FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 1-9328
ECOLAB INC.
(Exact name of registrant as specified in its charter)
Delaware 41-0231510
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Ecolab Center, St. Paul, Minnesota 55102
(Address of principal executive offices)
(Zip Code)
612-293-2233
(Registrant's telephone number, including area code)
(Not Applicable)
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of October 31, 1995.
64,628,051 shares of common stock, par value $1.00 per share.<PAGE>
PART I - FINANCIAL INFORMATION
<TABLE>
ECOLAB INC.
CONSOLIDATED STATEMENT OF INCOME
<CAPTION>
Third Quarter Ended
September 30
(thousands, except per share) 1995 1994
(unaudited)
<S> <C> <C>
Net Sales $348,519 $320,408
Cost of Sales 156,594 140,939
Selling, General
and Administrative Expenses 142,643 133,785
Operating Income 49,282 45,684
Interest Expense, Net 3,436 3,206
Income Before Income Taxes
and Equity in Earnings of
Joint Venture 45,846 42,478
Provision for Income Taxes 17,979 16,447
Equity in Earnings of Henkel-Ecolab
Joint Venture 2,010 2,456
Net Income $ 29,877 $ 28,487
Net Income Per Common Share $ 0.46 $ 0.42
Dividends Per Common Share $ 0.125 $ 0.11
Average Common Shares Outstanding 64,537 67,506
<FN>
The third quarter ended September 30, 1994 has been restated. See notes
to consolidated financial statements.
</FN>
</TABLE>
-2-<PAGE>
<TABLE>
ECOLAB INC.
CONSOLIDATED STATEMENT OF INCOME
<CAPTION>
Nine Months Ended Year Ended
September 30 December 31
(thousands, except per share) 1995 1994 1994
(unaudited)
<S> <C> <C> <C>
Net Sales $991,493 $894,503 $1,207,614
Cost of Sales 444,537 392,953 533,143
Selling, General
and Administrative Expenses 426,261 391,882 529,507
Merger Costs and Expenses 8,000
Operating Income 120,695 109,668 136,964
Interest Expense, Net 8,453 10,548 12,909
Income Before Income Taxes
and Equity in Earnings of
Joint Venture 112,242 99,120 124,055
Provision for Income Taxes 44,672 37,800 50,444
Equity in Earnings of Henkel-Ecolab
Joint Venture 6,540 7,547 10,951
Net Income $ 74,110 $ 68,867 $ 84,562
Net Income Per Common Share $ 1.11 $ 1.02 $ 1.25
Dividends Per Common Share $ 0.375 $ 0.33 $ 0.455
Average Common Shares Outstanding 66,574 67,530 67,550
<FN>
The nine months ended September 30, 1994 has been restated. See notes
to consolidated financial statements.
</FN>
</TABLE>
-3-<PAGE>
<TABLE>
ECOLAB INC.
CONSOLIDATED BALANCE SHEET
<CAPTION>
September 30 September 30 December 31
(thousands) 1995 1994 1994
(unaudited)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 27,682 $ 94,629 $ 98,255
Accounts receivable, net 186,770 164,996 168,807
Inventories 108,432 100,003 100,015
Deferred income taxes 21,193 22,260 22,349
Other current assets 12,416 10,056 11,753
Current Assets 356,493 391,944 401,179
Property, Plant and Equipment,
Net 270,647 233,480 246,191
Investment in Henkel-Ecolab
Joint Venture 300,802 281,337 284,570
Other Assets 99,504 99,699 88,416
Total Assets $1,027,446 $1,006,460 $1,020,356
<FN>
September 30, 1994 has been restated. See notes to consolidated
financial statements.
</FN>
</TABLE>
(Continued)
-4-<PAGE>
<TABLE>
ECOLAB INC.
