<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) February 27, 1995
-----------------
ECOLAB INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware
- --------------------------------------------------------------------------------
(State or other jurisdiction of incorporation)
1-9328 41-0231510
- ------------------------ --------------------
(Commission File Number) (IRS Employer
Identification No.)
Ecolab Center, St. Paul, Minnesota 55102
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 612-293-2233
--------------
(Not applicable)
- --------------------------------------------------------------------------------
(Former name or former address, if changed from last report.)
<PAGE>
Item 5. OTHER EVENTS.
The purposes of this Current Report on Form 8-K are (i) to file
consolidated financial statements of Ecolab Inc. (the "Company") for
the years ended December 31, 1994, 1993 and 1992 as listed under Item
7(a); and (ii) to file a condensed consolidated statement of income
for the one-month period ended January 31, 1995 reflecting post-merger
unaudited consolidated operations of the Company including Kay
Chemical Company, Kay Chemical International, Inc. and Kay Europe,
Inc. (the "Kay Companies").
The Company acquired the outstanding stock of the Kay Companies in a
merger effective December 7, 1994. The merger has been accounted for
as a pooling of interests and, accordingly, periods prior to the
merger included in the financial statements and the financial
statement schedule described in Item 7(a)(1) and Item 7(a)(2) have
been restated to reflect the merger between the Company and the
Kay Companies.
Item 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a)(1) The following financial statements of the Company located at
pages 7 to 25 hereof are filed as a part of this Current
Report.
(i) Consolidated Statement of Income for the year ended
December 31, 1994, 1993 and 1992.
(ii) Consolidated Balance Sheet at December 31, 1994,
1993 and 1992.
(iii) Consolidated Statement of Cash Flows for the year
ended December 31, 1994, 1993 and 1992.
(iv) Consolidated Statement of Shareholders' Equity for
the year ended December 31, 1994, 1993 and 1992.
(v) Notes to Consolidated Financial Statements.
(vi) Report of Independent Accountants, page 26 hereof.
(2) The following financial statement schedule to the Company's
financial statements listed in Item 7(a)(1) for the years
ended December 31, 1994, 1993 and 1992 located on page 27
hereof, and the Report of Independent Accountants on Financial
Statement Schedule at page 6 hereof are filed as a part of
this Current Report.
2
<PAGE>
(i) Schedule VIII - Valuation and Qualifying Accounts
for the years ended December 31, 1994, 1993 and
1992.
All other schedules, for which provision is made in the
applicable regulations of the Securities and Exchange
Commission, are not required under the related
instructions or are inapplicable and therefore have been
omitted. All significant majority-owned subsidiaries are
included in the filed consolidated financial statements.
(3) The following financial statements of the Henkel-Ecolab Joint
Venture, in which the Company has a 50 percent interest and
which the Company includes in its financial statements on the
equity method of accounting, located on pages 31 to 47 hereof,
are filed as part of this Current Report.
(i) Report of Independent Accountants, pages 28 and 29
hereof.
(ii) Combined Statements of Income for the years ended
November 30, 1994, 1993 and 1992.
(iii) Combined Balance Sheets at November 30, 1994, 1993
and 1992.
(iv) Combined Statements of Cash Flows for the years
ended November 30, 1994, 1993 and 1992.
(v) Combined Statements of Equity for the years ended
November 30, 1994, 1993 and 1992.
(vi) Footnotes to the Financial Statements.
(4) The following financial statement schedules to the Henkel-
Ecolab Joint Venture financial statements listed in Item
7(a)(3) for the years ended November 30, 1994, 1993 and 1992,
located on pages 48 to 50 hereof, and the Report of
Independent Accountants on pages 28 and 29 hereof are filed as
part of this Current Report.
(i) Schedule I - Valuation and Qualifying Accounts and
Reserves for the years ended November 30, 1994,
1993 and 1992.
(ii) Schedule II - Property, Plant and Equipment for the
years ended November 30, 1994, 1993 and 1992.
3
<PAGE>
(iii) Schedule III - Accumulated Depreciation and
Amortization of Property, Plant and Equipment for
the years ended November 30, 1994, 1993 and 1992.
Other schedules, for which provision is made in the
applicable regulations of the Securities and Exchange
Commission, are not required under the related
instructions or are inapplicable and therefore have been
omitted. All significant entities of the Henkel-Ecolab
Joint Venture are included in the filed combined financial
statements.
(b) The Financial Discussion (which constitutes "Management's
discussion and analysis of operations and financial position")
located on pages 51 to 64 hereof is filed as a part of this
Current Report.
(c) The following documents are filed as exhibits to this Current
Report.
(23)A. Consent of Coopers and Lybrand L.L.P.
B. Consent of KPMG Deutsche Treuhand-Gesellschaft
Aktiengesellschaft.
(27)A. Restated Financial Data Schedules for the six-month and
nine-month periods ended June 30 and September 30, 1994.
B. Financial Data Schedule for the year ended December 31,
1994.
(99)A. Unaudited condensed consolidated statement of income for
the one-month period ended January 31, 1995 of the
Company, including the Kay Companies, and note thereto.
B. Comparative consolidated summary operating and financial
data of the Company, including the Kay Companies, for
the years ended December 31, 1994, 1993, 1992, 1991 and
1990.
4
<PAGE>
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 hereunto duly authorized.
ECOLAB INC.
By: /s/Kenneth A. Iverson
-------------------------------
Kenneth A. Iverson
Vice President and Secretary
Dated: February 27, 1995
5
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To the Shareholders and Board of Directors
of Ecolab Inc.
Our report on the consolidated financial statements of Ecolab Inc. as of
December 31, 1994, 1993 and 1992, and the related consolidated statements of
income, shareholders' equity and cash flows for the years then ended appears on
page 26 hereof. In connection with our audits of such financial statements, we
have also audited the related financial statement schedule listed in the index
on pages 2 and 3 of this Form 8-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
/s/Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
Saint Paul, Minnesota
February 27, 1995
6
<PAGE>
Ecolab Inc.
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Year ended December 31 (thousands, except per share) 1994 1993 1992
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales $1,207,614 $1,102,396 $1,057,634
Cost of Sales 533,143 491,306 485,206
Selling, General and Administrative Expenses 529,507 481,639 446,814
Merger Costs and Expenses 8,000
---------- ---------- ----------
Operating Income 136,964 129,451 125,614
Interest Expense, Net 12,909 21,384 35,334
---------- ---------- ----------
Income Before Income Taxes and Equity
in Earnings of Joint Venture 124,055 108,067 90,280
Provision for Income Taxes 50,444 33,422 27,392
Equity in Earnings of Henkel-
Ecolab Joint Venture 10,951 8,127 8,600
---------- ---------- ----------
Income Before Extraordinary Loss
and Cumulative Effect of Change
in Accounting 84,562 82,772 71,488
Extraordinary Loss Related to
Retirement of Debt (Net of
Income Tax Benefit of $2,528) (4,018)
Cumulative Effect of Change in
Accounting for Income Taxes 4,733
---------- ---------- ----------
Net Income $ 84,562 $ 83,487 $ 71,488
---------- ---------- ----------
---------- ---------- ----------
Income Per Common Share
Income before extraordinary loss
and cumulative effect of change
in accounting $ 1.25 $ 1.23 $ 1.06
Extraordinary loss related to
retirement of debt (0.06)
Change in accounting for income taxes 0.07
Net income $ 1.25 $ 1.24 $ 1.06
Average Common Shares Outstanding 67,550 67,528 67,204
<FN>
Prior years have been restated. See notes to consolidated financial statements.
</FN>
</TABLE>
7
<PAGE>
Ecolab Inc.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31 (thousands, except per share) 1994 1993 1992
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 98,255 $ 48,642 $ 38,205
Accounts receivable, net 168,807 146,804 142,902
Inventories 100,015 83,401 73,350
Deferred income taxes 22,349 21,841
Other current assets 11,753 10,363 10,055
---------- -------- --------
Current Assets 401,179 311,051 264,512
Property, Plant and Equipment, Net 246,191 219,268 207,183
Investment in Henkel-Ecolab
Joint Venture 284,570 255,804 289,034
Other Assets 88,416 105,607 98,135
---------- -------- --------
Total Assets $1,020,356 $891,730 $858,864
---------- -------- --------
---------- -------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term debt $ 41,820 $ 19,420 $ 20,732
Accounts payable 76,905 71,720 60,166
Compensation and benefits 56,445 44,713 41,611
Income taxes 13,113 8,221 6,282
Other current liabilities 65,382 57,424 63,232
---------- -------- --------
Current Liabilities 253,665 201,498 192,023
Long-Term Debt 105,393 131,861 215,963
Postretirement Health Care and
Pension Benefits 70,882 72,647 63,393
Other Liabilities 128,608 93,917 29,179
Shareholders' Equity (common
stock, par value $1.00 per
share; shares outstanding:
1994 - 67,671; 1993 - 67,570;
1992 - 67,512) 461,808 391,807 358,306
---------- -------- --------
Total Liabilities and
Shareholders' Equity $1,020,356 $891,730 $858,864
---------- -------- --------
---------- -------- --------
<FN>
Prior years have been restated. See notes to consolidated financial statements.
</FN>
</TABLE>
8
<PAGE>
Ecolab Inc.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31 (thousands) 1994 1993 1992
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 84,562 $ 83,487 $ 71,488
Adjustments to reconcile net income
to cash provided by operating activities:
Extraordinary loss related to
retirement of debt 4,018
Cumulative effect of change in
accounting for income taxes (4,733)
Depreciation 56,867 51,256 48,514
Amortization 10,002 9,353 11,929
Deferred income taxes 2,352 (15,210) 286
Equity in earnings of joint venture,
net of royalties received (5,273) (1,741) (2,445)
Other, net 415 (1,673) 2,120
Changes in operating assets and liabilities:
Accounts receivable (18,952) (474) (10,857)
Inventories (14,285) (12,844) 911
Other assets (7,222) 4,240 (8,324)
Accounts payable 1,587 11,810 (340)
Other liabilities 44,293 23,385 16,867
-------- -------- --------
Cash provided by continuing
operations 154,346 150,874 130,149
Cash provided by (used for)
discontinued operations 15,000 24,800 (9,932)
-------- -------- --------
Cash provided by operating activities 169,346 175,674 120,217
-------- -------- --------
INVESTING ACTIVITIES
Capital expenditures (88,457) (68,321) (59,904)
Property disposals 4,836 5,059 929
Sale of investments in securities 5,022 26,521 (3,221)
Discontinued operations 93,673
Other, net 459 (6,784) (1,592)
-------- -------- --------
Cash provided by (used for)
investing activities (78,140) (43,525) 29,885
-------- -------- --------
FINANCING ACTIVITIES
Notes payable 8,512 (1,707) (8,724)
Long-term debt borrowings 12,414
Long-term debt repayments (14,621) (94,227) (164,541)
Reacquired shares (7,889) (9,279) (562)
Dividends on common stock (27,851) (24,037) (21,983)
Kay shareholder distributions (2,288) (4,108) (1,449)
Premium on early retirement
of debt (5,474)
Other, net 3,301 5,034 6,475
-------- -------- --------
Cash used for financing activities (40,836) (121,384) (190,784)
-------- -------- --------
Effect of exchange rate changes
on cash (757) (328) (519)
-------- -------- --------
INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 49,613 10,437 (41,201)
Cash and Cash Equivalents,
beginning of year 48,642 38,205 79,406
-------- -------- --------
Cash and Cash Equivalents,
end of year $ 98,255 $ 48,642 $ 38,205
-------- -------- --------
-------- -------- --------
<FN>
Bracketed amounts indicate a use of cash.
Prior years have been restated. See notes to consolidated financial statements.
</FN>
</TABLE>
9
<PAGE>
Ecolab Inc.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional Deferred
Common Paid-in Retained Compen- Cumulative Treasury
(thousands) Stock Capital Earnings sation Translation Stock Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1991,
as previously reported $31,929 $182,616 $ 91,733 $(3,480) $14,068 $(18,704) $298,162
Pooling of interests with
Kay (before 1993 stock dividend) 2,230 (2,030) 8,786 8,986
------- -------- -------- ------- --------- -------- --------
Balance December 31, 1991,
as restated 34,159 180,586 100,519 (3,480) 14,068 (18,704) 307,148
Net income 71,488 71,488
Cash dividends on common stock (22,507) (22,507)
Kay shareholder distributions (1,449) (1,449)
Stock options 300 7,330 7,630
Stock awards 133 41 (488) 592 278
Kay capital contribution 10 10
Reacquired shares (562) (562)
Amortization 1,613 1,613
Translation (5,343) (5,343)
------- -------- -------- ------- --------- -------- --------
Balance December 31, 1992 34,459 188,059 148,092 (2,355) 8,725 (18,674) 358,306
Net income 83,487 83,487
Cash dividends on common stock (24,987) (24,987)
Kay shareholder distributions (4,108) (4,108)
Stock dividend 34,681 (34,681)
Stock options 222 6,445 6,667
Stock awards 200 570 (1,189) 917 498
Kay capital contribution 10 10
Reacquired shares (9,279) (9,279)
Amortization 1,255 1,255
Translation (20,042) (20,042)
------- -------- -------- ------- --------- -------- --------
Balance December 31, 1993 69,362 160,033 203,054 (2,289) (11,317) (27,036) 391,807
Net income 84,562 84,562
Cash dividends on common stock (29,363) (29,363)
Kay shareholder distributions (2,288) (2,288)
Stock options 297 4,209 4,506
Stock awards 616 1,497 (3,307) 2,190 996
Reacquired shares (7,889) (7,889)
Amortization 1,404 1,404
Translation 18,073 18,073
------- -------- -------- ------- --------- -------- --------
Balance December 31, 1994 $69,659 $164,858 $257,462 $(4,192) $ 6,756 $(32,735) $461,808
------- -------- -------- ------- --------- -------- --------
------- -------- -------- ------- --------- -------- --------
COMMON STOCK ACTIVITY
<CAPTION>
1994 1993 1992
-------------------------- --------------------------- --------------------------
Common Treasury Common Treasury Common Treasury
Year ended December 31 (Shares) Stock Stock Stock Stock Stock Stock
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares, beginning of year:
As previously reported 31,928,644 (704,684)
Shares issued to effect
merger with Kay (before
1993 stock dividend) 2,230,053
---------- ---------- ---------- ---------- ---------- ----------
As restated 69,362,191 (1,792,112) 34,458,969 (702,766) 34,158,697 (704,684)
Stock options 296,910 222,127 300,272
Stock awards 167,226 31,340 17,636
Reacquired shares (363,541) (224,630) (15,718)
Stock dividend 34,681,095 (896,056)
---------- ---------- ---------- ---------- ---------- ----------
Shares, end of year 69,659,101 (1,988,427) 69,362,191 (1,792,112) 34,458,969 (702,766)
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
<FN>
Prior years have been restated. See notes to consolidated financial statements.
</FN>
</TABLE>
10
<PAGE>
1. NATURE OF BUSINESS
- -------------------------------------------------------------------------------
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.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- -------------------------------------------------------------------------------
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the company and
all majority-owned subsidiaries. The company accounts for its investment in the
Henkel-Ecolab joint venture under the equity method of accounting. International
subsidiaries and the Henkel-Ecolab joint venture are included in the financial
statements on the basis of their November 30 fiscal year ends.
FOREIGN CURRENCY TRANSLATION
Financial position and results of operations of the company's international
subsidiaries and the Henkel-Ecolab joint venture generally are measured using
local currencies as the functional currency. Assets and liabilities of these
operations are translated at the exchange rates in effect at each fiscal year
end. Income statement accounts are translated at the average rates of exchange
prevailing during the year. Translation adjustments arising from the use of
differing exchange rates from period to period are included in the cumulative
translation account in shareholders' equity. Translation adjustments for
operations in highly inflationary economies are included in net income and were
not significant.
