<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 1-9328
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ECOLAB INC.
- --------------------------------------------------------------------------------
(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
- --------------------------------------------------------------------------------
(Address of principal executive offices)(Zip Code)
612-293-2233
----------------
(Registrant's telephone number, including area code)
(Not Applicable)
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(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------ ------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of July 31, 1996.
64,314,319 shares of common stock, par value $1.00 per share.
<PAGE>
PART I - FINANCIAL INFORMATION
ECOLAB INC.
CONSOLIDATED STATEMENT OF INCOME
Second Quarter Ended
June 30
(thousands, except per share) 1996 1995
-------- --------
(unaudited)
Net Sales $373,196 $333,414
Cost of Sales 170,856 149,324
Selling, General
and Administrative Expenses 156,991 143,748
-------- --------
Operating Income 45,349 40,342
Interest Expense, Net 4,584 2,444
-------- --------
Income Before Income Taxes
and Equity in Earnings of
Joint Venture 40,765 37,898
Provision for Income Taxes 16,346 15,235
Equity in Earnings of Henkel-Ecolab
Joint Venture 3,179 3,175
-------- --------
Net Income $ 27,598 $ 25,838
-------- --------
-------- --------
Net Income Per Common Share $ 0.43 $ 0.38
Dividends Per Common Share $ 0.14 $ 0.125
Average Common Shares Outstanding 64,307 67,444
See notes to consolidated financial statements.
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<PAGE>
ECOLAB INC.
CONSOLIDATED STATEMENT OF INCOME
Six Months Ended Year Ended
June 30 December 31
(thousands, except per share) 1996 1995 1995
-------- -------- ----------
(unaudited)
Net Sales $706,916 $642,974 $1,340,881
Cost of Sales 323,445 287,943 603,167
Selling, General
and Administrative Expenses 304,324 283,618 575,028
-------- -------- ----------
Operating Income 79,147 71,413 162,686
Interest Expense, Net 8,024 5,017 11,505
-------- -------- ----------
Income Before Income Taxes
and Equity in Earnings of
Joint Venture 71,123 66,396 151,181
Provision for Income Taxes 28,517 26,693 59,694
Equity in Earnings of
Henkel-Ecolab Joint Venture 4,637 4,530 7,702
-------- -------- ----------
Net Income $ 47,243 $ 44,233 $ 99,189
-------- -------- ----------
-------- -------- ----------
Net Income Per Common Share $ 0.73 $ 0.65 $ 1.50
Dividends Per Common Share $ 0.28 $ 0.25 $ 0.515
Average Common Shares Outstanding 64,449 67,593 66,097
See notes to consolidated financial statements.
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<PAGE>
ECOLAB INC.
CONSOLIDATED BALANCE SHEET
June 30 June 30 December 31
(thousands) 1996 1995 1995
-------- -------- ----------
(unaudited)
ASSETS
Cash and cash equivalents $ 31,678 $ 20,333 $ 24,718
Accounts receivable, net 201,247 178,661 198,432
Inventories 120,311 108,878 106,117
Deferred income taxes 21,901 22,421 21,617
Other current assets 25,670 13,496 7,188
---------- ---------- ----------
Current Assets 400,807 343,789 358,072
Property, Plant and
Equipment, Net 309,809 263,320 292,937
Investment in Henkel-Ecolab
Joint Venture 284,404 310,624 302,298
Other Assets 139,276 98,135 107,573
---------- ---------- ----------
Total Assets $1,134,296 $1,015,868 $1,060,880
---------- ---------- ----------
---------- ---------- ----------
See notes to consolidated financial statements.
(Continued)
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<PAGE>
ECOLAB INC.
CONSOLIDATED BALANCE SHEET, (Continued)
June 30 June 30 December 31
(thousands, except per share) 1996 1995 1995
---------- ---------- ----------
(unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term debt $ 56,601 $ 49,213 $ 71,647
Accounts payable 80,565 71,936 81,931
Compensation and benefits 54,286 48,142 59,766
Income taxes 9,255 15,588 18,248
Other current liabilities 94,855 75,110 78,946
---------- ---------- ----------
Current Liabilities 295,562 259,989 310,538
Long-Term Debt 163,875 130,150 89,402
Postretirement Health Care
and Pension Benefits 76,519 77,533 70,666
Other Liabilities 133,874 129,628 133,616
Shareholders' Equity (common stock,
par value $1.00 per share;
shares outstanding: June 30,
1996 - 64,326; June 30, 1995
- 64,391; December 31, 1995
- 64,701) 464,466 418,568 456,658
---------- ---------- ----------
Total Liabilities and
Shareholders' Equity $1,134,296 $1,015,868 $1,060,880
---------- ---------- ----------
---------- ---------- ----------
See notes to consolidated financial statements.