CONSOLIDATED BALANCE SHEET, Continued
<CAPTION>
September 30 September 30 December 31
(thousands, except per share) 1995 1994 1994
(unaudited)
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS'
EQUITY
Short-term debt $ 54,951 $ 23,459 $ 41,820
Accounts payable 74,775 73,979 76,905
Compensation and benefits 55,479 49,675 56,445
Income taxes 16,605 24,185 13,113
Other current liabilities 75,746 63,983 65,382
Current Liabilities 277,556 235,281 253,665
Long-Term Debt 103,952 120,118 105,393
Postretirement Health Care
and Pension Benefits 79,243 83,602 70,882
Other Liabilities 133,201 117,781 128,608
Shareholders' Equity (common
stock, par value $1.00 per
share; shares outstanding:
September 30, 1995 - 64,611;
September 30, 1994 - 67,555;
December 31, 1994 - 67,671) 433,494 449,678 461,808
Total Liabilities and
Shareholders' Equity $1,027,446 $1,006,460 $1,020,356
<FN>
September 30, 1994 has been restated. See notes to consolidated
financial statements.
</FN>
</TABLE>
-5-<PAGE>
<TABLE>
ECOLAB INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
Nine Months Ended Year Ended
September 30 December 31
(thousands) 1995 1994 1994
(unaudited)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 74,110 $ 68,867 $ 84,562
Adjustments to reconcile net
income to cash provided by
operating activities:
Depreciation 48,209 42,591 56,867
Amortization 8,543 7,294 10,002
Deferred income taxes 1,554 (678) 2,352
Equity in earnings of joint venture,
net of royalties received (2,096) (3,079) (5,273)
Other, net 442 (576) 415
Changes in operating assets and
liabilities:
Accounts receivable (18,154) (17,429) (18,952)
Inventories (8,089) (16,272) (14,285)
Other assets (13,408) (5,661) (7,222)
Accounts payable (2,416) 1,457 1,587
Other liabilities 20,871 55,257 44,293
Cash provided by continuing operations 109,566 131,771 154,346
Cash provided by discontinued
operations 3,000 3,000 15,000
Cash provided by operating activities $112,566 $134,771 $169,346
<FN>
Bracketed amounts indicate a use of cash.
The nine months ended September 30, 1994 has been restated. See notes
to consolidated financial statements.
</FN>
</TABLE>
(Continued)
-6-<PAGE>
<TABLE>
ECOLAB INC.
CONSOLIDATED STATEMENT OF CASH FLOWS, Continued
<CAPTION>
Nine Months Ended Year Ended
September 30 December 31
(thousands) 1995 1994 1994
(unaudited)
<C> <S> <S> <S>
INVESTING ACTIVITIES
Capital expenditures $(74,465) $(62,729) $ (88,457)
Property disposals 1,177 4,656 4,836
Sale of investments in securities 3,009 5,022
Other, net (4,896) 4,374 459
Cash used for investing activities (78,184) (50,690) (78,140)
FINANCING ACTIVITIES
Notes payable 12,283 4,383 8,512
Long-term debt, net (1,237) (12,493) (14,621)
Reacquired shares (90,056) (7,815) (7,889)
Dividends (25,042) (23,114) (27,851)
Kay shareholder distributions (2,288)
Other, net (828) 2,210 3,301
Cash used for financing activities (104,880) (36,829) (40,836)
Effect of exchange rate
changes on cash (75) (1,265) (757)
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (70,573) 45,987 49,613
Cash and Cash Equivalents,
at beginning of period 98,255 48,642 48,642
Cash and Cash Equivalents,
at end of period $ 27,682 $ 94,629 $ 98,255
<FN>
Bracketed amounts indicate a use of cash.
The nine months ended September 30, 1994 has been restated. See notes
to consolidated financial statements.
</FN>
</TABLE>
-7-<PAGE>
ECOLAB INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Financial Statements
The unaudited consolidated statements of income for the third quarter and
the nine months ended September 30, 1995 and 1994, reflect, in the
opinion of management, all adjustments necessary for a fair statement of
the results of operations for the interim periods. The results of
operations for any interim period are not necessarily indicative of
results for the full year. All financial data as of September 30 and for
the third quarter and nine month periods then ended have been restated
for the pooling of interests treatment of the Company's December 1994
merger with Kay Chemical Company and affiliates. The consolidated
balance sheet data as of December 31, 1994 and the related consolidated
statements of income and cash flows data for the year then ended were
derived from audited consolidated financial statements, but do not
include all disclosures required by generally accepted accounting
principles. The unaudited consolidated financial statements should be
read in conjunction with the financial statements and notes thereto
incorporated in the Company's Annual Report on Form 10-K for the year
ended December 31, 1994. Coopers & Lybrand L.L.P., the Company's
independent accountants, have performed a limited review of the interim
financial information included herein. Their report on such review
accompanies this filing.