INVENTORY VALUATIONS
Inventories are valued at the lower of cost or market. Domestic chemical
inventory costs are determined on a last-in, first-out (lifo) basis. Lifo
inventories represented 38 percent, 39 percent and 38 percent of consolidated
inventories at year-end 1994, 1993 and 1992, respectively. All other inventory
costs are determined on a first-in, first-out (fifo) basis.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Merchandising equipment
consists principally of various systems that dispense cleaning and sanitizing
products and low temperature dishwashing machines. The dispensing systems are
accounted for on a mass asset basis, whereby equipment is capitalized and
depreciated as a group and written off when fully depreciated. Depreciation and
amortization are charged to operations using the straight-line method over the
assets' estimated useful lives.
INTANGIBLE ASSETS
Intangible assets arise principally from business acquisitions and are stated at
cost. The assets are amortized on a straight-line basis over their estimated
economic lives, generally not exceeding 30 years. The company periodically
assesses the recoverability of intangible assets based on anticipated future
earnings and operating cash flows.
INCOME PER COMMON SHARE
Income per common share amounts are computed by dividing income by the weighted
average number of common shares outstanding. Stock options did not have a
significant dilutive effect.
11
<PAGE>
3. BALANCE SHEET INFORMATION
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31 (thousands) 1994 1993 1992
- -------------------------------------------------------------------------
<S> <C> <C> <C>
ACCOUNTS RECEIVABLE, NET
Accounts receivable $177,510 $154,798 $150,488
Allowance for doubtful
accounts (8,703) (7,994) (7,586)
-------- -------- --------
Total $168,807 $146,804 $142,902
-------- -------- --------
-------- -------- --------
INVENTORIES
Finished goods $ 42,955 $ 36,391 $ 36,532
Raw materials and parts 60,251 49,653 40,150
Excess of fifo cost over
lifo cost (3,191) (2,643) (3,332)
-------- -------- --------
Total $100,015 $ 83,401 $ 73,350
-------- -------- --------
-------- -------- --------
PROPERTY, PLANT AND EQUIPMENT, NET
Land $ 6,348 $ 6,925 $ 5,583
Buildings and leaseholds 107,259 102,897 100,707
Machinery and equipment 174,203 161,474 155,293
Merchandising equipment 257,766 217,305 196,761
Construction in progress 6,236 6,167 3,942
-------- -------- --------
551,812 494,768 462,286
-------- -------- --------
-------- -------- --------
Accumulated depreciation
and amortization (305,621) (275,500) (255,103)
-------- -------- --------
Total $246,191 $219,268 $207,183
-------- -------- --------
-------- -------- --------
OTHER ASSETS
Intangible assets, net $ 37,549 $ 40,919 $ 30,522
Investments in securities 5,000 9,007 36,609
Deferred income taxes 26,212 28,482
Other 19,655 27,199 31,004
-------- -------- --------
Total $ 88,416 $105,607 $ 98,135
-------- -------- --------
-------- -------- --------
SHORT-TERM DEBT
Notes payable $ 25,302 $ 16,089 $ 17,320
Long-term debt, current
maturities 16,518 3,331 3,412
-------- -------- --------
Total $ 41,820 $ 19,420 $ 20,732
-------- -------- --------
-------- -------- --------
LONG-TERM DEBT
9.68% senior notes,
due 1995-2001 $100,000 $100,000 $100,000
10.375% debentures,
retired in 1993 75,000
Multicurrency Credit
Agreement, due 1998 10,000
Facilities Agreement,
retired in 1993 18,378
Other 21,911 25,192 25,997
-------- -------- --------
121,911 135,192 219,375
Long-term debt,
current maturities (16,518) (3,331) (3,412)
-------- -------- --------
Total $105,393 $131,861 $215,963
-------- -------- --------
-------- -------- --------
</TABLE>
The $100 million of 9.68 percent senior notes were issued by the company to a
group of insurance companies. The notes include covenants regarding
consolidated shareholders' equity and amounts of certain long-term debt.
In June 1993, the company provided notice to call the remaining $75 million of
its 10.375 percent debentures originally scheduled for maturity in 1998 - 2017.
The redemption of these debentures was completed on July 15, 1993. The company
used proceeds from the sale of a discontinued business and cash flows from
operations to fund the debt retirement. An extraordinary loss of $4.0 million
(net of $2.5 million income tax benefit), or $0.06 per share, which consisted
primarily of redemption premiums paid to debenture holders and the write-off of
deferred financing costs associated with the debt, was recognized in the second
quarter of 1993.
The company has a $150 million Multicurrency Credit Agreement ("the
Agreement") with a consortium of banks. The company may borrow varying amounts
from time-to-time on a revolving credit basis, with loans denominated in U.S.
dollars, Deutsche marks, or certain other currencies, if available. The company
has the option of various interest rates based on short-term borrowing rates.
Amounts outstanding at December 31, 1993 were denominated in U.S. dollars and
had an annual rate of interest of 3.4 percent. The Agreement terminates in
September 1998 and includes covenants regarding interest coverage and the ratio
of total debt to capitalization.
Amounts outstanding under the Facilities Agreement at December 31, 1992 were
denominated in Deutsche marks and had an average annual interest rate of 8.9
percent.
As of December 31, the weighted average interest rate on notes payable was
5.3% for 1994, 4.6% for 1993 and 8.2% for 1992.
As of December 31, 1994, the aggregate annual maturities of long-term debt for
the next five years were: 1995 - $16,518,000; 1996 - $16,280,000; 1997 -
$15,086,000; 1998 - $15,096,000; and 1999 - $15,110,000.
Interest expense was $16,213,000 in 1994, $25,977,000 in 1993 and $40,587,000
in 1992. Total interest paid was $16,402,000 in 1994, $29,691,000 in 1993 and
$44,967,000 in 1992.
Other noncurrent liabilities included income taxes payable of $94 million at
December 31, 1994 and $61 million at December 31, 1993. Income taxes payable
reflected a reduction in U.S. federal income tax payments during 1994, 1993 and
1992 as a result of tax losses on the disposition of a discontinued business.
12
<PAGE>
4. FINANCIAL INSTRUMENTS
- -------------------------------------------------------------------------------
FOREIGN CURRENCY INSTRUMENTS
The company uses hedging and derivative financial instruments to limit financial
risk related to foreign currency exchange rates, interest rates and other market
risks. The company does not hold hedging or derivative financial instruments of
a speculative nature for trading purposes.
The company enters into foreign currency forward exchange and option contracts
to hedge specific foreign currency exposures, principally related to
intercompany debt and joint venture royalty transactions. These contracts
generally expire within one year. Gains and losses on these contracts are
deferred and recognized as part of the specific transactions hedged. The cash
flows from these contracts are classified in the same category as the
transaction hedged in the Consolidated Statement of Cash Flows.
The company had foreign currency forward exchange contracts with a face amount
denominated primarily in Deutsche marks and totaling approximately $110 million
at December 31, 1994, $115 million at December 31, 1993 and $100 million at
December 31, 1992. The unrealized gains on these contracts were not
significant.
FAIR VALUE OF OTHER FINANCIAL INSTRUMENTS
The carrying amount and the estimated fair value of other financial instruments
held by the company as of December 31, 1994 were:
<TABLE>
<CAPTION>
Carrying Fair
(thousands) Amount Value
-------- ---------
<S> <C> <C>
Cash and cash equivalents $ 98,255 $ 98,255
Long-term investments in securities 5,000 5,000
Short-term debt 41,820 41,820
Long-term debt $105,393 $109,792
</TABLE>
Cash equivalents are highly liquid investments with a maturity of three months
or less when purchased. The carrying amounts of cash equivalents and short-term
debt approximate fair value because of their short maturity.
Long-term investments in securities are carried at cost. The carrying amount
of these securities approximates fair value based on quoted market prices.
These securities mature in periods of less than ten years.
The fair value of long-term debt is based on quoted market prices for the same
or similar issues.
13
<PAGE>
5. KAY MERGER
- -------------------------------------------------------------------------------
On December 7, 1994, the company issued approximately 4.5 million shares of its
common stock in exchange for all of the outstanding common stock of Kay Chemical
Company and affiliates (Kay). The merger has been accounted for as a pooling of
interests and, accordingly, the company's consolidated financial statements have
been restated to include the accounts and operations of Kay for all periods
prior to the merger.
Kay was a Subchapter S Corporation for income tax purposes and, therefore, did
not pay U.S. federal income taxes. Kay will be 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 or $0.02 per share was recorded upon closing to reflect Kay's net
taxable temporary differences.
Separate net sales, net income and related per share amounts of the merged
entities are presented in the following table. In addition, the table 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 at which they will be
reported in future periods.
<TABLE>
<CAPTION>
(thousands, except per share) 1994 1993 1992
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales
Ecolab $1,141,005 $1,041,518 $1,004,833
Kay 66,609 60,878 52,801
---------- ---------- ----------
Total $1,207,614 $1,102,396 $1,057,634
---------- ---------- ----------
---------- ---------- ----------
Net income
Ecolab $ 86,555 $ 76,638 $ 64,270
Kay 6,207 6,849 7,218
Kay Subchapter S
status (2,298) (2,667) (2,797)
---------- ---------- ----------
Pro forma net
income $ 90,464 $ 80,820 $ 68,691
Merger costs and
expenses (6,900)
Kay net deferred tax
liability (1,300)
Kay Subchapter S
status 2,298 2,667 2,797
---------- ---------- ----------
Net income, as
reported $ 84,562 $ 83,487 $ 71,488
---------- ---------- ----------
---------- ---------- ----------
Net income per share
As reported $ 1.25 $ 1.24 $ 1.06
Pro forma $ 1.34 $ 1.20 $ 1.02
</TABLE>
MERGER COSTS AND EXPENSES
In connection with the merger, $8.0 million of merger costs and expenses ($6.9
million after-tax, or $0.10 per share) were incurred and have been charged to
expense in the fourth quarter of 1994. The merger costs and expenses consisted
of merger related bonus payments made to Kay non-shareholder employees and
legal, accounting and investment banking fees.
14
<PAGE>
6. HENKEL-ECOLAB JOINT VENTURE
- -------------------------------------------------------------------------------
The company and Henkel KGaA, Dusseldorf, Germany, each own 50 percent of Henkel-
Ecolab, a joint venture of their respective European institutional and
industrial cleaning and sanitizing businesses. The joint venture's operations
and the company's equity in earnings of the joint venture included:
<TABLE>
<CAPTION>
(thousands) 1994 1993 1992
- ----------------------------------------------------------------
<S> <C> <C> <C>
Joint venture
Net sales $776,647 $758,471 $821,380
Gross profit 440,993 415,862 456,783
Income before income
taxes 48,389 40,337 38,781
Income before change
in accounting for
income taxes $ 26,109 $ 18,434 $ 20,411
Ecolab equity in earnings
Ecolab equity in income $ 13,605 $ 9,856 $ 11,130
Ecolab royalty income
from joint venture,
net of income taxes 5,745 6,653 6,131
Amortization expense
for the excess of
cost over the
underlying net assets
of the joint venture (8,399) (8,382) (8,661)
Equity in earnings of -------- -------- ---------
Henkel-Ecolab joint
venture $ 10,951 $ 8,127 $ 8,600
-------- -------- ---------
-------- -------- ---------
</TABLE>
The company's investment in the Henkel-Ecolab joint venture includes the
unamortized excess of the company's investment over its equity in the joint
venture's net assets. This excess was $187 million at December 31, 1994 and is
being amortized on a straight-line basis over estimated economic useful lives of
up to 30 years.
Condensed balance sheet information for the Henkel-Ecolab joint venture was:
<TABLE>
<CAPTION>
December 31 (thousands) 1994 1993 1992
- ----------------------------------------------------------------
<S> <C> <C> <C>
Current assets $360,648 $310,945 $316,447
Noncurrent assets 127,244 106,812 92,555
Current liabilities 233,876 215,085 216,652
Noncurrent liabilities $ 59,710 $ 46,937 $ 42,825
</TABLE>
15
<PAGE>
7. INCOME TAXES
- -------------------------------------------------------------------------------
Effective January 1, 1993, the company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" (FAS 109). This statement
requires a change from the deferred method to the asset and liability method of
accounting for income taxes. Under the asset and liability method, deferred tax
assets and liabilities are recognized for the expected future tax consequences
of temporary differences between financial reporting amounts and the tax bases
of existing assets and liabilities. Deferred tax assets and liabilities are
recorded based on enacted tax laws and tax rates. Changes in enacted tax rates
are reflected in the income tax provision as they occur.
The cumulative effect of this change in accounting principle increased net
income for 1993 by $4.7 million, or $0.07 per share, including the impact of
adoption of FAS 109 by the Henkel-Ecolab joint venture. Prior years' financial
statements were not restated.
Income before income taxes and equity in earnings of joint venture consisted
of:
<TABLE>
<CAPTION>
(thousands) 1994 1993 1992
- --------------------------------------------------------
<S> <C> <C> <C>
Domestic $108,656 $100,420 $ 86,903
Foreign 15,399 7,647 3,377
-------- -------- --------
Total $124,055 $108,067 $ 90,280
-------- -------- --------
-------- -------- --------
</TABLE>
The provision for income taxes consisted of:
<TABLE>
<CAPTION>
(thousands) 1994 1993 1992
- ---------------------------------------------------------
<S> <C> <C> <C>
Federal, state and Puerto
Rico $44,619 $47,106 $27,191
Foreign 3,473 1,526 (85)
------- ------- -------
Currently payable 48,092 48,632 27,106
------- ------- -------
------- ------- -------
Federal, state and
Puerto Rico 300 (10,674) 587
Foreign 2,052 (4,536) (301)
------- ------- -------
Deferred 2,352 (15,210) 286
------- ------- -------
Provision for income
taxes $50,444 $33,422 $27,392
------- ------- -------
------- ------- -------
</TABLE>
The company's overall net deferred tax assets (current and noncurrent) were
comprised of the following:
<TABLE>
<CAPTION>
December 31 January 1
---------------------
(thousands) 1994 1993 1993
------- -------- --------
<S> <C> <C> <C>
Deferred tax assets
Postretirement health care
and pension benefits $28,084 $23,752 $24,279
Other accrued liabilities 26,616 24,123 18,705
Loss carryforwards 5,109 6,093 11,135
Other, net 9,405 15,917 6,867
Valuation allowance (1,462) (1,462) (6,758)
------- -------- --------
Total 67,752 68,423 54,228
------- -------- --------
Deferred tax liabilities
Property, plant and equipment
bases differences 17,579 16,503 15,837
Other, net 1,612 1,597 3,278
------- -------- --------
Total 19,191 18,100 19,115
------- -------- --------
Net deferred tax assets $48,561 $50,323 $ 35,113
------- -------- --------
------- -------- --------
</TABLE>
During the first quarter of 1993, the valuation allowance for deferred tax
assets was reduced by $3.3 million. This change in the valuation allowance
related to Canadian loss carryforwards which the company anticipates will be
realized as a result of the sale of the G.H. Wood janitorial distribution
business.
