FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 1-9328
ECOLAB INC.
(Exact name of registrant as specified in its charter)
Delaware 41-0231510
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Ecolab Center, St. Paul, Minnesota 55102
(Address of principal executive offices)
(Zip Code)
612-293-2233
(Registrant's telephone number, including area code)
(Not Applicable)
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of July 31, 1995.
64,415,414 shares of common stock, par value $1.00 per share.<PAGE>
PART I - FINANCIAL INFORMATION
<TABLE>
ECOLAB INC.
CONSOLIDATED STATEMENT OF INCOME
<CAPTION>
Second Quarter Ended
June 30
(thousands, except per share) 1995 1994
(unaudited)
<S> <C> <C>
Net Sales $333,414 $299,182
Cost of Sales 149,324 130,961
Selling, General
and Administrative Expenses 143,748 132,259
Operating Income 40,342 35,962
Interest Expense, Net 2,444 3,303
Income Before Income Taxes
and Equity in Earnings of
Joint Venture 37,898 32,659
Provision for Income Taxes 15,235 12,108
Equity in Earnings of Henkel-Ecolab
Joint Venture 3,175 3,211
Net Income $ 25,838 $ 23,762
Net Income Per Common Share $ 0.38 $ 0.35
Dividends Per Common Share $ 0.125 $ 0.11
Average Common Shares Outstanding 67,444 67,521
<FN>
The second quarter ended June 30, 1994 has been restated. See notes to
consolidated financial statements.
</FN>
</TABLE>
-2-<PAGE>
<TABLE>
ECOLAB INC.
CONSOLIDATED STATEMENT OF INCOME
<CAPTION>
Six Months Ended Year Ended
June 30 December 31
(thousands, except per share) 1995 1994 1994
(unaudited)
<S> <C> <C> <C>
Net Sales $642,974 $574,095 $1,207,614
Cost of Sales 287,943 252,014 533,143
Selling, General
and Administrative Expenses 283,618 258,097 529,507
Merger Costs and Expenses 8,000
Operating Income 71,413 63,984 136,964
Interest Expense, Net 5,017 7,342 12,909
Income Before Income Taxes
and Equity in Earnings of
Joint Venture 66,396 56,642 124,055
Provision for Income Taxes 26,693 21,353 50,444
Equity in Earnings of Henkel-Ecolab
Joint Venture 4,530 5,091 10,951
Net Income $ 44,233 $ 40,380 $ 84,562
Net Income Per Common Share $ 0.65 $ 0.60 $ 1.25
Dividends Per Common Share $ 0.25 $ 0.22 $ 0.455
Average Common Shares Outstanding 67,593 67,542 67,550
<FN>
The six months ended June 30, 1994 has been restated. See notes to
consolidated financial statements.
</FN>
</TABLE>
-3-<PAGE>
<TABLE>
ECOLAB INC.
CONSOLIDATED BALANCE SHEET
<CAPTION>
June 30 June 30 December 31
(thousands) 1995 1994 1994
(unaudited)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 20,333 $ 65,300 $ 98,255
Accounts receivable, net 178,661 151,348 168,807
Inventories 108,878 98,748 100,015
Deferred income taxes 22,421 22,220 22,349
Other current assets 13,496 13,257 11,753
Current Assets 343,789 350,873 401,179
Property, Plant and Equipment,
Net 263,320 230,178 246,191
Investment in Henkel-Ecolab
Joint Venture 310,624 269,748 284,570
Other Assets 98,135 101,898 88,416
Total Assets $1,015,868 $952,697 $1,020,356
<FN>
June 30, 1994 has been restated. See notes to consolidated financial
statements.
</FN>
</TABLE>
(Continued)
-4-<PAGE>
<TABLE>
ECOLAB INC.
