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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended DECEMBER 31, 1995
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[ ] 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
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ECOLAB INC.
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(Exact name of registrant as specified in its charter)
Delaware 41-0231510
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Ecolab Center, St. Paul, Minnesota 55102
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (612) 293-2233
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Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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Common Stock, $1.00 par value New York Stock Exchange, Inc.
Pacific Stock Exchange, Inc.
Preferred Stock Purchase Rights New York Stock Exchange, Inc.
Pacific Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act: None
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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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
Aggregate market value of voting stock held by non-affiliates of Registrant on
March 19, 1996: $1,874,851,677 (see Item 12, on pages 18 and 19 hereof). The
number of shares of Registrant's Common Stock, par value $1.00 per share,
outstanding as of March 19, 1996: 64,507,350 shares.
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DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of Registrant's Annual Report to Stockholders for the year
ended December 31, 1995 (hereinafter referred to as "Annual Report")
are incorporated by reference into Parts I, II and IV.
2. Portions of the Proxy Statement for the Annual Meeting of Stockholders
to be held May 10, 1996 and to be filed within 120 days after the
Registrant's fiscal year ended December 31, 1995 (hereinafter referred
to as "Proxy Statement") are incorporated by reference into Part III.
PART I
ITEM 1. BUSINESS
ITEM 1(A) GENERAL DEVELOPMENT OF BUSINESS
Except where the context otherwise requires, the terms "Company" and "Ecolab,"
as used herein, include Ecolab Inc. and its subsidiaries. Ecolab Inc. was
incorporated as a Delaware corporation in 1924. The Company's fiscal year is
the calendar year ending December 31.
The Company and Henkel KGaA of Dusseldorf, Germany, each have a 50% economic
interest in a joint venture which operates institutional and industrial cleaning
and sanitizing businesses in Europe, and which is referred to hereafter as the
"Henkel-Ecolab Joint Venture" or "Joint Venture." Henkel KGaA, by virtue of a
tie-breaking vote on certain operational matters, may control the day-to-day
operations of the Joint Venture. Strategic decisions concerning the Joint
Venture require the agreement of Henkel and the Company. The Company accounts
for its interest in the Henkel-Ecolab Joint Venture under the equity method of
accounting and therefore does not consolidate the Henkel-Ecolab Joint Venture
revenues and expenses. Except where the Henkel-Ecolab Joint Venture is
specifically referred to, the description of business in Part I does not include
the business of the Joint Venture.
ITEM 1(B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Company's operations are all conducted in one industry segment.
ITEM 1(C) NARRATIVE DESCRIPTION OF BUSINESS
The Company is engaged in the development and marketing of premium products and
services for the hospitality, institutional and industrial markets. The Company
provides cleaning, sanitizing, pest elimination and maintenance products,
systems and services primarily to hotels and restaurants, foodservice,
healthcare and educational facilities, commercial and institutional laundries,
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light industry, dairy plants and farms, and food and beverage processors.
A strong commitment to service is the distinguishing characteristic of the
Company. Products, systems and services are primarily marketed in domestic and
international markets by Company-trained sales and service personnel who also
advise and assist customers in the proper and efficient use of the products and
systems. Distributors are utilized in several markets.
The Company manufactures most of its products and related equipment in
Company-owned manufacturing facilities. Some are also produced for the Company
by third party contract manufacturers. Other products and equipment,
particularly those used in the Company's Pest Elimination business, are
purchased from third party suppliers. Additional information on the Company's
manufacturing facilities is located under Item 2 below under the heading
"Properties."
As described below, not all of the businesses conducted in the United States and
Canada by the Company are conducted in all other international locations, and
the extent and nature of such international businesses, as well as the
competitive environment, varies by location. European markets, as described
under Item 1(a) above under the heading "General Development of Business," are
served through the Henkel-Ecolab Joint Venture, although the Kay business does
have sales in Europe.
In the United States and Canada, the Company operates through seven divisions:
Institutional, Kay, Food and Beverage (formerly Klenzade), Pest Elimination,
Textile Care, Janitorial and Water Care Services. Institutional and Food and
Beverage businesses are operated in virtually all locations outside of the
United States and Canada. As described below, the businesses of the remaining
divisions are not conducted in all areas outside of the United States and
Canada, but these businesses are being introduced in an expanding number of
international locations.
The Company conducts business in approximately 26 countries outside of the
United States, primarily through wholly-owned subsidiaries. In certain other
countries, selected products are sold by distributors or agents, although those
sales are not significant in terms of the Company's overall revenues. For the
year ended December 31, 1995, international sales comprised approximately 23% of
the Company's total reported revenues. For purposes of public financial
reporting, international operations include Canada, but on an operational basis
the businesses in Canada are generally operated as a part of North American
operations.
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BUSINESS DIVISIONS
The following descriptions of the Company's divisions include a discussion,
where applicable, of the similar business currently conducted outside of the
United States. The Company pursues a "Circle the Customer - Circle the Globe"
strategy by developing relationships and partnerships with customers who require
the services of more than one division. Therefore, a single customer may
utilize the services of several of the Company's divisions.
INSTITUTIONAL: The Institutional Division is the Company's largest division and
sells specialized cleaners and sanitizers for washing dishes, glassware,
flatware, food service utensils and kitchen equipment ("warewashing"), for
on-premise laundries (typically used by customers having smaller machines and
laundry needs) and for general housekeeping functions, as well as dishwasher
racks and related kitchen sundries to the food-service, lodging, educational and
healthcare industries. The Institutional Division also markets various chemical
dispensing device systems, which are generally loaned to customers, to apply the
Company's cleaners and sanitizers. Substantially similar businesses are
conducted in all international locations although somewhat less extensive
product lines are often offered internationally. Also, through its Ecotemp
offering, the Institutional Division markets, primarily to smaller and mid-size
customer units, a program comprised of energy-efficient dishwashing machines,
detergents and rinse additives, including full machine maintenance.
The Company believes it is the leading supplier of chemical warewashing products
to institutions in the United States and Canada and is one of the leading
suppliers worldwide except for Europe where the business is conducted by the
Henkel-Ecolab Joint Venture.
The Institutional Division sells its products and services primarily through
Company-employed field sales and service personnel. The Company also utilizes
independent food service distributors to market and sell its products to smaller
accounts or accounts which purchase through food distributors. This
distribution system encompasses most of the Division's product line and the
Company provides the same service to accounts served by food distributors as to
direct customers.
KAY: The Kay Division was acquired in December, 1994 and is operated through
wholly-owned subsidiaries of the Company. Kay supplies chemical cleaning and
sanitizing products primarily to the quick-service restaurant ("fast-food")
industry. Kay's products include specialty and general purpose hard surface
cleaners, degreasers, sanitizers, polishes and hand care products and assorted
cleaning tools. Products are sold under the "Kay" brand or the customer's
private label. Kay employs a direct field sales force which primarily calls
upon national and regional quick service restaurant chains and franchisees,
although the sales are
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made to distributors who supply the chain or franchisee's restaurants. The
addition of the Kay business has significantly expanded the Company's presence
in the restaurant and food service industry beyond the full service market to
the quick-service industry.
Kay sales are primarily in the United States but international sales have grown
as United States based customers have expanded into international markets. With
minor exceptions for product made at international locations by contract
manufacturers, Kay's international sales are made either to domestic
distributors, who export to international accounts, or by export sales to
distributors located at international locations.
The Company believes that its Kay Division is the leading supplier of chemical
cleaning and sanitizing products to the quick-service industry in the United
States as well as in certain international markets. While the Kay customer base
has been growing, Kay's business is largely dependent upon a limited number of
major national and international quick-service restaurant chains and
franchisees.
FOOD AND BEVERAGE: The Food and Beverage Division (formerly known as Klenzade)
provides detergents, cleaners, sanitizers, lubricants, animal health and water
treatment products, as well as cleaning systems, electronic dispensers and
chemical injectors for the application of chemical products, primarily to dairy
plants, dairy, poultry and swine farms, breweries, soft drink bottling plants,
and meat, poultry and other food processors as well as to pharmaceutical and
cosmetic plants. The Food and Beverage Division also designs, engineers and
installs CIP (clean-in-place) process control systems and facility cleaning
systems to its customer base. Farm products (which include bovine teat
products) are sold through dealers and distributors, while plant products are
sold primarily by the Company's field sales personnel. The Company believes
that it is one of the leading suppliers of cleaning and sanitizing products to
the dairy plant, dairy farm and beverage processor industries in the United
States. The Food and Beverage business operates in most international
locations.
PEST ELIMINATION: The Pest Elimination Division provides services for the
elimination and prevention of pests to restaurants, food and beverage
processors, educational and healthcare facilities, hotels and other
institutional and commercial customers. These services are sold and performed
by Company-employed sales and service personnel. The Company believes it is the
largest provider of premium pest elimination services to institutions in the
United States. The Pest Elimination business currently is operated primarily in
the United States, with limited sales in Puerto Rico and parts of Canada,
Mexico, Hong Kong and New Zealand.
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TEXTILE CARE: The Textile Care Division provides chemical laundry products and
proprietary dispensing systems, as well as related services, to large
institutional and commercial laundries and to certain smaller laundry
operations. Typically these customers process a minimum of 1,000,000 pounds of
linen each year. These products and services include laundry cleaning and
specialty products and related dispensing equipment, which are marketed
primarily through a Company-employed sales force and, to a lesser extent,
through distributors. The Textile Care offerings compliment the Institutional
Division's offerings to small-to-medium size on-premise laundry facilities. The
Textile Care products are sold primarily in the United States and Canada, but
similar product lines are sold in a number of other international locations.
JANITORIAL: The Janitorial Division provides a full line of janitorial
offerings that includes odor counteractants, disinfectants, floor care or hard
surface and carpet care systems, hand care products and general cleaners which
are sold to both the industrial and institutional janitorial market in the
United States and Canada. The Company believes it is the largest supplier of
infection control and general cleaners to the United States healthcare industry.
Products are sold in the United States and Canada through a Company-employed
sales force as well as a network of independent distributors who sell
janitorial-related products and services to the institutional and industrial
marketplaces. A private-label program also manufactures non-proprietary
janitorial-related products for resale by major distributor organizations in the
United States and Canada. Janitorial products are also sold on a limited basis
in other international markets.
WATER CARE SERVICES: The Water Care Services Division provides water treatment
products, services and systems for institutional, commercial and light
industrial customers. Operations are presently concentrated in North America,
where the Company acquired three existing water care businesses in late 1994 and
1995. Water Care Services works closely with the Company's Institutional,
Textile Care and Food and Beverage Divisions to offer customized water care
strategies to the hospitality, healthcare markets and to light industry,
primarily to treat water used for heating and cooling systems. In selected
United States markets, the Division also provides pool and spa treatment
programs for commercial and hospitality customers. Water Care Services expects
to expand its coverage in North America during 1996 through additional
acquisitions and internal growth. In addition to North America operations,
certain water treatment businesses are operated at selected international
locations, primarily Brazil, South Africa and Southeast Asia.
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COMPETITION
The Company emphasizes its ability to uniformly provide a variety of related
premium cleaning and sanitation services to multiple locations of chain customer
organizations worldwide. This is succinctly stated in the Company's "Circle the
Customer - Circle the Globe" strategy. In executing this strategy, the
Company's business units have two significant classes of competitors. First,
each business unit competes with a small number of large companies selling
directly or through distributors on a national or international scale. Some of
these large competitors have substantially greater assets and financial
resources than the Company. Second, all of the Company's business units have
numerous smaller regional or local competitors focusing on more limited
geographies, product lines, and/or end-user segments.
The Company's objective is to achieve a significant presence in each of its
business markets. In general, competition is based on service, product
performance and price. The Company believes it competes principally by
providing superior value. Value is provided by state-of-the-art,
environmentally-compatible cleaning products and systems coupled with high
service standards and dedication to customer satisfaction after the initial
sale. This is made possible, in part, by the significant ongoing investment in
technology development and by the Company's standard practice of assisting
customers in lowering operating costs and complying with environmental and
sanitation regulations.
RAW MATERIALS
Raw materials purchased for use in manufacturing products for the Company are
inorganic chemicals, including phosphates, silicates, alkalies, salts and
petrochemical-based materials, including surfactants and solvents. These
materials are generally purchased on an annual contract basis from a diverse
group of chemical manufacturers. Pesticides used by the Pest Elimination
Division are purchased as finished products under contract or purchase order
from the producers or their distributors. The Company also purchases packaging
materials for its manufactured products and components for its specialized
cleaning equipment and systems. Most raw materials, or substitutes for those
materials, used by the Company, with the exception of a few specialized
chemicals which the Company manufactures, are available from several suppliers.
ADDITIONAL INFORMATION
Deliveries to customers are made from the Company's manufacturing plants and a
network of distribution centers and public warehouses. The Company uses both
common carriers and its own delivery vehicles. Additional information on the
Company's plant and distribution facilities is located under Item 2 below under
the heading "Properties."
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The Company owns a number of patents and trademarks. Management does not
believe that the Company's overall business is materially dependent on any
individual patent or trademark.
The Company believes that its business is not materially dependent upon a single
customer although, as described above in this Item 1(c) under the description of
the Kay business, Kay is largely dependent upon a limited number of national and
international quick-service chains and franchisees. No material part of the
Company's business is subject to renegotiation. The Company sells two classes
of products which each constitute 10 percent or more of its sales. Worldwide
sales of warewashing products in 1995, 1994 and 1993 approximated 35, 35 and 36
percent, respectively, of the Company's consolidated net sales. In addition,
the Company, through its Institutional and Textile Care businesses, sells
laundry products and services to a broad range of laundry customers as described
in more detail under the heading "Business Divisions" beginning on page 4
hereof. Total laundry sales in each of 1995, 1994 and 1993 approximated 15
percent of the Company's consolidated net sales.
The Company's business has little seasonality and has no unusual working capital
requirements. The Company has in the past, and will continue in the future, to
invest in merchandising equipment consisting primarily of systems used by
customers to dispense the Company's cleaning and sanitizing products. The
investment in merchandising equipment is discussed under the heading "Cash
Flows" in Management's Discussion and Analysis of Financial Condition and
Results of Operations incorporated into Item 7 hereof.
RESEARCH AND DEVELOPMENT
The Company's research and development program consists principally of devising
or testing new products, processes, techniques and equipment, improving the
efficiency of existing ones, improving service program content, and evaluating
the environmental compatibility of products. Key disciplines include analytical
and formulation chemistry, microbiology, process and packaging engineering and
product dispensing technology. Substantially all of the Company's principal
products have been developed by its research and development personnel. Note
12, entitled "Research Expenditures" located on page 43 of the Annual Report, is
incorporated herein by reference.
ENVIRONMENTAL CONSIDERATIONS
The Company's businesses are subject to various legislative enactments and
regulations relating to the protection of the environment. While the Company
cooperates with governmental authorities and takes commercially practicable
measures to meet regulatory requirements and avoid or limit environmental
effects,
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some risks are inherent in the Company's businesses. The Company's management
believes these are risks which the Company has in common with other companies
engaged in similar businesses. Among the risks are costs associated with
managing hazardous substances, waste disposal or plant site clean-up, fines and
penalties if the Company were found in violation of law, as well as
modifications, disruptions or discontinuation of certain operations or types of
operations. There can be no assurance that future legislation or enforcement
policies will not have a material adverse effect on the Company's financial
condition or results of operations. Environmental matters most significant to
the Company are discussed below.
PHOSPHATE LEGISLATION: Various laws and regulations have been enacted by state,
local and foreign jurisdictions pertaining to the sale of products which contain
phosphorous. The primary thrust of such laws and regulations is to regulate the
phosphorous content of home laundry detergents, a market not served by the
Company. However, certain of the Company's products are affected by such laws
and regulations, including some commercial laundry and warewashing detergents,
cleaners and sanitizers. Three types of legislative restrictions are common:
(1) labeling of phosphorous content, (2) percentage limitation on the amount of
phosphorous permitted and (3) a ban on the use of phosphorous in certain
products or in products sold for a particular purpose. The Company has been
able to comply with legislative requirements and, where necessary, has developed
products which, although typically less effective than the products they
replace, contain no phosphorous or lower amounts of phosphorous to satisfy the
legislative limitations or bans. In limited geographic areas, the Company has
obtained a variance from existing zero-phosphorous legislation. Phosphate
legislation has not had a material negative effect on the Company's operations
to date.
PESTICIDE LEGISLATION: Various federal and state environmental laws and
regulations govern the manufacture and/or use of pesticides. The Company
manufactures and sells certain disinfecting and sanitizing products which kill
microorganisms (bacteria, viruses, fungi) on environmental surfaces. Such
products constitute "pesticides" under the current definitions of the Federal
Insecticide Fungicide and Rodenticide Act (FIFRA), the principal federal statute
governing the manufacture, labeling, handling and use of pesticides. These
products must be registered with the United States Environmental Protection
Agency ("EPA"). Registration entails the necessity to meet certain efficacy and
labeling requirements and to pay initial and on-going registration fees. In
addition, each state in which these products are sold requires registration and
payment of a fee. In general, the states impose no substantive requirements
different from those required by FIFRA. However, California does have its own
regulatory scheme and
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certain other states have regulatory schemes under consideration. In addition,
California imposes a tax on total pesticide sales in that state. While the
costs of complying with rules as to pesticides has not had a material adverse
effect on the Company's financial condition or the results of its operations to
date, the costs and delays in receiving necessary approvals for these products
has increased in recent years. The Company believes that the nature of these
costs and regulatory delays are similar to those encountered by other companies
in similar businesses. Total fees paid to the EPA and the states to obtain or
maintain pesticide registrations, and for the California tax, in 1995 were
approximately $876,000. Such costs may increase somewhat in 1996, but not in
amounts which are expected to significantly affect the Company's results of
operations, consolidated financial condition or liquidity.
In addition, the Company's Pest Elimination Division applies restricted-use
pesticides which it purchases from third parties. That Division must comply
with certain standards pertaining to the use of such pesticides and to the
licensing of employees who apply such pesticides. Such regulations are enforced
primarily by the states or local jurisdictions in conformity with federal
regulations. The Company has not experienced material difficulties in complying
with these requirements.
OTHER ENVIRONMENTAL LEGISLATION: The Company's manufacturing plants are subject
to federal, state, local or foreign jurisdiction laws and regulations relating
to discharge of hazardous substances into the environment and to the
transportation, handling and disposal of such substances. The primary federal
statutes that apply to the Company's activities are the Clean Air Act, the Clean
Water Act and the Resource Conservation and Recovery Act ("RCRA"). The Company
makes capital investments and expenditures to comply with environmental laws and
regulations, to ensure employee safety and to carry out its announced
environmental stewardship principles. To date such expenditures have not had a
significant adverse effect on the financial condition of the Company or its
results of operations. The Company's capital expenditures for environmental
control projects incurred for 1995 and budgeted for 1996 are approximately
$900,000 and $300,000, respectively. The Company is also subject to the
Superfund Amendments and Reauthorization Act of 1986, which imposes certain
reporting requirements as to emissions of toxic substances into the air, land
and water.
Along with numerous other potentially responsible parties ("PRPs"), the Company
is currently involved with waste disposal site clean-up activities imposed by
the federal Comprehensive Environmental Response Compensation and Liability Act
("CERCLA") or state equivalents at 12 waste disposal sites which received
nominal amounts of waste materials alleged to have been generated by the Company
or its subsidiaries. In general, under CERCLA, the Company
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and each other PRP which actually contributes hazardous substances to a
superfund site are jointly and severally liable for the costs associated with
cleaning up the site. Customarily, the PRP's will work with the EPA to agree
and implement a plan for site remediation and the allocation of each PRP's
involvement. The above sites are in various stages of investigation,
negotiation or remediation. However, based on an analysis of the Company's
experience with such sites, the Company's estimated share of all hazardous
materials deposited on the site, and the Company's estimate of the contribution
to be made by other PRP's which the Company believes have the financial ability
to pay their shares, the Company has accrued its reasonable estimate of the
Company's future costs relating to such known sites.
Also, the Company is involved in certain continuing clean-up activities as
required by New Jersey and Nebraska environmental authorities at two sites
currently or formerly used by the Company. The costs associated with these
sites are comprised primarily of remediation efforts associated with soil and
ground water contamination. In each of these matters, the Company has worked
with appropriate authorities to resolve the issues involved and has accrued its
reasonable estimate of future costs relating to such sites.
A legal action commenced in August, 1989 in the District Court in Zwolle,
Netherlands, by the Netherlands government against a former subsidiary of the
Company remains pending. Netherlands authorities are seeking monetary damages
to cover the cost of investigation and planned cleanup of soil and groundwater
contamination, allegedly resulting from the discharge of wastewater and
chemicals during a period ended in 1981 when the subsidiary operated a plant on
the site. Damages claimed are approximately US$10,000,000. The former
subsidiary, now owned by the Henkel-Ecolab joint venture, has denied liability
and believes it complied with applicable Netherlands law. Even if the
Netherlands government should prevail as to liability, it is believed the
reasonable costs of investigation and cleanup are less than that claimed by the
government. The Company has indemnified the Henkel-Ecolab joint venture as to
any liability associated with this matter. Accordingly, an accrual has been
recorded, reflecting management's best estimate of future costs.
During 1995, the Company's expenditures for contamination remediation were
approximately $500,000. The accrual at the end of 1995 for future remediation
expenditures was approximately $8,500,000. The Company reviews its exposure for
contamination remediation costs periodically and its accruals are adjusted as
considered appropriate. In establishing accruals, the Company does not
anticipate recovery of costs from insurance proceeds. While the final
resolution of these issues could result in costs below or above current
accruals, the Company believes the ultimate resolution of these matters will not
have a significant effect on
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the Company's results of operations, consolidated financial position or
liquidity.
In addition, the Company has retained responsibility for certain sites where the
Company's former ChemLawn business is a PRP. Currently there are nine such
locations and at each, ChemLawn is a de minimus party. Anticipated costs
currently accrued for these matters were included in the Company's loss from its
discontinued ChemLawn operations in 1991.
NUMBER OF EMPLOYEES
The Company currently has approximately 9,000 employees worldwide.
ITEM 1(d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT
SALES
The financial information appearing under the heading "Geographic Segments" in
Note 14, located on page 43 of the Annual Report, is incorporated herein by
reference. Transfers between geographic areas are not significant.
A description of the business done outside of the United States is included in
Item 1(c), above. International businesses are subject to the usual risks of
foreign operations, including possible changes in trade and foreign investment
laws, tax laws, currency exchange rates and economic and political conditions
abroad. International operations constitute the fastest growing segment of the
Company's business. Profitability of international operations is lower than
profitability of businesses in the United States because of lower international
operating income margins due to the difference in scale of international
operations where operating locations are smaller in size and due to the
additional costs of operating in numerous and diverse foreign jurisdictions.
EXECUTIVE OFFICERS OF THE COMPANY
The persons listed in the following table are the current executive officers of
the Company. Officers are elected annually. There is no family relationship
among any of the directors or executive officers, and none of such persons has
been involved during the past five years in any legal proceedings described in
applicable Securities and Exchange Commission regulations.
<TABLE>
<CAPTION>
Positions Held
Name Age Office Since Jan. 1, 1991
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<S> <C> <C> <C>
A. L. Schuman 61 President and Chief March 1995 - Present
Executive Officer
President and Chief Aug. 1992 - Feb. 1995
Operating Officer
</TABLE>
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<TABLE>
<CAPTION>
Positions Held
Name Age Office Since Jan. 1, 1991
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<S> <C> <C> <C>
A. L. Schuman (Cont'd) Executive Vice President; Jan. 1991 - July 1992
President-Ecolab
Services Group
M. E. Shannon 59 Chairman of the Board, Jan. 1996 - Present
Chief Financial and
Administrative Officer
Vice Chairman, Chief Aug. 1992 - Dec. 1995
Financial and
Administrative Officer
Executive Vice President June 1992 - July 1992
and Chief Financial
Officer
Executive Vice President Jan. 1991 - May 1992
and Chief Financial
Officer; President-
Residential Services
Group
G. K. Carlson 52 Senior Vice President- Jan. 1994 - Present
International
Senior Vice President Jan. 1991 - Dec. 1993
and General Manager-
Institutional North
America
P. D'Almada 48 Senior Vice President- Mar. 1996 - Present
Global Accounts
Vice President- May 1994 - Feb. 1996
Institutional Corporate
Accounts
Vice President- Oct. 1993 - Apr. 1994
Institutional National
Accounts and Distributors
Sales
International Vice Aug. 1992 - Sep. 1993
President-Central America
and The Caribbean
Institutional Vice Jan. 1991 - Jul. 1992
President-World Accounts
A. E. Henningsen, Jr. 49 Senior Vice President Mar. 1996 - Present
and Controller
Vice President and Aug. 1992 - Feb. 1996
Controller
Vice President-Finance, Jan. 1991 - July 1992
Ecolab Services Group
</TABLE>
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<TABLE>
<CAPTION>
Positions Held
Name Age Office Since Jan. 1, 1991
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<S> <C> <C> <C>
J. L. McCarty 58 Senior Vice President- Jan. 1994 - Present
Institutional North America
Vice President and General Jan. 1991 - Dec. 1993
Manager - Pest Elimination
J. M. Millsap 50 Senior Vice President- Mar. 1995 - Present
Corporate Development
and Treasury
Senior Vice President- Aug. 1992 - Feb. 1995
Corporate Development
and Treasurer
Vice President-Corporate Jan. 1991 - July 1992
Development and Treasurer
M. Nisita 55 Senior Vice President- Jan. 1994 - Present
Global Operations
Vice President-Operations Aug. 1992 - Dec. 1993
Vice President- Jan. 1991 - July 1992
Manufacturing
W. R. Rosengren 61 Senior Vice President-Law Aug. 1992 - Present
and General Counsel
Senior Vice President- Jan. 1991 - July 1992
Law, General Counsel
and Secretary
J. P. Spooner 49 Senior Vice President- June 1994 - Present
Industrial
F. W. Tuominen, Ph.D 53 Senior Vice President Aug. 1992 - Present
and Chief Technical and
Environmental Officer
Senior Vice President Jan. 1991 - July 1992
and Chief Technical
Officer
</TABLE>
Mr. Spooner joined the Company as Senior Vice President-Industrial in June 1994.
Prior to joining the Company, Mr. Spooner was employed by PepsiCo, Inc. for 15
years, holding various positions in operations and business development,
including most recently, President of the North Division of Frito-Lay, Inc.
ITEM 2. PROPERTIES
The Company's manufacturing facilities produce chemical products or equipment
for all the Company's businesses except the Pest Elimination Division which
purchases products and substantially all its equipment from outside suppliers.
The Company's chemical
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production process consists primarily of blending and packaging powders and
liquids and casting solids.
The Company's United States plant facilities devoted primarily to the production
of chemical products are located in Joliet, Illinois; Woodbridge, New Jersey;
McDonough, Georgia; Garland, Texas; San Jose, California; and Hebron, Ohio.
Smaller plant facilities in Franklin Park, Illinois; North Kansas City,
Missouri; Charlotte, North Carolina and Grand Forks, North Dakota produce
certain chemical products primarily for the Company's Textile Care, Water Care
Services and Janitorial divisions. These facilities are all Company-owned. The
Company's Kay business also owns and operates manufacturing facilites in
Greensboro, North Carolina and Dallas, Texas.
Additional chemical manufacturing facilities are located in Dorado, Puerto Rico;
Santa Cruz, Brazil; Hamilton, New Zealand; Noda and Shika, Japan; Singapore;
Jakarta, Indonesia; Sydney, Melbourne and Brisbane, Australia; Seoul, South
Korea; Mexico City, Mexico, and Toronto, Canada. The buildings and land for the
facilities located in Canada, Australia and Puerto Rico are leased. A chemical
plant, which is co-owned with a Chinese joint venture partner, is located near
Shanghai, People's Republic of China, and a leased chemical plant is located in
Chile. Smaller chemical plant facilities are owned in certain other countries
including Costa Rica and South Africa.