A reconciliation of the statutory U.S. federal income tax rate to the
company's effective income tax rate was:
<TABLE>
<CAPTION>
1994 1993 1992
- ------------------------------------------------------
<S> <C> <C> <C>
Statutory U.S. rate 35.0% 35.0% 34.0%
State income taxes, net
of federal benefit 3.8 3.3 2.9
Puerto Rico operations (1.3) (2.2) (4.7)
Foreign .4 (.5) (1.7)
Loss carryforwards (3.1)
Kay Subchapter S status (.1) (2.2) (2.8)
Kay deferred tax liability 1.0
Other 1.9 .6 2.6
Effective income tax ----- ----- -----
rate 40.7% 30.9% 30.3%
----- ----- -----
----- ----- -----
</TABLE>
Cash paid for income taxes was $34,686,000 in 1994, $18,118,000 in 1993 and
$14,685,000 in 1992. As a result of tax losses on the disposition of a
discontinued business, the company's U.S. federal income tax payments were
reduced by $15 million in 1994, $25 million in 1993 and $15 million in 1992.
However, pending final acceptance of the company's treatment of the losses, no
income tax benefit has been recognized for financial reporting purposes.
As of December 31, 1994, undistributed earnings of international subsidiaries
and the joint venture of $46 million were considered to have been reinvested
indefinitely and, accordingly, the company has not provided U.S. income taxes on
such earnings. If those earnings were remitted to the company, applicable
income taxes would be offset substantially by available foreign tax credits.
16
<PAGE>
8. RETIREMENT PLANS
- -------------------------------------------------------------------------------
PENSION PLANS
The company has a noncontributory defined benefit pension plan covering
substantially all of its U.S. employees. Plan benefits are based on years of
service and highest average compensation for five consecutive years of
employment. Various international subsidiaries also have defined benefit
pension plans. Pension expense included the following components:
<TABLE>
<CAPTION>
December 31 (thousands) 1994 1993 1992
- ------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - employee benefits
earned during the year $10,627 $ 8,040 $ 6,556
Interest cost on projected
benefit obligation 13,348 11,401 9,233
Actual return on plan
assets 1,952 (9,134) (3,499)
Net amortization and
deferral (11,260) (69) (5,416)
------- ------- -------
U.S. pension expense 14,667 10,238 6,874
International pension
expense 1,005 820 723
------- ------- -------
Total pension expense $15,672 $11,058 $ 7,597
------- ------- -------
------- ------- -------
</TABLE>
The funded status of the U.S. pension plan was:
<TABLE>
<CAPTION>
December 31 (thousands) 1994 1993 1992
- ------------------------------------------------------------
<S> <C> <C> <C>
Actuarial present value of:
Vested benefit
obligation $121,251 $118,829 $ 84,585
Non-vested benefit
obligation 9,755 10,066 6,581
-------- -------- --------
Accumulated benefit
obligation 131,006 128,895 91,166
Effect of projected future
salary increases 46,801 51,174 35,514
-------- -------- --------
Projected benefit
obligation 177,807 180,069 126,680
Plan assets at fair
value 130,262 122,440 99,920
-------- -------- --------
Plan assets less than
the projected benefit
obligation (47,545) (57,629) (26,760)
Unrecognized prior service
cost 24,135 26,040 4,500
Unrecognized net loss 39,238 49,145 33,864
Unrecognized net
transition asset (14,732) (16,134) (17,538)
Adjustment required to
recognize minimum
liability (1,840) (7,877)
-------- -------- --------
Unfunded accrued pension
expense $ (744) $ (6,455) $ (5,934)
-------- -------- --------
-------- -------- --------
</TABLE>
The company's policy is to fund pension costs currently to the extent
deductible for income tax purposes. U.S. pension plan assets consist primarily
of equity and fixed income securities. International pension benefit
obligations and plan assets were not significant.
Effective July 1, 1993, the company adopted certain amendments to its U.S.
pension plan to improve the benefit formula and enhance the value of pension
benefits. Concurrent with these amendments, the company lowered the discount
rate used for determining the pension benefit obligations and future service and
interest cost for the plan from 8.25 percent to 8.0 percent. These changes
resulted in an increase of $2.9 million in pension expense for 1993 and an
increase of approximately $29 million in the projected benefit obligation. The
discount rate was lowered further at year-end 1993 to 7.5 percent. This
reduction in discount rate resulted in an increase in the projected benefit
obligation as of December 31, 1993 of approximately $14 million and an increase
of $2.1 million in pension expense for 1994.
U.S. pension plan assumptions, in addition to projections for employee
turnover and retirement ages, were:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Discount rate for
service and interest
cost at beginning
of year 7.50% 8.25% 8.25%
Projected salary
increases, weighted
average 5.6 5.6 5.6
Expected return on
assets 9.0 9.0 9.0
Discount rate for
year-end benefit
obligations 8.25% 7.50% 8.25%
</TABLE>
The discount rate used for determining the year-end pension benefit
obligations and future service and interest cost was increased from 7.5 percent
at year-end 1993 to 8.25 percent at year-end 1994. The effect of this change
was to decrease the projected benefit obligation as of December 31, 1994 by
approximately $22 million.
17
<PAGE>
8. RETIREMENT PLANS (continued)
- -------------------------------------------------------------------------------
The adjustments required to recognize a minimum liability as of December 31,
1994 and 1993 have been included in the company's noncurrent liability for
postretirement health care and pension benefits with an equal amount included in
the Consolidated Balance Sheet as an intangible asset. These adjustments
resulted principally from the plan amendments adopted in July 1993 and discount
rate changes during 1993 and 1994.
POSTRETIREMENT HEALTH CARE BENEFITS
The company provides postretirement health care benefits to substantially all
U.S. employees. The plan is contributory based on years of service and family
status, with retiree contributions adjusted annually.
Employees outside the U.S. are generally covered under government sponsored
programs and the cost for providing benefits under company plans was not
significant.
Postretirement health care benefit expense was:
<TABLE>
<CAPTION>
(thousands) 1994 1993 1992
- -----------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits
attributed to service
during the period $2,672 $2,978 $3,417
Interest cost on accumulated
postretirement benefit
obligation 3,740 4,142 4,213
Actual return on plan
assets (66) (169) (220)
Net amortization and
deferral (719) (458) (187)
------ ------ ------
Total expense $5,627 $6,493 $7,223
------ ------ ------
------ ------ ------
</TABLE>
Effective July 1, 1993, the company adopted certain amendments to its U.S.
plan. These amendments modified the company's subsidy provided for each year of
service and limit health care costs which are eligible for subsidy by the
company to a 4 percent annual increase beginning in 1996. Also, effective July
1, 1993, the company lowered the discount rate used for determining the
accumulated benefit obligation and future service and interest cost for the plan
to 8.0 percent from 8.25 percent at year-end 1992 and 1991. These changes
reduced postretirement health care expense for 1993 by approximately $1.3
million and decreased the accumulated benefit obligation by approximately $9
million. The discount rate was lowered further at year-end 1993 to 7.5 percent.
This reduction in discount rate resulted in an increase in the accumulated
benefit obligation of approximately $3 million as of December 31, 1993 and an
increase of $0.3 million in postretirement health care expense for 1994.
The funded status of the postretirement health care plan was:
<TABLE>
<CAPTION>
December 31 (thousands) 1994 1993 1992
- -------------------------------------------------------------------
<S> <C> <C> <C>
Actuarial present value of
accumulated postretirement
benefit obligation for:
Retirees $ 16,453 $ 16,999 $ 14,916
Fully eligible active
participants 4,044 2,995 2,160
Other active participants 29,389 32,769 40,408
-------- -------- -------
Total 49,886 52,763 57,484
Plan assets at fair value 6,298 4,740 6,388
-------- -------- -------
Plan assets less than
accumulated postretirement
benefit obligation (43,588) (48,023) (51,096)
Unrecognized gain for
prior service (10,750) (11,301)
Unrecognized net loss
(gain) (5,544) 1,535 (513)
-------- -------- -------
Unfunded accrued
postretirement health
care benefits $(59,882) $(57,789) $(51,609)
-------- -------- -------
-------- -------- -------
</TABLE>
The discount rate used for determining the year-end accumulated postretirement
benefit obligation and future service and interest cost was increased from 7.5
percent at year-end 1993 to 8.25 percent at year-end 1994. The effect of this
change was to decrease the accumulated benefit obligation by approximately $6
million at December 31, 1994.
For measurement purposes, 12.5 percent (for pre-age 65 retirees) and 9.7
percent (for post-age 65 retirees) annual rates of increase in the per capita
cost of covered health care were assumed for 1995. The rates were assumed to
decrease gradually to 6.5 percent and 5.5 percent, respectively, at 2001 and
remain at that level thereafter. Health care costs which are eligible for
subsidy by the company are limited to a 4 percent annual increase beginning in
1996 for most employees. The health care cost trend rate assumption has a
significant effect on the amounts reported. To illustrate, increasing the
assumed health care cost trend rate by 1 percentage point in each year would
increase the accumulated postretirement benefit obligation as of year-end 1994
by approximately $4 million and 1994 expense by approximately $0.5 million.
18
<PAGE>
8. RETIREMENT PLANS (continued)
- -------------------------------------------------------------------------------
The after-tax expected long-term rate of return on plan assets was 6.0 percent
in 1994, 1993 and 1992. Plan assets consist primarily of short-term
investments.
SAVINGS PLAN
The company provides a 401(k) savings plan for substantially all U.S. employees.
Employee contributions of up to 6 percent of eligible compensation are matched
50 percent by the company. The company's contribution is invested in Ecolab
common stock and amounted to $5,156,000 in 1994, $4,376,000 in 1993 and
$3,899,000 in 1992.
19
<PAGE>
9. STOCK INCENTIVE AND OPTION PLANS
- -------------------------------------------------------------------------------
The company's Stock Incentive and Option Plans provide for grants of stock
options and stock awards. Common shares available for grant as of December 31
were 2,042,606 for 1994, 3,008,706 for 1993 and 407,206 for 1992. Common shares
available for grant reflect 3.4 million shares approved during 1993 for issuance
under the plans.
Options may be granted to purchase shares of the company's stock at not less
than fair market value at the date of grant. Options become exercisable over
periods of up to six years from date of grant and expire within ten years and
three months from date of grant. Stock option transactions were:
<TABLE>
<CAPTION>
Shares 1994 1993 1992
- --------------------------------------------------------
<S> <C> <C> <C>
Granted 806,550 769,200 740,700
Exercised (296,910) (444,254) (600,544)
Canceled (26,900) (75,100) (161,020)
--------- --------- ---------
December 31:
Outstanding 4,219,284 3,736,544 3,486,698
--------- --------- ---------
--------- --------- ---------
Exercisable 2,321,164 1,966,744 1,825,698
</TABLE>
<TABLE>
<CAPTION>
Average price per share 1994 1993 1992
- ---------------------------------------------------------
<S> <C> <C> <C>
Granted $21.93 $21.42 $13.90
Exercised 10.60 11.31 10.75
Canceled 16.84 15.52 13.52
December 31:
Outstanding $16.49 $14.85 $12.95
Exercisable $13.99 $12.78 $12.00
</TABLE>
Stock awards are subject to restrictions including forfeiture in the event of
termination of employment. Restrictions generally lapse over four to six years.
The value of a stock award at date of grant is charged to income over the
periods during which the restrictions lapse.
20
<PAGE>
10. SHAREHOLDERS' EQUITY
- -------------------------------------------------------------------------------
The company's common stock was split two for one in the form of a 100 percent
stock dividend paid January 18, 1994 to shareholders of record on December 28,
1993. All per share and number of share data have been retroactively restated
to reflect the stock split, except for the Consolidated Statement of
Shareholders' Equity.
Authorized common stock, par value $1.00 per share, was 100 million shares in
1994, 1993 and 1992. Treasury stock is stated at cost. Dividends per share of
common stock were $0.455 for 1994, $0.395 for 1993 and $0.3575 for 1992.
The company has 15 million shares, without par value, of authorized but
unissued preferred stock.
Each share of outstanding common stock entitles the holder to one-quarter of
one preferred stock purchase right. A right entitles the holder, upon
occurrence of certain events, to buy one one-hundredth of a share of Series A
Junior Participating Preferred Stock at a purchase price of $150, subject to
adjustment. The rights will become exercisable, and a Distribution Date will
occur, 15 days after a person or group acquires, or commences a tender offer
for, 20 percent or more of the company's outstanding common stock. The company
may redeem the rights at five cents per right at any time until 15 days after a
20 percent or greater interest has been acquired. If any person or group
acquires 20 percent or more of the company's common stock, each right not owned
by a 20 percent stockholder will, after the company's right of redemption has
expired (the "Stock Acquisition Date"), become exercisable for common stock of
the company having a market value of twice the exercise price of a right. If,
after the Stock Acquisition Date, the company is acquired in a merger or other
business combination, each right will become exercisable for common stock of
the acquiring company having a market value of twice the exercise price of a
right. The rights have been amended to provide that the acquisition by Henkel
KGaA or its affiliates of 20 percent or more of the company's common stock does
not constitute, subject to certain conditions, a Distribution Date or a Stock
Acquisition Date. Unless redeemed earlier, the rights will expire on March 11,
1996.
The company maintains a systematic share repurchase program which is intended
to offset the dilutive effect of shares issued for employee benefit plans. The
company reacquired approximately 364,000 shares in 1994, 449,000 shares in 1993
and 31,000 shares in 1992 of its common stock through open and private market
purchases. The company anticipates that it will continue to periodically
reacquire shares under its systematic share repurchase program.
21
<PAGE>
11. RENTALS AND LEASES
- -------------------------------------------------------------------------------
The company leases sales office and distribution center facilities, automobiles
and computer and other equipment under operating leases. Rental expense under
all operating leases was $29,129,000 in 1994, $29,325,000 in 1993 and
$29,253,000 in 1992. As of December 31, 1994, future minimum payments under
operating leases with noncancelable terms in excess of one year were:
<TABLE>
<CAPTION>
(thousands)
- --------------------------------------
<S> <C>
1995 $10,248
1996 5,743
1997 2,936
1998 923
1999 372
Thereafter 806
-------
Total $21,028
-------
-------
</TABLE>
12. RESEARCH EXPENDITURES
- -------------------------------------------------------------------------------
Research expenditures which related to the development of new products and
processes, including significant improvements and refinements to existing
products, were $27,615,000 in 1994, $24,782,000 in 1993 and $21,080,000 in 1992.
22
<PAGE>
13. ENVIRONMENTAL COMPLIANCE COSTS
- -------------------------------------------------------------------------------
The company and certain subsidiaries are party to various environmental actions
which have arisen in the ordinary course of business. These include possible
obligations to investigate and mitigate the effects on the environment of the
disposal or release of certain chemical substances at various sites, such as
Superfund sites and other operating or closed facilities. The effect of these
actions on the company's financial position and results of operations to date
has not been significant. The company is currently participating in
environmental assessments and remediation at a number of locations and
environmental liabilities have been accrued reflecting management's best
estimate of future costs. Potential insurance reimbursements are not
anticipated. While the final resolution of these contingencies could result in
expenses in excess of current accruals and therefore have an impact on the
company's consolidated financial results in a future reporting period,
management believes the ultimate outcome will not have a significant effect on
the company's results of operations, consolidated financial position or
liquidity.
23
<PAGE>
14. GEOGRAPHIC SEGMENTS
- -------------------------------------------------------------------------------
Summary information regarding the company's operations in United States and
International markets is presented below. International consists of Canadian,
Asia Pacific, Latin American and Kay's international operations.