CONSOLIDATED BALANCE SHEET, Continued
<CAPTION>
June 30 June 30 December 31
(thousands, except per share) 1995 1994 1994
(unaudited)
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS'
EQUITY
Short-term debt $ 49,213 $ 19,302 $ 41,820
Accounts payable 71,936 72,745 76,905
Compensation and benefits 48,142 42,631 56,445
Income taxes 15,588 19,331 13,113
Other current liabilities 75,110 61,360 65,382
Current Liabilities 259,989 215,369 253,665
Long-Term Debt 130,150 121,398 105,393
Postretirement Health Care
and Pension Benefits 77,533 81,413 70,882
Other Liabilities 129,628 110,756 128,608
Shareholders' Equity (common stock,
par value $1.00 per share;
shares outstanding: June 30,
1995 - 64,391; June 30, 1994
- 67,444; December 31, 1994
- 67,671) 418,568 423,761 461,808
Total Liabilities and
Shareholders' Equity $1,015,868 $952,697 $1,020,356
<FN>
June 30, 1994 has been restated. See notes to consolidated financial
statements.
</FN>
</TABLE>
-5-<PAGE>
<TABLE>
ECOLAB INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
Six Months Ended Year Ended
June 30 December 31
(thousands) 1995 1994 1994
(unaudited)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $44,233 $40,380 $ 84,562
Adjustments to reconcile net
income to cash provided by
operating activities:
Depreciation 32,235 28,341 56,867
Amortization 6,657 4,902 10,002
Deferred income taxes (393) (184) 2,352
Equity in earnings of joint venture,
net of royalties received (1,526) (1,725) (5,273)
Other, net 147 (765) 415
Changes in operating assets and
liabilities:
Accounts receivable (8,542) (5,467) (18,952)
Inventories (7,716) (15,266) (14,285)
Other assets (10,620) (7,745) (7,222)
Accounts payable (5,779) 927 1,587
Other liabilities 3,550 36,788 44,293
Cash provided by continuing operations 52,246 80,186 154,346
Cash provided by discontinued
operations 15,000
Cash provided by operating activities $52,246 $80,186 $169,346
<FN>
Bracketed amounts indicate a use of cash.
The six months ended June 30, 1994 has been restated. See notes to
consolidated financial statements.
</FN>
</TABLE>
(Continued)
-6-<PAGE>
<TABLE>
ECOLAB INC.
CONSOLIDATED STATEMENT OF CASH FLOWS, Continued
<CAPTION>
Six Months Ended Year Ended
June 30 December 31
(thousands) 1995 1994 1994
(unaudited)
<S> <C> <C> <C>
INVESTING ACTIVITIES
Capital expenditures $(49,097) $(40,027) $ (88,457)
Property disposals 772 1,348 4,836
Sale of investments in securities 9 5,022
Other, net (4,786) 5,653 459
Cash used for investing activities (53,111) (33,017) (78,140)
FINANCING ACTIVITIES
Notes payable 5,802 830 8,512
Long-term debt, net 24,564 (11,174) (14,621)
Reacquired shares (89,676) (6,253) (7,889)
Dividends (16,994) (14,011) (27,851)
Kay shareholder distributions (426) (2,288)
Other, net (709) 1,651 3,301
Cash used for financing activities (77,013) (29,383) (40,836)
Effect of exchange rate
changes on cash (44) (1,118) (757)
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (77,922) 16,668 49,613
Cash and Cash Equivalents,
at beginning of period 98,255 48,632 48,642
Cash and Cash Equivalents,
at end of period $ 20,333 $ 65,300 $ 98,255
<FN>
Bracketed amounts indicate a use of cash.
The six months ended June 30, 1994 has been restated. See notes to
consolidated financial statements.
</FN>
</TABLE>
-7-<PAGE>
ECOLAB INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Financial Statements
The unaudited consolidated statements of income for the second quarter and
the six months ended June 30, 1995 and 1994, reflect, in the opinion of
management, all adjustments necessary for a fair statement of the results
of operations for the interim periods. The results of operations for any
interim period are not necessarily indicative of results for the full year.
All financial data as of June 30 and for the second quarter and six month
periods then ended have been restated for the pooling of interests
treatment of the Company's December 1994 merger with Kay Chemical Company
and affiliates. The consolidated balance sheet data as of December 31,
1994 and the related consolidated statements of income and cash flows data
for the year then ended were derived from audited consolidated financial
statements, but do not include all disclosures required by generally
accepted accounting principles. The unaudited consolidated financial
statements should be read in conjunction with the financial statements and
notes thereto incorporated in the Company's Annual Report on Form 10-K for
the year ended December 31, 1994. Coopers & Lybrand L.L.P., the Company's
independent accountants, have performed a limited review of the interim
financial information included herein. Their report on such review
accompanies this filing.