The Company's plant in South Beloit, Illinois produces chemical product
dispensers and injectors and other mechanical equipment. A leased plant, which
manufactures dishwasher racks and related sundries, is located in Elk Grove
Village, Illinois. Dishwasher racks are also produced at the Shika, Japan
plant. A leased facility in Memphis, Tennessee serves as a dishwashing machine
refurbishing center.
The Company believes its manufacturing facilities are in good condition and are
adequate to meet existing production needs.
Most of the Company's manufacturing plants also serve as distribution centers.
In addition, in the United States the Company operates 5 distribution centers,
all of which are leased, and utilizes approximately 30 primary public
warehouses. Internationally, the Company operates various additional leased or
public warehouses to facilitate distribution and, in the United States, operates
approximately 115 sales offices, including three Company-owned facilities.
Additional sales offices are located internationally.
The Company's corporate headquarters is located in downtown St. Paul, Minnesota.
The 19-story building was constructed to the Company's specifications. The
building is leased by the Company through 1998 and thereafter is subject to
multiple renewals at the
- 15 -
<PAGE>
Company's option. The Company also owns a building in downtown St. Paul
adjacent to its headquarters which is used for general office purposes, as well
as a computer center located in a City of St. Paul industrial development zone
several blocks from the Company's headquarters. A Company-owned research and
development facility and a chemical pilot plant are located in suburbs of St.
Paul.
ITEM 3. LEGAL PROCEEDINGS
Proceedings arising under laws relating to protection of the environment are
discussed at Item 1(c) above, under the heading "Environmental Considerations."
The Company and certain of its subsidiaries are defendants in various other
lawsuits and claims arising out of the normal course of business. In the
opinion of management, the ultimate resolution of this litigation will not have
a material effect on the Company's results of operations, consolidated financial
condition or liquidity.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders, through the
solicitation of proxies, or otherwise, during the fourth quarter.
- 16 -
<PAGE>
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
ITEM 5(A) MARKET INFORMATION
The Company's Common Stock is listed on the New York Stock Exchange and the
Pacific Stock Exchange under the symbol ECL. The Common Stock is also traded on
the Boston, Cincinnati, Midwest and Philadelphia Exchanges. The high and low
sales price of the Company's Common Stock on the consolidated transaction
reporting system during 1995 and 1994 was as follows:
<TABLE>
<CAPTION>
1995 1994
----------------- -----------------
Quarter High Low High Low
- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
First $24-7/8 $20 $23-1/2 $20-1/8
Second $25-1/2 $22-1/2 $23-1/2 $19-3/4
Third $28-1/8 $24-1/4 $23-1/4 $20-1/4
Fourth $31-3/4 $27-1/4 $22 $19-1/4
</TABLE>
The closing stock price on March 19, 1996 was $30-3/8.
ITEM 5(B) HOLDERS
On March 19, 1996 the Company had 4,842 holders of Common Stock of record.
ITEM 5(C) DIVIDENDS
Quarterly cash dividends customarily are paid on the 15th of January, April,
July and October. Dividends of $0.11 per share were declared in February, May
and August, 1994, $0.125 per share in December, 1994 and February, May and
August, 1995. A cash dividend of $0.14 per share was declared in December 1995.
ITEM 6. SELECTED FINANCIAL DATA
The comparative data for the years ended December 31, 1995, 1994, 1993, 1992 and
1991 inclusive, which are set forth under the heading entitled "Summary
Operating and Financial Data" and which are located on page 46 of the Annual
Report, are incorporated herein by reference.
- 17 -
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The material appearing under the heading entitled "Financial Discussion,"
located on pages 24 through 30 of the Annual Report, is incorporated herein by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and material which are an integral part of the
financial statements listed under Item 14 I(1) below and located on pages 31
through 45 of the Annual Report, are filed as a part of this Report and are
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The biographical material located on pages 6 through 10 and the paragraph
relating to understandings concerning the election of directors between Henkel
KGaA and the Company located on page 5 of the Proxy Statement appearing under
the heading entitled "Election of Directors," is incorporated herein by
reference. Information regarding executive officers is presented under the
heading "Executive Officers of the Company" in Part I of this Report on pages 12
through 14.
ITEM 11. EXECUTIVE COMPENSATION
The material appearing under the heading entitled "Executive Compensation,"
located on pages 11 through 20 of the Proxy Statement, is incorporated herein by
reference. However, pursuant to Securities and Exchange Commission Regulation
S-K, Item 402(a)(8), the material appearing under the headings entitled "Report
of the Compensation Committee on Executive Compensation" and "Comparison of Five
Year Cumulative Total Return," found, respectively, on pages 11 through 14 and
on page 18 of the Proxy Statement is not incorporated herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The material appearing under the headings entitled "Security Ownership of
Certain Beneficial Owners" and "Security Ownership of Management" located on
pages 2 and 3 of the Proxy Statement is incorporated herein by reference. The
holdings of Henkel KGaA and HC Investments, Inc. are subject to certain
limitations with respect to the Company's voting securities as more fully
described in the Company's Proxy Statement on page 21, beginning with the
- 18 -
<PAGE>
fourth paragraph under the heading "Certain Transactions," which is
incorporated herein by reference.
A total of 2,783,838 shares of Common Stock held by the Company's directors and
executive officers, some of whom may be affiliates of the Company, have been
excluded from the computation of market value of the Company's Common Stock on
the cover page of this Report. This total represents that portion of the shares
reported as beneficially owned by officers and directors of the Company in the
table entitled "Security Ownership of Management" located on page 3 of the Proxy
Statement, which are issued and outstanding.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The material appearing under the headings entitled "Certain Transactions" and
"Company Transactions" on pages 21 and 22 of the Proxy Statement and the
biographical material located on pages 7, 9 and 10 of the Proxy Statement
pertaining to Messrs. Roland Schulz, Hugo Uyterhoeven and Albrecht Woeste is
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K
I(1). The following financial statements of the Company, included in the Annual
Report, are incorporated in Item 8 hereof.
(i) Consolidated Statement of Income for the years ended
December 31, 1995, 1994 and 1993, Annual Report page 31.
(ii) Consolidated Balance Sheet at December 31, 1995, 1994 and
1993, Annual Report page 32.
(iii) Consolidated Statement of Cash Flows for the years ended
December 31, 1995, 1994 and 1993, Annual Report page 33.
(iv) Consolidated Statement of Shareholders' Equity for the years
ended December 31, 1995, 1994 and 1993, Annual Report page
34.
(v) Notes to Consolidated Financial Statements, Annual Report
pages 35 through 43.
(vi) Report of Independent Accountants, Annual Report page 45.
- 19 -
<PAGE>
I(2). The following financial statement schedule to the Company's financial
statements listed in Item 14 I(1) for the years ended December 31, 1995,
1994 and 1993 located on page 30 hereof, and the Report of Independent
Accountants on Financial Statement Schedule at page 29 hereof are filed
as part of this Report.
(i) Schedule VIII -- Valuation and Qualifying Accounts for the
years ended December 31, 1995, 1994 and 1993.
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.
I(3). The following financial statements of the Henkel-Ecolab Joint Venture
located on pages 31 to 54 hereof, are filed as part of this Report.
(i) Report of Independent Accountants.
(ii) Combined Statements of Income for the years ended November
30, 1995, 1994 and 1993.
(iii) Combined Balance Sheets at November 30, 1995, 1994 and 1993.
(iv) Combined Statements of Cash Flows for the years ended
November 30, 1995, 1994 and 1993.
(v) Combined Statements of Equity for the years ended November
30, 1995, 1994 and 1993.
(vi) Notes to the Combined Financial Statements.
I(4). The following financial statement schedule to the Henkel-Ecolab Joint
Venture financial statements listed in Item 14 I(3) for the years ended
November 30, 1995, 1994 and 1993 located on page 55 hereof, and the
Report of Independent Accountants on pages 31 and 32 hereof are filed as
part of this Report.
(i) Schedule I -- Valuation and Qualifying Accounts and Reserves
for the years ended November 30, 1995, 1994 and 1993.
All other schedules, for which provision is made in the applicable
regulations of the Securities and Exchange
- 20 -
<PAGE>
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.
II. The following documents are filed as exhibits to this Report. The
Company will, upon request and payment of a fee not exceeding the rate at
which copies are available from the Securities and Exchange Commission,
furnish copies of any of the following exhibits to stockholders.
(3)A. (i) Restated Certificate of Incorporation - Incorporated
by reference to Exhibit (3)A of the Company's Form
10-K Annual Report for the year ended December 31,
1992.
(ii) Amended Certificate of Designation, Preferences and
Rights, Including Increase in Number of Shares, of
the Series A Junior Participating Preferred Stock of
the Company.
B. By-Laws, as amended through December 18, 1995.
(4)A. Common Stock - see Exhibits (3)A and (3)B.
B. Form of Common Stock Certificate.
C. Rights Agreement dated as of February 24, 1996 -
Incorporated by reference to Exhibit (4) of the Company's
Current Report on Form 8-K dated February 24, 1996.
D. Note Agreement dated as of October 1, 1991 relating to
$100,000,000 9.68% Senior Notes Due October 1, 2001 between
the Company and the insurance companies named therein -
Incorporated by reference to Exhibit (4)F of the Company's
Form 10-K Annual Report for the year ended December 31,
1991.
E. Multicurrency Credit Agreement dated as of September 29,
1993, as Amended and Restated as of January 1, 1995, among
the Company, the financial institutions party thereto,
Citibank, N.A., as Agent, Citibank International Plc, as
Euro-Agent and Morgan Guaranty Trust Company of New York as
Co-Agent - Incorporated by reference to Exhibit (4)E of
- 21 -
<PAGE>
the Company's Form 10-K Annual Report for the year ended
December 31, 1994.
F. Copies of other constituent instruments defining the rights
of holders of long-term debt of the Company and its
subsidiaries are not filed herewith, pursuant to Section
(b)(4)(iii) of Item 601 of Regulation S-K, because the
aggregate amount of securities authorized under each of such
instruments is less than 10% of the total assets of the
Company and its subsidiaries on a consolidated basis. The
Company hereby agrees that it will, upon request by the
Securities and Exchange Commission, furnish to the
Commission a copy of each such instrument.
(9) Amended and Restated Stockholder's Agreement - See Exhibit
(10)S(iv) hereof.
(10)A. Ecolab Inc. 1977 Stock Incentive Plan, as amended through
May 10, 1991 - Incorporated by reference to Exhibit (10)A
of the Company's Form 10-K Annual Report for the year ended
December 31, 1990.
B. Ecolab Inc. 1993 Stock Incentive Plan - Incorporated by
reference to Exhibit (10)B of the Company's Form 10-K Annual
Report for the year ended December 31, 1992.
C. 1988 Non-Employee Director Stock Option Plan as amended
through February 23, 1991 - Incorporated by reference to
Exhibit (10)D of the Company's Form 10-K Annual Report for
the year ended December 31, 1990.
D. 1995 Non-Employee Director Stock Option Plan - Incorporated
by reference to Exhibit (10)D of the Company's Form 10-K
Annual Report for the year ended December 31, 1994.
E. Non-Employee Director Stock-For-Retainer Plan - Incorporated
by reference to Exhibit (10)E of the Company's Form 10-K
Annual Report for the year ended December 31, 1991.
F. Form of Director Indemnification Agreement dated August 11,
1989. Substantially identical agreements are in effect as
to each director of the Company - Incorporated by
- 22 -
<PAGE>
reference to Exhibit (19)A of the Company's Form 10-Q for
the quarter ended September 30, 1989.
G. (i) Deferred Compensation Plan for Non-Employee Directors
(1984) - Incorporated by reference to Exhibit
(10)F(i) of the Company's Form 10-K Annual Report for
the year ended December 31, 1990.
(ii) First Declaration of Amendment to Deferred
Compensation Plan for Non-Employee Directors (1984)
effective December 13, 1991 - Incorporated by
reference to Exhibit (10)G(ii) of the Company's Form
10-K Annual Report for the year ended December 31,
1991.
H. (i) Deferred Compensation Plan for Non-Employee Directors
- 1986 - Incorporated by reference to Exhibit (10)F
of the Company's Form 10-K Annual Report for the
fiscal year ended June 30, 1987.
(ii) First Declaration of Amendment to Deferred
Compensation Plan for Non-Employee Directors - 1986,
effective December 13, 1991 - Incorporated by
reference to Exhibit (10)H(ii) of the Company's Form
10-K Annual Report for the year ended December 31,
1991.
I. Ecolab Non-Employee Directors' Retirement Plan -
Incorporated by reference to Exhibit (10)I of the Company's
Form 10-K Annual Report for the year ended December 31,
1991.
J. Ecolab Executive Death Benefits Plan, as amended and
restated effective March 1, 1994 - Incorporated by reference
to Exhibit (10)J of the Company's 10-K Annual Report for the
year ended December 31, 1994. See also Exhibit (10)P
hereof.
K. Ecolab Executive Long-Term Disability Plan, as amended and
restated effective January 1, 1994 - Incorporated by
reference to Exhibit (10)K of the Company's 10-K Annual
Report for the
- 23 -
<PAGE>
year ended December 31, 1994. See also Exhibit (10)P
hereof.
L. Ecolab Executive Financial Counseling Plan - Incorporated by
reference to Exhibit (10)K of the Company's Form 10-K Annual
Report for the year ended December 31, 1992.
M. (i) Ecolab Supplemental Executive Retirement Plan, as
amended and restated effective July 1, 1994 -
Incorporated by reference to Exhibit (10)M(i) of the
Company's 10-K Annual Report for the year ended
December 31, 1994. See also Exhibit (10)P hereof.
(ii) First Declaration of Amendment to Ecolab Supplemental
Executive Retirement Plan effective as of July 1,
1994 - Incorporated by reference to Exhibit (10)M(ii)
of the Company's 10-K Annual Report for the year
ended December 31, 1994.
(iii) Second Declaration of Amendment to Ecolab
Supplemental Executive Retirement Plan effective as
of July 1, 1994.
N. (i) Ecolab Mirror Savings Plan (formerly: Ecolab
Executive Non-Qualified Deferred Compensation Plan),
as amended and restated effective September 1, 1994 -
Incorporated by reference to Exhibit (10)N of the
Company's 10-K Annual Report for the year ended
December 31, 1994. See also Exhibit (10)P hereof.
(ii) First Declaration of Amendment to Ecolab Mirror
Savings Plan effective as of January 1, 1995.
O. (i) Ecolab Mirror Pension Plan effective July 1, 1994 -
Incorporated by reference to Exhibit (10)O(i) of the
Company's Annual Report on Form 10-K for the year
ended December 31, 1994. See also Exhibit 10(P)
hereof.
(ii) First Declaration of Amendment to Ecolab Mirror
Pension Plan effective as of July 1, 1994 -
Incorporated by
- 24 -
<PAGE>
reference to Exhibit (10)O(ii) of the Company's
Annual Report on Form 10-K for the year ended
December 31, 1994.
(iii) Second Declaration of Amendment to Ecolab Mirror
Pension Plan effective as of July 1, 1994.
P. The Ecolab Inc. Administrative Document for Non-Qualified
Benefit Plans (Exhibit 10(P)) is incorporated by reference
in, and is a part of, each of the referenced Plan documents
- Incorporated by reference to Exhibit (10)P of the
Company's 10-K Annual Report for the year ended December 31,
1994.
Q. Ecolab Management Performance Incentive Plan - Incorporated
by reference to Exhibit (10)N of the Company's Form 10-K
Annual Report for the year ended December 31, 1993.
R. (i) Severance Agreement dated March 19, 1990, between
Pierson M. Grieve and the Company - Incorporated by
reference to Exhibit (10)M of the Company's Form 10-K
Annual Report for the year ended December 31, 1989.
(ii) Amendment, dated as of February 26, 1994, to
Severance Agreement dated March 19, 1994, between
Pierson M. Grieve and the Company - Incorporated by
reference to Exhibit (10) of the Company's Form 10-Q
for the quarter ended September 30, 1994.
(iii) Description of Pierson M. Grieve's retirement benefit
- Incorporated by reference to written description of
Consulting Agreement contained on pages 19 and 20 of
the Proxy Statement.
S. (i) Amended and Restated Umbrella Agreement between
Henkel KGaA and Ecolab Inc. dated June 26, 1991 -
Incorporated by reference to Exhibit 13 of HC
Investments, Inc.'s and Henkel KGaA's Amendment No. 4
to Schedule 13D dated July 16, 1991.
(ii) Amended and Restated Joint Venture Agreement between
Henkel KGaA and
- 25 -
<PAGE>
Ecolab Inc. dated June 26, 1991 - Incorporated by
reference to Exhibit 14 of HC Investments, Inc.'s and
Henkel KGaA's Amendment No. 4 to Schedule 13D dated
July 16, 1991.
(iii) Amended and Restated ROW Purchase Agreement between
Henkel KGaA and Ecolab Inc. dated June 26, 1991 -
Incorporated by reference to Exhibit (7) of the
Company's Current Report on Form 8-K dated July 11,
1991.
(iv) Amended and Restated Stockholder's Agreement between
Henkel KGaA and Ecolab Inc. dated June 26, 1991 -
Incorporated by reference to Exhibit 15 of HC
Investments, Inc.'s and Henkel KGaA's Amendment No. 4
to Schedule 13D dated July 16, 1991.
T. Agreement and Plan of Merger among Ecolab Inc., EKH, Inc. I,
EKH, Inc. II, EKH, Inc. III, Kay Chemical Company, Kay
Chemical International, Inc. and Kay Europe, Inc. dated
November 2, 1994 - Incorporated by reference to Exhibit (2)
of the Company's Current Report on Form 8-K dated December
7, 1994.
(11) Computation of Primary and Fully Diluted Earnings Per Share.
(13) Those portions of the Company's Annual Report to
Stockholders for the year ended December 31, 1995 which are
incorporated by reference into Parts I, II and IV hereof.
(21) List of Subsidiaries as of March 19, 1996.
(23)A. Consent of Coopers & Lybrand L.L.P. to Incorporation by
Reference at page 29 hereof is filed as a part hereof.
B. Consent of KPMG Deutsche Treuhand-Gesellschaft
Aktiengesellschaft.
(24) Powers of Attorney.
(27) Financial Data Schedule.
- 26 -
<PAGE>
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
Included in the preceding list of exhibits are the following management
contracts or compensatory plans or arrangements:
<TABLE>
<CAPTION>
Exhibit No. Description
<S> <C>
(10)A. Ecolab Inc. 1977 Stock Incentive Plan.
(10)B. Ecolab Inc. 1993 Stock Incentive Plan.
(10)C. 1988 Non-Employee Director Stock Option Plan.
(10)D. 1995 Non-Employee Director Stock Option Plan.
(10)E. Non-Employee Director Stock-For-Retainer Plan.
(10)G. Deferred Compensation Plan for Non-Employee Directors (1984).
(10)H. Deferred Compensation Plan for Non-Employee Directors (1986).
(10)I. Ecolab Non-Employee Directors' Retirement Plan.
(10)J. Ecolab Executive Death Benefits Plan.
(10)K. Ecolab Executive Long-Term Disability Plan.
(10)L. Ecolab Executive Financial Counseling Plan.
(10)M. Ecolab Supplemental Executive Retirement Plan.
(10)N. Ecolab Mirror Savings Plan.
(10)O. Ecolab Mirror Pension Plan.
(10)P. The Ecolab Inc. Administrative Document for Non-Qualified Benefit
Plans.
(10)Q. Ecolab Management Performance Incentive Plan.
(10)R. Severance and Consulting Agreements between Pierson M. Grieve and
the Company.
</TABLE>
III. Reports on Form 8-K:
The Company filed no Current Reports on Form 8-K for the quarter ended
December 31, 1995. Subsequent to the quarter, the Company filed one
Current Report on Form 8-K, dated February 24, 1996 reporting the extension
of the benefits afforded by the Company's former shareholder rights plan by
adoption of a new rights plan.
- 27 -
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Ecolab Inc. has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized, on the 27th day of March, 1996.
ECOLAB INC.
(Registrant)
By /s/ Allan L. Schuman
------------------------------------
Allan L. Schuman, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of Ecolab Inc. and in
the capacities indicated, on the 27th day of March, 1996.
/s/ Allan L. Schuman President and Chief Executive
- ----------------------------- Officer (Principal Executive
Allan L. Schuman Officer and Director)
/s/ Michael E. Shannon Chairman of the Board, Chief
- ----------------------------- Financial and Administrative Officer
Michael E. Shannon (Principal Financial Officer
and Director)
/s/ Arthur E. Henningsen, Jr. Senior Vice President and Controller
- ----------------------------- (Principal Accounting Officer)
Arthur E. Henningsen, Jr.
/s/ Kenneth A. Iverson Directors
- -----------------------------
Kenneth A. Iverson
as attorney-in-fact for
Ruth S. Block, Russell G. Cleary,
Pierson M. Grieve, James J. Howard,
Jerry W. Levin, Reuben F. Richards,
Richard L. Schall, Roland Schulz,
Philip L. Smith, Hugo Uyterhoeven,
and Albrecht Woeste
- 28 -
<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. has been
incorporated by reference in this Form 10-K from the Annual Report to
Shareholders of Ecolab Inc. for the year ended December 31, 1995, on page 45
therein. In connection with our audits of such financial statements, we have
also audited the related financial statement schedule listed in the index on
page 31 of this Form 10-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 26, 1996
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; 33-65364; and 33-59431) and the
Registration Statement on Form S-3 of Ecolab Inc. (Registration No. 33-57197) of
our reports dated February 26, 1996 on our audits of the consolidated financial
statements and the related financial statement schedule of Ecolab Inc. as of
December 31, 1995, 1994 and 1993, and for the years ended December 31, 1995,
1994 and 1993, which reports are included or incorporated by reference in this
Annual Report on Form 10-K. We also consent to the references to our firm under
the caption "Interests of Named Experts and Counsel" in certain Registration
Statements on Form S-8 of Ecolab Inc. (Registration Nos. 33-56101; 33-56151; 33-
56125; and 33-59431) and under the caption "Experts" in the Registration
Statement on Form S-3 of Ecolab Inc. (Registration No. 33-57197).
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Saint Paul, Minnesota
March 27, 1996
- 29 -
<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, 1995 $8,703 $4,011 $ 127 $(4,510) $8,331
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
</TABLE>
(A) Reflects foreign currency translation adjustments and the effect of
acquisitions. The year ended December 31, 1993, includes 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.
- 30 -
<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
schedule as listed in the accompanying index. These combined financial
statements and financial statement schedule are the responsibility of the Joint
Venture's management. Our responsibility is to express an opinion on these
combined financial statements and financial statement schedule 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.
- 31 -
<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, 1995, 1994 and 1993, and the results of its
operations and its cash flows for the periods beginning December 1, 1994, 1993
and 1992, and ended November 30, 1995, 1994 and 1993, in conformity with
accounting principles generally accepted in the United States. Also in our
opinion, the related financial statement schedule, when considered in relation
to the basic combined financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.
Dusseldorf, Germany, January 19, 1996
KPMG Deutsche Treuhand-Gesellschaft
Aktiengesellschaft [SEAL]
Wirtschaftsprufungsgesellschaft
[SIGNATURE] [SIGNATURE]
Dr. Kuhr Haas
Wirtschaftsprufer Wirtschaftsprufer
- 32 -
<PAGE>
Henkel-Ecolab Joint Venture
INDEX TO COMBINED FINANCIAL STATEMENTS FOR THE YEARS ENDED NOVEMBER 30, 1995,
NOVEMBER 30, 1994 AND NOVEMBER 30, 1993
_____________________________________________________________________________
Report of Independent Accountants
Combined Statements of Income
Combined Balance Sheets
Combined Statements of Cash Flows
Combined Statements of Equity
Notes to the Combined Financial Statements
Financial Statement Schedule : Valuation and Qualifying Accounts and Reserves
- 33 -
<PAGE>
HENKEL-ECOLAB JOINT VENTURE
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(Thousands) 1994/95 1993/94 1992/93
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Sales DM 1,308,935 DM 1,264,985 DM 1,245,446
Cost of Sales 585,002 546,706 562,586
Selling, General and Administrative Expenses 624,032 600,779 569,376
Royalties to Parents 28,180 31,874 36,460
- ------------------------------------------------------------------------------------------------------------------------
Operating Income 71,721 85,626 77,024
Other Expenses/Income, principally Interest
Expense, net 7,977 6,426 10,207
Equity in Gain/(Loss) of Affiliate 132 (391) (582)
- ------------------------------------------------------------------------------------------------------------------------
Income before Income Taxes 63,876 78,809 66,235
Provision for Income Taxes 31,637 36,287 35,966
- ------------------------------------------------------------------------------------------------------------------------
Income before Cumulative Effect of
Change in Accounting Principle 32,239 42,522 30,269
Cumulative Effect at December 1, 1992 of the Change in
Accounting for Income Taxes _ _ 9,771
- ------------------------------------------------------------------------------------------------------------------------
Net Income DM 32,239 DM 42,522 DM 40,040
-- --------- -- --------- -- ---------
</TABLE>
See accompanying Notes to Combined Financial Statements
- 34 -
<PAGE>
Henkel-Ecolab Joint Venture
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
November 30, November 30, November 30,
(Thousands) 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets
Cash and Cash Equivalents DM 67,272 DM 60,978 DM 41,051
Accounts Receivable, net 269,160 260,696 266,299
Accounts Receivable from Related Parties 22,349 15,631 33,917
Loans to Related Parties 15,778 38,140 12,297
Inventories 165,604 162,414 152,988
Prepaid Expenses and Other Current Assets 23,869 22,528 20,088
Deferred Taxes 5,275 6,011 6,714
- ------------------------------------------------------------------------------------------------------------------
Current Assets 569,307 566,398 533,354
- ------------------------------------------------------------------------------------------------------------------
Investment in Affiliated Company, net 8,330 8,987 9,470
Property, Plant and Equipment, net 160,118 153,837 146,877
Intangible and Other Assets, net 31,098 26,818 20,043
Deferred Taxes 11,339 10,195 6,821
- ------------------------------------------------------------------------------------------------------------------
Total Assets DM 780,192 DM 766,235 DM 716,565
-- ------- -- ------- -- -------
-- ------- -- ------- -- -------
- ------------------------------------------------------------------------------------------------------------------
Liabilities and Equity
Current Portion of Long Term Debt DM 712 DM 727 DM 796
Short Term Debt 17,695 19,256 45,505
Loans from Related Parties 48,437 63,810 75,910
Accounts Payable 84,764 83,432 79,944
Accounts Payable to Related Parties 28,906 33,070 35,019
Accrued Liabilities 140,361 125,629 103,593
Income Taxes 37,996 41,378 28,162
- ------------------------------------------------------------------------------------------------------------------
Current Liabilities 358,871 367,302 368,929
- ------------------------------------------------------------------------------------------------------------------
Employee Benefit Obligations 94,528 84,549 71,392
Long Term Debt, less Current Maturities 5,905 6,521 7,090
Deferred Taxes 2,489 2,705 2,027
- ------------------------------------------------------------------------------------------------------------------
Combined Equity 318,399 305,158 267,127
- ------------------------------------------------------------------------------------------------------------------
Total Liabilities and Equity DM 780,192 DM 766,235 DM 716,565
-- ------- -- ------- -- -------
-- ------- -- ------- -- -------
</TABLE>
See accompanying Notes to Combined Financial Statements
- 35 -
<PAGE>
HENKEL-ECOLAB JOINT VENTURE
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Thousands) 1994/95 1993/94 1992/93
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET INCOME DM 32,239 DM 42,522 DM 40,040
Cumulative Effect of Change in Accounting for Income Taxes - - (9,771)
----------- ------------ ------------
Income before Cumulative Effect of Change in Accounting Principle 32,239 42,522 30,269
ADJUSTMENTS TO RECONCILE NET INCOME TO CASH
PROVIDED BY OPERATING ACTIVITIES
Depreciation and Amortization 54,153 45,208 39,648
Equity in (Gain) / Loss of Affiliated Company (132) 391 582
Provision for Doubtful Accounts and Other 791 1,032 3,484
Gain on Sale of Property and Equipment (1,075) (762) (1,076)
Deferred Income Taxes (624) (1,993) (2,770)
CHANGES IN OPERATING ASSETS AND LIABILITIES
(Increase) / Decrease in Accounts Receivable (9,255) 4,571 (5,670)
(Increase) /Decrease in Due from Related Parties (6,718) 18,286 (16,287)
(Increase) in Inventories (3,190) (9,426) (19,845)
Increase in Accounts Payable and Accrued Liabilities 16,064 25,524 45,007
(Decrease) in Due to Related Parties (4,164) (1,949) (25,244)
(Decrease) / Increase in Income Taxes Payable (3,382) 13,216 543
(Increase) / Decrease in Other Current Assets (1,341) (2,440) 12,895
Increase in Employee Benefit Obligations 9,979 13,157 12,488
----------- ------------ ------------
Cash Provided by Operating Activities 83,345 147,337 74,024
----------- ------------ ------------
INVESTING ACTIVITIES
Expenditures for Property and Equipment (63,024) (48,237) (66,283)
Expenditures for Intangible and Other Assets (11,825) (13,900) (8,884)
Proceeds from Sale of Property and Equipment 8,070 5,045 3,680
Decrease / (Increase) in Loans to Related Parties 22,362 (25,843) 3,640
----------- ------------ ------------
Cash Used for Investing Activities (44,417) (82,935) (67,847)
----------- ------------ ------------
FINANCING ACTIVITIES
(Repayments of) / Proceeds from Bank Debt, net (2,192) (26,887) 6,295
(Decrease) in Loans from Related Parties (15,373) (12,100) (3,825)
Dividends Paid (17,063) (1,411) (9,535)
Equity Allocations - - 6,826
Equity Withdrawals - - (1,785)
----------- ------------ ------------
Cash Used for Financing Activities (34,628) (40,398) (2,024)
----------- ------------ ------------
EFFECT OF EXCHANGE RATE CHANGES ON NET CASH 1,994 (4,077) (3,192)
----------- ------------ ------------
INCREASE IN CASH AND CASH EQUIVALENTS 6,294 19,927 961
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 60,978 41,051 40,090
----------- ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD DM 67,272 DM 60,978 DM 41,051
----------- ------------ ------------
----------- ------------ ------------
</TABLE>
See accompanying Notes to Combined Financial Statements
- 36 -
<PAGE>
HENKEL-ECOLAB JOINT VENTURE
COMBINED STATEMENTS OF EQUITY
(Thousands)
<TABLE>
<CAPTION>
Contributed Retained Cumulative
Capital Earnings Foreign Total
Currency
Translation
____________________________________________________
<S> <C> <C> <C> <C> <C>
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
Net Income 32,239 32,239
Dividends Paid (17,063) (17,063)
Translation (1,935) (1,935)
Adjustment
____________________________________________________
Balance
November 30, 1995 DM 211,704 130,005 (23,310) 318,399
- ---------------------------------------- ------- ------- ------- -------
- ---------------------------------------- ------- ------- ------- -------
</TABLE>
See accompanying Notes to Combined Financial Statements
- 37 -
<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 the local currency as the functional currency, except for one
country, where due to hyperinflation the functional currency since 1994 has
been changed to DEM. 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.
