-----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, HqppwNvoXguYUykcjRJk3h2HSj2pl/yIz27fOYKpLcE8mM5DsgfuJGr6vVBQrPmu Q1H0RN20gOSPyCzotWnKuA== 0000912057-96-016500.txt : 19960808 0000912057-96-016500.hdr.sgml : 19960808 ACCESSION NUMBER: 0000912057-96-016500 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960807 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: 96605117 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 June 30, 1996 ------------- 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, 1996. 64,314,319 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) 1996 1995 -------- -------- (unaudited) Net Sales $373,196 $333,414 Cost of Sales 170,856 149,324 Selling, General and Administrative Expenses 156,991 143,748 -------- -------- Operating Income 45,349 40,342 Interest Expense, Net 4,584 2,444 -------- -------- Income Before Income Taxes and Equity in Earnings of Joint Venture 40,765 37,898 Provision for Income Taxes 16,346 15,235 Equity in Earnings of Henkel-Ecolab Joint Venture 3,179 3,175 -------- -------- Net Income $ 27,598 $ 25,838 -------- -------- -------- -------- Net Income Per Common Share $ 0.43 $ 0.38 Dividends Per Common Share $ 0.14 $ 0.125 Average Common Shares Outstanding 64,307 67,444 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) 1996 1995 1995 -------- -------- ---------- (unaudited) Net Sales $706,916 $642,974 $1,340,881 Cost of Sales 323,445 287,943 603,167 Selling, General and Administrative Expenses 304,324 283,618 575,028 -------- -------- ---------- Operating Income 79,147 71,413 162,686 Interest Expense, Net 8,024 5,017 11,505 -------- -------- ---------- Income Before Income Taxes and Equity in Earnings of Joint Venture 71,123 66,396 151,181 Provision for Income Taxes 28,517 26,693 59,694 Equity in Earnings of Henkel-Ecolab Joint Venture 4,637 4,530 7,702 -------- -------- ---------- Net Income $ 47,243 $ 44,233 $ 99,189 -------- -------- ---------- -------- -------- ---------- Net Income Per Common Share $ 0.73 $ 0.65 $ 1.50 Dividends Per Common Share $ 0.28 $ 0.25 $ 0.515 Average Common Shares Outstanding 64,449 67,593 66,097 See notes to consolidated financial statements. -3- ECOLAB INC. CONSOLIDATED BALANCE SHEET June 30 June 30 December 31 (thousands) 1996 1995 1995 -------- -------- ---------- (unaudited) ASSETS Cash and cash equivalents $ 31,678 $ 20,333 $ 24,718 Accounts receivable, net 201,247 178,661 198,432 Inventories 120,311 108,878 106,117 Deferred income taxes 21,901 22,421 21,617 Other current assets 25,670 13,496 7,188 ---------- ---------- ---------- Current Assets 400,807 343,789 358,072 Property, Plant and Equipment, Net 309,809 263,320 292,937 Investment in Henkel-Ecolab Joint Venture 284,404 310,624 302,298 Other Assets 139,276 98,135 107,573 ---------- ---------- ---------- Total Assets $1,134,296 $1,015,868 $1,060,880 ---------- ---------- ---------- ---------- ---------- ---------- See notes to consolidated financial statements. (Continued) -4- ECOLAB INC. CONSOLIDATED BALANCE SHEET, (Continued) June 30 June 30 December 31 (thousands, except per share) 1996 1995 1995 ---------- ---------- ---------- (unaudited) LIABILITIES AND SHAREHOLDERS' EQUITY Short-term debt $ 56,601 $ 49,213 $ 71,647 Accounts payable 80,565 71,936 81,931 Compensation and benefits 54,286 48,142 59,766 Income taxes 9,255 15,588 18,248 Other current liabilities 94,855 75,110 78,946 ---------- ---------- ---------- Current Liabilities 295,562 259,989 310,538 Long-Term Debt 163,875 130,150 89,402 Postretirement Health Care and Pension Benefits 76,519 77,533 70,666 Other Liabilities 133,874 129,628 133,616 Shareholders' Equity (common stock, par value $1.00 per share; shares outstanding: June 30, 1996 - 64,326; June 30, 1995 - 64,391; December 31, 1995 - 64,701) 464,466 418,568 456,658 ---------- ---------- ---------- Total Liabilities and Shareholders' Equity $1,134,296 $1,015,868 $1,060,880 ---------- ---------- ---------- ---------- ---------- ---------- See notes to consolidated financial statements. -5- ECOLAB INC. CONSOLIDATED STATEMENT OF CASH FLOWS Six Months Ended Year Ended June 30 December 31 (thousands) 1996 1995 1995 ------- ------- ------- (unaudited) OPERATING ACTIVITIES Net income $47,243 $44,233 $ 99,189 Adjustments to reconcile net income to cash provided by operating activities: Depreciation 37,068 32,235 64,651 Amortization 6,568 6,657 11,628 Deferred income taxes (557) (393) (759) Equity in earnings of joint venture (4,637) (4,530) (7,702) Joint venture 7,636 3,004 5,610 Other, net 229 147 801 Changes in operating assets and liabilities: Accounts receivable 4,872 (8,542) (26,843) Inventories (9,245) (7,716) (4,136) Other assets (7,413) (10,620) (11,371) Accounts payable (3,889) (5,779) 4,561 Other liabilities 1,943 3,550 27,834 ------- ------- ------- Cash provided by continuing operations 79,818 52,246 163,463 Cash provided by discontinued operations 3,000 ------- ------- ------- Cash provided by operating activities $79,818 $52,246 $166,463 ------- ------- ------- Bracketed amounts indicate a use of cash. 