<TABLE>
Balance Sheet Information
<CAPTION>
June 30 June 30 December 31
(thousands) 1995 1994 1994
(unaudited)
<S> <C> <C> <C>
Accounts Receivable, Net
Accounts receivable $ 187,426 $ 159,539 $ 177,510
Allowance for doubtful accounts (8,765) (8,191) (8,703)
Total $ 178,661 $ 151,348 $ 168,807
Inventories
Finished goods $ 47,323 $ 46,275 $ 42,955
Raw materials and parts 65,045 55,092 60,251
Excess of fifo cost over lifo cost (3,490) (2,619) (3,191)
Total $ 108,878 $ 98,748 $ 100,015
Property, Plant and Equipment, Net
Land $ 6,783 $ 6,566 $ 6,348
Buildings and leaseholds 110,733 106,867 107,259
Machinery and equipment 180,003 167,683 174,203
Merchandising equipment 271,217 234,195 257,766
Construction in progress 7,537 3,302 6,236
576,273 518,613 551,812
Accumulated depreciation
and amortization (312,953) (288,435) (305,621)
Total $ 263,320 $ 230,178 $ 246,191
</TABLE>
-8-<PAGE>
ECOLAB INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
<TABLE>
Balance Sheet Information (Continued)
<CAPTION>
June 30 June 30 December 31
(thousands) 1995 1994 1994
(unaudited)
<S> <C> <C> <C>
Other Assets
Intangible assets, net $ 43,044 $ 39,758 $ 37,549
Investments in securities 5,000 9,007 5,000
Deferred income taxes 26,609 28,507 26,212
Other 23,482 24,626 19,655
Total $ 98,135 $101,898 $ 88,416
Short-Term Debt
Notes payable $ 32,550 $ 17,065 $ 25,302
Long-term debt, current
maturities 16,663 2,237 16,518
Total $ 49,213 $ 19,302 $ 41,820
Shareholders' Equity
Common stock $ 69,902 $ 69,673 $ 69,659
Additional paid-in capital 167,127 161,363 164,858
Retained earnings 285,605 229,103 257,462
Deferred compensation (4,013) (1,739) (4,192)
Cumulative translation 21,865 (1,319) 6,756
Treasury stock (121,918) (33,320) (32,735)
Total $418,568 $423,761 $461,808
</TABLE>
Interest expense related to all debt was $7,770,000 and $8,592,000 for the
six months ended June 30, 1995 and 1994, respectively, and $16,213,000 for
the year ended December 31, 1994.
Other noncurrent liabilities included income taxes payable of $94 million
at June 30, 1995 and December 31, 1994, and $79 million at June 30, 1994.
During June 1995, shareholders' equity decreased due to the purchase of 3.5
million shares of the Company's common stock at $25.00 per share pursuant
to the terms of a "Dutch Auction" self-tender offer.
-9-<PAGE>
ECOLAB INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Kay Merger
In connection with the Company's December 1994 merger with Kay Chemical
Company, $8.0 million of merger costs and expenses ($6.9 million after-tax)
were incurred and charged to expense in the fourth quarter of 1994. Also,
Kay was a Subchapter S Corporation for income tax purposes and,
accordingly, did not pay U.S. federal income taxes. Kay has been included
in the Company's U.S. federal income tax return effective December 7, 1994
and, therefore, a net deferred tax liability and corresponding charge to
income tax expense of $1.3 million was recorded in the fourth quarter of
1994.
The table below includes unaudited pro forma net income and net income per
share amounts which reflect the elimination of the nonrecurring merger
costs and expenses in 1994 and pro forma adjustments to present income
taxes on the basis on which they are being reported subsequent to the
merger.
<TABLE>
<CAPTION>
Second Quarter Six Months Year Ended
Ended June 30 Ended June 30 December 31
(thousands except per share) 1994 1994 1994
<S> <C> <C> <C>
Net income
As reported $ 23,762 $ 40,380 $ 84,562
Merger costs and expenses 6,900
Kay net deferred tax
liability 1,300
Kay Subchapter S status (806) (1,130) (2,298)
Pro forma $ 22,956 $ 39,250 $ 90,464
Net income per common share
As reported $ 0.35 $ 0.60 $ 1.25
Pro forma $ 0.34 $ 0.58 $ 1.34
</TABLE>
-10-<PAGE>
ECOLAB INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Net Income Per Common Share
Net income per common share amounts are computed by dividing net income by
the weighted average number of common shares outstanding. Stock options
did not have a significant dilutive effect.