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<PAGE>
ECOLAB INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Six Months Ended Year Ended
June 30 December 31
(thousands) 1996 1995 1995
------- ------- -------
(unaudited)
OPERATING ACTIVITIES
Net income $47,243 $44,233 $ 99,189
Adjustments to reconcile net
income to cash provided by
operating activities:
Depreciation 37,068 32,235 64,651
Amortization 6,568 6,657 11,628
Deferred income taxes (557) (393) (759)
Equity in earnings of joint venture (4,637) (4,530) (7,702)
Joint venture 7,636 3,004 5,610
Other, net 229 147 801
Changes in operating assets and
liabilities:
Accounts receivable 4,872 (8,542) (26,843)
Inventories (9,245) (7,716) (4,136)
Other assets (7,413) (10,620) (11,371)
Accounts payable (3,889) (5,779) 4,561
Other liabilities 1,943 3,550 27,834
------- ------- -------
Cash provided by continuing operations 79,818 52,246 163,463
Cash provided by discontinued
operations 3,000
------- ------- -------
Cash provided by operating activities $79,818 $52,246 $166,463
------- ------- -------
Bracketed amounts indicate a use of cash.
See notes to consolidated financial statements.
(Continued)
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<PAGE>
ECOLAB INC.
CONSOLIDATED STATEMENT OF CASH FLOWS, (Continued)
Six Months Ended Year Ended
June 30 December 31
(thousands) 1996 1995 1995
-------- -------- ---------
(unaudited)
INVESTING ACTIVITIES
Capital expenditures $(52,540) $(49,097) $(109,894)
Property disposals 1,548 772 1,806
Businesses acquired (39,930) (7,395) (26,437)
Sale of investments in securities 4,007
Other, net 367 2,609 6,991
-------- -------- ---------
Cash used for investing activities (90,555) (53,111) (123,527)
-------- -------- ---------
FINANCING ACTIVITIES
Notes payable (13,954) 5,802 29,355
Long-term debt borrowings 75,000 25,000 2,141
Long-term debt repayments (19,418) (436) (20,060)
Reacquired shares (16,364) (89,676) (90,391)
Dividends (18,084) (16,994) (33,114)
Other, net 10,778 (709) (4,561)
-------- -------- ---------
Cash provided by (used for)
financing activities 17,958 (77,013) (116,630)
-------- -------- ---------
Effect of exchange rate
changes on cash (261) (44) 157
-------- -------- ---------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 6,960 (77,922) (73,537)
Cash and Cash Equivalents,
at beginning of period 24,718 98,255 98,255
-------- -------- ---------
Cash and Cash Equivalents,
at end of period $ 31,678 $ 20,333 $ 24,718
-------- -------- ---------
-------- -------- ---------
Bracketed amounts indicate a use of cash.
See notes to consolidated financial statements.
-7-
<PAGE>
ECOLAB INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENTS
The unaudited consolidated statements of income for the second quarter and the
six months ended June 30, 1996 and 1995, reflect, in the opinion of management,
all adjustments necessary for a fair statement of the results of operations for
the interim periods. The results of operations for any interim period are not
necessarily indicative of results for the full year. The consolidated balance
sheet data as of December 31, 1995 and the related consolidated statements of
income and cash flows data for the year then ended were derived from audited
consolidated financial statements, but do not include all disclosures required
by generally accepted accounting principles. The unaudited consolidated
financial statements should be read in conjunction with the financial statements
and notes thereto incorporated in the Company's Annual Report on Form
10-K for the year ended December 31, 1995. Coopers & Lybrand L.L.P., the
Company's independent accountants, have performed a limited review of the
interim financial information included herein. Their report on such review
accompanies this filing.