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) 1996 1995 1995 -------- -------- --------- (unaudited) INVESTING ACTIVITIES Capital expenditures $(52,540) $(49,097) $(109,894) Property disposals 1,548 772 1,806 Businesses acquired (39,930) (7,395) (26,437) Sale of investments in securities 4,007 Other, net 367 2,609 6,991 -------- -------- --------- Cash used for investing activities (90,555) (53,111) (123,527) -------- -------- --------- FINANCING ACTIVITIES Notes payable (13,954) 5,802 29,355 Long-term debt borrowings 75,000 25,000 2,141 Long-term debt repayments (19,418) (436) (20,060) Reacquired shares (16,364) (89,676) (90,391) Dividends (18,084) (16,994) (33,114) Other, net 10,778 (709) (4,561) -------- -------- --------- Cash provided by (used for) financing activities 17,958 (77,013) (116,630) -------- -------- --------- Effect of exchange rate changes on cash (261) (44) 157 -------- -------- --------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 6,960 (77,922) (73,537) Cash and Cash Equivalents, at beginning of period 24,718 98,255 98,255 -------- -------- --------- Cash and Cash Equivalents, at end of period $ 31,678 $ 20,333 $ 24,718 -------- -------- --------- -------- -------- --------- Bracketed amounts indicate a use of cash. 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, 1996 and 1995, 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. The consolidated balance sheet data as of December 31, 1995 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, 1995. 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) 1996 1995 1995 --------- --------- --------- (unaudited) Accounts Receivable, Net Accounts receivable $ 209,543 $ 187,426 $ 206,763 Allowance for doubtful accounts (8,296) (8,765) (8,331) --------- --------- --------- Total $ 201,247 $ 178,661 $ 198,432 --------- --------- --------- --------- --------- --------- Inventories Finished goods $ 57,691 $ 47,323 $ 47,035 Raw materials and parts 66,590 65,045 62,132 Excess of fifo cost over lifo cost (3,970) (3,490) (3,050) --------- --------- --------- Total $ 120,311 $ 108,878 $ 106,117 --------- --------- --------- --------- --------- --------- Property, Plant and Equipment, Net Land $ 6,856 $ 6,783 $ 6,941 Buildings and leaseholds 120,009 110,733 117,042 Machinery and equipment 203,168 180,003 188,453 Merchandising equipment 310,554 271,217 292,962 Construction in progress 10,893 7,537 14,571 --------- --------- --------- 651,480 576,273 619,969 Accumulated depreciation and amortization (341,671) (312,953) (327,032) --------- --------- --------- Total $ 309,809 $ 263,320 $ 292,937 --------- --------- --------- --------- --------- --------- -8- ECOLAB INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) BALANCE SHEET INFORMATION (Continued) June 30 June 30 December 31 (thousands) 1996 1995 1995 --------- --------- --------- (unaudited) Other Assets Intangible assets, net $ 77,961 $ 43,044 $ 50,773 Investments in securities 5,000 5,000 5,000 Deferred income taxes 27,671 26,609 27,383 Other 28,644 23,482 24,417 --------- --------- --------- Total $139,276 $ 98,135 $107,573 --------- --------- --------- --------- --------- --------- Short-Term Debt Notes payable $ 40,149 $ 32,550 $ 54,950 Long-term debt, current maturities 16,452 16,663 16,697 --------- --------- --------- Total $ 56,601 $ 49,213 $ 71,647 --------- --------- --------- --------- --------- --------- Shareholders' Equity Common stock $ 70,212 $ 69,902 $ 70,078 Additional paid-in capital 173,583 167,127 171,765 Retained earnings 355,445 285,605 325,674 Deferred compensation (5,539) (4,013) (6,484) Cumulative translation 7,491 21,865 16,272 Treasury stock (136,726) (121,918) (120,647) --------- --------- --------- Total $464,466 $418,568 $456,658 --------- --------- --------- --------- --------- --------- Interest expense related to all debt was $10,129,000 and $7,770,000 for the six months ended June 30, 1996 and 