<TABLE>
Balance Sheet Information
<CAPTION>
September 30 September 30 December 31
(thousands) 1995 1994 1994
(unaudited)
<S> <C> <C> <C>
Accounts Receivable, Net
Accounts receivable $ 195,632 $ 173,509 $ 177,510
Allowance for doubtful accounts (8,862) (8,513) (8,703)
Total $ 186,770 $ 164,996 $ 168,807
Inventories
Finished goods $ 46,885 $ 45,601 $ 42,955
Raw materials and parts 64,995 57,006 60,251
Excess of fifo cost over
lifo cost (3,448) (2,604) (3,191)
Total $ 108,432 $ 100,003 $ 100,015
Property, Plant and Equipment, Net
Land $ 6,398 $ 6,089 $ 6,348
Buildings and leaseholds 110,677 104,477 107,259
Machinery and equipment 183,544 168,332 174,203
Merchandising equipment 282,304 245,868 257,766
Construction in progress 8,424 4,392 6,236
591,347 529,158 551,812
Accumulated depreciation
and amortization (320,700) (295,678) (305,621)
Total $ 270,647 $ 233,480 $ 246,191
</TABLE>
-8-<PAGE>
ECOLAB INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
<TABLE>
Balance Sheet Information (Continued)
<CAPTION>
September 30 September 30 December 31
(thousands) 1995 1994 1994
(unaudited)
<S> <C> <C> <C>
Other Assets
Intangible assets, net $ 42,529 $ 41,404 $ 37,549
Investments in securities 5,000 9,007 5,000
Deferred income taxes 25,749 28,068 26,212
Other 26,226 21,220 19,655
Total $ 99,504 $ 99,699 $ 88,416
Short-Term Debt
Notes payable $ 38,225 $ 21,163 $ 25,302
Long-term debt, current
maturities 16,726 2,296 16,518
Total $ 54,951 $ 23,459 $ 41,820
Shareholders' Equity
Common stock $ 69,983 $ 69,910 $ 69,659
Additional paid-in capital 168,129 161,636 164,858
Retained earnings 309,539 250,350 257,462
Deferred compensation (7,210) (4,646) (4,192)
Cumulative translation 13,458 5,202 6,756
Treasury stock (120,405) (32,774) (32,735)
Total $433,494 $449,678 $461,808
</TABLE>
Interest expense related to all debt was $11,936,000 and $12,675,000
for the nine months ended September 30, 1995 and 1994, respectively,
and $16,213,000 for the year ended December 31, 1994.
During the third quarter of 1995, the Company obtained commitments for
a private placement debt arrangement with a group of insurance
companies. Under the arrangement, the Company expects to incur $75
million of long-term debt in January 1996 at an interest rate of 7.19
percent and for a term of 10 years. Proceeds from the debt will be
used for general corporate purposes.
Other noncurrent liabilities included income taxes payable of $97
million at September 30, 1995, $94 million at December 31, 1994, and
$86 million at September 30, 1994.
During June 1995, shareholders' equity decreased due to the purchase
of 3.5 million shares of the Company's common stock at $25.00 per
share pursuant to the terms of a "Dutch Auction" self-tender offer.
-9-<PAGE>
ECOLAB INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Kay Merger
In connection with the Company's December 1994 merger with Kay
Chemical Company, $8.0 million of merger costs and expenses ($6.9
million after-tax) were incurred and charged to expense in the fourth
quarter of 1994. Also, Kay was a Subchapter S Corporation for income
tax purposes and, accordingly, did not pay U.S. federal income taxes.
Kay has been included in the Company's U.S. federal income tax return
effective December 7, 1994 and, therefore, a net deferred tax
liability and corresponding charge to income tax expense of $1.3
million was recorded in the fourth quarter of 1994.
The table below includes unaudited pro forma net income and net income
per share amounts which reflect the elimination of the nonrecurring
merger costs and expenses in 1994 and pro forma adjustments to present
income taxes on the basis on which they are being reported subsequent
to the merger.
