<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of Registrant's Annual Report to Stockholders for the year
ended December 31, 1996 (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 9, 1997 and to be filed within 120 days after the
Registrant's fiscal year ended December 31, 1996 (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
balance sheet accounts, revenues and expenses. Financial statements of the
Henkel-Ecolab Joint Venture as listed under Item 14, I(3) of Part IV hereof are
included as a part of this Report. 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, quickservice (fast-food units),
commercial and institutional laundries, 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, as described
- 2 -
<PAGE>
in the business unit descriptions located under the heading "Business
Divisions."
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, Pest Elimination, Textile Care,
Professional Products (formerly Janitorial Division) 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 expanding into a number
of international locations.
The Company conducts business in approximately 30 countries outside of the
United States through wholly-owned subsidiaries, or, in the case of Venezuela,
China, and Indonesia, through majority- owned joint ventures with local
partners. In other countries, selected products are sold by distributors or
agents, although those sales are not significant in terms of the Company's
overall sales. For the year ended December 31, 1996, international sales
comprised approximately 23% of the Company's total consolidated net sales. For
purposes of public financial reporting, international operations include Canada,
but on an operational basis, the businesses in Canada are, in general, operated
together with United States businesses as a part of North American operations.
BUSINESS DIVISIONS
The following descriptions of the Company's divisions include a discussion,
where applicable, of similar businesses 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 made available 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
- 3 -
<PAGE>
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 Institutional 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 supplies chemical cleaning and sanitizing products
primarily to the quick-service restaurant and grocery industries. 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.
In addition, Kay supports its product sales with employee training programs and
technical support designed to meet the special needs of its customers which have
a relatively high employee turnover. Kay employs a direct field sales force
which primarily calls upon national and regional quick service restaurant chains
and franchisees, although the sales are made to distributors who supply the
chain or franchisee's restaurants.
Kay sales are primarily in the United States but international sales have grown
as United States-based customers have expanded into international markets.
Because a significant portion of Kay's international sales are to non-United
States units of United States-based quickservice restaurant chains, a
substantial portion of Kay's international sales are made either to domestic or
internationally located distributors who service these chains.
The Company believes that its Kay Division is the leading supplier of chemical
cleaning and sanitizing products to the quickservice restaurant industry in the
United States as well as in certain international markets. While Kay's customer
base has been growing, Kay's business is largely dependent upon a limited number
of major national and international quickservice restaurant chains and
franchisees.
FOOD AND BEVERAGE: The Food and Beverage Division 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. Food and Beverage businesses are
operated 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
- 4 -
<PAGE>
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 but also operates in Puerto Rico, Hong Kong and
New Zealand, as well as parts of Canada and Mexico.
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 and include free-standing laundry plants used by institutions
such as hotels, restaurants and healthcare facilities as well as industrial,
textile rental and shirt laundries. 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. Textile Care offerings complement the
Institutional Division's offerings to small-to-medium size on-premise laundry
facilities. 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.
PROFESSIONAL PRODUCTS: The Professional Products Division provides a full line
of janitorial and infection control offerings that include odor counteractants,
disinfectants, floor care and carpet care systems, hand care products and
general cleaners and medical instrument sterilants which are sold to the medical
and janitorial markets in the United States and Canada. In 1996, the Company
acquired Huntington Laboratories, Inc., a supplier of infection control products
and gym floor finishes which it integrated into its janitorial business. The
Division, which was previously called the Janitorial Division, was renamed
following the Huntington acquisition to the Professional Products Division to
better reflect its expanding business.
The Company believes it is among the largest suppliers of infection-control and
general cleaners to the United States healthcare industry as well as one of the
market leaders in the overall North American janitorial market. Products are
sold in the United States and Canada through a Company-employed sales force as
well as a network of independent distributors in both janitorial and medical
markets who sell products and services to the institutional, healthcare 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. In addition, the Division,
through its JaniSource operation, markets brand name products for sale through
mass commercial distribution networks. Infection-control and janitorial
products are also sold on a limited basis in other international markets.
WATER CARE SERVICES: The Water Care Services Division, which in 1997 will be in
its third year as a separate Company division, expands the Company's "Circle the
Customer - Circle the Globe" strategy by adding an offering which is critical to
companies in the Company's customer base--water treatment programs. The Water
Care Services Division provides water and wastewater treatment products,
services and systems for institutional, commercial and light industrial
customers. Operations are presently concentrated in North America, where the
Company has acquired four existing water care businesses since late 1994. 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 in heating and cooling systems and manufacturing processes and to treat
waste water. In selected United States markets, the Division also provides pool
and spa treatment programs for commercial and hospitality customers. In
addition to North America operations, certain water
- 5 -
<PAGE>
treatment businesses are operated at selected international locations, primarily
Brazil, South Africa and Southeast Asia.
COMPETITION
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 which focus 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, sanitation and maintenance 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 on-going 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. In addition, the
Company emphasizes its ability to uniformly provide a variety of related premium
cleaning and sanitation services to its customers and to provide that level of
service to multiple locations of chain customer organizations worldwide. This
approach is succinctly stated in the Company's "Circle the Customer - Circle the
Globe" strategy.
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 common
carriers, its own delivery vehicles and distributors. Additional information on
the Company's plant and distribution facilities is located under Item 2 below
under the heading "Properties."
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
- 6 -
<PAGE>
dependent upon a limited number of national and international quickservice
chains and franchisees. No material part of the Company's business is subject
to renegotiation or termination at the election of a governmental unit. The
Company sells two classes of products which each constitute 10 percent or more
of its sales. Worldwide sales of warewashing products in 1996, 1995 and 1994
approximated 31, 33 and 35 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 3 hereof. Total laundry sales in 1996, 1995 and 1994
approximated 14, 15 and 15 percent respectively, of the Company's consolidated
net sales.
The Company's business has little seasonality.
The Company has invested in the past, and will continue to invest in the future,
in merchandising equipment consisting primarily of systems used by customers to
dispense the Company's cleaning and sanitizing products. The Company,
otherwise, has no unusual working capital requirements. 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, 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. Although the Company is not currently aware of any such
circumstances, 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.
PHOSPHOROUS 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
- 7 -
<PAGE>
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. Phosphorous 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" or "antimicrobial pesticides" under the current
definitions of the Federal Insecticide Fungicide and Rodenticide Act ("FIFRA"),
as amended by the Food Quality Protection Act of 1996, 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, toxicity 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 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, were approximately
$1,269,000 in 1996. Such costs will increase somewhat in 1997, but not in
amounts which are expected to significantly affect the Company's results of
operations, consolidated financial condition or liquidity. The new Food Quality
Protection Act is expected to accelerate the pace at which the Company obtains
future product registrations.
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
- 8 -
<PAGE>
its results of operations. The Company's capital expenditures for environmental
control projects incurred for 1996 were approximately $1,090,000 and
approximately the same level of expenditure has been budgeted for 1997. 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 11 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 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 PRPs will work with the EPA to agree and implement a plan for
site remediation.
In addition to the 11 sites noted above, the Illinois Environmental Protection
Agency ("Agency"), in 1996, identified the Company, along with two other
corporations, as PRPs in connection with groundwater contamination near the
Company's South Beloit, Illinois manufacturing facility. The Agency is seeking
a potable water supply for approximately 200 homes at the Evergreen Manor
residential subdivision, an investigation of the source and extent of the
contamination, remedial cleanup and reimbursement of the state's costs. The
Company has denied liability and has requested that the Agency withdraw its
identification of the Company as a PRP.
Based on an analysis of the Company's experience with such environmental
proceedings, the Company's estimated share of all hazardous materials deposited
on the 12 sites referred to in the two preceding paragraphs, and the Company's
estimate of the contribution to be made by other PRPs which the Company believes
have the financial ability to pay their shares, the Company has accrued its best
estimate of the Company's future costs relating to such known sites.
Also, the Company is involved in certain continuing groundwater clean-up
activities as required by New Jersey environmental authorities at a site used by
the Company. The Company has worked with appropriate authorities to resolve the
issues involved and has accrued its best estimate of future costs relating to
the site.
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 clean-up 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 clean-up are less than that claimed by the
government. The Company has agreed to indemnify 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 1996, the Company's net expenditures for contamination remediation were
approximately $200,000. The accrual at the end of 1996 for future remediation
expenditures was approximately $9,800,000. The Company reviews its exposure for
contamination remediation costs periodically and its accruals are adjusted as
considered appropriate. In establishing accruals, potential insurance
- 9 -
<PAGE>
reimbursements are not included. While the final resolution of these issues
could result in costs below or above current accruals and, therefore, have an
impact on the Company's consolidated financial results in a future reporting
period; the Company believes the ultimate resolution of these matters will not
have a significant effect on the Company's consolidated financial position or
liquidity or, on an on-going basis, its results of operations.
In addition, the Company has retained responsibility for certain sites where the
Company's former ChemLawn business is a PRP. Currently there are eight such
locations and, at each, ChemLawn is a de minimis party. Anticipated costs
currently accrued for these matters were included in the Company's loss from its
discontinued ChemLawn operations in 1991. The accrual remaining reflects
management's best estimate of future costs.
NUMBER OF EMPLOYEES
The Company currently has approximately 9,500 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.
POSITIONS HELD
NAME AGE OFFICE SINCE JAN. 1, 1992
- ---- --- ------ ------------------
A. L. Schuman 62 President and Chief March 1995 - Present
Executive Officer
President and Chief Aug. 1992 - Feb. 1995
Operating Officer
Executive Vice President; Jan. 1992 - July 1992
President-Ecolab
Services Group
- 10 -
<PAGE>
POSITIONS HELD
NAME AGE OFFICE SINCE JAN. 1, 1992
- ---- --- ------ ------------------
M. E. Shannon 60 Chairman of the Board, Chief Jan. 1996 - Present
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. 1992 - May 1992
and Chief Financial
Officer; President-
Residential Services
Group
G. K. Carlson 53 Senior Vice President - June 1996 - Present
Corporate Planning
and Development
Senior Vice President- Jan. 1994 - May 1996
International
Senior Vice President Jan. 1992 - Dec. 1993
and General Manager-
Institutional North
America
P. D'Almada 49 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
- 11 -
<PAGE>
POSITIONS HELD
NAME AGE OFFICE SINCE JAN. 1, 1992
- ---- --- ------ ------------------
Institutional Vice Jan. 1992 - July 1992
President - World Accounts
S. L. Fritze 42 Vice President and Mar. 1995 - Present
Treasurer
Institutional Vice Jan. 1992 - Feb. 1995
President, Planning
and Control
A. E. Henningsen, 50 Senior Vice President Mar. 1996 - Present
Jr. and Controller
Vice President and Aug. 1992 - Feb. 1996
Controller
Vice President-Finance, Jan. 1992 - July 1992
Ecolab Services Group
R. L. Marcantonio 47 Senior Vice President- Mar. 1997 - Present
Industrial
J. L. McCarty 59 Senior Vice President- Jan. 1994 - Present
Institutional North America
Vice President and General Jan. 1992 - Dec. 1993
Manager - Pest Elimination
M. Nisita 56 Senior Vice President- Jan. 1994 - Present
Global Operations
Vice President-Operations Aug. 1992 - Dec. 1993
Vice President- Jan. 1992 - July 1992
Manufacturing
W. R. Rosengren 62 Senior Vice President-Law Aug. 1992 - Present
and General Counsel
Senior Vice President- Jan. 1992 - July 1992
Law, General Counsel
and Secretary
J. P. Spooner 50 Senior Vice President- June 1996 - Present
International
Senior Vice President- June 1994 - May 1996
Industrial
- 12 -
<PAGE>
POSITIONS HELD
NAME AGE OFFICE SINCE JAN. 1, 1992
- ---- --- ------ ------------------
F. W. Tuominen, 54 Senior Vice President Aug. 1992 - Present
Ph.D. and Chief Technical and
Environmental Officer
Senior Vice President Jan. 1992 - July 1992
and Chief Technical
Officer
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.
Mr. Marcantonio joined the Company as Senior Vice President-Industrial in March
1997. Prior to joining the Company, Mr. Marcantonio was employed by Keebler
Company for over 15 years, holding various positions in sales, marketing and
management, including most recently, Senior Vice President - Cookies and
Crackers.
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 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; Avenel, New Jersey;
McDonough, Georgia; Garland, Texas; San Jose, California; Hebron, Ohio; and City
of Industry, California. Smaller plant facilities in North Kansas City,
Missouri; Charlotte, North Carolina; Huntington, Indiana; and Grand Forks, North
Dakota produce certain chemical products primarily for the Company's Textile
Care, Water Care Services, Food and Beverage and Professional Products
divisions. These facilities except for those located in Kansas City and
Charlotte are Company-owned. The Company's Kay business also owns and operates
manufacturing facilities 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; Sydney and
Melbourne, Australia; Seoul, South Korea; Mexico City, Mexico; Bangkok,
Thailand; Toronto, Canada; and Johannesburg, South Africa. 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 locations including Costa Rica; Brisbane, Australia; Singapore; Jakarta,
Indonesia and Dar es Salaam, Tanzania.
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. Dishwashing machines which are used in the Company's Ecotemp operations
are manufactured in an owned facility in Barbourville, Kentucky. The
Barbourville facility also
- 13 -
<PAGE>
produces a portion of its machines for sale to third party dishwashing machine
distributors. 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, around the world, the Company operates distribution centers, all of
which are leased, and utilizes various public warehouses to facilitate the
distribution of its products and services. In the United States, the Company's
sales associates are located in approximately 125 leased offices. 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 and is
leased through 1998. Thereafter, it is subject to multiple renewals at the
Company's option. The Company also owns a building in downtown St. Paul
adjacent to its headquarters. Recently, the Company unveiled plans for an
expansion of its downtown St. Paul headquarters. The plan includes a long-term
lease of another adjacent building and extensive renovations. The expansion is
expected, over time, to bring several hundred additional jobs to the Company's
headquarters and will include a state-of-the-art corporate employee training
center. The Company also owns a research and development facility and a
chemical pilot plant which are located in suburbs of St. Paul as well as a
computer center located in St. Paul, several blocks from the Company's
Headquarters.
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."
A legal action commenced by ten distributors of the Company's Airkem
janitorial products ("Plaintiffs") in 1995 in Minnesota State Court, Hennepin
County, remains pending. Plaintiffs allege a variety of claims, including
breach of contract, fraud, breach of Minnesota's antitrust statute and
various other State statutes. The claims center around the process under
which these distributors converted from exclusive to non-exclusive, as well
as challenges to the Company's national account program. Plaintiff's damages
claim has varied, ranging from $22,000,000 to $37,000,000. The Company has
denied liability and believes the allegations are substantially without
merit. Trial is scheduled for May, 1997. Plaintiffs' claims are not covered
by the Company's insurance.
The Company and certain of its subsidiaries are defendants in various other
lawsuits and claims arising out of the normal course of business. Accruals have
been established reflecting management's best estimate of future costs relating
to such matters and, 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.
- 14 -
<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 an unlisted basis on certain other United States exchanges. The high and low
sales prices of the Company's Common Stock on the consolidated transaction
reporting system during 1996 and 1995 were as follows:
1996 1995
--------------- --------------
Quarter High Low High Low
------- ---- --- ---- ---
First $32-5/8 $29-1/8 $24-7/8 $20
Second $33-7/8 $29-1/2 $25-1/2 $22-1/2
Third $33-3/4 $29-1/2 $28-1/8 $24-1/4
Fourth $39-1/2 $33-1/2 $31-3/4 $27-1/4
The closing stock price on March 18, 1997 was $38.00.
ITEM 5(b) HOLDERS
On March 18, 1997, the Company had 4,967 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 $0.125 per share were declared in February, May
and August, 1995. Dividends of $0.14 per share were declared in December, 1995
and February, May and August, 1996. A dividend of $0.16 per share was declared
in December 1996.
ITEM 5(d) RECENT SALES OF UNREGISTERED SECURITIES
None.
ITEM 6. SELECTED FINANCIAL DATA
The comparative data for the years ended December 31, 1996, 1995, 1994, 1993 and
1992 inclusive, which are set forth under the heading entitled "Summary
Operating and Financial Data" and which are located on pages 46 and 47 of the
Annual Report, are incorporated herein by reference.
- 15 -
<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
10 through 13.
ITEM 11. EXECUTIVE COMPENSATION
The material appearing under the heading entitled "Executive Compensation,"
located on pages 11 through 19 of the Proxy Statement, is incorporated herein by
reference. However, pursuant to Securities and Exchange Commission Regulation
S-K, Item 402(a)(9), 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 13 and
on page 17 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 20, beginning with the fifth
paragraph under the heading "Certain Transactions," which is incorporated herein
by reference.
A total of 627,967 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
- 16 -
<PAGE>
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 20 and 21 of the Proxy Statement and the
biographical material located on pages 8 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, 1996, 1995 and 1994, Annual Report page
31.
(ii) Consolidated Balance Sheet at December 31, 1996, 1995
and 1994, Annual Report page 32.
(iii) Consolidated Statement of Cash Flows for the years
ended December 31, 1996, 1995 and 1994, Annual Report
page 33.
(iv) Consolidated Statement of Shareholders' Equity for the
years ended December 31, 1996, 1995 and 1994, Annual
Report page 34.
(v) Notes to Consolidated Financial Statements, Annual
Report pages 35 through 44.
(vi) Report of Independent Accountants, Annual Report page
45.
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,
1996, 1995 and 1994 located on page 26 hereof, and the Report of
Independent Accountants on Financial Statement Schedule at page 25
hereof are filed as part of this Report.
(i) Schedule II -- Valuation and Qualifying Accounts for
the years ended December 31, 1996, 1995 and 1994.
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 27 to 48 hereof, are filed as part of this Report.
- 17 -
<PAGE>
(i) Report of Independent Accountants.
(ii) Combined Statements of Income for the years ended
November 30, 1996, 1995 and 1994.
(iii) Combined Balance Sheets at November 30, 1996, 1995 and
1994.
(iv) Combined Statements of Cash Flows for the years ended
November 30, 1996, 1995 and 1994.
(v) Combined Statements of Equity for the years ended
November 30, 1996, 1995 and 1994.
(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, 1996, 1995 and 1994 located on page 49 hereof, and
the Report of Independent Accountants on page 27 hereof are filed as
part of this Report.
(i) Schedule -- Valuation and Qualifying Accounts and
Reserves for the years ended November 30, 1996, 1995
and 1994.
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
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. The Financial Data Schedule (Exhibit 27) is filed as an
Exhibit to this Report, but pursuant to paragraph (c)(1)(iv) of Item
601 of Regulation S-K, shall not be deemed filed for purposes of
section 11 of the Securities Act of 1933 or section18 of the
Securities Exchange Act of 1934.
(3)A. Restated Certificate of Incorporation.
B. By-Laws, as amended through December 16, 1996 -
Incorporated by reference to Exhibit (3) of the
Company's Current Report on Form 8-K dated December 16,
1996.
(4)A. Common Stock - see Exhibits (3)A and (3)B.
B. Form of Common Stock Certificate - Incorporated by
reference to Exhibit (4)B of the Company's Form 10-K
Annual Report for the year ended December 31, 1995.
- 18 -
<PAGE>
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
and as of September 30, 1996, 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) of the
Company's Form 10-Q for the quarter ended September 30,
1996.
F. Indenture dated as of November 1, 1996 as amended and
supplemented, between the Company and the First
National Bank of Chicago as Trustee - Incorporated by
reference to Exhibit 4.1 of the Company's Amendment No.
1 to Form S-3 filed November 15, 1996.
G. Form of Underwriting Agreement - Incorporated by
reference to Exhibit 1 of the Company's Amendment No. 1
to Form S-3 filed November 15, 1996.
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. Ecolab Inc. 1997 Stock Incentive Plan.
D. 1988 Non-Employee Director Stock Option Plan as amended
- 19 -
<PAGE>
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.
E. 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.
F. Ecolab Inc. 1997 Non-Employee Director Deferred
Compensation Plan.
G. 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.
H. 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.
I. (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.
J. 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.
K. 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)Q hereof.
L. 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)Q hereof.
M. 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.
- 20 -
<PAGE>
N. (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)Q 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 - Incorporated
by reference to Exhibit (10)M(iii) of the
Company's Form 10-K Annual Report for the
year ended December 31, 1995.
O. (i) Ecolab Mirror Savings 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)Q hereof.
(ii) First Declaration of Amendment to Ecolab
Mirror Savings Plan effective as of January
1, 1995 - Incorporated by reference to
Exhibit (10)N(ii) of the Company's Form 10-K
Annual Report for the year ended December 31,
1995.
(iii) Second Declaration of Amendment to Ecolab
Mirror Savings Plan effective January 1,
1997.
P. (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)Q hereof.
(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 Amendment to Ecolab
Mirror Pension Plan effective as of July 1,
1994 - Incorporated by reference to Exhibit
(10)O(iii) of the Company's Form 10-K Annual
Report for the year ended December 31, 1995.
- 21 -
<PAGE>
Q. The Ecolab Inc. Administrative Document for Non-
Qualified Benefit Plans - Incorporated by reference to
Exhibit (10)P of the Company's 10-K Annual Report for
the year ended December 31, 1994.
R. 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.
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.
(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. Description of Ecolab Management Incentive Plan.
(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, 1996 which are
incorporated by reference into Parts I, II and IV hereof.
(21) List of Subsidiaries as of March 18, 1997.
(23)A. Consent of Coopers & Lybrand L.L.P. to Incorporation by
Reference at page 25 hereof is filed as a part hereof.
B. Consent of KPMG Deutsche Treuhand-Gesellschaft
Aktiengesellschaft.
(24) Powers of Attorney.
(27) Financial Data Schedule.
- 22 -
<PAGE>
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
Included in the preceding list of exhibits are the following management
contracts or compensatory plans or arrangements:
Exhibit No. Description
- ----------- -----------
(10)A. Ecolab Inc. 1977 Stock Incentive Plan.
(10)B. Ecolab Inc. 1993 Stock Incentive Plan.
(10)C. Ecolab Inc. 1997 Stock Incentive Plan.
(10)D. 1988 Non-Employee Director Stock Option Plan.
(10)E. 1995 Non-Employee Director Stock Option Plan.
(10)F. Ecolab Inc. 1997 Non-Employee Director Deferred Compensation
Plan.
(10)G. Non-Employee Director Stock-For-Retainer Plan.
(10)I. Deferred Compensation Plan for Non-Employee Directors (1984).
(10)J. Ecolab Non-Employee Directors' Retirement Plan.
(10)K. Ecolab Executive Death Benefits Plan.
(10)L. Ecolab Executive Long-Term Disability Plan.
(10)M. Ecolab Executive Financial Counseling Plan.
(10)N. Ecolab Supplemental Executive Retirement Plan.
(10)O. Ecolab Mirror Savings Plan.
(10)P. Ecolab Mirror Pension Plan.
(10)Q. The Ecolab Inc. Administrative Document for Non-Qualified Benefit
Plans.
(10)R. Ecolab Management Performance Incentive Plan.
(10)T. Ecolab Management Incentive Plan.
III. Reports on Form 8-K:
The Company filed one Current Report on Form 8-K dated December 16,
1996 for the quarter ended December 31, 1996 reporting the adoption of
an advance notice By-Law.