- 38 -
<PAGE>
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
3,494 in 1995, TDM 3,877 in 1994 and TDM 4,976 in 1993.
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.
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 4,696 at
November 30, 1995, TDM 5,444 at November 30, 1994 and TDM 6,192 at November
30, 1993. 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:
Building 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.
- 39 -
<PAGE>
INTANGIBLE ASSETS
Intangible assets primarily consist of amounts by which cost of acquisitions
exceed the values assigned to net tangible assets. These assets are amortized
over their estimated lives, periods from 3 to 15 years. Total amortization of
all intangible assets amounted to TDM 7,469, TDM 6,407 in 1994 and TDM 4,283
in 1993.
- 40 -
<PAGE>
HENKEL-ECOLAB JOINT VENTURE
2. BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
(Thousands) November 30, November 30, November 30,
1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ACCOUNTS RECEIVABLE, NET
Accounts Receivable, Trade DM 283,434 DM 274,179 DM 278,750
Allowance for Doubtful Accounts 14,274 13,483 12,451
------------------------------------------------------
DM 269,160 DM 260,696 DM 266,299
------- ------- -------
------- ------- -------
INVENTORIES
Raw Materials DM 41,646 DM 36,777 DM 36,087
Work in Process 10,773 10,180 9,931
Finished Goods 113,185 115,457 106,970
------------------------------------------------------
Total DM 165,604 DM 162,414 DM 152,988
------- ------- -------
------- ------- -------
PROPERTY, PLANT AND EQUIPMENT, NET
Land DM 6,273 DM 6,164 DM 6,130
Buildings and Improvements 75,122 68,060 61,235
Machinery and Equipment 112,230 106,629 95,150
Merchandising Equipment, Furniture and Fixtures 199,713 172,510 151,039
Construction in Progress 3,204 2,086 6,117
------------------------------------------------------
396,542 355,449 319,671
Accumulated Depreciation and Amortization 236,424 201,612 172,794
------------------------------------------------------
Total DM 160,118 DM 153,837 DM 146,877
------- ------- -------
------- ------- -------
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 16,469 13,500 6,197
Other Intangible Assets, including Capitalized
Computer Software 19,542 10,811 3,547
------------------------------------------------------
56,952 45,252 30,685
Accumulated Depreciation 27,367 21,454 15,439
------------------------------------------------------
Total Intangible Assets, net 29,585 23,798 15,246
Other Assets, net 1,513 3,020 4,797
------------------------------------------------------
Total DM 31,098 DM 26,818 DM 20,043
------- ------- -------
------- ------- -------
</TABLE>
- 41 -
<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.
Since 1995 products are purchased at agreed upon prices between the parties
involved, prior to that on the basis of costs incurred. Purchases totalled
TDM 239,819 in 1995, TDM 259,882 in 1994 and TDM 278,693 in 1993.
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 20,365 in 1995, TDM 20,326 in 1994 and TDM 23,353 in
1993.
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 28,180 in 1995, TDM 31,874 in 1994 and TDM
36,460 in 1993.
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 5.25 % per November 30, 1995 and
4.25 % for 3 month short term German Marks loans per November 30, 1995); on
overdrafts, approximately between 0.4 - 1.5 percentage point is paid to
compensate Henkel for administration costs.
- 42 -
<PAGE>
At November 30, 1995 the Joint Venture had borrowed TDM 48,437, from Henkel
Group Companies, TDM 63,810 in 1994 and TDM 75,910 in 1993. The loans
received from Henkel Group Companies had totalled TDM 15,778 in 1995, TDM
38,140 in 1994 and TDM 12,297 in 1993. The fair values of intercompany loans
receivable and payable approximate book value.
Interest expense to related companies totalled TDM 6,235 in the year ended
November 30, 1995, TDM 6,304 in 1994 and TDM 9,819 in 1993. Interest income
from related companies amounted to TDM 3,251 for the year ended November 30,
1995, TDM 1,989 in 1994 and TDM 1,503 in 1993.
- 43 -
<PAGE>
4. INCOME TAXES
The provision for income taxes totalled TDM 31,637, compared to November 30,
1994 TDM 36,287 and November 30, 1993 TDM 35,966. The net deferred taxes
included in the provision for income taxes for 1995 were TDM 624 credit, for
1994 TDM 1,993 credit and for 1993 TDM 2,770 credit.
Effective December 1, 1992, the Joint Venture adopted the provisions of
Statement of Financial Accounting Standards of Nov. 109, "Accounting for
Income Taxes" (FAS 109). 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, 1995, at November 30, 1994 and at November 30, 1993 are as
follows:
Deferred tax assets: November November November
30, 1995 30, 1994 30, 1993
-------- -------- --------
TDM TDM TDM
Goodwill amortization 642 2,213 6,226
Tax loss carryforwards 7,894 5,614 5,774
Accruals, not permitted for
tax purposes 3,355 2,921 2,148
Inventory valuation 1,847 1,345 1,084
Pension provision, not deductible 4,926 4,746 3,784
Intangible assets (other than
goodwill) amortization 1,535 2,024 693
Fixed assets 5,203 4,853 0
Other 1,516 3,275 2,912
---------------------------------
Total gross deferred tax assets 26,918 26,991 22,591
Valuation allowance (7,665) (8,023) (6,369)
---------------------------------
Total deferred tax assets 19,521 18,968 16,222
---------------------------------
Deferred tax liabilities:
Depreciation on tangible assets (3,555) (3,547) (2,578)
Other (1,573) (1,920) (2,136)
---------------------------------
Total deferred tax liabilities (5,128) (5,467) (4,714)
---------------------------------
Net deferred tax asset 14,125 13,501 11,508
---------------------------------
---------------------------------
At November 30, 1995, the Joint Venture had net foreign operating loss
carryforwards for tax purposes of approximately TDM 25,163 compared to
November 30, 1994 to TDM 17,847 and compared to November 30, 1993 to TDM
16,577. A significant portion of these losses have an indefinite carryforward
period; the remaining losses have expiration dates up to five years.
- 44 -
<PAGE>
As of November 30, 1995, 1994 and 1993 the tax benefits of the loss
carryforwards have been reserved 100% in Great Britain, 20% in Italy, 60% in
Switzerland in 1995 and 80% in 1994 and 1993. 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, 1995.
A reconciliation of the statutory German trade tax and federal corporate
income tax rate to the effective income tax rate was:
1995 1994 1993
---- ---- ----
Statutory German rate 44.4% 44.4% 45.3%
Other European rates (7.5) (6.6) (7.4)
Losses and deferred items
without offsetting tax benefits 5.8 3.6 5.0
Provision for taxes arising
from tax examination 5.9 0.0 0.0
Different tax base in Germany 0.5 3.8 3.8
Deferred taxes refundable to
parent 3.8 3.1 9.2
Change of valuation allowance (1.5) 0.0 (6.4)
Other (1.9) (2.3) 4.8
---- ---- ----
Effective income tax rate 49.5% 46.0% 54.3%
---- ---- ----
---- ---- ----
- 45 -
<PAGE>
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 1995, the tax payments were TDM 24,503, in 1994 TDM 21,368 and in 1993 TDM
29,846.
- 46 -
<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, 1995, 1994 and 1993 follows (TDM):
1995 1994 1993
Service cost-employee benefits 3,646 3,174 2,890
Interest cost 5,567 4,952 4,258
Net amortization and deferral 546 546 546
----- ----- -----
Total Pension expense 9,759 8,672 7,694
----- ----- -----
----- ----- -----
The status of the employee pension benefit plans for Germany at November 30,
1995, 1994 and 1993 is summarized below (TDM):
Actuarial present value of: 1995 1994 1993
Vested benefit obligation 60,927 47,578 38,321
Non-vested accumulated
benefit obligation 3,433 2,799 2,112
------ ------ ------
Accumulated benefit obligation 64,360 50,377 40,433
------ ------ ------
------ ------ ------
Projected benefit obligation 80,074 66,354 56,975
Unrecognized net transition
obligation 7,700 8,246 8,790
Unrecognized net (gain)/loss 6,172 124 (942)
------ ------ ------
Unfunded accrued pension cost 66,202 57,984 49,127
------ ------ ------
------ ------ ------
The following assumptions have been used to develop net periodic pension
expense and the actuarial present value of projected benefit obligations:
1995 1994 1993
Assumed discount rate 7.0 % 7.5 % 7.5 %
Rate of increase in future 4.0 % 4.5 % 5.0 %
Compensation levels
- 47 -
<PAGE>
The Joint Venture also sponsors other defined benefit plans, defined
contribution plans and participation government-sponsored programs in certain
European countries. Expenses under these plans amounted to approximately TDM
7,767 for the twelve months ended November 30, 1995, TDM 13,433 in 1994 and
TDM 12,863 in 1993.
Other Joint Venture-specific savings plans, post-retirement and
post-employment benefit plans requiring contribution by the Joint Venture are
not material.
- 48 -
<PAGE>
6. TOTAL INDEBTEDNESS
Short Term Debt
As of November 30, 1995 short term debt totalled TDM 17,695 compared to
November 30, 1994 TDM 19,256 and compared to November 30, 1993 TDM 45,505,
generally in overdraft facilities with interest rates based on local money
market rates. As of November 30, 1995 the three main balances are in French
Franc in the equivalent amount of TDM 7,599 at an interest rate of 6.5 %-7 %
p.a., in Italian Lira in the equivalent amount of TDM 3,291 at an interest
rate of 11 % p.a. and in Spanish Peseta in the equivalent amount of TDM
2,458 at an interest rate of 7.15 % p.a..
Long Term Debt
1995 1994 1993
---- ---- ----
TDM TDM TDM
Notes 6,617 7,248 7,886
Less current maturities 712 727 796
----- ----- -----
Total 5,905 6,521 7,090
----- ----- -----
----- ----- -----
The total long term debt amount is borrowed in Danish Krona at an average
interest rate of 10.18 % p.a.. As of November 30, 1995, the aggregate annual
maturities of long term debt for the next five years were:
1996 - TDM 712 1997 - TDM 645
1998 - TDM 645 1999 - TDM 645
2000 - TDM 645 after 2000 - TDM 3,325
Interest expense related to all debt was TDM 4,329 in 1995, compared to
November 30, 1994 TDM 4,584 and compared to November 30, 1993 TDM 6,700. No
significant differences existed between interest expense and interest paid.
The fair value of short and long term debt approximates the book value.
- 49-
<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):
November 30, 1995 November 30, 1994
----------------- -----------------
Notional Credit Notional Credit
Amount Exposure Amount Exposure
------ -------- ------ --------
Forwards 36,105 0 30,753 203
Options purchased 0 0 3,142 131
------ - ------ ---
36,105 0 33,895 334
------ - ------ ---
------ - ------ ---
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.
Gains and losses arising on hedged loan transactions are accrued to income
over the period of the hedge.
- 50 -
<PAGE>
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):
1995 1994
----------------- ----------------
Buy Sell Buy Sell
Italian Lira/US-Dollar 9,759 9,936 11,044 10,739
Belgium Franc/Dutch Guilders 4,866 4,865 0 0
Pound Sterling 4,840 4,792 7,319 7,364
US-Dollar 4,120 4,224 3,142 3,000
Finmark/Swedish Krona 2,641 2,531 0 0
Danish Krona 2,574 2,582 8,170 7,997
Swiss Franc 2,449 2,462 0 0
Greek Drachme/French Franc 2,024 2,060 3,148 3,248
Irish Pound 1,434 1,441 0 0
Portuguese Escudo 864 874 677 685
Finmark 331 336 0 0
Norwegian Krona 203 204 0 0
Swedish Krona 0 0 395 367
----------------- ----------------
36,105 36,307 33,895 33,400
------ ------ ------ ------
------ ------ ------ ------
c) Fair Value of Off Balance Sheet Financial Instruments
The fair value of off balance sheet financial instruments is not significant.
- 51 -
<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 33.0 million in 1995, DM 34.1 million in 1994 and DM 28.3
million in 1993.
- 52 -
<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, 1995 (TDM):
1996 14,943
1997 9,119
1998 5,839
1999 4,513
2000 4,069
thereafter 5,362
------
Total 43,845
------
------
Rent expense for the twelve month period ended November 30, 1995, was
approximately TDM 17,790, compared to November 30, 1994 approximately TDM
16,372 and compared to November 30, 1993 approximately TDM 13,415.
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.
- 53 -
<PAGE>
The Joint Venture's operations and customers are located throughout 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
1995, 1994 and 1993, and there were no significant accounts receivable from a
single customer at November 30, 1995, 1994 and 1993. The Joint Venture
establishes an allowance for doubtful accounts based upon factors surrounding
the credit risk of specific customers, historical trends and other
information.
- 54 -
<PAGE>
HENKEL-ECOLAB JOINT VENTURE
Schedule I - Valuation and Qualifying Accounts and Reserves
(Thousands)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
Description Balance, Additions Deductions Balance,
Beg. of (a) from Close of
Period Reserve Period
(b)
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
------ ----- ----- ------
------ ----- ----- ------
Period Ended
November 30, 1995
Allowance for DM 13,483 5,365 4,574 14,274
doubtful
Accounts
------ ----- ----- ------
DM 13,483 5,365 4,574 14,274
------ ----- ----- ------
------ ----- ----- ------
</TABLE>
(a) Provision for doubtful accounts
(charged to expenses)
(b) Items determined to be uncollectible,
less recovery of amounts previously written off.
- 55 -
<PAGE>
EXHIBIT INDEX
The following documents are filed as exhibits to this Report.
<TABLE>
<CAPTION>
Paper (P) or
Exhibit No. Document Electronic (E)
----------- -------- --------------
<S> <C> <C>
(3)A.(i) Restated Certificate of --
Incorporation - Incorporated
by reference to Exhibit (3)A
of the Company's Form 10-K
Annual Report for the year
ended December 31, 1992.
(ii) Amended Certificate of E
Designation, Preferences and
Rights, Including Increase in
Number of Shares, of the
Series A Junior Participating
Preferred Stock of the
Company.
B. By-Laws, as amended through E
December 18, 1995.
(4)A. Common Stock - see Exhibits --
(3)A and (3)B.
B. Form of Common Stock E
Certificate.
C. Rights Agreement dated as of --
February 24, 1996 -
Incorporated by reference to
Exhibit (4) of the Company's
Current Report on Form 8-K
dated February 24, 1996.
D. Note Agreement dated as of --
October 1, 1991 relating to
$100,000,000 9.68% Senior
Notes Due October 1, 2001
between the Company and the
insurance companies named
therein - Incorporated by
reference to Exhibit (4)F of
the Company's Form 10-K
Annual Report for the year
ended December 31, 1991.
- 56 -
<PAGE>
<CAPTION>
Paper (P) or
Exhibit No. Document Electronic (E)
----------- -------- --------------
<S> <C> <C>
E. Multicurrency Credit --
Agreement dated as of
September 29, 1993, as
Amended and Restated as of
January 1, 1995, among the
Company, the financial
institutions party thereto,
Citibank, N.A., as Agent,
Citibank International Plc,
as Euro-Agent and Morgan
Guaranty Trust Company of New
York as Co-Agent -
Incorporated by reference to
Exhibit (4)E of the Company's
Form 10-K Annual Report for
the year ended December 31,
1994.
F. Copies of other constituent --
instruments defining the
rights of holders of
long-term debt of the Company
and its subsidiaries are not
filed herewith, pursuant to
Section (b)(4)(iii) of Item
601 of Regulation S-K,
because the aggregate amount
of securities authorized
under each of such
instruments is less than 10%
of the total assets of the
Company and its subsidiaries
on a consolidated basis. The
Company hereby agrees that it
will, upon request by the
Securities and Exchange
Commission, furnish to the
Commission a copy of each
such instrument.
(9) Amended and Restated --
Stockholder's Agreement - See
Exhibit (10)S(iv) hereof.
- 57 -
<PAGE>
<CAPTION>
Paper (P) or
Exhibit No. Document Electronic (E)
----------- -------- --------------
<S> <C> <C>
(10)A. Ecolab Inc. 1977 Stock --
Incentive Plan, as amended
through May 10, 1991 -
Incorporated by reference to
Exhibit (10)A of the
Company's Form 10-K Annual
Report for the year ended
December 31, 1990.
B. Ecolab Inc. 1993 Stock --
Incentive Plan - Incorporated
by reference to Exhibit (10)B
of the Company's Form 10-K
Annual Report for the year
ended December 31, 1992.
C. 1988 Non-Employee Director --
Stock Option Plan as amended
through February 23, 1991 -
Incorporated by reference to
Exhibit (10)D of the
Company's Form 10-K Annual
Report for the year ended
December 31, 1990.
D. 1995 Non-Employee Director --
Stock Option Plan -
Incorporated by reference to
Exhibit (10)D of the
Company's Form 10-K Annual
Report for the year ended
December 31, 1994.
E. Non-Employee Director Stock- --
For-Retainer Plan -
Incorporated by reference to
Exhibit (10)E of the
Company's Form 10-K Annual
Report for the year ended
December 31, 1991.
- 58 -
<PAGE>
<CAPTION>
Paper (P) or
Exhibit No. Document Electronic (E)
----------- -------- --------------
<S> <C> <C>
F. Form of Director --
Indemnification Agreement
dated August 11, 1989.
Substantially identical
agreements are in effect as
to each director of the
Company - Incorporated by
reference to Exhibit (19)A of
the Company's Form 10-Q for
the quarter ended
September 30, 1989.
G.(i) Deferred Compensation Plan --
for Non-Employee Directors
(1984) - Incorporated by
reference to Exhibit (10)F(i)
of the Company's Form 10-K
Annual Report for the year
ended December 31, 1990.
(ii) First Declaration of --
Amendment to Deferred
Compensation Plan for Non-
Employee Directors (1984)
effective December 13, 1991 -
Incorporated by reference to
Exhibit (10)G(ii) of the
Company's Form 10-K Annual
Report for the year ended
December 31, 1991.
H.(i) Deferred Compensation Plan --
for Non-Employee Directors -
1986 - Incorporated by
reference to Exhibit (10)F of
the Company's Form 10-K
Annual Report for the fiscal
year ended June 30, 1987.
(ii) First Declaration of --
Amendment to Deferred
Compensation Plan for Non-
Employee Directors - 1986,
effective December 13, 1991 -
Incorporated by reference to
Exhibit (10)H(ii) of the
Company's Form 10-K Annual
Report for the year ended
December 31, 1991.
- 59 -
<PAGE>
<CAPTION>
Paper (P) or
Exhibit No. Document Electronic (E)
----------- -------- --------------
<S> <C> <C>
I. Ecolab Non-Employee --
Directors' Retirement Plan -
Incorporated by reference to
Exhibit (10)I of the
Company's Form 10-K Annual
Report for the year ended
December 31, 1991.
J. Ecolab Executive Death --
Benefits Plan, as amended and
restated effective March 1,
1994 - Incorporated by
reference to Exhibit (10)J of
the Company's 10-K Annual
Report for the year ended
December 31, 1994. See also
Exhibit (10)P hereof.
K. Ecolab Executive Long-Term --
Disability Plan, as amended
and restated effective
January 1, 1994 -
Incorporated by reference to
Exhibit (10)K of the
Company's 10-K Annual Report
for the year ended
December 31, 1994. See also
Exhibit (10)P hereof.
L. Ecolab Executive Financial --
Counseling Plan -
Incorporated by reference to
Exhibit (10)K of the
Company's Form 10-K Annual
Report for the year ended
December 31, 1992.
M.(i) Ecolab Supplemental Executive --
Retirement Plan, as amended
and restated effective
July 1, 1994 - Incorporated
by reference to Exhibit
(10)M(i) of the Company's 10-
K Annual Report for the year
ended December 31, 1994. See
also Exhibit (10)P hereof.
- 60 -
<PAGE>
<CAPTION>
Paper (P) or
Exhibit No. Document Electronic (E)
----------- -------- --------------
<S> <C> <C>
(ii) First Declaration of --
Amendment to Ecolab
Supplemental Executive
Retirement Plan effective as
of July 1, 1994 -
Incorporated by reference to
Exhibit (10)M(ii) of the
Company's 10-K Annual Report
for the year ended
December 31, 1994.
(iii) Second Declaration of E
Amendment to Ecolab
Supplemental Executive
Retirement Plan effective as
of July 1, 1994.
N.(i) Ecolab Mirror Savings Plan --
(formerly: Ecolab Executive
Non-Qualified Deferred
Compensation Plan), as
amended and restated
effective September 1, 1994 -
Incorporated by reference to
Exhibit (10)N of the
Company's 10-K Annual Report
for the year ended
December 31, 1994. See also
Exhibit (10)P hereof.
(ii) First Declaration of E
Amendment to Ecolab Mirror
Savings Plan effective as of
January 1, 1995.
O.(i) Ecolab Mirror Pension Plan --
effective July 1, 1994 -
Incorporated by reference to
Exhibit (10)O(i) of the
Company's Annual Report on
Form 10-K for the year ended
December 31, 1994. See also
Exhibit 10(P) hereof.
- 61 -
<PAGE>
<CAPTION>
Paper (P) or
Exhibit No. Document Electronic (E)
----------- -------- --------------
<S> <C> <C>
(ii) First Declaration of --
Amendment to Ecolab Mirror
Pension Plan effective as of
July 1, 1994 - Incorporated
by reference to Exhibit
(10)O(ii) of the Company's
Annual Report on Form 10-K
for the year ended
December 31, 1994.
(iii) Second Declaration of E
Amendment to Ecolab Mirror
Pension Plan effective as of
July 1, 1994.
P. The Ecolab Inc. --
Administrative Document for
Non-Qualified Benefit Plans
(Exhibit 10(P)) is
incorporated by reference in,
and is a part of, each of the
referenced Plan documents -
Incorporated by reference to
Exhibit (10)P of the
Company's 10-K Annual Report
for the year ended
December 31, 1994.
Q. Ecolab Management Performance --
Incentive Plan - Incorporated
by reference to Exhibit (10)N
of the Company's Form 10-K
Annual Report for the year
ended December 31, 1993.
R.(i) Severance Agreement dated --
March 19, 1990, between
Pierson M. Grieve and the
Company - Incorporated by
reference to Exhibit (10)M of
the Company's Form 10-K
Annual Report for the year
ended December 31, 1989.
- 62 -
<PAGE>
<CAPTION>
Paper (P) or
Exhibit No. Document Electronic (E)
----------- -------- --------------
<S> <C> <C>
(ii) Amendment, dated as of --
February 26, 1994, to
Severance Agreement dated
March 19, 1994, between
Pierson M. Grieve and the
Company - Incorporated by
reference to Exhibit (10) of
the Company's Form 10-Q for
the quarter ended
September 30, 1994.
(iii) Description of Pierson M. --
Grieve's retirement benefit -
Incorporated by reference to
written description of
Consulting Agreement
contained on pages 19 and 20
of the Proxy Statement.
S.(i) Amended and Restated Umbrella --
Agreement between Henkel KGaA
and Ecolab Inc. dated
June 26, 1991 - Incorporated
by reference to Exhibit 13 of
HC Investments, Inc.'s and
Henkel KGaA's Amendment No. 4
to Schedule 13D dated
July 16, 1991.
(ii) Amended and Restated Joint --
Venture Agreement between
Henkel KGaA and Ecolab Inc.
dated June 26, 1991 -
Incorporated by reference to
Exhibit 14 of HC Investments,
Inc.'s and Henkel KGaA's
Amendment No. 4 to Schedule
13D dated July 16, 1991.
(iii) Amended and Restated ROW --
Purchase Agreement between
Henkel KGaA and Ecolab Inc.
dated June 26, 1991 -
Incorporated by reference to
Exhibit (7) of the Company's
Current Report on Form 8-K
dated July 11, 1991.
- 63 -
<PAGE>
<CAPTION>
Paper (P) or
Exhibit No. Document Electronic (E)
----------- -------- --------------
<S> <C> <C>
(iv) Amended and Restated --
Stockholder's Agreement
between Henkel KGaA and
Ecolab Inc. dated June 26,
1991 - Incorporated by
reference to Exhibit 15 of HC
Investments, Inc.'s and
Henkel KGaA's Amendment No. 4
to Schedule 13D dated
July 16, 1991.
T. Agreement and Plan of Merger --
among Ecolab Inc., EKH, Inc.
I, EKH, Inc. II, EKH, Inc.
III, Kay Chemical Company,
Kay Chemical International,
Inc. and Kay Europe, Inc.
dated November 2, 1994 -
Incorporated by reference to
Exhibit (2) of the Company's
Current Report on Form 8-K
dated December 7, 1994.
(11) Computation of Primary and E
Fully Diluted Earnings Per
Share.
(13) Those portions of the E
Company's Annual Report to
Stockholders for the year
ended December 31, 1995 which
are incorporated by reference
into Parts I, II and IV
hereof.
