
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