BALANCE SHEET INFORMATION
June 30 June 30 December 31
(thousands) 1996 1995 1995
--------- --------- ---------
(unaudited)
Accounts Receivable, Net
Accounts receivable $ 209,543 $ 187,426 $ 206,763
Allowance for doubtful accounts (8,296) (8,765) (8,331)
--------- --------- ---------
Total $ 201,247 $ 178,661 $ 198,432
--------- --------- ---------
--------- --------- ---------
Inventories
Finished goods $ 57,691 $ 47,323 $ 47,035
Raw materials and parts 66,590 65,045 62,132
Excess of fifo cost over lifo cost (3,970) (3,490) (3,050)
--------- --------- ---------
Total $ 120,311 $ 108,878 $ 106,117
--------- --------- ---------
--------- --------- ---------
Property, Plant and Equipment, Net
Land $ 6,856 $ 6,783 $ 6,941
Buildings and leaseholds 120,009 110,733 117,042
Machinery and equipment 203,168 180,003 188,453
Merchandising equipment 310,554 271,217 292,962
Construction in progress 10,893 7,537 14,571
--------- --------- ---------
651,480 576,273 619,969
Accumulated depreciation
and amortization (341,671) (312,953) (327,032)
--------- --------- ---------
Total $ 309,809 $ 263,320 $ 292,937
--------- --------- ---------
--------- --------- ---------
-8-
<PAGE>
ECOLAB INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
BALANCE SHEET INFORMATION (Continued)
June 30 June 30 December 31
(thousands) 1996 1995 1995
--------- --------- ---------
(unaudited)
Other Assets
Intangible assets, net $ 77,961 $ 43,044 $ 50,773
Investments in securities 5,000 5,000 5,000
Deferred income taxes 27,671 26,609 27,383
Other 28,644 23,482 24,417
--------- --------- ---------
Total $139,276 $ 98,135 $107,573
--------- --------- ---------
--------- --------- ---------
Short-Term Debt
Notes payable $ 40,149 $ 32,550 $ 54,950
Long-term debt, current
maturities 16,452 16,663 16,697
--------- --------- ---------
Total $ 56,601 $ 49,213 $ 71,647
--------- --------- ---------
--------- --------- ---------
Shareholders' Equity
Common stock $ 70,212 $ 69,902 $ 70,078
Additional paid-in capital 173,583 167,127 171,765
Retained earnings 355,445 285,605 325,674
Deferred compensation (5,539) (4,013) (6,484)
Cumulative translation 7,491 21,865 16,272
Treasury stock (136,726) (121,918) (120,647)
--------- --------- ---------
Total $464,466 $418,568 $456,658
--------- --------- ---------
--------- --------- ---------
Interest expense related to all debt was $10,129,000 and $7,770,000 for the six
months ended June 30, 1996 and 1995, respectively, and $15,857,000 for the year
ended December 31, 1995.
Other noncurrent liabilities included income taxes payable of $96 million at
June 30, 1996 and December 31, 1995, and $94 million at June 30, 1995.
In January 1996, the Company issued $75 million of 7.19 percent senior notes to
a group of insurance companies. The notes mature in January 2006. Proceeds
from the debt were used to reduce short-term borrowings and for business
acquisitions and other general corporate purposes.
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<PAGE>
ECOLAB INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
BUSINESS ACQUISITIONS
On February 20, 1996, the Company acquired Huntington Laboratories, Inc. of
Huntington, Indiana. Huntington is a leading manufacturer and marketer of
disinfectants, germicides, surgical scrubs and sterilants, primarily serving the
U.S. healthcare and education janitorial markets. Huntington has become part of
the Company's Janitorial Division, complementing the existing janitorial product
lines. Included in the purchase was Huntington's QUATS-Surfactants disinfectant
business which did not fit Ecolab's business strategies and, therefore, was sold
in July 1996. Ecolab's purchase price for Huntington included cash
consideration and the assumption of existing indebtedness which the Company
repaid concurrent with the consummation of the stock purchase transaction. The
acquisition was financed with a portion of the proceeds received from the
issuance of $75 million of senior notes in January 1996 and with existing lines
of credit.