1995, respectively, and $15,857,000 for the year ended December 31, 1995. Other noncurrent liabilities included income taxes payable of $96 million at June 30, 1996 and December 31, 1995, and $94 million at June 30, 1995. In January 1996, the Company issued $75 million of 7.19 percent senior notes to a group of insurance companies. The notes mature in January 2006. Proceeds from the debt were used to reduce short-term borrowings and for business acquisitions and other general corporate purposes. -9- ECOLAB INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) BUSINESS ACQUISITIONS On February 20, 1996, the Company acquired Huntington Laboratories, Inc. of Huntington, Indiana. Huntington is a leading manufacturer and marketer of disinfectants, germicides, surgical scrubs and sterilants, primarily serving the U.S. healthcare and education janitorial markets. Huntington has become part of the Company's Janitorial Division, complementing the existing janitorial product lines. Included in the purchase was Huntington's QUATS-Surfactants disinfectant business which did not fit Ecolab's business strategies and, therefore, was sold in July 1996. Ecolab's purchase price for Huntington included cash consideration and the assumption of existing indebtedness which the Company repaid concurrent with the consummation of the stock purchase transaction. The acquisition was financed with a portion of the proceeds received from the issuance of $75 million of senior notes in January 1996 and with existing lines of credit. The acquisition has been accounted for as a purchase and, accordingly, the results of operations have been included in the financial statements of the Company from the date of acquisition. The allocation of the purchase price and the determination of the excess of the purchase price over the fair market value of the net assets acquired are preliminary as of June 30, 1996. Net sales for the second quarter and six months ended June 30, 1996 included approximately $14 million and $19 million, respectively of sales from the Huntington operations from the date of acquisition. Huntington's operating income for the second quarter and first six months of 1996 was not significant. The annual sales of the core Huntington operations, which the Company expects to retain, are approximately $50 million. On August 2, 1996 the Company acquired the Monarch division of H.B. Fuller Company of Saint Paul, Minnesota. Monarch is a provider of cleaning and sanitizing products and services to the food processing and farm markets in the United States and Canada. Monarch had sales of approximately $30 million in 1995 and will become part of the Company's Food & Beverage Division. The acquisition was financed with cash provided by existing lines of credit and will be accounted for as a purchase. -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 and marketer of premium cleaning, sanitizing and maintenance products and services for the hospitality, institutional and industrial markets. Customers include hotels and restaurants; foodservice, healthcare and educational facilities; quickservice (fast-food) units; commercial laundries; light industry; dairy plants and farms; and food and beverage processors around the world. International consists of Canadian, Asia Pacific, Latin American and African operations and the international operations of Kay. 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) 1996 1995 1996 1995 1995 -------- -------- -------- -------- ---------- (unaudited) (unaudited) Net Sales United States $287,278 $255,030 $542,973 $497,256 $1,030,126 International 85,918 78,384 163,943 145,718 310,755 -------- -------- -------- -------- ---------- Total $373,196 $333,414 $706,916 $642,974 $1,340,881 -------- -------- -------- -------- ---------- -------- -------- -------- -------- ---------- Operating Income United States $ 39,919 $ 35,937 $ 70,073 $ 65,462 $ 147,330 International 6,271 5,619 10,649 8,314 19,580 Corporate (841) (1,214) (1,575) (2,363) (4,224) -------- -------- -------- -------- ---------- Total $ 45,349 $ 40,342 $ 79,147 $ 71,413 $ 162,686 -------- -------- -------- -------- ---------- -------- -------- -------- -------- ----------
-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, 1996 and 1995 and for the year ended December 31, 1995 was:
Second Quarter Six Months Year Ended Ended June 30 Ended June 30 December 31 (thousands) 1996 1995 1996 1995 1995 -------- -------- -------- -------- ---------- (unaudited) (unaudited) Joint venture Net sales $232,935 $238,289 $449,782 $438,771 $909,196 Gross profit 127,156 133,641 246,006 245,175 502,849 Income before income taxes 17,228 14,034 27,786 22,617 44,392 Net income $ 8,460 $ 7,696 $ 13,643 $ 11,987 $ 22,406 Ecolab equity in earnings Ecolab equity in net income $ 4,230 $ 3,848 $ 6,822 $ 5,994 $ 11,203 Ecolab royalty income from joint venture, net of income taxes 1,219 1,707 2,412 3,117 5,814 Amortization expense for the excess of cost over the underlying net assets of the joint venture (2,270) (2,380) (4,597) (4,581) (9,315) -------- -------- -------- -------- ---------- Equity in earnings of Henkel-Ecolab joint venture $ 3,179 $ 3,175 $ 4,637 $ 4,530 $ 7,702 -------- -------- -------- -------- ---------- -------- -------- -------- -------- ----------
At June 30, 1996, the Company's investment in the Henkel-Ecolab joint venture included approximately $179 million for the unamortized excess of the Company's investment over its equity in the joint venture's net assets. -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, 1996 and 1995, and the related consolidated statements of income for the three-month and six-month periods ended June 30, 1996 and 1995, and the consolidated statements of cash flows for the six-month periods ended June 30, 1996 and 1995. 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, 1995, 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 26, 1996, 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, 1995, 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 18, 1996 -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, 1996 Net sales for the second quarter ended June 30, 1996 were $373 million, an increase of 12 percent over net sales of $333 million in the second quarter of last year. For the first six months of 1996, net sales were $707 million and increased 10 percent over sales of $643 million in the first six months of last year. These increases in sales reflected the benefits of a continuation of significant new product introductions and good growth in the Company's core businesses. Business acquisitions accounted for approximately one-half of the growth in sales. The gross profit margin for both the second quarter and first six months of 1996 was 54.2 percent of net sales, and compared to gross profit margins of 55.2 percent of net sales in the comparable periods of last year. The decreases in the gross profit margins for 1996 reflect increased raw material costs, limited selling price increases due to competitive pressures, and product mix. Selling, general and administrative expenses totaled $157 million, or 42.1 percent of net sales for the second quarter ended June 30, 1996, an increase of 9 percent over selling, general and administrative expenses of $144 million or 43.1 percent of net sales in the second quarter of last year. Selling, general and administrative expenses were $304 million, or 43.0 percent of net sales for the first six months of 1996, an increase of 7 percent over selling, general and administrative expenses of $284 million, or 44.1 percent of net sales in the comparable period of last year. The decreases in the ratios of these expenses to net sales were primarily due to strong sales during 1996 and to the Company's continued cost control efforts. For the second quarter ended June 30, 1996, net income was $28 million, an increase of 7 percent over net income of $26 million in the second quarter of last year. Net income for the first six months of 1996 also increased 7 percent to $47 million, compared with net income of $44 million in the first six months of 1995. These net income improvements reflected the benefits of higher sales and the effects of the Company's cost control efforts. These benefits were partially offset by decreases in gross profit margins and higher net interest expense. On a per share basis, net income per share was $0.43 for the second quarter of 1996, an increase of 13 percent over net income per share of $0.38 in the second quarter of last year. For the six-month period, net income per share was $0.73, up 12 percent compared to net income per share of $0.65 in the same period of last year. These comparisons of net income per share benefited from a -14- ECOLAB INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) smaller number of average shares outstanding due to the purchase of approximately 3.5 million shares of the Company's common stock in June 1995 and the purchase of approximately 520,000 additional