<TABLE>
<CAPTION>
Third Quarter Nine Months Year Ended
(thousands, Ended September 30 Ended September 30 December 31
except per share) 1994 1994 1994
<S> <C> <C> <C>
Net income
As reported $ 28,487 $ 68,867 $ 84,562
Merger costs and
expenses 6,900
Kay net deferred
tax liability 1,300
Kay Subchapter S
status (789) (1,919) (2,298)
Pro forma $ 27,698 $ 66,948 $ 90,464
Net income per common
share
As reported $ 0.42 $ 1.02 $ 1.25
Pro forma $ 0.41 $ 0.99 $ 1.34
</TABLE>
-10-<PAGE>
ECOLAB INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Net Income Per Common Share
Net income per common share amounts are computed by dividing net
income by the weighted average number of common shares outstanding.
Stock options did not have a significant dilutive effect.
Geographic Segments
The Company is a global developer of premium cleaning, sanitizing and
maintenance products and services for the hospitality, institutional
and industrial markets. Customers include hotels, restaurants,
foodservice, healthcare and educational facilities, quick-service
(fast food) restaurants, dairy plants and farms, and food and beverage
processors around the world. International consists of Canadian, Asia
Pacific, Latin American and Kay's international operations. The
Company has also made recent acquisitions in South Africa. In
addition, the Company and Henkel KGaA of Dusseldorf, Germany, each
have a 50 percent economic interest in the Henkel-Ecolab joint venture
which operates institutional and industrial cleaning and sanitizing
businesses in Europe. Information concerning the Company's equity in
earnings of the Henkel-Ecolab joint venture is provided in a separate
note to the consolidated financial statements.
<TABLE>
<CAPTION>
Third Quarter Nine Months Year Ended
Ended September 30 Ended September 30 December 31
(thousands) 1995 1994 1995 1994 1994
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Net Sales
United States $267,219 $250,138 $764,475 $701,825 $ 942,070
International 81,300 70,270 227,018 192,678 265,544
Total $348,519 $320,408 $991,493 $894,503 $1,207,614
Operating Income
United States $ 44,416 $ 41,616 $109,878 $102,408 $ 134,510
International 5,613 4,959 13,927 10,356 14,838
Corporate (747) (891) (3,110) (3,096) (12,384)
Total $ 49,282 $ 45,684 $120,695 $109,668 $ 136,964
</TABLE>
-11-<PAGE>
ECOLAB INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Equity in Earnings of Henkel-Ecolab Joint Venture
The Company's equity in earnings of the Henkel-Ecolab joint venture
for the third quarter and nine months ended September 30, 1995 and
1994 and for the year ended December 31, 1994 was:
<TABLE>
<CAPTION>
Third Quarter Nine Months Year Ended
Ended September 30 Ended September 30 December 31
(thousands) 1995 1994 1995 1994 1994
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Joint venture
Net sales $235,422 $198,467 $674,193 $563,234 $776,647
Gross profit 127,116 111,973 372,291 317,068 440,993
Income before
income taxes 12,463 10,653 35,080 34,249 48,389
Net income $ 5,905 $ 5,599 $ 17,892 $ 17,613 $ 26,109
Ecolab equity in
earnings
Ecolab equity in
net income $ 2,952 $ 3,114 $ 8,946 $ 9,361 $ 13,605
Ecolab royalty
income from joint
venture, net of
income taxes 1,436 1,493 4,553 4,370 5,745
Amortization expense
for the excess of
cost over the
underlying net
assets of the joint
venture (2,378) (2,151) (6,959) (6,184) (8,399)
Equity in earnings
of Henkel-Ecolab
joint venture $ 2,010 $ 2,456 $ 6,540 $ 7,547 $ 10,951
</TABLE>
At September 30, 1995, the Company's investment in the Henkel-Ecolab
joint venture included approximately $192 million for the unamortized
excess of the Company's investment over its equity in the joint
venture's net assets. This excess is being amortized on a straight-line
basis over estimated economic useful lives of up to 30 years.
-12-<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
Ecolab Inc.
We have reviewed the accompanying consolidated balance sheet of
Ecolab Inc. as of September 30, 1995 and 1994, and the related
consolidated statements of income for the three-month and nine-month
periods ended September 30, 1995 and 1994, and the consolidated statement
of cash flows for the nine-month periods ended September 30, 1995 and
1994. These financial statements are the responsibility of the Company's
management.