The acquisition has been accounted for as a purchase and, accordingly, the
results of operations have been included in the financial statements of the
Company from the date of acquisition. The allocation of the purchase price and
the determination of the excess of the purchase price over the fair market value
of the net assets acquired are preliminary as of June 30, 1996.
Net sales for the second quarter and six months ended June 30, 1996 included
approximately $14 million and $19 million, respectively of sales from the
Huntington operations from the date of acquisition. Huntington's operating
income for the second quarter and first six months of 1996 was not significant.
The annual sales of the core Huntington operations, which the Company expects to
retain, are approximately $50 million.
On August 2, 1996 the Company acquired the Monarch division of H.B. Fuller
Company of Saint Paul, Minnesota. Monarch is a provider of cleaning and
sanitizing products and services to the food processing and farm markets in the
United States and Canada. Monarch had sales of approximately $30 million in
1995 and will become part of the Company's Food & Beverage Division. The
acquisition was financed with cash provided by existing lines of credit and will
be accounted for as a purchase.
-10-
<PAGE>
ECOLAB INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NET INCOME PER COMMON SHARE
Net income per common share amounts are computed by dividing net income by the
weighted average number of common shares outstanding. Stock options did not
have a significant dilutive effect.
GEOGRAPHIC SEGMENTS
The Company is a global developer and marketer of premium cleaning, sanitizing
and maintenance products and services for the hospitality, institutional and
industrial markets. Customers include hotels and restaurants; foodservice,
healthcare and educational facilities; quickservice (fast-food) units;
commercial laundries; light industry; dairy plants and farms; and food and
beverage processors around the world. International consists of Canadian, Asia
Pacific, Latin American and African operations and the international operations
of Kay. In addition, the Company and Henkel KGaA of Dusseldorf, Germany, each
have a 50% economic interest in the Henkel-Ecolab joint venture which operates
institutional and industrial cleaning and sanitizing businesses in Europe.
Information concerning the Company's equity in earnings of the Henkel-Ecolab
joint venture is provided in a separate note to the consolidated financial
statements.
<TABLE>
<CAPTION>
Second Quarter Six Months Year Ended
Ended June 30 Ended June 30 December 31
(thousands) 1996 1995 1996 1995 1995
-------- -------- -------- -------- ----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Net Sales
United States $287,278 $255,030 $542,973 $497,256 $1,030,126
International 85,918 78,384 163,943 145,718 310,755
-------- -------- -------- -------- ----------
Total $373,196 $333,414 $706,916 $642,974 $1,340,881
-------- -------- -------- -------- ----------
-------- -------- -------- -------- ----------
Operating Income
United States $ 39,919 $ 35,937 $ 70,073 $ 65,462 $ 147,330
International 6,271 5,619 10,649 8,314 19,580
Corporate (841) (1,214) (1,575) (2,363) (4,224)
-------- -------- -------- -------- ----------
Total $ 45,349 $ 40,342 $ 79,147 $ 71,413 $ 162,686
-------- -------- -------- -------- ----------
-------- -------- -------- -------- ----------
</TABLE>
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<PAGE>
ECOLAB INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
EQUITY IN EARNINGS OF HENKEL-ECOLAB JOINT VENTURE
The Company's equity in earnings of the Henkel-Ecolab joint venture for the
second quarter and six months ended June 30, 1996 and 1995 and for the year
ended December 31, 1995 was:
<TABLE>
<CAPTION>
Second Quarter Six Months Year Ended
Ended June 30 Ended June 30 December 31
(thousands) 1996 1995 1996 1995 1995
-------- -------- -------- -------- ----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Joint venture
Net sales $232,935 $238,289 $449,782 $438,771 $909,196
Gross profit 127,156 133,641 246,006 245,175 502,849
Income before
income taxes 17,228 14,034 27,786 22,617 44,392
Net income $ 8,460 $ 7,696 $ 13,643 $ 11,987 $ 22,406
Ecolab equity in earnings
Ecolab equity in
net income $ 4,230 $ 3,848 $ 6,822 $ 5,994 $ 11,203
Ecolab royalty
income from joint
venture, net of
income taxes 1,219 1,707 2,412 3,117 5,814
Amortization expense
for the excess of
cost over the
underlying net
assets of the joint
venture (2,270) (2,380) (4,597) (4,581) (9,315)
-------- -------- -------- -------- ----------
Equity in earnings of
Henkel-Ecolab
joint venture $ 3,179 $ 3,175 $ 4,637 $ 4,530 $ 7,702
-------- -------- -------- -------- ----------
-------- -------- -------- -------- ----------
</TABLE>
At June 30, 1996, the Company's investment in the Henkel-Ecolab joint venture
included approximately $179 million for the unamortized excess of the Company's
investment over its equity in the joint venture's net assets.