Geographic Segments
The Company is a global developer of premium cleaning, sanitizing and
maintenance products and services for the hospitality, institutional and
industrial markets. Customers include hotels, restaurants, foodservice,
healthcare and educational facilities, quick-service (fast food)
restaurants, dairy plants and farms, and food and beverage processors
around the world. International consists of Canadian, Asia Pacific, Latin
American and Kay's international operations. In addition, the Company and
Henkel KGaA of Dusseldorf, Germany, each have a 50% economic interest in
the Henkel-Ecolab joint venture which operates institutional and industrial
cleaning and sanitizing businesses in Europe. Information concerning the
Company's equity in earnings of the Henkel-Ecolab joint venture is provided
in a separate note to the consolidated financial statements.
<TABLE>
<CAPTION>
Second Quarter Six Months Year Ended
Ended June 30 Ended June 30 December 31
(thousands) 1995 1994 1995 1994 1994
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Net Sales
United States $255,030 $234,832 $497,256 $451,687 $ 942,070
International 78,384 64,350 145,718 122,408 265,544
Total $333,414 $299,182 $642,974 $574,095 $1,207,614
Operating Income
United States $ 35,937 $ 34,857 $ 65,462 $ 60,792 $ 134,510
International 5,619 2,317 8,314 5,397 14,838
Corporate (1,214) (1,212) (2,363) (2,205) (12,384)
Total $ 40,342 $ 35,962 $ 71,413 $ 63,984 $ 136,964
</TABLE>
-11-<PAGE>
ECOLAB INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Equity in Earnings of Henkel-Ecolab Joint Venture
The Company's equity in earnings of the Henkel-Ecolab joint venture for the
second quarter and six months ended June 30, 1995 and 1994 and for the year
ended December 31, 1994 was:
<TABLE>
<CAPTION>
Second Quarter Six Months Year Ended
Ended June 30 Ended June 30 December 31
(thousands) 1995 1994 1995 1994 1994
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Joint venture
Net sales $238,289 $189,699 $438,771 $364,767 $776,647
Gross profit 133,641 107,933 245,175 205,095 440,993
Income before
income taxes 14,034 14,546 22,617 23,596 48,389
Net income $ 7,696 $ 7,615 $ 11,987 $ 12,014 $ 26,109
Ecolab equity in earnings
Ecolab equity in
net income $ 3,848 $ 3,927 $ 5,994 $ 6,247 $ 13,605
Ecolab royalty
income from joint
venture, net of
income taxes 1,707 1,331 3,117 2,877 5,745
Amortization expense
for the excess of
cost over the
underlying net
assets of the joint
venture (2,380) (2,047) (4,581) (4,033) (8,399)
Equity in earnings of
Henkel-Ecolab
joint venture $ 3,175 $ 3,211 $ 4,530 $ 5,091 $ 10,951
</TABLE>
At June 30, 1995, the Company's investment in the Henkel-Ecolab joint
venture included approximately $200 million for the unamortized excess of
the Company's investment over its equity in the joint venture's net assets.
This excess is being amortized on a straight-line basis over estimated
economic useful lives of up to 30 years.
-12-<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
Ecolab Inc.
We have reviewed the accompanying consolidated balance sheet of Ecolab
Inc. as of June 30, 1995 and 1994, and the related consolidated statements
of income for the three-month and six-month periods ended June 30, 1995 and
1994, and the consolidated statement of cash flows for the six-month
periods ended June 30, 1995 and 1994. These financial statements are the
responsibility of the Company's management.
We conducted our reviews in accordance with standards established by
the American Institute of Certified Public Accountants. A review of
interim financial information consists principally of applying analytical
procedures to financial data and making inquiries of persons responsible
for financial and accounting matters. It is substantially less in scope
than an audit conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion regarding
the financial statements taken as a whole. Accordingly, we do not express
such an opinion.