We conducted our reviews in accordance with standards established by
the American Institute of Certified Public Accountants. A review of
interim financial information consists principally of applying analytical
procedures to financial data and making inquiries of persons responsible
for financial and accounting matters. It is substantially less in scope
than an audit conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole. Accordingly, we do
not express such an opinion.
Based on our reviews, we are not aware of any material modifications
that should be made to the accompanying consolidated financial statements
for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet as of December 31,
1994, and the related consolidated statements of income, shareholders'
equity and cash flows for the year then ended (not presented herein); and
in our report dated February 27, 1995, we expressed an unqualified opinion
on those consolidated financial statements. In our opinion, the
information set forth in the accompanying consolidated balance sheet as of
December 31, 1994, and the related consolidated statements of income and
cash flows for the year then ended, is fairly presented, in all material
respects, in relation to the consolidated balance sheet and statements of
income and cash flows from which it has been derived.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Saint Paul, Minnesota
October 19, 1995
-13-<PAGE>
ECOLAB INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations - Third Quarter And Nine Months Ended
September 30, 1995
Net sales for the third quarter ended September 30, 1995 were $349
million, an increase of 9 percent over net sales of $320 million in the
third quarter of last year. For the first nine months of 1995, net sales
were $991 million and increased 11 percent over sales of $895 million in
the first nine months of last year. Both the Company's United States and
International operations contributed to these sales improvements.
The gross profit margin for the third quarter of 1995 was 55.1 percent of
net sales, compared to a gross profit margin of 56.0 percent of net sales
in the third quarter of last year. For the nine month period, the gross
profit margin was 55.2 percent of net sales, compared to a gross profit
margin of 56.1 percent of net sales during the first nine months of last
year. The decreases in the gross profit margins for 1995 reflect
increased raw material costs and limited selling price increases during
1995 due to competitive pressures in several of the markets in which the
Company does business. Raw material costs moderated somewhat during the
second and third quarters of 1995; however, management continues to focus
on competition in the marketplace to minimize any impact on overall
operating results.
For the third quarter of 1995, selling, general and administrative
expenses totaled $143 million, or 40.9 percent of net sales, an increase
of 7 percent over selling, general and administrative expenses of $134
million, or 41.8 percent of net sales in the third quarter of last year.
For the first nine months of 1995, selling, general and administrative
expenses totaled $426 million, or 43.0 percent of net sales, and increased
9 percent over last year's aggregate expenses of $392 million, or 43.8
percent of net sales. These expenses decreased as a percentage of net
sales primarily due to strong sales during 1995 and the Company's
continued cost control efforts.
Net income for the third quarter of 1995 was $30 million or $0.46 per
share compared to net income of $28 million or $0.42 per share in the
third quarter of last year. For the first nine months of 1995, net income
was $74 million or $1.11 per share and compared to last year's net income
of $69 million or $1.02 per share. These comparisons of net income were
unfavorably affected by the loss of Kay's Subchapter S income tax status
for 1995. Prior to its merger with Ecolab in December 1994, Kay was a
Subchapter S corporation for federal income tax purposes and, therefore,
did not pay U.S. income taxes. Effective with the merger, Kay
-14-<PAGE>
ECOLAB INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
has been included in the Company's U.S. federal income tax return and,
therefore, income tax expense no longer reflects the Subchapter S related
tax benefit. On a pro forma basis, after adjustment to increase income
tax expense in the third quarter of 1994 as if Kay was a tax paying
entity, third quarter, 1995 net income of $30 million increased 8 percent
over last year's pro forma net income of $28 million. Third quarter 1995
net income per share of $0.46 increased 12 percent over pro forma net
income per share of $0.41 for the third quarter of last year. For the
first nine months, net income of $74 million increased 11 percent over
last year's pro forma net income of $67 million, and net income per share
of $1.11 increased 12 percent over pro forma net income per share of
$0.99. These net income improvements reflected the benefits of higher
sales and cost controls, which more than offset a decrease in the equity
in earnings of the Henkel-Ecolab joint venture. The net income
improvement for the nine month period also reflected reduced net interest
expense. On a per share basis, net income for both the third quarter and
first nine months of 1995 benefited from a smaller number of average
shares outstanding due to the 3.5 million shares which the Company
repurchased in June 1995 under a "Dutch Auction" self-tender offer.