-12-
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
Ecolab Inc.
We have reviewed the accompanying consolidated balance sheet of Ecolab Inc.
as of June 30, 1996 and 1995, and the related consolidated statements of income
for the three-month and six-month periods ended June 30, 1996 and 1995, and the
consolidated statements of cash flows for the six-month periods ended June 30,
1996 and 1995. These financial statements are the responsibility of the
Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of which
is the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the accompanying consolidated financial statements for them to
be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1995, and the
related consolidated statements of income, shareholders' equity and cash flows
for the year then ended (not presented herein); and in our report dated February
26, 1996, we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
consolidated balance sheet as of December 31, 1995, and the related consolidated
statements of income and cash flows for the year then ended is fairly presented,
in all material respects, in relation to the consolidated balance sheet and
statements of income and cash flows from which it has been derived.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Saint Paul, Minnesota
July 18, 1996
-13-
<PAGE>
ECOLAB INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - SECOND QUARTER AND SIX MONTHS ENDED
JUNE 30, 1996
Net sales for the second quarter ended June 30, 1996 were $373 million, an
increase of 12 percent over net sales of $333 million in the second quarter of
last year. For the first six months of 1996, net sales were $707 million and
increased 10 percent over sales of $643 million in the first six months of last
year. These increases in sales reflected the benefits of a continuation of
significant new product introductions and good growth in the Company's core
businesses. Business acquisitions accounted for approximately one-half of the
growth in sales.
The gross profit margin for both the second quarter and first six months of 1996
was 54.2 percent of net sales, and compared to gross profit margins of 55.2
percent of net sales in the comparable periods of last year. The decreases in
the gross profit margins for 1996 reflect increased raw material costs, limited
selling price increases due to competitive pressures, and product mix.
Selling, general and administrative expenses totaled $157 million, or 42.1
percent of net sales for the second quarter ended June 30, 1996, an increase of
9 percent over selling, general and administrative expenses of $144 million or
43.1 percent of net sales in the second quarter of last year. Selling, general
and administrative expenses were $304 million, or 43.0 percent of net sales for
the first six months of 1996, an increase of 7 percent over selling, general and
administrative expenses of $284 million, or 44.1 percent of net sales in the
comparable period of last year. The decreases in the ratios of these expenses
to net sales were primarily due to strong sales during 1996 and to the Company's
continued cost control efforts.
For the second quarter ended June 30, 1996, net income was $28 million, an
increase of 7 percent over net income of $26 million in the second quarter of
last year. Net income for the first six months of 1996 also increased 7 percent
to $47 million, compared with net income of $44 million in the first six months
of 1995. These net income improvements reflected the benefits of higher sales
and the effects of the Company's cost control efforts. These benefits were
partially offset by decreases in gross profit margins and higher net interest
expense. On a per share basis, net income per share was $0.43 for the second
quarter of 1996, an increase of 13 percent over net income per share of $0.38 in
the second quarter of last year. For the six-month period, net income per share
was $0.73, up 12 percent compared to net income per share of $0.65 in the same
period of last year. These comparisons of net income per share benefited from a
-14-
<PAGE>
ECOLAB INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
smaller number of average shares outstanding due to the purchase of
approximately 3.5 million shares of the Company's common stock in June 1995 and
the purchase of approximately 520,000 additional shares during the first half of
1996.
Net sales for the Company's United States operations totaled $287 million for
the second quarter ended June 30, 1996, an increase of 13 percent over second
quarter 1995 net sales of $255 million. United States sales for the first six
months of 1996 were $543 million, and increased 9 percent over sales of $497
million in the first half of 1995. United States sales continued to benefit
from new product introductions and improving economic conditions in the
hospitality and lodging industries. Business acquisitions accounted for
approximately one-half of these sales increases. Six month results reflect the
negative impact that severe weather had on customers of the Company's core
operations during the first quarter of 1996. Sales of the U.S. Institutional
Division increased 5 percent for the second quarter and 2 percent for the first
six months of 1996. Institutional's sales growth included sales to new
customers and continued double-digit growth in the Ecotemp warewashing program.