- 23 -
<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, 1997.
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, 1997.
/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,
James J. Howard, Joel W. Johnson,
Jerry W. Levin, Reuben F. Richards,
Richard L. Schall, Roland Schulz,
Philip L. Smith, Hugo Uyterhoeven,
and Albrecht Woeste
- 24 -
<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 page 45 of the 1996 Annual
Report to Shareholders of Ecolab Inc. In connection with our audits of such
financial statements, we have also audited the related financial statement
schedule included on page 26 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 24, 1997
CONSENT OF COOPERS & LYBRAND L.L.P. TO INCORPORATION BY REFERENCE
We consent to the incorporation by reference in the Registration Statements
of Ecolab Inc. 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; 33-59431; 333-18617;
333-18627; and 333-21167) and the Registration Statements of Ecolab Inc. on
Form S-3 (Registration No. 33-57197 and 333-14771) of our reports dated February
24, 1997 on our audits of the consolidated financial statements and the related
financial statement schedule of Ecolab Inc. as of December 31, 1996, 1995 and
1994, and for the years ended December 31, 1996, 1995 and 1994, 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" or "Incorporation of Documents by Reference" in
certain Registration Statements on Form S-8 of Ecolab Inc. (Registration Nos.
33-56101; 33-56151; 33-56125; 33-59431; 333-18617; 333-18627; and 333-21167) and
under the caption "Experts" in the Registration Statements on Form S-3 of Ecolab
Inc. (Registration Nos. 33-57197 and 333-14771).
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Saint Paul, Minnesota
March 27, 1997
- 25 -
<PAGE>
SCHEDULE II - 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 Balance at
Beginning Costs and Other End
Description of Period Expenses Accounts (A) Deductions (B) of Period
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful Accounts:
Year Ended December 31, 1996 $8,331 $4,695 $ 538 $(4,221) $9,343
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
</TABLE>
(A) Reflects foreign currency translation adjustments and the effect of
acquisitions.
(B) Uncollectible accounts charged off, net of recovery of accounts previously
written off.
- 26 -
<PAGE>
[KPMG LOGO] Deutsche-Treuhand-Gesellschaft
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.
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, 1996, 1995 and 1994, and the results of its
operations and its cash flows for the periods beginning December 1, 1995, 1994
and 1993, and ended November 30, 1996, 1995 and 1994, 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 22, 1997
KPMG Deutsche Treuhand-Gesellschaft
Aktiengesellschaft
Wirtschaftsprufungsgesellschaft
Haas Momken
Wirtschaftsprufer Wirtschaftsprufer [SEAL]
- 27 -
<PAGE>
HENKEL-ECOLAB JOINT VENTURE
INDEX TO COMBINED FINANCIAL STATEMENTS FOR THE YEARS ENDED NOVEMBER 30, 1996,
NOVEMBER 30, 1995 AND NOVEMBER 30, 1994
- --------------------------------------------------------------------------------
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
- 28 -
<PAGE>
HENKEL-ECOLAB JOINT VENTURE
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Twelve Months ended Twelve Months ended Twelve Months ended
(Thousands) November 30, 1996 November 30, 1995 November 30, 1994
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales DM 1,354,809 DM 1,308,935 DM 1,264,985
Cost of Sales 610,020 585,002 546,706
Selling, General and Administrative Expenses 620,778 624,032 600,779
Royalties to Parents 22,718 28,180 31,874
- -------------------------------------------------------------------------------------------------------------------------
Operating Income 101,293 71,721 85,626
Other Expenses/Income, principally Interest
Expense, net 4,171 7,977 6,426
Equity in Gain/(Loss) of Affiliate 320 132 (391)
- -------------------------------------------------------------------------------------------------------------------------
Income before Income Taxes 97,442 63,876 78,809
Provision for Income Taxes 45,334 31,637 36,287
- -------------------------------------------------------------------------------------------------------------------------
Net Income DM 52,108 DM 32,239 DM 42,522
-- ------ -- ------ -- ------
-- ------ -- ------ -- ------
</TABLE>
See accompanying Notes to Combined Financial Statements
- 29 -
<PAGE>
HENKEL-ECOLAB JOINT VENTURE
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
November 30, November 30, November 30,
(Thousands) 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets
Cash and Cash Equivalents DM 125,645 DM 67,272 DM 60,978
Accounts Receivable, net 284,016 269,160 260,696
Accounts Receivable from Related Parties 12,536 22,349 15,631
Loans to Related Parties 8,007 15,778 38,140
Inventories 183,192 165,604 162,414
Prepaid Expenses and Other Current Assets 34,144 23,869 22,528
Deferred Taxes 5,647 5,275 6,011
- ---------------------------------------------------------------------------------------------------------------------------
Current Assets 653,187 569,307 566,398
- ---------------------------------------------------------------------------------------------------------------------------
Investment in Affiliated Company, net 8,073 8,330 8,987
Property, Plant and Equipment, net 167,555 160,118 153,837
Intangible and Other Assets, net 32,122 31,098 26,818
Deferred Taxes 10,724 11,339 10,195
- ---------------------------------------------------------------------------------------------------------------------------
Total Assets DM 871,661 DM 780,192 DM 766,235
-- ------- -- ------- -- -------
-- ------- -- ------- -- -------
- ---------------------------------------------------------------------------------------------------------------------------
Liabilities and Equity
Current Portion of Long Term Debt DM 652 DM 712 DM 727
Short Term Debt 72,972 17,695 19,256
Loans from Related Parties 7,445 48,437 63,810
Accounts Payable 98,274 84,764 83,432
Accounts Payable to Related Parties 82,294 28,906 33,070
Accrued Liabilities 177,668 140,361 125,629
Income Taxes 36,269 37,996 41,378
- ---------------------------------------------------------------------------------------------------------------------------
Current Liabilities 475,574 358,871 367,302
- ---------------------------------------------------------------------------------------------------------------------------
Employee Benefit Obligations 106,766 94,528 84,549
Long Term Debt, less Current Maturities 5,383 5,905 6,521
Deferred Taxes 3,612 2,489 2,705
- ---------------------------------------------------------------------------------------------------------------------------
Combined Equity 280,326 318,399 305,158
- ---------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Equity DM 871,661 DM 780,192 DM 766,235
-- ------- -- ------- -- -------
-- ------- -- ------- -- -------
</TABLE>
See accompanying Notes to Combined Financial Statements
- 30 -
<PAGE>
HENKEL-ECOLAB JOINT VENTURE
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Twelve Months ended Twelve Months ended Twelve Months ended
(Thousands) November, 30 1996 November, 30 1995 November, 30 1994
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET INCOME DM 52,108 DM 32,239 DM 42,522
ADJUSTMENTS TO RECONCILE NET INCOME TO CASH
PROVIDED BY OPERATING ACTIVITIES
Depreciation and Amortization 59,880 54,153 45,208
Equity in Gain/Loss of Affiliated Company 320 (132) 391
Provision for Doubtful Accounts and Other 1,477 791 1,032
Gain on Sale of Property and Equipment (1,580) (1,075) (762)
Deferred Income Taxes 1,366 (624) (1,993)
CHANGES IN OPERATING ASSETS AND LIABILITIES
(Increase) / Decrease in Accounts Receivable (16,333) (9,255) 4,571
Decrease / (Increase) in Due from Related Parties 9,813 (6,718) 18,286
(Increase) in Inventories (17,588) (3,190) (9,426)
Increase in Accounts Payable and Accrued Liabilities 50,817 16,064 25,524
Increase / (Decrease) in Due to Related Parties (7,412) (4,164) (1,949)
Increase / (Decrease) in Income Taxes Payable (1,727) (3,382) 13,216
(Increase) in Other Current Assets (10,275) (1,341) (2,440)
Increase in Employee Benefit Obligations 12,238 9,979 13,157
---------------- ---------------- ----------------
Cash Provided by Operating Activities 133,104 83,345 147,337
---------------- ---------------- ----------------
INVESTING ACTIVITIES
Expenditures for Property and Equipment (69,942) (63,024) (48,237)
Expenditures for Intangible and Other Assets (10,920) (11,825) (13,900)
Proceeds from Sale of Property and Equipment 21,444 8,070 5,045
Decrease / (Increase) in Loans to Related Parties 7,771 22,362 (25,843)
---------------- ---------------- ----------------
Cash Used for Investing Activities (51,647) (44,417) (82,935)
---------------- ---------------- ----------------
FINANCING ACTIVITIES
Proceeds from / (Repayments of) Bank Debt, net 54,695 (2,192) (26,887)
(Decrease) in Loans from Related Parties (40,992) (15,373) (12,100)
Dividends paid (33,245) (17,063) (1,411)
---------------- ---------------- ----------------
Cash Used for Financing Activities (19,542) (34,628) (40,398)
---------------- ---------------- ----------------
EFFECT OF EXCHANGE RATE CHANGES ON NET CASH (3,542) 1,994 (4,077)
---------------- ---------------- ----------------
INCREASE IN CASH AND CASH EQUIVALENTS 58,373 6,294 19,927
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 67,272 60,978 41,051
---------------- ---------------- ----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD DM 125,645 DM 67,272 DM 60,978
---------------- ---------------- ----------------
---------------- ---------------- ----------------
</TABLE>
See accompanying Notes to Combined Financial Statements
- 31 -
<PAGE>
HENKEL-ECOLAB JOINT VENTURE
COMBINED STATEMENTS OF EQUITY
(Thousands)
Contributed Retained Cumulative
Capital Earnings Foreign Total
Currency
Translation
---------------------------------------------------------
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
Net Income 52,108 52,108
Dividends (45,045) (45,045)
Equity Withdrawals (49,000) (49,000)
Translation 3,864 3,864
Adjustment
---------------------------------------------------------
Balance
November 30, 1996 DM 162,704 137,068 (19,446) 280,326
- ------------------------- ------- ------- -------- -------
- ------------------------- ------- ------- -------- -------
See accompanying Notes to Combined Financial Statements
- 32 -
<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.
- 33 -
<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 4,479 in
1996, TDM 3,494 in 1995 and TDM 3,877 in 1994.
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 this 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 3,948 at
November 30, 1996, TDM 4,696 at November 30, 1995 and TDM 5,444 at November 30,
1994. The market value of the investment cannot be determined.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at original cost. Merchandise
equipment consists primarily of various systems for dispensing cleaning and
sanitizing products. Depreciation and amortization are charged to operations
using the straight-line and declining balance methods over the following
estimated useful lives:
Buildings and improvements 8 to 40 years
Machinery and equipment 3 to 20 years
Furniture, fixtures and equipment 3 to 16 years
Leasehold improvements are amortized over a period which is the lesser of the
useful life of the asset or the remaining term of the associated lease.
Betterments, renewals and extraordinary repairs that extend the life of the
asset are capitalized; other repairs and maintenance are expensed. The cost and
accumulated depreciation applicable to the assets retired are removed from the
accounts and any gain or loss credited or charged to income.
- 34 -
<PAGE>
INTANGIBLE ASSETS
Intangible assets primarily consist of amounts by which cost of acquisitions
exceeded the values assigned to net tangible assets. These assets are amortized
over their estimated lives, periods from 3 to 15 years. Total amortization of
all intangible assets amounted to TDM 12,588 in 1996, TDM 7,469 in 1995 and TDM
6,407 in 1994.
USE OF ESTIMATES
The preparation of financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, as
well as disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results may differ from those estimates.
- 35 -
<PAGE>
HENKEL-ECOLAB JOINT VENTURE
2. BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
(Thousands) November 30, November 30, November 30,
1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ACCOUNTS RECEIVABLE, NET
Accounts Receivable, Trade DM 300,215 DM 283,434 DM 274,179
Allowance for Doubtful Accounts 16,199 14,274 13,483
-----------------------------------------------------------------
DM 284,016 DM 269,160 DM 260,696
------- ------- -------
------- ------- -------
INVENTORIES
Raw Materials DM 39,097 DM 41,646 DM 36,777
Work in Process 10,673 10,773 10,180
Finished Goods 133,422 113,185 115,457
-----------------------------------------------------------------
Total DM 183,192 DM 165,604 DM 162,414
------- ------- -------
------- ------- -------
PROPERTY, PLANT AND EQUIPMENT, NET
Land DM 6,316 DM 6,273 DM 6,164
Buildings and Improvements 73,487 75,122 68,060
Machinery and Equipment 126,852 112,230 106,629
Merchandising Equipment, Furniture and Fixtures 199,073 199,713 172,510
Construction in Progress 3,828 3,204 2,086
-----------------------------------------------------------------
409,556 396,542 355,449
Accumulated Depreciation and Amortization 242,001 236,424 201,612
Total DM 167,555 DM 160,118 DM 153,837
------- ------- -------
------- ------- -------
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 20,578 16,469 13,500
Other Intangible Assets, including Capitalized
Computer Software 32,322 19,542 10,811
-----------------------------------------------------------------
73,841 56,952 45,252
Accumulated Depreciation 42,032 27,367 21,454
-----------------------------------------------------------------
Total Intangible Assets, net 31,809 29,585 23,798
Other Assets, net 313 1,513 3,020
-----------------------------------------------------------------
Total DM 32,122 DM 31,098 DM 26,818
------ ------ ------
------ ------ ------
</TABLE>
- 36 -
<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 indu-strial 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 232,581 in 1996, TDM 239,819
in 1995 and TDM 259,882 in 1994.
Henkel also with a declining degree 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 14,228 in 1996, TDM 20,365 in 1995 and TDM 20,326 in
1994.
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 22,718 in 1996, TDM 28,180 in 1995 and TDM
31,874 in 1994.
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 4.5 % per November 30, 1996 and 4.0 % for 3 month short
term German Marks loans per November 30, 1996); on overdrafts, approximately
between 1.0 - 1.5 percentage point is paid to compensate Henkel for
administration costs.
- 37 -
<PAGE>
At November 30, 1996 the Joint Venture had borrowed TDM 7,445, from Henkel Group
Companies, TDM 48,437 in 1995 and TDM 63,810 in 1994. The loans receivable from
Henkel Group Companies had totalled TDM 8,007 in 1996, TDM 15,778 in 1995 and
TDM 38,140 in 1994. The fair values of intercompany loans receivable and payable
approximate book value.
Interest expense to related companies totalled TDM 1,463 in the year ended
November 30, 1996, TDM 6,235 in 1995 and TDM 6,204 in 1994. Interest income from
related companies amounted to TDM 1,180 for the year ended November 30, 1996,
TDM 3,251 in 1995 and TDM 1,989 in 1994.
- 38 -
<PAGE>
4. INCOME TAXES
The provision for income taxes totalled TDM 45,334, compared to November 30,
1995 TDM 31,637 and November 30, 1994 TDM 36,287. The net deferred taxes
included in the provision for income taxes for 1996 were TDM 1,366 debit, for
1995 TDM 624 credit and for 1994 TDM 1,993 credit.
The components of the Joint Venture's overall net deferred tax asset at November
30, 1996, at November 30, 1995 and at November 30, 1994 are as follows:
Deferred tax assets: November November November
30, 1996 30, 1995 30, 1994
-------- -------- --------
TDM TDM TDM
Goodwill amortization 0 642 2,213
Tax loss carryforwards 9,576 7,894 5,614
Accruals, not permitted for
tax purposes 3,612 3,355 2,921
Inventory valuation 2,530 1,847 1,345
Pension provision, not deductible 7,024 4,926 4,746
Intangible assets (other than
goodwill) amortization 1,663 1,535 2,024
Fixed assets 2,692 5,203 4,853
Other 1,605 1,516 3,275
------------------------------------
Total gross deferred tax assets 28,702 26,918 26,991
Valuation allowance (10,387) (7,665) (8,023)
-------------------------------------
Total deferred tax assets 18,315 19,521 18,968
------------------------------------
Deferred tax liabilities:
Depreciation on tangible assets (3,995) (3,555) (3,547)
Other (1,561) (1,573) (1,920)
-------------------------------------
Total deferred tax liabilities (5,556) (5,128) (5,467)
-------------------------------------
Net deferred tax asset 12,759 14,125 13,501
------------------------------------
------------------------------------
At November 30, 1996, the Joint Venture had net foreign operating loss
carryforwards for tax purposes of approximately TDM 27,535 compared to November
30, 1995 TDM 25,163 and compared to November 30, 1994 TDM 17,847. A significant
portion of these losses have an indefinite carryforward period; the remaining
losses have expiration dates up to five years.
- 39 -
<PAGE>
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,
1996.
A reconciliation of the statutory German trade tax and federal corporate income
tax rate to the effective income tax rate was:
1996 1995 1994
---- ---- ----
Statutory German rate 44.4% 44.4% 44.4%
Other European rates (8.0) (7.5) (6.6)
Losses and deferred items
without offsetting tax benefits 1.9 5.8 3.6
Provision for taxes arising
from tax examination 4.9 5.9 0.0
Different tax base in Germany 1.4 0.5 3.8
Deferred taxes refundable to
parent 0.6 3.8 3.1
Other (1.3) (3.4) (2.3)
----- ----- -----
Effective income tax rate 46.5% 49.5% 46.0%
----- ----- -----
----- ----- -----
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.
In 1996, the tax payments were TDM 19,128, in 1995 TDM 24,503 and in 1994 TDM
21,368.
- 40 -
<PAGE>
5. RETIREMENT PLANS
The Joint Venture's German entities have noncontributory defined benefit pension
plans to provide pension benefits to substantially all eligible employees.
Employees of countries outside of Germany participate in various local plans,
principally contributory plans.
Benefits for the German plans are based upon salary and years of service. The
funding of these pension plans is not a common practice as funding provides no
economic (tax) benefit.
A summary of all the components of net periodic pension cost concerning the
plans in Germany, Belgium, the Netherlands, Great Britain and Austria for the
twelve months ended November 30, 1996, 1995 and 1994 follows (TDM):
1996 1995 1994
Service cost-employee benefits 7,131 6,876 6,570
Interest cost 9,109 8,256 7,709
Net amortization and deferral (3,385) (2,934) (2,873)
------- ------ ------
Total pension expense 12,855 12,198 11,106
------ ------ ------
------ ------ ------
The status of the above employee pension benefit plans at November 30, 1996,
1995 and 1994 is summarized below (TDM):
Actuarial present value of: 1996 1995 1994
Vested benefit obligation 105,068 94,350 74,684
Non-vested accumulated
benefit obligation 9,513 8,957 7,346
------- ------- -------
Accumulated benefit obligation 114,581 103,307 82,030
------- ------- -------
------- ------- -------
Projected benefit obligation 138,189 126,351 104,470
Fair value of plan assets 45,839 41,855 36,575
------- ------- -------
Funded status 92,350 84,496 67,895
Unrecognized net transition
obligation 4,709 5,190 5,127
Unrecognized net (gain)/loss 4,175 5,252 (3,503)
------- ------- -------
Unfunded accrued pension cost 83,466 74,054 66,271
------- ------- -------
------- ------- -------
- 41 -
<PAGE>
The following assumptions have been used to develop net periodic pension expense
and the actuarial present value of projected benefit obligations:
1996 1995 1994
Assumed discount rate 7.0- 5.0 % 7.0- 5.0 % 7.5- 5.0 %
Expected return on plan 7,0-10,0 % 7,0-10,0 % 7,0-10,0 %
assets
Rate of increase in future
compensation levels 5.0- 3.0 % 5.0- 3.0 % 5.0- 3.0 %
Other Joint Venture-specific savings plans, post-retirement and post-employment
benefit plans requiring contribution by the Joint Venture are not material.
- 42 -
<PAGE>
6. TOTAL INDEBTEDNESS
Short Term Debt
As of November 30, 1996 short term debt totalled TDM 72,972 compared to
November 30, 1995 TDM 17,695 and compared to November 30, 1994 TDM 19,256,
generally in overdraft facilities with interest rates based on local money
market rates. As of November 30, 1996 the three main balances are in Italian
Lira in the equivalent amount of TDM 56,871 at an interest rate of 8.222 %
p.a., in French Franc in the equivalent amount of TDM 9,409 at an interest
rate of 5.0% p.a. and in Belgium Franc in the equivalent amount of TDM 3,397
at an interest rate of 3.2 % p.a..
Long Term Debt
1996 1995 1994
----- ----- -----
TDM TDM TDM
Notes 6,035 6,617 7,248
Less current maturities 652 712 727
----- ----- -----
Total 5,383 5,905 6,521
----- ----- -----
----- ----- -----
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, 1996, the aggregate annual
maturities of long term debt for the next five years were:
1997 - TDM 652 1998 - TDM 652
1999 - TDM 652 2000 - TDM 165
2001 - TDM 3,914
Interest expense related to all debt was TDM 4,133 in 1996, compared to November
30, 1995 TDM 4,329 and compared to November 30, 1994 TDM 4,584. No significant
differences existed between interest expense and interest paid.
The fair value of short and long term debt approximates the book value.
- 43 -
<PAGE>
7. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
The Joint Venture operates internationally, giving rise to exposure to market
risks from changes in interest rates and foreign exchange rates. Derivative
financial instruments are utilized by the Joint Venture to reduce certain of
these risks, as explained in this note. The Joint Venture does not hold or issue
financial instruments for trading purposes. The Joint Venture is exposed to
credit-related losses in the event of nonperformance by counterparties to
financial instruments, but it does not expect any counterparties to fail to meet
their obligations given their high credit ratings.
a) Notional Amounts and Credit Exposures of Derivatives
The notional amounts of derivatives summarized in section b) do not represent
amounts exchanged by the parties and, thus, are not a measure of the exposure of
the Joint Venture through its use of derivatives. The amounts exchanged are
calculated on the basis of the notional amounts and the other terms of the
derivatives, which relate to exchange rates.
b) Foreign Exchange Risk Management
The Joint Venture enters into various types of foreign exchange contracts in
managing its foreign exchange risk, as indicated in
the following table (TDM):
November 30,1996 November 30,1995
---------------- ----------------
Notional Credit Notional Credit
Amount Exposure Amount Exposure
------ -------- ------ --------
Forwards 17,562 0 36,105 0
Options purchased 0 0 0 0
- - - -
17,562 0 36,105 0
------ - ------ -
------ - ------ -
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.
- 44 -
<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):
1996 1995
-------------- -------------
Buy Sell Buy Sell
Italian Lira/US-Dollar 0 0 9,759 9,936
Belgium Franc/Dutch Guilders 0 0 4,866 4,865
Pound Sterling 9,196 9,336 4,840 4,792
US-Dollar 0 0 4,120 4,224
Finmark/Swedish Krona 2,291 2,287 2,641 2,531
Danish Krona 0 0 2,574 2,582
Swiss Franc 0 0 2,449 2,462
Greek Drachme/French Franc 0 0 2,024 2,060
Irish Pound 3,262 3,319 1,434 1,441
Portuguese Escudo 0 0 864 874
Finmark 0 0 331 336
Norwegian Krona 0 0 203 204
Pound Sterling/Belgium Franc 2,439 2,515 0 0
Swedish Krona/Danish Krona 374 387 0 0
--------------- --------------
17,562 17,836 36,105 36,307
------ ------ ------ ------
------ ------ ------ ------
c) Fair Value of Off Balance Sheet Financial Instruments
The fair value of off balance sheet financial instruments is not significant.