Based on our reviews, we are not aware of any material modifications
that should be made to the accompanying consolidated financial statements
for them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet as of December 31, 1994,
and the related consolidated statements of income, shareholders' equity and
cash flows for the year then ended (not presented herein); and in our
report dated February 27, 1995, we expressed an unqualified opinion on
those consolidated financial statements. In our opinion, the information
set forth in the accompanying consolidated balance sheet as of December 31,
1994, and the related consolidated statements of income and cash flows for
the year then ended is fairly presented, in all material respects, in
relation to the consolidated balance sheet and statements of income and
cash flows from which it has been derived.
/s/ Coopers & Lybrand L.L.P
COOPERS & LYBRAND L.L.P.
Saint Paul, Minnesota
July 20, 1995
-13-<PAGE>
ECOLAB INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations - Second Quarter And Six Months Ended
June 30, 1995
Net sales for the second quarter ended June 30, 1995 were $333 million, an
increase of 11 percent over net sales of $299 million in the second quarter
of last year. For the first six months of 1995, net sales were $643
million and increased 12 percent over sales of $574 million in the first
six months of last year. Both the Company's United States and
International operations contributed to these sales improvements.
The gross profit margin for the second quarter of 1995 was 55.2 percent of
net sales, compared to a gross profit margin of 56.2 percent of net sales
in the second quarter of last year. For the six month period, the 1995
gross profit margin declined to 55.2 percent of net sales from 56.1 percent
of net sales during the first six months of last year. The decreases in
the gross profit margins for 1995 reflect increased raw material costs. In
addition, selling price increases have been limited during 1995 due to
competitive pressures in several of the markets in which the Company does
business. Recently, raw material costs have stabilized; however,
management continues to focus on competition in the marketplace to minimize
any impact on overall operating results.
For the second quarter of 1995, selling, general and administrative
expenses totaled $144 million, or 43.1 percent of net sales and increased 9
percent over selling, general and administrative expenses of $132 million
or 44.2 percent of net sales in the second quarter of 1994. Selling,
general and administrative expenses totaled $284 million or 44.1 percent of
net sales for the first six months of 1995, an increase of 10 percent over
selling, general and administrative expenses of $258 million or 45.0
percent of net sales in the first six months of last year. The decreases
in the ratios of these expenses to net sales were primarily due to strong
sales during 1995 and to the Company's continued cost control efforts.
Net income for the second quarter of 1995 was $26 million or $0.38 per
share compared to net income of $24 million or $0.35 per share in the
second quarter of last year. Net income was $44 million or $0.65 per share
for the first six months of 1995 and compared to net income of $40 million,
or $0.60 per share in the first six months of last year. These comparisons
of net income were unfavorably affected by the loss of Kay's Subchapter S
income tax status for 1995. Prior to its merger with Ecolab in December
1994, Kay was a Subchapter S corporation for federal income tax purposes
and, therefore, did not pay U.S. income taxes. Effective
-14-<PAGE>
ECOLAB INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
with the merger, Kay has been included in the Company's U.S. federal income
tax return and, therefore, income tax expense no longer reflects the
Subchapter S related tax benefit. On a pro forma basis, after adjustment
to increase income tax expense in the second quarter of 1994 as if Kay was
a tax paying entity, second quarter 1995 net income of $26 million
increased 13 percent over last year's pro forma net income of $23 million.
Second quarter 1995 net income per share of $0.38 increased 12 percent over
pro forma net income per share of $0.34 for the second quarter of last
year. For the first six months, net income of $44 million represented an
increase of 13% over pro forma net income of $39 million in the first six
months of last year and net income per share of $0.65 increased 12 percent
over pro forma net income per share of $0.58. These net income
improvements reflected the benefits of higher sales, cost controls and
reduced net interest expense.
Net sales for the Company's United States operations totaled $255 million
for the second quarter of 1995, a 9 percent increase over United States
sales of $235 million in the second quarter of last year. United States
sales for the first six months of 1995 were $497 million and increased 10
percent over sales of $452 million for the comparable period of last year.