<TABLE>
<CAPTION>
(thousands) 1994 1993 1992
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales
United States $ 942,070 $ 867,415 $ 816,405
International 265,544 234,981 241,229
---------- ---------- ----------
Total $1,207,614 $1,102,396 $1,057,634
---------- ---------- ----------
---------- ---------- ----------
Operating Income
United States $ 134,510 $ 124,281 $ 123,289
International 14,838 9,420 8,851
Corporate (12,384) (4,250) (6,526)
---------- ---------- ----------
Total $ 136,964 $ 129,451 $ 125,614
---------- ---------- ----------
---------- ---------- ----------
Depreciation and Amortization
United States $ 55,035 $ 49,927 $ 49,724
International 11,834 10,682 10,719
---------- ---------- ----------
Total $ 66,869 $ 60,609 $ 60,443
---------- ---------- ----------
---------- ---------- ----------
Capital Expenditures
United States $ 71,049 $ 52,144 $ 48,385
International 17,408 16,177 11,519
---------- ---------- ----------
Total $ 88,457 $ 68,321 $ 59,904
---------- ---------- ----------
---------- ---------- ----------
Identifiable Assets
United States $ 453,121 $ 396,268 $ 341,156
International 158,064 133,474 121,348
Joint Venture 284,570 255,804 289,034
Corporate 124,601 106,184 107,326
---------- ---------- ----------
Total $1,020,356 $ 891,730 $ 858,864
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Corporate operating income included $8 million of merger costs and expenses in
1994.
In accordance with company policy, operating expenses incurred at the
corporate level totaling $21,702,000 in 1994, $18,037,000 in 1993 and
$14,277,000 in 1992 have been allocated to the geographic segments in
determining operating income.
24
<PAGE>
15. QUARTERLY FINANCIAL DATA (UNAUDITED)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
First Second Third Fourth
(thousands, except per share) Quarter Quarter Quarter Quarter Year
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1994
Net sales
United States $216,855 $234,832 $250,138 $240,245 $ 942,070
International 58,058 64,350 70,270 72,866 265,544
-------- -------- -------- -------- ----------
Total 274,913 299,182 320,408 313,111 1,207,614
Cost of sales 121,053 130,961 140,939 140,190 533,143
Selling, general and administrative expenses 125,838 132,259 133,785 137,625 529,507
Merger costs and expenses 8,000 8,000
-------- -------- -------- -------- ----------
Operating income
United States 25,935 34,857 41,616 32,102 134,510
International 3,080 2,317 4,959 4,482 14,838
Corporate (993) (1,212) (891) (9,288) (12,384)
-------- -------- -------- -------- ----------
Total 28,022 35,962 45,684 27,296 136,964
Interest expense, net 4,039 3,303 3,206 2,361 12,909
-------- -------- -------- -------- ----------
Income before income taxes and equity in
earnings of joint venture 23,983 32,659 42,478 24,935 124,055
Provision for income taxes 9,245 12,108 16,447 12,644 50,444
Equity in earnings of joint venture 1,880 3,211 2,456 3,404 10,951
-------- -------- -------- -------- ----------
Net income $ 16,618 $ 23,762 $ 28,487 $ 15,695 $ 84,562
-------- -------- -------- -------- ----------
-------- -------- -------- -------- ----------
Net income per common share $ 0.25 $ 0.35 $ 0.42 $ 0.23 $ 1.25
Average common share outstanding 67,563 67,521 67,506 67,611 67,550
1993
Net sales
United States $198,753 $214,156 $231,901 $222,605 $ 867,415
International 54,679 58,973 60,776 60,553 234,981
-------- -------- -------- -------- ----------
Total 253,432 273,129 292,677 283,158 1,102,396
Cost of sales 115,429 121,951 130,387 123,539 491,306
Selling, general and administrative expenses 116,189 117,421 123,155 124,874 481,639
-------- -------- -------- -------- ----------
Operating income
United States 24,863 31,126 35,189 33,103 124,281
International (1,963) 3,764 4,880 2,739 9,420
Corporate (1,086) (1,133) (934) (1,097) (4,250)
-------- -------- -------- -------- ----------
Total 21,814 33,757 39,135 34,745 129,451
Interest expense, net 6,586 6,090 4,431 4,277 21,384
-------- -------- -------- -------- ----------
Income before income taxes and equity in
earnings of joint venture 15,228 27,667 34,704 30,468 108,067
Provision for income taxes 2,916 9,090 11,713 9,703 33,422
Equity in earnings of joint venture 1,223 2,435 2,592 1,877 8,127
-------- -------- -------- -------- ----------
Income before extraordinary loss and
cumulative effect of change in
accounting 13,535 21,012 25,583 22,642 82,772
Extraordinary loss related to
retirement of debt (4,018) (4,018)
Change in accounting for income taxes 4,733 4,733
-------- -------- -------- -------- ----------
Net income $ 18,268 $ 16,994 $ 25,583 $ 22,642 $ 83,487
-------- -------- -------- -------- ----------
-------- -------- -------- -------- ----------
Income per common share
Income before extraordinary loss
and change in accounting $ 0.20 $ 0.31 $ 0.38 $ 0.34 $ 1.23
Extraordinary loss related to
retirement of debt (0.06) (0.06)
Change in accounting for
income taxes 0.07 0.07
Net income $ 0.27 $ 0.25 $ 0.38 $ 0.34 $ 1.24
Average common shares outstanding 67,521 67,496 67,525 67,569 67,528
</TABLE>
Prior periods have been restated. See Note 5 of notes to consolidated financial
statements.
25
<PAGE>
ECOLAB INC.
REPORT OF INDEPENDENT ACCOUNTANTS
- ------------------------------------------------------------------------------
To the Shareholders and Directors
Ecolab Inc.
We have audited the accompanying consolidated balance sheet of Ecolab Inc. as of
December 31, 1994, 1993 and 1992, and the related consolidated statements of
income, shareholders' equity and cash flows for the years then ended. These
financial statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Ecolab Inc. as of
December 31, 1994, 1993 and 1992, and the consolidated results of its operations
and its cash flows for each of the years then ended, in conformity with
generally accepted accounting principles.
As discussed in Note 7 to the financial statements, effective January 1, 1993,
the company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes."
/s/ Coopers & Lybrand L.L.P.
----------------------------
Coopers & Lybrand L.L.P.
February 27, 1995
Saint Paul, Minnesota
26
<PAGE>
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
ECOLAB INC.
(In Thousands)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- -------------------------------------------------------------------------------------------------------------
Additions
-------------------------
Balance at Charged to Charged to Deductions Balance at
Beginning Costs and Other From End
Description of Period Expenses Accounts (A) Reserves (B) of Period
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful Accounts:
Year Ended December 31, 1994 $7,994 $3,910 $ 233 $(3,434) $8,703
Year Ended December 31, 1993 $7,586 $3,152 $ (64) $(2,680) $7,994
Year Ended December 31, 1992 $7,053 $3,948 $ (12) $(3,403) $7,586
<FN>
(A) Reflects foreign currency translation adjustments and for the year ended December 31, 1993,
a deduction of $184 related to the sale of the Canadian G.H. Wood janitorial distribution business.
(B) Uncollectible accounts charged off, net of recovery of accounts previously written off.
</FN>
</TABLE>
27
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Henkel-Ecolab Joint Venture
We have audited the combined financial statements of Henkel-Ecolab Joint Venture
as listed in the accompanying index. In connection with our audit of the
combined financial statements, we also have audited the financial statement
schedules as listed in the accompanying index. These combined financial
statements and financial statement schedules are the responsibility of the Joint
Venture's management. Our responsibility is to express an opinion on these
combined financial statements and financial statement schedules based on our
audits.
We conducted our audits in accordance with German generally accepted auditing
standards which in all material respects are similar to auditing standards
generally accepted in the United States. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
28
<PAGE>
- 2 -
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of the Henkel-Ecolab
Joint Venture as of November 30, 1994, 1993 and 1992, and the results of its
operations and its cash flows for the periods beginning December 1, 1993, 1992
and 1991, and ended November 30, 1994, 1993 and 1992, in conformity with
accounting principles generally accepted in the United States. Also in our
opinion, the related financial statement schedules, when considered in relation
to the basic combined financial statements taken as whole, present fairly, in
all material respects, the information set forth therein.
Dusseldorf, Germany, January 19, 1995
KPMG Deutsche Treuhand-Gesellschaft
Aktiengesellschaft
Wirtschaftsprufungsgesellschaft
/s/Dr. Kuhr /s/Haas
Dr. Kuhr Haas
Wirtschaftsprufer Wirtschaftsprufer
29
<PAGE>
HENKEL-ECOLAB JOINT VENTURE
INDEX TO COMBINED FINANCIAL STATEMENTS FOR THE YEARS ENDED NOVEMBER 30, 1994,
NOVEMBER 30, 1993 AND NOVEMBER 30, 1992
_____________________________________________________________________________
Combined Statements of Income
Combined Balance Sheets
Combined Statements of Cash Flows
Combined Statements of Equity
Notes to the Combined Financial Statements
Financial Statement Schedules
Schedule I Valuation and Qualifying Accounts and Reserves
Schedule II Property, Plant and Equipment
Schedule III Accumulated Depreciation and Amortization
of Property, Plant, and Equipment
30
<PAGE>
HENKEL-ECOLAB JOINT VENTURE
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Twelve Months ended Twelve Months ended Twelve Months ended
(Thousands) November 30, 1994 November 30, 1993 November 30, 1992
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Sales DM 1,264,985 DM 1,245,446 DM 1,279,619
Cost of Sales 546,706 562,586 568,119
Selling, General and Administrative Expenses 600,779 569,376 605,119
Royalties to Parents 31,874 36,460 33,034
- ------------------------------------------------------------------------------------------------------------------------------------
Operating Income 85,626 77,024 73,347
Other Expenses/Income, principally Interest Expense, net 6,426 10,207 12,815
Equity in Loss of Affiliate 391 582 126
- ------------------------------------------------------------------------------------------------------------------------------------
Income before Income Taxes 78,809 66,235 60,406
Provision for Income Taxes 36,287 35,966 28,613
- ------------------------------------------------------------------------------------------------------------------------------------
Income before Cumulative Effect of Change in Accounting Principle 42,522 30,269 31,793
Cumulative Effect at December 1, 1992 of the Change in
Accounting for Income Taxes -- 9,771 --
- ------------------------------------------------------------------------------------------------------------------------------------
Net Income DM 42,522 DM 40,040 DM 31,793
-- ------- -- ------ -- ------
<FN>
See accompanying Notes to Combined Financial Statements
</FN>
</TABLE>
31
<PAGE>
Henkel-Ecolab Joint Venture
Combined Balance Sheets
<TABLE>
<CAPTION>
November 30, November 30, November 30,
(Thousands) 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------------------
Assets
<S> <C> <C> <C> <C> <C> <C>
Cash and Cash Equivalents DM 60,978 DM 41,051 DM 40,090
Accounts Receivable, net 260,696 266,299 264,113
Accounts Receivable from Related Parties 15,631 33,917 17,630
Loans to Related Parties 38,140 12,297 15,937
Inventories 162,414 152,988 133,143
Prepaid Expenses and Other Current Assets 22,528 20,088 32,983
Deferred Taxes 6,011 6,714 --
- --------------------------------------------------------------------------------------------------------------------------------
Current Assets 566,398 533,354 503,896
- --------------------------------------------------------------------------------------------------------------------------------
Investment in Affiliated Company, net 8,987 9,470 10,287
Property, Plant and Equipment, net 153,837 146,877 121,582
Intangible and Other Assets, net 26,818 20,043 15,512
Deferred Taxes 10,195 6,821 --
- --------------------------------------------------------------------------------------------------------------------------------
Total Assets DM 766,235 DM 716,565 DM 651,277
- --------------------------------------------------------------------------------------------------------------------------------
Liabilities and Equity
Current Portion of Long Term Debt DM 727 DM 796 DM 581
Short Term Debt 19,256 45,505 37,226
Loans from Related Parties 63,810 75,910 79,735
Accounts Payable 83,432 79,944 55,760
Accounts Payable to Related Parties 33,070 35,019 60,263
Accrued Liabilities 125,629 103,593 82,770
Income Taxes 41,378 28,162 27,619
- --------------------------------------------------------------------------------------------------------------------------------
Current Liabilities 367,302 368,929 343,954
- --------------------------------------------------------------------------------------------------------------------------------
Employee Benefit Obligations 84,549 71,392 58,904
Long Term Debt, less Current Maturities 6,521 7,090 9,289
Deferred Taxes 2,705 2,027 1,033
- --------------------------------------------------------------------------------------------------------------------------------
Combined Equity 305,158 267,127 238,097
- --------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Equity DM 766,235 DM 716,565 DM 651,277
-- ------- -- ------- -- -------
<FN>
See accompanying Notes to Combined Financial Statements
</FN>
</TABLE>
32
<PAGE>
HENKEL-ECOLAB JOINT VENTURE
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Twelve Months ended Twelve Months ended Twelve Months ended
(Thousands) November 30,1994 November 30,1993 November 30,1992
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Income DM 42,522 DM 40,040 DM 31,793
Cumulative Effect of Change in Accounting for Income Taxes -- (9,771) --
-------------- -------------- --------------
Income before Cumulative Effect of Change in Accounting Principle 42,522 30,269 31,793
Adjustments to Reconcile Net Income to Cash
Provided by Operating Activities
Depreciation and Amortization 45,208 39,648 37,701
Equity in Loss of Affiliated Company 391 582 126
Provision for Doubtful Accounts and Other 1,032 3,484 1,440
Gain on Sale of Property and Equipment (762) (1,076) (1,264)
Deferred Income Taxes (1,993) (2,770) --
Changes in Operating Assets and Liabilities
Decrease / (Increase) in Accounts Receivable 4,571 (5,670) (28,100)
Decrease / (Increase) in Due from Related Parties 18,286 (16,287) (156)
(Increase) in Inventories (9,426) (19,845) (1,171)
Increase in Accounts Payable and Accrued Liabilities 25,524 45,007 12,928
(Decrease) in Due to Related Parties (1,949) (25,244) (33,509)
Increase in Income Taxes Payable 13,216 543 8,861
(Increase) / Decrease in Other Current Assets (2,440) 12,895 (11,508)
Increase in Employee Benefit Obligations 13,157 12,488 5,333
-------------- -------------- --------------
Cash Provided by Operating Activities 147,337 74,024 22,474
-------------- -------------- --------------
Investing Activities
Expenditures for Property and Equipment (48,237) (66,283) (59,790)
Expenditures for Intangible and Other Assets (13,900) (8,884) (17,027)
Proceeds from Sale of Property and Equipment 5,045 3,680 3,836
(Increase) / Decrease in Loans to Related Parties (25,843) 3,640 24,868
-------------- -------------- --------------
Cash Used for Investing Activities (82,935) (67,847) (48,113)
-------------- -------------- --------------
Financing Activities
(Repayments of) / Proceeds from Bank Debt, net (26,887) 6,295 19,238
(Decrease) / Increase in Loans from Related Parties (12,100) (3,825) 7,661
Equity Allocations -- 6,826 --
Equity Withdrawals -- (1,785) (7,692)
Dividends Paid (1,411) (9,535) (6,180)
-------------- -------------- --------------
Cash (Used for) / Provided by Financing Activities (40,398) (2,024) 13,027
-------------- -------------- --------------
Effect of Exchange Rate Changes on Net Cash (4,077) (3,192) (4,574)
-------------- -------------- --------------
Increase / (Decrease) in Cash and Cash Equivalents 19,927 961 (16,119)
Cash and Cash Equivalents at Beginning of Period 41,051 40,090 56,209
-------------- -------------- --------------
Cash and Cash Equivalents at End of Period DM 60,978 DM 41,051 DM 40,090
----------- ----------- -----------
<FN>
See accompanying Notes to Combined Financial Statements
</FN>
</TABLE>
33
<PAGE>
HENKEL-ECOLAB JOINT VENTURE
COMBINED STATEMENTS OF EQUITY
<TABLE>
<CAPTION>
(Thousands)
Contributed Retained Cumulative
Capital Earnings Foreign Total
Currency
Translation
_______________________________________________________________________________
<S> <C> <C> <C> <C>
Balance
November 30, 1991 DM 209,973 17,600 (3,848) 223,725
Net Income 31,793 31,793
Equity Withdrawals (7,692) (7,692)
Dividends Paid (6,180) (6,180)
Opening Equity Adjustment 4,382 4,382
Translation (7,931) (7,931)
Adjustment
________________________________________________________________________________
Balance
November 30, 1992 DM 206,663 43,213 (11,779) 238,097
Net Income 40,040 40,040
Equity Allocations 6,826 6,826
Equity Withdrawals (1,785) (1,785)
Dividends Paid (9,535) (9,535)
Translation (6,516) (6,516)
Adjustment
_______________________________________________________________________________
Balance
November 30, 1993 DM 211,704 73,718 (18,295) 267,127
Net Income 42,522 42,522
Dividends Paid (1,411) (1,411)
Translation (3,080) (3,080)
Adjustment
_______________________________________________________________________________
Balance
November 30, 1994 DM 211,704 114,829 (21,375) 305,158
- ------------------------- ------- ------- -------- -------
<FN>
See accompanying Notes to Combined Financial Statements
</FN>
</TABLE>
34
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
On July 1, 1991, Henkel KGaA (Henkel) and Ecolab, Inc. (Ecolab) formed a joint
venture of their respective European institutional and industrial hygiene
businesses.