shares during the first half of 1996. Net sales for the Company's United States operations totaled $287 million for the second quarter ended June 30, 1996, an increase of 13 percent over second quarter 1995 net sales of $255 million. United States sales for the first six months of 1996 were $543 million, and increased 9 percent over sales of $497 million in the first half of 1995. United States sales continued to benefit from new product introductions and improving economic conditions in the hospitality and lodging industries. Business acquisitions accounted for approximately one-half of these sales increases. Six month results reflect the negative impact that severe weather had on customers of the Company's core operations during the first quarter of 1996. Sales of the U.S. Institutional Division increased 5 percent for the second quarter and 2 percent for the first six months of 1996. Institutional's sales growth included sales to new customers and continued double-digit growth in the Ecotemp warewashing program. The Pest Elimination Division continued its pattern of double-digit sales growth with sales increases of 12 percent for both the second quarter and six-month periods. The Textile Care Division reported 9 percent growth for the second quarter and 11 percent growth for the first six months of 1996, due to new products and new customers in the commercial laundry and hospitality markets. Sales of the Company's Janitorial operations more than doubled due to the February 1996 acquisition of Huntington Laboratories. Excluding Huntington's sales, Janitorial sales increased 6 percent for the second quarter and 1 percent for the first six months of 1996, due to increased sales of its Airkem products. The Food & Beverage Division reported sales growth of 3 percent for the second quarter and 2 percent for the six-month period. Food & Beverage results reflected low levels of production in certain segments of the milk processing and food processing industries and comparison against strong sales during the first half of last year. Sales of Kay's U.S. operations increased 19 percent for the second quarter and 16 percent for the six-month period due to new customers and good general growth of the quickservice market. Sales of the Company's recently formed Water Care Services Division increased by at least 150% for both the second quarter and six-month periods, due to businesses which were acquired during 1995 and to new customers which have been added, in part by leveraging the Company's other divisions. -15- ECOLAB INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) For the second quarter of 1996, operating income for the Company's United States operations totaled $40 million, an 11 percent increase over operating income of $36 million in the second quarter of last year. For the first six months of 1996, United States operating income was $70 million and increased 7 percent over last year's six month operating income of $65 million. Operating income growth for the second quarter of 1996 reflected good growth in the U.S. Institutional Division and double-digit growth in the Textile Care, Pest Elimination and Kay operations. Six-month operating income results reflect the soft weather-related results of the first quarter in the core Institutional business. Operating income margins for 1996 were down slightly from the comparable periods of last year. For the second quarter, the operating income margin for the Company's United States operations was 13.9 percent, compared with 14.1 percent for the second quarter of last year. The six-month operating income margin was 12.9 percent, and compared with last year's six-month operating income margin of 13.2 percent. Operating income margins reflected increased sales and the benefits of cost controls which were offset by higher raw material costs, competitive pricing pressures and the negative effects of severe weather during the first quarter of 1996. Sales of the Company's International Operations totaled $86 million for the second quarter ended June 30, 1996, an increase of 10 percent over second quarter 1995 sales of $78 million. For the six-month period, sales of International operations increased 13 percent to $164 million from sales of $146 million in the first six months of last year. Approximately one-half of International's sales growth was due to businesses acquired in South Africa during 1995 and to the addition of Huntington's Canadian operations in February 1996. Changes