-----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, TTNbnMjQmTQ4C5k/zSNjpBo4EXFISOibm+8vo4N9lGlYs109daPHcLwE6gLGlfVq +MUW9maYQI/nyNxgs809Tw== 0000912057-96-008494.txt : 19960509 0000912057-96-008494.hdr.sgml : 19960509 ACCESSION NUMBER: 0000912057-96-008494 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960508 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: 96557793 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, 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 April 30, 1996. 64,272,684 shares of common stock, par value $1.00 per share. PART I - FINANCIAL INFORMATION ECOLAB INC. CONSOLIDATED STATEMENT OF INCOME First Quarter Ended Year Ended March 31 December 31 (thousands, except per share) 1996 1995 1995 --------- --------- ----------- (unaudited) Net Sales $333,720 $309,560 $1,340,881 Cost of Sales 152,589 138,619 603,167 Selling, General and Administrative Expenses 147,333 139,870 575,028 -------- -------- ---------- Operating Income 33,798 31,071 162,686 Interest Expense, Net 3,440 2,573 11,505 -------- -------- ---------- Income Before Income Taxes and Equity in Earnings of Joint Venture 30,358 28,498 151,181 Provision for Income Taxes 12,171 11,458 59,694 Equity in Earnings of Henkel-Ecolab Joint Venture 1,458 1,355 7,702 -------- -------- ---------- Net Income $ 19,645 $ 18,395 $ 99,189 -------- -------- ---------- -------- -------- ---------- Net Income Per Common Share $ 0.30 $ 0.27 $ 1.50 Dividends Per Common Share $ 0.14 $ 0.125 $ 0.515 Average Common Shares Outstanding 64,590 67,742 66,097 See notes to consolidated financial statements. -2- ECOLAB INC. CONSOLIDATED BALANCE SHEET March 31 March 31 December 31 (thousands) 1996 1995 1995 ---------- ---------- ----------- (unaudited) ASSETS Cash and cash equivalents $ 18,034 $ 91,492 $ 24,718 Accounts receivable, net 194,407 174,593 198,432 Inventories 123,058 102,015 106,117 Deferred income taxes 23,010 22,232 21,617 Other current assets 28,902 14,802 7,188 ----------- ---------- ---------- Current Assets 387,411 405,134 358,072 Property, Plant and Equipment, Net 302,351 251,196 292,937 Investment in Henkel-Ecolab Joint Venture 298,776 301,651 302,298 Other Assets 138,357 91,862 107,573 ----------- ---------- ---------- Total Assets $1,126,895 $1,049,843 $1,060,880 ----------- ---------- ---------- ----------- ---------- ---------- See notes to consolidated financial statements. (Continued) -3- ECOLAB INC. CONSOLIDATED BALANCE SHEET, Continued March 31 March 31 December 31 (thousands, except per share) 1996 1995 1995 ---------- -------- ----------- (unaudited) LIABILITIES AND SHAREHOLDERS' EQUITY Short-term debt $ 55,043 $ 42,444 $ 71,647 Accounts payable 84,835 78,474 81,931 Compensation and benefits 46,528 41,441 59,766 Income taxes 20,201 19,982 18,248 Other current liabilities 92,893 75,516 78,946 ----------- ---------- --------- Current Liabilities 299,500 257,857 310,538 Long-Term Debt 163,842 105,185 89,402 Postretirement Health Care and Pension Benefits 74,102 75,608 70,666 Other Liabilities 134,326 129,500 133,616 Shareholders' Equity (common stock, par value $1.00 per share; shares outstanding: March 31, 1996 - 64,420; March 31, 1995 - 67,881; December 31, 1995 - 64,701) 455,125 481,693 456,658 ----------- ---------- --------- Total Liabilities and Shareholders' Equity $1,126,895 $1,049,843 $1,060,880 ----------- ---------- --------- ----------- ---------- --------- See notes to consolidated financial statements. -4- ECOLAB INC. CONSOLIDATED STATEMENT OF CASH FLOWS First Quarter Ended Year Ended March 31 December 31 (thousands) 1996 1995 1995 -------- ------- ----------- (unaudited) OPERATING ACTIVITIES Net income $19,645 $18,395 $ 99,189 Adjustments to reconcile net income to cash provided by operating activities: Depreciation 18,527 15,892 64,651 Amortization 3,080 2,819 11,628 Deferred income taxes (126) (274) (759) Equity in earnings of joint venture, net of royalties received (214) 29 (2,092) Other, net 25 58 801 Changes in operating assets and liabilities: Accounts receivable 10,059 (6,944) (26,843) Inventories (11,694) (2,590) (4,136) Other assets (5,168) (2,483) (11,371) Accounts payable (107) 1,538 4,561 Other liabilities 671 1,296 27,834 ------- ------- -------- Cash provided by continuing operations 34,698 27,736 163,463 Cash provided by discontinued operations 3,000 ------- ------- -------- Cash provided by operating activities $34,698 $27,736 $166,463 ------- ------- -------- Bracketed amounts indicate a use of cash. See notes to consolidated financial statements. (Continued) -5- ECOLAB INC. CONSOLIDATED STATEMENT OF CASH FLOWS, Continued First Quarter Ended Year Ended March 31 December 31 (thousands) 1996 1995 1995 -------- ------- ----------- (unaudited) INVESTING