(21) List of Subsidiaries as of E
March 19, 1996.
(23)A. Consent of Coopers & Lybrand --
L.L.P. to Incorporation by
Reference at page 29 hereof
is filed as a part hereof.
B. Consent of KPMG Deutsche E
Treuhand-Gesellschaft
Aktiengesellschaft.
- 64 -
<PAGE>
<CAPTION>
Paper (P) or
Exhibit No. Document Electronic (E)
----------- -------- --------------
<S> <C> <C>
(24) Powers of Attorney. E
(27) Financial Data Schedule. E
COVER Cover Letter. E
</TABLE>
- 65 -
<PAGE>
AMENDED CERTIFICATE OF DESIGNATION, PREFERENCES AND
RIGHTS, INCLUDING INCREASE IN NUMBER OF SHARES, OF THE
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
OF
ECOLAB INC. (FORMERLY: ECONOMICS LABORATORY, INC.)
----------------------------------------
PURSUANT TO SECTION 151 OF THE
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
----------------------------------------
ECOLAB INC. (formerly: ECONOMICS LABORATORY, INC.), a corporation
organized and existing under the General Corporation Law of the State of
Delaware (the "Corporation"), in accordance with the provisions of Section 103
thereof, and Section 151(g) thereof, DOES HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of Directors
by the Restated Certificate of Incorporation of the Corporation, on February 14,
1986, the Board of Directors adopted a resolution creating a series of 400,000
shares of Preferred Stock designated as Series A Junior Participating Preferred
Stock;
That on February 26, 1986, a Certificate of Designation, Preferences
and Rights relating to the Series A Junior Participating Preferred Stock was
filed pursuant to Section 151 of the General Corporation Law of the State of
Delaware;
That pursuant to authority conferred upon the Board of Directors by
the Restated Certificate of Incorporation of the Corporation, on September 12,
1986, the Board of Directors adopted a resolution authorizing and directing an
increase of the number of shares of Series A Junior Participating Preferred
Stock from 400,000 to 500,000;
That on November 14, 1986, a Certificate of Increase in the Number of
Shares of the Series A Junior Participating Preferred Stock was filed pursuant
to Section 151 of the General Corporation Law of the State of Delaware;
That none of the 500,000 shares of Series A Junior Participating
Preferred Stock have been issued as of the date hereof; and
That pursuant to the authority conferred upon the Board of Directors
by the Restated Certificate of Incorporation of the Corporation, on February 24,
1996, the Board of Directors adopted the following resolution authorizing and
directing an increase in the number of shares of Series A Junior Participating
Preferred Stock from 500,000 to 1,000,000 and an amendment and restatement of
the voting powers, preferences and relative, participating, optional and other
special rights of the shares of such series, and the qualifications, limitations
or restrictions thereof:
<PAGE>
RESOLVED, That pursuant to the authority vested in the Board of
Directors of this Corporation in accordance with the provisions of its Restated
Certificate of Incorporation, the Board of Directors hereby authorizes and
directs that (a) the number of shares of Series A Junior Participating Preferred
Stock of this Corporation be hereby increased in amount from 500,000 shares to
1,000,000 shares, (b) all previous adjustments to any of the terms and
provisions of the shares of such series shall be reset so that such terms and
provisions shall be without regard to any such previous adjustments and (c) the
voting powers, preferences and relative, participating, optional and other
special rights of the shares of such series, and the qualifications, limitations
or restrictions thereof be hereby amended and restated as follows:
Section 1. DESIGNATION AND AMOUNT. The shares of such series shall
be designated as "Series A Junior Participating Preferred Stock" and the
number of shares constituting such series shall be 1,000,000.
Section. 2. DIVIDENDS AND DISTRIBUTIONS.
(A) Subject to the prior and superior rights of the holders of any
shares of any series of Preferred Stock, if any, issued from time to time
ranking prior and superior to the shares of Series A Junior Participating
Preferred Stock with respect to dividends, the holders of shares of Series
A Junior Participating Preferred Stock shall be entitled to receive, when,
as and if declared by the Board of Directors out of funds legally available
for the purpose, quarterly dividends payable in cash on the fifteenth day
of February, May, August and November in each year (each such date being
referred to herein as a "Quarterly Dividend Payment Date"), commencing on
the first Quarterly Dividend Payment Date after the first issuance of a
share or fraction of a share of Series A Junior Participating Preferred
Stock, in an amount per share (rounded to the nearest cent) equal to the
greater of (a) $1.00 or (b) subject to the provision for adjustment
hereinafter set forth, 100 times the aggregate per share amount of all cash
dividends, and 100 times the aggregate per share amount (payable in kind)
of all non-cash dividends or other distributions other than a dividend
payable in shares of Common Stock or a subdivision of the outstanding
shares of Common Stock (by reclassification or otherwise), declared on the
Common Stock, par value $1.00 per share, of the Corporation (the "Common
Stock") since the immediately preceding Quarterly Dividend Payment Date,
or, with respect to the first Quarterly Dividend Payment Date, since the
first issuance of any share or fraction of a share of Series A Junior
Participating Preferred Stock. In the event the Corporation shall at any
time after February 24, 1996 (the "Rights Declaration Date") (i) declare
any dividend on Common Stock payable in shares of Common Stock, (ii)
subdivide the outstanding Common Stock, or (iii) combine the outstanding
Common Stock into a smaller number of shares, then in each such case the
amount to which holders of shares of Series A Junior Participating
Preferred Stock were entitled immediately prior to such event under clause
(b) of the preceding sentence shall be adjusted by multiplying such amount
by a fraction the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which
is the number of shares of Common Stock that were outstanding immediately
prior to such event.
(B) The Corporation shall declare a dividend or distribution on the
Series A Junior Participating Preferred Stock as provided in paragraph (A)
above immediately after it declares
2
<PAGE>
a dividend or distribution on the Common Stock (other than a dividend
payable in shares of Common Stock); provided that, in the event no dividend
or distribution shall have been declared on the Common Stock during the
period between any Quarterly Dividend Payment Date and the next subsequent
Quarterly Divided Payment Date, a dividend of $1.00 per share as such
amount may be adjusted pursuant to the last sentence of the preceding
paragraph on the Series A Junior Participating Preferred Stock shall
nevertheless be payable on such subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Junior Participating Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issue of such shares of
Series A Junior Participating Preferred Stock, unless the date of issue of
such shares is prior to the record date for the first Quarterly Dividend
Payment Date, in which case dividends on such shares shall begin to accrue
from the date of issue of such shares, or unless the date of issue is a
Quarterly Dividend Payment Date or is a date after the record date for the
determination of holders of shares of Series A Junior Participating
Preferred Stock entitled to receive a quarterly dividend and before such
Quarterly Dividend Payment Date, in either of which events such dividends
shall begin to accrue and be cumulative from such Quarterly Dividend
Payment Date. Accrued but unpaid dividends shall not bear interest.
Dividends paid on the shares of Series A Junior Participating Preferred
Stock in an amount less than the total amount of such dividends at the
time accrued and payable on such shares shall be allocated pro rata on a
share-by-share basis among all such shares at the time outstanding. The
Board of Directors may fix a record date for the determination of holders
of shares of Series A Junior Participating Preferred Stock entitled to
receive payment of a dividend or distribution declared thereon, which
record date shall be no more than 60 days prior to the date fixed for the
payment thereof.
Section 3. VOTING RIGHTS. The holders of shares of Series A Junior
Participating Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth,
each share of Series A Junior Participating Preferred Stock shall entitle
the holder thereof to 100 votes on all matters submitted to a vote of the
stockholders of the Corporation. In the event the Corporation shall at any
time after the Rights Declaration Date (i) declare any dividend on Common
Stock payable in shares of Common Stock, (ii) subdivide the outstanding
Common Stock, or (iii) combine the outstanding Common Stock into a smaller
number of shares, then in each such case the number of votes per share to
which holders of shares of Series A Junior Participating Preferred Stock
were entitled immediately prior to such event shall be adjusted by
multiplying such number by a fraction the numerator of which is the number
of shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) Except as otherwise provided herein or by law, the holders of
shares of Series A Junior Participating Preferred Stock and the holders of
shares of Common Stock shall vote together as one class on all matters
submitted to a vote of stockholders of the Corporation.
(C) (i) If at any time dividends on any Series A Junior
Participating Preferred
3
<PAGE>
Stock shall be in arrears in an amount equal to six (6) quarterly
dividends thereon, the occurrence of such contingency shall mark the
beginning of a period (herein called a "default period") which shall
extend until such time when all accrued and unpaid dividends for all
previous quarterly dividend periods and for the current quarterly
dividend period on all shares of Series A Junior Participating
Preferred Stock then outstanding shall have been declared and paid or
set apart for payment. During each default period, all holders of
Preferred Stock (including holders of the Series A Junior
Participating Preferred Stock) with dividends in arrears in an amount
equal to six (6) quarterly dividends thereon, voting as a class,
irrespective of series, shall have the right to elect two (2)
Directors.
(ii) During any default period, such voting right of the
holders of Series A Junior Participating Preferred Stock may be
exercised initially at a special meeting called pursuant to
subparagraph (iii) of this Section 3(C) or at any annual meeting of
stockholders, and thereafter at annual meetings of stockholders,
provided that neither such voting right nor the right of the holders
of any other series of Preferred Stock, if any, to increase, in
certain cases, the authorized number of Directors shall be exercised
unless the holders of ten percent (10%) in number of shares of
Preferred Stock outstanding shall be present in person or by proxy.
The absence of a quorum of the holders of Common Stock shall not
affect the exercise by the holders of Preferred Stock of such voting
right. At any meeting at which the holders of Preferred Stock shall
exercise such voting right initially during an existing default
period, they shall have the right, voting as a class, to elect
Directors to fill such vacancies, if any, in the Board of Directors as
may then exist up to two (2) Directors or, if such right is exercised
at an annual meeting, to elect two (2) Directors. If the number which
may be so elected at any special meeting does not amount to the
required number, the holders of the Preferred Stock shall have the
right to make such increase in the number of Directors as shall be
necessary to permit the election by them of the required number.
After the holders of the Preferred Stock shall have exercised their
right to elect Directors in any default period and during the
continuance of such period, the number of Directors shall not be
increased or decreased except by vote of the holders of Preferred
Stock as herein provided or pursuant to the rights of any equity
securities ranking senior to or PARI PASSU with the Series A Junior
Participating Preferred Stock.
(iii) Unless the holders of Preferred Stock shall, during an
existing default period, have previously exercised their right to
elect Directors, the Board of Directors may order, or any stockholder
or stockholders owning in the aggregate not less than ten percent
(10%) of the total number of shares of Preferred Stock outstanding,
irrespective of series, may request, the calling of a special meeting
of the holders of Preferred Stock, which meeting shall thereupon be
called by the President, a Vice-President or the Secretary of the
Corporation. Notice of such meeting and of any annual meeting at
which holders of Preferred Stock are entitled to vote pursuant to this
paragraph (C) (iii) shall be given to each holder of record of
Preferred Stock by mailing a copy of such notice to him at his last
address as the same appears on the books of the Corporation. Such
meeting shall be called for a time not earlier than 20
4
<PAGE>
days and not later than 60 days after such order or request or in
default of the calling of such meeting within 60 days after such order
or request, such meeting may be called on similar notice by any
stockholder or stockholders owning in the aggregate not less than ten
percent (10%) of the total number of shares of Preferred Stock
outstanding. Notwithstanding the provisions of this paragraph
(C)(iii), no such special meeting shall be called during the period
within 60 days immediately preceding the date fixed for the next
annual meeting of the stockholders.
(iv) In any default period, the holders of Common Stock, and
other classes of stock of the Corporation if applicable, shall
continue to be entitled to elect the whole number of Directors until
the holders of Preferred Stock shall have exercised their right to
elect two (2) Directors voting as a class, after the exercise of which
right (x) the Directors so elected by the holders of Preferred Stock
shall continue in office until their successors shall have been
elected by such holders or until the expiration of the default period,
and (y) any vacancy in the Board of Directors may (except as provided
in paragraph (C)(ii) of this Section 3) be filled by vote of a
majority of the remaining Directors theretofore elected by the holders
of the class of stock which elected the Director whose office shall
have become vacant. References in this paragraph (C) to Directors
elected by the holders of a particular class of stock shall include
Directors elected by such Directors to fill vacancies as provided in
clause (y) of the foregoing sentence.
(v) Immediately upon the expiration of a default period,
(x) the right of the holders of Preferred Stock as a class to elect
Directors shall cease, (y) the term of any Directors elected by the
holders of Preferred Stock as a class shall terminate, and (z) the
number of Directors shall be such number as may be provided for in the
Certificate of Incorporation or by-laws irrespective of any increase
made pursuant to the provisions of paragraph (C)(ii) of this Section 3
(such number being subject, however, to change thereafter in any
manner provided by law or in the Certificate of Incorporation or by-
laws). Any vacancies in the Board of Directors effected by the
provisions of clauses (y) and (z) in the preceding sentence may be
filled by a majority of the remaining Directors.
(D) Except as set forth herein, holders of Series A Junior
Participating Preferred Stock shall have no special voting rights and
their consent shall not be required (except to the extent they are entitled
to vote with holders of Common Stock as set forth herein) for taking any
corporate action.
Section 4. CERTAIN RESTRICTIONS.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Junior Participating Preferred Stock as provided
in Section 2 are in arrears, thereafter and until all accrued and unpaid
dividends and distributions, whether or not declared, on shares of Series A
Junior Participating Preferred Stock outstanding shall have been paid in
full, the Corporation shall not
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(i) declare or pay dividends on, make any other
distributions on, or redeem or purchase or otherwise acquire for
consideration any shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the
Series A Junior Participating Preferred Stock;
(ii) declare or pay dividends on or make any other
distributions on any shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the
Series A Junior Participating Preferred Stock, except dividends paid
ratably on the Series A Junior Participating Preferred Stock and all
such parity stock on which dividends are payable or in arrears in
proportion to the total amounts to which the holders of all such
shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the
Series A Junior Participating Preferred Stock, provided that the
Corporation may at any time redeem, purchase or otherwise acquire
shares of any such parity stock in exchange for shares of any stock of
the Corporation ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Series A Junior
Participating Preferred Stock or;
(iv) purchase or otherwise acquire for consideration any
shares of Series A Junior Participating Preferred Stock, or any shares
of stock ranking on a parity with the Series A Junior Participating
Preferred Stock, except in accordance with a purchase offer made in
writing or by publication (as determined by the Board of Directors) to
all holders of such shares upon such terms as the Board of Directors,
after consideration of the respective annual dividend rates and other
relative rights and preferences of the respective series and classes,
shall determine in good faith will result in fair and equitable
treatment among the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares
of stock of the Corporation unless the Corporation could, under paragraph
(A) of this Section 4, purchase or otherwise acquire such shares at such
time and in such manner.
Section 5. REACQUIRED SHARES. Any shares of Series A Junior
Participating Preferred Stock purchased or otherwise acquired by the
Corporation in any manner whatsoever shall be retired and cancelled
promptly after the acquisition thereof. All such shares shall upon their
cancellation become authorized but unissued shares of Preferred Stock and
may be reissued as part of a new series of Preferred Stock to be created by
resolution or resolutions of the Board of Directors, subject to the
conditions and restrictions on issuance set forth herein.
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Section 6. LIQUIDATION, DISSOLUTION OR WINDING UP.
(A) Upon any liquidation (voluntary or otherwise), dissolution or
winding up of the Corporation, no distribution shall be made to the holders
of shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Junior
Participating Preferred Stock unless, prior thereto, the holders of shares
of Series A Junior Participating Preferred Stock shall have received $100
per share, plus an amount equal to accrued and unpaid dividends and
distributions thereon, whether or not declared, to the date of such payment
(the "Series A Liquidation Preference"). Following the payment of the full
amount of the Series A Liquidation Preference, no additional distributions
shall be made to the holders of shares of Series A Junior Participating
Preferred Stock unless, prior thereto, the holders of shares of Common
Stock shall have received an amount per share (the "Common Adjustment")
equal to the quotient obtained by dividing (i) the Series A Liquidation
Preference by (ii) 100 (as appropriately adjusted as set forth in
subparagraph (C) below to reflect such events as stock splits, stock
dividends and recapitalization with respect to the Common Stock) (such
number in clause (ii), the "Adjustment Number"). Following the payment of
the full amount of the Series A Liquidation Preference and the Common
Adjustment in respect of all outstanding shares of Series A Junior
Participating Preferred Stock and Common Stock, respectively, holders of
Series A Junior Participating Preferred Stock and holders of shares of
Common Stock shall receive their ratable and proportionate share of the
remaining assets to be distributed in the ratio of the Adjustment Number to
1 with respect to such Preferred Stock and Common Stock, on a per share
basis, respectively.
(B) In the event, however, that there are not sufficient assets
available to permit payment in full of the Series A Liquidation Preference
and the liquidation preferences of all other series of preferred stock, if
any, which rank on a parity with the Series A Junior Participating
Preferred Stock, then such remaining assets shall be distributed ratably to
the holders of such parity shares in proportion to their respective
liquidation preferences. In the event, however, that there are not
sufficient assets available to permit payment in full of the Common
Adjustment, then such remaining assets shall be distributed ratably to the
holders of Common Stock.
(C) In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares
of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii)
combine the outstanding Common Stock into a smaller number of shares, then
in each such case the Adjustment Number in effect immediately prior to such
event shall be adjusted by multiplying such Adjustment Number by a fraction
the numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such
event.
Section 7. CONSOLIDATION, MERGER, ETC. In case the corporation shall
enter into any consolidation, merger, combination or other transaction in
which the shares of Common Stock are exchanged for or changed into other
stock or securities, cash and/or any other property, then in any such case
the shares of Series A Junior Participating Preferred Stock shall at the
same time be similarly exchanged or changed in an amount per share (subject
to the provision
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for adjustment hereinafter set forth) equal to 100 times the aggregate
amount of stock, securities, cash and/or any other property (payable in
kind), as the case may be, into which or for which each share of Common
Stock is changed or exchanged. In the event the Corporation shall at any
time after the Rights Declaration Date (i) declare any dividend on Common
Stock payable in shares of Common Stock, (ii) subdivide the outstanding
Common Stock, or (iii) combine the outstanding Common Stock into a smaller
number of shares, then in each such case the amount set forth in the
preceding sentence with respect to the exchange or change of shares of
Series A Junior Participating Preferred Stock shall be adjusted by
multiplying such amount by a fraction the numerator of which is the number
of shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 8. NO REDEMPTION. The shares of Series A Junior
Participating Preferred Stock shall not be redeemable.
Section 9. RANKING. The Series A Junior Participating Preferred
Stock shall rank junior to all other series of the Corporation's Preferred
Stock which may be issued from time to time as to the payment of dividends
and the distribution of assets, unless the terms of any such series shall
provide otherwise.
Section 10. AMENDMENT. The Restated Certificate of Incorporation of
the Corporation shall not be further amended in any manner which would
materially alter or change the powers, preferences or special rights of the
Series A Junior Participating Preferred Stock so as to affect them
adversely without the affirmative vote of the holders of a majority or more
of the outstanding shares of Series A Junior Participating Preferred Stock,
voting separately as a class.
Section 11. FRACTIONAL SHARES. Series A Junior Participating
Preferred Stock may be issued in fractions of a share which shall entitle
the holder, in proportion to such holder's fractional shares, to exercise
voting rights, receive dividends, participate in distributions and to have
the benefit of all other rights of holders of Series A Junior Participating
Preferred Stock.
That this Amended Certificate will be effective as of the close of
business on March 11, 1996.
IN WITNESS WHEREOF, said ECOLAB INC. has caused this Amended
Certificate to be signed by Kenneth A. Iverson, its Vice President and
Secretary, this 11th day of March, 1996.
ECOLAB INC.
By /s/ Kenneth A. Iverson
----------------------------------
Kenneth A. Iverson
Vice President and Secretary
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BY-LAWS
OF
ECOLAB INC.
(A DELAWARE CORPORATION)
AS AMENDED THROUGH DECEMBER 18, 1995
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the Corporation in the
State of Delaware shall be at 1209 Orange Street, City of Wilmington, County of
New Castle, Delaware. The name of the resident agent in charge thereof shall be
The Corporation Trust Company.
SECTION 2. OTHER OFFICES. The Corporation may also have offices at such other
places, within or without the State of Delaware, as the Board of Directors may
from time to time determine or the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. PLACE OF MEETINGS. Meetings of stockholders may be held at such
place, within or without the State of Delaware, as the Board of Directors or the
officer calling the same shall designate.
SECTION 2. ANNUAL MEETING. An annual meeting of the stockholders of the
Corporation for the election of directors by written ballot and for the
transaction of such other business as may properly come before the meeting shall
be held at such time and on such day of each year as shall be designated by the
Board of Directors, the Chairman of the Board, the President or the Secretary.
SECTION 3. SPECIAL MEETINGS. Special meetings of the stockholders, for any
purpose or purposes, unless otherwise prescribed by statute, may be called at
any time by the Board of Directors or by the Chairman of the Board, and shall be
called by the Chairman of the Board, the President or the Secretary at the
written request of the majority of the Board of Directors or at the written
request of stockholders owning capital stock having eighty percent (80%) of the
voting power of the entire issued and outstanding capital stock of the
Corporation. Such request shall state the purpose or purposes of the proposed
meeting. No business shall be transacted at any special meeting of the
stockholders except that stated in the notice of the meeting.
SECTION 4. NOTICE OF MEETINGS. Written notice stating the place, date and hour
of each annual and special meeting of the stockholders and, in the case of a
special meeting, the purpose or purposes thereof, shall be given not less than
twenty (20) nor more than sixty (60) days before the date of such meeting to
each stockholder entitled to vote at such meeting. If mailed, notice shall be
deemed given when deposited in the United States mail, postage prepaid, directed
to the stockholder at such address as appears on the records of the Corporation.
Notice of any meeting
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of stockholders shall not be required to be given to any stockholder who shall
attend such meeting in person or by proxy and shall not, at the beginning of
such meeting, object to the transaction of any business because the meeting is
not lawfully called or convened, or who shall, either before or after the
meeting, submit a signed waiver of notice.
SECTION 5. QUORUM. At all meetings of the stockholders the holders of a
majority of the shares of stock of the Corporation issued and outstanding and
entitled to vote thereat, present in person or represented by proxy, shall be
requisite to constitute a quorum for the transaction of business, except as
otherwise provided by statute or in the Restated Certificate of Incorporation.
In the absence of a quorum, the holders of a majority of the shares of stock
present in person or by proxy and entitled to vote may adjourn the meeting until
the requisite amount of stock shall be present.
SECTION 6. ORGANIZATION AND ORDER OF BUSINESS. At each meeting of the
stockholders, the Chairman of the Board, or in his absence the President, or in
his absence any other person selected by the Board of Directors, shall act as
Chairman of the meeting. The Secretary, or in his absence an Assistant
Secretary, or any person appointed by the Chairman of the meeting, shall act as
Secretary of the meeting and keep the minutes thereof. The order of business at
all meetings of the stockholders shall be as determined by the Chairman of the
meeting.
SECTION 7. VOTING. Except as otherwise provided by statute or by the Restated
Certificate of Incorporation, at each meeting of the stockholders each
stockholder having the right to vote thereat shall be entitled to (i) one vote
for each share of common stock of the Corporation standing in his name on the
record of stockholders of the Corporation, and (ii) such voting rights, if any,
as are provided in the applicable Certificate of Designation, Preferences and
Rights with respect to any series of preferred stock of the Corporation standing
in his name on the record of stockholders of the Corporation, in all such
instances on the date fixed by the Board of Directors as the record date for the
determination of the stockholders who shall be entitled to notice of and vote at
such meeting; or if no record date shall have been fixed, then at the close of
business on the day next preceding the day on which notice thereof shall be
given. Each stockholder entitled to vote at any meeting of stockholders may
authorize another person or persons to act for him by a proxy signed by such
stockholder or his attorney-in-fact. No proxy shall be valid after the
expiration of three (3) years from the date thereof, unless otherwise provided
in the proxy. Except as otherwise provided by statute, these By-Laws or the
Restated Certificate of Incorporation, any corporate action to be taken by vote
of the stockholders shall be authorized by a majority of the total votes cast at
a meeting of stockholders by the holders of shares present in person or
represented by proxy and entitled to vote on such action. Unless required by
statute, or determined by the chairman of the meeting to be advisable, the vote
on any question other than elections need not be by written ballot. On a vote
by written ballot, each ballot shall be signed by the stockholder, his attorney-
in-fact, or his proxy if there be such proxy, and shall state the stockholder's
name and the number of shares voted.
SECTION 8. STOCKHOLDER LIST. The Secretary shall prepare and make, at least
ten (10) days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares registered
in the name of each stockholder. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a
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period of at least ten (10) days prior to the meeting, either at a place within
the city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place where the meeting
is to be held. This list shall also be produced and kept at the time and place
of the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
SECTION 9. INSPECTORS. The Board of Directors may, in advance of any meeting
of stockholders, appoint or provide for the appointment of one or more
inspectors to act at such meeting or any adjournments thereof. If the inspector
or inspectors shall not be appointed, or if any of them shall fail to appear or
act, the Chairman of the meeting may, and on the request of any stockholder
entitled to vote thereat shall, appoint one or more inspectors. Each inspector,
before entering upon the discharge of his duties, shall take and sign an oath
faithfully to execute the duties of inspector at such meeting with strict
impartiality and according to the best of his ability. On request of the
Chairman of the meeting or any stockholder entitled to vote thereat, the
inspectors shall make a report in writing of any challenge, request or matter
determined by them and shall execute a certificate of any fact found by them.
No director or candidate for the office of director shall act as inspector of
any election of directors. Inspectors need not be stockholders of the
Corporation.
SECTION 10. ADJOURNED MEETINGS. A meeting of stockholders may be adjourned to
another time and to another place by either the chairman of the meeting or by
the stockholders and proxies present. When a meeting is adjourned to another
time or place, notice of such adjourned meeting need not be given if the time
and place to which the meeting shall be adjourned are announced at the meeting
at which the adjournment is taken. At the adjourned meeting, if a quorum is
present any business may be transacted which might have been transacted at the
original meeting. If the adjournment is for more than thirty (30) days or if
after the adjournment a new record date is fixed for the adjourned meeting,
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting.
SECTION 11. CONSENT OF STOCKHOLDERS. Unless otherwise provided in the Restated
Certificate of Incorporation, any action required or permitted to be taken at
any Annual or Special Meeting of Stockholders of the Corporation, may be taken
without a meeting, without prior notice and without a vote, if a consent in
writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking of
the corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. GENERAL POWERS. The business and affairs of the Corporation shall
be managed by or under the direction of the Board of Directors. The Board of
Directors may exercise all such authority and powers of the Corporation and do
all such lawful acts and things as are not by
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statute or the Restated Certificate of Incorporation or these By-Laws directed
or required to be exercised or done by the stockholders.
SECTION 2. NUMBER AND ELECTION OF DIRECTORS. The number of directors of the
Corporation which shall constitute the entire Board of Directors shall be such
number as is fixed by the Board of Directors in accordance with the provisions
of the Restated Certificate of Incorporation. Directors shall be elected and
shall hold office in accordance with the provisions of the Restated Certificate
of Incorporation. Election of directors by the stockholders shall be by a
plurality of the votes cast. Directors need not be stockholders of the
Corporation.
SECTION 3. PLACE OF MEETING. The Board of Directors may hold meetings at such
place, within or without the State of Delaware, as the Board of Directors or the
officer calling the meeting may from time to time determine.
SECTION 4. ORGANIZATION MEETING. Promptly following the adjournment of the
annual meeting of the stockholders, and without other notice than this By-Law,
the newly constituted Board of Directors shall meet for the purpose of
organization, the election of officers, and the transaction of other business,
with power to adjourn and re-adjourn.