For the Company's United States operations, net sales for the third
quarter of 1995 totaled $267 million, a 7 percent increase over United
States sales of $250 million in the third quarter of last year. For the
first nine months of 1995, United States sales were $764 million and
increased 9 percent over sales of $702 million for the first nine months
of last year. United States sales continued to benefit from new product
introductions, increased product volumes and good general economic
conditions in the domestic hospitality and lodging industries. However,
selling price increases have been limited during 1995 due to competitive
pressures in several of the markets in which the Company does business.
Sales of the U.S. Institutional Division increased 3 percent for the third
quarter and 6 percent for the first nine months and included double digit
growth in Institutional's Ecotemp warewashing program and in speciality
product sales. The Pest Elimination Division continued its pattern of
double digit sales growth with a 12 percent sales increase over last year
for both the third quarter and nine-month periods. The Textile Care
Division reported 6 percent sales growth for both the third quarter and
the nine months, with growth in the commercial laundry and hospitality
markets. Sales of the Janitorial Division increased 2 percent for the
third quarter and 4 percent for the first nine months of 1995. Janitorial
products sold through distributors enjoyed solid growth for both the third
quarter and nine-month periods; however, sales of the division's Signature
Label program compared against a strong third quarter and nine-month
period of last year. The Food & Beverage Division (formerly the Klenzade
Division) reported sales growth of 10 percent for the third quarter and 12
percent for the first nine months of 1995. Food & Beverage continued to
report strong growth in all of its major markets, principally due to new
customers and new product introductions. Sales of Kay's U.S. operations
increased 15 percent for the third quarter and 12 percent for the nine
months due to new customers and continued good growth in the large fast
food chains which Kay serves. Sales of the recently formed Water Care
Division were not significant during the first nine months of 1995.
-15-<PAGE>
ECOLAB INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
For the third quarter of 1995, operating income for the Company's U.S.
operations was $44 million, a 7 percent increase over operating income of
$42 million in the third quarter of last year. For the first nine months
of 1995, U.S. operating income was $110 million and increased 7 percent
over operating income of $102 million for the first nine months of last
year. With the exception of the start-up Water Care operations, all of
the Company's U.S. businesses contributed to these operating income
improvements, with particularly strong double digit growth reported for
the third quarter and nine-month periods by the Pest Elimination and Kay
operations. The operating income margins for the Company's United States
operations were 16.6 percent for both the third quarter of 1995 and the
third quarter of last year. For the nine-month period, the 1995 operating
income margin was 14.4 percent, compared to 14.6 percent for the same
period last year. Operating income for 1995 reflected strong sales and
the benefits of cost controls which were offset by higher raw material
costs, competitive pricing pressures and the annualized effect of last
year's investments in the sales and service force.
Sales of the Company's International Operations totaled $81 million for
the third quarter of 1995, an increase of 16 percent over sales of $70
million for the third quarter of last year. For the nine-month period,
International sales were $227 million and increased 18 percent over sales
of $193 million for the comparable period of last year. Changes in
currency translation effected certain regions of International's
operations, but did not have a significant impact on overall International
sales growth. Sales growth for International's Asia Pacific region was 14
percent for the third quarter and 18 percent for the first nine months of
1995. Sales in the Asia Pacific region were favorably affected by changes
in currency translation and included continued double digit local currency
growth in East Asia. Local currency sales growth included modest growth
in Japan and flat results in the Australia/New Zealand area. Sales in
China decreased due to difficult local economic and business conditions.
Sales in the Latin American region increased 19 percent for the third
quarter and 24 percent for the nine-month period. The sales increases
included a continuation of significantly improved results in Brazil due to
recent management changes and an improved economic environment. Sales in
Mexico grew at approximately a 15 percent rate for each period in local
currencies; however, these improvements were more than offset by the
negative effects of the devaluation of the Mexican Peso. Canada reported
sales growth of 7 percent for the third quarter and 4 percent for the
first nine months of 1995. Canada's third quarter sales included double
digit growth in the Food & Beverage and Janitorial businesses and solid
growth in the Institutional business. Sales of Kay's international
operations increased 14 percent for the third quarter and 17 percent for
the nine months, as Kay continued to expand its offerings to the various
international locations in which its existing customers operate.