Under the terms of the Amended and Restated Joint Venture Agreement dated June
26, 1991 (Joint Venture Agreement), Henkel and Ecolab have joint control over
the activities of the Joint Venture. The Joint Venture Agreement also provides
that both partners will share an equal economic interest in the profits or
losses of the Joint Venture.
The financial statements are presented on a combined basis as each Joint Venture
entity is owned beneficially by identical shareholders or their wholly owned
subsidiaries. All significant intercompany or affiliated company accounts and
transactions have been eliminated in combination. The Joint Venture's fiscal
year end has been designated as November 30.
The financial statements are presented on the basis of generally accepted
accounting principles in the United States.
FOREIGN CURRENCY TRANSLATION
The accounts of all foreign subsidiaries and affiliates are generally measured
using local currency as the functional currency. For those operations, assets
and liabilities are translated into German Marks at period-end exchange rates.
Income statement accounts are translated at the average rates of exchange
prevailing during the period. Net exchange gains or losses resulting from such
translation are excluded from net earnings and accumulated in a separate
component of combined equity. Gains and losses from foreign currency
transactions are included in the related income statement category.
The Joint Venture enters into foreign currency forward contracts and options to
hedge specific foreign currency exposures. Gains and losses on these contracts
are deferred and recognized as part of the specific transaction hedged or
included in other expenses, principally interest expense, net. The cash flows
from such contracts are classified in the same category as the transaction
hedged in the Combined Statement of Cash Flows.
CASH EQUIVALENTS
Cash equivalents are highly liquid investments with a maturity of three months
or less when purchased. Interest income for the period totalled TDM 3,877 in
1994, TDM 4,976 in 1993 and TDM 7,684 in 1992.
INVENTORIES
Inventories are stated at the lower of cost or market. The method of determining
cost varies between the First-in First-out method, and the average cost method.
35
<PAGE>
INVESTMENT IN AFFILIATED COMPANY
Investment in the common stock of one affiliated company is accounted for by the
equity method. The excess of cost of this affiliate over the Company's share of
its net assets at the acquisition date is being amortized on a straight-line
basis over 10 years.
The investment in an affiliated company consists of 33 percent of the common
stock of Comac SpA, Verona. The unamortized portion of the excess of cost over
the Joint Venture's share of net assets of Comac amounts to TDM 5,444 at
November 30, 1994, TDM 6,192 at November 30, 1993 and TDM 6,943 at November 30,
1992 The market value of the investment cannot be determined.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at original cost. Merchandise
equipment consists primarily of various systems for dispensing cleaning and
sanitizing products. Depreciation and amortization are charged to operations
using the straight-line and declining balance methods over the following
estimated useful lives:
Buildings and improvements 8 to 40 years
Machinery and equipment 3 to 20 years
Furniture, fixtures and equipment 3 to 16 years
Leasehold improvements are amortized over a period which is the lesser of the
useful life of the asset or the remaining term of the associated lease.
Betterments, renewals and extraordinary repairs that extend the life of the
asset are capitalized; other repairs and maintenance are expensed. The cost and
accumulated depreciation applicable to the assets retired are removed from the
accounts and any gain or loss credited or charged to income.
INTANGIBLE ASSETS
Intangible assets primarily consist of amounts by which cost of acquisitions
exceeded the values assigned to net tangible assets. These assets are amortized
over their estimated lives, periods from 3 to 10 years. Total amortization of
all intangible assets amounted to TDM 6,407, TDM 4,283 in 1993 and TDM 2,467 in
1992.
36
<PAGE>
HENKEL-ECOLAB JOINT VENTURE
2. BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
(Thousands) November 30, November 30, November 30,
1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
Accounts Receivable, net
Accounts Receivable, Trade DM 274,179 DM 278,750 DM 273,080
Allowance for Doubtful Accounts 13,483 12,451 8,967
--------------------------------------------------------------------
DM 260,696 DM 266,299 DM 264,113
------- ------- -------
Inventories
Raw Materials DM 36,777 DM 36,087 DM 24,519
Work in Process 10,180 9,931 9,502
Finished Goods 115,457 106,970 99,122
--------------------------------------------------------------------
Total DM 162,414 DM 152,988 DM 133,143
------- ------- -------
Property, Plant and Equipment, net
Land DM 6,164 DM 6,130 DM 3,936
Buildings and Improvements 68,060 61,235 44,356
Machinery and Equipment 106,629 95,150 89,900
Merchandising Equipment, Furniture and Fixtures 172,510 151,039 130,012
Construction in Progress 2,086 6,117 8,695
--------------------------------------------------------------------
355,449 319,671 276,899
Accumulated Depreciation and Amortization 201,612 172,794 155,317
--------------------------------------------------------------------
Total DM 153,837 DM 146,877 DM 121,582
------- ------- -------
Intangible and Other Assets, net
Goodwill on Acquisitions prior to July 1,1991 DM 20,941 DM 20,941 DM 20,941
Goodwill on Acquisitions after July 1,1991 13,500 6,197 --
Other Intangible Assets 10,811 3,547 1,674
--------------------------------------------------------------------
45,252 30,685 22,615
Accumulated Depreciation 21,454 15,439 12,403
--------------------------------------------------------------------
Total Intangible Assets, net 23,798 15,246 10,212
Other Assets, net 3,020 4,797 5,300
--------------------------------------------------------------------
Total DM 26,818 DM 20,043 DM 15,512
------- ------- -------
</TABLE>
37
<PAGE>
3. RELATED PARTY TRANSACTIONS
The Joint Venture has entered into a variety of contractual arrangements,
including those discussed in the following paragraphs for the supply of
products, the performance of general and administrative services and the
transfer of technology.
Certain Joint Venture entities purchase institutional and industrial hygiene
products (primarily finished goods inventory) from Henkel and its subsidiaries
under a variety of supply agreements. The terms of these agreements require
these entities to purchase specified quantities as defined by an annual supply
plan submitted to the related manufacturing facility. Product purchases are
priced on the basis of costs incurred and amounted to TDM 259,882 in 1994, TDM
278,693 in 1993 and TDM 319,913 in 1992.
Henkel also provides certain Joint Venture entities with elective services which
include, but are not limited to General Administration, Payroll Administration,
Accounting, Research and Development. The cost of services are charged by Henkel
on a monthly basis and may not reflect the costs which the Joint Venture would
incur if it were necessary to procure such services from outside sources or if
such services were performed internally by the Joint Venture. Fees paid by the
Joint Venture in consideration for these services amounted to TDM 20,326 in
1994, TDM 23,353 in 1993 and TDM 34,063 in 1992.
Royalty payments are shared equally by both parent companies based upon a
technology transfer agreement which provides for the payment of royalties as a
percentage of third party sales. Royalty expense related to this technology
transfer agreement amounted to TDM 31,874 in 1994, TDM 36,460 in 1993 and TDM
33,034 in 1992.
The Joint Venture has entered into agreements with Henkel under which the Joint
Venture can both borrow from and lend to Henkel both on an over-draft basis and
through short term loans of more than 3 months. There is currently no maximum
level of borrowing specified under this agreement. The interest rate basis for
both arrangements is the London Interbank Offering Rate (interest rate for
German Marks overdrafts 5.75 % per November 30, 1994 and 5.32 % for 3 month
short term German Marks loans per November 30, 1994); on overdrafts,
approximately between 0.4 - 1.5 percentage point is paid to compensate Henkel
for administration costs.
At November 30, 1994 the Joint Venture had borrowed TDM 63,810, from Henkel
Group Companies, TDM 75,910 in 1993 and TDM 79,735 in 1992. The loans receivable
from Henkel Group Companies had totalled TDM 38,140 in 1994, TDM 12,297 in 1993
and TDM 15,937 in 1992. The fair values of intercompany loans receivable and
payable approximate book value.
Interest expense to related companies totalled TDM 6,304 in the year ended
November 30, 1994, TDM 9,819 in 1993 and TDM 12,418 in 1992. Interest income
from related companies amounted to TDM 1,989 for the year ended November 30,
1994, TDM 1,503 in 1993 and TDM 5,389 in 1992.
38
<PAGE>
4. INCOME TAXES
The provision for income taxes totalled TDM 36,287, compared to November 30,
1993 TDM 35,966 and November 30, 1992 TDM 28,613. The net deferred taxes
included in the provision for income taxes for 1994 were TDM 1,993 credit and
for 1993 TDM 2,770 credit, whereas in prior years they were insignificant.
Effective December 1, 1992, the Joint Venture adopted the provisions of
Statement of Financial Accounting Standards of No. 109, "Accounting for Income
Taxes" (FAS 109). FAS 109 requires a change from the deferred to the asset and
liability method of computing deferred income taxes. Under the asset and
liability method, deferred income taxes are recognized to reflect the tax
consequences on future years of temporary differences between the tax bases of
assets and liabilities and their financial reporting amounts, based on enacted
tax laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Income tax expense is the tax
payable for the year and the change during the year in deferred tax assets and
liabilities.
The cumulative effect of this change in accounting principle as of December 1,
1992 amounted to TDM 9,771. Prior years' financial statements were not restated.
The components of the Joint Venture's overall net deferred tax asset at November
30, 1994, at November 30, 1993 and at December 1, 1992 are as follows:
<TABLE>
<CAPTION>
Deferred tax assets: November November December
30, 1994 30, 1993 1, 1992
-------- -------- -------
TDM TDM TDM
<S> <C> <C> <C>
Goodwill amortization 2,213 6,226 5,923
Tax loss carryforwards 5,614 5,744 4,774
Accruals, not permitted for
tax purposes 2,921 2,148 2,314
Inventory valuation 1,345 1,084 2,295
Pension provision, not deductible 4,746 3,784 2,135
Intangible assets (other than
goodwill) amortization 2,024 693 2,170
Differences in intercompany accounts 0 0 2,041
Fixed assets 4,853 0 0
Other 3,275 2,912 2,520
-------- -------- -------
Total gross deferred tax assets 26,991 22,591 24,172
Valuation allowance (8,023) (6,369) (10,914)
-------- -------- -------
Total deferred tax assets 18,968 16,222 13,258
-------- -------- -------
Deferred tax liabilities:
Depreciation on tangible assets (3,547) (2,578) (2,062)
Other (1,920) (2,136) (2,458)
-------- -------- -------
Total deferred tax liabilities (5,467) (4,714) (4,520)
-------- -------- -------
Net deferred tax asset 13,501 11,508 8,738
-------- -------- -------
-------- -------- -------
</TABLE>
39
<PAGE>
At November 30, 1994, the Joint Venture had net foreign operating loss
carryforwards for tax purposes of approximately TDM 17,847 compared to November
30, 1993 to TDM 16,577 and compared to TDM 15,822 as at December 1, 1992. A
significant portion of these losses have an indefinite carryforward period; the
remaining losses have expiration dates up to five years. As of November 30, 1994
and 1993 the tax benefits of the loss carryforwards have been reserved 100% in
Great Britain, 80% in Switzerland and 20% in Italy. As at December 1, 1992 all
loss carryforwards had been reserved 100%. The changes in the valuation
allowance were made due to turnarounds in the profitability of the Joint Venture
companies in the respective countries.
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment. Based upon the level of
historical taxable income and projections for future taxable income over the
periods which the deferred tax assets are deductible, management believes it is
more likely than not the Joint Venture will realize the benefits of these
deductible differences, net of the existing valuation allowances at November 30,
1994.
A reconciliation of the statutory German trade tax and federal corporate income
tax rate to the effective income tax rate was:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Statutory German rate 44.4% 45.3% 48.7%
Other European rates (6.6) (7.4) (8.0)
Losses and deferred items
without offsetting tax benefits 3.6 5.0 7.7
Taxable deductions not
affecting pre-tax income 0.0 (0.8) (1.7)
Different tax base in Germany 3.8 3.8 2.0
Deferred taxes refundable to
parent 3.1 9.2 0.0
Change of valuation allowance 0.0 (6.4) 0.0
Other (2.3) 5.6 (1.3)
---- ---- -----
Effective income tax rate 46.0% 54.3% 47.4%
---- ---- -----
---- ---- -----
</TABLE>
The deferred taxes refundable to parent reflect the Joint Venture Agreement in
which the partners also agreed that all tax benefits realized after the
formation of the Joint Venture should be refunded to the respective parents if
the benefits relate to temporary differences that originated in periods prior to
the formation of the Joint Venture. The amount refundable in 1993 covers the
period from July 1, 1991 to November 30, 1993.
In 1994, the tax payments were TDM 21,368, in 1993 TDM 29,846 and in 1992 TDM
17,949.
40
<PAGE>
5. RETIREMENT PLANS
The Joint Venture's German entities have noncontributory defined benefit pension
plans to provide pension benefits to substantially all eligible employees.
Employees of countries outside of Germany participate in various local plans,
principally contributory plans.
Benefits for the German plans are based upon salary and years of service. The
funding of these pension plans is not a common practice as funding provides no
economic (tax) benefit.
A summary of the components of net periodic pension cost for the German plans
for the twelve months ended November 30, 1994, 1993 and 1992 follows (TDM):
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Service cost - employee benefits 3,174 2,890 3,125
Interest cost 4,952 4,258 3,958
Net amortization and deferral 546 546 546
----- ----- -----
Total pension expense 8,672 7,694 7,629
----- ----- -----
----- ----- -----
</TABLE>
The status of the employee pension benefit plans for Germany at November 30,
1994, 1993 and 1992 is summarized below (TDM):
<TABLE>
<CAPTION>
Actuarial present value of: 1994 1993 1992
<S> <C> <C> <C>
Vested benefit obligation 47,578 38,321 34,182
Non-vested accumulated
benefit obligation 2,799 2,112 1,972
------ ------ ------
Accumulated benefit obligation 50,377 40,433 36,154
------ ------ ------
------ ------ ------
Projected benefit obligation 66,354 56,975 52,915
Unrecognized net transition
obligation 8,246 8,790 9,335
Unrecognized net (gain)/loss 124 (942) 1,344
------ ------ ------
Unfunded accrued pension cost 57,984 49,127 42,236
------ ------ ------
------ ------ ------
</TABLE>
The following assumptions have been used to develop net periodic pension expense
and the actuarial present value of projected benefit obligations:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Assumed discount rate 7.5 % 7.5 % 7.5 %
Rate of increase in future
compensation levels 4.5 % 5.0 % 5.0 %
</TABLE>
41
<PAGE>
The Joint Venture also sponsors other defined benefit plans, defined
contribution plans and participation in government-sponsored programs in certain
European countries. Expenses under these plans amounted to approximately TDM
13,433 for the twelve months ended November 30, 1994, TDM 12,863 in 1993 and TDM
5,748 in 1992.