United States sales continued to benefit from increased product volumes,
new product introductions, an increased sales and service force and the
general economic recovery in the hospitality and lodging industries. Sales
of the U.S. Institutional Division increased 6 percent for the second
quarter and 8 percent for the first six months due to good warewashing
product sales and double digit growth in Institutional's Ecotemp
warewashing program and in specialty product sales. The Pest Elimination
Division continued its pattern of double digit sales growth with a 12
percent sales increase over last year for both the second quarter and six-
month periods. The Textile Care Division reported 6 percent sales growth
for both the second quarter and the six months, with growth in the
commercial laundry, healthcare and hospitality markets. Sales of the
Janitorial Division decreased 3 percent for the second quarter and
increased 5 percent for the first six months of 1995. Janitorial products
sold through distributors enjoyed good growth for both the second quarter
and six month periods; however, sales of the division's Signature Label
program compared against a strong second quarter of last year. The
Klenzade Division reported sales growth of 13 percent for the second
quarter and 14 percent for the six months with strong growth in all of its
major markets, principally due to new customers and new product
introductions. Sales of Kay's U.S. operations increased 10 percent for the
second quarter and 11 percent for the first six months due to good growth
in the large fast food chains which Kay serves and to new customers. Sales
of the recently formed Water Care Division were not significant during the
first half of 1995.
-15-<PAGE>
ECOLAB INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Second quarter 1995 operating income for the Company's U.S. operations was
$36 million, an increase of 3 percent over operating income of $35 million
in the second quarter of last year. For the first six months of 1995, U.S.
operating income was $65 million and increased 8 percent over operating
income of $61 million for the comparable period of last year. Operating
income growth of the U.S. Institutional Division was flat for both the
second quarter and six month periods. All of the Company's other U.S.
businesses recorded double digit operating income growth for both the
second quarter and six month periods with the exceptions of the Klenzade
Division with solid single digit growth for the second quarter and the
start-up Water Care operations. The operating income margins for the
Company's United States operations were 14.1 percent for the second quarter
compared to 14.8 percent for the second quarter of last year and 13.2
percent for the first six months of 1995 compared to 13.5 percent for the
same period of last year. Operating income for 1995 reflected strong sales
which were offset by higher raw material costs, competitive pricing
pressures and the annualized effect of last year's investments in the sales
and service force.
Sales of the Company's International Operations totaled $78 million for the
second quarter ended June 30, 1995, an increase of 22 percent over sales of
$64 million for the second quarter of 1994. For the six-month period,
International sales of $146 million increased 19 percent over sales of $122
million for the comparable period of last year. Changes in currency
translation effected certain regions of International's operations;
however, did not have a significant impact on overall International sales
growth. International's Asia Pacific region reported sales growth of 24
percent for the second quarter and 20 percent for the first six months of
1995 with good growth in Japan and double digit growth in East Asia. Sales
in China decreased due to difficult local economic and business conditions.
Sales in the Asia Pacific region also benefited from changes in currency
translation. Sales for the Latin American region increased 25 percent for
the second quarter and 27 percent for the six- month period. The sales
increases included a continuation of significantly improved results in
Brazil due to management changes and an improved economic environment.
Sales in Mexico grew at approximately a 10 percent rate for each period in
local currencies; however, these improvements were more than offset by the
negative effects of the devaluation of the Mexican Peso. Sales in Canada
increased 3 percent for the second quarter of 1995 and were not impacted by
currency rate changes. Canada had 5 percent sales growth for the six-month
period in local currency; however, due to the negative effects of currency
translation, reported sales increased by only 2 percent. Sales of Kay's
international operations increased 31 percent for the second quarter and 19
percent for the six months, as Kay continued to expand its offerings to the
various international locations in which its existing customers operate.
-16-<PAGE>
ECOLAB INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
The Company's International Operations reported operating income for the
second quarter of $6 million, a 143 percent increase over the second
quarter of last year and six-month operating income of $8 million, a 54
percent increase over the comparable period of last year. International
operating income margins improved significantly, reaching 7.2 percent for
the second quarter of 1995 compared to 3.6 percent for the second quarter
of 1994 and 5.7 percent for the first six months versus 4.4 percent in the
prior year. International operating income comparisons for the second
quarter benefited from a $1 million charge which was incurred in the second
quarter of last year due to the government's new economic and monetary plan
in Brazil. For the six months, operating income in 1995 was negatively
affected by a $0.9 million pre-tax charge in the first quarter of 1995
related to the devaluation of the Mexican peso. International's operating
income growth included significantly improved results in Brazil and double
digit growth in the Asia Pacific region and in Kay's international
operations. Operating income in Canada declined for both the second
quarter and six-month periods. International's operating income growth is
expected to moderate during the second half of 1995 due to comparisons
against last year's stronger operating results in Brazil.