-16-<PAGE>
ECOLAB INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
For the third quarter of 1995, International Operations reported operating
income of $6 million, a 13 percent increase over operating income of $5
million in the third quarter of last year. Operating income for the nine-
month period was $14 million, an increase of 34 percent compared to last
year's operating income of $10 million. For the third quarter, double
digit operating income growth in each of International's regions was
partially offset by recent investments in South Africa. Significantly
improved results in Brazil continued during the third quarter; however,
operating income growth moderated somewhat due to comparisons against
stronger operating results last year. For the nine-month period,
International's operating income growth included significantly improved
results in Brazil and double digit growth in the Asia Pacific region and
in Kay's international operations. Operating income in Canada was
virtually unchanged from the prior year. For the nine months, operating
income in 1995 was negatively affected by a $0.9 million pretax charge in
the first quarter of 1995 related to the devaluation of the Mexican Peso.
Last year's operating income also included an unusual charge of $1 million
which was incurred in the second quarter due to the government's economic
and monetary plan in Brazil.
The Company's equity in earnings of the Henkel-Ecolab joint venture
decreased for both the third quarter and nine month periods. For the
third quarter of 1995, equity in earnings of the joint venture decreased
to $2.0 million from $2.5 million in the third quarter of last year. For
the nine months, equity in earnings of the joint venture decreased to $6.5
million from $7.5 million last year. The favorable effects of currency
rate changes were more than offset by higher raw material costs, costs
related to administrative changes being made by new management at the
joint venture, higher overall income tax rates and weak conditions in the
hospitality industry in the joint venture's key market of Germany.
Although recent management changes have been made at the joint venture,
the Company anticipates that its equity in earnings of the joint venture
will be below last year's levels for the remainder of 1995.
Corporate operating expense was $1 million for the third quarter and $3
million for the first nine months of 1995. Corporate operating expense
represented overhead costs directly related to the joint venture.
Net interest expense was $3 million for the third quarter of 1995 and was
virtually unchanged from the third quarter of last year. For the first
nine months of 1995, net interest expense was $8 million and declined
significantly from net interest expense of $11 million for the comparable
period of last year. This decrease was principally due to interest
income earned on higher levels of cash and cash equivalents held during
the first half of 1995.
-17-<PAGE>
ECOLAB INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
For the first nine months of 1995, the provision for income taxes
reflected an estimated effective rate of 39.8 percent compared to 38.1
percent for the first nine months of last year. This increase reflected
the loss of Kay's Subchapter S status. On a pro forma basis, including an
adjustment to increase income tax expense in 1994 as if Kay were a tax-
paying entity, the estimated annual effective income tax rate for the
first nine months of 1994 was 40.1 percent and was essentially equivalent
to the 1995 rate.
Financial Position and Liquidity
In June 1995, Ecolab purchased approximately 3.5 million shares
(approximately 5 percent of the Company's total outstanding shares) of the
Company's common stock. These shares were purchased at a price of $25.00
per share pursuant to the terms of a "Dutch Auction" self-tender offer.
The total purchase price for these shares was approximately $89 million
and was funded by excess cash and by approximately $30 million of
borrowings under the Company's credit agreements. During the third
quarter of 1995, approximately $20 million of these borrowings were repaid
with cash generated from operations. In addition, the Company may
purchase approximately 2.5 million additional shares from time to time
through open and privately negotiated transactions to complete the
remaining portion of a 6 million share repurchase program which was
authorized by the Company's Board of Directors in May 1995.
Total debt at September 30, 1995 was $159 million, an increase of $12
million from total debt of $147 million at year-end 1994. The ratio of
total debt to capitalization rose to 27 percent at September 30, 1995 from
24 percent at year-end 1994. The increase in the ratio of total debt to
capitalization was due to the decrease in shareholders' equity which
resulted from the purchase of common stock, as well as from the higher
debt levels. Also, the Company has received commitments to borrow an
additional $75 million of long-term debt in January 1996. Proceeds from
this new debt will be used for general corporate purposes.