- 45 -
<PAGE>
8. RESEARCH EXPENDITURES
Research expenditures which relate to the development of new products and
processes, including significant improvements and refinements to existing
products, were DM 31.8 million in 1996, DM 33.0 million in 1995 and DM 34.1
million in 1994.
- 46 -
<PAGE>
9. COMMITMENTS AND CONTINGENCIES
The Joint Venture has a number of operating lease agreements primarily involving
motor vehicles, computer and other office equipment. The following is a schedule
by year of the future minimum lease payments required under the operating leases
that have initial or remaining noncancellable lease terms in excess of one year
as of November 30, 1996 (TDM):
1997 16,089
1998 11,591
1999 7,433
2000 4,764
2001 4,128
thereafter 7,802
------
Total 51,807
------
------
Rent expense for the twelve month period ended November 30, 1996, was
approximately TDM 18,503, compared to November 30, 1995 approximately TDM 17,790
and compared to November 30, 1994 approximately TDM 16,372.
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.
- 47 -
<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
1996, 1995 and 1994, and there were no significant accounts receivable from a
single customer at November 30, 1996, 1995 and 1994. The Joint Venture
establishes an allowance for doubtful accounts based upon factors surrounding
the credit risk of specific customers, historical trends and other information.
- 48 -
<PAGE>
HENKEL-ECOLAB JOINT VENTURE
Schedule - Valuation and Qualifying Accounts and Reserves
(Thousands)
- --------------------------------------------------------------------------------
Description Balance, Additions Deductions Balance,
Beg. of (a) from Close of
Period Reserve Period
(b)
- --------------------------------------------------------------------------------
Period Ended
November 30, 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
=======================================================
Period Ended
November 30, 1996
Allowance for DM 14,274 5,439 3,514 16,199
doubtful
Accounts
-------------------------------------------------------
DM 14,274 5,439 3,514 16,199
=======================================================
(a) Provision for doubtful accounts
(charged to expenses)
(b) Items determined to be uncollectible,
less recovery of amounts previously written off.
- 49 -
<PAGE>
EXHIBIT INDEX
The following documents are filed as exhibits to this Report.
<TABLE>
<CAPTION>
METHOD OF
EXHIBIT NO. DOCUMENT FILING
- ----------- -------- ---------
<S> <C> <C>
(3)A. Restated Certificate of Incorporation. Filed herewith electronically.
B. By-Laws, as amended through December Incorporated by reference to
16, 1996. Exhibit (3) of the Company's
Current Report on Form 8-K
dated December 16, 1996.
(4)A. Common Stock. See Exhibits (3)A and (3)B.
B. Form of Common Stock Certificate. Incorporated by reference to
Exhibit (4) of the Company's
Form 10-K Annual Report for
the year ended December 31,
1995.
C. Rights Agreement dated as of February 24, Incorporated by reference to
1996. 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 Incorporated by reference to
relating to $100,000,000 9.68% Senior Exhibit (4)F of the Company's
Notes Due October 1, 2001 between the Form 10-K Annual Report for
Company and the insurance companies the year ended December 31,
named therein. 1991.
E. Multicurrency Credit Agreement dated as of Incorporated by reference to
September 29, 1993, as Amended and Exhibit (4) of the Company's
Restated as of January 1, 1995 and as of Form 10-Q for the quarter
September 30, 1996, among the Company, ended September 30, 1996.
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.
F. Indenture dated as of November 1, 1996 as Incorporated by reference to
amended and supplemented, between the Exhibit 4.1 of the Company's
Company and the First National Bank of Amendment No. 1 to Form S-
Chicago as Trustee. 3 filed November 15, 1996.
- 50 -
<PAGE>
METHOD OF
EXHIBIT NO. DOCUMENT FILING
- ----------- -------- ---------
G. Form of Underwriting Agreement. Incorporated by reference to
Exhibit 1 of the Company's
Amendment No. 1 to Form S-
3 filed November 15, 1996
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 See Exhibit (10)S(iv) hereof.
Agreement.
(10)A. Ecolab Inc. 1977 Stock Incentive Plan, as Incorporated by reference to
amended through May 10, 1991. 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. Ecolab Inc. 1997 Stock Incentive Plan. Filed herewith electronically.
D. 1988 Non-Employee Director Stock Option Incorporated by reference to
Plan as amended through February 23, Exhibit (10)D of the
1991. Company's Form 10-K
Annual Report for the year
ended December 31, 1990.
E. 1995 Non-Employee Director Stock Option Incorporated by reference to
Plan. Exhibit (10)D of the
Company's Form 10-K
Annual Report for the year
ended December 31, 1994.
F. Ecolab Inc. 1997 Non-Employee Director Filed herewith electronically.
Deferred Compensation Plan.
- 51 -
<PAGE>
METHOD OF
EXHIBIT NO. DOCUMENT FILING
- ----------- -------- ---------
G. Non-Employee Director Stock-For-Retainer Incorporated by reference to
Plan. Exhibit (10)E of the
Company's Form 10-K
Annual Report for the year
ended December 31, 1991.
H. Form of Director Indemnification Incorporated by reference to
Agreement dated August 11, 1989. Exhibit (19)A of the
Substantially identical agreements are in Company's Form 10-Q for the
effect as to each director of the Company. quarter ended September 30,
1989.
I.(i) Deferred Compensation Plan for Incorporated by reference to
Non-Employee Directors (1984). 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 Incorporated by reference to
Compensation Plan for Non-Employee Exhibit (10)G(ii) of the
Directors (1984) effective December 13, Company's Form 10-K
1991. Annual Report for the year
ended December 31, 1991.
J. Ecolab Non-Employee Directors' Retirement Incorporated by reference to
Plan. Exhibit (10)I of the
Company's Form 10-K
Annual Report for the year
ended December 31, 1991.
K. Ecolab Executive Death Benefits Plan, as Incorporated by reference to
amended and restated effective March 1, Exhibit (10)J of the
1994. Company's 10-K Annual
Report for the year ended
December 31, 1994. See also
Exhibit (10)Q hereof.
L. Ecolab Executive Long-Term Disability Incorporated by reference to
Plan, as amended and restated effective Exhibit (10)K of the
January 1, 1994. Company's 10-K Annual
Report for the year ended
December 31, 1994. See also
Exhibit (10)Q hereof.
- 52 -
<PAGE>
METHOD OF
EXHIBIT NO. DOCUMENT FILING
- ----------- -------- ----------
M. Ecolab Executive Financial Counseling Incorporated by reference to
Plan. Exhibit (10)K of the
Company's Form 10-K
Annual Report for the year
ended December 31, 1992.
N.(i) Ecolab Supplemental Executive Retirement Incorporated by reference to
Plan, as amended and restated effective Exhibit (10)M(i) of the
July 1, 1994. Company's 10-K Annual
Report for the year ended
December 31, 1994. See also
Exhibit (10)Q hereof.
(ii) First Declaration of Amendment to Ecolab Incorporated by reference to
Supplemental Executive Retirement Plan Exhibit (10)M(ii) of the
effective as of July 1, 1994. Company's 10-K Annual
Report for the year ended
December 31, 1994.
(iii) Second Declaration of Amendment to Incorporated by reference to
Ecolab Supplemental Executive Retirement Exhibit (10)M(iii) of the
Plan effective as of July 1, 1994. Company's Form 10-K
Annual Report for the year
ended December 31, 1995
O.(i) Ecolab Mirror Savings Plan as amended and Incorporated by reference to
restated effective September 1, 1994. Exhibit (10)N of the
Company's 10-K Annual
Report for the year ended
December 31, 1994. See also
Exhibit (10)Q hereof.
(ii) First Declaration of Amendment to Ecolab Incorporated by reference to
Mirror Savings Plan effective as of January Exhibit (10)N(ii) of the
1, 1995. Company's Form 10-K
Annual Report for the year
ended December 31, 1995.
(iii) Second Declaration of Amendment to Filed herewith electronically.
Ecolab Mirror Savings Plan effective
January 1, 1997
P.(i) Ecolab Mirror Pension Plan effective July 1, Incorporated by reference to
1994. 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)Q hereof.
- 53 -
<PAGE>
METHOD OF
EXHIBIT NO. DOCUMENT FILING
- ----------- -------- ---------
(ii) First Declaration of Amendment to Ecolab Incorporated by reference to
Mirror Pension Plan effective as of July 1, Exhibit (10)O(ii) of the
1994. Company's Annual Report on
Form 10-K for the year ended
December 31, 1994.
(iii) Second Declaration of Amendment to Incorporated by reference to
Ecolab Mirror Pension Plan effective as Exhibit (10)O(iii) of the
of July 1, 1994. Company's Form 10-K
Annual Report for the year
ended December 31, 1995.
Q. The Ecolab Inc. Administrative Document Incorporated by reference to
for Non-Qualified Benefit Plans. Exhibit (10)P of the
Company's 10-K Annual
Report for the year ended
December 31, 1994.
R. Ecolab Management Performance Incentive Incorporated by reference to
Plan. Exhibit (10)N of the
Company's Form 10-K
Annual Report for the year
ended December 31, 1993.
S.(i) Amended and Restated Umbrella Agreement Incorporated by reference to
between Henkel KGaA and Ecolab Inc. Exhibit 13 of HC
dated June 26, 1991. Investments, Inc.'s and
Henkel KGaA's Amendment
No. 4 to Schedule 13D dated
July 16, 1991.
(ii) Amended and Restated Joint Venture Incorporated by reference to
Agreement between Henkel KGaA and Exhibit 14 of HC
Ecolab Inc. dated June 26, 1991. Investments, Inc.'s and
Henkel KGaA's Amendment
No. 4 to Schedule 13D dated
July 16, 1991.
(iii) Amended and Restated ROW Purchase Incorporated by reference to
Agreement between Henkel KGaA and Exhibit (7) of the Company's
Ecolab Inc. dated June 26, 1991. Current Report on Form 8-K
dated July 11, 1991.
- 54 -
<PAGE>
METHOD OF
EXHIBIT NO. DOCUMENT FILING
- ----------- -------- ---------
(iv) Amended and Restated Stockholder's Incorporated by reference to
Agreement between Henkel KGaA and Exhibit 15 of HC
Ecolab Inc. dated June 26, 1991. Investments, Inc.'s and
Henkel KGaA's Amendment
No. 4 to Schedule 13D dated
July 16, 1991.
T. Description of Ecolab Management Filed herewith electronically.
Incentive Plan.
(11) Computation of Primary and Fully Diluted Filed herewith electronically.
Earnings Per Share.
(13) Those portions of the Company's Annual Filed herewith electronically.
Report to Stockholders for the year ended
December 31, 1996 which are incorporated
by reference into Parts I, II and IV hereof.
(21) List of Subsidiaries as of March 18, 1997. Filed herewith electronically.
(23)A. Consent of Coopers & Lybrand L.L.P. to Filed at page 25 hereof.
Incorporation by Reference.
B. Consent of KPMG Deutsche Treuhand- Filed herewith electronically.
Gesellschaft Aktiengesellschaft.
(24) Powers of Attorney. Filed herewith electronically.
(27) Financial Data Schedule. Filed herewith electronically.
COVER Cover Letter. Filed herewith electronically.
- 55 -
</TABLE>
<PAGE>
RESTATED CERTIFICATE OF INCORPORATION
OF
ECOLAB INC.
(Originally incorporated as
Economics Laboratory, Inc. on
February 18, 1924)
ARTICLE I
The name of the Corporation is ECOLAB INC.
ARTICLE II
The purposes of the Corporation are to engage in any lawful act or activity for
which corporations may be organized under the General Corporation Law of
Delaware, and without limiting the foregoing, to hold shares of the capital
stock of other corporations and to engage in services of all kinds, and produce,
manufacture, develop, construct, transport, buy, hold, sell and generally deal
in products, materials and property, both tangible and intangible.
ARTICLE III
The total number of shares of all classes of capital stock which the Corporation
shall have authority to issue is one hundred fifteen million (115,000,000)
consisting of one hundred million (100,000,000) shares of Common Stock of the
par value of One Dollar ($1.00) per share and fifteen million (15,000,000)
shares of Preferred Stock without par value. The number of authorized shares of
any class of capital stock may be increased or decreased by the affirmative vote
of the holders of a majority of capital stock of the Corporation entitled to
vote.
The Board of Directors of the Corporation is granted full and complete authority
to fix by resolution or resolutions the designation, and the powers, preferences
and rights of the Preferred Stock and any series thereof, and the
qualifications, limitations or restrictions on such powers, preferences and
rights.
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
A series of Preferred Stock of the Corporation is hereby created and the
designation, amount thereof and the working powers, preferences and
relative, participating, optional and other special rights of the shares of
such series, and the qualifications, limitations or restrictions thereof
are 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
<PAGE>
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 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
2
<PAGE>
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 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
3
<PAGE>
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 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
4
<PAGE>
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
(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
5
<PAGE>
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 canceled 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.
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.
6
<PAGE>
(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 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
7
<PAGE>
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.
No stockholder shall have any preemptive right to subscribe to an additional
issue of capital stock or to any security convertible into such capital stock.
ARTICLE IV
The business and affairs of the Corporation shall be managed by or under the
direction of a Board of Directors. Except to the extent prohibited by law, the
Board of Directors shall have the right (which, to the extent exercised, shall
be exclusive) to establish the rights, powers, duties, rules and procedures (a)
that from time to time shall govern the Board of Directors and each of its
members including without limitation the vote required for any action by the
Board of Directors, and (b) that from time to time shall affect the directors'
power to manage and direct the business and affairs of the Corporation; and
Article V notwithstanding, no By-Law shall be adopted by the stockholders of the
Corporation which shall impair or impede the implementation of the foregoing.
The Board of Directors shall consist of a number of directors, which number
shall be determined from time to time exclusively by the Board of Directors
pursuant to a resolution adopted by affirmative vote of a majority of the entire
Board of Directors. The directors shall be divided into three classes as nearly
equal in number as possible, designated Class I, Class II and Class III. At the
1983 annual meeting of stockholders, Class I directors shall be elected for a
term expiring at the 1984 annual meeting of stockholders, Class II directors
shall be elected for a term expiring at the 1985 annual meeting of stockholders,
and Class III directors shall be elected for a term expiring at the 1986 annual
meeting of stockholders. At each annual meeting of stockholders following such
initial classification and election, directors elected to succeed those
directors whose terms expire shall be elected for a term of office to expire at
the third succeeding annual meeting of stockholders after their election.
Notwithstanding the foregoing, whenever the holders of any one or more classes
or series of Preferred Stock shall have the right, voting separately by class or
series, to elect directors at an annual or special meeting of stockholders, the
election, term of office, filling of vacancies and other features of such
directorships shall be governed by the terms of the applicable designation of
the powers, preferences and rights made pursuant to Article III, and such
directors so elected shall not be divided into classes pursuant to this Article
IV unless expressly provided by such terms.
Subject to the rights of the holders of any class or series of the then
outstanding capital stock of the Corporation entitled to vote generally in the
election of directors, newly created directorships resulting from any increase
in the authorized number of directors or any vacancies in the Board of Directors
resulting from death, resignation, retirement, disqualification, removal from
office or other cause may be filled only by a majority vote of the directors
then in office, though less than a quorum, and directors so chosen shall hold
office for a term expiring at the annual meeting of stockholders at which the
term of office of the class to which they have been elected expires. No
decrease in the number of authorized directors constituting the entire Board of
Directors shall shorten the term of any incumbent director. Subject to the
rights of the holders of any class or series of the capital stock then
8
<PAGE>
outstanding, any director, or the entire Board of Directors, may be removed from
office at any time, but only for cause.
No director of the Corporation shall be personally liable to the Corporation or
its stockholders for monetary damages for breach of fiduciary duty by such
director as a director; provided, however, that this Article IV shall not
eliminate or limit the liability of a director to the extent provided by
applicable law (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the General Corporation Law of Delaware, or (iv) for any
transaction from which the director derived an improper personal benefit. No
amendment to or repeal of this Article IV shall apply to, or have any effect on,
the liability or alleged liability of any director of the Corporation for or
with respect to any acts or omissions of such director occurring prior to such
amendment or repeal.
ARTICLE V
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 the By-Laws of the Corporation,
as permitted by law, subject to the power of the stockholders to change or
repeal such By-Laws.
ARTICLE VI
A. (1) In addition to any affirmative vote required by law or the
Certificate of Incorporation or By-Laws of the Corporation, and except as
otherwise expressly provided in paragraph B of this Article VI
(a) any merger or consolidation of the Corporation or any
Subsidiary (as hereinafter defined) with (i) any Interested
Stockholder (as hereinafter defined) or (ii) any other corporation
(whether or not itself an Interested Stockholder) which is, or after
such merger or consolidation would be, an Affiliate (as hereinafter
defined) of an Interested Stockholder; or
(b) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of transactions) to
or with any Interested Stockholder or any Affiliate of any Interested
Stockholder involving any assets or securities of the Corporation, any
Subsidiary or any Interested Stockholder or any Affiliate of any
Interested Stockholder, having an aggregate Fair Market Value (as
hereinafter defined) of $10,000,000 or more; or
(c) the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation proposed by or on behalf of an
Interested Stockholder or any Affiliate of any Interested Stockholder;
or
(d) any reclassification of securities (including any reverse
stock split), or recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any of its Subsidiaries or any
other transaction (whether or not with or otherwise involving an
Interested Stockholder) which has the effect, directly or indirectly,
of increasing the proportionate share of any class of equity or
convertible securities of the Corporation or any Subsidiary which is
directly or indirectly beneficially owned
9
<PAGE>
by any Interested Stockholder or any Affiliate of any Interested
Stockholder; or
(e) any agreement, contract or other arrangement providing for
any one or more of the actions specified in clauses (a) to (d) of this
subparagraph (1), shall require the affirmative vote of at least
eighty percent (80%) of the voting power of all of the then
outstanding shares of the Voting Stock (as hereinafter defined) voting
together as a single class (it being understood that, for purposes of
this Article VI, each share of the Preference Stock (as hereinafter
defined) which is Voting Stock shall have the number of votes granted
to it pursuant to the applicable Preferred Stock Designation (as
hereinafter defined) or Article III of this Certificate of
Incorporation). Such affirmative vote shall be required
notwithstanding the fact that no vote may be required, or that a
lesser percentage may be specified, by law or in any agreement with
any national securities exchange or otherwise.
(2) The term "Business Combination" as used in this Article VI shall
mean any transaction which is referred to in any one or more of clauses
(a) through (e) of subparagraph (1) of paragraph A.
B. The provisions of paragraph A of this Article VI shall not be
applicable to any particular Business Combination, and such Business Combination
shall require only such affirmative vote, if any, as is required by law and any
other provision of the Certificate of Incorporation or the By-Laws of the
Corporation, if all of the conditions specified in either of the following
subparagraphs (1) or (2) are met:
(1) The Business Combination shall have been approved (whether such
approval is made prior to or subsequent to the acquisition of beneficial
ownership of the Voting Stock which caused the Interested Stockholder to
become an Interested Stockholder) by a majority of the Continuing Directors
(as hereinafter defined).
(2) All of the following conditions shall have been met:
(a) The consideration to be received by holders of a particular
class of outstanding Voting Stock shall be in cash or in the same form
as previously paid by or on behalf of the Interested Stockholder in
connection with its direct or indirect acquisition of beneficial
ownership of shares of such class of Voting Stock. If the
consideration so paid for shares of any class of Voting Stock varied
as to form, the form of consideration for such class of Voting Stock
shall be either cash or the form used to acquire beneficial ownership
of the largest number of shares of such class of Voting Stock
previously acquired by the Interested Stockholder.
(b) The aggregate amount of (x) cash and (y) the Fair Market
Value as of the date of the consummation of the Business Combination
of consideration other than cash to be received per share by holders
of Common Stock in such Business Combination shall be at least equal
to the higher amount determined under subclauses (i) and (ii) below:
(i) (if applicable) the highest per share price (including
any brokerage commissions, transfer taxes and soliciting dealers'
fees) paid by or on behalf of the Interested Stockholder for any
share of Common Stock in connection
10
<PAGE>
with the acquisition by the Interested Stockholder of beneficial
ownership of such share (x) within the two-year period
immediately prior to the first public announcement of the
proposal of the Business Combination (the "Announcement Date") or
(y) in the transaction in which the Interested Stockholder became
an Interested Stockholder, whichever is higher; and
(ii) the Fair Market Value per share of Common Stock on the
Announcement Date or on the date on which the Interested
Stockholder became an Interested Stockholder (such latter date is
referred to in this Article VI as the "Determination Date"),
whichever is higher.
(c) The aggregate amount of (x) cash and (y) the Fair Market
Value as of the date of the consummation of the Business Combination
of consideration other than cash to be received per share by holders
of shares of any class of outstanding Preference Stock, shall be at
least equal to the highest amount determined under subclauses (i),
(ii) and (iii) below:
(i) (if applicable) the highest per share price (including
any brokerage commissions, transfer taxes and soliciting dealers'
fees) paid by or on behalf of the Interested Stockholder for any
share of such class of Preference Stock in connection with the
acquisition by the Interested Stockholder of beneficial ownership
of such share (x) within the two-year period immediately prior to
the Announcement Date or (y) in the transaction in which the
Interested Stockholder became an Interested Stockholder,
whichever is higher;
(ii) the Fair Market Value per share of such class of
Preference Stock on the Announcement Date or on the Determination
Date, whichever is higher; and
(iii) the highest preferential amount per share to which
the holders of shares of such class of Preference Stock would be
entitled in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the
Corporation, regardless of whether the Business Combination to be
consummated constitutes such an event.
The provisions of this subparagraph (2) (c) shall be required to
be met with respect to every class of outstanding Preference
Stock, whether or not the Interested Stockholder has previously
acquired beneficial ownership of any shares of a particular class
of Preference Stock.
(d) After such Interested Stockholder has become an Interested
Stockholder and prior to the consummation of such Business
Combination: (i) there shall have been no failure to declare and pay
at the regular date therefor any full dividends (whether or not
cumulative) on the outstanding Preference Stock, except as approved by
a majority of the Continuing Directors; (ii) there shall have been (x)
no reduction in the annual rate of dividends paid on the Common Stock
(except as necessary to reflect any subdivision of the Common Stock),
except as approved by a majority of the Continuing Directors, and (y)
an increase in such annual rate of dividends as necessary to reflect
any reclassification (including any reverse stock split),
11
<PAGE>
recapitalization, reorganization or any similar transaction which has
the effect of reducing the number of outstanding shares of Common
Stock unless the failure so to increase such annual rate is approved
by a majority of the Continuing Directors; and (iii) such Interested
Stockholder shall not have become the beneficial owner of any
additional shares of Voting Stock except as part of the transaction
which results in such Interested Stockholder becoming an Interested
Stockholder and except in a transaction which, after giving effect
thereto, would not result in any increase in the Interested
Stockholder's percentage beneficial ownership of any class of Voting
Stock.
(e) After becoming an Interested Stockholder, such Interested
Stockholder shall not have received the benefit, directly or
indirectly (except proportionately as a stockholder of the
Corporation), of any loans, advances, guarantees, pledges or other
financial assistance or any tax credits or other tax advantages
provided by the Corporation, whether in anticipation of or in
connection with such Business Combination or otherwise.