SECTION 5. MEETINGS. Regular meetings of the Board of Directors shall be held
at such time and place as the Board of Directors may from time to time
determine. Special meetings of the Board of Directors may be called by the
Chairman of the Board, the President or any two (2) or more Directors.
SECTION 6. NOTICE OF MEETINGS. Notice of regular meetings of the Board of
Directors need not be given except as otherwise required by statute or these By-
Laws. Notice of the place, date and time of the holding of each special meeting
of the Board of Directors, and the purpose or purposes thereof, shall be
delivered to each director either personally or by mail, telephone, telegraph,
cable, or similar means, three (3) days before the day on which such meeting is
to be held, or on such shorter notice as the person or persons calling such
meeting deem appropriate in the circumstances. Such notice shall be deemed to
be given at the time it is dispatched by depositing it in the United States mail
with postage prepaid, by transmission by telephone, telegraph or cable, or by
personal delivery. Notice of any such meeting need not be given to any director
who shall, either before or after the meeting, submit a signed waiver of notice
or who shall attend such meeting without protesting, prior to or at its
commencement, the lack of notice to him.
SECTION 7. QUORUM AND MANNER OF ACTING. Except as otherwise provided by
statute, the Restated Certificate of Incorporation or these By-Laws, at all
meetings of the Board of Directors a majority of the directors then in office
shall constitute a quorum for the transaction of business; provided, however,
that if by reason of catastrophe or emergency, a majority of the entire Board is
not available or capable of acting, one third (1/3) of the entire Board of
Directors, but in any event not less than two (2) directors, shall constitute a
quorum for the transaction of business at any meeting of the Board of Directors.
The act of a majority of the directors present at any meeting at which there is
a quorum, as herein provided, shall be the act of the Board of Directors except
as may be otherwise specifically provided by statute, the Restated Certificate
of Incorporation or these By-Laws. In the absence of a quorum at any meeting of
the Board of
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Directors, a majority of the directors present thereat, or if no director be
present, the Secretary or an Assistant Secretary, may adjourn such meeting to
another time and place until the quorum is had. Notice of any adjourned meeting
need not be given. At any adjourned meeting at which a quorum is present, any
business may be transacted which might have been transacted at the meeting as
originally called.
SECTION 8. ORGANIZATION AND ORDER OF BUSINESS. At each meeting of the Board of
Directors, the Chairman of the Board, or in his absence the President, or in his
absence, a member of the Board of Directors selected by the directors in
attendance, shall act as Chairman of the meeting. The Secretary, or in his
absence, an Assistant Secretary, or any person appointed by the Chairman of the
meeting, shall act as Secretary of the meeting and keep the minutes thereof.
The order of business at all meetings of the directors shall be as determined by
the Chairman of the meeting.
SECTION 9. ACTION WITHOUT MEETING. Any action required or permitted to be
taken at any meeting of the Board of Directors, or of any committee thereof, may
be taken without a meeting if all members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of the proceedings of the Board of Directors
or committee.
SECTION 10. CONFERENCE TELEPHONE. Members of the Board of Directors, or of any
committee thereof, may participate in a meeting of the Board of Directors or
committee by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and participation in a meeting in this manner shall constitute presence in
person at such meeting.
SECTION 11. COMMITTEES. The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of three (3) or more of the directors of the Corporation. The Board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. Any
such committee, to the extent provided in the resolution of the Board of
Directors, shall have and may exercise all the powers of the Board of Directors
in the management of the business and affairs of the Corporation which the Board
of Directors may lawfully delegate, and may authorize the seal of the
Corporation to be affixed to all papers which may require it. Meetings of
committees may be called by the committee chairman, if any, or as provided in
Section 5 of this Article III. Notice of such meetings shall be given to each
member of the committee in the manner set forth in Section 6 of this Article
III. Notice of any such meeting need not be given to any committee member who
shall, either before or after the meeting, submit a signed waiver of notice or
who shall attend such meeting without protesting prior to or at its
commencement, the lack of notice to him. A notice or waiver of notice of any
regular or special meeting of any committee need not state the purposes of such
meeting. A majority of any committee may determine its action, unless the Board
of Directors shall otherwise provide. Each committee shall keep written minutes
of its formal proceedings and shall report such proceedings to the Board. All
such proceedings shall be subject to revision or alteration by the Board of
Directors; provided, however, that third parties shall not be prejudiced by such
revision or alteration. The Board of Directors shall have power at any time to
fill vacancies in, to change the membership, duties or authority of, or to
dissolve any such committee.
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SECTION 12. RESIGNATIONS. Any director of the Corporation may resign at any
time by giving written notice of his resignation to the Board of Directors, the
Chairman of the Board, the President or the Secretary. Such resignation shall
take effect at the date of the receipt of such notice, or at any later time
specified therein; and unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective.
SECTION 13. REMOVAL. Except as otherwise provided in the Restated Certificate
of Incorporation or in these By-Laws, any director may be removed at any time,
at a special meeting of the stockholders called and held for the purpose, but,
for so long as the Board of Directors is classified, only for cause, by the
affirmative vote of the holders of a majority of the shares then entitled to
vote at an election of directors; and the vacancy in the Board caused by any
such removal shall be filled as the Restated Certificate of Incorporation
provides.
SECTION 14. VACANCIES. Vacancies and newly created directorships resulting
from any increase in the authorized number of directors may be filled by a
majority of the directors then in office, in accordance with the Restated
Certificate of Incorporation.
SECTION 15. COMPENSATION. The Board of Directors shall have authority to fix
the compensation, including fees and reimbursement of expenses, of directors for
services to the Corporation in any capacity and no such payment shall preclude
any director from serving the Corporation in any other capacity and receiving
compensation therefor.
ARTICLE IV
OFFICERS
SECTION 1. NUMBER AND QUALIFICATION. The officers of the Corporation shall be
elected by the Board of Directors. The officers shall be a Chairman of the
Board, a President, one or more Vice Presidents, a Secretary, a Treasurer, and a
Controller. The Board of Directors may also elect a Vice Chairman of the Board,
and one or more Assistant Secretaries, Assistant Treasurers, and Assistant
Controllers, and the Board of Directors may designate any Vice President as an
Executive Vice President, a Senior Vice President or a Group Vice President.
The Board of Directors may also designate from such officers (i) a Chief
Executive Officer who shall have general supervision and authority over the
business and affairs of the Corporation subject to the control of the Board of
Directors, (ii) a Chief Operating Officer who shall have general supervision and
authority over the operations of the Corporation subject to the control of the
Chief Executive Officer, if that designation has been made, and subject to the
control of the Board of Directors, or (iii) both a Chief Executive Officer and a
Chief Operating Officer. The Chairman of the Board, the Vice Chairman of the
Board and the President shall be chosen from among the directors, but no other
officer need be a director. Any two or more offices may be held by the same
person.
SECTION 2. ELECTION AND TERM. The officers of the Corporation shall be chosen
annually by the Board of Directors at the first meeting of the Board of
Directors following the annual meeting of stockholders or as soon thereafter as
is conveniently possible. Officers may also be elected from time to time at any
other meeting of the Board of Directors to fill vacancies and otherwise. Each
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officer, except such officers as may be appointed in accordance with the
provisions of Section 3 of this Article IV, shall continue in office until his
successor shall have been duly elected and qualified or until his earlier
resignation or removal.
SECTION 3. OTHER OFFICERS AND AGENTS. The Board of Directors or the Chairman
of the Board, or in his absence or disability, the President, may appoint such
other officers and agents, each of whom shall hold office for such period, have
such authority and perform such duties as are provided for in these By-Laws, or
as the Board of Directors or Chairman of the Board, or the President, may from
time to time determine.
SECTION 4. RESIGNATION. Any officer may resign at any time by giving written
notice to the Chairman of the Board, the President or the Secretary of the
Corporation. Such resignation shall take effect at the date of the receipt of
such notice, or at any later time specified therein; and, unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.
SECTION 5. REMOVAL. Any officer or agent may be removed, either with or
without cause, at any time by the vote of the majority of the whole Board of
Directors. Any subordinate officer or agent appointed in accordance with the
provisions of Section 3 of this Article IV may be removed, either with or
without cause, by a vote of the majority of the whole Board of Directors or,
except in the case of an officer or agent elected or appointed by the Board of
Directors, by the Chairman of the Board or the President.
SECTION 6. VACANCIES. A vacancy in any office because of death, resignation,
removal, disqualification or any other cause may be filled for the unexpired
portion of the term in the manner prescribed in these By-Laws for the regular
election or appointment to such office.
SECTION 7. COMPENSATION. The compensation of the officers of the Corporation
shall be fixed from time to time by the Board of Directors or by such officers
or a committee of the Board of Directors to which the Board of Directors has
delegated such authority. An officer of the Corporation shall not be prevented
from receiving compensation by reason of the fact that he is also a director of
the Corporation, but any such officer who shall also be a director shall not
have any vote in the determination of the amount of compensation paid to him.
SECTION 8. CHAIRMAN OF THE BOARD. The Chairman of the Board shall preside at
all meetings of the stockholders and of the Board of Directors. He shall
perform such duties with such authority as may be prescribed from time to time
by the Board of Directors.
SECTION 9. PRESIDENT. The President shall be responsible to the Chief
Executive Officer and shall perform such duties with such authority as may be
prescribed in these By-Laws and from time to time by the Board of Directors and
the Chief Executive Officer.
SECTION 10. VICE PRESIDENTS. Each Vice President shall have such powers and
shall perform such duties as shall from time to time be prescribed by the Board
and as shall from time to time be assigned to him by the Chairman of the Board
or the President.
- 7 -
<PAGE>
SECTION 11. SECRETARY. The Secretary shall give or cause to be given all
required notices of meetings of stockholders and of the Board of Directors,
shall record all of the proceedings and act as custodian of the minutes of all
such meetings, shall have charge of the corporate seal and the corporate minute
books, and shall make such reports and perform such other duties as may be
assigned from time to time by the Board of Directors, the Chairman of the Board,
or the President. The Secretary shall keep in safe custody the seal of the
Corporation and the Secretary or any Assistant Secretary shall have authority to
affix the same to any instrument requiring it and when so affixed, it may be
attested by the signature of the Secretary or any Assistant Secretary. The
Assistant Secretaries, or any of them, shall perform such of the duties of the
Secretary as may from time to time be assigned to them by the Board of
Directors, the Chairman of the Board, the President, or the Secretary, and in
the absence of the Secretary or in the event of his disability or refusal to
act, shall perform the duties of the Secretary, and when so acting shall have
all the powers of and be subject to all the restrictions upon the Secretary.
SECTION 12. TREASURER. The Treasurer shall have custody of all moneys and
securities of the Corporation, shall have responsibility for disbursement of the
funds of the Corporation, shall make payment of the just demands on the
Corporation, shall invest surplus cash of the Corporation and manage its
investment portfolio under the direction of the Board of Directors, and shall
render to the Board of Directors an account of all transactions of the
Corporation and of the financial condition of the Corporation as may be required
of him. The Treasurer shall also perform such other duties as may be assigned
to him from time to time by the Board of Directors, the Chairman of the Board,
the President or by the Chief Financial Officer. The Assistant Treasurers, or
any of them, shall perform such of the duties of the Treasurer as may from time
to time be assigned to them by the Board of Directors, the Chairman of the
Board, the President, the Chief Financial Officer, or the Treasurer, and in the
absence of the Treasurer or in the event of his disability or refusal to act,
shall perform the duties of the Treasurer, and when so acting, shall have all
the powers of and be subject to all the restrictions upon the Treasurer.
SECTION 13. CONTROLLER. The Controller shall provide and maintain a system of
accounts and accounting records of the Corporation, shall provide and administer
a system of internal financial controls, and shall present such financial
statements to the Board of Directors as may be required. The Controller shall
also perform such other duties as may from time to time be assigned to him by
the Board of Directors, the Chairman of the Board, the President or by the Chief
Financial Officer. The Assistant Controllers, or any of them, shall perform
such of the duties of the Controller as may from time to time be assigned to
them by the Board of Directors, the Chairman of the Board, the President, the
Chief Financial Officer, or the Controller, and in the absence of the Controller
or in the event of his disability or refusal to act, shall perform the duties of
the Controller, and when so acting shall have all the powers of and be subject
to all the restrictions upon the Controller.
ARTICLE V
INDEMNIFICATION
SECTION 1. RIGHT TO INDEMNIFICATION. Every person who was or is a party or is
threatened to be made a party to or is involved in any threatened, pending or
completed action, suit or
- 8 -
<PAGE>
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that he is or was a director or officer of the Corporation or, while
a director or officer of the Corporation, is or was serving at the request of
the Corporation or for its benefit as a director, officer, employee or agent of
another corporation, or as its representative in a partnership, joint venture,
trust or other enterprise, including any employee benefit plan, shall be
indemnified and held harmless by the Corporation to the fullest extent legally
permissible under the General Corporation Law of the State of Delaware in the
manner prescribed therein, from time to time, against all expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection therewith. Similar indemnification may
be provided by the Corporation to an employee or agent of the Corporation who
was or is a party or is threatened to be made a party to or is involved in any
such threatened, pending or completed action, suit or proceeding, by reason of
the fact that he is or was an employee or agent of the Corporation or is or was
serving at the request of the Corporation or for its benefit as a director,
officer, employee, or agent of another corporation or as its representative in a
partnership, joint venture, trust or other enterprise, including any employee
benefit plan.
SECTION 2. OTHER INDEMNIFICATION. The rights of indemnification conferred by
this Article shall not be exclusive of any other rights which such directors,
officers, employees or agents may have or hereafter acquire and, without
limiting the generality of such statement, they shall be entitled to their
respective rights of indemnification under any by-law, agreement, vote of
stockholders, provision of law or otherwise, as well as their rights under this
Article.
ARTICLE VI
SHARES AND THEIR TRANSFER
SECTION 1. STOCK CERTIFICATES. Each holder of stock in the Corporation shall
be entitled to have a numbered certificate in such form as shall be approved by
the Board of Directors, certifying the number of shares owned by him and signed
in the name of the Corporation by the Chairman of the Board or the President or
a Vice President and by the Treasurer or an Assistant Treasurer or the Secretary
or an Assistant Secretary, and sealed with the seal of the Corporation (which
seal may be a facsimile, engraved or printed); provided however, if such
certificate is countersigned by a transfer agent, or by a registrar, the
signature of any of the above-named officers of the Corporation may be a
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent, or registrar before such certificate is
issued, it may be issued by the Corporation with the same effect as if he were
such officer, transfer agent, or registrar at the date of issue.
SECTION 2. TRANSFER OF STOCK. Transfers of shares of stock of the Corporation
shall be made on the stock records of the Corporation only upon authorization by
the registered holder thereof, or by his attorney thereunto authorized by power
of attorney duly executed and filed with the Secretary or with a transfer agent
or transfer clerk, and on surrender of the certificate or certificates for such
shares properly endorsed or accompanied by a duly executed stock transfer power
with reasonable assurances given that such endorsement is genuine and that all
taxes thereon have been paid. Except as otherwise provided by law, the
Corporation shall be entitled
- 9 -
<PAGE>
to recognize the exclusive right of a person in whose name any share or shares
stand on the record of stockholders as the owner of such share or shares for all
purposes, including, without limitation, the rights to receive dividends or
other distributions, and to vote as such owner, and the Corporation may hold any
such stockholder or record liable for calls and assessments, and the Corporation
shall not be bound to recognize any equitable or legal claim to or interest in
any such share or shares on the part of any other person whether or not it shall
have express or other notice thereof.
SECTION 3. LOST CERTIFICATES. The Corporation may issue a new certificate of
stock in the place of any certificate theretofore issued by it, alleged to have
been lost, stolen or destroyed, or which shall have been mutilated, and the
Board of Directors may, in its discretion, require the owner of the lost,
stolen, destroyed or mutilated certificate, or his legal representative, to give
the Corporation a bond, limited or unlimited, in such sum and in such form and
with such surety or sureties as the Board of Directors in its absolute
discretion shall determine is sufficient to indemnify the Corporation against
any claim that may be made against it on account of the alleged loss, theft,
destruction or mutilation of any such certificate, or the issuance of a new
certificate. Anything herein to the contrary notwithstanding, the Board of
Directors in its absolute discretion may refuse to issue any such new
certificate except pursuant to legal proceedings under the laws of the State of
Delaware.
SECTION 4. RULES AND REGULATIONS. The Board of Directors may make such
additional rules and regulations, not inconsistent with these By-Laws, the
Restated Certificate of Incorporation or the laws of the State of Delaware, as
it may deem expedient concerning the issuance, transfer and registration of
certificates for shares of stock of the Corporation. The Board of Directors may
appoint, or authorize any officer or officers of the Corporation to appoint, one
or more independent transfer agents and one or more independent registrars, and
may require all certificates for shares of stock to bear the signature or
signatures of any of them.
SECTION 5. RECORD DATE. In order to determine the stockholders entitled to
notice and to vote at any meeting of stockholders or adjournment thereof, or to
express consent to corporate action in writing without a meeting, or entitled
to receive payment of any dividend or other distribution or allotment of any
rights, or entitled to exercise any rights in respect of any change, conversion
or exchange of stock or for the purpose of any other lawful action, the Board of
Directors may fix, in advance, a record date, which shall not be less than ten
(10) nor more than sixty (60) days before the date of such meeting, nor more
than sixty (60) days prior to any other action. A determination of stockholders
of record entitled to notice of and to vote at a meeting of stockholders shall
apply to any adjournment of the meeting unless the Board of Directors shall
elect to fix a record date for the adjourned meeting.
ARTICLE VII
GENERAL PROVISIONS
SECTION 1. CONTRACTS AND OTHER INSTRUMENTS. The Chairman of the Board, the
Vice Chairman of the Board, the President, the Chief Operating Officer, the
Chief Financial Officer and any Senior Vice President may enter into any
contract or execute and deliver any instrument in the name of
- 10 -
<PAGE>
the Corporation and on behalf of the Corporation except as in these By-Laws or
by resolution otherwise provided. The Board of Directors, except as in these
By-Laws otherwise provided, may authorize any other officer or officers, agent
or agents of the Corporation, to enter into any contract or execute and deliver
any instrument in the name of the Corporation and on behalf of the Corporation,
and such authority may be general or confined to specific instances, and unless
so authorized by the Board of Directors, no such other officer, agent or
employee shall have any power or authority to bind the Corporation by any
contract or engagement or to pledge its credit or to render it liable
pecuniarily for any purpose or to any amount.
SECTION 2. LOANS. No loans shall be contracted on behalf of the Corporation
and no negotiable paper shall be issued in its name unless, and on such terms as
shall be, authorized by the Board of Directors.
SECTION 3. DISBURSEMENTS. All checks, drafts, demands for money, notes or
other evidences of indebtedness of the Corporation shall be signed by such
officer or officers or such other person or persons as may from time to time be
designated by the Board of Directors or by any officer or officers or person or
persons authorized by the Board of Directors to make such designations.
Facsimile signatures may be authorized in any such case where authorized by the
Board of Directors.
SECTION 4. DEPOSITS. All funds of the Corporation not otherwise employed shall
be deposited from time to time to the credit of the Corporation under such
conditions and in such banks or other depositories as the Board of Directors may
designate, or as may be designated by any officer or officers, agent or agents
of the Corporation to whom such power of designation may from time to time be
delegated by the Board of Directors. For the purpose of deposit and for the
purpose of collection for the account of the Corporation, checks, drafts, and
other orders for the payment of money which are payable to the order of the
Corporation may be endorsed, assigned and delivered by any officer or agent of
the Corporation as the Board of Directors may determine by resolution.
SECTION 5. VOTING SECURITIES OF OTHER CORPORATIONS. Unless otherwise ordered
by the Board of Directors, the Chairman of the Board, the President or any
person either may designate, shall have full power and authority on behalf of
the Corporation, in person or by proxy, to attend and to act and to vote at any
meeting of the security holders of any other corporation in which this
Corporation may hold securities, and at any such meeting he or his proxy shall
possess and may exercise any and all rights and powers incident to the ownership
of such securities and which as the owner thereof the Corporation might have
possessed and exercised if present. The Board of Directors, by resolution from
time to time, may confer like powers upon any other person or persons.
SECTION 6. CORPORATE SEAL. The Board of Directors shall provide a corporate
seal, which shall be in the form of a circle, and which shall bear the words and
figures:
- 11 -
<PAGE>
ECOLAB INC.
CORPORATE SEAL
1924
DELAWARE
SECTION 7. FISCAL YEAR. The fiscal year of the Corporation shall be as
determined by the Board of Directors.
SECTION 8. GENDER. Whenever used in these By-Laws, words in the masculine
gender shall include the feminine gender.
ARTICLE VIII
AMENDMENTS
Except as otherwise provided in the Restated Certificate of Incorporation or
these By-Laws, the Board of Directors may from time to time, by vote of a
majority of its members, alter, amend or rescind all or any of these By-Laws as
permitted, by law, subject to the power of the stockholders to change or repeal
such By-Laws.
- 12 -
<PAGE>
Number
NCU
Common Stock
Par Value $1.00
[Graphic]
Shares
Incorporated under the laws of the State of Delaware
[Logo]
CUSIP 278865 10 0
See Reverse for Certain Definitions
ECOLAB INC.
This Certifies that
SPECIMEN
is the owner of
Fully Paid and Non Assessable Shares of the Common Stock of
Ecolab Inc. transferable on the books of the Corporation by the holder hereof in
person or by duly authorized attorney upon surrender of this certificate
properly endorsed. This certificate is not valid unless countersigned by the
Transfer Agent and registered by the Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
[Seal]
Dated:
/s/ K. A. Iverson
Secretary
/s/ A. L. Schuman
President and Chief Executive Officer
Countersigned and Registered:
First Chicago Trust Company of New York,
By
Transfer Agent and Registrar.
Authorized Signature.
<PAGE>
ECOLAB INC.
The corporation will furnish, without charge, to each stockholder who so
requests, a printed statement of the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof which the corporation is authorized to issue and the
qualifications, limitations or restrictions of such preferences and/or rights.
Requests may be directed to the Secretary of ECOLAB INC. at its principal
office, or the Transfer Agent named on the face of this certificate.
This Certificate also evidences and entitles the holder hereof to certain Rights
as set forth in the Rights Agreement between Ecolab Inc. (the "Company") and
First Chicago Trust Company of New York (the "Rights Agent") dated as of
February 24, 1996, as the same may be amended from time to time (the "Rights
Agreement"), the terms of which are hereby incorporated herein by reference and
a copy of which is on file at the principal offices of the Company. Under
certain circumstances, as set forth in the Rights Agreement, such Rights will be
evidenced by separate certificates and will no longer be evidenced by this
certificate. The Company will mail to the holder of this certificate a copy of
the Rights Agreement, as in effect on the date of mailing, without charge
promptly after receipt of a written request therefor. Under certain
circumstances set forth in the Rights Agreement, Rights issued to, or held by,
any Person who is, was or becomes an Acquiring Person or an Adverse Person or
any Affiliate or Associate thereof (as such terms are defined in the Rights
Agreement), whether currently held by or on behalf of such Person or by any
subsequent holder, may become null and void.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and not as tenants in
common
UNIF GIFT MIN ACT - ________ Custodian ________
(Cust) (Minor)
under Uniform Gifts to Minors
Act ________
(State)
Additional abbreviations may also be used though not in the above list.
For value received, __________ hereby sell, assign and transfer unto
Please insert Social Security or other identifying number of assignee
_________________________________________________________________
_________________________________________________________________
<PAGE>
Please print or typewrite name and address including postal zip code of assignee
_________________________________________________________________
_________________________________________________________________
___________________________________________________________Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint_____________________
_________________________________________________________________
_________________________________________________________________
Attorney to transfer the said stock on the books of the within-named Corporation
with full power of substitution in the premises.
Dated, ______________________
______________________________________
NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the Certificate, in every particular, without
alteration, or enlargement, or any change whatever.
<PAGE>
ECOLAB
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
(AS AMENDED AND RESTATED EFFECTIVE JULY 1, 1994)
SECOND DECLARATION OF AMENDMENT
Pursuant to Section 1.3 of the Ecolab Supplemental Executive Plan ("SERP") and
Section 5.1 of the Ecolab Inc. Administrative Document for Non-Qualified Benefit
Plans which is incorporated into SERP by reference ("Administrative Document"),
the Company amends the SERP as set forth below.
(1) Exhibit A to SERP is hereby deleted in its entirety and replaced with
the attached Exhibit A, which is incorporated herein and forms a part
of this amendment to SERP.
(2) This amendment to SERP shall be effective as of July 1, 1994.
IN WITNESS WHEREOF, the Company has caused this instrument to be executed by its
authorized officers and its corporate seal affixed, this 20th day of DECEMBER,
1995.
ECOLAB INC.
(Seal)
By: /s/ Michael E. Shannon
---------------------------
Michael E. Shannon
Vice Chairman, Chief Financial and
Administrative Officer
Attest: /s/ Kenneth A. Iverson
---------------------------
Kenneth A. Iverson
Vice President and Secretary
<PAGE>
EXHIBIT A
ACTUARIAL ASSUMPTIONS
1. Interest Rate: 7.5% except as provided in item 4 below
and provided that, for purposes of
determining the actuarial equivalent
value of a lump sum distribution, the
interest rate will be 120% of the PBGC
immediate interest rate for lump sums in
effect on the first day of the Plan Year
(i.e., January 1) in which the
distribution becomes payable.
2. Mortality: 1971 Group Annuity Table.
3. Annuity Values Weighted: 75% male, 25% female.
4. Early Commencement: In the event of early payment (pursuant
to Section 3.3(2) of the Plan) in the
form of a single lump sum, the lump sum
amount shall be based on the lump sum
interest rate described in item 1 above
and the "early retirement benefit"
immediate annuity amount as determined
under such Section 3.3(2).
<PAGE>
ECOLAB
MIRROR SAVINGS PLAN
FIRST DECLARATION OF AMENDMENT
Pursuant to Section 1.3 of the Ecolab Mirror Savings Plan ("Plan") and Section
5.1 of the Ecolab Inc. Administrative Document for Non-Qualified Benefit Plans
which is incorporated into the Plan by reference ("Administrative Document"),
the Company amends the Plan as set forth below.
1. Subsections (1) and (2) of Section 6.1 of the Plan are hereby amended to
read as follows:
"(1) HYPOTHETICAL INVESTMENT FUND FOR MATCHING CONTRIBUTIONS. The
Company has designated the Ecolab Stock Fund under the Savings Plan as the
Hypothetical Investment Fund for Matching Contributions. Matching
Contributions shall be deemed to have been invested in the Ecolab Stock
Fund for purposes of crediting earnings and losses to the portion of the
Executive's Account which is attributable to Matching Contributions.
Earnings on any amounts deemed to have been invested in the Ecolab Stock
Fund shall be deemed to have been reinvested in the Ecolab Stock Fund.
(2) HYPOTHETICAL INVESTMENT FUNDS FOR EXECUTIVE DEFERRALS. The
Hypothetical Investment Funds for purposes of the portion of an Executive's
Account which is attributable to his Executive Deferrals shall be those
same Investment Funds designated by the Company from time to time under the
Savings Plan. Each Executive (or his Death Beneficiary) shall be deemed to
have elected one or more Hypothetical Investment Funds in which his
Executive Deferrals are deemed to have been invested for purposes of
crediting earnings and losses to the portion of the Executive's Account
which is attributable to Executive Deferrals. The Executive's or Death
Beneficiary's deemed election of Hypothetical Investment Funds hereunder
shall be based on the Executive's or Death Beneficiary's investment
election (or default election) under the Savings Plan, as in effect from
time to time. The Company may deem an Executive's Executive Deferrals to
have been invested in the Hypothetical Investment Fund deemed elected by
the Executive, if any, or may instead, in its sole discretion, deem such
Executive Deferrals to have been invested in one or more Hypothetical
Investment Funds selected by the Company. Earnings on any amounts deemed
to have been invested in any Hypothetical Investment Fund shall be deemed
to have been reinvested in such Hypothetical Investment Fund.