ACTIVITIES Capital expenditures $(25,563) $(22,221) $(109,894) Property disposals 576 292 1,806 Sale of investments in securities 4,007 Businesses acquired (39,930) (5,795) (26,437) Other, net (144) (315) 6,991 -------- -------- --------- Cash used for investing activities (65,061) (28,039) (123,527) -------- -------- --------- FINANCING ACTIVITIES Notes payable (16,164) 456 29,355 Long-term debt borrowings 75,000 2,141 Long-term debt repayments (19,459) (143) (20,060) Reacquired shares (11,143) (14) (90,391) Dividends (9,057) (8,457) (33,114) Other, net 4,417 1,747 (4,561) -------- -------- --------- Cash provided by (used for) financing activities 23,594 (6,411) (116,630) -------- -------- --------- Effect of exchange rate changes on cash 85 (49) 157 -------- -------- --------- DECREASE IN CASH AND CASH EQUIVALENTS (6,684) (6,763) (73,537) Cash and Cash Equivalents, at beginning of period 24,718 98,255 98,255 -------- -------- --------- Cash and Cash Equivalents, at end of period $ 18,034 $ 91,492 $ 24,718 -------- -------- --------- -------- -------- --------- Bracketed amounts indicate a use of cash. See notes to consolidated financial statements. -6- ECOLAB INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS The unaudited consolidated statements of income for the first quarter ended March 31, 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 March 31 March 31 December 31 (thousands) 1996 1995 1995 --------- --------- ----------- (unaudited) Accounts Receivable, Net Accounts receivable $ 202,710 $ 183,460 $ 206,763 Allowance for doubtful accounts (8,303) (8,867) (8,331) --------- --------- --------- Total $ 194,407 $ 174,593 $ 198,432 --------- --------- --------- --------- --------- --------- Inventories Finished goods $ 60,955 $ 44,293 $ 47,035 Raw materials and parts 66,073 61,163 62,132 Excess of fifo cost over lifo cost (3,970) (3,441) (3,050) --------- --------- --------- Total $ 123,058 $ 102,015 $ 106,117 --------- --------- --------- --------- --------- --------- Property, Plant and Equipment, Net Land $ 6,915 $ 6,400 $ 6,941 Buildings and leaseholds 118,860 109,057 117,042 Machinery and equipment 196,988 174,977 188,453 Merchandising equipment 298,973 265,114 292,962 Construction in progress 12,659 5,915 14,571 --------- --------- --------- 634,395 561,463 619,969 Accumulated depreciation and amortization (332,044) (310,267) (327,032) --------- --------- --------- Total $ 302,351 $ 251,196 $ 292,937 --------- --------- --------- --------- --------- --------- -7- ECOLAB INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Balance Sheet Information (Continued) March 31 March 31 December 31 (thousands) 1996 1995 1995 -------- -------- ----------- (unaudited) Other Assets Intangible assets, net $ 76,849 $ 42,923 $ 50,773 Investments in securities 5,000 5,000 5,000 Deferred income taxes 27,548 26,371 27,383 Other 28,960 17,568 24,417 -------- -------- --------- Total $138,357 $ 91,862 $ 107,573 -------- -------- --------- -------- -------- --------- Short-Term Debt Notes payable $ 38,552 $ 25,844 $ 54,950 Long-term debt, current maturities 16,491 16,600 16,697 -------- -------- --------- Total $ 55,043 $ 42,444 $ 71,647 -------- -------- --------- -------- -------- --------- Shareholders' Equity Common stock $ 70,148 $ 69,834 $ 70,078 Additional paid-in capital 172,713 166,407 171,765 Retained earnings 336,498 267,821 325,674 Deferred compensation (6,109) (4,560) (6,484) Cumulative translation 13,601 14,488 16,272 Treasury stock (131,726) (32,297) (120,647) -------- -------- --------- Total $455,125 $481,693 $ 456,658 -------- -------- --------- -------- -------- --------- Interest expense related to all debt was $4,645,000 and $3,932,000 for the first quarter ended March 31, 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 March 31, 1996 and December 31, 1995, and $94 million at March 31, 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 general corporate purposes. -8- 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 will become part of the Company's Janitorial Division, complimenting the existing janitorial product lines. Included in the purchase is Huntington's QUATS-Surfactants disinfectant business which Ecolab intends to sell. The purchase price 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 March 31, 1996. Net sales for the first quarter ended March 31, 1996 included approximately $5 million of sales from the Huntington operations from the date of acquisition. Huntington's operating income for the first quarter of 1996 was not significant. The annual sales of the core Huntington operations, which the Company expects to retain, are approximately $50 million. 