For the nine months ended September 30, 1995, cash provided by continuing
operations was $110 million compared to operating cash flows of $132
million for the first nine months of last year. Cash provided by
continuing operations ("Other Liabilities") for the first nine months of
1994 included a one-time benefit from the receipt of an $18 million income
tax refund related to prior years.
-18-<PAGE>
ECOLAB INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Subsequent to the end of the third quarter of 1995, the Company announced
two acquisitions. The Company purchased selected assets of Cremark
Chemicals (PTY) Ltd., a leading supplier to the South African
Institutional and Food & Beverage markets Cremark's business will be
combined with Ecolab's existing South African operation with the combined
business expected to have annual sales of approximately $20 million. The
Company also added to its United States Water Care operations through the
acquisition of Western Water Management, Inc. of Kansas City, Mo. Western
is a manufacturer and marketer of water treatment products and services
for the hospitality, commercial and industrial markets with annual sales
of approximately $12 million.
-19-<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) The following documents are filed as exhibits to this
report:
(15) Letter regarding unaudited interim financial
information.
(27) Financial Data Schedule.
(b) Reports on Form 8-K:
No current reports on Form 8-K were filed during the
quarter ended September 30, 1995.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
ECOLAB INC.
Date: November 8, 1995 By:/s/ Arthur E. Henningsen, Jr.
Arthur E. Henningsen, Jr.
Vice President and Controller
(duly authorized Chief
Accounting Officer)
-20-<PAGE>
EXHIBIT INDEX
Paper (P) or
Exhibit Description Electronic (E)
(15) Letter regarding unaudited interim E
financial information.
(27) Financial Data Schedule. E
-21-<PAGE>
Exhibit (15)
Securities and Exchange Commission
450 Fifth Street N.W.
Washington, DC 10549
RE: Ecolab Inc. Registration Statements on Form S-8
(Registration Nos. 2-60010; 2-74944; 33-1664;
33-41828; 2-90702; 33-18202; 33-55986; 33-56101;
33-26241; 33-34000; 33-56151; 33-39228; 33-56125;
33-55984; 33-60266; 33-65364; and 33-59431) and
Ecolab Inc. Registration Statement on Form S-3
(Registration No. 33-57197)
We are aware that our report dated October 19, 1995, on our
reviews of interim financial information of Ecolab Inc. for the
periods ended September 30, 1995 and 1994, and included in the
Company's quarterly report on Form 10-Q for the quarter ended
September 30, 1995, is incorporated by reference in these
registration statements. Pursuant to Rule 436(c) under the
Securities Act of 1933, this report should not be considered a
part of the registration statements prepared or certified by us
within the meaning of Sections 7 and 11 of that Act.
/s/Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Saint Paul, Minnesota
November 8, 1995<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF SEPT-30-1995 AND THE RELATED STATEMENTS OF
INCOME AND CASH FLOWS FOR THE NINE-MONTH PERIOD THEN ENDED AND IS QUALIFIED IN
ITS ENTIRETY TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000031462
<NAME> ECOLAB INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 27,682
<SECURITIES> 0
<RECEIVABLES> 195,632
<ALLOWANCES> 8,862
<INVENTORY> 108,432
<CURRENT-ASSETS> 356,493
<PP&E> 591,347
<DEPRECIATION> 320,700
<TOTAL-ASSETS> 1,027,446
<CURRENT-LIABILITIES> 277,556
<BONDS> 103,952
<COMMON> 69,983
0
0
<OTHER-SE> 363,511
<TOTAL-LIABILITY-AND-EQUITY> 1,027,446
<SALES> 991,493
<TOTAL-REVENUES> 991,493
<CGS> 444,537
<TOTAL-COSTS> 444,537
<OTHER-EXPENSES> 426,261
<LOSS-PROVISION> 0<F1>
<INTEREST-EXPENSE> 11,936
<INCOME-PRETAX> 112,242
<INCOME-TAX> 44,672
<INCOME-CONTINUING> 74,110
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 74,110
<EPS-PRIMARY> 1.11
<EPS-DILUTED> 0
<FN>
<F1>The amount of "LOSS-PROVISION" is not significant and
has been included in "OTHER-EXPENSES."
</FN>
</TABLE>