Notwithstanding the foregoing, any Executive who is subject to Section
16(b) of the Securities Exchange Act of 1934 shall not be deemed to have
directed any Executive Deferrals to the Ecolab Stock Fund and may make a
separate election to have such Executive Deferrals which would otherwise
have been deemed to be invested in the Ecolab Stock Fund deemed invested in
one or more of the other Hypothetical Investment Funds. An Executive
<PAGE>
shall be deemed, on the day prior to becoming subject to Section 16(b) or
at such other time as he is subject to Section 16(b), to have elected to
have Executive Deferrals then deemed to be invested in the Ecolab Stock
Fund invested in the Hypothetical Investment Fund known as the Fidelity
Retirement Money Market Portfolio unless another permitted election is in
place."
2. This amendment to the Plan shall be effective as of January 1, 1995.
IN WITNESS WHEREOF, the Company has caused this instrument to be executed by its
authorized officers and its corporate seal affixed, this 27th day of September,
1995.
ECOLAB INC.
(Seal)
By: /s/ Michael E. Shannon
---------------------------
Michael E. Shannon
Vice Chairman, Chief Financial and
Administrative Officer
Attest: /s/ Kenneth A. Iverson
---------------------------
Kenneth A. Iverson
Vice President and Secretary
2
<PAGE>
ECOLAB
MIRROR PENSION PLAN
(EFFECTIVE JULY 1, 1994)
SECOND DECLARATION OF AMENDMENT
Pursuant to Section 1.3 of the Ecolab Mirror Pension Plan ("Plan") and Section
5.1 of the Ecolab Inc. Administrative Document for Non-Qualified Benefit Plans
which is incorporated into the Plan by reference ("Administrative Document"),
the Company amends the Plan as set forth below.
(1) Exhibit A to the Plan is hereby deleted in its entirety and replaced
with the attached Exhibit A, which is incorporated herein and forms a
part of this amendment to the Plan.
(2) This amendment to the Plan shall be effective as of July 1, 1994.
IN WITNESS WHEREOF, the Company has caused this instrument to be executed by its
authorized officers and its corporate seal affixed, this 20th day of December,
1995.
ECOLAB INC.
(Seal)
By: /s/ Michael E. Shannon
---------------------------
Michael E. Shannon
Vice Chairman, Chief Financial and
Administrative Officer
Attest: /s/ Kenneth A. Iverson
---------------------------
Kenneth A. Iverson
Vice President and Secretary
<PAGE>
EXHIBIT A
ACTUARIAL ASSUMPTIONS
1. Interest Rate: 7.5% except as provided in item 4 below
and provided that, for purposes of
determining the actuarial equivalent
value of a lump sum distribution, the
interest rate will be 120% of the PBGC
immediate interest rate for lump sums in
effect on the first day of the Plan Year
(i.e., January 1) in which the
distribution becomes payable.
2. Mortality: 1971 Group Annuity Table.
3. Annuity Values Weighted: 75% male, 25% female.
4. Early Commencement: The Mirror Pension Benefit shall be
reduced by one two hundred eightieth
(1/280th) for each month that the date
of the commencement of payment precedes
the date on which the Executive will
attain age sixty-two (62). If the
Executive's Ecolab Pension Plan benefit
is affected by Section 415 of the Code,
the Administrator shall make such
further adjustments to the Mirror
Pension Benefit as the Administrator, in
his or her sole discretion, deems
appropriate to ensure that the total
early retirement benefit from the Ecolab
Pension Plan and the Ecolab Mirror
Pension Plan equals the early retirement
benefit the Executive would have been
entitled to under the Ecolab Pension
Plan without regard to the Code
Limitations and non-qualified deferrals.
If payment is in the form of a single
lump sum, the lump sum amount shall be
based on the lump sum interest rate
defined in item 1 above, the mortality
assumptions specified in items 2 and 3
above, and the "early retirement
benefit" immediate annuity amount as
determined under this item 4.
<PAGE>
Exhibit (11)
ECOLAB INC.
COMPUTATION OF PRIMARY AND FULLY DILUTED EARNINGS PER SHARE
(thousands, except per share)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Income from Continuing Operations
Income from continuing operations $ 99,189 $ 84,562 $ 82,772 $ 71,488 $ 63,239
Convertible preferred stock dividends - - - - (4,064)
-------- -------- -------- -------- ---------
Income from continuing operations
available to common shareholders -
primary earnings per share computation 99,189 84,562 82,772 71,488 59,175
After-tax effect of interest on
the 5-1/8% Convertible
Subordinated Debentures due in 1991 - - - - 13
-------- -------- -------- -------- ---------
Income from continuing operations available to
common shareholders - fully diluted earnings
per share computation $ 99,189 $ 84,562 $ 82,772 $ 71,488 $ 59,188
-------- -------- -------- -------- ---------
-------- -------- -------- -------- ---------
Discontinued Operations
Income (loss) from discontinued operations -
primary and fully diluted earnings per
share computation $ - $ - $ - $ - $(274,693)
-------- -------- -------- -------- ---------
-------- -------- -------- -------- ---------
Extraordinary (Loss) Related to Retirement of
Debt-primary and fully diluted earnings
per share computation $ - $ - $ (4,018) $ - $ -
-------- -------- -------- -------- ---------
-------- -------- -------- -------- ---------
Cumulative Effect of the Change in Accounting
For Income Taxes - primary and fully diluted
earnings per share computation $ - $ - $ 4,733 $ - $
-------- -------- -------- -------- ---------
-------- -------- -------- -------- ---------
Cumulative Effect of the Change in Accounting
For Postretirement Health Care Benefits -
primary and fully diluted earnings per
share computation $ - $ - $ - $ - $ (24,560)
-------- -------- -------- -------- ---------
-------- -------- -------- -------- ---------
Net Income (Loss)
Net income (loss) $ 99,189 $ 84,562 $ 83,487 $ 71,488 $(236,014)
Convertible preferred stock dividends - - - - (4,064)
-------- -------- -------- -------- ---------
-------- -------- -------- -------- ---------
Net income (loss) available to common shareholders -
primary earnings per share computation 99,189 84,562 83,487 71,488 (240,078)
After-tax effect of interest on
the 5-1/8% Convertible Subordinated
Debentures due in 1991 - - - - -
-------- -------- -------- -------- ---------
Net income (loss) available to common shareholders -
fully diluted earnings per share computation $ 99,189 $ 84,562 $ 83,487 $ 71,488 $(240,078)
-------- -------- -------- -------- ---------
-------- -------- -------- -------- ---------
Average shares outstanding - primary
earnings per share computation and fully
diluted (loss) per share computation 66,097 67,550 67,528 67,204 58,525
Shares assumed outstanding for the
5-1/8% Convertible Subordinated
Debentures due in 1991 - - - - 48
Additional shares outstanding, assuming
exercise of dilutive stock options and
acquisition of treasury shares at
higher of the average or ending
market price 1,863 1,103 1,351 1,022 614
-------- -------- -------- -------- ---------
Average shares outstanding - fully
diluted earnings per share computation 67,960 68,653 68,879 68,226 59,187
-------- -------- -------- -------- ---------
-------- -------- -------- -------- ---------
Income (Loss) Per Common Share
Primary
Continuing operations $ 1.50 $ 1.25 $ 1.23 $ 1.06 $ 1.01
Discontinued operations - - - - (4.69)
Extraordinary loss - - (0.06) - -
Changes in accounting principles - - 0.07 - (0.42)
Net income (loss) $ 1.50 $ 1.25 $ 1.24 $ 1.06 $ (4.10)
Fully diluted
Continuing operations $ 1.46 $ 1.23 $ 1.20 $ 1.05 $ 1.00
Discontinued operations - - - - (4.69)
Extraordinary loss - - (0.06) - -
Changes in accounting principles - - 0.07 - (0.42)
Net income (loss) $ 1.46 $ 1.23 $ 1.21 $ 1.05 $ (4.10)
</TABLE>
<PAGE>
FINANCIAL
DISCUSSION
The following discussion and analysis provides information that management
believes is useful in understanding the company's operating results, cash
flows and financial condition. The discussion should be read in conjunction
with the consolidated financial statements and related notes.
1995 OVERVIEW
- ------------------------------------------------------------------------------
During 1995, Ecolab achieved record financial results and made important
progress toward its strategic development. All of the company's established
businesses achieved record sales and income results, and Ecolab's stock price
rose over 40 percent during the year to a record level. This strong performance
was achieved despite higher raw material costs and a competitive environment
that limited selling price increases. The company's significant accomplishments
included:
- - Consolidated net sales reached a record $1.3 billion and increased 11 percent
over the prior year.
- - Net income reached a record $99 million, or $1.50 per share. Net income per
share increased 12 percent over pro forma net income per share of $1.34 in 1994.
- - The company continued to realize strong operating cash flows and maintain very
low debt levels. Total debt to capitalization was 26 percent at year-end 1995,
up modestly from its lowest level in 10 years of 24 percent at year-end 1994. As
a result, Ecolab's debt continued to be rated "A-" by Standard & Poor's, and the
company maintained its long-term financial objective of an investment grade
balance sheet.
- - The return on beginning shareholders' equity for 1995 was 21 percent. This is
the fourth consecutive year that the company has exceeded its long-term
financial objective to achieve a 20 percent return on beginning shareholders'
equity.
- - The company increased its annual dividend rate for the fourth consecutive
year. The annual dividend rate was increased by 12 percent to $0.56 per
common share. The company has paid dividends on its common stock for 59
consecutive years.
- - During 1995, the company broadened its Water Care Services operations by
making two additional acquisitions. The company will continue to pursue water
care acquisitions and focus on the development of its Water Care Services
strategies. Also, during 1995, the company reestablished operations in South
Africa through two acquisitions.
OPERATING RESULTS
- ------------------------------------------------------------------------------
CONSOLIDATED
(thousands, except per share) 1995 1994 1993
Net sales $1,340,881 $1,207,614 $1,102,396
Operating income $ 162,686 $ 136,964 $ 129,451
Net income
As reported $ 99,189 $ 84,562 $ 83,487
Merger costs and expenses 6,900
Kay net deferred tax liability 1,300
Kay Subchapter S status (2,298) (2,667)
- ------------------------------------------------------------------------------
Pro forma $ 99,189 $ 90,464 $ 80,820
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Net income per share
As reported $ 1.50 $ 1.25 $ 1.24
Pro forma $ 1.50 $ 1.34 $ 1.20
Consolidated net sales were $1.3 billion in 1995, an 11 percent increase
over net sales of $1.2 billion in 1994. Both the company's United States and
International operations contributed to this increase. The growth in net
sales reflected the benefits of new product introductions, an increased
sales-and-service force, competitive gains and generally good economic
conditions in the hospitality and lodging industries.
[GRAPH]
Consolidated operating income reached $163 million in
1995 compared to operating income of $137 million in 1994. Consolidated
operating income for 1994 was negatively affected by $8 million of one-time
merger costs and expenses related to the company's December 1994 merger with Kay
Chemical Company and affiliates ("Kay") of Greensboro, North Carolina.
Consolidated operating income increased 12 percent over pro forma operating
income for 1994, which excludes the negative effects of the merger costs and
expenses. With the exception of the start-up Water Care Services and South
African operations,
ECOLAB INC: 1995 ANNUAL REPORT
24
<PAGE>
FINANCIAL
DISCUSSION
all of the company's United States businesses and all regions of
International operations contributed to the improvement in consolidated
operating income. The operating income margin was 12.1 percent in 1995,
compared to the pro forma operating income margin of 12.0 percent in 1994.
The modest increase in the operating income margin reflected an improvement
in selling, general and administrative expenses as a percent of net sales,
partially offset by a decrease in the gross profit margin. The gross profit
margin was 55.0 percent in 1995 compared to a gross profit margin of 55.9
percent in 1994. The decrease in the gross profit margin reflected increased
raw material costs and limited selling price increases due to competitive
pressures in several of the markets in which the company does business. Raw
material cost increases moderated somewhat during the second half of 1995.
Management continues to focus on future raw material cost increases and
competition in the marketplace to minimize any impact on the company's
overall operating results. Selling, general and administrative expenses
represented 42.9 percent of net sales in 1995 compared to 43.8 percent of net
sales in 1994. These expenses decreased as a percentage of net sales,
primarily due to the company's continued cost-control efforts.
Net income for 1995 totaled $99 million, or $1.50 per share, compared to
reported net income of $85 million, or $1.25 per share for 1994. The table on
page 24 also presents pro forma net income for 1994 and 1993 on a basis
consistent with the way it has been reported subsequent to the company's
December 1994 merger with Kay. 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 has been included in the company's U.S.
federal income tax return and, therefore, income tax expense in 1995 no
longer reflects the Subchapter S related tax benefit.
Net income for 1995 increased 10 percent over 1994 pro forma net income of
$90 million. The improvement in net income reflected a strong operating
income performance and a reduction in net interest expense which was
partially offset by lower equity in earnings of the Henkel-Ecolab joint
venture. On a per share basis, 1995 net income per share of $1.50 increased
12 percent over pro forma net income per share of $1.34 in 1994. This
comparison of net income per share benefited from a smaller number of average
shares outstanding in 1995 due to the purchase of approximately 3.5 million
shares of the company's common stock in mid-1995 under the terms of a "Dutch
auction" self-tender offer.
1994 COMPARED WITH 1993
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. New product introductions
and a larger sales-and-service force made significant contributions to the sales
improvement.
Consolidated operating income increased 6 percent to $137 million in 1994
from $129 million in 1993. This increase reflected 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 included $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 pro forma basis, net income for 1994 was $90 million, or $1.34 per
share, and increased 12 percent over pro forma net income of $81 million, or
$1.20 per share, in 1993. In addition to an improvement in operating income,
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 that reduced net income in 1993 by approximately $2
million.
ECOLAB INC: 1995 ANNUAL REPORT
25
<PAGE>
FINANCIAL
DISCUSSION
UNITED STATES
(thousands) 1995 1994 1993
- ------------------------------------------------------------------------------
Net sales $1,030,126 $942,070 $867,415
Operating income $ 147,330 $134,510 $124,281
Percent of sales 14.3% 14.3% 14.3%
United States sales for 1995 were slightly more than $1.0 billion, an
increase of 9 percent over net sales of $942 million in 1994. All divisions
contributed to this sales improvement. United States sales benefited from new
products, increased product volumes, favorable product mix, new customer
business, retention of key customers, a larger sales-and-service force and
continued good market conditions in the hospitality and lodging industries.
However, selling price increases were 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 6 percent over 1994.
Institutional sales growth included increased sales in all major product
lines, with particularly strong growth in its Ecotemp program and the
specialty products group. The Pest Elimination Division reported 12 percent
sales growth for 1995 and continued to successfully leverage its alliances
with the Institutional and Food and Beverage Divisions. Sales growth for
Kay's United States operations was 13 percent for 1995 due to new customers
and the growth of the large quickservice chains, which are the core of Kay's
business. The Textile Care Division reported a sales increase of 7 percent
for 1995, which included double-digit growth in
[GRAPH]
commercial laundry and hospitality market sales. Sales of the Janitorial
Division increased 5 percent over the prior year. Janitorial sales growth was
due to increased sales of its Airkem products, with sales of its Signature
Label program flat versus the strong sales reported in 1994. The Food and
Beverage Division (formerly the Klenzade Division) reported sales growth of
12 percent, including double-digit growth in sales to the beverage, brewery,
dairy plant and food processing markets. The company's recently acquired
Water Care Services operations contributed $11 million to United States sales
during 1995.
Operating income for the company's United States operations totaled $147
million in 1995, an increase of 10 percent over operating income of $135
million in 1994. Operating income margins were 14.3 percent for 1995 and were
unchanged from the prior year. Operating income growth included continued
good growth of the U.S. Institutional Division and double-digit growth of all
of the other United States businesses, with the exception of the start-up
Water Care Services operations. Operating income for 1995 reflected strong
sales and the benefits of companywide cost-control programs. Operating income
was negatively affected by higher raw material costs and competitive pricing
pressures. The United States business continued to invest in its
sales-and-service force, though at a slower pace compared to the last two
years. In 1995, excluding the Water Care Services acquisitions, the company
added approximately 100 new United States sales-and-service personnel
compared to additions of approximately 200 in 1994 and 300 in 1993.
1994 COMPARED WITH 1993
United States 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, which is its most
significant product line, and exceptional growth in its Ecotemp program and
the specialty products group. 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 Food and
Beverage Divisions' customer bases and to new product and service offerings.
Sales of the Textile Care Division increased 12 percent over 1993 due to
additional sales related to an acquisition in December 1993 and to strong
sales in the healthcare and shirt laundry markets. The Janitorial Division
reported sales growth of 22 percent for 1994. Janitorial's sales growth
included exceptional growth of its Signature Label program. Food and Beverage
Division sales for 1994 increased 5 percent over the prior year due to new
product introductions and successful growth in the food processing and dairy
plant markets. Kay's United States operations reported sales growth of 6
percent for 1994, primarily due to the growth of the large quickservice
chains that Kay serves.
ECOLAB INC: 1995 ANNUAL REPORT
26
<PAGE>
FINANCIAL
DISCUSSION
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 both 1994 and 1993. The
increase 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. Operating income improvements in 1994
included a modest benefit from favorable raw material costs. Operating income
comparisons also benefited due to charges that 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.
INTERNATIONAL
(thousands) 1995 1994 1993
- ------------------------------------------------------------------------------
Net sales $310,755 $265,544 $234,981
Operating income $ 19,580 $ 14,838 $ 9,420
Percent of sales 6.3% 5.6% 4.0%
The company's International business consists of Canadian, Asia Pacific,
Latin American and African operations and the international operations of
Kay. Net sales of the company's International operations totaled $311 million
in 1995, a 17 percent increase over sales of $266 million in 1994. 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 14 percent for 1995 with good performances in its
Institutional and Food and Beverage markets. Asia Pacific sales results
included double-digit growth in the East Asia region and New Zealand, modest
growth in Japan and flat results in Australia. Sales in China decreased due
to difficult local economic and business conditions. Sales in the Latin
American region increased 22 percent for 1995 with good growth in all
markets. This increase included the continuing improvement of performance in
Brazil due to a more stable economic environment and the benefit of
management changes the company made in the region during 1993 and 1994. Sales
in Mexico grew at double-digit rates in local currencies; however, this
improvement was more than offset by the negative effects of the devaluation
of the Mexican peso in early 1995. The company's Canadian operations reported
sales growth of 5 percent for 1995. Canada's sales growth included
double-digit gains in sales to the Food and Beverage and Janitorial markets
and a modest increase in sales to the Institutional and Textile Care markets.
International sales in 1995 also included approximately
[GRAPH]
$6 million of sales from South African operations. The company acquired two
businesses in South Africa during 1995, representing annualized sales of
approximately $20 million. Sales of Kay's International operations increased
18 percent for 1995 as it continued to expand service to locations where its
large corporate customers do business.
Operating income for International operations totaled $20 million in 1995,
a 32 percent increase over 1994's operating income of $15 million. Operating
income margins improved to 6.3 percent in 1995 from 5.6 percent the prior
year. Operating income improved very significantly in Latin America and Kay,
and grew at nearly double-digit rates in Asia Pacific and Canada.
International's operating income for 1995 included favorable benefits from
currency translation in the Asia Pacific region; however, it was negatively
affected by a $1 million pre-tax charge in the first quarter related to the
devaluation of the Mexican peso. Operating income in 1994 also included an
unusual charge of $1 million which was incurred in the second quarter of 1994
due to the government's economic program and monetary plan in Brazil.
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
ECOLAB INC: 1995 ANNUAL REPORT
27
<PAGE>
FINANCIAL
DISCUSSION
diverse foreign jurisdictions. Proportionately larger investments in
sales and administrative personnel are also necessary in order to facilitate
growth of International operations.
1994 COMPARED WITH 1993
International revenues for 1994 of $266 million increased 13 percent over
revenues of $235 million in 1993. The effects of currency translation did not
have a significant impact on overall International sales growth. Asia Pacific
reported sales growth of 13 percent for 1994, which included double-digit
sales gains in the East Asia region and excellent sales growth in Japan, New
Zealand and China. 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 that the company made in the region in late 1993 and
early 1994 and an improved economic environment in Brazil. Sales of the
company's Canadian operations increased 22 percent during 1994 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 all of the various international locations in which
its existing customers operate.
International operating income totaled $15 million in 1994, compared with
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 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 sale-and-service force and a $1 million
one-time charge due to the government's new economic program and monetary
plan in Brazil.
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 roy-
[GRAPH]
alty income and after deduction of intangible amortization, was $8 million in
1995, a substantial decrease from the company's equity in earnings of $11
million in 1994. These disappointing results reflected higher raw material
costs, the cost of 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.
Administrative changes being made at the joint venture include investments in
personnel, organizational development and financial and operating systems.
The company does not expect that financial results will fully benefit from
these investments until late 1996 and later years. The joint venture's
revenues, although not consolidated in Ecolab's financial statements,
increased 3 percent during 1995 when measured in Deutsche marks. However, due
to the weaker U.S. dollar, joint venture revenues when translated into U.S.
dollars totaled $909 million during 1995, an increase of 17 percent over
revenues of $777 million in 1994.
1994 COMPARED WITH 1993
The company's equity in earnings of the Henkel-Ecolab joint venture was $11
million in 1994, a substantial increase compared with equity in earnings of $8
million in 1993. Operating results for 1994's fourth quarter and fiscal year
included a $1 million benefit from a rebate under a manufacturing supply
agreement. The improvement in operating results also reflected product mix
ECOLAB INC: 1995 ANNUAL REPORT
28
<PAGE>
FINANCIAL
DISCUSSION
improvements and cost-containment efforts of the joint venture. Joint venture
revenues for 1994 of $777 million increased 2 percent over joint venture
revenues of $758 million in 1993.
CORPORATE
Corporate operating expense was $4 million in 1995, compared with $12 million
in 1994 and $4 million in 1993. Corporate operating expense includes overhead
costs directly related to the joint venture. In addition, expense in 1994
also included $8 million of merger costs and expenses that were incurred as a
result of the merger with Kay.
INTEREST AND INCOME TAXES
Net interest expense for 1995 was $12 million, an 11 percent decrease from net
interest expense of $13 million in 1994. The decrease in net interest expense
was due to increased interest income earned on higher average levels of cash and
cash equivalents held during 1995 and to the effect of lower interest rates on
the company's short-term borrowings.
Net interest expense of $13 million for 1994 was 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 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 1993 and reduced
borrowings under the Multicurrency Credit Agreement during 1994.
The annual effective income tax rate was 39.5 percent in 1995, compared
with 40.7 percent in 1994. The decrease in the effective income tax rate in
1995 was principally due to the effects of the Kay merger. The effective
income tax rate was higher in 1994 due to the nondeductibility of a major
portion of the one-time merger costs and expenses 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 decrease in
the 1995 effective income tax rate also reflected a lower overall effective
rate on earnings of International operations. These benefits were partially
offset by the loss of Kay's Subchapter S income tax status for 1995 and the
elimination of income tax benefits from the discontinuation of most of the
company's manufacturing operations in Puerto Rico.
The effective income tax rate for all periods prior to 1995 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 has been included in Ecolab's U.S. federal income tax return and,
therefore, income tax expense no longer reflects the Subchapter S related tax
benefit. 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.
The annual effective income tax rate of 40.7 percent in 1994 increased
from 30.9 percent in 1993. In addition to the increase in the effective
income tax rate in 1994 due to Kay's merger costs and expenses and the tax
expense incurred to record Kay's net deferred tax liability, this increase
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 pre-tax income. Income taxes in 1993
also included a one-time tax benefit associated with the sales of the
company's G.H. Wood operation and the Textile Care fashion processing
business.
As a result of tax losses on the disposition of a discontinued business in
1992, U.S. federal income tax payments have been reduced by approximately $58
million, including $3 million in 1995, $15 million in 1994 and $25 million in
1993. 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
anticipated.
FINANCIAL POSITION, CASH FLOWS
AND LIQUIDITY
- -------------------------------------------------------------------------------
FINANCIAL POSITION
The company maintained its long-term financial objective of an investment
grade balance sheet throughout 1995. The company's debt rating was raised to
an "A-" by Standard & Poor's in 1993, and this rating was maintained
throughout 1994 and 1995. Significant changes to the company's balance sheet
included the following:
- - During 1995, Ecolab purchased approximately 3.5 million shares (approximately
5 percent of total outstanding shares) of the company's common stock, at a
purchase price of $25.00 per share, through a "Dutch auction" self-tender offer.
Shareholders' equity was reduced by the total cost to purchase these shares,
which was approximately $90 million. The cost was funded by excess cash and cash
equivalents and by approximately $30 million of short-term borrowings. In
addition, the company may
ECOLAB INC: 1995 ANNUAL REPORT
29
<PAGE>
FINANCIAL
DISCUSSION
purchase approximately 2.5 million additional shares from time to time
through open market and privately negotiated transactions to complete a 6
million share repurchase program.
- - Total debt increased $14 million during 1995 following decreases of $4 million
during 1994 and $85 million during 1993. The increase in 1995 was due to the
cash requirements of the stock purchase self-tender offer and business
acquisitions.
[GRAPH]
The ratio of total debt to capitalization rose to 26 percent from 24 percent
at year-end 1994, and compared to a ratio of 28 percent at year-end 1993. In
addition to increased debt levels, the increase in the total debt to
capitalization ratio during 1995 reflected the decrease in shareholders'
equity which resulted from the purchase of common stock.
- - Working capital levels decreased to $48 million at year-end 1995 from $148
million at year-end 1994 and $110 million at year-end 1993. The decrease in
working capital levels during 1995 was principally due to the effects of the
purchase of common stock. The working capital increase during 1994 included
a significant increase in cash and cash equivalents, and increased
inventory levels to more efficiently meet local sales requirements.
- - Changes in the company's investment in the Henkel-Ecolab joint venture are
principally due to currency rate changes.
CASH FLOWS
Cash provided by continuing operating activities totaled $163 million in 1995,
$154 million in 1994 and $151 million in 1993. These strong operating cash flows
were due in large part to strong earnings. 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 reflects a reduction in income
tax payments as a result of the loss on the disposition of a discontinued
business.
Cash flows used for capital expenditures were $110 million in 1995,
$88 million in 1994 and $68 million in 1993. Worldwide additions of
merchandising equipment, primarily cleaning and sanitizing product
dispensers, accounted for approximately 70 percent of each year's capital
expenditures. Capital expenditures for 1995 also included costs related to a
new manufacturing facility being constructed in Hebron, Ohio, in order to
more efficiently meet sales requirements.
Total debt was $161 million at December 31, 1995, compared with total debt
levels of $147 million at year-end 1994 and $151 million at year-end 1993.
Long-term debt repayments during 1995 included a scheduled payment of $14
million related to the company's 9.68 percent senior notes. Additional
borrowings were made during 1995 under the company's various short-term
credit arrangements, principally to fund acquisitions and a portion of the
cost of shares acquired under the self-tender offer. In January 1996, the
company issued $75 million of 7.19 percent senior notes to a group of
insurance companies. Proceeds from the debt were used to reduce short-term
borrowings and for general corporate purposes.
In 1995, the company increased its annual dividend rate for the fourth
consecutive year. The company has paid dividends on its common stock for 59
consecutive years. Cash dividends declared per share of common stock, by
quarter, for each of the last three years were as follows:
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
- -----------------------------------------------------------------------
1995 $0.125 $0.125 $0.125 $0.14 $0.515
1994 0.11 0.11 0.11 0.125 0.455
1993 0.095 0.095 0.095 0.11 0.395
LIQUIDITY
The company maintains a $150 million committed line of credit for general
corporate financing needs. The credit facility includes a competitive bid
feature to minimize the cost of the company's short-term borrowings. The
company also has an established commercial paper program, supported by the
committed line of credit, as an alternative source of liquidity. 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 1996 requirements for growth, possible
acquisitions, new program investments, scheduled debt repayments and dividend
payments.