Other Joint Venture-specific savings plans, post-retirement and post-employment
benefit plans requiring contribution by the Joint Venture are not material.
42
<PAGE>
6. TOTAL INDEBTEDNESS
Short Term Debt
As of November 30, 1994 short term debt totalled TDM 19,256 compared to
November 30, 1993 TDM 45,505 and compared to November 30, 1992 TDM 37,226,
generally in overdraft facilities with interest rates based on local money
market rates. As of November 30, 1994 the three main balances are in Italian
Lira in the equivalent amount of TDM 5,433 at an interest rate of 8.5 % p.a., in
Spanish Peseta in the equivalent amount of TDM 2,414 at an interest rate of 5.45
% p.a. and in French Franc in the equivalent amount of TDM 2,410 at an interest
rate of 5.72 % p.a..
Long term debt
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
TDM TDM TDM
<S> <C> <C> <C>
Notes 7,248 7,886 9,870
Less current maturities 727 796 581
----- ----- -----
Total 6,521 7,090 9,289
----- ----- -----
----- ----- -----
</TABLE>
Of the total long term debt amount, the equivalent of TDM 6,454 is borrowed in
Danish Krona at an average interest rate of 10.19 % p.a.. As of November 30,
1994, the aggregate annual maturities of long-term debt for the next five years
were:
1995 - TDM 727 1996 - TDM 705
1997 - TDM 638 1998 - TDM 638
1999 - TDM 638 after 1999 - TDM 3,902
Interest expense related to all debt was TDM 4,584 in 1994, compared to November
30, 1993 TDM 6,700 and compared to November 30, 1992 TDM 13,479. No significant
differences existed between interest expense and interest paid.
The fair value of short and long term debt approximates the book value.
43
<PAGE>
7. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
The Joint Venture operates internationally, giving rise to exposure to market
risks from changes in interest rates and foreign exchange rates. Derivative
financial instruments are utilized by the Joint Venture to reduce certain of
these risks, as explained in this note. The Joint Venture does not hold or issue
financial instruments for trading purposes. The Joint Venture is exposed to
credit-related losses in the event of nonperformance by counterparties to
financial instruments, but it does not expect any counterparties to fail to meet
their obligations given their high credit ratings.
a) Notional Amounts and Credit Exposures of Derivatives
The notional amounts of derivatives summarized in section b) do not represent
amounts exchanged by the parties and, thus, are not a measure of the exposure of
the Joint Venture through its use of derivatives. The amounts exchanged are
calculated on the basis of the notional amounts and the other terms of the
derivatives, which relate to exchange rates.
b) Foreign Exchange Risk Management
The Joint Venture enters into various types of foreign exchange contracts in
managing its foreign exchange risk, as indicated in
the following table (TDM):
<TABLE>
<CAPTION>
November 30,1994
----------------------
Notional Credit
Amount Exposure
------- --------
<S> <C> <C>
Forwards 30,753 203
Options purchased 3,142 131
------- -----
33,895 334
------- -----
------- -----
</TABLE>
The primary purpose of foreign exchange contracts is to hedge various
intercompany loans. The Joint Venture also enters to a limited extent into
forward exchange contracts and options to hedge certain existing and anticipated
future net foreign exchange exposures. The anticipated future foreign exchange
exposure of the Joint Venture is the total of the net balances of all known and
planned incoming and outgoing payments of the Joint Venture's companies in
foreign currencies during a 12 months time horizon.
The table below summarizes by major currency the contractual amounts of the
Joint Venture's forward exchange and option contracts in German Marks. Foreign
currency amounts are translated at rates current at the reporting date. The
"buy" amounts represent the German Marks equivalent of commitments to purchase
foreign currencies, and the "sell" amounts represent the German Marks equivalent
of commitments to sell foreign currencies (TDM):
44
<PAGE>
<TABLE>
<CAPTION>
1994
----------------
Buy Sell
<S> <C> <C>
Italian Lira / US-Dollar 11,044 10,739
Danish Krona 8,170 7,997
Pound Sterling 7,319 7,364
Greek Drachme / French Franc 3,148 3,248
US-Dollar 3,142 3,000
Portuguese Escudo 677 685
Swedish Krona 395 367
------ ------
33,895 33,400
------ ------
------ ------
</TABLE>
c) Fair Value of Off Balance Sheet Financial Instruments
The following table presents the carrying amounts and fair values of the Joint
Venture's off balance sheet financial instruments at November 30, 1994. The fair
value is the amount at which the instrument could be exchanged in a current
transaction between willing parties, other than in a forced or liquidation sale
(TDM):
<TABLE>
<CAPTION>
1994
-----------------
Carrying Fair
Amount Value
------ -----
<S> <C> <C>
Derivatives 0 334
</TABLE>
45
<PAGE>
8. RESEARCH EXPENDITURES
Research expenditures which relate to the development of new products and
processes, including significant improvements and refinements to existing
products, were DM 34.1 million in 1994, DM 28.3 million in 1993 and DM 32.9
million in 1992.
46
<PAGE>
9. COMMITMENTS AND CONTINGENCIES
The Joint Venture has a number of operating lease agreements primarily involving
motor vehicles, computer and other office equipment. The following is a schedule
by year of the future minimum lease payments required under the operating leases
that have initial or remaining noncancellable lease terms in excess of one year
as of November 30, 1994 (TDM):
<TABLE>
<CAPTION>
<S> <C>
1995 15,632
1996 11,091
1997 3,020
1998 1,092
1999 741
thereafter 1,455
------
Total 33,031
-------
-------
</TABLE>
Rent expense for the twelve month period ended November 30, 1994, was
approximately TDM 16,372, compared to November 30, 1993 approximately TDM 13,415
and compared to November 30, 1992 approximately TDM 10,341.
The Joint Venture is subject to lawsuits and claims arising out of the conduct
of its business, including those relating to commercial transactions and
environmental safety. As an integral part of the Joint Venture agreement, Henkel
and Ecolab have provided certain representations and warranties against future
expenditures arising from operations prior to July 1, 1991.
A subsidiary of the Joint Venture is named in an environmental legal action
related to the conduct of its business prior to the formation of the Joint
Venture on July 1, 1991. Based on the facts currently known to the Joint
Venture, and after consultation with Legal Counsel, management believes that the
Joint Venture is indemnified against any potential liability arising from such
action under the terms and conditions of the Amended and Restated Umbrella
Agreement dated June 26, 1991, by and between Henkel and Ecolab.
Therefore, the Joint Venture does not expect material adverse effects on its
financial position, results of operations or liquidity from the outcome of these
losses and claims.
The Joint Venture's customers are concentrated in Europe and operate in the
industrial and institutional hygiene business. No single customer accounted for
a significant amount of the Joint Venture's sales in 1994, 1993 and 1992, and
there were no significant accounts receivable from a single customer at November
30, 1994, 1993 and 1992. The Joint Venture establishes an allowance for doubtful
accounts based upon factors surrounding the credit risk of specific customers,
historical trends and other information.
47
<PAGE>
HENKEL-ECOLAB JOINT VENTURE
<TABLE>
<CAPTION>
Schedule I - Valuation and Qualifying Accounts and Reserves
(Thousands)
- ------------------------------------------------------------------------------
Description Balance, Additions Deductions Balance,
Beg. of (a) from Close of
Period Reserve Period
(b)
- ------------------------------------------------------------------------------
Period Ended
November 30, 1992
<S> <C> <C> <C> <C> <C>
Allowance for DM 7,527 2,880 1,440 8,967
doubtful
Accounts
------------------------------------------------
DM 7,527 2,880 1,440 8,967
================================================
Period Ended
November 30, 1993
Allowance for DM 8,967 6,616 3,132 12,451
doubtful
Accounts
------------------------------------------------
DM 8,967 6,616 3,132 12,451
================================================
Period Ended
November 30, 1994
Allowance for DM 12,451 5,245 4,213 13,483
doubtful
Accounts
------------------------------------------------
DM 12,451 5,245 4,213 13,483
================================================
<FN>
(a) Provision for doubtful accounts
(charged to expenses)
(b) Items determined to be uncollectible,
less recovery of amounts previously written off.
</FN>
</TABLE>
48
<PAGE>
HENKEL-ECOLAB JOINT VENTURE
<TABLE>
<CAPTION>
Schedule II - Property, Plant, and Equipment
(Thousands)
- -----------------------------------------------------------------------------------------
Classification Balance, Additions Retirement Reclass- Balance,
Beg. of at or ification/ Close of
Period Cost Sales Translation Period
Adjustment
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Period Ended
November 30, 1992
Land DM 3,634 519 91 (126) 3,936
Buildings and 42,374 2,159 210 33 44,356
Improvements
Machinery and 77,679 19,119 4,447 (2,451) 89,900
Equipment
Merchandising Equipment, 114,669 31,306 9,505 (6,458) 130,012
Furniture and Fixtures
Construction in Progress 3,258 6,687 168 (1,082) 8,695
---------------------------------------------------------------
DM 241,614 59,790 14,421 (10,084) 276,899
===============================================================
Period Ended
November 30, 1993
Land DM 3,936 2,391 0 (197) 6,130
Buildings and 44,356 18,071 1,895 703 61,235
Improvements
Machinery and 89,900 11,213 5,194 (769) 95,150
Equipment
Merchandising Equipment, 130,012 32,069 11,601 559 151,039
Furniture and Fixtures
Construction in Progress 8,695 2,539 172 (4,945) 6,117
---------------------------------------------------------------
DM 276,899 66,283 18,862 (4,649) 319,671
===============================================================
Period Ended
November 30, 1994
Land DM 6,130 74 0 (40) 6,164
Buildings and 61,235 4,282 315 2,858 68,060
Improvements
Machinery and 95,150 10,273 1,251 2,457 106,629
Equipment
Merchandising Equipment, 151,039 34,220 13,721 972 172,510
Furniture and Fixtures
Construction in Progress 6,117 3,303 346 (6,988) 2,086
---------------------------------------------------------------
DM 319,671 52,152 15,633 (741) 355,449
===============================================================
</TABLE>
49
<PAGE>
HENKEL-ECOLAB JOINT VENTURE
Schedule III - Accumulated Depreciation and Amortization of Property, Plant,
and Equipment
(Thousands)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Balance, Additions Retirement Reclass- Balance,
Classification Beg. of Charged to or ification/ Close of
Period Costs and Sales Translation Period
Expenses Adjustment
- ---------------------------------------------------------------------------------------------
Period Ended
November 30, 1992
<S> <C> <C> <C> <C> <C> <C>
Land 388 72 0 (2) 458
Buildings and 18,072 2,636 82 (64) 20,562
Improvements
Machinery and 44,846 9,976 4,302 (1,647) 48,873
Equipment
Merchandising Equipment, 75,916 21,522 7,464 (4,550) 85,424
Furniture and Fixtures
------------------------------------------------------------
DM 139,222 34,206 11,848 (6,263) 155,317
============================================================
Period Ended
November 30, 1993
Land 458 81 0 (21) 518
Buildings and 20,562 3,624 1,686 (120) 22,380
Improvements
Machinery and 48,873 9,983 4,418 (1,261) 53,177
Equipment
Merchandising Equipment, 85,424 22,129 10,154 (680) 96,719
Furniture and Fixtures
------------------------------------------------------------
DM 155,317 35,817 16,258 (2,082) 172,794
============================================================
Period Ended
November 30, 1994
Land 518 86 0 2 606
Buildings and 22,380 3,887 168 114 26,213
Improvements
Machinery and 53,177 9,784 1,037 612 62,536
Equipment
Merchandising Equipment, 96,719 25,042 10,145 641 112,257
Furniture and Fixtures
------------------------------------------------------------
DM 172,794 38,799 11,350 1,369 201,612
============================================================
</TABLE>
50
<PAGE>
Ecolab Inc.
FINANCIAL DISCUSSION
YEAR ENDED DECEMBER 31, 1994
The following discussion and analysis provides information which management
believes is useful in understanding the company's operating and cash flow
results and its financial condition. The discussion should be read in
conjunction with the consolidated financial statements and related notes. All
amounts have been restated for the pooling of interests treatment of the
company's merger with Kay Chemical Company.
1994 OVERVIEW
Ecolab followed a very strong performance in 1993 with another very successful
year in 1994. During 1994, Ecolab posted record financial results and made
significant accomplishments in several key areas; these included:
- - Consolidated net sales increased 10 percent to a record $1.2 billion.
- - Consolidated after-tax income from ongoing operations also reached record
levels. Net income was a record $85 million, or $1.25 per share. On a pro
forma basis, net income of $90 million, or $1.34 per share increased 12%
over 1993.
- - Cash provided by continuing operations reached a record level of $154
million for 1994. Due to continued strong operating cash flows, the
company's cash levels increased significantly during 1994 and total debt
was reduced to its lowest level since 1986. In addition, total debt to
capitalization1 decreased to 24% at year-end 1994 and was at its lowest
level in the past 10 years. As a result, Ecolab's debt rating continued to
be rated "A-" by Standard and Poor's and the company maintained its long-
term financial objective of an investment grade balance sheet.
- - The return on beginning shareholders' equity for 1994 was 22 percent. This
is the third consecutive year that the company has exceeded its long-term
financial objective of obtaining a 20 percent return on beginning
shareholders' equity.
51
<PAGE>
- - As a result of its continued financial success, the company increased its
annual dividend rate for the third consecutive year. The annual dividend
rate was increased by 14 percent to $0.50 per common share. The company
has paid dividends on its common stock for 58 consecutive years.
- - In December 1994, the company completed a merger with Kay Chemical Company
and affiliates (Kay) of Greensboro, North Carolina. Kay is the leading
manufacturer and marketer of high performance cleaning and sanitizing
products to the quick-service, or fast food market. Kay has established
solid relationships with a number of the industry leaders. Ecolab issued
approximately 4.5 million shares of its common stock in exchange for all of
the outstanding common stock of Kay. The merger has been accounted for as
a pooling of interests and, accordingly, the company's consolidated
financial statements have been restated to include the accounts and
operations of Kay for all periods.
- - During the fourth quarter of 1994, the company made its initial commitment
to the water care market with the acquisition of Industrial Maintenance
Corporation, a manufacturer and marketer of water treatment products and
services. The company expects to further broaden its water care operations
through additional acquisitions in the future.
OPERATING RESULTS
CONSOLIDATED
<TABLE>
<CAPTION>
(thousands, except per share) 1994 1993 1992
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $1,207,614 $1,102,396 $1,057,634
Operating income $ 136,964 $ 129,451 $ 125,614
Net income
As reported $ 84,562 $ 83,487 $ 71,488
Merger costs and
expenses 6,900
Kay net deferred
tax liability 1,300
Kay Subchapter S
status (2,298) (2,667) (2,797)
---------- ---------- ----------
Pro forma $ 90,464 $ 80,820 $ 68,691
---------- ---------- ----------
---------- ---------- ----------
Net income per share
As reported $ 1.25 $ 1.24 $ 1.06
Pro forma $ 1.34 $ 1.20 $ 1.02
</TABLE>
Consolidated net sales were $1.2 billion in 1994 and increased 10 percent over
net sales of $1.1 billion in 1993. Both the company's United States and
International operations contributed to this increase. Net sales in 1994
benefited from new product introductions, an increased sales and service force,
competitive gains and the general economic recovery in the hospitality and
lodging industries.