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. -9- ECOLAB INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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. First Quarter Year Ended Ended March 31 December 31 (thousands) 1996 1995 1995 -------- -------- ----------- (unaudited) Net Sales United States $255,695 $242,226 $1,030,126 International 78,025 67,334 310,755 -------- -------- ---------- Total $333,720 $309,560 $1,340,881 -------- -------- ---------- -------- -------- ---------- Operating Income United States $ 30,154 $ 29,525 $ 147,330 International 4,378 2,695 19,580 Corporate (734) (1,149) (4,224) -------- -------- ---------- Total $ 33,798 $ 31,071 $ 162,686 -------- -------- ---------- -------- -------- ---------- -10- 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 first quarter ended March 31, 1996 and 1995 and for the year ended December 31, 1995 was: First Quarter Year Ended Ended March 31 December 31 (thousands) 1996 1995 1995 -------- ------- ----------- (unaudited) Joint venture Net sales $216,847 $200,482 $909,196 Gross profit 118,850 111,534 502,849 Income before income taxes 10,558 8,583 44,392 Net income $ 5,183 $ 4,291 $ 22,406 Ecolab equity in earnings Ecolab equity in net income $ 2,592 $ 2,146 $ 11,203 Ecolab royalty income from joint venture, net of income taxes 1,193 1,410 5,814 Amortization expense for the excess of cost over the underlying net assets of the joint venture (2,327) (2,201) (9,315) -------- -------- -------- Equity in earnings of Henkel-Ecolab joint venture $ 1,458 $ 1,355 $ 7,702 -------- -------- -------- -------- -------- -------- At March 31, 1996, the Company's investment in the Henkel-Ecolab joint venture included approximately $188 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. -11- 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 March 31, 1996 and 1995, and the related consolidated statements of income and cash flows for the three-month periods then ended. 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 April 18, 1996 -12- ECOLAB INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS - FIRST QUARTER ENDED MARCH 31, 1996 Net sales for the first quarter ended March 31, 1996 were $334 million, an increase of 8 percent over net sales of $310 million in the first quarter of last year. This sales improvement included strong International growth and modest growth in the United States where sales were negatively affected by the impact of severe weather on Ecolab's customers and comparison against very strong sales in the first quarter of last year. The gross profit margin for the first quarter of 1996 was 54.3 percent of net sales, compared to a gross profit margin of 55.2 percent of net sales in the first quarter of last year. The decrease in the gross profit margin reflects higher raw material costs, limited selling price increases due to competitive pressures and product mix, with lower sales levels of the higher margin products of the Company's core operations during the first quarter of 1996. Raw material cost increases have moderated somewhat since mid-1995. Management continues to focus on future raw material cost increases and competition in the marketplace to minimize any impact on the Company's overall operating results. Selling, general and administrative expenses totaled $147 million, or 44.1 percent of net sales, an increase of 5 percent over selling, general and administrative expenses of $140 million or 45.2 percent of net sales in the first quarter of 1995. The decrease in the ratio of these expenses as a percentage of net sales was primarily due to the Company's continued cost control efforts. Net income for the first quarter of 1996 was $20 million, an increase of 7 percent over net income of $18 million in the comparable period of last year. This net income improvement reflected the benefits of higher sales, the effects of the Company's cost control efforts and modestly higher equity in earnings of the Henkel-Ecolab joint venture. These benefits were partially offset by the decrease in gross profit margin and higher net interest expense. On a per share basis, net income per share increased 11 percent to $0.30 per share from $0.27 per share in the first quarter of last year. The comparison of net income per share benefited from a 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 350,000 additional shares during the first quarter of 1996. -13- ECOLAB INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) For the Company's United States operations, net sales for the first quarter of 1996 were $256 million, an increase of 6 percent over sales of $242 million in the first quarter of last year. United States sales continued to benefit from new product introductions and good general economic conditions in the hospitality and lodging