ECOLAB INC: 1995 ANNUAL REPORT
30
<PAGE>
CONSOLIDATED
STATEMENT OF INCOME
<TABLE>
<CAPTION>
Year ended December 31 (thousands, except per share) 1995 1994 1993
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales $1,340,881 $1,207,614 $1,102,396
Cost of Sales 603,167 533,143 491,306
Selling, General and Administrative Expenses 575,028 529,507 481,639
Merger Costs and Expenses 8,000
- ---------------------------------------------------------------------------------------------------
Operating Income 162,686 136,964 129,451
Interest Expense, Net 11,505 12,909 21,384
- ---------------------------------------------------------------------------------------------------
Income Before Income Taxes and Equity in
Earnings of Joint Venture 151,181 124,055 108,067
Provision for Income Taxes 59,694 50,444 33,422
Equity in Earnings of Henkel-Ecolab Joint Venture 7,702 10,951 8,127
- ---------------------------------------------------------------------------------------------------
Income Before Extraordinary Loss and Cumulative
Effect of Change in Accounting 99,189 84,562 82,772
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 $99,189 $84,562 $83,487
- ---------------------------------------------------------------------------------------------------
Income Per Common Share
Income before extraordinary loss and cumulative
effect of change in accounting $ 1.50 $ 1.25 $ 1.23
Extraordinary loss related to retirement of debt (0.06)
Change in accounting for income taxes 0.07
Net income $ 1.50 $ 1.25 $ 1.24
Average Common Shares Outstanding 66,097 67,550 67,528
- ---------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
ECOLAB INC: 1995 ANNUAL REPORT
31
<PAGE>
CONSOLIDATED
BALANCE SHEET
<TABLE>
<CAPTION>
December 31 (thousands, except per share) 1995 1994 1993
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 24,718 $ 98,255 $ 48,642
Accounts receivable, net 198,432 168,807 146,804
Inventories 106,117 100,015 83,401
Deferred income taxes 21,617 22,349 21,841
Other current assets 7,188 11,753 10,363
- ---------------------------------------------------------------------------------------
Current Assets 358,072 401,179 311,051
Property, Plant and Equipment, Net 292,937 246,191 219,268
Investment in Henkel-Ecolab Joint Venture 302,298 284,570 255,804
Other Assets 107,573 88,416 105,607
- ---------------------------------------------------------------------------------------
Total Assets $1,060,880 $1,020,356 $891,730
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term debt $ 71,647 $ 41,820 $19,420
Accounts payable 81,931 76,905 71,720
Compensation and benefits 59,766 56,445 44,713
Income taxes 18,248 13,113 8,221
Other current liabilities 78,946 65,382 57,424
- ---------------------------------------------------------------------------------------
Current Liabilities 310,538 253,665 201,498
Long-Term Debt 89,402 105,393 131,861
Postretirement Health Care and Pension Benefits 70,666 70,882 72,647
Other Liabilities 133,616 128,608 93,917
Shareholders' Equity (common stock, par
value $1.00 per share; shares outstanding:
1995 -- 64,701; 1994 -- 67,671;
1993 -- 67,570) 456,658 461,808 391,807
- ---------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $1,060,880 $1,020,356 $891,730
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
ECOLAB INC: 1995 ANNUAL REPORT
32
<PAGE>
CONSOLIDATED
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31 (thousands) 1995 1994 1993
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $99,189 $84,562 $83,487
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 64,651 56,867 51,256
Amortization 11,628 10,002 9,353
Deferred income taxes (759) 2,352 (15,210)
Equity in earnings of joint venture, net of
royalties received (2,092) (5,273) (1,741)
Other, net 801 415 (1,673)
Changes in operating assets and liabilities:
Accounts receivable (26,843) (18,952) (474)
Inventories (4,136) (14,285) (12,844)
Other assets (11,371) (7,222) 4,240
Accounts payable 4,561 1,587 11,810
Other liabilities 27,834 44,293 23,385
- ---------------------------------------------------------------------------------------------------
Cash provided by continuing operations 163,463 154,346 150,874
Cash provided by discontinued operations 3,000 15,000 24,800
- ---------------------------------------------------------------------------------------------------
Cash provided by operating activities 166,463 169,346 175,674
- ---------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Capital expenditures (109,894) (88,457) (68,321)
Property disposals 1,806 4,836 5,059
Sale of investments in securities 4,007 5,022 26,521
Businesses acquired (26,437) (4,686) (10,017)
Other, net 6,991 5,145 3,233
- ---------------------------------------------------------------------------------------------------
Cash used for investing activities (123,527) (78,140) (43,525)
- ---------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Notes payable 29,355 8,512 (1,707)
Long-term debt borrowings 2,141 12,414
Long-term debt repayments (20,060) (14,621) (94,227)
Reacquired shares (90,391) (7,889) (9,279)
Dividends on common stock (33,114) (27,851) (24,037)
Other, net (4,561) 1,013 (4,548)
- ---------------------------------------------------------------------------------------------------
Cash used for financing activities (116,630) (40,836) (121,384)
- ---------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash 157 (757) (328)
- ---------------------------------------------------------------------------------------------------
Increase (Decrease) in Cash and Cash Equivalents (73,537) 49,613 10,437
Cash and Cash Equivalents, beginning of year 98,255 48,642 38,205
- ---------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, end of year $24,718 $98,255 $48,642
- ---------------------------------------------------------------------------------------------------
</TABLE>
Bracketed amounts indicate a use of cash.
See notes to consolidated financial statements.
ECOLAB INC: 1995 ANNUAL REPORT
33
<PAGE>
CONSOLIDATED
STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional Retained Deferred Cumulative Treasury
(thousands) Common Stock Paid-in Capital Earnings Compensation Translation Stock Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
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
Net income 99,189 99,189
Cash dividends on common stock (33,715) (33,715)
Stock options 419 6,422 6,841
Stock awards 485 2,738 (4,745) 2,479 957
Reacquired shares (90,391) (90,391)
Amortization 2,453 2,453
Translation 9,516 9,516
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1995 $70,078 $171,765 $325,674 $(6,484) $16,272 $(120,647) $456,658
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Common Stock Activity
1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------------
Year ended December 31 (Shares) Common Stock Treasury Stock Common Stock Treasury Stock Common Stock Treasury Stock
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares, beginning of year 69,659,101 (1,988,427) 69,362,191 (1,792,112) 34,458,969 (702,766)
Stock options 419,297 296,910 222,127
Stock awards 198,314 167,226 31,340
Reacquired shares (3,586,804) (363,541) (224,630)
Stock dividend 34,681,095 (896,056)
- ----------------------------------------------------------------------------------------------------------------------------------
Shares, end of year 70,078,398 (5,376,917) 69,659,101 (1,988,427) 69,362,191 (1,792,112)
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
ECOLAB INC: 1995 ANNUAL REPORT
34
<PAGE>
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS
- --------------------------------------------------------------------------------
The company is the leading global developer and marketer of
premium cleaning, sanitizing and maintenance products and
services for the hospitality, institutional and industrial
markets. Customers include hotels and restaurants; foodservice,
healthcare and educational facilities; quickservice (fast-food)
units; commercial laundries; light industry; dairy plants and
farms; and food and beverage processors around the world.
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, 38 percent
and 39 percent of consolidated inventories at year-end 1995, 1994
and 1993, 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.
USE OF ESTIMATES
The preparation of the company's financial statements requires
management to make certain estimates and assumptions that affect
the reported amounts of assets and liabilities as of the date of
the financial statements and the reported amounts of revenues and
expenses during the reporting periods.
ECOLAB INC. 1995 ANNUAL REPORT
35
<PAGE>
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
3. BALANCE SHEET INFORMATION
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31 (thousands) 1995 1994 1993
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
ACCOUNTS RECEIVABLE, NET
Accounts receivable $206,763 $177,510 $154,798
Allowance for doubtful accounts (8,331) (8,703) (7,994)
- ----------------------------------------------------------------------------------------
Total $198,432 $168,807 $146,804
- ----------------------------------------------------------------------------------------
INVENTORIES
Finished goods $47,035 $42,955 $36,391
Raw materials and parts 62,132 60,251 49,653
Excess of fifo cost over lifo cost (3,050) (3,191) (2,643)
- ----------------------------------------------------------------------------------------
Total $106,117 $100,015 $83,401
- ----------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT, NET
Land $6,941 $6,348 $6,925
Buildings and leaseholds 117,042 107,259 102,897
Machinery and equipment 188,453 174,203 161,474
Merchandising equipment 292,962 257,766 217,305
Construction in progress 14,571 6,236 6,167
- ----------------------------------------------------------------------------------------
619,969 551,812 494,768
Accumulated depreciation and
amortization (327,032) (305,621) (275,500)
- ----------------------------------------------------------------------------------------
Total $292,937 $246,191 $219,268
- ----------------------------------------------------------------------------------------
OTHER ASSETS
Intangible assets, net $50,773 $37,549 $40,919
Investments in securities 5,000 5,000 9,007
Deferred income taxes 27,383 26,212 28,482
Other 24,417 19,655 27,199
- ----------------------------------------------------------------------------------------
Total $107,573 $88,416 $105,607
- ----------------------------------------------------------------------------------------
SHORT-TERM DEBT
Notes payable $54,950 $25,302 $16,089
Long-term debt, current maturities 16,697 16,518 3,331
- ----------------------------------------------------------------------------------------
Total $71,647 $41,820 $19,420
- ----------------------------------------------------------------------------------------
LONG-TERM DEBT
9.68% senior notes, due 1995-2001 $85,714 $100,000 $100,000
Multicurrency Credit
Agreement, due 1998 10,000
Other 20,385 21,911 25,192
- ----------------------------------------------------------------------------------------
106,099 121,911 135,192
Long-term debt, current maturities (16,697) (16,518) (3,331)
- ----------------------------------------------------------------------------------------
Total $89,402 $105,393 $131,861
- ----------------------------------------------------------------------------------------
</TABLE>
The 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.
The company has a $150 million Multicurrency Credit 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
included in long-term debt 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.
In July 1993, the company redeemed $75 million of 10.375 percent
debentures originally scheduled for maturity in 1998 - 2017. 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.
As of December 31, the weighted average interest rate on notes
payable was 6.3 percent for 1995, 5.3 percent for 1994 and 4.6
percent for 1993.
As of December 31, 1995, the aggregate annual maturities of
long-term debt for the next five years were: 1996 - $16,697,000;
1997 - $15,553,000; 1998 - $15,346,000; 1999 - $15,264,000; and
2000 - $15,214,000.
Interest expense was $15,857,000 in 1995, $16,213,000 in 1994 and
$25,977,000 in 1993. Total interest paid was $16,170,000 in 1995,
$16,402,000 in 1994 and $29,691,000 in 1993.
In January 1996, the company issued $75 million of 7.19 percent
senior notes to a group of insurance companies. The notes mature
in January 2006. Proceeds from the debt were used to
reduce short-term borrowings and for general corporate purposes.
Other noncurrent liabilities included income taxes payable of $96
million at December 31, 1995, $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
1995 and prior years, as a result of tax losses on the
disposition of a discontinued business in 1992.
ECOLAB INC. 1995 ANNUAL REPORT
36
<PAGE>
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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 $125 million at December 31, 1995, $110
million at December 31, 1994, and $115 million at December 31,
1993. 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 year-end 1995
and 1994 were:
<TABLE>
<CAPTION>
December 31 (thousands) 1995 1994
- ----------------------------------------------------------------------------
<S> <C> <C>
Carrying amount
Cash and cash equivalents $24,718 $98,255
Long-term investments in securities 5,000 5,000
Short-term debt 71,647 41,820
Long-term debt 89,402 105,393
Fair Value
Long-term debt $98,513 $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 10 years.
The fair value of long-term debt is based on quoted market prices
for the same or similar issues.
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 was 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.
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 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.
Kay was a Subchapter S Corporation for income tax purposes and,
therefore, did not pay U.S. federal income taxes. Kay has been
included in Ecolab'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.
The table below includes unaudited pro forma net income and net
income per share amounts for 1994 and 1993, 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>
(thousands, except per share) 1994 1993
- -----------------------------------------------------------------------------------
<S> <C> <C>
Net income, as reported $84,562 $83,487
Merger costs and expenses 6,900
Kay net deferred tax liability 1,300
Kay Subchapter S status (2,298) (2,667)
- -----------------------------------------------------------------------------------
Pro forma net income $90,464 $80,820
- -----------------------------------------------------------------------------------
Net income per share
As reported $1.25 $1.24
Pro forma $1.34 $1.20
</TABLE>
ECOLAB INC. 1995 ANNUAL REPORT
37
<PAGE>
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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) 1995 1994 1993
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Joint venture
Net sales $909,196 $776,647 $758,471
Gross profit 502,849 440,993 415,862
Income before income taxes 44,392 48,389 40,337
Income before change in
accounting for income taxes $22,406 $26,109 $18,434
- ------------------------------------------------------------------------------------
Ecolab equity in earnings
Ecolab equity in income $11,203 $13,605 $9,856
Ecolab royalty income from
joint venture, net of
income taxes 5,814 5,745 6,653
Amortization expense for the
excess of cost over the
underlying net assets of
the joint venture (9,315) (8,399) (8,382)
- ------------------------------------------------------------------------------------
Equity in earnings of Henkel-Ecolab
joint venture $7,702 $10,951 $8,127
- ------------------------------------------------------------------------------------
</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
$192 million at December 31, 1995, 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) 1995 1994 1993
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current assets $393,391 $360,648 $310,945
Noncurrent assets 145,722 127,244 106,812
Current liabilities 247,980 233,876 215,085
Noncurrent liabilities $71,119 $59,710 $46,937
</TABLE>
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) 1995 1994 1993
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Domestic $123,628 $108,656 $100,420
Foreign 27,553 15,399 7,647
- ------------------------------------------------------------------------------------
Total $151,181 $124,055 $108,067
- ------------------------------------------------------------------------------------
</TABLE>
The provision for income taxes consisted of:
<TABLE>
<CAPTION>
(thousands) 1995 1994 1993
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal, state and Puerto Rico $52,473 $44,619 $47,106
Foreign 7,980 3,473 1,526
- ------------------------------------------------------------------------------------
Currently payable 60,453 48,092 48,632
- ------------------------------------------------------------------------------------
Federal, state and Puerto Rico 74 300 (10,674)
Foreign (833) 2,052 (4,536)
- ------------------------------------------------------------------------------------
Deferred (759) 2,352 (15,210)
- ------------------------------------------------------------------------------------
Provision for income taxes $59,694 $50,444 $33,422
- ------------------------------------------------------------------------------------
</TABLE>
ECOLAB INC. 1995 ANNUAL REPORT
38
<PAGE>
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The company's overall net deferred tax assets (current and
noncurrent) were comprised of the following:
<TABLE>
<CAPTION>
December 31 (thousands) 1995 1994 1993
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred tax assets
Postretirement health care and
pension benefits $28,689 $28,084 $23,752
Other accrued liabilities 28,339 26,616 24,123
Loss carryforwards 5,482 5,109 6,093
Other, net 9,209 9,405 15,917
Valuation allowance (1,462) (1,462) (1,462)
- ------------------------------------------------------------------------------------
Total 70,257 67,752 68,423
- ------------------------------------------------------------------------------------
Deferred tax liabilities
Property, plant and equipment
bases differences 19,524 17,579 16,503
Other, net 1,733 1,612 1,597
- ------------------------------------------------------------------------------------
Total 21,257 19,191 18,100
- ------------------------------------------------------------------------------------
Net deferred tax assets $49,000 $48,561 $50,323
- ------------------------------------------------------------------------------------
</TABLE>
During 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 became realizable
at that time 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>
1995 1994 1993
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory U.S. rate 35.0% 35.0% 35.0%
State income taxes, net of federal benefit 4.2 3.8 3.3
Puerto Rico operations (1.3) (2.2)
Foreign operations (1.2) .4 (.5)
Loss carryforwards (3.1)
Kay Subchapter S status (.1) (2.2)
Kay deferred tax liability 1.0
Other 1.5 1.9 .6
- ------------------------------------------------------------------------------------
Effective income tax rate 39.5% 40.7% 30.9%
- ------------------------------------------------------------------------------------
</TABLE>
Cash paid for income taxes was $55,214,000 in 1995, $34,686,000
in 1994 and $18,118,000 in 1993. As a result of tax losses on the
disposition of a discontinued business in 1992, the company's
U.S. federal income tax payments have been reduced by
approximately $58 million, including $3 million in 1995, $15
million in 1994 and $25 million in 1993. However, pending final
acceptance of the company's treatment of the losses, no income
tax benefit has been recognized for financial reporting purposes.
These income tax benefits will be recognized as
income attributable to discontinued operations to the extent
the company's treatment of the losses is accepted.
As of December 31, 1995, undistributed earnings of international
subsidiaries and the joint venture of $57 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.
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>
(thousands) 1995 1994 1993
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - employee benefits
earned during the year $9,878 $10,627 $8,040
Interest cost on projected
benefit obligation 14,481 13,348 11,401
Actual return on plan assets (27,356) 1,952 (9,134)
Net amortization and deferral 15,430 (11,260) (69)
- ------------------------------------------------------------------------------------
U.S. pension expense 12,433 14,667 10,238
International pension expense 1,040 1,005 820
- ------------------------------------------------------------------------------------
Total pension expense $13,473 $15,672 $11,058
- ------------------------------------------------------------------------------------
</TABLE>
ECOLAB INC. 1995 ANNUAL REPORT
39
<PAGE>
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
8. RETIREMENT PLANS (continued)
- --------------------------------------------------------------------------------
The funded status of the U.S. pension plan was:
<TABLE>
<CAPTION>
December 31 (thousands) 1995 1994 1993
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Actuarial present value of:
Vested benefit obligation $150,521 $121,251 $118,829
Non-vested benefit obligation 12,089 9,755 10,066
- ------------------------------------------------------------------------------------
Accumulated benefit obligation 162,610 131,006 128,895
Effect of projected future
salary increases 54,398 46,801 51,174
- ------------------------------------------------------------------------------------
Projected benefit obligation 217,008 177,807 180,069
Plan assets at fair value 167,231 130,262 122,440
- ------------------------------------------------------------------------------------
Plan assets less than the projected
benefit obligation (49,777) (47,545) (57,629)
Unrecognized prior service cost 22,230 24,135 26,040
Unrecognized net loss 44,258 39,238 49,145
Unrecognized net transition asset (13,329) (14,732) (16,134)
Adjustment required to recognize
minimum liability (1,840) (7,877)
- ------------------------------------------------------------------------------------
Prepaid (accrued) pension expense $3,382 $(744) $(6,455)
- ------------------------------------------------------------------------------------
</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>
1995 1994 1993
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate for service and
interest cost, at beginning of year 8.25% 7.50% 8.25%
Projected salary increases,
weighted average 5.1 5.6 5.6
Expected return on assets 9.0 9.0 9.0
Discount rate for year-end
benefit obligations 7.50% 8.25% 7.50%
</TABLE>
The discount rate was increased from 7.5 percent at year-end 1993
to 8.25 percent at year-end 1994. This increase in discount rate
resulted in a decrease in the projected benefit obligation as of
December 31, 1994 of approximately $22 million and a decrease of
$3.4 million in pension expense for 1995.
The discount rate used for determining the year-end pension
benefit obligations and future service and interest cost was
decreased from 8.25 percent at year-end 1994 to 7.50 percent
at year-end 1995. The effect of this change was to increase the
projected benefit obligation as of December 31, 1995 by
approximately $23 million.
The adjustments required to recognize a minimum liability as of
year-end 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.
The company also has noncontributory defined benefit plans which
provide for benefits to employees in excess of limits permitted
under its U.S. pension plan. The recorded obligation for these
plans was approximately $11 million at December 31, 1995 and the
annual expense for these plans was approximately $2 million in
each of the years 1995, 1994 and 1993.
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.
ECOLAB INC. 1995 ANNUAL REPORT
40
<PAGE>
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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) 1995 1994 1993
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits attributed to
service during the period $2,473 $2,672 $2,978
Interest cost on accumulated post-
retirement benefit obligation 3,972 3,740 4,142
Actual return on plan assets (703) (66) (169)
Net amortization and deferral (271) (719) (458)
- ------------------------------------------------------------------------------------
Total expense $5,471 $5,627 $6,493
- ------------------------------------------------------------------------------------
</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. 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 funded status of the postretirement health care plan was:
<TABLE>
<CAPTION>
December 31 (thousands) 1995 1994 1993
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Actuarial present value of accumulated
postretirement benefit obligation for:
Retirees $18,112 $16,453 $16,999
Fully eligible active participants 5,450 4,044 2,995
Other active participants 35,885 29,389 32,769
- ------------------------------------------------------------------------------------
Total 59,447 49,886 52,763
Plan assets at fair value 9,269 6,298 4,740
- ------------------------------------------------------------------------------------
Plan assets less than accumulated post-
retirement benefit obligation (50,178) (43,588) (48,023)
Unrecognized gain for prior service (10,199) (10,750) (11,301)
Unrecognized net loss (gain) (968) (5,544) 1,535
- ------------------------------------------------------------------------------------
Unfunded accrued postretirement
health care benefits $(61,345) $(59,882) $(57,789)
- ------------------------------------------------------------------------------------
</TABLE>
As of December 31, the discount rate for the postretirement
health care benefits plan was 7.50 percent for 1995, 8.25 percent
for 1994 and 7.50 percent for 1993. The changes in the discount
rate did not have a significant effect on the expense or
obligation of the plan.
For measurement purposes, 11.5 percent (for pre-age 65 retirees)
and 9.0 percent (for post-age 65 retirees) annual rates
of increase in the per capita cost of covered health care were
assumed for 1996. 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 1995 by approximately $4 million and 1995 expense by
approximately $0.5 million.
The after-tax expected long-term rate of return on plan assets
was 6.0 percent in 1995, 1994 and 1993. 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 $5,919,000 in 1995, $5,156,000 in 1994 and $4,376,000
in 1993.
ECOLAB INC. 1995 ANNUAL REPORT
41
<PAGE>
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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 1,124,768 for 1995, 2,042,606 for
1994 and 3,008,706 for 1993.
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 10 years and three months from date of
grant. Stock option transactions were:
<TABLE>
<CAPTION>
Shares 1995 1994 1993
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Granted 930,673 806,550 769,200
Exercised (419,297) (296,910) (444,254)
Canceled (36,700) (26,900) (75,100)
- ------------------------------------------------------------------------------------
December 31:
Outstanding 4,693,960 4,219,284 3,736,544
- ------------------------------------------------------------------------------------
Exercisable 2,856,638 2,321,164 1,966,744
<CAPTION>
Average price per share 1995 1994 1993
- ------------------------------------------------------------------------------------
Granted $25.35 $21.93 $21.42
Exercised 11.42 10.60 11.31
Canceled 20.65 16.84 15.52
December 31:
Outstanding 18.64 16.49 14.85
Exercisable $16.09 $13.99 $12.78
</TABLE>
Stock awards are subject to restrictions including forfeiture in
the event of termination of employment. Restrictions generally
lapse over periods up to four years. The value of a stock award
at date of grant is charged to income over the periods during
which the restrictions lapse.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, a new
standard of accounting and reporting for stock-based compensation
plans. The company is not required to adopt the new standard
until 1996. The company will continue to measure compensation
cost for its stock incentive and option plans using the intrinsic
value-based method of accounting it has historically used and,
therefore, the new standard will have no effect on the company's
operating results. The company's financial statement disclosures
will be expanded in 1996, as required, to include pro forma
disclosures as if the fair value-based method of accounting had
been followed.
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 1995, 1994 and 1993. Treasury stock is stated
at cost. Dividends declared per share of common stock were $0.515
for 1995, $0.455 for 1994 and $0.395 for 1993.
The company has 15 million shares, without par value, of
authorized but unissued preferred stock.
The company renewed its shareholder rights plan in February 1996.
One preferred stock purchase right will be issued for each
outstanding share of the company's common stock when the existing
rights expire on March 11, 1996. 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 $115, subject to adjustment. The rights,
however, will not become exercisable unless and until, among
other things, any person or group acquires 15 percent or more
of the outstanding common stock of the company, or the company's
board of directors declares a holder of 10 percent or more of the
outstanding common stock to be an "adverse person" as defined in
the rights plan. Upon the occurrence of either of these events,
the rights will become exercisable for common stock of the
company (or in certain cases common stock of an acquiring
company) having a market value of twice the exercise price of a
right. The rights provide that the holdings by Henkel KGaA or its
affiliates at the time of the renewal of the rights plan, subject
to compliance by Henkel with certain conditions, will not cause
the rights to become exercisable nor cause Henkel to be an
"adverse person." The rights are redeemable under certain
circumstances at one cent per right and, unless redeemed earlier,
will expire on March 11, 2006.
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 did not reacquire any
shares of its common stock for this program in 1995; however,
364,000 shares were reacquired in 1994 and 449,000 shares were
reacquired in 1993 through open and private market purchases. The
ECOLAB INC. 1995 ANNUAL REPORT
42
<PAGE>
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
company anticipates that it will continue to periodically
reacquire shares under its systematic share repurchase program.
In June 1995, the company purchased approximately 3.5 million
shares (approximately 5 percent of total outstanding shares) of
its common stock 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 $90 million and was
funded by excess cash and cash equivalents and by approximately
$30 million of short-term borrowings. In addition, the company
may purchase approximately 2.5 million additional shares from
time to time through open market and privately negotiated
transactions to complete the remaining portion of a 6 million
share repurchase program.
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
$32,292,000 in 1995, $29,129,000 in 1994 and $29,325,000 in 1993.
As of December 31, 1995, future minimum payments under operating
leases with noncancelable terms in excess of one year were:
(thousands)
- ------------------------------------
1996 $10,302
1997 5,946
1998 3,381
1999 1,006
2000 599
Thereafter 1,727
- ------------------------------------
Total $22,961
- ------------------------------------
12. RESEARCH EXPENDITURES
- --------------------------------------------------------------------------------
Research expenditures which related to the development of new
products and processes, including significant improvements and
refinements to existing products, were $28,031,000 in 1995,
$27,615,000 in 1994 and $24,782,000 in 1993.
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.
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,
African and Kay's international operations.
<TABLE>
<CAPTION>
(thousands) 1995 1994 1993
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales
United States $1,030,126 $942,070 $867,415
International 310,755 265,544 234,981
- ------------------------------------------------------------------------------------
Total $1,340,881 $1,207,614 $1,102,396
- ------------------------------------------------------------------------------------
Operating income
United States $147,330 $134,510 $124,281
International 19,580 14,838 9,420
Corporate (4,224) (12,384) (4,250)
- ------------------------------------------------------------------------------------
Total $162,686 $136,964 $129,451
- ------------------------------------------------------------------------------------
Depreciation and amortization
United States $62,702 $55,035 $49,927
International 13,577 11,834 10,682
- ------------------------------------------------------------------------------------
Total $76,279 $66,869 $60,609
- ------------------------------------------------------------------------------------
</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 $22,688,000 in 1995, $21,702,000 in
1994 and $18,037,000 in 1993 have been allocated to the
geographic segments in determining operating income.