Consolidated operating income increased 6 percent to $137 million in 1994
from $129 million in 1993. This increase reflected
52
<PAGE>
improved performance by both the company's United States and International
operations, with solid growth in the U.S. Institutional business and double
digit growth in the U.S. Pest Elimination and Janitorial businesses and in
International's Asia Pacific operations. Operating income for both years was
affected by one-time transactions. Operating income for 1994 includes $8
million of one-time merger costs and expenses related to the Kay transaction.
In 1993, operating income was negatively affected by a net charge from
restructuring manufacturing operations, environmental costs related to former
manufacturing operations and the sale of a U.S. and an International business.
These transactions reduced operating income for 1993 by approximately $8
million. Excluding these transactions, operating income margins were 12.0
percent in 1994 compared with 12.4 percent in 1993.
On a reported basis, net income for 1994 was $85 million, or $1.25 per share,
compared to net income of $83 million, or $1.24 per share, in 1993. The table
above also presents net income on the pro forma basis on which it will be
reported in the future. The pro forma adjustments include:
- - The after-tax effect of merger costs and expenses related to the Kay
transaction.
- - Income tax expense incurred to record a deferred tax liability to reflect
Kay's future net taxable temporary differences upon its merger with Ecolab.
- - Income tax expense adjustments related to the loss of Kay's Subchapter S
income tax status. Prior to the merger, Kay was a Subchapter S Corporation
for federal income tax purposes and therefore did not pay U.S. income
taxes. Effective with the merger, Kay will be included in the company's
U.S. federal income tax return and, therefore, income tax expense will no
longer reflect the Subchapter S related tax benefit in future periods.
On a pro forma basis, net income for 1994 was $90 million, or $1.34 per
share and increased 12 percent over net income of $81 million, or $1.20 per
share in 1993. In addition to a strong operating income performance, net income
benefited from a significant reduction in net interest expense and increased
equity in earnings of the Henkel-Ecolab joint venture in 1994. These benefits
were partially offset by an increase in the overall effective income tax rate.
The comparison of net income also benefited from the effect of one-time
transactions which reduced net income in 1993 by approximately $2 million.
53
<PAGE>
1993 COMPARED WITH 1992
Consolidated net sales were $1.1 billion in 1993 and increased 4 percent over
net sales for 1992. The comparison of net sales was negatively affected by the
sale of the company's G.H. Wood janitorial distribution business in the first
quarter of 1993. Excluding the sales of the G.H. Wood operations, consolidated
net sales for 1993 increased 7 percent over 1992 with both the company's United
Stated and International operations contributing to this sales increase.
Consolidated operating income for 1993 was $129 million, an increase of 3
percent over operating income of $126 million in 1992. This increase reflected
improved performance by both the company's United States and International
operations with particularly strong growth in the U.S. Pest Elimination and
Janitorial businesses and in International's Asia Pacific region. Operating
income margins were 11.7 percent for 1993, and decreased slightly from operating
income margins of 11.9 percent for 1992. The benefits of favorable raw material
costs, favorable product mix and continued cost controls were offset by
increased investments in sales and service personnel and the charge for
manufacturing restructuring, environmental compliance costs and the sale of two
businesses.
Net income increased 17 percent to $83 million, or $1.24 per share in 1993
from $71 million, or $1.06 per share in 1992. A substantial reduction in net
interest expense in 1993 contributed significantly to this profit improvement.
The overall effective income tax rate, which was virtually unchanged from 1992,
and the equity in earnings of the Henkel-Ecolab joint venture, which was down
modestly from the prior year, were not significant factors in the improvement in
income.
UNITED STATES
<TABLE>
<CAPTION>
(thousands) 1994 1993 1992
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $942,070 $867,415 $816,405
Operating income $134,510 $124,281 $123,289
Percent of sales 14.3% 14.3% 15.1%
</TABLE>
United Stated sales totaled $942 million in 1994 and increased 9 percent over
net sales of $867 million in 1993. All divisions contributed to this increase.
Sales of the U.S. Institutional Division for 1994 increased 8 percent over the
prior year. During 1994, Institutional had strong sales in all product lines
with excellent growth in warewashing sales, which is its most significant
product line, and exceptional growth in its Ecotemp program and the specialty
products group. Institutional revenue growth was due to sales of new products,
significant new customer business, retention of key customers,
54
<PAGE>
increased product volumes, a larger sales and service force and the benefits
from improved market conditions in the hospitality and lodging industries
during 1994. Institutional sales growth was due entirely to increased unit
volume and favorable product mix. Pest Elimination Division sales for 1994
increased 15 percent over 1993. Pest Elimination's sales growth reflected new
customer business added by leveraging off the Institutional and Klenzade
Divisions' customer bases and to the retention of key customers and new product
and service offerings. Sales of the Textile Care Division increased 12 percent
over 1993. Textile Care's sales growth was due to additional sales related to
an acquisition in December 1993 and to strong sales in the health care and shirt
laundry markets. Unit volume growth and favorable product mix accounted for
approximately 90 percent of Textile Care's sales growth. The Janitorial
Division reported sales growth of 22 percent for 1994. Janitorial's sales
growth was principally due to new product introductions and the exceptional
growth of its Signature Label program, which added substantial business with the
wholesale club market. Virtually all of Janitorial's sales growth was due to
unit volume growth and favorable product mix. Klenzade Division sales for 1994
increased 5 percent over the prior year. Klenzade sales growth was due to new
product introductions and successful growth in the food processing and dairy
plant markets. Unit volume growth and favorable product mix accounted for
approximately 90 percent of Klenzade's sales growth. Kay's United States
operations reported sales growth of 6 percent for 1994, primarily due to the
growth of the large fast food chains which Kay serves.
Operating income for the company's United States operations totaled $135
million and increased 8 percent over operating income of $124 million in 1993.
Operating income margins were 14.3 percent for 1994 and were unchanged from the
prior year. The improvement in operating income was primarily due to continued
growth of the Institutional business and double-digit gains from the Pest
Elimination and Janitorial Divisions. United States operating income
performance reflected strong sales, improved product mix and the effects of
continued cost controls, which were partially offset by the effect of continued
investments in the sales and service force. The United States business has
continued to expand its sales and service force and invest in training,
development and customer quality programs to improve productivity and service to
its
55
<PAGE>
customers. In 1994, the company added approximately 150 new U.S. sales and
service personnel compared to additions of approximately 300 in 1993 and 100 in
1992. Operating income improvements in 1994 included a modest benefit from
favorable raw material costs. While raw material costs have begun to increase,
the company is continually focusing on managing the impact of future raw
material cost increases so they will not have a significant impact on overall
operating results. Operating income comparisons also benefited due to the
charges which were included in 1993 for unusual transactions. Operating income
in 1993 included a net charge for manufacturing restructuring and environmental
compliance costs which were partially offset by a gain on the sale of the
Textile Care Division's fashion processing business.
1993 COMPARED WITH 1992
United States sales for 1993 were $867 million, an increase of 6 percent over
net sales for 1992. All divisions contributed to this sales increase.
Institutional Division sales increased 5 percent due to new product
introductions, retention of key customers, increased product volumes and a
moderate economic improvement in the hospitality and lodging industries. Pest
Elimination reported sales growth of 14 percent due to its continued success in
focusing on large national and regional accounts and to retention of key
customers and new product and service introductions. Textile Care Division
sales increased 8 percent over the prior year. The sales improvement was due to
focusing on specific market segments, advancements in applying solid products
technology and to the introduction of new products and dispensing systems. The
Janitorial Division reported sales growth of 10 percent due to new product
introductions, success with new distributors and large national accounts and
double-digit growth in sales to the wholesale club market. Klenzade Division
sales for 1993 increased 7 percent due to new product introductions and
continued success in the dairy plant and food and beverage processing markets.
Kay's United States sales increased 10 percent due to the annualized effect of
major new customers obtained in 1992 and to the growth of the businesses of its
established customers.
United States operating income for 1993 totaled $124 million, an increase
of 1 percent over operating income of $123 million in 1992. Operating income
margins for the United States business decreased from 15.1 percent in 1992 to
14.3 percent
56
<PAGE>
in 1993. The benefits of favorable raw material costs, improved product volume,
favorable product mix and the effects of continued cost controls were offset by
the affect of increased investments in sales and service personnel and the
charge for manufacturing restructuring and environmental compliance costs.
Operating income in 1993 also included the gain on the sale of the Textile Care
fashion processing business.
INTERNATIONAL
<TABLE>
<CAPTION>
(thousands) 1994 1993 1992
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $265,544 $234,981 $241,229
Operating income $ 14,838 $ 9,420 $ 8,851
Percent of sales 5.6% 4.0% 3.7%
</TABLE>
The company's International business consists of Canadian, Asia Pacific and
Latin American operations, and the international operations of Kay. Net sales
of International operations totaled $266 million in 1994, which represented an
increase of 13 percent over sales of $235 million in 1993. The effects of
currency translation did not have a significant impact on overall International
sales growth. Asia Pacific, International's largest operation, reported sales
growth of 13 percent for 1994. Asia Pacific sales benefited from double-digit
sales gains in the East Asia region and excellent sales growth in Japan, New
Zealand and China. Asia Pacific's growth included strong performance in its
Institutional and Klenzade markets which was due to new product introductions
and a continued focus on corporate accounts. Sales growth in the Latin American
region increased 6 percent over 1993. Results for the Latin American region
reflected significantly improved results in Brazil, good growth in Mexico and
double-digit growth in Argentina. These improvements reflected the benefits of
management changes which the company made in the region in late 1993 and early
1994 and an improved economic environment in Brazil. Sales growth in the Latin
American region included double-digit growth in Klenzade sales and modest growth
in sales to the Institutional markets. Sales of the company's Canadian
operations increased 22 percent during 1994. Canada reported good growth in its
Institutional business and double-digit increases in the sales of its Klenzade,
Textile Care and Janitorial businesses. The sales improvements in Canada were
due to additional sales related to a December 1993 acquisition, new product
introductions and improved economic conditions in Canada. Sales of Kay's
international operations increased 42 percent during 1994. Kay's operations are
relatively new within international markets and growth is principally due to
expanding service to
57
<PAGE>
all of the various locations in which their existing customers operate.
International operating income totaled $15 million in 1994, an increase of
58 percent over operating income of $9 million in 1993. Operating income
margins were 5.6 percent compared with operating income margins of 4.0 percent
in 1993. Operating income comparisons were favorably affected by the first
quarter 1993 sale of the company's G.H. Wood janitorial distribution business in
Canada. Excluding the loss on the sale of these operations from 1993's
operating income, International's operating income for 1994 increased by 14
percent over 1993. This improvement in operating income was due to double-digit
operating income growth in Asia Pacific and Kay's international operations and
to modest growth in Canada, which was partially offset by decreased operating
income in the Latin American region. Latin America's operations included
investments in management and the sales and service force and a $1 million one-
time charge in the second quarter of 1994 due to the new economic program and
monetary plan in Brazil. The recent devaluation of the Mexican Peso occurred
after International's November 30, 1994 year end and is not expected to have a
significant impact on the company's overall International operations during
1995.
Operating income margins of the company's International operations are
substantially less than the operating income margins realized for the company's
United States operations. The lower International margins are due to the
difference in scale of International operations, where operating locations are
smaller in size, and to the additional costs of operating in numerous and
diverse foreign jurisdictions. Proportionately larger investments in sales and
administrative personnel are also necessary in order to facilitate growth of
International operations.
1993 COMPARED WITH 1992
International revenues for 1993 of $235 million decreased 3 percent from
revenues of $241 million in 1992. This decrease in sales was due to the
inclusion of only one month of sales of the Canadian G.H. Wood janitorial
distribution business due to the sale of these operations in the first quarter
of 1993. Excluding the G.H. Wood operations, sales of International operations
for 1993 increased 10 percent over 1992. The effects of currency translation
did not have a significant impact on overall International sales growth. The
Asia Pacific region reported sales growth of 9 percent, which included
58
<PAGE>
double-digit sales gains in China and the East Asia region and modest sales
growth in Japan. Latin American sales for 1993 increased 8 percent over 1992.
Sales in Mexico grew at double-digit rates for 1993, while sales in Brazil were
down slightly from the prior year. Excluding the G.H. Wood operations, sales of
the company's Canadian operations decreased 2 percent during 1993, reflecting
the unfavorable effects of currency translation and the recession in Canada.
Sales of Kay's international operations for 1993 increased 90% over the prior
year. This rapid growth was primarily due to Kay being in the early stages of
expanding service to existing customers in the various international locations
in which they operate.
International operating income totaled $9 million for 1993 and increased 6
percent over the prior year. Operating income margins for the company's
International business were 4.0 percent in 1993 compared with operating income
margins of 3.7 percent in 1992. Operating income comparisons were affected by
the first quarter 1993 sale of the G.H. Wood janitorial distribution business in
Canada. Excluding the 1993 loss on sale of these operations and operating
losses from 1992, International's operating income for 1993 increased 4 percent
over 1992. Double-digit operating income improvements in Asia Pacific were
partially offset by slightly decreased operating income in Latin America due
largely to sales and marketing investments and to inventory and bad debt charges
of the company's business operations in Central America. Operating income of
Canada's operations decreased slightly due to currency rate changes. The
international operating income of Kay for 1993 was virtually unchanged from the
prior year as rapid sales growth was offset by costs necessary to establish a
network to serve international markets.
HENKEL-ECOLAB JOINT VENTURE
The company operates institutional and industrial cleaning and sanitizing
businesses in Europe through its 50 percent economic interest in the Henkel-
Ecolab joint venture. The company includes the operations of the Henkel-Ecolab
joint venture in its financial statements using the equity method of accounting.
The company's equity in earnings of the joint venture, including royalty income
and after deduction of intangible amortization, was $11 million in 1994, a
substantial increase compared with the company's equity in earnings of $8
million in 1993. Operating results for 1994's fourth quarter and fiscal year
included a $1 million benefit of a rebate under a manufacturing supply
59
<PAGE>
agreement. The improvement in operating results also reflected product mix
improvements and the cost containment efforts of the joint venture. These
benefits were partially offset by sluggish sales and investments made in 1994
related to system enhancements and minor organizational changes. The joint
venture's revenues, although not consolidated in Ecolab's financial statements,
totaled $777 million for 1994, a 2 percent increase over joint venture revenues
of $758 million in 1993. Joint venture revenues in both 1994 and 1993 benefited
from the introduction of several new products, including the transfer of Ecolab
products to Europe.
1993 COMPARED WITH 1992
The company's equity in earnings of the Henkel-Ecolab joint venture was $8
million in 1993, a 5 percent decrease from 1992. Joint venture revenues for
1993 of $758 million decreased 8 percent from joint venture revenues of $821
million in 1992. Operating results of the joint venture reflected the difficult
economic conditions in Germany and the other major regions of Europe in which
the joint venture operates and the negative effects of currency rate changes.
During 1993, the joint venture continued the consolidation of manufacturing
operations into its own plants and the consolidation of administrative
activities.
CORPORATE
Corporate operating expense was $12 million in 1994 compared with $4 million in
1993. Corporate operating expense includes overhead costs directly related to
the joint venture. In addition, 1994 also included $8 million of merger costs
and expenses which were incurred as a result of the merger with Kay.