The Pest Elimination Division continued its pattern of double-digit sales growth
with sales increases of 12 percent for both the second quarter and six-month
periods. The Textile Care Division reported 9 percent growth for the second
quarter and 11 percent growth for the first six months of 1996, due to new
products and new customers in the commercial laundry and hospitality markets.
Sales of the Company's Janitorial operations more than doubled due to the
February 1996 acquisition of Huntington Laboratories. Excluding Huntington's
sales, Janitorial sales increased 6 percent for the second quarter and 1 percent
for the first six months of 1996, due to increased sales of its Airkem products.
The Food & Beverage Division reported sales growth of 3 percent for the second
quarter and 2 percent for the six-month period. Food & Beverage results
reflected low levels of production in certain segments of the milk processing
and food processing industries and comparison against strong sales during the
first half of last year. Sales of Kay's U.S. operations increased 19 percent for
the second quarter and 16 percent for the six-month period due to new customers
and good general growth of the quickservice market. Sales of the Company's
recently formed Water Care Services Division increased by at least 150% for both
the second quarter and six-month periods, due to businesses which were acquired
during 1995 and to new customers which have been added, in part by leveraging
the Company's other divisions.
-15-
<PAGE>
ECOLAB INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
For the second quarter of 1996, operating income for the Company's United States
operations totaled $40 million, an 11 percent increase over operating income of
$36 million in the second quarter of last year. For the first six months of
1996, United States operating income was $70 million and increased 7 percent
over last year's six month operating income of $65 million. Operating income
growth for the second quarter of 1996 reflected good growth in the U.S.
Institutional Division and double-digit growth in the Textile Care, Pest
Elimination and Kay operations. Six-month operating income results reflect the
soft weather-related results of the first quarter in the core Institutional
business. Operating income margins for 1996 were down slightly from the
comparable periods of last year. For the second quarter, the operating income
margin for the Company's United States operations was 13.9 percent, compared
with 14.1 percent for the second quarter of last year. The six-month operating
income margin was 12.9 percent, and compared with last year's six-month
operating income margin of 13.2 percent. Operating income margins reflected
increased sales and the benefits of cost controls which were offset by higher
raw material costs, competitive pricing pressures and the negative effects of
severe weather during the first quarter of 1996.
Sales of the Company's International Operations totaled $86 million for the
second quarter ended June 30, 1996, an increase of 10 percent over second
quarter 1995 sales of $78 million. For the six-month period, sales of
International operations increased 13 percent to $164 million from sales of $146
million in the first six months of last year. Approximately one-half of
International's sales growth was due to businesses acquired in South Africa
during 1995 and to the addition of Huntington's Canadian operations in February
1996. Changes in currency translation had a negative impact on reported sales
of International's operations, particularly in the Asia Pacific region.
Excluding the effects of currency translation, International's sales grew 16
percent for the second quarter and 17 percent for the first six months of 1996.
The Asia Pacific region reported a sales decrease of 1 percent for the second
quarter and an increase in sales of 4 percent for the six-month period.
However, when measured in local currencies, Asia Pacific sales growth was 8
percent for the second quarter and 10 percent for the first six months of 1996
and included good growth in Japan and double-digit growth in New Zealand. The
Company's Latin American region reported sales increases of 15 percent and 12
percent for the second quarter and six-month periods respectively. Latin
American sales growth reflected a continuation of double-digit growth in Brazil.
Sales in Mexico continued to grow at double-digit rates in local currencies.
Sales in Canada increased 14 percent for the second quarter of 1996 and 10
percent for the six-month period. Sales results in Canada included the addition
of Huntington's operations for the second quarter and good growth in
Institutional and Food & Beverage sales for both the second quarter and
six-month periods.