industries. However, the Company's core operations were negatively affected by the impact of the first quarter's severe weather on its customers and the comparison against very strong sales in the first quarter of last year. The U.S. Institutional Division reported a decrease in sales of 1 percent for the first quarter and the Food and Beverage Division reported a modest sales increase of 1 percent. Much of the business that was lost due to the inclement weather cannot be recovered; however, the Company expects these core operations to return to more normal growth patterns in the second quarter. The Pest Elimination Division continued its pattern of double- digit sales growth with an 11 percent sales increase over the first quarter of last year. The Textile Care Division reported sales growth of 12 percent due to new products and continued success in the commercial laundry and hospitality markets. Sales of the Company's Janitorial operations increased 39 percent due to sales of Huntington Laboratories, which was acquired in late February 1996. Excluding Huntington sales, Janitorial sales decreased modestly due to lower sales of the division's Signature Label program. Sales of Kay's U.S. operations increased 13 percent for the first quarter of 1996, benefiting from good general growth of the quickservice market and from new business with discount retail chains. Sales of the recently formed Water Care Division have quadrupled since the first quarter of last year 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. Operating income of the Company's United States operations was $30 million, an increase of 2 percent over the first quarter of last year. The operating income margin for the Company's United States operations was 11.8 percent for the first quarter of 1996, compared with 12.2 percent for the first quarter of last year. Operating income results reflected soft weather-related results in the core Institutional business and double-digit growth in the Pest Elimination, Textile Care, Food and Beverage and Kay operations. First quarter 1996 operating income 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 the severe weather. -14- ECOLAB INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Sales of the Company's International Operations totaled $78 million for the first quarter of 1996, an increase of 16 percent over sales of $67 million in the first quarter of last year. Changes in currency translation affected certain regions of International's operations, but did not have a significant impact on overall International sales growth. The Asia Pacific region reported sales growth of 10 percent for the first quarter with good growth in Japan and Australia and double digit growth in New Zealand and East Asia. Sales in the Latin American region rose 8 percent and reflected good growth in most countries, including a continuation of double-digit growth in Brazil. Sales in Mexico also showed good growth in local currency; however, this growth was more than offset by the weakening of the peso. Canada reported sales growth of 7 percent for the first quarter of 1996 with good growth in sales to Institutional markets and double-digit growth in sales to Food and Beverage and Janitorial markets. Sales of International operations also included double-digit growth of Kay's international operations and approximately $4 million of sales related to African operations which were acquired in 1995. For the first quarter of 1996, International Operations reported operating income of $4 million, a 62 percent increase over operating income of $3 million in the first quarter of last year. Operating income margins increased to 5.6 percent of net sales in the first quarter of 1996, from 4.0 percent of net sales in the comparable period of last year. The comparison of operating income is favorably affected by a $0.9 million pre-tax charge included in last year's first quarter related to the devaluation of the Mexican peso. Excluding the effects of the peso devaluation from last year, International's operating income increased 22 percent for the first quarter of 1996. International operating income growth included significantly improved results in Asia Pacific and Latin America operations and double-digit growth in Canada. The Company's equity in earnings of the Henkel-Ecolab joint venture was $1.5 million, an increase of 8 percent versus the first quarter of last year. Joint venture results benefited from comparison against weak financial results for the first quarter of last year. A number of investments were made in the joint venture in 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. -15- ECOLAB INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Corporate operating expense was $1 