Corporate operating expense for 1993 was $4 million, a significant decrease
from expense of $7 million in 1992. In addition to overhead costs related to
the joint venture, corporate operating expense in 1992 also included similar
expenses previously related to a discontinued business. Corporate overhead
costs related to the discontinued business decreased after its sale in 1992 due
to reduction in administrative functions and reorganizations of those areas that
previously supported this business.
INTEREST AND INCOME TAXES
Net interest expense for 1994 was $13 million, a significant decrease from net
interest expense of $21 million in 1993. This reduction in net interest expense
made a significant contribution to the company's
60
<PAGE>
income improvement for 1994. The reduction was due to the early retirement of
$75 million of the company's 10.375 percent debentures in July of 1993 and
reduced borrowings under the Multicurrency Credit Agreement during 1994. Net
interest expense for 1993 of $21 million also decreased significantly from net
interest expense of $35 million in 1992. This reduction in net interest expense
was due to a significant reduction in debt during the second half of 1992 and
throughout 1993.
The annual effective income tax rate was 40.7 percent in 1994, compared
with 30.9 percent in 1993 and 30.3 percent in 1992. The increase in the
effective income tax rate in 1994 was principally due to the nondeductibility of
a major portion of the merger costs and expenses due to Kay's Subchapter S
income tax status, and to income tax expense incurred to record a net deferred
tax liability to reflect Kay's future net taxable temporary differences upon its
merger with Ecolab. The increase in the 1994 effective income tax rate also
reflected a higher overall effective rate on earnings of International
operations, reduced income tax benefits from the company's operations in Puerto
Rico and the effects of higher levels of pre-tax income. During 1993, the
effective income tax rate reflected tax benefits associated with the sales of
the G.H. Wood operation and the Textile Care fashion processing business.
However, these benefits were substantially offset by the effects of higher
levels of pre-tax income, a higher overall effective rate on earnings of ongoing
International operations, reduced income tax benefits from the company's
operations in Puerto Rico and the impact of the increase in the enacted U.S.
federal income tax rate on 1993's earnings.
The effective income tax rate for all periods reflects Kay's favorable
income tax status as a Subchapter S Corporation for income tax purposes prior to
the December 1994 merger with Ecolab. Effective with the merger, Kay will be
included in the company's U.S. federal income tax return and, therefore, income
tax expense will no longer reflect the Subchapter S related tax benefit in
future periods. The pro forma effects of this change in income tax status are
included in the discussion of consolidated operating results above, and in note
5 of the notes to consolidated financial statements.
As a result of tax losses on the disposition of a discontinued business,
U.S. federal income tax payments were reduced by approximately $15 million in
1994, $25 million in 1993 and $15 million in
61
<PAGE>
1992. However, pending final acceptance of the company's treatment of the
losses, no income tax benefit has been recognized for financial reporting
purposes. Additional reductions in U.S. federal income tax payments are not
expected to be significant.
FINANCIAL POSITION, CASH FLOWS
AND LIQUIDITY
FINANCIAL POSITION
The company's balance sheet improved throughout 1993 and 1994. These
improvements are a result of management's focus on improving the balance sheet
in an effort to maintain one of its long-term financial objectives of an
investment grade balance sheet. This objective was achieved in 1993 when the
company's debt rating was raised to an "A-" by Standard and Poor's, and this
rating was maintained throughout 1994. Significant changes to the company's
balance sheet during 1994 and 1993 included the following:
- - Total debt decreased by $4 million during 1994 after a significant decrease
of $85 million during 1993. The ratio of total debt to capitalization
decreased to 24 percent at year-end 1994 from 28 percent at year-end 1993
and 40 percent at year-end 1992. In addition to reduced debt levels, the
improved total debt to capitalization ratios reflect increased
shareholders' equity due to strong earnings performances.
- - Working capital levels increased to $148 million at year-end 1994 from $110
million at year-end 1993 and $72 million at year-end 1992. The working
capital increase during 1994 included a significant increase in cash and
cash equivalents, as a result of strong cash flows, and increased inventory
levels to more efficiently meet local sales requirements.
- - Total assets at December 31, 1994 and 1993 included approximately $50
million of net deferred tax assets as a result of the adoption of the new
accounting standard for income taxes in the first quarter of 1993. The
increases in other noncurrent liabilities in 1994 and 1993 were also
related to this accounting change and to the substantial increases in
income taxes payable during 1994 and 1993 due to the reduction in U.S.
federal income tax payments as a result of tax losses on the disposition of
a discontinued business.
62
<PAGE>
- - Changes in the company's investment in Henkel-Ecolab joint venture are
principally due to currency rate changes.
CASH FLOWS
Cash provided by continuing operating activities totaled $154 million in 1994,
$151 million in 1993 and $130 million in 1992. These strong operating cash
flows were due in large part to strong earnings growth. Cash provided by
continuing operating activities for 1994 also included a one-time benefit from
the receipt of an $18 million income tax refund related to prior years.
Cash provided by discontinued operations included a reduction in income tax
payments as a result of the loss on the disposition of a discontinued business.
Cash used for discontinued operations in 1992 also included cash required to
fund the discontinued operation prior to its disposition in May 1992.
Cash flows used for capital expenditures were $88 million in 1994, $68
million in 1993 and $60 million in 1992. Worldwide additions of merchandising
equipment, primarily cleaning and sanitizing product dispensers, accounted for
approximately 70 percent of each year's capital expenditures. Investing
activities in 1992 included $94 million of cash flows related to discontinued
operations. This represented $107 million of proceeds from the sale of a
discontinued business, net of costs incurred related to the sale. The net
proceeds from the sale were used to reduce debt.
Total debt was $147 million at December 31, 1994, compared with total debt
levels of $151 million at year-end 1993 and $237 million at year-end 1992. Cash
provided by operating activities was used to reduce debt under the company's
Multicurrency Credit Agreement during 1994, as well as to fund dividends, the
reacquisition of shares of the company's common stock under the systematic share
repurchase program and Kay shareholder distributions. Cash provided by
operating activities and proceeds from the sale of a discontinued business were
used to reduce debt levels during 1992 and 1993. During 1993, the company
provided for the early retirement of the remaining $75 million of its 10.375
percent debentures. In 1992, the company provided for the early retirement of
$50 million of these debentures in connection with the sale of its discontinued
business, as well as the reduction of borrowings under the Facilities Agreement
and the scheduled maturity of its $48 million, 9.35 percent note.
63
<PAGE>
In 1994, the company increased its annual dividend rate for the third
consecutive year. The company has paid dividends on its common stock for 58
consecutive years. Cash dividends declared on common stock, by quarter, for
each of the last three years was as follows:
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
1994 $0.11 $0.11 $0.11 $0.125 $0.455
1993 0.095 0.095 0.095 0.11 0.395
1992 0.0875 0.0875 0.0875 0.095 0.3575
</TABLE>
LIQUIDITY
The company maintains a $150 million committed line of credit for general
corporate financing needs. The company also has an established commercial paper
program, supported by the committed line of credit, to minimize the cost of its
short-term borrowings. The company believes its existing cash balances, cash
generated by operating activities, including cash flows from the joint venture,
and available credit are adequate to fund all of its 1995 requirements for
growth, possible acquisitions, new program investments, scheduled debt
repayments and dividend payments.
64
<PAGE>
EXHIBIT INDEX
Exhibit Paper (P) or
No. Document Electronic (E)
- ------- -------- --------------
(23)A. Consent of Coopers and Lybrand E
L.L.P.
B. Consent of KPMG Deutsche E
Treuhand-Gesellschaft
Aktiengesellschaft.
(27)A. Restated Financial Data Schedules E
for the six-month and nine-month
periods ended June 30 and
September 30, 1994.
B. Financial Data Schedule for the E
year ended December 31, 1994.
(99)A. Unaudited condensed consolidated E
statement of income for the one-month
period ended January 31, 1995 of the
Company, including the Kay Companies,
and note thereto.
B. Comparative consolidated summary E
operating and financial data of
the Company, including the Kay
Companies, for the years ended
December 31, 1994, 1993, 1992,
1991 and 1990.
<PAGE>
CONSENT TO INCORPORATION BY REFERENCE
We consent to the incorporation by reference in the Registration Statements on
Form S-8 of Ecolab Inc. (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 and 33-65364) and the Registration Statement on
Form S-3 of Ecolab Inc. (Registration No. 33-57197) of our reports dated
February 27, 1995 on our audits of the consolidated financial statements and
related financial statement schedule of Ecolab Inc. as of December 31, 1994,
1993 and 1992, and for the years ended December 31, 1994, 1993 and 1992, which
reports are included in this Current Report on Form 8-K.
/s/Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Saint Paul, Minnesota
February 27, 1995
<PAGE>
[KPMG Logo]
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements on
Form S-8 of Ecolab Inc. (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 and 33-65364) and the Registration Statement on
Form S-3 (Registration No. 33-57197) of our report dated February 4, 1994 on our
audits of the combined financial statements and schedules of the Henkel-Ecolab
Joint-Venture as of November 30, 1994, 1993 and 1992, and for the years ended
November 30, 1994, 1993 and 1992 included in this Form 8-K.
Dusseldorf, Germany
February 13, 1995
KPMG Deutsche Treuhand-Gesellschaft
Aktiengesellschaft
Wirtschaftsprufungsgesellschaft
/s/Dr. Kuhr /s/Haas
Dr. Kuhr Haas
Wirtschaftsprufer Wirtschaftsprufer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1994 DEC-31-1994
<PERIOD-START> JAN-01-1994 JAN-01-1994
<PERIOD-END> JUN-30-1994 SEP-30-1994
<CASH> 65,300 94,629
<SECURITIES> 0 0
<RECEIVABLES> 159,539 173,509
<ALLOWANCES> 8,191 8,513
<INVENTORY> 98,748 100,003
<CURRENT-ASSETS> 350,873 391,944
<PP&E> 518,613 529,158
<DEPRECIATION> 288,435 295,678
<TOTAL-ASSETS> 952,697 1,006,460
<CURRENT-LIABILITIES> 215,369 235,281
<BONDS> 121,398 120,118
<COMMON> 69,673 69,700
0 0
0 0
<OTHER-SE> 354,088 379,978
<TOTAL-LIABILITY-AND-EQUITY> 952,697 1,006,460
<SALES> 574,095 894,503
<TOTAL-REVENUES> 574,095 894,503
<CGS> 252,014 392,953
<TOTAL-COSTS> 252,014 392,953
<OTHER-EXPENSES> 258,097 391,882
<LOSS-PROVISION> 0<F1> 0<F2>
<INTEREST-EXPENSE> 8,592 12,675
<INCOME-PRETAX> 56,642 99,120
<INCOME-TAX> 21,353 37,800
<INCOME-CONTINUING> 40,380 68,867
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 40,380 68,867
<EPS-PRIMARY> 0.60 1.02
<EPS-DILUTED> 0 0
<FN>
<F1>The amount of "LOSS PROVISION" is not significant and has been included
in "OTHER EXPENSES."
<F2>The amount of "LOSS PROVISION" is not significant and has been included
in "OTHER EXPENSES."
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF DEC-31-94 AND THE RELATED STATEMENTS OF
INCOME AND CASH FLOWS FOR THE 12-MONTH PERIOD THEN ENDED AND IS QUALIFIED
IN ITS ENTIRETY TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 98,255
<SECURITIES> 0
<RECEIVABLES> 177,510
<ALLOWANCES> 8,703
<INVENTORY> 100,015
<CURRENT-ASSETS> 401,179
<PP&E> 551,812
<DEPRECIATION> 305,621
<TOTAL-ASSETS> 1,020,356
<CURRENT-LIABILITIES> 253,665
<BONDS> 105,393
<COMMON> 69,659
0
0
<OTHER-SE> 392,149
<TOTAL-LIABILITY-AND-EQUITY> 1,020,356
<SALES> 1,207,614
<TOTAL-REVENUES> 1,207,614
<CGS> 533,143
<TOTAL-COSTS> 533,143
<OTHER-EXPENSES> 537,507
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,909
<INCOME-PRETAX> 124,055
<INCOME-TAX> 50,444
<INCOME-CONTINUING> 84,562
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 84,562
<EPS-PRIMARY> 1.25
<EPS-DILUTED> 0
<FN>
<F1>The amount of "LOSS PROVISION" is not significant and has been included
in "OTHER EXPENSES."
</FN>
</TABLE>
<PAGE>
Exhibit (99) A.
ECOLAB INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
One-Month
Period Ended
(thousands, except per share) January 31, 1995
----------------
<S> <C>
Net Sales $ 98,071
Cost of Sales 44,560
Selling, General and Administrative
Expenses 46,121
--------
Operating Income 7,390
Interest Expense, Net 901
--------
Income Before Income Taxes and
Equity in Loss of Joint
Venture 6,489
Provision for Income Taxes 2,609
Equity in Loss of Henkel-
Ecolab Joint Venture (144)
--------
Net Income $ 3,736
--------
--------
Net Income Per Common Share $ 0.06
Average Common Shares Outstanding 67,671
<FN>
See note to condensed consolidated statement of income.
</FN>
</TABLE>
<PAGE>
ECOLAB INC.
NOTE TO CONDENSED CONSOLIDATED STATEMENT OF INCOME
On December 7, 1994, the company merged with Kay Chemical Company and affiliates
("Kay"). The merger has been accounted for as a pooling of interests and,
accordingly, the company's consolidated financial statements were restated to
include the accounts and operations of Kay for all periods prior to the merger.
The unaudited condensed consolidated statement of income for the one-month
period ended January 31, 1995 (the "statement") is presented solely for the
purpose of complying with the Securities and Exchange Commission's
interpretation of the Accounting Principles Board Opinion No. 16, "Business
Combinations," related to the ability of certain shareholders to sell shares
of the Company subsequent to the merger. The statement includes the
accounts and operations of Kay, as well as the company and all of its other
subsidiaries. The statement reflects, in the opinion of management, all
adjustments necessary for a fair statement of the results of operations for the
one-month period ended January 31, 1995. The results of operations for any
interim period are not necessarily indicative of results for the full year.
The statement should be read in conjunction with the consolidated financial
statements of the company as of and for the years ended December 31, 1994, 1993
and 1992 which are included under Item 7 of this Form 8-K.
<PAGE>
Exhibit (99)B.
ECOLAB INC.
CONSOLIDATED SUMMARY OPERATING AND FINANCIAL DATA
<TABLE>
<CAPTION>
Year ended December 31
(thousands, except per share) 1994 1993 1992 1991 1990
---------- ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C>
Net sales $1,207,614 $1,102,396 $1,057,634 $959,302 $1,047,608
Income from continuing
operations before
extraordinary loss
and cumulative effects of
changes in accounting:
Income 84,562 82,772 71,488 63,239 65,724
Income per common share l.25 1.23 1.06 1.01 1.12
Total assets 1,020,356 891,730 858,864 940,288 885,258
Long-term debt and
preferred stock 105,393 131,861 215,963 325,492 318,147
Cash dividends per
common share $ 0.455 $ 0.395 $ 0.3575 $ 0.35 $ 0.335
<FN>
On December 7, 1994, the company merged with Kay Chemical Company and affiliates
("Kay"). The merger has been accounted for as a pooling of interests and,
accordingly, the company's consolidated financial statements were restated to
include the accounts and operations of Kay for all periods prior to the merger.
The table of consolidated summary operating and financial data above should be
read in conjunction with the consolidated financial statements of the company as
of and for the years ended December 31, 1994, 1993 and 1992 which are included
under Item 7 of this Form 8-K.
Cash dividends per common share included above reflect historical cash dividends
declared on Ecolab common stock.
</FN>
</TABLE>