-16-
<PAGE>
ECOLAB INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Operating income for the Company's International Operations was $6 million for
the second quarter of 1996 and increased 12 percent over the second quarter of
last year. For the six-month period, International's operating income increased
28 percent to $11 million, compared with operating income of $8 million in the
same period of last year. Operating income margins for the second quarter
increased to 7.3 percent of net sales from 7.2 percent of net sales in the
second quarter of last year. For the six-month period, operating income
margins improved to 6.5 percent of net sales in 1996 from 5.7 percent of net
sales last year. International operating income results included significant
double-digit growth in each of the Company's major regions of operation for the
six-month period and in the Latin American and Canadian operations for the
second quarter. Operating income results included a continuation of
double-digit growth in Brazil. Operating income results in the Asia Pacific
region increased modestly during the second quarter due to the negative effects
of currency translation, particularly in Japan.
The Company's equity in earnings of the Henkel-Ecolab joint venture was $3
million for the second quarter of 1996, and was virtually unchanged from
results for the second quarter of last year. For the first six months of
1996, equity in earnings of the joint venture was $5 million, a 2 percent
increase over the same period of last year. Joint venture results reflect
cost control programs which were put into effect for 1996. A number of
investments were made in the joint venture beginning in late 1995, including
financial and operating systems and organizational development; however, the
Company does not expect that financial results will fully benefit from these
investments until late 1996 and later years.
Corporate operating expense was $1 million for the second quarter and $2 million
for the first six months of 1996. Corporate operating expense represented
overhead costs directly related to the joint venture.
Net interest expense was $5 million for the second quarter of 1996 and $8
million for the first six months of 1996, and increased more than 50 percent
over the comparable periods of last year. These increases in net interest
expense were due to lower cash levels and increased debt reflecting cash used
during 1995 for the mid-year stock repurchase self- tender offer and for
business acquisitions during 1995 and 1996.
For the second quarter and first six months of 1996, the provision for income
taxes reflected an estimated effective rate of 40.1 percent, virtually unchanged
from the estimated effective rate of 40.2 percent for the second quarter and
first six months of last year.
-17-
<PAGE>
ECOLAB INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
FINANCIAL POSITION AND LIQUIDITY
The Company's consolidated total assets at June 30, 1996 reflected the February
1996 acquisition of Huntington Laboratories. Other current assets at June 30
included the QUATS-Surfactants disinfectants net assets of Huntington's
operation which the Company sold in July 1996. The increase in other
non-current assets from year-end 1995 was also primarily due to the Huntington
acquisition.
Total debt at June 30, 1996 was $220 million, an increase of $59 million from
total debt of $161 million at December 31, 1995. The increase in debt was due
to $75 million of 7.19 percent senior notes which were issued to a group of
insurance companies in January of 1996. The notes mature in January 2006.
Proceeds from the debt were used to reduce short-term borrowings and for general
corporate purposes, including the February 1996 acquisition of Huntington
Laboratories. The ratio of total debt to capitalization increased to 32 percent
at June 30, 1996 from 26 percent at December 31, 1995.
Cash provided by continuing operations was $80 million for the first six months
of 1996, compared with cash provided by continuing operations of $52 million in
the first six months of last year. Earnings growth and cash flows from the
collection of accounts receivable related to strong fourth quarter 1995 sales
were significant factors in this cash flow improvement.
In May 1995, the Company announced a six million share repurchase program. As
part of that program, the Company purchased approximately 3.5 million shares in
June 1995 under a "Dutch Auction" self-tender offer. During the first six
months of 1996, the Company purchased approximately 35,000 shares under this
program and at June 30, 1996 there were approximately 2.4 million shares
remaining under the existing repurchase authorization. In addition, the Company
maintains an ongoing systematic share repurchase program, which is intended to
offset the dilutive effect of shares issued for employee benefit plans. During
the first six months of 1996, approximately 485,000 shares were purchased under
this program. The Company intends to continue making purchases for both of
these programs from time to time in open market and privately negotiated
transactions.