The Company reported equity in earnings of the Henkel-Ecolab joint venture
of $3 million for the second quarter, virtually unchanged from last year,
and $5 million for the six-month period, an 11 percent decrease from the
comparable period of last year. These results, which were favorably
affected by currency rate changes, reflected the weak conditions in the
European hospitality industry, particularly in the joint venture's key
market of Germany. Recent management changes have been made at the joint
venture; however, the Company anticipates that its equity in the earnings
of the joint venture will be below last year's levels for the second half
of 1995.
Corporate operating expense was $1 million for the second quarter and $2
million for the first six months of 1995. Corporate operating expense
represented overhead costs directly related to the joint venture.
Net interest expense was $2 million for the second quarter and $5 million
for the first six months of 1995 and declined significantly from the
comparable periods of last year. These decreases were principally due to
interest income earned on higher levels of cash and cash equivalents.
The provision for income taxes for both the second quarter and first six
months of 1995 reflected an estimated effective rate of 40.2 percent and
compared to 37.1 percent for the second quarter and 37.7 percent for the
first six months of last year. These increases reflect the loss of Kay's
Subchapter S status. On a pro forma basis, including an adjustment to
increase income tax expense in 1994 as if Kay were a tax-paying entity, the
estimated annual effective income tax rates were approximately 40 percent
for both periods and were essentially equivalent to the 1995 rate.
-17-<PAGE>
ECOLAB INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Financial Position and Liquidity
During June 1995, Ecolab purchased approximately 3.5 million shares
(approximately 5 percent of the Company's total outstanding shares) of the
Company's common stock. These shares were purchased at a price of $25.00
per share pursuant to the terms of a "Dutch Auction" self-tender offer.
The total purchase price for these shares was approximately $89 million and
was funded by excess cash and by approximately $30 million of borrowings
under the Company's credit agreements. Although the timing of the share
purchase had virtually no impact on net income per share for the second
quarter and six-month periods of 1995, the Company's per share earnings
will benefit slightly during the second half of 1995 due to the lower level
of shares outstanding. In addition, the Company may purchase approximately
2.5 million additional shares from time to time through open and privately
negotiated transactions to complete the remaining portion of a six million
share repurchase program which was authorized by the Company's Board of
Directors in May 1995.
Total debt at June 30, 1995 was $179 million, an increase of $32 million
from total debt of $147 million at year end 1994. The ratio of total debt
to capitalization rose to 30 percent at June 30, 1995 from 24 percent at
year end 1994. The increase in the ratio of total debt to capitalization
was due to the decrease in shareholders' equity which resulted from the
purchase of common stock, as well as from the higher debt levels.
Cash provided by continuing operations was $52 million for the six months
ended June 30, 1995 compared to operating cash flows of $80 million for the
first six months of last year. Cash provided by continuing operations
("Other Liabilities") for the first six months of 1994 included a one-time
benefit from the receipt of an $18 million income tax refund related to
prior years.
In July 1995, the Company obtained commitments for a private placement debt
arrangement with a group of insurance companies. Under the arrangement,
the Company expects to incur $75 million of long-term debt in January 1996
at an interest rate of 7.19 percent and for a term of ten years. Proceeds
from the debt will be used for general corporate purposes.
-18-<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Stockholders was held on May
12, 1995. At the meeting, 90.43 percent of the outstanding
shares of the Company's voting stock was represented in person
or by proxy. The first proposal voted upon was the election
of four Class III Directors for a term ending at the annual
meeting in 1998. The four persons nominated by the Company's
Board of Directors received the following votes and were
elected:
FOR WITHHELD
Pierson M. Grieve 61,088,190 280,357
Philip L. Smith 61,115,938 252,609
Hugo Uyterhoeven 61,130,453 238,094
Albrecht Woeste 61,109,117 259,430
In addition, the terms of office of the following directors
continued after the meeting: Class I Directors for a term
ending at the annual meeting in 1996 - James J. Howard, Jerry
W. Levin, Reuben F. Richards, Richard L. Schall and Roland
Schulz; and Class II Directors for a term ending in 1997 -
Ruth S. Block, Russell G. Cleary, Allan L. Schuman and
Michael E. Shannon.