million for the first quarter of 1996 and represented overhead costs directly related to the joint venture. Net interest expense was $3 million for the first quarter and increased 34 percent over net interest expense for the first quarter of 1995. The increase in net interest expense was due to lower cash levels and increased debt reflecting cash used during 1995 for the mid-year stock purchase self-tender offer and for business acquisitions. For the first quarter of 1996, the provision for income taxes reflected an estimated effective rate of 40.1 percent and was virtually unchanged from the estimated effective rate of 40.2 percent in the first quarter of last year. FINANCIAL POSITION AND LIQUIDITY The Company's consolidated total assets at March 31, 1996 reflected the February acquisition of Huntington Laboratories. Other current assets at March 31 included the QUATS-Surfactants disinfectants net assets of Huntington's operations which the Company intends to sell. The increase in other noncurrent assets from year-end 1995 was also primarily due to the Huntington acquisition. Total debt at March 31, 1996 was $219 million, an increase of $58 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 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 March 31, 1996 from 26 percent at December 31, 1995. Cash provided by continuing operations was $35 million, compared with cash provided by continuing operations of $28 million in the first quarter 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. -16- ECOLAB INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) In May 1995, the Company announced a 6 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. At March 31, 1996, there were approximately 2.4 million shares remaining under the existing repurchase authorization. In addition, the Company maintains a systematic share repurchase program, which is intended to offset the dilutive effect of shares issued for employee benefit plans. During the first quarter of 1996, approximately 350,000 shares were purchased under these programs. The Company intends to continue making purchases for both of these programs from time to time in open market and privately negotiated transactions. -17- PART II. OTHER INFORMATION Item 2. CHANGES IN SECURITIES On March 11, 1996, the Company's former Preferred Stock Purchase Rights (the "1986 Rights") expired pursuant to the terms of the Rights Agreement, as amended and restated as of July 15, 1988, and as amended September 10, 1990, between the Company and First Chicago Trust Company of New York, as Rights Agent. Following expiration of the 1986 Rights, the Company issued new Preferred Stock Purchase Rights (the "1996 Rights") on March 11, 1996 pursuant to the terms of a Rights Agreement, dated as of February 24, 1996 (the "1996 Rights Agreement"), between the Company and First Chicago Trust Company of New York, as Rights Agent. A copy of the 1996 Rights Agreement was filed as an exhibit to the Company's Current Report on Form 8-K dated February 24, 1996. The 1996 Rights are registered under Section 12(b) of the Securities Exchange Act of 1934, as amended, on a registration statement on Form 8-A dated February 27, 1996 and a description of the 1996 Rights is provided therein. 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 March 31, 1996, the Company filed one Current Report on Form 8-K, dated February 24, 1996, reporting adoption of a new shareholder rights plan. 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 8, 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) -18- EXHIBIT INDEX Paper (P) or Exhibit Description Electronic E - ------- ----------- ------------ (15) Letter regarding unaudited E interim financial information (27) Financial Data Schedule E -19- EX-15 2 EX-15 Exhibit (15) Securities and Exchange Commission 450 Fifth Street N.W. Washington, DC 20549 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 April 18, 1996, on our reviews of interim financial information of Ecolab Inc. for the periods ended March 31, 1996 and 1995, and included in the Company's quarterly report on Form 10-Q for the quarter ended March 31, 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 May 8, 1996 EX-27 3 EX-27 FDS
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AS OF MAR-31-1996 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. 0000031462 ECOLAB INC. 1,000 3-MOS DEC-31-1996 MAR-31-1996 18,034 0 202,710 8,303 123,058 387,411 634,395 332,044 1,126,895 299,500 163,842 0 0 70,148 384,977 1,126,895 333,720 333,720 152,589 152,589 147,333 0 4,645 30,358 12,171 19,645 0 0 0 19,645 0.30 0 THE AMOUNT OF "LOSS PROVISION" IS NOT SIGNIFICANT AND HAS BEEN INCLUDED IN "OTHER EXPENSES."
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