(f) A proxy or information statement describing the proposed
Business Combination and complying with the requirements of the
Securities Exchange Act of 1934 and the rules and regulations
thereunder ("the Act") (or any subsequent provisions replacing such
Act, rules or regulations) shall be mailed to all stockholders of the
Corporation at least 30 days prior to the consummation of such
Business Combination (whether or not such proxy or information
statement is required to be mailed pursuant to such Act or any
subsequent provisions).
(g) Such Interested Stockholder shall not have made any major
change in the Corporation's business or equity capital structure
without the approval of a majority of the Continuing Directors.
C. For the purposes of this Article VI:
(1) The term "person" shall mean any individual, firm, corporation or
other entity.
(2) The term "Interested Stockholder" shall mean any person (other
than the Corporation or any Subsidiary) who or which:
(a) is the beneficial owner, directly or indirectly, of more
than ten percent (10%) of the voting power of the outstanding Voting
Stock; or
(b) is an Affiliate of the Corporation and at any time within
the two-year period immediately prior to the date in question was the
beneficial owner, directly or indirectly, of ten percent (10%) or more
of the voting power of the then outstanding Voting Stock; or
(c) is an assignee of or has otherwise succeeded to any shares
of Voting Stock which were at any time within the two-year period
immediately prior to the date in question beneficially owned by an
Interested Stockholder, if such assignment or succession shall have
occurred in the course of a transaction or series of transactions not
involving a public offering within the meaning of the Securities Act
of 1933.
12
<PAGE>
(3) A person shall be a "beneficial owner" of any Voting Stock:
(a) which such person or any of its Affiliates or Associates
beneficially owns, directly or indirectly; or
(b) which such person or any of its Affiliates or Associates
has, directly or indirectly, (i) the right to acquire (whether such
right is exercisable immediately or only after the passage of time),
pursuant to any agreement, arrangement or understanding or upon the
exercise of conversion rights, exchange rights, warrants or options,
or otherwise, or (ii) the right to vote pursuant to any agreement,
arrangement or understanding; or
(c) which are beneficially owned, directly or indirectly, by any
other person with which such person or any of its Affiliates or
Associates has any agreement, arrangement or understanding for the
purpose of acquiring, holding, voting or disposing of any shares of
Voting Stock.
(4) For the purposes of determining whether a person is an Interested
Stockholder pursuant to subparagraph (2) of this paragraph C, the number of
shares of Voting Stock deemed to be outstanding shall include shares deemed
owned through application of subparagraph (3) of this paragraph C but shall
not include any other shares of Voting Stock which may be issuable pursuant
to any agreement, arrangement or understanding, or upon exercise of
conversion rights, warrants or options, or otherwise.
(5) The terms "Affiliate" or "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as in effect on
January 1, 1983.
(6) The term "Subsidiary" means any corporation of which a majority
of any class of equity security is owned, directly or indirectly, by the
Corporation; PROVIDED, HOWEVER, that for the purposes of the definition of
Interested Stockholder set forth in subparagraph (2) of this paragraph C,
the term "Subsidiary" shall mean only a corporation of which a majority of
each class of equity security is owned, directly or indirectly, by the
Corporation.
(7) The term "Continuing Director" means any member of the Board of
Directors of the Corporation (the "Board"), who is unaffiliated with the
Interested Stockholder and was a member of the Board prior to the time that
the Interested Stockholder became an Interested Stockholder, and any
successor of a Continuing Director, while such successor is a member of the
Board, who is unaffiliated with the Interested Stockholder and is
recommended or elected to succeed a Continuing Director by a majority of
Continuing Directors.
(8) The term "Fair Market Value" means (a) in the case of stock, the
highest closing sale price during the 30-day period immediately preceding
the date in question of a share of such stock on the New York Stock
Exchange, or, if such stock is not listed on such Exchange, on the
principal United States Securities Exchange registered under the Securities
Exchange Act of 1934 on which such stock is listed, or, on the National
Association of Securities Dealers, Inc. ("NASD") National Market if such
stock is not listed on a registered Securities Exchange but is quoted on
the NASD National Market, or, if such stock is not so listed or quoted, the
highest closing bid quotation with respect to a share of such stock during
the 30-
13
<PAGE>
day period preceding the date in question on the NASD Automated Quotations
System or any system then in use, or if no such quotations are available,
the fair market value on the date in question of a share of such stock as
determined by a majority of the Continuing Directors in good faith; and (b)
in the case of property other than cash or stock, the fair market value of
such property on the date in question as determined in good faith by a
majority of the Continuing Directors.
(9) The term "Preference Stock" shall mean the Preferred Stock and
any other class of preference stock which may from time to time be
authorized in or by the Certificate of Incorporation of the Corporation and
which by the terms of its issuance is specifically designated "Preference
Stock" for purposes of this Article VI.
(10) The term "Preferred Stock Designation" shall mean any
designation of the powers, preferences and rights made pursuant to Article
III and filed with the Secretary of State of the State of Delaware.
(11) The term "Voting Stock" shall mean all of the shares of capital
stock of the Corporation outstanding from time to time and entitled to vote
generally in the election of directors.
(12) In the event of any Business Combination in which the
Corporation survives, the phrase "consideration other than cash to be
received" as used in subparagraphs (2)(b) and (c) of paragraph B of Article
VI shall include the shares of Common Stock and/or the shares of any other
class of Voting Stock retained by the holders of such shares.
D. Nothing contained in this Article VI shall be construed to relieve any
Interested Stockholder from any fiduciary obligation imposed by law.
E. The fact that any Business Combination complies with the provisions of
paragraph B of this Article VI shall not be construed to impose any fiduciary
duty, obligation or responsibility on the Board of Directors, or any member
thereof, to approve such Business Combination or recommend its adoption or
approval to the stockholders of the Corporation, nor shall such compliance
limit, prohibit or otherwise restrict in any manner the Board of Directors, or
any member thereof, with respect to evaluations of or actions and responses
taken with respect to such Business Combination.
F. Notwithstanding any other provisions of the Certificate of
Incorporation of the Corporation or any provision of law which might otherwise
permit a lesser vote or no vote, but in addition to any affirmative vote of the
holders of any particular class or series of Voting Stock required by law, the
Certificate of Incorporation of the Corporation or any Preferred Stock
Designation, the affirmative vote of the holders of at least eighty percent
(80%) of the voting power of all of the then outstanding shares of Voting Stock,
voting together as a single class, shall be required to amend or repeal this
Article VI, or adopt any provisions inconsistent with this Article VI; provided
that, this paragraph F shall not apply to, and such eighty percent (80%) vote
shall not be required for, any amendment, repeal or adoption unanimously
recommended by the Board of Directors of the Corporation if all of such
directors are persons who would be eligible to serve as Continuing Directors.
14
<PAGE>
ARTICLE VII
The address of the Corporation's registered office in the State of Delaware is
1209 Orange Street, in the City of Wilmington, County of New Castle. The name
of its registered agent at such address is The Corporation Trust Company.
PURSUANT TO THE PROVISIONS OF SECTION 245 OF THE DELAWARE GENERAL CORPORATION
LAW the Board of Directors of Ecolab Inc. duly adopted the foregoing Restated
Certificate of Incorporation which only restates and integrates, and does not
further amend, the Certificate of Incorporation as heretofore amended and
supplemented, and there is no discrepancy between the Certificate of
Incorporation as heretofore amended and supplemented and the provisions of the
foregoing Restated Certificate of Incorporation.
IN WITNESS WHEREOF, Ecolab Inc. has caused this Restated Certificate of
Incorporation to be signed by Kenneth A. Iverson, its Vice President and
Secretary, this 25th day of February, 1997.
ECOLAB INC.
By /s/ Kenneth A. Iverson
-----------------------------------
Kenneth A. Iverson
Vice President and Secretary
15
<PAGE>
ECOLAB INC.
1997 STOCK INCENTIVE PLAN
1. PURPOSE OF PLAN.
The purpose of the Ecolab Inc. 1997 Stock Incentive Plan (the "Plan") is to
advance the interests of Ecolab Inc. (the "Company") and its stockholders by
enabling the Company and its Subsidiaries to attract and retain persons of
ability to perform services for the Company and its Subsidiaries by providing an
incentive to such individuals through equity participation in the Company and by
rewarding such individuals who contribute to the achievement by the Company of
its economic objectives.
2. DEFINITIONS.
The following terms will have the meanings set forth below, unless the
context clearly otherwise requires:
2.1 "BOARD" means the Board of Directors of the Company.
2.2 "BROKER EXERCISE NOTICE" means a written notice pursuant to which a
Participant, upon exercise of an Option, irrevocably instructs a broker or
dealer to sell a sufficient number of shares or loan a sufficient amount of
money to pay all or a portion of the exercise price of the Option and/or any
related withholding tax obligations and remit such sums to the Company and
directs the Company to deliver stock certificates to be issued upon such
exercise directly to such broker or dealer or their nominee.
2.3 "CHANGE IN CONTROL" means an event described in Section 11.1 of the
Plan.
2.4 "CODE" means the Internal Revenue Code of 1986, as amended.
2.5 "COMMITTEE" means the group of individuals administering the Plan, as
provided in Section 3 of the Plan.
2.6 "COMMON STOCK" means the common stock of the Company, par value $1.00
per share, or the number and kind of shares of stock or other securities into
which such Common Stock may be changed in accordance with Section 4.3 of the
Plan.
2.7 "DISABILITY" means the disability of the Participant such as would
entitle the Participant to receive disability income benefits pursuant to the
long-term disability plan of the Company or Subsidiary then covering the
Participant or, if no such plan exists or is applicable to the Participant, the
permanent
<PAGE>
and total disability of the Participant within the meaning of Section 22(e)(3)
of the Code.
2.8 "ELIGIBLE RECIPIENTS" means all employees (including, without
limitation, officers and directors who are also employees) of the Company or any
Subsidiary and any non-employee consultants and advisors of the Company or any
Subsidiary.
2.9 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
2.10 "FAIR MARKET VALUE" means, with respect to the Common Stock, as of
any date (or, if no shares were traded or quoted on such date, as of the next
preceding date on which there was such a trade or quote) the mean between the
reported high and low sale prices of the Common Stock as quoted in the WALL
STREET JOURNAL reports of the New York Stock Exchange - Composite Transactions.
2.11 "INCENTIVE AWARD" means an Option, Restricted Stock Award or
Performance Stock Award granted to an Eligible Recipient pursuant to the Plan.
2.12 "INCENTIVE STOCK OPTION" means a right to purchase Common Stock
granted to an Eligible Recipient pursuant to Section 6 of the Plan that
qualifies as an "incentive stock option" within the meaning of Section 422 of
the Code.
2.13 "NON-STATUTORY STOCK OPTION" means a right to purchase Common Stock
granted to an Eligible Recipient pursuant to Section 6 of the Plan that does not
qualify as an Incentive Stock Option.
2.14 "OPTION" means an Incentive Stock Option or a Non-Statutory Stock
Option.
2.15 "PARTICIPANT" means an Eligible Recipient who receives one or more
Incentive Awards under the Plan.
2.16 "PERFORMANCE STOCK AWARD" means an award of Common Stock granted to
an Eligible Recipient pursuant to Section 8 of the Plan.
2.17 "PREVIOUSLY ACQUIRED SHARES" means shares of Common Stock that are
already owned by the Participant or, with respect to any Incentive Award, that
are to be issued upon the grant, exercise or vesting of such Incentive Award.
2.18 "RESTRICTED STOCK AWARD" means an award of Common Stock granted to an
Eligible Recipient pursuant to Section 7 of the Plan that is subject to the
restrictions on transferability and the risk of forfeiture imposed by the
provisions of such Section 7.
2.19 "RETIREMENT" means termination of employment at an age and length of
service such that the Participant would be eligible to an immediate commencement
of benefit payments under the
2
<PAGE>
Company's defined benefit pension plan available generally to its employees,
whether or not such individual actually elects to commence such payments
(provided that, if the Participant is not covered by the Company's defined
benefit pension plan, attainment of the necessary age and length of service for
immediate benefit commencement shall, for purposes of the Plan, be determined as
to the Participant as if such Participant had been covered by such plan and had
been credited with continuous (vesting) service pursuant to such plan rules (a)
for the period of service such Participant was in the employ of the Company and
any Subsidiary, and (b) with respect to a Participant who was in the employ of a
corporation or other organization whose business was acquired by the Company or
any Subsidiary, if (and only to the extent) specifically provided by the
Committee, for the period of service such Participant was in the employ of such
corporation or other organization prior to such acquisition).
2.20 "SECURITIES ACT" means the Securities Act of 1933, as amended.
2.21 "SUBSIDIARY" means any entity that is directly or indirectly
controlled by the Company or any entity in which the Company has a significant
equity interest, as determined by the Committee.
2.22 "TAX DATE" means the date any withholding tax obligation arises under
the Code for a Participant with respect to an Incentive Award.
3. PLAN ADMINISTRATION.
3.1 THE COMMITTEE. The Plan will be administered by the Board or by a
committee of the Board. So long as the Company has a class of its equity
securities registered under Section 12 of the Exchange Act, any committee
administering the Plan will consist solely of two or more members of the Board
who are "non-employee directors" within the meaning of Rule 16b-3 under the
Exchange Act and, if the Board so determines in its sole discretion, who are
"outside directors" within the meaning of Section 162(m) of the Code. Such a
committee, if established, will act by majority approval of the members
(unanimous approval with respect to action by written consent), and a majority
of the members of such a committee will constitute a quorum. As used in the
Plan, "Committee" will refer to the Board or to such a committee, if
established. To the extent consistent with corporate law, the Committee may
delegate to any officers of the Company the duties, power and authority of the
Committee under the Plan pursuant to such conditions or limitations as the
Committee may establish; provided, however, that only the Committee may exercise
such duties, power and authority with respect to Eligible Recipients who are
subject to Section 16 of the Exchange Act. The Committee may exercise its
duties, power and authority under the Plan in its sole and absolute discretion
without the consent of any Participant or other party, unless the Plan
specifically provides otherwise. Each determination, interpretation or other
action made or taken by the Committee pursuant to the provisions of the Plan
will be conclusive and binding for all purposes and on all persons, and no
member of the Committee will be liable for any action or determination made in
good faith with respect to the Plan or any Incentive Award granted under the
Plan.
3
<PAGE>
3.2 AUTHORITY OF THE COMMITTEE.
(a) In accordance with and subject to the provisions of the Plan, the
Committee will have the authority to determine all provisions of Incentive
Awards as the Committee may deem necessary or desirable and as consistent
with the terms of the Plan, including, without limitation, the following:
(i) the Eligible Recipients to be selected as Participants; (ii) the nature
and extent of the Incentive Awards to be made to each Participant
(including the number of shares of Common Stock to be subject to each
Incentive Award, any exercise price, the manner in which Incentive Awards
will vest or become exercisable and whether Incentive Awards will be
granted in tandem with other Incentive Awards) and the form of written
agreement, if any, evidencing such Incentive Award; (iii) the time or times
when Incentive Awards will be granted; (iv) the duration of each Incentive
Award; and (v) the restrictions and other conditions to which the payment
or vesting of Incentive Awards may be subject. In addition, the Committee
will have the authority under the Plan in its sole discretion to pay the
economic value of any Incentive Award in the form of cash, Common Stock or
any combination of both.
(b) The Committee will have the authority under the Plan to amend or
modify the terms of any outstanding Incentive Award in any manner,
including, without limitation, the authority to modify the number of shares
or other terms and conditions of an Incentive Award, extend the term of an
Incentive Award, accelerate the exercisability or vesting or otherwise
terminate any restrictions relating to an Incentive Award, accept the
surrender of any outstanding Incentive Award or, to the extent not
previously exercised or vested, authorize the grant of new Incentive Awards
in substitution for surrendered Incentive Awards; provided, however that
the amended or modified terms are permitted by the Plan as then in effect,
that no amendment or modification of an outstanding Incentive Award (other
than as may be required pursuant to Section 4.3 of the Plan) may decrease
the per share exercise price of an Option below the Fair Market Value of
the Common Stock on the date of grant, and that any Participant adversely
affected by such amended or modified terms has consented to such amendment
or modification. No amendment or modification to an Incentive Award,
however, whether pursuant to this Section 3.2 or any other provisions of
the Plan, will be deemed to be a regrant of such Incentive Award for
purposes of this Plan.
(c) In the event of (i) any reorganization, merger, consolidation,
recapitalization, liquidation, reclassification, stock dividend, stock
split, combination of shares, rights offering, extraordinary dividend or
divestiture (including a spin-off) or any other change in corporate
structure or shares, (ii) any purchase, acquisition, sale or disposition of
a significant amount of assets or a significant business, (iii) any change
in accounting principles or practices, or (iv) any other similar change, in
each case with respect to the Company or any other entity whose performance
is relevant to the grant or vesting of an Incentive Award, the Committee
(or, if the Company is not the surviving corporation in any such
transaction, the board of directors of the surviving corporation) may,
without the consent of any affected Participant, amend or modify the
vesting criteria of any outstanding Incentive Award that is based in whole
or in part on the financial performance of the Company (or any Subsidiary
or division or other subunit thereof) or such other entity so as equitably
to reflect such event, with the desired result that the criteria for
4
<PAGE>
evaluating such financial performance of the Company or such other entity
will be substantially the same (in the sole discretion of the Committee or
the board of directors of the surviving corporation) following such event
as prior to such event; provided, however, that the amended or modified
terms are permitted by the Plan as then in effect.
4. SHARES AVAILABLE FOR ISSUANCE.
4.1 MAXIMUM NUMBER OF SHARES AVAILABLE. Subject to adjustment as provided
in Section 4.3 of the Plan, the maximum number of shares of Common Stock that
will be available for issuance under the Plan will be 3,000,000 shares of Common
Stock. Notwithstanding any other provisions of the Plan to the contrary, no
Participant in the Plan may be granted any Options or any other Incentive Awards
with a value based solely on an increase in the value of the Common Stock after
the date of grant, relating to more than 800,000 shares of Common Stock in the
aggregate during any 48- month period (subject to adjustment as provided in
Section 4.3 of the Plan). The shares available for issuance under the Plan may,
at the election of the Committee, be either treasury shares or shares authorized
but unissued, and, if treasury shares are used, all references in the Plan to
the issuance of shares will, for corporate law purposes, be deemed to mean the
transfer of shares from treasury.
4.2 ACCOUNTING FOR INCENTIVE AWARDS. Shares of Common Stock that are
issued under the Plan or that are subject to outstanding Incentive Awards will
be applied to reduce the maximum number of shares of Common Stock remaining
available for issuance under the Plan. Any shares of Common Stock that are
subject to an Incentive Award that lapses, expires, is forfeited or for any
reason is terminated unexercised or unvested and any shares of Common Stock that
are subject to an Incentive Award that is settled or paid in cash or any form
other than shares of Common Stock will automatically again become available for
issuance under the Plan. Any shares of Common Stock that constitute the
forfeited portion of a Restricted Stock Award, however, will not become
available for further issuance under the Plan.
4.3 ADJUSTMENTS TO SHARES AND INCENTIVE AWARDS. In the event of any
reorganization, merger, consolidation, recapitalization, liquidation,
reclassification, stock dividend, stock split, combination of shares, rights
offering, divestiture or extraordinary dividend (including a spin-off) or any
other change in the corporate structure or shares of the Company, the Committee
(or, if the Company is not the surviving corporation in any such transaction,
the board of directors of the surviving corporation) will make appropriate
adjustment (which determination will be conclusive) as to the number and kind of
securities or other property (including cash) available for issuance or payment
under the Plan and, in order to prevent dilution or enlargement of the rights of
Participants, (a) the number and kind of securities or other property (including
cash) subject to outstanding Incentive Awards, and (b) the exercise price of
outstanding Options.
5. PARTICIPATION.
Participants in the Plan will be those Eligible Recipients who, in the
judgment of the Committee, have contributed, are contributing or are expected to
contribute to the achievement of economic objectives of the Company or its
Subsidiaries. Eligible Recipients may be granted from time to time one or more
5
<PAGE>
Incentive Awards, singly or in combination or in tandem with other Incentive
Awards, as may be determined by the Committee in its sole discretion. Incentive
Awards will be deemed to be granted as of the date specified in the grant
resolution of the Committee, which date will be the date of any related
agreement with the Participant.
6. OPTIONS.
6.1 GRANT. An Eligible Recipient may be granted one or more Options under
the Plan, and such Options will be subject to such terms and conditions,
consistent with the other provisions of the Plan, as may be determined by the
Committee in its sole discretion. The Committee may designate whether an Option
is to be considered an Incentive Stock Option or a Non-Statutory Stock Option.
To the extent that any Incentive Stock Option granted under the Plan ceases for
any reason to qualify as an "incentive stock option" for purposes of Section 422
of the Code, such Incentive Stock Option will continue to be outstanding for
purposes of the Plan but will thereafter be deemed to be a Non-Statutory Stock
Option.
6.2 EXERCISE PRICE. The per share price to be paid by a Participant upon
exercise of an Option will be determined by the Committee in its discretion at
the time of the Option grant, provided that such price will not be less than
100% of the Fair Market Value of one share of Common Stock on the date of grant.
6.3 EXERCISABILITY AND DURATION. An Option will become exercisable at
such times and in such installments as may be determined by the Committee in its
sole discretion at the time of grant; provided, however, that no Option may be
exercisable prior to six months (other than as provided in Section 9.1 of the
Plan) or after 10 years from its date of grant.
6.4 PAYMENT OF EXERCISE PRICE. The total purchase price of the shares to
be purchased upon exercise of an Option will be paid entirely in cash (including
check, bank draft or money order); provided, however, that the Committee, in its
sole discretion and upon terms and conditions established by the Committee, may
allow such payments to be made, in whole or in part, by tender of a Broker
Exercise Notice, Previously Acquired Shares or by a combination of such methods.
6.5 MANNER OF EXERCISE. An Option may be exercised by a Participant in
whole or in part from time to time, subject to the conditions contained in the
Plan and in the agreement evidencing such Option, by delivery in person, by
facsimile or electronic transmission or through the mail of written notice of
exercise to the Company at its principal executive office in St. Paul, Minnesota
and by paying in full the total exercise price for the shares of Common Stock to
be purchased in accordance with Section 6.4 of the Plan.
7. RESTRICTED STOCK AWARDS.
7.1 GRANT. An Eligible Recipient may be granted one or more Restricted
Stock Awards under the Plan, and such Restricted Stock Awards will be subject to
such terms and conditions, consistent with
6
<PAGE>
the other provisions of the Plan, as may be determined by the Committee in its
sole discretion. The Committee may impose such restrictions or conditions, not
inconsistent with the provisions of the Plan, to the vesting of such Restricted
Stock Awards as it deems appropriate, including, without limitation, that the
Participant remain in the continuous employ or service of the Company or a
Subsidiary for a certain period or that the Participant or the Company (or any
Subsidiary or division or other subunit thereof) satisfy certain performance
goals or criteria; provided, however, that other than as provided in Section 9.1
of the Plan, no Restricted Stock Award may vest prior to six months from its
date of grant.