in currency translation had a negative impact on reported sales of International's operations, particularly in the Asia Pacific region. Excluding the effects of currency translation, International's sales grew 16 percent for the second quarter and 17 percent for the first six months of 1996. The Asia Pacific region reported a sales decrease of 1 percent for the second quarter and an increase in sales of 4 percent for the six-month period. However, when measured in local currencies, Asia Pacific sales growth was 8 percent for the second quarter and 10 percent for the first six months of 1996 and included good growth in Japan and double-digit growth in New Zealand. The Company's Latin American region reported sales increases of 15 percent and 12 percent for the second quarter and six-month periods respectively. Latin American sales growth reflected a continuation of double-digit growth in Brazil. Sales in Mexico continued to grow at double-digit rates in local currencies. Sales in Canada increased 14 percent for the second quarter of 1996 and 10 percent for the six-month period. Sales results in Canada included the addition of Huntington's operations for the second quarter and good growth in Institutional and Food & Beverage sales for both the second quarter and six-month periods. -16- ECOLAB INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Operating income for the Company's International Operations was $6 million for the second quarter of 1996 and increased 12 percent over the second quarter of last year. For the six-month period, International's operating income increased 28 percent to $11 million, compared with operating income of $8 million in the same period of last year. Operating income margins for the second quarter increased to 7.3 percent of net sales from 7.2 percent of net sales in the second quarter of last year. For the six-month period, operating income margins improved to 6.5 percent of net sales in 1996 from 5.7 percent of net sales last year. International operating income results included significant double-digit growth in each of the Company's major regions of operation for the six-month period and in the Latin American and Canadian operations for the second quarter. Operating income results included a continuation of double-digit growth in Brazil. Operating income results in the Asia Pacific region increased modestly during the second quarter due to the negative effects of currency translation, particularly in Japan. The Company's equity in earnings of the Henkel-Ecolab joint venture was $3 million for the second quarter of 1996, and was virtually unchanged from results for the second quarter of last year. For the first six months of 1996, equity in earnings of the joint venture was $5 million, a 2 percent increase over the same period of last year. Joint venture results reflect cost control programs which were put into effect for 1996. A number of investments were made in the joint venture beginning in late 1995, including financial and operating systems and organizational development; however, the Company does not expect that financial results will fully benefit from these investments until late 1996 and later years. Corporate operating expense was $1 million for the second quarter and $2 million for the first six months of 1996. Corporate operating expense represented overhead costs directly related to the joint venture. Net interest expense was $5 million for the second quarter of 1996 and $8 million for the first six months of 1996, and increased more than 50 percent over the comparable periods of last year. These increases in net interest expense were due to lower cash levels and increased debt reflecting cash used during 1995 for the mid-year stock repurchase self- tender offer and for business acquisitions during 1995 and 1996. For the second quarter and first six months of 1996, the provision for income taxes reflected an estimated effective rate of 40.1 percent, virtually unchanged from the estimated effective rate of 40.2 percent for the second quarter and first six months of last year. -17- ECOLAB INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) FINANCIAL POSITION AND LIQUIDITY The Company's consolidated total assets at June 30, 1996 reflected the February 1996 acquisition of Huntington Laboratories. Other current assets at June 30 included the QUATS-Surfactants disinfectants net assets of Huntington's operation which the Company sold in July 1996. The increase in other non-current