-18-
<PAGE>
PART II. OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Stockholders was held on May 10, 1996. At
the meeting, 88.62% of the outstanding shares of the Company's voting stock
was represented in person or by proxy. The first proposal voted upon was
the election of five Class I Directors for a term ending at the annual
meeting in 1999 and the election of one Class III Director for a term
ending at the annual meeting in 1998. The six persons nominated by the
Company's Board of Directors received the following votes and were elected:
NAME CLASS FOR WITHHELD
---------------- ----- ---------- ----------
James J. Howard I 56,749,775 419,916
Joel W. Johnson III 56,742,016 427,675
Jerry W. Levin I 56,748,390 421,301
Reuben F. Richards I 55,621,770 1,547,921
Richard L. Schall I 56,739,896 429,795
Roland Schulz I 56,746,887 422,804
In addition, the terms of office of the following directors continued
after the meeting: Class II Directors for a term ending in 1997 -
Ruth S. Block, Russell G. Cleary, Allan L. Schuman and Michael E.
Shannon; and Class III Directors for a term ending in 1998 - Philip L.
Smith, Hugo Uyterhoeven and Albrecht Woeste.
The second proposal voted upon was the ratification of the appointment
of Coopers & Lybrand L.L.P. as the Company's independent accountants
for the year ending December 31, 1996. The appointment was ratified
as follows:
FOR AGAINST ABSTAIN
---------- ------- -------
56,947,161 129,394 93,136
As to each proposal, there were no broker non-votes.
-19-
<PAGE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following documents are filed as exhibits to this
report:
(15) Letter regarding unaudited interim financial
information.
(27) Financial Data Schedule.
(b) Reports on Form 8-K:
No Current Reports on Form 8-K were filed during the quarter
ended June 30, 1996.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
ECOLAB INC.
Date: August 7, 1996 By: /s/ Michael E. Shannon
--------------------- ----------------------------------
Michael E. Shannon
Chairman of the Board,
Chief Financial and Administrative
Officer
(duly authorized officer and
Principal Financial Officer)
-20-
<PAGE>
Exhibit (15)
Securities and Exchange Commission
450 Fifth Street N.W.
Washington, DC 10549
RE: Ecolab Inc. Registration Statements on Form S-8
(Registration Nos. 2-60010; 2-74944; 33-1664;
33-41828; 2-90702; 33-18202; 33-55986; 33-56101
33-26241; 33-34000; 33-56151; 33-39228; 33-56125
33-55984; 33-60266; 33-65364; and 33-59431) and
Ecolab Inc. Registration Statement on Form S-3
(Registration No. 33-57197)
We are aware that our report dated July 18, 1996 on our reviews of interim
financial information of Ecolab Inc. for the periods ended June 30, 1996 and
1995, and included in the Company's quarterly report on Form 10-Q for the
quarter ended June 30, 1996, is incorporated by reference in these registration
statements. Pursuant to Rule 436(c) under the Securities Act of 1933, this
report should not be considered a part of the registration statements prepared
or certified by us within the meaning of Sections 7 and 11 of that Act.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Saint Paul, Minnesota
August 7, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF JUNE-30-1996 AND THE RELATED STATEMENTS OF
INCOME AND CASH FLOWS FOR THE SIX-MONTH PERIOD THEN ENDED AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000031462
<NAME> ECOLAD INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 31,678
<SECURITIES> 0
<RECEIVABLES> 209,710
<ALLOWANCES> 8,
<INVENTORY> 120,311
<CURRENT-ASSETS> 400,807
<PP&E> 651,480
<DEPRECIATION> 341,671
<TOTAL-ASSETS> 1,134,296
<CURRENT-LIABILITIES> 295,562
<BONDS> 163,875
0
0
<COMMON> 70,212
<OTHER-SE> 394,254
<TOTAL-LIABILITY-AND-EQUITY> 1,134,296
<SALES> 706,916
<TOTAL-REVENUES> 706,916
<CGS> 323,445
<TOTAL-COSTS> 323,445
<OTHER-EXPENSES> 304,324
<LOSS-PROVISION> 0 <F1>
<INTEREST-EXPENSE> 10,129
<INCOME-PRETAX> 71,123
<INCOME-TAX> 28,517
<INCOME-CONTINUING> 47,243
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 47,243
<EPS-PRIMARY> .73
<EPS-DILUTED> 0
<FN>
<F1>THE AMOUNT OF "LOSS PROVISION" IS NOT SIGNIFICANT AND HAS BEEN INCLUDED IN
"OTHER EXPENSES"
</FN>
</TABLE>