7.2 RIGHTS AS A STOCKHOLDER; TRANSFERABILITY. Except as provided in
Sections 7.1, 7.3 and 12.3 of the Plan, a Participant will have all voting,
dividend, liquidation and other rights with respect to shares of Common Stock
issued to the Participant as a Restricted Stock Award under this Section 7 upon
the Participant becoming the holder of record of such shares as if such
Participant were a holder of record of shares of unrestricted Common Stock.
7.3 DIVIDENDS AND DISTRIBUTIONS. Unless the Committee determines
otherwise in its sole discretion (either in the agreement evidencing the
Restricted Stock Award at the time of grant or at any time after the grant of
the Restricted Stock Award), any dividends or distributions (other than regular
quarterly cash dividends) paid with respect to shares of Common Stock subject to
the unvested portion of a Restricted Stock Award will be subject to the same
restrictions as the shares to which such dividends or distributions relate. The
Committee will determine in its sole discretion whether any interest will be
paid on such dividends or distributions. The Committee, in an agreement
evidencing a Restricted Stock Award, may require that, unless the Participant
elects otherwise, regular quarterly cash dividends paid with respect to shares
of Common Stock subject to a portion of the Restricted Stock Award that has not
vested will be reinvested (and in such case Participants hereby consent to such
reinvestment) in shares of Common Stock pursuant and in accordance with the
Company's regular dividend reinvestment plan.
7.4 ENFORCEMENT OF RESTRICTIONS. To enforce the restrictions referred to
in this Section 7, the Committee may place a legend on the stock certificates
referring to such restrictions and may require the Participant, until the
restrictions have lapsed, to keep the stock certificates, together with duly
endorsed stock powers, in the custody of the Company or its transfer agent, or
to maintain evidence of stock ownership, together with duly endorsed stock
powers, in a certificateless book-entry stock account with the Company's
transfer agent.
8. PERFORMANCE STOCK AWARDS.
An Eligible Recipient may be granted one or more Performance Stock Awards
under the Plan, and such Performance Stock Awards will be subject to such terms
and conditions, if any, consistent with the other provisions of the Plan, as may
be determined by the Committee in its sole discretion. The Participant will
have all voting, dividend, liquidation and other rights with respect to the
shares of Common Stock issued to a Participant as a Performance Stock Award
under this Section 8 upon the Participant becoming the holder of record of such
shares; provided, however, that the Committee may impose such restrictions on
the assignment or transfer of a Performance Stock Award as it deems appropriate,
and may enforce such restrictions by any or all of the methods set forth in
Section 7.4 of the
7
<PAGE>
Plan.
9. EFFECT OF TERMINATION OF EMPLOYMENT OR OTHER SERVICE.
9.1 TERMINATION OF EMPLOYMENT DUE TO DEATH OR DISABILITY. In the event a
Participant's employment with the Company and all Subsidiaries is terminated by
reason of death or Disability:
(a) All outstanding Options then held by the Participant will become
immediately exercisable in full and will remain exercisable for a period of
five years after such termination (but in no event after the expiration
date of any such Option);
(b) All Restricted Stock Awards then held by the Participant will
become fully vested; and
(c) Any assignment or transfer restrictions with respect to
Performance Stock Awards will lapse.
9.2 Termination of Employment Due to Retirement. In the event a
Participant's employment with the Company and all Subsidiaries is terminated by
reason of Retirement:
(a) All outstanding Options then held by the Participant will remain
exercisable in full and will remain exercisable to the extent exercisable
as of such termination for a period of five years after such termination
(but in no event after the expiration date of any such Option);
(b) All Restricted Stock Awards then held by the Participant that
have not vested as of such termination will be terminated and forfeited;
and
(c) Any assignment or transfer restrictions with respect to
Performance Stock Awards that have not lapsed will continue in effect in
accordance with their terms unless otherwise provided in the agreement
evidencing such Performance Stock Awards.
9.3 TERMINATION OF EMPLOYMENT FOR REASONS OTHER THAN DEATH, DISABILITY OR
RETIREMENT.
(a) In the event a Participant's employment is terminated with the
Company and all Subsidiaries for any reason other than death, Disability or
Retirement, or a Participant is in the employ of a Subsidiary and the
Subsidiary ceases to be a Subsidiary of the Company (unless the Participant
continues in the employ of the Company or another Subsidiary), all rights
of the Participant under the Plan and any agreements evidencing an
Incentive Award will immediately terminate without notice of any kind, and
(i) no Options then held by the Participant will thereafter be exercisable,
(ii) all Restricted Stock Awards then held by the Participant that have not
vested will be terminated and forfeited, and (iii) any assignment or
transfer restrictions with
8
<PAGE>
respect to Performance Stock Awards that have not lapsed will continue in
effect in accordance with their terms unless otherwise provided in the
agreement evidencing such Performance Stock Awards; provided, however, that
if such termination is due to any reason other than termination by the
Company or any Subsidiary for "cause," all outstanding Options then held by
such Participant will remain exercisable to the extent exercisable as of
such termination for a period of three months after such termination (but
in no event after the expiration date of any such Option).
(b) For purposes of this Section 9, "cause" (as determined by the
Committee) will be as defined in any employment or other agreement or
policy applicable to the Participant or, if no such agreement or policy
exists, will mean (i) dishonesty, fraud, misrepresentation, embezzlement or
deliberate injury or attempted injury, in each case related to the Company
or any Subsidiary, (ii) any unlawful or criminal activity of a serious
nature, (iii) any intentional and deliberate breach of a duty or duties
that, individually or in the aggregate, are material in relation to the
Participant's overall duties, or (iv) any material breach of any
employment, service, confidentiality or noncompete agreement entered into
with the Company or any Subsidiary.
9.4 TERMINATION OF SERVICE AS A NON-EMPLOYEE CONSULTANT OR ADVISOR. In
the event a Participant's service as a non-employee consultant or advisor is
terminated with the Company and all Subsidiaries for any reason, or a
Participant is in the service of a Subsidiary and the Subsidiary ceases to be a
Subsidiary of the Company (unless the Participant continues in the service of
the Company or another Subsidiary), all rights of the Participant under the Plan
and any agreements evidencing an Incentive Award will immediately terminate
without notice of any kind, and (i) no Options then held by the Participant will
thereafter be exercisable, (ii) all Restricted Stock Awards then held by the
Participant that have not vested will be terminated and forfeited, and (iii) any
assignment or transfer restrictions with respect to Performance Stock Awards
that have not lapsed will continue in effect in accordance with their terms
unless otherwise provided in the agreement evidencing such Performance Stock
Awards; provided, however, that if such termination is due to any reason other
than termination by the Company or any Subsidiary for "cause" (as defined in
Section 9.3(b) of the Plan), all outstanding Options then held by such
Participant will remain exercisable to the extent exercisable as of such
termination for a period of three months after such termination (but in no event
after the expiration date of any such Option).
9.5 MODIFICATION OF RIGHTS UPON TERMINATION. Notwithstanding the other
provisions of this Section 9, upon a Participant's termination of employment or
other service with the Company and all Subsidiaries, the Committee may, in its
sole discretion (which may be exercised at any time on or after the date of
grant, including following such termination), cause Options (or any part
thereof) then held by such Participant to become or continue to become
exercisable and/or remain exercisable following such termination of employment
or other service, and Restricted Stock Awards and Performance Stock Awards then
held by such Participant to vest and/or continue to vest or become free of
transfer restrictions, as the case may be, following such termination of
employment or other service, in each case in the manner determined by the
Committee; provided, however, that (a) no Incentive Award will become
exercisable or vest prior to six months from its date of grant (unless such
exercisability or vesting is by reason of death or Disability), and (b) no
Incentive Award may remain exercisable or continue to vest for more than two
years beyond the date such Incentive Award would have terminated if not for the
provisions of this
9
<PAGE>
Section 9.5 but in no event beyond its expiration date.
9.6 BREACH OF CONFIDENTIALITY OR NONCOMPETE AGREEMENTS. Notwithstanding
anything in the Plan to the contrary, in the event that a Participant materially
breaches the terms of any confidentiality or noncompete agreement entered into
with the Company or any Subsidiary, whether such breach occurs before or after
termination of such Participant's employment or Other Service with the Company
or any Subsidiary, the Committee in its sole discretion may immediately
terminate all rights of the Participant under the Plan and any agreements
evidencing an Incentive Award then held by the Participant without notice of any
kind.
9.7 DETERMINATION OF TERMINATION OF EMPLOYMENT OR OTHER SERVICE.
(a) The change in a Participant's status from that of an employee of
the Company or any Subsidiary to that of a non-employee consultant or
advisor of the Company or any Subsidiary will, for purposes of the Plan, be
deemed to result in a termination of such Participant's employment with the
Company and its Subsidiaries, unless the Committee otherwise determines in
its sole discretion.
(b) The change in a Participant's status from that of a non-employee
consultant or advisor of the Company or any Subsidiary to that of an
employee of the Company or any Subsidiary will not, for purposes of the
Plan, be deemed to result in a termination of such Participant's service as
a non-employee consultant or advisor with the Company and its Subsidiaries,
and such Participant will thereafter be deemed to be an employee of the
Company or its Subsidiaries until such Participant's employment is
terminated, in which event such Participant will be governed by the
provisions of this Plan relating to termination of employment.
(c) Unless the Committee otherwise determines in its sole discretion,
a Participant's employment or other service will, for purposes of the Plan,
be deemed to have terminated on the date recorded on the personnel or other
records of the Company or the Subsidiary for which the Participant provides
employment, as determined by the Committee in its sole discretion based
upon such records.
10. PAYMENT OF WITHHOLDING TAXES.
10.1 GENERAL RULES. The Company is entitled to (a) withhold and deduct
from future wages of the Participant (or from other amounts that may be due and
owing to the Participant from the Company or a Subsidiary), or make other
arrangements for the collection of, all legally required amounts necessary to
satisfy any and all federal, state and local withholding and employment-related
tax requirements attributable to an Incentive Award, including, without
limitation, the grant, exercise or vesting of, or payment of dividends with
respect to, an Incentive Award or a disqualifying disposition of stock received
upon exercise of an Incentive Stock Option, or (b) require the Participant
promptly to remit the amount of such withholding to the Company before taking
any action, including issuing any shares of Common
10
<PAGE>
Stock, with respect to an Incentive Award.
10.2 SPECIAL RULES. The Committee may, in its sole discretion and upon
terms and conditions established by the Committee, permit or require a
Participant to satisfy, in whole or in part, any withholding or
employment-related tax obligation described in Section 10.1 of the Plan by
electing to tender Previously Acquired Shares, a Broker Exercise Notice or a
combination of such methods.
11. CHANGE IN CONTROL.
11.1 CHANGE IN CONTROL. For purposes of this Section 11, a "Change in
Control" of the Company will mean the following:
(a) Any "person" as such term is used in Sections 13(d) and 14(d) of
the Exchange Act (other than the Company, any trustee or other fiduciary
holding securities under any employee benefit plan of the Company, or any
corporation owned, directly or indirectly, by the stockholders of the
Company in substantially the same proportions as their ownership of stock
of the Company), is or becomes, including pursuant to a tender or exchange
offer for shares of Common Stock pursuant to which purchases are made, the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing 25% or
more of the combined voting power of the Company's then outstanding
securities, other than in a transaction arranged or approved by the Board
prior to its occurrence; provided, however, that if any such person will
become the beneficial owner, directly or indirectly, of securities of the
Company representing 34% or more of the combined voting power of the
Company's then outstanding securities, a Change in Control will be deemed
to occur whether or not any or all of such beneficial ownership is obtained
in a transaction arranged or approved by the Board prior to its occurrence,
and other than in a transaction in which such person will have executed a
written agreement with the Company (and approved by the Board) on or prior
to the date on which such person becomes the beneficial owner of 25% or
more of the combined voting power of the Company's then outstanding
securities, which agreement imposes one or more limitations on the amount
of such person's beneficial ownership of shares of Common Stock, if, and so
long as, such agreement (or any amendment thereto approved by the Board
provided that no such amendment will cure any prior breach of such
agreement or any amendment thereto) continues to be binding on such person
and such person is in compliance (as determined by the Board in its sole
discretion) with the terms of such agreement (including such amendment);
provided, however, that if any such person will become the beneficial
owner, directly or indirectly, of securities of the Company representing
50% or more of the combined voting power of the Company's then outstanding
securities, a Change in Control will be deemed to occur whether or not such
beneficial ownership was held in compliance with such a binding agreement.
(b) During any period of two consecutive years, individuals who at
the beginning of such period constitute the Board, and any new director
(other than a director designated by a person who has entered into an
agreement with the Company to effect a transaction which would constitute a
Change in Control pursuant to this Section 11.1) whose election by the
Board or
11
<PAGE>
nomination for election by the Company's stockholders was approved by a
vote of at least two-thirds of the directors then still in office who
either were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute at least a majority thereof.
(c) The stockholders of the Company approve a merger or consolidation
of the Company with any other corporation, other than (i) a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than 80% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately
after such merger or consolidation, or (ii) a merger or consolidation
effected to implement a recapitalization of the Company (or similar
transaction) in which no person acquires a percentage of the combined
voting power of the Company's then outstanding securities which would
constitute a Change in Control pursuant to Section 11.1 above. In case of
any consolidation or merger of another corporation into the Company in
which the Company is the surviving corporation and in which there is a
reclassification or change (including a change to the right to receive cash
or other property) of the shares of Common Stock (other than a change in
par value, or from par value to no par value, or as a result of a
subdivision or combination, but including any change in such shares into
two or more classes or series of shares), Section 4.3 of the Plan will
apply.
(d) The stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by
the Company of all or substantially all of the Company's assets.
11.2 ACCELERATION OF VESTING. Without limiting the authority of the
Committee under Sections 3.2 and 4.3 of the Plan, if a Change in Control of the
Company occurs, then, if approved by the Committee in its sole discretion either
in an agreement evidencing an Incentive Award at the time of grant or at any
time after the grant of an Incentive Award, (a) all Options that have been
outstanding for at least six months will become immediately exercisable in full
and will remain exercisable in accordance with their terms; (b) all outstanding
Restricted Stock Awards that have been outstanding for at least six months will
become immediately fully vested and non-forfeitable; and (c) any transfer
restrictions with respect to Performance Stock Awards will lapse.
11.3 CASH PAYMENT FOR OPTIONS. If a Change in Control of the Company
occurs, then the Committee, if approved by the Committee in its sole discretion
either in an agreement evidencing an Incentive Award at the time of grant or at
any time after the grant of an Incentive Award, and without the consent of any
Participant affected thereby, may determine that some or all Participants
holding outstanding Options will receive, with respect to some or all of the
shares of Common Stock subject to such Options, as of the effective date of any
such Change in Control of the Company, cash in an amount equal to the excess of
the Fair Market Value of such shares immediately prior to the effective date of
such Change in Control of the Company over the exercise price per share of such
Options.
12
<PAGE>
11.4 LIMITATION ON CHANGE IN CONTROL PAYMENTS. Notwithstanding anything
in Section 11.2 or 11.3 of the Plan to the contrary, if, with respect to a
Participant, any of the payments to be made in connection with Section 11.2 or
11.3 of the Plan, together with any other payments or benefits which a
Participant has the right to receive from the Company or any corporation which
is a member of an "affiliated group" (as defined in section 1504(a) of the Code
without regard to section 1504(b) of the Code) of which the Company is a member,
constitute an "excess parachute payment" (as defined in section 280G(b) of the
Code), the payments to be made in connection with Section 11.2 or 11.3 of the
Plan shall be reduced to the extent necessary to prevent any portion of such
payments or benefits from becoming subject to the excise tax imposed under
section 4999 of the Code; provided, however, that if a Participant is subject
to a separate agreement with the Company or a Subsidiary that expressly
addresses the potential application of Sections 280G or 4999 of the Code
(including, without limitation, that "payments" under such agreement or
otherwise will be reduced, that such payments will not be reduced or that the
Participant will have the discretion to determine which "payments" will be
reduced), then this Section 11.4 will not apply, and any "payments" to a
Participant pursuant to Section 11.2 or 11.3 of the Plan will be treated as
"payments" arising under such separate agreement.
12. RIGHTS OF ELIGIBLE RECIPIENTS AND PARTICIPANTS; TRANSFERABILITY.
12.1 EMPLOYMENT OR OTHER SERVICE. Nothing in the Plan will interfere with
or limit in any way the right of the Company or any Subsidiary to terminate the
employment or Other Service of any Eligible Recipient or Participant at any
time, nor confer upon any Eligible Recipient or Participant any right to
continue in the employ or Other Service of the Company or any Subsidiary.
12.2 RIGHTS AS A STOCKHOLDER. As a holder of Incentive Awards (other than
Restricted Stock Awards and Performance Stock Awards), a Participant will have
no rights as a stockholder unless and until such Incentive Awards are exercised
for, or paid in the form of, shares of Common Stock and the Participant becomes
the holder of record of such shares. Except as otherwise provided in the Plan,
no adjustment will be made for dividends or distributions with respect to such
Incentive Awards as to which there is a record date preceding the date the
Participant becomes the holder of record of such shares, except as the Committee
may determine in its discretion.
12.3 RESTRICTIONS ON TRANSFER. Except pursuant to testamentary will or
the laws of descent and distribution or as otherwise expressly permitted by the
Plan, no right or interest of any Participant in an Incentive Award prior to the
exercise or vesting of such Incentive Award will be assignable or transferable,
or subjected to any lien, during the lifetime of the Participant, either
voluntarily or involuntarily, directly or indirectly, by operation of law or
otherwise. A Participant will, however, be entitled to designate a beneficiary
to receive an Incentive Award upon such Participant's death, and in the event of
a Participant's death, payment of any amounts due under the Plan will be made
to, and exercise of any Options (to the extent permitted pursuant to Section 9
of the Plan) may be made by, the Participant's legal representatives, heirs and
legatees.
12.4 NON-EXCLUSIVITY OF THE PLAN. Nothing contained in the Plan is
intended to modify or rescind any previously approved compensation plans or
programs of the Company or create any limitations on
13
<PAGE>
the power or authority of the Board to adopt such additional or other
compensation arrangements as the Board may deem necessary or desirable.
13. SECURITIES LAW AND OTHER RESTRICTIONS.
Notwithstanding any other provision of the Plan or any agreements entered
into pursuant to the Plan, the Company will not be required to issue any shares
of Common Stock under this Plan, and a Participant may not sell, assign,
transfer or otherwise dispose of shares of Common Stock issued pursuant to
Incentive Awards granted under the Plan, unless (a) there is in effect with
respect to such shares a registration statement under the Securities Act and any
applicable securities laws of a state or foreign jurisdiction or an exemption
from such registration under the Securities Act and applicable state or foreign
securities laws, and (b) there has been obtained any other consent, approval or
permit from any other regulatory body which the Committee, in its sole
discretion, deems necessary or advisable. The Company may condition such
issuance, sale or transfer upon the receipt of any representations or agreements
from the parties involved, and the placement of any legends on certificates
representing shares of Common Stock, as may be deemed necessary or advisable by
the Company in order to comply with such securities law or other restrictions.
14. PLAN AMENDMENT, MODIFICATION AND TERMINATION.
The Board may suspend or terminate the Plan or any portion thereof at any
time, and may amend the Plan from time to time in such respects as the Board may
deem advisable in order that Incentive Awards under the Plan will conform to any
change in applicable laws or regulations or in any other respect the Board may
deem to be in the best interests of the Company; provided, however, that no
amendments to the Plan will be effective without approval of the stockholders of
the Company if stockholder approval of the amendment is then required pursuant
to Section 422 of the Code or the rules of the New York Stock Exchange. No
termination, suspension or amendment of the Plan may adversely affect any
outstanding Incentive Award without the consent of the affected Participant;
provided, however, that this sentence will not impair the right of the Committee
to take whatever action it deems appropriate under Sections 3.2, 4.3 and 11 of
the Plan.
15. EFFECTIVE DATE AND DURATION OF THE PLAN.
The Plan is effective as of May 9, 1997 or such later date as the Plan is
approved by the Company's stockholders. The Plan will terminate at midnight on
June 30, 2003, and may be terminated prior to such time to by Board action, and
no Incentive Award will be granted after such termination. Incentive Awards
outstanding upon termination of the Plan may continue to be exercised, or become
free of restrictions, in accordance with their terms.
14
<PAGE>
16. MISCELLANEOUS.
16.1 GOVERNING LAW. The validity, construction, interpretation,
administration and effect of the Plan and any rules, regulations and actions
relating to the Plan will be governed by and construed exclusively in accordance
with the laws of the State of Minnesota, notwithstanding the conflicts of laws
principles of any jurisdictions.
16.2 SUCCESSORS AND ASSIGNS. The Plan will be binding upon and inure to
the benefit of the successors and permitted assigns of the Company and the
Participants.
15
<PAGE>
ECOLAB INC.
1997 NON-EMPLOYEE DIRECTOR DEFERRED
COMPENSATION PLAN
1. DESCRIPTION.
1.1 NAME. The name of the Plan is the "Ecolab Inc. 1997 Non-Employee
Director Deferred Compensation Plan."
1.2 PURPOSES. The purposes of the Plan are (a) to provide Qualified
Directors with the opportunity on a one-time basis to convert their existing
accrued benefits under the Director Retirement Plan to balances under this Plan
through credits to their Share Accounts, (b) to provide Qualified Directors who
convert their accrued benefits under the Director Retirement Plan to balances
under this Plan and individuals who first become Qualified Directors at or after
the Effective Time with ongoing periodic credits to their Share Accounts, (c) to
provide Qualified Directors with 50 percent of their Retainer in the form of
credits to their Share Accounts, and (d) to provide Qualified Directors with the
opportunity to defer receipt of Other Director Compensation through credits to
their Share or Cash Accounts.
1.3 TYPE. The Plan is maintained primarily for the purpose of providing
deferred compensation for Qualified Directors and is intended to be unfunded for
tax purposes. The Plan will be construed and administered in a manner that is
consistent with and gives effect to the foregoing.
1.4 BACKGROUND. The Company previously adopted the Director Retirement
Plan, the Director Retainer Plan and the Prior Deferred Compensation Plans. As
of the Effective Time, Qualified Directors must elect either to convert their
existing accrued benefits under the Director Retirement Plan to balances in
their Share Accounts under this Plan, in which case such electing Qualified
Directors (along with individuals first becoming Qualified Directors at or after
the Effective Time) would become entitled to receive the credits to their Share
Accounts pursuant to Section 3.2(b), or to remain under the Director Retirement
Plan, in which case such non-electing Qualified Directors will not be entitled
to receive such annual credits pursuant to Section 3.2(b). In addition, as of
the Effective Time, the Director Retainer Plan will be terminated, and all
Qualified Directors will thereafter receive 50 percent of their Retainer in the
form of credits to their Share Accounts under this Plan. Finally, as of the
Effective Time, all Qualified Directors will become entitled to defer receipt of
Other Director Compensation through credits to their Share or Cash Accounts
under this Plan. Any amounts previously deferred under the Prior Deferred
Compensation Plans will remain subject solely to the terms of such plans, but
all future deferrals of Other Director Compensation will be made solely under
this Plan.