ECOLAB INC. 1995 ANNUAL REPORT
43
<PAGE>
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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>
1995
Net sales
United States $242,226 $255,030 $267,219 $265,651 $1,030,126
International 67,334 78,384 81,300 83,737 310,755
- ----------------------------------------------------------------------------------------------------
Total 309,560 333,414 348,519 349,388 1,340,881
Cost of sales 138,619 149,324 156,594 158,630 603,167
Selling, general and
administrative expenses 139,870 143,748 142,643 148,767 575,028
- ----------------------------------------------------------------------------------------------------
Operating income
United States 29,525 35,937 44,416 37,452 147,330
International 2,695 5,619 5,613 5,653 19,580
Corporate (1,149) (1,214) (747) (1,114) (4,224)
- ----------------------------------------------------------------------------------------------------
Total 31,071 40,342 49,282 41,991 162,686
Interest expense, net 2,573 2,444 3,436 3,052 11,505
- ----------------------------------------------------------------------------------------------------
Income before income taxes and
equity in earnings of joint
venture 28,498 37,898 45,846 38,939 151,181
Provision for income taxes 11,458 15,235 17,979 15,022 59,694
Equity in earnings of joint venture 1,355 3,175 2,010 1,162 7,702
- ----------------------------------------------------------------------------------------------------
Net income $18,395 $25,838 $29,877 $25,079 $99,189
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
Net income per common share $0.27 $0.38 $0.46 $0.39 $ 1.50
Average common shares outstanding 67,742 67,444 64,537 64,664 66,097
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, as reported 16,618 23,762 28,487 15,695 84,562
Pro forma adjustments
Merger costs and expenses 6,900 6,900
Kay net deferred tax liability 1,300 1,300
Kay Subchapter S status (324) (806) (789) (379) (2,298)
- ----------------------------------------------------------------------------------------------------
Pro forma net income $16,294 $22,956 $27,698 $23,516 $90,464
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
Net income per common share
As reported $ 0.25 $ 0.35 $ 0.42 $ 0.23 $ 1.25
Pro forma $ 0.24 $ 0.34 $ 0.41 $ 0.35 $ 1.34
Average common shares outstanding 67,563 67,521 67,506 67,611 67,550
</TABLE>
Pro forma results reflect adjustments to eliminate unusual items associated with
Ecolab's merger with Kay Chemical Company.
ECOLAB INC: 1995 ANNUAL REPORT
44
<PAGE>
MANAGEMENT AND ACCOUNTANTS' REPORTS
Report of Management
- --------------------------------------------------------------
Management is responsible for the integrity and objectivity of
the consolidated financial statements. The statements have been
prepared in accordance with generally accepted accounting
principles and, accordingly, include certain amounts based on
management's best estimates and judgments.
To meet its responsibility, management has established and
maintains a system of internal controls that provides reasonable
assurance regarding the integrity and reliability of the
financial statements and the protection of assets from
unauthorized use or disposition. These systems are supported by
qualified personnel, by an appropriate division of
responsibilities and by an internal audit function. There are
limits inherent in any system of internal controls since the cost
of monitoring such systems should not exceed the desired benefit.
Management believes that the company's system of internal
controls is effective and provides an appropriate cost/benefit
balance.
The Board of Directors, acting through its Audit Committee
composed solely of outside directors, is responsible for
determining that management fulfills its responsibilities in the
preparation of financial statements and maintains financial
control of operations. The Audit Committee recommends to the
Board of Directors the appointment of the company's independent
accountants subject to ratification by the shareholders. It meets
regularly with management, the internal auditors and the
independent accountants.
The independent accountants provide an objective, independent
review as to management's discharge of its responsibilities
insofar as they relate to the fair presentation of the
consolidated financial statements. Their report is presented
separately.
/s/ Allan L. Schuman
Allan L. Schuman
President and Chief Executive Officer
/s/ Michael E. Shannon
Michael E. Shannon
Chairman of the Board and
Chief Financial and Administrative Officer
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, 1995, 1994 and 1993, 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, 1995, 1994
and 1993, and the consolidated results of its operations and its
cash flows for the years then ended in conformity with generally
accepted accounting principles.
As discussed in Note 7 to the consolidated 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 26, 1996
Saint Paul, Minnesota
ECOLAB INC. 1995 ANNUAL REPORT
45
<PAGE>
SUMMARY
OPERATING AND FINANCIAL DATA
<TABLE>
<CAPTION>
December 31 (thousands, except per share) 1995 1994 1993 1992 1991 1990
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operations
Net sales
United States $1,030,126 $942,070 $867,415 $816,405 $757,564 $712,579
International 310,755 265,544 234,981 241,229 201,738 184,220
Europe/Magnus/Pulp & Paper 150,809
- ------------------------------------------------------------------------------------------------------------------------------
Total 1,340,881 1,207,614 1,102,396 1,057,634 959,302 1,047,608
Cost of sales 603,167 533,143 491,306 485,206 447,356 495,086
Selling, general and administrative expenses 575,028 529,507 481,639 446,814 393,700 425,983
Merger costs and nonrecurring expenses 8,000
- ------------------------------------------------------------------------------------------------------------------------------
Operating income 162,686 136,964 129,451 125,614 118,246 126,539
Interest expense, net 11,505 12,909 21,384 35,334 30,489 28,321
- ------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before income
taxes and equity in earnings of joint venture 151,181 124,055 108,067 90,280 87,757 98,218
Provision for income taxes 59,694 50,444 33,422 27,392 29,091 32,494
Equity in earnings of joint venture 7,702 10,951 8,127 8,600 4,573
- ------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations 99,189 84,562 82,772 71,488 63,239 65,724
Income (loss) from discontinued operations (274,693) (4,408)
Extraordinary loss and changes in accounting
principles 715 (24,560)
- ------------------------------------------------------------------------------------------------------------------------------
Net income (loss) 99,189 84,562 83,487 71,488 (236,014) 61,316
Preferred stock dividends (4,064) (7,700)
- ------------------------------------------------------------------------------------------------------------------------------
Net income (loss) to common shareholders,
as reported 99,189 84,562 83,487 71,488 (240,078) 53,616
Pro forma adjustments 5,902 (2,667) (2,797) (2,933) (2,956)
- ------------------------------------------------------------------------------------------------------------------------------
Pro forma net income (loss) to common
shareholders $99,189 $90,464 $80,820 $68,691 $(243,011) $50,660
- ------------------------------------------------------------------------------------------------------------------------------
Income (loss) per common share, as reported
Continuing operations $ 1.50 $ 1.25 $ 1.23 $ 1.06 $ 1.01 $ 1.12
Discontinued operations (4.69) (0.09)
Extraordinary loss and changes in
accounting principles 0.01 (0.42)
Net income (loss) 1.50 1.25 1.24 1.06 (4.10) 1.04
Pro forma income (loss) per common share
Continuing operations 1.50 1.34 1.19 1.02 0.96 1.07
Net income (loss) $ 1.50 $ 1.34 $ 1.20 $ 1.02 $ (4.15) $ 0.98
Average common shares outstanding 66,097 67,550 67,528 67,204 58,525 51,649
Selected Income Statement Ratios
Gross profit 55.0% 55.9% 55.4% 54.1% 53.4% 52.7%
Selling, general and administrative expenses 42.9 44.6 43.7 42.2 41.1 40.6
Operating income 12.1 11.3 11.7 11.9 12.3 12.1
Income from continuing operations before
income taxes 11.3 10.3 9.8 8.5 9.1 9.4
Income from continuing operations 7.4 7.0 7.5 6.8 6.6 6.3
Effective income tax rate 39.5% 40.7% 30.9% 30.3% 33.1% 33.1%
Financial Position
Current assets $358,072 $401,179 $311,051 $264,512 $293,053 $216,612
Property, plant and equipment, net 292,937 246,191 219,268 207,183 198,086 187,735
Investment in Henkel-Ecolab joint venture 302,298 284,570 255,804 289,034 296,292
Net assets of Ecolab Europe and
discontinued operations 70,000 404,007
Other assets 107,573 88,416 105,607 98,135 82,857 76,904
- ------------------------------------------------------------------------------------------------------------------------------
Total assets $1,060,880 $1,020,356 $891,730 $858,864 $940,288 $885,258
- ------------------------------------------------------------------------------------------------------------------------------
Current liabilities $310,538 $253,665 $201,498 $192,023 $240,219 $177,643
Long-term debt 89,402 105,393 131,861 215,963 325,492 208,147
Postretirement health care and pension benefits 70,666 70,882 72,647 63,393 56,427 8,742
Other liabilities 133,616 128,608 93,917 29,179 11,002 28,792
Convertible preferred stock 110,000
Shareholders' equity 456,658 461,808 391,807 358,306 307,148 351,934
- ------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $1,060,880 $1,020,356 $891,730 $858,864 $940,288 $885,258
- ------------------------------------------------------------------------------------------------------------------------------
Selected Cash Flow Information
Cash provided by operating activities $166,463 $169,346 $175,674 $120,217 $128,999 $154,208
Capital expenditures 109,894 88,457 68,321 59,904 53,752 58,069
Long-term debt borrowings (repayments), net (17,919) (14,621) (81,813) (164,541) 154,090 (15,842)
Cash dividends on common stock 33,114 27,851 24,037 21,983 22,027 24,387
Cash dividends declared per common share $ 0.515 $ 0.455 $ 0.395 $ 0.3575 $ 0.35 $ 0.335
Selected Financial Measures/Other
Total debt and preferred stock $161,049 $147,213 $151,281 $236,695 $407,221 $353,886
Total debt and preferred stock to capitalization 26.1% 24.2% 27.9% 39.8% 57.0% 50.1%
Book value per common share $ 7.06 $ 6.82 $ 5.80 $ 5.31 $ 4.59 $ 6.81
Return on beginning equity 21.5% 21.6% 23.3% 23.3% 13.6% 12.9%
Dividends/net income per common share 34.3% 36.4% 31.9% 33.7% 42.7% 32.2%
Annual common stock price range $31.75-20.00 $23.50-19.25 $23.81-18.13 $19.13-13.31 $16.75-9.75 $15.56-8.31
Number of employees 9,026 8,206 7,822 7,601 7,428 8,106
</TABLE>
<TABLE>
<CAPTION>
December 31 (thousands, except per share) 1989 1988 1987 1986 1985
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operations
Net sales
United States $646,895 $589,715 $544,310 $485,638 $446,032
International 179,705 159,374 103,168 64,973 48,690
Europe/Magnus/Pulp & Paper 122,871 122,250 104,174 93,502 95,081
- --------------------------------------------------------------------------------------------------------------
Total 949,471 871,339 751,652 644,113 589,803
Cost of sales 461,256 433,734 361,545 304,942 292,681
Selling, general and administrative expenses 383,512 337,707 307,851 262,823 233,629
Merger costs and nonrecurring expenses 12,978 18,441
- --------------------------------------------------------------------------------------------------------------
Operating income 91,725 99,898 63,815 76,348 63,493
Interest expense, net 31,628 31,097 21,440 2,975 2,944
- --------------------------------------------------------------------------------------------------------------
Income from continuing operations before income
taxes and equity in earnings of joint venture 60,097 68,801 42,375 73,373 60,549
Provision for income taxes 19,411 21,285 20,724 29,326 22,055
Equity in earnings of joint venture
- --------------------------------------------------------------------------------------------------------------
Income from continuing operations 40,686 47,516 21,651 44,047 38,494
Income (loss) from discontinued operations (29,379) 4,238 126,551 7,357 9,041
Extraordinary loss and changes in accounting
principles
- --------------------------------------------------------------------------------------------------------------
Net income (loss) 11,307 51,754 148,202 51,404 47,535
Preferred stock dividends (429)
- --------------------------------------------------------------------------------------------------------------
Net income (loss) to common shareholders,
as reported 10,878 51,754 148,202 51,404 47,535
Pro forma adjustments (3,196) (2,622) (2,606) (2,924) (2,679)
- --------------------------------------------------------------------------------------------------------------
Pro forma net income (loss) to common
shareholders $ 7,682 $49,132 $145,596 $48,480 $44,856
- --------------------------------------------------------------------------------------------------------------
Income (loss) per common share, as reported
Continuing operations $ 0.68 $ 0.81 $ 0.37 $ 0.75 $ 0.66
Discontinued operations (0.50) 0.07 2.18 0.13 0.15
Extraordinary loss and changes in
accounting principles
Net income (loss) 0.18 0.88 2.56 0.88 0.81
Pro forma income (loss) per common share
Continuing operations 0.63 0.77 0.33 0.70 0.61
Net income (loss) $ 0.13 $ 0.84 $ 2.51 $ 0.83 $ 0.77
Average common shares outstanding 59,258 58,594 57,990 58,474 58,556
Selected Income Statement Ratios
Gross profit 51.4% 50.2% 51.9% 52.7% 50.4%
Selling, general and administrative expenses 41.7 38.7 43.4 40.8 39.6
Operating income 9.7 11.5 8.5 11.9 10.8
Income from continuing operations before
income taxes 6.3 7.9 5.6 11.4 10.3
Income from continuing operations 4.3 5.5 2.9 6.8 6.5
Effective income tax rate 32.3% 30.9% 48.9% 40.0% 36.4%
Financial Position
Current assets $370,875 $265,291 $283,700 $275,782 $246,091
Property, plant and equipment, net 203,056 194,509 176,856 154,277 151,111
Investment in Henkel-Ecolab joint venture
Net assets of Ecolab Europe and
discontinued operations 354,179 370,994 394,289
Other assets 65,936 73,833 74,304 56,318 44,827
- --------------------------------------------------------------------------------------------------------------
Total assets $994,046 $904,627 $929,149 $486,377 $442,029
- --------------------------------------------------------------------------------------------------------------
Current liabilities $201,585 $181,758 $247,825 $158,533 $121,122
Long-term debt 228,632 257,500 258,273 39,565 63,805
Postretirement health care and pension benefits 12,859 12,768 12,150 9,371
Other liabilities 25,343 11,590 9,863 16,706 11,826
Convertible preferred stock 110,000
Shareholders' equity 415,627 441,011 401,038 262,202 245,276
- --------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $994,046 $904,627 $929,149 $486,377 $442,029
- --------------------------------------------------------------------------------------------------------------
Selected Cash Flow Information
Cash provided by operating activities $123,215 $113,514 $146,310 $89,490 $61,948
Capital expenditures 54,430 62,125 57,549 37,469 25,076
Long-term debt borrowings (repayments), net (34,215) 4,916 162,631 (9,916) (1,310)
Cash dividends on common stock 18,008 17,398 16,184 15,329 14,092
Cash dividends declared per common share $ 0.33 $ 0.32 $ 0.30 $0.2825 $ 0.26
Selected Financial Measures/Other
Total debt and preferred stock $382,764 $300,448 $320,080 $83,645 $79,911
Total debt and preferred stock to capitalization 47.9% 40.5% 44.4% 24.2% 24.6%
Book value per common share $ 7.09 $ 7.45 $ 6.92 $ 4.59 $ 4.21
Return on beginning equity 2.5% 12.9% 19.5% 21.0% 21.2%
Dividends/net income per common share 183.3% 36.4% 34.1% 32.1% 32.1%
Annual common stock price range $17.88-12.44 $13.88-10.63 $16.88-9.25 $14.66-10.28 $10.44-6.72
Number of employees 7,845 7,684 7,479 7,455 6,976
</TABLE>
Pro forma results reflect adjustments to eliminate unusual items
associated with Ecolab's merger with Kay Chemical Company in
December 1994. All per share, shares outstanding
and market price data reflect the 1993 and 1986 two-for-one stock
splits. The ratios of return on beginning equity and
dividends/net income per common share exclude the change
in accounting principle and the loss on the ChemLawn divestiture
in 1991, and the Consumer gain in 1987. Number of employees
excludes ChemLawn operations.
<PAGE>
Exhibit 21
REGISTRANT
ECOLAB INC.
<TABLE>
<CAPTION>
STATE OR
OTHER
JURISDICTION PERCENTAGE
OF OF
NAME OF AFFILIATE INCORPORATION OWNERSHIP
----------------- ------------- ----------
<S> <C> <C>
Ecolab S.A. Argentina 100
Ecolab Pty. Ltd. Australia 100
(N.S.W.)
Ecolab Limited Bahamas 100
Ecolab (Barbados) Limited Barbados 100
Kay N.V. Belgium 100
Ecolab Quimica Ltda. Brazil 100
Ecolab Holdings Limited Canada (Ont.) 100
Ecolab Ltd. Canada (Ont.) 100
Huntington Laboratories of Canada (Ont.) 100
Canada Limited
Ecolab S.A. Chile 100
Ecolab Sociedad Anonima Costa Rica 100
Ecolab S.A. France 100
Societe Francaise de France 100
Produits Techniques
(MAGNUS)
Ecolab GmbH Germany 100
Ecolab Export GmbH Germany 100
Ecolab, Sociedad Anonima Guatemala 100
Quimicas Ecolab, S.A. Honduras 100
Ecolab Limited Hong Kong 100
PT. Ecolab Indonesia Indonesia 60
Ecolab Limited Jamaica 100
Ecolab K.K. Japan 100
Ecolab Korea Ltd. Korea 100
Ecolab Lebanon S.a.r.l. Lebanon 100
Ecolab Sdn. Bhd. Malaysia 100
Ecolab S.A. de C.V. Mexico 100
Ecolab Finance N.V. Netherlands 100
Antilles
(Curacao)
<PAGE>
<CAPTION>
STATE OR
OTHER
JURISDICTION PERCENTAGE
OF OF
NAME OF AFFILIATE INCORPORATION OWNERSHIP
----------------- ------------- ----------
<S> <C> <C>
Eclab Export Limited Ireland 100
Ecolab Co. Ireland 100
Ecolab International B.V. Netherlands 100
Ecolab Limited New Zealand 100
Ecolab Chemicals Ltd. People's 51
Republic of
China
Ecolab Philippines, Inc. Philippines 100
Ecolab Pte. Ltd. Singapore 100
Klenzade South Africa South Africa 100
(Proprietary) Limited
Ecolab Ltd. Taiwan 100
Ecolab Limited Thailand 100
Ecolab Foreign Sales Corp. U.S. Virgin 100
Islands
Ecolab S.A. Venezuela 51
UNITED STATES
Kay Chemical Company North 100
Carolina
Kay Chemical International, North 100
Inc. Carolina
Ecolab Manufacturing Inc. Delaware 100
Ecolab Holdings Inc. Delaware 100
Ecolab Investment Inc. Delaware 100
Ecolab Foundation Minnesota 100
Huntington Laboratories, Inc. Indiana 100
Huntington Laboratories Gam-Med Indiana 100
Division, Inc.
Industrial Maintenance North 100
Corporation Carolina
Western Water Management, Inc. Missouri 100
</TABLE>
Certain additional subsidiaries, which are not significant in the aggregate, are
not shown.
<PAGE>
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; 33-65364; and 33-59431) and the Registration
Statement on Form S-3 of Ecolab Inc. (Registration No. 33-57197) of our report
dated January 19, 1996, on our audit of the combined financial statements and
schedules of the Henkel-Ecolab Joint-Venture as of November 30, 1995, 1994 and
1993 and for the periods beginning December 1, 1994, 1993 and 1992 and ended
November 30, 1995, 1994 and 1993, which report is included in this Annual Report
on Form 10-K.
Dusseldorf, Germany
March 22, 1996
KPMG Deutsche Treuhand-Gesellschaft
Aktiengesellschaft
Wirtschaftsprufungsgesellschaft
/s/Dr. Kuhr /s/Haas
Dr. Kuhr Haas
Wirtschaftsprufer Wirtschaftsprufer
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That the undersigned, a Director of Ecolab
Inc., a Delaware corporation, does hereby make, nominate and appoint KENNETH A.
IVERSON and WILLIAM R. ROSENGREN, and each of them, to be my attorney-in-fact,
with full power and authority to sign his name to the Annual Report on Form 10-K
of Ecolab Inc. for the fiscal year ended December 31, 1995, and all amendments
thereto, provided that the Annual Report and any amendments thereto, in final
form, be approved by said attorney-in-fact; and his name, when thus signed,
shall have the same force and effect as though I had manually signed said
document.
IN WITNESS WHEREOF, I have hereunto affixed my signature this 24th day of
February, 1996.
/s/ Ruth S. Block
--------------------------------
Ruth S. Block
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That the undersigned, a Director of Ecolab
Inc., a Delaware corporation, does hereby make, nominate and appoint KENNETH A.
IVERSON and WILLIAM R. ROSENGREN, and each of them, to be my attorney-in-fact,
with full power and authority to sign his name to the Annual Report on Form 10-K
of Ecolab Inc. for the fiscal year ended December 31, 1995, and all amendments
thereto, provided that the Annual Report and any amendments thereto, in final
form, be approved by said attorney-in-fact; and his name, when thus signed,
shall have the same force and effect as though I had manually signed said
document.
IN WITNESS WHEREOF, I have hereunto affixed my signature this 24th day of
February, 1996.
/s/ Russell G. Cleary
--------------------------------
Russell G. Cleary
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That the undersigned, a Director of Ecolab
Inc., a Delaware corporation, does hereby make, nominate and appoint KENNETH A.
IVERSON and WILLIAM R. ROSENGREN, and each of them, to be my attorney-in-fact,
with full power and authority to sign his name to the Annual Report on Form 10-K
of Ecolab Inc. for the fiscal year ended December 31, 1995, and all amendments
thereto, provided that the Annual Report and any amendments thereto, in final
form, be approved by said attorney-in-fact; and his name, when thus signed,
shall have the same force and effect as though I had manually signed said
document.
IN WITNESS WHEREOF, I have hereunto affixed my signature this 24th day of
February, 1996.
/s/ Pierson M. Grieve
--------------------------------
Pierson M. Grieve
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That the undersigned, a Director of Ecolab
Inc., a Delaware corporation, does hereby make, nominate and appoint KENNETH A.
IVERSON and WILLIAM R. ROSENGREN, and each of them, to be my attorney-in-fact,
with full power and authority to sign his name to the Annual Report on Form 10-K
of Ecolab Inc. for the fiscal year ended December 31, 1995, and all amendments
thereto, provided that the Annual Report and any amendments thereto, in final
form, be approved by said attorney-in-fact; and his name, when thus signed,
shall have the same force and effect as though I had manually signed said
document.
IN WITNESS WHEREOF, I have hereunto affixed my signature this 24th day of
February, 1996.
/s/ James J. Howard
--------------------------------
James J. Howard
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That the undersigned, a Director of Ecolab
Inc., a Delaware corporation, does hereby make, nominate and appoint KENNETH A.
IVERSON and WILLIAM R. ROSENGREN, and each of them, to be my attorney-in-fact,
with full power and authority to sign his name to the Annual Report on Form 10-K
of Ecolab Inc. for the fiscal year ended December 31, 1995, and all amendments
thereto, provided that the Annual Report and any amendments thereto, in final
form, be approved by said attorney-in-fact; and his name, when thus signed,
shall have the same force and effect as though I had manually signed said
document.
IN WITNESS WHEREOF, I have hereunto affixed my signature this 27th day of
February, 1996.
/s/ Jerry W. Levin
--------------------------------
Jerry W. Levin
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That the undersigned, a Director of Ecolab
Inc., a Delaware corporation, does hereby make, nominate and appoint KENNETH A.
IVERSON and WILLIAM R. ROSENGREN, and each of them, to be my attorney-in-fact,
with full power and authority to sign his name to the Annual Report on Form 10-K
of Ecolab Inc. for the fiscal year ended December 31, 1995, and all amendments
thereto, provided that the Annual Report and any amendments thereto, in final
form, be approved by said attorney-in-fact; and his name, when thus signed,
shall have the same force and effect as though I had manually signed said
document.
IN WITNESS WHEREOF, I have hereunto affixed my signature this 24th day of
February, 1996.
/s/ Reuben F. Richards
--------------------------------
Reuben F. Richards
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That the undersigned, a Director of Ecolab
Inc., a Delaware corporation, does hereby make, nominate and appoint KENNETH A.
IVERSON and WILLIAM R. ROSENGREN, and each of them, to be my attorney-in-fact,
with full power and authority to sign his name to the Annual Report on Form 10-K
of Ecolab Inc. for the fiscal year ended December 31, 1995, and all amendments
thereto, provided that the Annual Report and any amendments thereto, in final
form, be approved by said attorney-in-fact; and his name, when thus signed,
shall have the same force and effect as though I had manually signed said
document.
IN WITNESS WHEREOF, I have hereunto affixed my signature this 24th day of
February, 1996.
/s/ Richard L. Schall
--------------------------------
Richard L. Schall
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That the undersigned, a Director of Ecolab
Inc., a Delaware corporation, does hereby make, nominate and appoint KENNETH A.
IVERSON and WILLIAM R. ROSENGREN, and each of them, to be my attorney-in-fact,
with full power and authority to sign his name to the Annual Report on Form 10-K
of Ecolab Inc. for the fiscal year ended December 31, 1995, and all amendments
thereto, provided that the Annual Report and any amendments thereto, in final
form, be approved by said attorney-in-fact; and his name, when thus signed,
shall have the same force and effect as though I had manually signed said
document.
IN WITNESS WHEREOF, I have hereunto affixed my signature this 27th day of
February, 1996.
/s/ Roland Schulz
--------------------------------
Roland Schulz
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That the undersigned, a Director of Ecolab
Inc., a Delaware corporation, does hereby make, nominate and appoint KENNETH A.
IVERSON and WILLIAM R. ROSENGREN, and each of them, to be my attorney-in-fact,
with full power and authority to sign his name to the Annual Report on Form 10-K
of Ecolab Inc. for the fiscal year ended December 31, 1995, and all amendments
thereto, provided that the Annual Report and any amendments thereto, in final
form, be approved by said attorney-in-fact; and his name, when thus signed,
shall have the same force and effect as though I had manually signed said
document.
IN WITNESS WHEREOF, I have hereunto affixed my signature this 24th day of
February, 1996.
/s/ Philip L. Smith
--------------------------------
Philip L. Smith
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That the undersigned, a Director of Ecolab
Inc., a Delaware corporation, does hereby make, nominate and appoint KENNETH A.
IVERSON and WILLIAM R. ROSENGREN, and each of them, to be my attorney-in-fact,
with full power and authority to sign his name to the Annual Report on Form 10-K
of Ecolab Inc. for the fiscal year ended December 31, 1995, and all amendments
thereto, provided that the Annual Report and any amendments thereto, in final
form, be approved by said attorney-in-fact; and his name, when thus signed,
shall have the same force and effect as though I had manually signed said
document.
IN WITNESS WHEREOF, I have hereunto affixed my signature this 24th day of
February, 1996.
/s/ Hugo Uyterhoeven
--------------------------------
Hugo Uyterhoeven
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That the undersigned, a Director of Ecolab
Inc., a Delaware corporation, does hereby make, nominate and appoint KENNETH A.
IVERSON and WILLIAM R. ROSENGREN, and each of them, to be my attorney-in-fact,
with full power and authority to sign his name to the Annual Report on Form 10-K
of Ecolab Inc. for the fiscal year ended December 31, 1995, and all amendments
thereto, provided that the Annual Report and any amendments thereto, in final
form, be approved by said attorney-in-fact; and his name, when thus signed,
shall have the same force and effect as though I had manually signed said
document.
IN WITNESS WHEREOF, I have hereunto affixed my signature this 24th day of
February, 1996.
/s/ Albrecht Woeste
--------------------------------
Albrecht Woeste
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF DEC-31-95 AND THE RELATED STATEMENTS OF
INCOME AND CASH FLOWS FOR THE 12-MONTH PERIOD THEN ENDED AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000031462
<NAME> ECOLAB INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 24,718
<SECURITIES> 0
<RECEIVABLES> 206,763
<ALLOWANCES> 8,331
<INVENTORY> 106,117
<CURRENT-ASSETS> 358,072
<PP&E> 619,969
<DEPRECIATION> 327,032
<TOTAL-ASSETS> 1,060,880
<CURRENT-LIABILITIES> 310,538
<BONDS> 89,402
0
0
<COMMON> 70,078
<OTHER-SE> 386,580
<TOTAL-LIABILITY-AND-EQUITY> 1,060,880
<SALES> 1,340,881
<TOTAL-REVENUES> 1,340,881
<CGS> 603,167
<TOTAL-COSTS> 603,167
<OTHER-EXPENSES> 575,028
<LOSS-PROVISION> 0<F1>
<INTEREST-EXPENSE> 15,857
<INCOME-PRETAX> 151,181
<INCOME-TAX> 59,694
<INCOME-CONTINUING> 99,189
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 99,189
<EPS-PRIMARY> 1.50
<EPS-DILUTED> 0
<FN>
<F1>The amount of "LOSS PROVISION" is not significant and has been included in
"OTHER EXPENSES."
</FN>
</TABLE>