The second proposal voted upon was the approval of the Ecolab
Inc. 1995 Non-Employee Director Stock Option Plan. The plan
was approved as follows:
FOR AGAINST ABSTAIN
54,577,423 5,938,987 852,137
The third proposal voted upon was the ratification of the
appointment of Coopers & Lybrand L.L.P. as the Company's
independent accountants for the year ending December 31, 1995.
The appointment was ratified as follows:
FOR AGAINST ABSTAIN
61,110,275 180,686 77,586
As to each proposal, there were no broker non-votes.
-19-<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) The following documents are filed as exhibits to this
report:
(15) Letter regarding unaudited interim financial
information.
(27) Financial Data Schedule
(b) Reports on Form 8-K:
During the quarter ended June 30, 1995, the Company
filed three Current Reports on Form 8-K, dated May
12, May 17 and June 15, 1995, reporting,
respectively: (i) announcement of a six million
share repurchase program including a three million
share self-tender offer; (ii) commencement of the
three million share "Dutch Auction" self-tender
offer; and (iii) preliminary results of the "Dutch
Auction" self-tender offer.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
ECOLAB INC.
Date: August 8, 1995 By: /s/ Michael E. Shannon
Michael E. Shannon
Vice Chairman, Chief Financial
and Administrative Officer
(duly authorized officer and
Principal Financial Officer)
-20-<PAGE>
Exhibit (15)
Securities and Exchange Commission
450 Fifth Street N.W.
Washington, DC 10549
RE: Ecolab Inc. Registration Statements on Form S-8
(Registration Nos. 2-60010; 2-74944; 33-1664;
33-41828; 2-90702; 33-18202; 33-55986; 33-56101
33-26241; 33-34000; 33-56151; 33-39228; 33-56125
33-55984; 33-60266; 33-65364; and 33-59431) and
Ecolab Inc. Registration Statement on Form S-3
(Registration No. 33-57197)
We are aware that our report dated July 20,1995, on our reviews of
interim financial information of Ecolab Inc. for the periods ended June
30, 1995 and 1994, and included in the Company's quarterly report on
Form 10-Q for the quarter ended June 30, 1995, is incorporated by
reference in these registration statements. Pursuant to Rule 436(c)
under the Securities Act of 1933, this report should not be considered a
part of the registration statements prepared or certified by us within
the meaning of Sections 7 and 11 of that Act.
/s/Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Saint Paul, Minnesota
August 8,1995<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF JUN-30-1995 AND THE RELATED STATEMENTS OF
INCOME AND CASH FLOWS FOR THE SIX-MONTH PERIOD THEN ENDED AND IS QUALIFIED IN
ITS ENTIRETY TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000031462
<NAME> ECOLAB INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 20,333
<SECURITIES> 0
<RECEIVABLES> 187,426
<ALLOWANCES> 8,765
<INVENTORY> 108,878
<CURRENT-ASSETS> 343,789
<PP&E> 576,273
<DEPRECIATION> 312,953
<TOTAL-ASSETS> 1,015,868
<CURRENT-LIABILITIES> 259,989
<BONDS> 130,150
<COMMON> 69,902
0
0
<OTHER-SE> 348,666
<TOTAL-LIABILITY-AND-EQUITY> 1,015,868
<SALES> 642,974
<TOTAL-REVENUES> 642,974
<CGS> 287,943
<TOTAL-COSTS> 287,943
<OTHER-EXPENSES> 283,618
<LOSS-PROVISION> 0<F1>
<INTEREST-EXPENSE> 7,770
<INCOME-PRETAX> 66,396
<INCOME-TAX> 26,693
<INCOME-CONTINUING> 44,233
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 44,233
<EPS-PRIMARY> 0.65
<EPS-DILUTED> 0
<FN>
<F1>The amount of "LOSS-PROVISION" is not significant and
has been included in "OTHER-EXPENSES."
</FN>
</TABLE>