2. PARTICIPATION.
2.1 ELIGIBILITY.
(a) Each individual who is a Qualified Director both immediately
prior to and immediately following the Effective Time is eligible to elect
to convert his or her then existing accrued benefit under the Director
Retirement Plan to a balance in his or her Share Account pursuant to
Section
<PAGE>
3.2(a).
(b) Each individual (i) who has elected to convert his or her accrued
benefit under the Director Retirement Plan as described in Section 2.1(a)
or (ii) who first becomes a Qualified Director at or after the Effective
Time, and, in the case of both clause (i) and (ii), who is a Qualified
Director at any point during the calendar quarter with respect to which a
credit is made pursuant to Section 3.2(b) is eligible to have such credit
made to his or her Share Account pursuant to Section 3.2(b).
(c) Each individual who is a Qualified Director at any point during
the calendar quarter with respect to which a credit is made pursuant to
Section 3.2(c) is eligible to have such credit made to his or her Share
Account pursuant to Section 3.2(c).
(d) Each individual who is a Qualified Director on the first day of a
calendar year is eligible to make deferral elections pursuant to Section
3.2(d) with respect to such calendar year. An individual who becomes a
Qualified Director after the first day of the calendar year is eligible to
make a deferral election pursuant to Section 3.2(d) with respect to the
remainder of such calendar year. A Participant who receives a
distribution, pursuant to Section 4.1(d)(i) or (iv), is not eligible to
elect additional deferrals pursuant to Section 3.2(d) until the one-year
anniversary of such distribution.
2.2 CEASING TO BE ELIGIBLE. An individual who ceases to be a Qualified
Director is not eligible to make or receive further deferral credits pursuant to
Section 3.2 other than such credits relating to the period prior to such
cessation.
2.3 CONDITION OF PARTICIPATION. Each Qualified Director, as a condition
of participation in the Plan, is bound by all the terms and conditions of the
Plan and the Plan Rules, including but not limited to the reserved right of the
Company to amend or terminate the Plan, and must furnish to the Administrator
such pertinent information, and execute such election forms and other
instruments, as the Administrator or Plan Rules may require by such dates as the
Administrator or Plan Rules may establish.
2.4 TERMINATION OF PARTICIPATION. A Participant will cease to be such as
of the date on which he or she is not then eligible to make deferrals and his or
her entire Account balance has been distributed.
2.5 RIGHTS UNDER DIRECTOR RETIREMENT PLAN. Each Qualified Director who
elects to convert his or her then existing accrued balance under the Director
Retirement Plan to a balance in the Share Account under this Plan pursuant to
Section 3.2(a) will, as of the Effective Time and without further action on the
part of such Qualified Director, no longer be eligible to participate in, or to
receive any benefit pursuant to, the Director Retirement Plan.
3. BENEFITS.
3.1 PARTICIPANT ACCOUNTS. For each Participant, the Administrator will
establish and maintain a Cash Account, a Share Account or both to evidence
amounts credited with respect to the Participant pursuant to Sections 3.2 and
3.3.
3.2 DEFERRAL CREDITS.
2
<PAGE>
(a) Each individual who is a Qualified Director who satisfies the
requirements of Section 2.1(a) is eligible to elect to convert his or her
then existing accrued benefit under the Director Retirement Plan to a
balance in the Share Account of such Qualified Director under this Plan.
To make such election, a properly completed election form must be received
by the Administrator by April 30, 1997. The Share Account of a Qualified
Director who makes such an election will be credited as of the Effective
Time with the number of full Share Units determined by dividing the amount
set forth with respect to such Qualified Director on Exhibit A, which
amount represents the entire accrued benefit of such Qualified Director
under the Director Retirement Plan as of the Effective Time, by the average
of the Market Price for the period from February 7, 1997 through May 8,
1997 and rounding such quotient up to the next highest multiple of 50.
(b) As of the first day of the calendar quarter that first follows
the Effective Time and on the first day of each calendar quarter
thereafter, the Share Account of each individual who satisfies the
requirements of Section 2.1(b) will be credited with the number of full and
fractional Share Units determined by multiplying the number of Quarterly
Share Units by a fraction, the numerator of which is the number of days
during such calendar quarter (or the number of days after May 8, 1997 with
respect to the quarter ended June 30, 1997) that the individual served as a
Qualified Director and the denominator of which is the total number of days
in such calendar quarter.
(c) As of the first day of the calendar quarter that first follows
the Effective Time and on the first day of each calendar quarter
thereafter, the Share Account of each individual who is a Qualified
Director at any time during the immediately preceding calendar quarter,
will be credited with the number of full and fractional Share Units
determined by (i) dividing an amount equal to 50 percent of the Retainer
payable by the Company to Qualified Directors for such calendar quarter by
the Market Price on the date as of which such credit is made and (ii)
multiplying such quotient by a fraction, the numerator of which is the
number of days during such calendar quarter (or the number of days after
May 8, 1997 with respect to the quarter ended June 30, 1997) that the
individual served as a Qualified Director and the denominator of which is
the total number of days in such calendar quarter.
(d) Elective deferrals of Other Director Compensation will be made in
accordance with the following rules:
(i) Commencing with respect to services to be performed after
May 8, 1997, a Qualified Director may elect to defer all or any
portion of his or her Other Director Compensation relating to his or
her services as a Qualified Director during a calendar year. Any
portion so elected will automatically apply to the Participant's Other
Director Compensation for the year as adjusted from time to time.
(ii) An election made pursuant to this Section 3.2(d) will not be
effective unless it is made on a properly completed election form
received by the Administrator by the last day of the calendar year
immediately preceding the calendar year to which the election relates
or, in the case of an individual who becomes a Qualified Director
after the first day of the calendar year, within 30 days after the
date such individual becomes a Qualified Director. Notwithstanding
the foregoing, with respect to an initial deferral election pursuant
to Section 3.2(d) that is made in connection with the adoption of this
Plan, such election will be effective if received by the Administrator
by April 30, 1997. Any such election applies only to Other Director
Compensation relating to services performed after the effective date
of the election.
3
<PAGE>
(iii) In conjunction with each deferral election made pursuant to
this Section 3.2(d), a Qualified Director must elect, in accordance
with and subject to Plan Rules, how the deferral is to be allocated
(in increments of five percent only) among his or her Cash Account and
Share Account. Such an election is irrevocable after the latest date
by which the deferral election to which it relates must be received by
the Administrator to be effective.
(iv) Deferrals of Other Director Compensation pursuant to this
Section 3.2(d) will be credited to a Qualified Director's Cash Account
or Share Account, as the case may be, as of the first day of the
calendar month first following the date on which the Other Director
Compensation has been earned and would otherwise be payable but for
his or her deferral election. Such credits to the Qualified
Director's Cash Account will be in United States dollars in an amount
equal to the amount of the deferral allocated to the Cash Account by
the Qualified Director. Such credits to a Qualified Director's Share
Account will be the number of full and fractional Share Units
determined by dividing the United States dollar amount of the deferral
allocated by the Qualified Director to the Share Account by the Market
Price on the date as of which the credit is made.
3.3 EARNINGS CREDITS.
(a) CASH ACCOUNT. As of the first day of each calendar quarter, a
Participant's Cash Account will be credited with interest, calculated on
the basis of the balance in the Participant's Cash Account on the first day
of each month of the immediately preceding calendar quarter, at the Prime
Rate of Morgan Guaranty Trust Company of New York in effect on the first
day of each such month.
(b) SHARE ACCOUNT.
(i) As of the first day of the calendar quarter first following
the date on which dividends are paid on Shares, a Participant's Share
Account will be credited with that number of full and fractional Share
Units determined by dividing the dollar amount of the dividends that
would have been payable to the Participant if the number of Share
Units credited to the Participant's Share Account on the record date
for such dividend payment had then been Shares registered in the name
of such Participant by the Market Price on the date as of which the
credit is made.
(ii) In the event of a reorganization, recapitalization, stock
split, stock dividend, combination of shares, merger, consolidation,
rights offering or any other change in the Company's corporate
structure or Shares, the Administrator will make such adjustment, if
any, as the Administrator may deem appropriate in the number and kind
of Share Units credited to Share Accounts.
(3.4) VESTING. Subject to Section 4.1(d)(iii), each Participant always
has a fully vested nonforfeitable interest in his or her Account.
4. DISTRIBUTION.
4.1 DISTRIBUTION TO PARTICIPANT.
4
<PAGE>
(a) FORM. Distribution to a Participant will be made in the form of
a lump sum payment unless (i) the Participant elects, on a properly
completed form, to receive his or her distribution in the form of annual
installment payments for a period of not more than 10 years and (ii) other
than cessation resulting from Disability, the date on which he or she
ceases to be a member of the Board follows by more than one year the date
on which a properly completed election form is received by the
Administrator. Any election made pursuant to this Section 4.1(a) may be
changed from time to time upon the Administrator's receipt of a properly
completed form, provided that, other than cessation resulting from
Disability, such change will not be valid and will not have any effect
unless it is made on a properly completed form received by the
Administrator more than one year prior to a Participant's cessation of
service as member of the Board. The most recently received election to
change has no effect on any previously received election to change until
the most recently received election becomes effective at which time any
previously received election will automatically be void. (For example, if
the Administrator receives a properly completed election to change on July
1 of year 1 and another properly completed election to change on September
1 of year 1, the July 1 election will become effective on July 1 of year 2
and will remain in effect through August 30 of year 2. On September 1 of
year 2, the September 1 election to change will become effective.) Any
election made pursuant to this Section 4.1(a) will apply to the entire
balance of the Participant's Account attributable to deferral credits with
respect to the period through the date on which he or she ceases to be a
member of the Board. Any distribution from a Participant's Cash Account
will be made in cash only. Subject to Section 4.3, any distribution from a
Participant's Share Account will be made in full Shares only and cash in
lieu of any fractional Share.
(b) TIME. Distribution to a Participant will be made or commence on
or as soon as administratively practicable after the first day of the
calendar quarter that follows the date on which the Participant ceases to
be a member of the Board.
(c) AMOUNT.
(i) CASH ACCOUNT.
(A) LUMP SUM. The amount of a lump sum payment from a
Participant's Cash Account will be equal to the balance of the
Account as of the first day of the calendar month coinciding with
or immediately preceding the date on which the payment is made.
(B) INSTALLMENTS. The amount of an installment payment
from a Participant's Cash Account will be determined by dividing
the balance of the Account as of the first day of the calendar
month coinciding with or immediately preceding the date on which
the payment is made by the total number of remaining payments
(including the current payment).
(ii) SHARE ACCOUNT.
(A) LUMP SUM. A lump sum distribution from a Participant's
Share Account will consist of the number of Shares equal to the
number of full Share Units credited to the Account as of the
first day of the calendar month coinciding with or immediately
preceding the date on which the distribution is made plus cash in
lieu of any fractional Share Units then credited to the Account
in an amount based on the
5
<PAGE>
Market Price on that date.
(B) INSTALLMENTS. Installment distributions from a
Participant's Share Account, other than the final distribution,
will consist of the number of Shares determined by dividing the
number of full Share Units credited to the Account as of the
first day of the calendar month coinciding with or immediately
preceding the date on which the distribution is made by the total
number of remaining payments (including the current payment) and
rounding the quotient to the next higher full Share. The amount
of the final payment will be determined in accordance with clause
(A).
(d) SPECIAL RULES. The provisions of this Section 4.1(d) will apply
notwithstanding Section 4.1(a), (b) or (c) or any election by a Participant
to the contrary; provided, however, that, prior to the time that a
Participant ceases to be a member of the Board, distributions pursuant to
Sections 4.1(d)(i) and (iv) may only be made with respect to amounts
credited to a Participant's Account pursuant to Sections 3.2(c) and (d) and
any earnings with respect thereto credited pursuant to Section 3.3.
(i) WITHDRAWALS DUE TO UNFORESEEABLE EMERGENCY. A distribution
will be made to a Participant from his or her Share or Cash Account if
the Participant submits a written distribution request to the
Administrator and the Administrator determines that the Participant
has experienced an Unforeseeable Emergency. The amount of the
distribution may not exceed the lesser of (a) the amount necessary to
satisfy the emergency, as determined by the Administrator, or (b) the
balance of the Participant's Account as of the date of the
distribution determined in accordance with Section 4.1(c). Payments
made on account of an Unforeseeable Emergency will not be made to the
extent that such Unforeseeable Emergency is or may be relieved through
reimbursement or compensation by insurance or otherwise, by
liquidation of the Participant's assets (to the extent that such
liquidation would not itself cause severe financial hardship) or by
cessation of deferrals under Section 3.2(d). Any distribution
pursuant to this Section 4.1(d)(i) will be made in the form of a lump
sum payment (in cash from the Cash Account and in Shares from the
Share Account) as soon as administratively practicable after the
Administrator's determination that the Participant has experienced an
Unforeseeable Emergency and will be made first from the Participant's
Cash Account and then from the Participant's Share Account, with the
amount distributed from the Share Account determined based upon the
Market Price as of the first day of the calendar month coinciding with
or immediately preceding the date on which the distribution is made.
(ii) SMALL BENEFITS. If the balance of the Cash Account of a
Participant who has ceased to be a member of the Board is less than
$5,000 as of the first day of a calendar month, such balance will be
distributed to the Participant in the form of a lump sum cash payment
as soon as administratively practicable thereafter.
(iii) FORFEITURE PROVISIONS. Other than amounts credited to a
Participant's Account pursuant to Sections 3.2(c) and (d) and any
earnings with respect thereto credited pursuant to Section 3.3,
neither the Company nor the Trust will be obligated to pay or provide
to a Participant any future benefits under this Plan, if the Board
determines that such Participant, without the consent of the Company
and whether before or after such Participant ceases to serve as a
director of the Company, has engaged in an activity that is
competitive or
6
<PAGE>
materially detrimental to the Company's business.
(iv) ACCELERATED DISTRIBUTION. A Participant may, at any time, elect
an immediate distribution of his or her Account in an amount equal to 90
percent of the balance of the Account as of the date of the distribution
determined in accordance with Section 4.1(c), in which case the remaining
balance of the Account will be forfeited. The distribution will be made in
the form of a lump sum payment as soon as administratively practicable
after the Administrator's receipt of a written application on a form
furnished by the Administrator. Any distribution from a Participant's Cash
Account will be made in cash only. Any distribution from a Participant's
Share Account will be made in full Shares only and cash in lieu of any
fractional Share.
(c) REDUCTION OF ACCOUNT BALANCE. The balance of the Account from
which a distribution is made will be reduced by the amount of the
distribution as of the date of the distribution.
4.2 DISTRIBUTION TO BENEFICIARY.
(a) FORM. In the event of a Participant's death, the balance of the
Participant's Account will be distributed to the Participant's Beneficiary
in a lump sum payment whether or not payments had commenced to the
Participant in the form of installments prior to his or her death. Any
distribution from a Participant's Cash Account will be made in cash and any
distribution from a Participant's Share Account will be made in full Shares
and cash in lieu of any fractional Share.
(b) TIME. Distribution to a Beneficiary will be made as soon as
administratively practicable after the date on which the Administrator
receives notice of the Participant's death.
(c) AMOUNT. The amount of the payment will be determined in
accordance with Section 4.1(c).
(d) REDUCTION OF ACCOUNT BALANCE. The balance of the Account from
which a distribution is made will be reduced by the amount of the
distribution as of the date of the distribution.
(e) BENEFICIARY DESIGNATION.
(i) Each Participant may designate, on a form furnished by the
Administrator, one or more primary Beneficiaries or alternative
Beneficiaries to receive all or a specified part of his or her Account
after his or her death, and the Participant may change or revoke any
such designation from time to time. No such designation, change or
revocation is effective unless executed by the Participant and
received by the Administrator during the Participant's lifetime.
(ii) If, for all or any portion of his or her Account, a
Participant fails to designate a Beneficiary, revokes a Beneficiary
designation without naming another Beneficiary or designates one or
more Beneficiaries, none of whom survives the Participant or exists at
the time in question, such Account or portion will be paid to the
Participant's surviving spouse or, if the Participant is not survived
by a spouse, to the representative of the Participant's estate.
7
<PAGE>
(iii) The automatic Beneficiaries specified above and, unless the
designation otherwise specifies, the Beneficiaries designated by the
Participant, become fixed as of the Participant's death so that, if a
Beneficiary survives the Participant but dies before the receipt of
the payment due such Beneficiary, the payment will be made to the
representative of such Beneficiary's estate. Any designation of a
Beneficiary by name that is accompanied by a description of
relationship or only by statement of relationship to the Participant
is effective only to designate the person or persons standing in such
relationship to the Participant at the Participant's death.
4.3 LIMITATIONS ON SHARE DISTRIBUTIONS. Notwithstanding any other
provision of the Plan to the contrary, neither the Company nor the Trustee is
required to issue or distribute any Shares under this Plan, and a distributee
may not sell, assign, transfer or otherwise dispose of Shares issued or
distributed pursuant to the Plan, unless (a) there is in effect with respect to
such Shares a registration statement under the Securities Act of 1933 and any
applicable state securities laws or an exemption from such registration under
the Securities Act of 1933 and applicable state securities laws, and (b) there
has been obtained any other consent, approval or permit from any other
regulatory body which the Company deems necessary or advisable. The Company or
the Trustee may condition such issuance, distribution, sale or transfer upon the
receipt of any representations or agreements from the parties involved, and the
placement of any legends on certificates representing Shares, as may be deemed
necessary or advisable by the Company in order to comply with such securities
laws or other restrictions.
4.4 PAYMENT IN EVENT OF INCAPACITY. If any individual entitled to receive
any payment under the Plan is, in the judgment of the Administrator, physically,
mentally or legally incapable of receiving or acknowledging receipt of the
payment, and no legal representative has been appointed for the individual, the
Administrator may (but is not required to) cause the payment to be made to any
one or more of the following as may be chosen by the Administrator: the
Beneficiary (in the case of the incapacity of a Participant); the institution
maintaining the individual; a custodian for the individual under the Uniform
Transfers to Minors Act of any state; or the individual's spouse, children,
parents, or other relatives by blood or marriage. The Administrator is not
required to see to the proper application of any such payment, and the payment
completely discharges all claims under the Plan against the Company, the Plan
and the Trust to the extent of the payment.
5. SOURCE OF PAYMENTS; NATURE OF INTEREST.
5.1 ESTABLISHMENT OF TRUST. The Company may establish a Trust with an
independent corporate trustee. The Trust must be a grantor trust with respect
to which the Company is treated as grantor for purposes of Code section 677 and
must provide that, upon the insolvency of the Company, Trust assets will be used
to satisfy claims of the Company's general creditors. The Company will pay all
taxes of any and all kinds whatsoever payable in respect of the Trust assets or
any transaction with respect to the Trust assets. The Company may from time to
time transfer to the Trust cash, marketable securities or other property
acceptable to the Trustee in accordance with the terms of the Trust.
5.2 SOURCE OF PAYMENTS.
(a) The Company will pay, from its general assets, the benefits
pursuant to Section 4 attributable to a Participant's Account, and all
costs, charges and expenses relating thereto.
(b) The Trustee will make distributions to Participants and
Beneficiaries from the Trust
8
<PAGE>
in satisfaction of the Company's obligations under the Plan in accordance
with the terms of the Trust. The Company is responsible for paying any
benefits attributable to a Participant's Account that are not paid by the
Trust.
5.3 STATUS OF PLAN. Nothing contained in the Plan or Trust is to be
construed as providing for assets to be held for the benefit of any Participant
or any other person or persons to whom benefits are to be paid pursuant to the
terms of the Plan, the Participant's or other person's only interest under the
Plan being the right to receive the benefits set forth herein. The Trust is
established only for the convenience of the Company and the Participants, and no
Participant has any interest in the assets of the Trust prior to distribution of
such assets pursuant to the Plan. Until such time as Shares are distributed to
a Participant, Beneficiary of a deceased Participant or other person, he or she
has no rights as a shareholder with respect to any Shares Units credited to a
Share Account pursuant to the Plan. To the extent that the Participant or any
other person acquires a right to receive benefits under the Plan or the Trust,
such right is no greater than the right of any unsecured general creditor of the
Company.
5.4 NON-ASSIGNABILITY OF BENEFITS. The benefits payable under the Plan
and the right to receive future benefits under the Plan may not be anticipated,
alienated, sold, transferred, assigned, pledged, encumbered, or subjected to any
charge or legal process.
6. AMENDMENT AND TERMINATION.
6.1 AMENDMENT.
(a) The Company reserves the right to amend the Plan at any time to
any extent that it may deem advisable. To be effective, an amendment must
be stated in a written instrument approved in advance or ratified by the
Board and executed in the name of the Company by its Chief Executive
Officer or President and attested by the Secretary or an Assistant
Secretary.
(b) An amendment adopted in accordance with Section 6.1(a) is binding
on all interested parties as of the effective date stated in the amendment;
provided, however, that no amendment will have any retroactive effect so as
to deprive any Participant, or the Beneficiary of a deceased Participant,
of any benefit to which he or she is entitled under the terms of the Plan
in effect immediately prior to the effective date of the amendment,
determined as if such Participant had terminated service as a director
immediately prior to the effective date of the amendment.
(c) Without limiting Section 6.1(a), the Company reserves the right
to amend this Plan to change the method of determining the earnings
credited to Participants' Accounts pursuant to Section 3.3 and to apply
such new method not only with respect to the portion of the Accounts
attributable to credits made after the date on which such amendment is
adopted but also with respect to the portion of the Accounts attributable
to credits made prior to the date on which such amendment is adopted and
regardless of whether such new method would result in materially lower
earnings credits than the old method.
(d) The provisions of the Plan in effect at the termination of a
Participant's service as a director will, except as otherwise expressly
provided by a subsequent amendment, continue to apply to such Participant.
9
<PAGE>
6.2 TERMINATION. The Company reserves the right to terminate the Plan at
any time. The Plan will terminate as of the date specified by the Company in a
written instrument by its authorized officers to the Administrator, adopted in
the manner of an amendment. Upon the termination of the Plan, any benefits to
which Participants have become entitled prior to the effective date of the
termination will continue to be paid in accordance with the provisions of
Section 4.
7. DEFINITIONS, CONSTRUCTION AND INTERPRETATION.
The definitions and rules of construction and interpretation set forth in
this Section 7 apply in construing the Plan unless the context otherwise
indicates.
7.1 ACCOUNT. "Account" means the bookkeeping account or accounts
maintained with respect to a Participant pursuant to Section 3.1.
7.2 ADMINISTRATOR. The "Administrator" of the Plan is the Governance
Committee of the Board or such other committee or person to whom administrative
duties are delegated pursuant to the provisions of Section 8.1, as the context
requires.
7.3 BENEFICIARY. "Beneficiary" with respect to a Participant is the
person designated or otherwise determined under the provisions of Section 4.2(e)
as the distributee of benefits payable after the Participant's death. A person
designated or otherwise determined to be a Beneficiary under the terms of the
Plan has no interest in or right under the Plan until the Participant in
question has died. A Beneficiary will cease to be such on the day on which all
benefits to which he, she or it is entitled under the Plan have been
distributed.
7.4 BOARD. "Board" means the board of directors of the Company.
7.5 CASH ACCOUNT. "Cash Account" means an Account to which amounts are
credited in U.S. dollars.