assets from year-end 1995 was also primarily due to the Huntington acquisition. Total debt at June 30, 1996 was $220 million, an increase of $59 million from total debt of $161 million at December 31, 1995. The increase in debt was due to $75 million of 7.19 percent senior notes which were issued to a group of insurance companies in January of 1996. The notes mature in January 2006. Proceeds from the debt were used to reduce short-term borrowings and for general corporate purposes, including the February 1996 acquisition of Huntington Laboratories. The ratio of total debt to capitalization increased to 32 percent at June 30, 1996 from 26 percent at December 31, 1995. Cash provided by continuing operations was $80 million for the first six months of 1996, compared with cash provided by continuing operations of $52 million in the first six months of last year. Earnings growth and cash flows from the collection of accounts receivable related to strong fourth quarter 1995 sales were significant factors in this cash flow improvement. In May 1995, the Company announced a six million share repurchase program. As part of that program, the Company purchased approximately 3.5 million shares in June 1995 under a "Dutch Auction" self-tender offer. During the first six months of 1996, the Company purchased approximately 35,000 shares under this program and at June 30, 1996 there were approximately 2.4 million shares remaining under the existing repurchase authorization. In addition, the Company maintains an ongoing systematic share repurchase program, which is intended to offset the dilutive effect of shares issued for employee benefit plans. During the first six months of 1996, approximately 485,000 shares were purchased under this program. The Company intends to continue making purchases for both of these programs from time to time in open market and privately negotiated transactions. -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 10, 1996. At the meeting, 88.62% 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 five Class I Directors for a term ending at the annual meeting in 1999 and the election of one Class III Director for a term ending at the annual meeting in 1998. The six persons nominated by the Company's Board of Directors received the following votes and were elected: NAME CLASS FOR WITHHELD ---------------- ----- ---------- ---------- James J. Howard I 56,749,775 419,916 Joel W. Johnson III 56,742,016 427,675 Jerry W. Levin I 56,748,390 421,301 Reuben F. Richards I 55,621,770 1,547,921 Richard L. Schall I 56,739,896 429,795 Roland Schulz I 56,746,887 422,804 In addition, the terms of office of the following directors continued after the meeting: Class II Directors for a term ending in 1997 - Ruth S. Block, Russell G. Cleary, Allan L. Schuman and Michael E. Shannon; and Class III Directors for a term ending in 1998 - Philip L. Smith, Hugo Uyterhoeven and Albrecht Woeste. The second 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, 1996. The appointment was ratified as follows: FOR AGAINST ABSTAIN ---------- ------- ------- 56,947,161 129,394 93,136 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: No Current Reports on Form 8-K were filed during the quarter ended June 30, 1996. 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 7, 1996 By: /s/ Michael E. Shannon --------------------- ---------------------------------- Michael E. Shannon Chairman of the Board, Chief Financial and Administrative Officer (duly authorized officer and Principal Financial Officer) -20- EX-15 2 EX-15 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 18, 1996 on our reviews of interim financial information of Ecolab Inc. for the periods ended June 30, 1996 and 1995, and included in the Company's quarterly report on Form 10-Q for the quarter ended June 30, 1996, 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 7, 1996 EX-27 3 EX-27 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AS OF JUNE-30-1996 AND THE RELATED STATEMENTS OF INCOME AND CASH FLOWS FOR THE SIX-MONTH PERIOD THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000031462 ECOLAD INC. 1,000 6-MOS DEC-31-1996 JUN-30-1996 31,678 0 209,710 8, 120,311 400,807 651,480 341,671 1,134,296 295,562 163,875 0 0 70,212 394,254 1,134,296 706,916 706,916 323,445 323,445 304,324 0 10,129 71,123 28,517 47,243 0 0 0 47,243 .73 0 THE AMOUNT OF "LOSS PROVISION" IS NOT SIGNIFICANT AND HAS BEEN INCLUDED IN "OTHER EXPENSES"
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