7.6 CODE. "Code" means the Internal Revenue Code of 1986, as amended.
Any reference to a specific provision of the Code includes a reference to that
provision as it may be amended from time to time and to any successor provision.
7.7 COMPANY. "Company" means Ecolab Inc.
7.8 CROSS REFERENCE. References in the Plan to a particular section refer
to that section within the Plan, references within a section of the Plan to a
particular subsection refer to that subsection within the same section, and
references within a section or subsection to a particular clause refer to that
clause within the same section or subsection, as the case may be.
7.9 DIRECTOR RETAINER PLAN. "Director Retainer Plan" means the Ecolab
Inc. Non-Employee Director Stock-for-Retainer Plan.
7.10 DIRECTOR RETIREMENT PLAN. "Director Retirement Plan" means the Ecolab
Inc. Non-Employee Directors' Retirement Plan, as amended February 24, 1990.
10
<PAGE>
7.11 DISABILITY. "Disability" means the total disability of a Qualified
Director. Such total disability will be deemed to have occurred if the
Administrator finds on the basis of medical evidence satisfactory to it that the
Qualified Director is prevented from engaging in any suitable gainful employment
or occupation and that such disability will be permanent and continuous during
the remainder of his or her life.
7.12 EFFECTIVE TIME. "Effective Time" means May 9, 1997.
7.13 GOVERNING LAW. All questions pertaining to the construction,
validity, effect and enforcement of the Plan will be determined in accordance
with the internal, substantive laws of the State of Minnesota without regard to
the conflict of laws rules of the State of Minnesota or any other jurisdiction.
7.14 HEADINGS. The headings of sections are included solely for
convenience of reference; if there exists any conflict between such headings and
the text of the Plan, the text will control.
7.15 MARKET PRICE. "Market Price" means the closing sale price for Shares
on a specified date or, if Shares were not then traded, on the most recent prior
date when Shares were traded, all as quoted in The Wall Street Journal reports
of New York Stock Exchange - Composite Transactions.
7.16 NUMBER AND GENDER. Wherever appropriate, the singular may be read as
the plural, the plural may be read as the singular, and one gender may be read
as the other gender.
7.17 OTHER DIRECTOR COMPENSATION. "Other Director Compensation" means all
amounts payable by the Company to a Qualified Director for his or her services
to the Company as a Qualified Director, (a) including, without limitation, fees
specifically paid for attending or chairing regular or special meetings of the
Board and Board committees and the portion of the Retainer that is not deferred
pursuant to Section 3.2(c), but (b) excluding the portion of the Retainer that
is deferred pursuant to Section 3.2(c), expense allowances or reimbursements and
insurance premiums
7.18 PARTICIPANT. "Participant" is a current or former Qualified Director
to whose Account amounts have been credited pursuant to Section 3 and who has
not ceased to be a Participant pursuant to Section 2.4.
7.19 PLAN. "Plan" means the Ecolab Inc. 1997 Non-Employee Director
Deferred Compensation Plan, as from time to time amended or restated.
7.20 PLAN RULES. "Plan Rules" are rules, policies, practices or procedures
adopted by the Administrator pursuant to Section 8.2.
7.21 PRIOR DEFERRED COMPENSATION PLANS. "Prior Deferred Compensation
Plans" means the Ecolab Inc. Deferred Compensation Plan for Non-Employee
Directors - 1986 and the Ecolab Inc. Deferred Compensation Plan for Non-Employee
Directors, as amended.
7.22 QUALIFIED DIRECTOR. "Qualified Director" means an individual who is a
member of the Board and who is not an employee of the Company or any of its
subsidiaries.
7.23 QUARTERLY SHARE UNITS. "Quarterly Share Units" means the number of
Share Units equal to the number that results from (a) dividing $11,500 by the
average of the Market Price for the period from
11
<PAGE>
February 7, 1997 through May 8, 1997 and rounding the resulting quotient to the
next highest multiple of 25, and (b) dividing the amount that results from such
rounding by four.
7.24 RETAINER. "Retainer" means the amount payable by the Company to a
Qualified Director for holding office as a Qualified Director, exclusive of fees
specifically paid for attending regular or special meetings of the Board and
Board committees, fees for acting as chair of the Board or a Board committee,
expense allowances or reimbursements, insurance premiums, charitable gift
matching contributions and any other payments that are determined by reference
to factors other than holding office as a Qualified Director.
7.25 SECURITIES ACT. "Securities Act" means the Securities Act of 1933, as
amended. Any reference to a specific provision of the Securities Act includes a
reference to that provision as it may be amended from time to time and to any
successor provision.
7.26 SHARE ACCOUNT. "Share Account" means an Account to which amounts are
credited in Share Units.
7.27 SHARE UNITS. "Share Units" means a unit credited to a Participant's
Share Account pursuant to the Plan, each of which represents the equivalent of
one Share.
7.28 SHARES. "Shares" means shares of common stock of the Company, $1.00
par value, or such other class or kind of shares or other securities as may be
applicable pursuant to Section 3.3(b)(ii) or Section 9.6(b).
7.29 TRUST. "Trust" means any trust or trusts established by the Company
pursuant to Section 5.1.
7.30 TRUSTEE. "Trustee" means the independent corporate trustee or
trustees that at the relevant time has or have been appointed to act as Trustee
of the Trust.
7.31 UNFORESEEABLE EMERGENCY. "Unforeseeable Emergency" means an
unanticipated emergency that is caused by an event beyond the Participant's
control resulting in a severe financial hardship that cannot be satisfied
through other means. The existence of an unforeseeable emergency will be
determined by the Administrator.
8. ADMINISTRATION.
8.1 ADMINISTRATOR. The general administration of the Plan and the duty to
carry out its provisions will be vested in the Governance Committee of the Board
or such other Board committee as may be subsequently designated as Administrator
by the Board. Such committee may delegate such duty or any portion thereof to a
named person and may from time to time revoke such authority and delegate it to
another person.
8.2 PLAN RULES AND REGULATIONS. The Administrator has the discretionary
power and authority to make such Plan Rules as the Administrator determines to
be consistent with the terms, and necessary or advisable in connection with the
administration, of the Plan and to modify or rescind any such Plan Rules. In
addition, the Administrator has the discretionary power and authority to limit
application of Plan provisions and Plan Rules as the Administrator determines to
be necessary or advisable to facilitate tax deferral treatment
12
<PAGE>
for amounts credited with respect to non-U.S. resident Participants.
8.3 ADMINISTRATOR'S DISCRETION. The Administrator has the sole
discretionary power and authority to make all determinations necessary for
administration of the Plan, except those determinations that the Plan requires
others to make, and to construe, interpret, apply and enforce the provisions of
the Plan and Plan Rules whenever necessary to carry out its intent and purpose
and to facilitate its administration, including, without limitation, the
discretionary power and authority to remedy ambiguities, inconsistencies,
omissions and erroneous benefit calculations. In the exercise of its
discretionary power and authority, the Administrator will treat all similarly
situated persons uniformly.
8.4 SPECIALIST'S ASSISTANCE. The Administrator may retain such actuarial,
accounting, legal, clerical and other services as may reasonably be required in
the administration of the Plan, and may pay reasonable compensation for such
services. All costs of administering the Plan will be paid by the Company.
8.5 INDEMNIFICATION. The Company agrees to indemnify and hold harmless,
to the extent permitted by law, each director, officer and employee of the
Company and any subsidiary or affiliate of the Company against any and all
liabilities, losses, costs and expenses (including legal fees) of every kind and
nature that may be imposed on, incurred by, or asserted against such person at
any time by reason of such person's services in connection with the Plan, but
only if such person did not act dishonestly or in bad faith or in willful
violation of the law or regulations under which such liability, loss, cost or
expense arises. The Company has the right, but not the obligation, to select
counsel and control the defense and settlement of any action for which a person
may be entitled to indemnification under this provision.
9. MISCELLANEOUS.
9.1 WITHHOLDING AND OFFSETS. The Company and the Trustee retain the right
to withhold from any compensation, deferral and/or benefit payment pursuant to
the Plan, any and all tax as the Company or Trustee deems necessary, and the
Company and the Trustee may offset against amounts payable to a Participant or
Beneficiary under the Plan any amounts then owing to the Company by such
Participant or Beneficiary. The Company or the Trustee, as the case may be, in
its sole discretion, may permit Participants to elect whether to satisfy their
obligations under this Section 9.1 by having such amounts withheld from any
compensation, deferral and/or benefit payment pursuant to the Plan or by
remitting such amounts to the Company or the Trustee, or by a combination of
such methods.
9.2 OTHER BENEFITS. Neither amounts deferred nor amounts paid pursuant to
the Plan constitute salary or compensation for the purpose of computing benefits
under any other benefit plan, practice, policy or procedure of the Company
unless otherwise expressly provided thereunder.
9.3 NO WARRANTIES REGARDING TAX TREATMENT. The Company makes no
warranties regarding the tax treatment to any person of any deferrals or
payments made pursuant to the Plan, and each Participant will hold the
Administrator and the Company and their officers, directors, employees, agents
and advisors harmless from any liability resulting from any tax position taken
in good faith in connection with the Plan.
9.4 NO RIGHTS TO CONTINUED SERVICE CREATED. Neither the establishment of
or participation in the Plan gives any individual the right to continued service
on the Board or limits the right of the Company or its stockholders to terminate
or modify the terms and conditions of service of such individual on the Board or
otherwise deal with any individual without regard to the effect that such action
might have on him or her
13
<PAGE>
with respect to the Plan.
9.5 SUCCESSORS. Except as otherwise expressly provided in the Plan, all
obligations of the Company under the Plan are binding on any successor to the
Company whether the existence of such successor is the result of a direct or
indirect purchase, merger, consolidation or otherwise of all or substantially
all of the business and/or assets of the Company.
9.6 SHARES AVAILABLE FOR ISSUANCE.
(a) MAXIMUM NUMBER OF SHARES AVAILABLE. Subject to adjustment as
provided in subsection (b) below, the maximum number of Shares that will be
available for issuance under the Plan will be 125,000 Shares. The Shares
available for issuance under the Plan may, at the election of the
Administrator, be either treasury shares or shares authorized but unissued,
and, if treasury shares are used, all references in the Plan to the
distribution or issuance of Shares will, for corporate law purposes, be
deemed to mean the transfer of shares from treasury.
(b) ADJUSTMENT TO SHARES. In the event of any reorganization,
merger, consolidation, recapitalization, liquidation, reclassification,
stock dividend, stock split, combination of shares, rights offering,
divestiture or extraordinary dividend (including a spin-off) or any other
change in the Company's corporate structure or the Shares, the
Administrator (or, if the Company is not the surviving corporation in any
such transaction, the board of directors of the surviving corporation) will
make appropriate adjustment (which determination will be conclusive) as to
the number and kind of securities or other property (including cash)
available for issuance or distribution under the Plan.
14
<PAGE>
EXHIBIT A
TO 1997 NON-EMPLOYEE DIRECTOR DEFERRED
COMPENSATION PLAN
DIRECTOR ACCRUED BENEFIT AT 5/9/97
-------- -------------------------
Ruth S. Block $144,219
Russell G. Cleary $193,262
James J. Howard $ 66,253
Reuben F. Richards $173,315
Richard L. Schall $284,950
Philip L. Smith $ 91,337
Albrecht Woeste $ 63,393
Hugo Uyterhoeven $ 72,920
Roland Schulz $ 30,119
Jerry W. Levin $ 31,055
Joel W. Johnson $ 8,203
<PAGE>
ECOLAB
MIRROR SAVINGS PLAN
SECOND 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. Subsection 3.3(2)(a) of the Plan is hereby amended to read as follows:
"(a) IN GENERAL. Except as described in paragraph (b) of this
Subsection, the Employers shall credit the Account of an Executive with a
Matching Contribution equal to 50% of the Executive's Bonus Deferrals
hereunder which Bonus Deferrals do not exceed the lesser of (i) 6% of the
Executive's Bonus, or (ii) the excess of the Executive's Base Salary and
Bonus in respect to the Plan Year in which the Bonus was earned (excluding
severance) over the maximum compensation which could be considered under
the Savings Plan in such Plan Year under Section 401(a)(17) of the Code."
2. This amendment to the Plan shall be effective as of January 1, 1997.
IN WITNESS WHEREOF, the Company has caused this instrument to be executed by its
authorized officers and its corporate seal affixed, this 2nd day of December,
1996.
ECOLAB INC.
(Seal)
By: /s/ Michael E. Shannon
-----------------------------------------
Michael E. Shannon
Chairman of the Board, Chief Financial
and Administrative Officer
Attest: /s/ Kenneth A. Iverson
--------------------------------
Kenneth A. Iverson
Vice President and Secretary
<PAGE>
EXHIBIT (10)T
DESCRIPTION OF ECOLAB INC.
MANAGEMENT INCENTIVE PLAN
The Ecolab Inc. Management Incentive Plan ("MIP") is not set forth in a
formal plan document. Set forth below is a description of the MIP as it
applies to the executive officers of Ecolab Inc. (the "Company").
The MIP is a cash-based annual incentive plan that focuses executives'
attention on achieving competitive annual business goals. The Compensation
Committee of the Company's Board of Directors (the "Committee"), with input
from management, sets specific performance goals at the beginning of each
year and communicates them to the Company's executives. The Committee also
establishes median awards, which are set at a level which approximates median
annual incentive targets expressed as a percentage of base salary of a
comparator group consisting of a broad range of United States manufacturing
and service companies. Achievement of median performance goals will result in
a median award, while achievement of performance levels below or above the
median performance goal will result in minimum, premium or maximum awards.
Executives with corporate-wide responsibility earn awards based solely
on the achievement of Earnings Per Share ("EPS") goals. The Committee
establishes annual EPS levels that must be achieved to receive minimum,
median, premium and maximum awards. The compounded annual EPS growth over
three-year periods for the Standard & Poor's 500 Index is the basis for the
EPS goals.
Executives with business-unit responsibility earn MIP awards by meeting
unit-specific operating income goals. Other financial or strategic factors
including, but not limited to, sales, cash flow and management of assets and
working capital, may also affect the size of the awards provided that the
operating income thresholds are met. The weight of each performance measure
varies among business units. Notwithstanding the above, the performance
measures for certain executives with business-unit responsibility will also
include achievement of EPS goals.
The Committee, in general, makes awards based strictly on level of
achievement against pre-established goals. However, under the MIP, the
Committee may, in its sole discretion, make awards at a level higher or lower
than that determined by strict application of achievement against goals based
upon such other business criteria as the Committee determines appropriate.
<PAGE>
Exhibit (11)
ECOLAB INC.
COMPUTATION OF PRIMARY AND FULLY DILUTED EARNINGS PER SHARE
(thousands, except per share)
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Income before extraordinary loss and
cumulative effect of change in
accounting - primary and fully
diluted earnings per share computation $113,185 $ 99,189 $ 84,562 $ 82,772 $ 71,488
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Extraordinary loss related to retirement
of debt - primary and fully diluted
earnings per share computation $ - $ - $ - $ (4,018) $ -
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Cumulative effect of change in
accounting for income taxes - primary
and fully diluted earnings per share
computation $ - $ - $ - $ 4,733 $ -
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Net Income - primary and fully diluted
earnings per share computation $113,185 $ 99,189 $ 84,562 $ 83,487 $ 71,488
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Average shares outstanding - primary
earnings per share computation and
fully diluted loss per share
computation 64,496 66,097 67,550 67,528 67,204
Additional shares outstanding, assuming
exercise of dilutive stock options
and acquisition of treasury shares at
higher of the average or ending market
price 2,290 1,863 1,103 1,351 1,022
-------- -------- -------- -------- --------
Average shares outstanding - fully
diluted earnings per share computation 66,786 67,960 68,653 68,879 68,226
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Income (Loss) Per Common Share
Primary
Before extraordinary loss and
cumulative effect of change in
accounting $ 1.75 $ 1.50 $ 1.25 $ 1.23 $ 1.06
Extraordinary loss - - - (0.06) -
Changes in accounting principles - - - 0.07 -
Net income $ 1.75 $ 1.50 $ 1.25 $ 1.24 $ 1.06
Fully diluted
Before extraordinary loss and
cumulative effect of change in
accounting $ 1.69 $ 1.46 $ 1.23 $ 1.20 $ 1.05
Extraordinary loss - - - (0.06) -
Changes in accounting principles - - - 0.07 -
Net income $ 1.69 $ 1.46 $ 1.23 $ 1.21 $ 1.05
</TABLE>
<PAGE>
FINANCIAL DISCUSSION
The following discussion and analysis provides information which 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.
1996 Overview 1996 marked the fifth consecutive year that Ecolab achieved record
financial results. As a result
of its strong performance, Ecolab's stock price rose 25 percent during 1996,
following an increase of over 40 percent in 1995. The company's more significant
accomplishments included:
- - For the second time in the last three years, the company exceeded all three of
its long-term financial objectives of 15 percent growth in net income per common
share, 20 percent return on beginning shareholders' equity and an investment
grade balance sheet.
- - For the second year in a row, all of the company's established
businesses achieved record sales and income results.
- - Consolidated net sales increased 11 percent reaching a record of nearly $1.5
billion.
- - Net income reached a record $113 million, or $1.75 per share. Net income per
common share increased 17 percent, exceeding the company's long-term objective
of 15 percent.
- - Consolidated cash flow from operating activities increased more than 50
percent and debt was maintained at a very low level. Ecolab maintained its long-
term financial objective of an investment grade balance sheet and the company's
debt was rated within the "A" categories by the major rating agencies.
- - Return on beginning shareholders' equity reached an all time high of 24.8
percent. This was the fifth consecutive year that the company exceeded its long-
term financial objective to achieve a 20 percent return on beginning
shareholders' equity.
- - The company's equity in earnings of the Henkel-Ecolab joint venture reached a
record $13 million for 1996. Also, one of Ecolab's financial executives became
the new chief financial officer of Henkel-Ecolab in December 1996.
- - The company increased its annual dividend rate for the
fifth consecutive year. The annual dividend rate was increased 14 percent to an
annual rate of $0.64 per common share.
The company has paid dividends on its common stock for
60 consecutive years.
- - During 1996, the company made two significant business acquisitions. In
February, the company acquired Huntington Laboratories, Inc., a supplier of
sanitizing and infection-control products for the U.S. healthcare market and a
supplier of gym floor finishes. Huntington had annual sales of approximately $50
million and has become a part of the company's Professional Products Division.
In August, 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 annual sales of approximately
$30 million and has become a part of the company's Food
and Beverage Division.
These acquisitions have been accounted for as purchases and, accordingly, the
results of their operations have been included in the company's financial
statements from the dates of acquisition.
OPERATING RESULTS
Consolidated
(thousands, except per share) 1996 1995 1994
- ------------------------------------------------------------------------------
Net sales $1,490,009 $1,340,881 $1,207,614
Operating income $ 185,317 $ 162,686 $ 136,964
Net income
As reported $ 113,185 $ 99,189 $ 84,562
Merger costs and expenses 6,900
Kay net deferred tax liability 1,300
Kay Subchapter S status (2,298)
- ------------------------------------------------------------------------------
Pro forma $ 113,185 $ 99,189 $ 90,464
- ------------------------------------------------------------------------------
Net income per common share
As reported $ 1.75 $ 1.50 $ 1.25
Pro forma $ 1.75 $ 1.50 $ 1.34
- ------------------------------------------------------------------------------
Consolidated net sales were nearly $1.5 billion in 1996
and increased 11 percent over net sales of $1.3 billion in 1995. Both the
company's United States and International operations contributed to this sales
improvement. Businesses acquired during 1996 and during late 1995 accounted for
approximately
[GRAPH]
ECOLAB 1996 ANNUAL REPORT 24
<PAGE>
FINANCIAL DISCUSSION
one-half of the growth in sales for 1996. New product introductions also
continued to contribute significantly to sales growth, with additions to the
sales-and-service force, competitive gains and generally good business
conditions in the hospitality and lodging industries also adding to the sales
improvement.
Consolidated operating income reached $185 million in 1996, an increase of 14
percent over operating income of
$163 million in 1995. This improvement included good growth in the company's
core U.S. Institutional operations and double-digit growth in all of the
company's other U.S. businesses and
in all major regions of International operations. The consolidated operating
income margin was 12.4 percent in 1996, an improvement over the operating income
margin of 12.1 percent in 1995. The increase in the operating income margin
reflected an improvement in selling, general and administrative expenses as a
percentage of net sales, partially offset by a decrease in the gross profit
margin. The gross profit margin was 54.7 percent in 1996, a decrease compared to
the gross profit margin of 55.0 percent in 1995. The decrease in gross profit
margin reflected changes in the composition of sales between divisions and
geographic areas, limited selling price increases due to continuing market
pressures and increased raw material costs. Selling, general and administrative
costs were 42.3percent of net sales in 1996 compared to 42.9 percent of net
sales in 1995. This improvement in selling, general and administrative costs was
primarily due to improved sales productivity levels and
the company's continuing cost control efforts. The company's emphasis on cost
controls has resulted in significant cost savings over the last few years.
Therefore, the company expects that it will be more difficult to achieve
significant improvement in the comparison of these expenses as a percentage of
net sales in the future.
Net income for 1996 was $113 million, an increase of 14percent over net income
of $99 million in 1995. The increase in net income reflected strong operating
income performance and increased equity in earnings of the Henkel-Ecolab joint
venture, partially offset by increases in net interest expense
and income taxes. Net income per common share was $1.75 for 1996 and increased
17 percent over 1995's net income
per common share of $1.50. The comparison of net income per common share
benefitted from a smaller number of average shares outstanding in 1996,
principally 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.
1995 COMPARED WITH 1994
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. New product introductions and a larger
sales-and-service force made significant contributions to the sales improvement.
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, 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, 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.
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 on a basis consistent with
the way it has been reported subsequent to the company's merger with Kay. The
pro forma adjustments are discussed in detail in Note 5 of the notes to
consolidated financial statements. 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 common share of
$1.50 increased 12 percent over pro forma net income per common share of $1.34
in 1994. The comparison of net income per common share benefitted from a smaller
number of average shares outstanding in 1995 due to shares purchased under the
mid-1995 self-tender offer.
25 ECOLAB 1996 ANNUAL REPORT
<PAGE>
FINANCIAL DISCUSSION
UNITED STATES
(thousands) 1996 1995 1994
- ------------------------------------------------------------------------------
Net sales $1,148,778 $1,030,126 $942,070
Operating income $ 164,886 $ 147,330 $134,510
Percent of sales 14.4% 14.3% 14.3%
- ------------------------------------------------------------------------------
Sales of the company's United States operations exceeded $1.1 billion in 1996,
an increase of 12 percent over United States sales of $1.0 billion in 1995. U.S.
sales growth reflected business acquisitions and the benefits of significant new
product introductions, as well as new customers, retention of key customers,
investments in the sales-and-service force and continued good business trends in
the hospitality and lodging industries. However, selling price increases were
limited due to tight pricing conditions in several of the markets in which the
company does business. Business acquisitions accounted for approximately one-
half of the increase in United States sales. Sales of the U.S. Institutional
Division increased 4 percent for 1996. Institutional sales growth reflected
competitive gains and continued strong growth in its Ecotemp program and the
specialty products group. Pest Elimination sales increased 12percent over the
prior year reflecting new business and a continued high retention of key
customers. Kay's United States operations reported sales growth of 11 percent
for 1996 due to new customer business and the growth of the large quickservice
chains, which are the core of Kay's business. The Textile Care Division reported
sales growth of 9 percent for 1996 with continued success in sales of new
products and double-digit growth in sales to the commercial laundry market.
Sales of the company's Professional Products Division (formerly the Janitorial
Division) nearly doubled due to the February 1996 acquisition of Huntington
Laboratories. Excluding sales of the Huntington operations, Professional
Product's sales for 1996 increased 3 percent over 1995 principally due to sales
growth of its Airkem products. Financial results of the Food and
[GRAPH]
Beverage Division increased 13 percent for 1996 and included the operations of
Monarch since its acquisition from H.B. Fuller in August 1996. Excluding Monarch
sales, Food and Beverage sales growth was 5 percent for 1996, and reflected new
customer gains and good growth in sales to the beverage and food processing
markets. Sales of the company's recently formed Water Care Services Division
more than doubled during 1996 due to the annualization of sales from business
acquisitions and sales gained by successfully leveraging its alliances with
Ecolab's other divisions.
Operating income for the company's United States businesses totaled $165
million for 1996 and increased 12 percent over operating income of $147 million
in 1995. The growth in operating income included good growth in the company's
core U.S. Institutional business and double-digit increases in operating income
of all of the company's other U.S. divisions. The U.S. operating income margin
was 14.4 percent, up slightly compared to the operating income margin of 14.3
percent in 1995. The improvement in the operating income margin reflected higher
sales levels, sales productivity gains and the benefits of companywide cost
control programs. The company's United States business continued to invest in
its sales-and-service force with the addition of more than 350 new U.S. sales-
and-service personnel, including Huntington and Monarch associates, during 1996.
Operating income of the Huntington and Monarch businesses acquired in 1996 was
not significant.
1995 COMPARED WITH 1994
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. The growth in United States sales reflected the
benefits of significant new product introductions. 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 and included good growth in sales to new customers. The Textile Care
Division reported a sales increase of 7 percent for 1995, which included double-
digit growth in commercial laundry and hospitality market sales. Sales of the
Professional Products Division increased 5 percent over the prior year.
Professional Products sales growth was due to
ECOLAB 1996 ANNUAL REPORT 26
<PAGE>
FINANCIAL DISCUSSION
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 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. The operating income margin was 14.3 percent for 1995, unchanged from
the prior year. Operating income growth included continued good growth in the
U.S. Institutional Division and double-digit growth in 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, which were partially offset by the negative
effects of higher raw material costs
and competitive pricing pressures.
INTERNATIONAL
(thousands) 1996 1995 1994
- ------------------------------------------------------------------------------
Net sales $341,231 $310,755 $265,544
Operating income $ 23,871 $ 19,580 $ 14,838
Percent of sales 7.0% 6.3% 5.6%
- ------------------------------------------------------------------------------
The company's International business consists of Canadian, Asia Pacific, Latin
American and South African operations and the international operations of Kay.
Net sales of the company's wholly-owned International operations reached $341
million in 1996, a 10 percent increase over sales of $311 million in 1995.
International's sales growth reflected the benefits of business acquisitions and
sales of new products. Business acquisitions accounted for approximately 40
percent of International's sales growth over 1995. Changes in currency
translation had a negative impact on sales, particularly in the Asia Pacific
region. Excluding the effects of currency translation, International recorded
sales growth of 14 percent for 1996. Asia Pacific, International's largest
operation, reported sales growth of 4 percent for 1996. However, when measured
in local currencies, the Asia Pacific region had sales growth of 9 percent, with
double-digit growth in Japan and New Zealand and modest growth in Australia.
Asia Pacific sales results included good performances in sales to the
Institutional and Food and Beverage markets. Reported sales of the Latin
American region
[GRAPH]
increased 13 percent over the prior year. Excluding the effects of currency
translation, Latin America recorded sales growth of 16 percent for 1996, which
included a continuation of significant double-digit growth in Brazil and good
sales growth in Mexico and Puerto Rico. Sales in Canada increased 9 percent over
sales in 1995 and reflected the benefits of the Huntington and Monarch
acquisitions and good growth in sales to Institutional markets. Sales in South
Africa more than doubled over the prior year, reflecting the annualization of
sales from businesses acquired in late 1995. Sales of Kay's international
operations increased 16 percent for 1996, as it continued to expand service to
locations where its large corporate customers do business.
The company's International operations reported operating income of $24
million in 1996, an increase of 22 percent over operating income of $20 million
in 1995. Excluding the effects of currency translation, International operating
income growth was 29 percent for 1996. The reported operating income margin
improved to 7.0 percent compared with the operating income margin of 6.3 percent
in the prior year. Operating income results included double-digit growth and
improved operating income margins in each of the major regions of Asia Pacific,
Latin America and Canada, with a continuation of particularly strong growth 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
diverse foreign jurisdictions. Proportionately larger investments in sales and
administrative personnel are also necessary in order to facilitate growth of
International operations.
27 ECOLAB 1996 ANNUAL REPORT
<PAGE>
FINANCIAL DISCUSSION
1995 COMPARED WITH 1994
International revenues for 1995 of $311 million increased 17 percent over
revenues of $266 million in 1994. The effects of currency translation did not
have a significant impact on overall International sales growth. Asia Pacific
reported sales growth of 14 percent for 1995, which included double-digit growth
in the East Asia region and New Zealand, modest growth in Japan and flat results
in Australia. 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. 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 the Professional Products markets and a modest increase in
sales to the Institutional and Textile Care markets. International sales in 1995
also included approximately $6 million of sales from two businesses in South
Africa which were acquired during 1995. Sales of Kay's International operations
increased 18 percent for 1995.
Operating income for International operations totaled $20 million in 1995, a
32 percent increase over 1994's operating income of $15 million. The operating
income margin 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.
HENKEL-ECOLAB JOINT VENTURE
The company operates institutional and industrial cleaning and sanitizing
businesses in Europe through its 50 percent economic interest in the Henkel-
Ecolab joint venture. The company includes the operations of the Henkel-Ecolab
joint venture in its financial statements using the equity method of accounting.
The company's equity in earnings of the joint venture, including royalty income
and after deduction of intangible amortization, was $13 million in 1996, a 69
percent increase over weak results of $8 million in 1995. The improvement
reflected the benefits from a number of cost control programs which were put
into effect in 1996. Operating results at the joint venture also reflected lower
interest expense and lower overall income tax rates. Joint venture sales,
although not consolidated in Ecolab's financial statements, increased 4 percent
for 1996 when measured in Deutsche marks. When measured in U.S. dollars, joint
venture sales were negatively affected by the strengthening U.S. dollar, and
totaled $905 million, just below the $909 million of sales recorded for 1995.
Sales benefitted from new product introductions, but continued to reflect
challenging conditions in Europe's food service and hospitality markets,
particularly in the major markets in Germany, France and Italy.
1995 COMPARED WITH 1994
The company's equity in earnings of the Henkel-Ecolab joint venture was $8
million, a substantial decrease from the equity in earnings of $11 million in
1994. These disappointing results reflected higher raw material costs, higher
overall tax rates and investments made by new management in personnel,
organizational development and financial and operating systems. Financial
results were also unfavorably affected by weak conditions in the hospitality
industry in the joint venture's key market of Germany. Joint venture revenues
increased 3 percent for 1995 when measured in Deutsche marks. When translated
into U.S. dollars, joint venture sales benefitted from a weaker U.S. dollar and
increased 17 percent to $909 million from revenues of $777 million in 1994.
CORPORATE
Corporate operating expense was $3 million in 1996, $4 million in 1995 and $12
million in 1994. Corporate operating expense includes overhead costs directly
related to the joint venture. In addition, expense in 1994 included $8 million
of merger costs and expenses that were incurred as a result of the merger with
Kay.
[GRAPH]
ECOLAB 1996 ANNUAL REPORT 28
<PAGE>
FINANCIAL DISCUSSION
INTEREST AND INCOME TAXES
Net interest expense for 1996 was $14 million and increased 25 percent over net
interest expense of $12 in 1995. This increase was due to higher debt levels
during 1996, particularly during the first half of the year, reflecting cash
used during 1995 for the stock purchase self-tender offer and for business
acquisitions during late 1995 and during 1996.
Net interest expense for 1995 decreased 11 percent 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.
The company's annual effective income tax rate for 1996 was 41.4 percent,
compared to 1995's effective income tax rate of 39.5 percent. This increase in
the effective income tax rate was primarily due to a higher overall effective
rate on earnings of International operations and to the effects of business
acquisitions. International's effective income tax rate varies from year-to-year
with the pre-tax income mix of the various countries in which the company
operates and savings related to the availability of one-time tax strategies.
The annual effective income tax rate of 39.5 percent in 1995 decreased from
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.
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 and $15 million in 1994. 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 1996. The company's debt was rated within the "A"
categories by the major rating agencies during 1996. Significant changes to the
company's balance sheet included the following:
- - The company's balance sheet at December 31, 1996, reflected the acquisitions
of Huntington Laboratories and the Monarch operations of H.B. Fuller. The
increase in other noncurrent assets from year-end 1995 was principally due to
these acquisitions.
- - During 1996, total debt increased to $176 million from $161 million at year-
end 1995 and $147 million at year-end 1994. In January 1996, the company issued
$75 million of 7.19 percent, 10-year term senior notes to a group of insurance
companies. Proceeds from the debt were used to reduce short-term borrowings and
for general corporate purposes, including the Huntington and Monarch
acquisitions.
At December 31, 1996, the ratio of total debt to capitalization was 25
percent, compared with 26 percent at year-end 1995 and 24 percent at year-end
1994. In addition to the level of debt, the total debt to capitalization ratio
at year-end 1995 reflected a decrease in shareholders' equity due to the
purchase of common stock under the self-tender offer.
[GRAPH]
29 ECOLAB 1996 ANNUAL REPORT
<PAGE>
FINANCIAL DISCUSSION
During 1996, the company entered into arrangements to enhance its future
financial flexibility in funding general business needs. In September 1996, the
company amended and restated its Multicurrency Credit Agreement, increasing the
credit available from $150 million to $225 million and extending the term three
years to September 2001. Also, in October 1996, the company filed a shelf
registration with the Securities and Exchange Commission for the issuance of up
to $200 million of debt securities. The company has no immediate plans to issue
debt under the registration.
- - Working capital was $108 million at December 31, 1996, compared with $48
million at year-end 1995 and $148 million at year-end 1994. The increase in
working capital during 1996 included an increase in cash and cash equivalents
and a decrease in short-term debt. The levels of cash and cash equivalents and
short-term debt at year-end 1995 were affected by the company's stock purchase
self-tender offer in mid-1995. Working capital levels at year-end 1994 included
unusually high levels of cash and cash equivalents.
- - 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 was $254 million for 1996 and
increased significantly from cash provided by continuing operating activities of
$163 million in 1995 and $154 million in 1994. Strong earnings, additional
operating cash flows from businesses acquired and favorable timing of payments
were significant factors in this cash flow improvement. 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 in 1995 and 1994 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 $112 million in 1996, $110
million in 1995 and $88 million in 1994. World-wide additions of merchandising
equipment, primarily cleaning and sanitizing product dispensers, accounted for
approximately 70 percent of each year's capital expenditures. The company has
expanded its manufacturing facilities throughout the world in order to meet
sales requirements more efficiently. During 1996, new manufacturing facilities
were opened in Hebron, Ohio, and in Costa Rica and Mexico. The company also
purchased a new manufacturing facility in California, expanded its facilities in
Texas, Korea and South Africa and added plants in Indiana and North Carolina
through the Huntington and Monarch acquisitions.
Cash used for financing activities reflected the issuance of $75 million of
7.19 percent senior notes. Proceeds from the debt and strong operating cash
flows were used to reduce short-term debt and fund the scheduled repayment
related to the company's 9.68 percent senior notes and repayment of indebtedness
assumed with the Huntington acquisition.
In 1996, the company increased its annual dividend rate
for the fifth consecutive year. The company has paid dividends on its common
stock for 60 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
- -------------------------------------------------------------------------------
1996 $0.14 $0.14 $0.14 $0.16 $0.58
1995 0.125 0.125 0.125 0.14 0.515
1994 0.11 0.11 0.11 0.125 0.455
- -------------------------------------------------------------------------------
LIQUIDITY
The company maintains a $225 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 and a $200 million shelf registration as alternative sources 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 1997 requirements for growth, possible
acquisitions, new program investments, scheduled debt repayments and dividend
payments.
ECOLAB 1996 ANNUAL REPORT 30
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF INCOME
Year ended December 31 (thousands, except per share) 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales $1,490,009 $1,340,881 $1,207,614
Cost of Sales 674,953 603,167 533,143
Selling, General and Administrative Expenses 629,739 575,028 529,507
Merger Costs and Expenses 8,000
- -----------------------------------------------------------------------------------------------------------------
Operating Income 185,317 162,686 136,964
Interest Expense, Net 14,372 11,505 12,909
- -----------------------------------------------------------------------------------------------------------------
Income Before Income Taxes and Equity in Earnings of Joint Venture 170,945 151,181 124,055
Provision for Income Taxes 70,771 59,694 50,444
Equity in Earnings of Henkel-Ecolab Joint Venture 13,011 7,702 10,951
- -----------------------------------------------------------------------------------------------------------------
Net Income $ 113,185 $ 99,189 $ 84,562
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Net Income Per Share
Net Income Per Common Share $ 1.75 $ 1.50 $ 1.25
Fully Diluted $ 1.69 $ 1.46 $ 1.23
Average Common Shares Outstanding 64,496 66,097 67,550
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
31 ECOLAB 1996 ANNUAL REPORT
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
December 31 (thousands, except per share) 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 69,275 $ 24,718 $ 98,255
Accounts receivable, net 205,026 198,432 168,807
Inventories 122,248 106,117 100,015
Deferred income taxes 29,344 21,617 22,349
Other current assets 9,614 7,188 11,753
- -----------------------------------------------------------------------------------------------------------------
Current Assets 435,507 358,072 401,179
Property, Plant and Equipment, Net 332,314 292,937 246,191
Investment in Henkel-Ecolab Joint Venture 285,237 302,298 284,570
Other Assets 155,351 107,573 88,416
- -----------------------------------------------------------------------------------------------------------------
Total Assets $1,208,409 $1,060,880 $1,020,356
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term debt $27,609 $71,647 $41,820
Accounts payable 103,803 81,931 76,905
Compensation and benefits 71,533 59,766 56,445
Income taxes 26,977 18,248 13,113
Other current liabilities 97,849 78,946 65,382
- -----------------------------------------------------------------------------------------------------------------
Current Liabilities 327,771 310,538 253,665
Long-Term Debt 148,683 89,402 105,393
Postretirement Health Care and Pension Benefits 73,577 70,666 70,882
Other Liabilities 138,415 133,616 128,608
Shareholders' Equity (common stock, par value $1.00 per share;
shares outstanding: 1996 - 64,800; 1995 - 64,701; 1994 - 67,671) 519,963 456,658 461,808
- -----------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $1,208,409 $1,060,880 $1,020,356
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
ECOLAB 1996 ANNUAL REPORT 32
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended December 31 (thousands) 1996 1995 1994
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 113,185 $ 99,189 $ 84,562
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation 75,185 64,651 56,867
Amortization 14,338 11,628 10,002
Deferred income taxes (6,878) (759) 2,352
Equity in earnings of joint venture (13,011) (7,702) (10,951)
Joint venture royalties and dividends 15,769 5,610 5,678
Other, net 1,023 801 415
Changes in operating assets and liabilities:
Accounts receivable 2,809 (26,843) (18,952)
Inventories (6,852) (4,136) (14,285)
Other assets (5,255) (11,371) (7,222)
Accounts payable 16,397 4,561 1,587
Other liabilities 47,559 27,834 44,293
- -----------------------------------------------------------------------------------------------------------------
Cash provided by continuing operations 254,269 163,463 154,346
Cash provided by discontinued operations 3,000 15,000
- -----------------------------------------------------------------------------------------------------------------
Cash provided by operating activities 254,269 166,463 169,346
- -----------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Capital expenditures (111,518) (109,894) (88,457)
Property disposals 3,284 1,806 4,836
Sale of investments in securities 4,007 5,022
Businesses acquired (54,911) (26,437) (4,686)
Other, net (1,449) 6,991 5,145
- -----------------------------------------------------------------------------------------------------------------
Cash used for investing activities (164,594) (123,527) (78,140)
- -----------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Notes payable (42,045) 29,355 8,512
Long-term debt borrowings 75,000 2,141
Long-term debt repayments (35,690) (20,060) (14,621)
Reacquired shares (22,790) (90,391) (7,889)
Dividends on common stock (36,096) (33,114) (27,851)
Other, net 17,088 (4,561) 1,013
- -----------------------------------------------------------------------------------------------------------------
Cash used for financing activities (44,533) (116,630) (40,836)
- -----------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash (585) 157 (757)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 44,557 (73,537) 49,613
Cash and Cash Equivalents, beginning of year 24,718 98,255 48,642
- -----------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, end of year $ 69,275 $ 24,718 $ 98,255
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Bracketed amounts indicate a use of cash.
See notes to consolidated financial statements.
33 ECOLAB 1996 ANNUAL REPORT
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statement of Shareholders' Equity
Common Additional Retained Deferred Cumulative Treasury
(thousands) Stock Paid-in Capital Earnings Compensation Translation Stock Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
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
Net income 113,185 113,185
Cash dividends on common stock (37,409) (37,409)
Stock options 673 14,824 15,497
Stock awards 522 2,912 (3,638) 1,779 1,575
Reacquired shares (22,790) (22,790)
Amortization 2,732 2,732
Translation (9,485) (9,485)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1996 $70,751 $187,111 $404,362 $(7,390) $6,787 $(141,658) $519,963
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
COMMON STOCK ACTIVITY
<TABLE>
<CAPTION>
1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------------
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 70,078,398 (5,376,917) 69,659,101 (1,988,427) 69,362,191 (1,792,112)
Stock options 672,343 419,297 296,910
Stock awards 150,010 198,314 167,226
Reacquired shares (723,611) (3,586,804) (363,541)
- ----------------------------------------------------------------------------------------------------------------------------------
Shares, end of year 70,750,741 (5,950,518) 70,078,398 (5,376,917) 69,659,101 (1,988,427)
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
ECOLAB 1996 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.
CASH AND CASH EQUIVALENTS
Cash equivalents include highly liquid investments with a
maturity of three months or less when purchased.
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 44 percent, 38 percent and 38 percent of consolidated
inventories at year-end 1996, 1995 and 1994, 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.
LONG-LIVED ASSETS
The company periodically assesses the recoverability of long-lived and
intangible assets based on anticipated future earnings and operating cash flows.
NET INCOME PER SHARE
Net income per common share amounts are computed by dividing net income by the
weighted average number of common shares outstanding.
Fully diluted per share amounts are computed as above and assume exercise of
dilutive stock options.
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.
35 ECOLAB 1996 ANNUAL REPORT
<PAGE>
ECOLAB 1996 ANNUAL REPORT
Notes to Consolidated Financial Statements
3. BALANCE SHEET INFORMATION
December 31 (thousands) 1996 1995 1994
- ------------------------------------------------------------------------------
ACCOUNTS RECEIVABLE, NET
Accounts receivable $ 214,369 $ 206,763 $ 177,510
Allowance for doubtful accounts (9,343) (8,331) (8,703)
- ------------------------------------------------------------------------------
Total $ 205,026 $ 198,432 $ 168,807
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
INVENTORIES
Finished goods $ 52,232 $ 47,035 $ 42,955
Raw materials and parts 73,060 62,132 60,251
Excess of fifo cost over lifo cost (3,044) (3,050) (3,191)
- ------------------------------------------------------------------------------
Total $ 122,248 $ 106,117 $ 100,015
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT, NET
Land $ 7,969 $ 6,941 $ 6,348
Buildings and leaseholds 129,781 117,042 107,259
Machinery and equipment 208,704 188,453 174,203
Merchandising equipment 330,277 292,962 257,766
Construction in progress 11,745 14,571 6,236
- ------------------------------------------------------------------------------
688,476 619,969 551,812
Accumulated depreciation
and amortization (356,162) (327,032) (305,621)
- ------------------------------------------------------------------------------
Total $ 332,314 $ 292,937 $ 246,191
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
OTHER ASSETS
Intangible assets, net $ 96,865 $ 50,773 $ 37,549
Investments in securities 5,000 5,000 5,000
Deferred income taxes 26,582 27,383 26,212
Other 26,904 24,417 19,655
- ------------------------------------------------------------------------------
Total $ 155,351 $ 107,573 $ 88,416
- ------------------------------------------------------------------------------
SHORT-TERM DEBT
Notes payable $ 12,333 $ 54,950 $ 25,302
Long-term debt, current maturities 15,276 16,697 16,518
- ------------------------------------------------------------------------------
Total $ 27,609 $ 71,647 $ 41,820
- ------------------------------------------------------------------------------
LONG-TERM DEBT
7.19% senior notes, due 2006 $ 75,000 $ $
9.68% senior notes, due 1995-2001 71,429 85,714 100,000
Other 17,530 20,385 21,911
- ------------------------------------------------------------------------------
163,959 106,099 121,911
Long-term debt, current maturities (15,276) (16,697) (16,518)
- ------------------------------------------------------------------------------
Total $ 148,683 $ 89,402 $ 105,393
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
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 debt and for business acquisitions and other general corporate
purposes.
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.
In September 1996, the company amended and restated its Multicurrency Credit
Agreement, increasing the credit available to $225 million and extending the
term three years to September 2001. The terms of the new agreement are generally
similar to the previous $150 million credit facility. The company may borrow
varying amounts from time to time on a revolving credit basis, with loans
denominated in G-7 currencies or certain other currencies, if available. The
company has the option of borrowing based on various short-term interest rates.
No amounts were outstanding under the agreement at year-end 1996. The agreement
includes a covenant regarding the ratio of total debt to capitalization.
In October 1996, the company filed a shelf registration with the Securities
and Exchange Commission for the issuance of up to $200 million of debt
securities. The filing is intended to enhance the company's future financial
flexibility in funding general business needs. The company has no immediate
plans to issue debt under the registration.
As of December 31, the weighted average interest rate on notes payable was 5.1
percent for 1996, 6.3 percent for 1995 and 5.3 percent for 1994.
As of December 31, 1996, the aggregate annual maturities of long-term debt for
the next five years were: 1997 - $15,276,000; 1998 - $15,222,000; 1999 -
$15,222,000; 2000 - $15,182,000 and 2001 - $14,988,000.
Interest expense was $19,084,000 in 1996, $15,857,000 in 1995 and $16,213,000
in 1994. Total interest paid was $16,897,000 in 1996, $16,170,000 in 1995 and
$16,402,000 in 1994.
Other noncurrent liabilities included income taxes payable of $100 million at
December 31, 1996, $96 million at December 31, 1995 and $94 million at December
31, 1994. 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 1996 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.
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 $115 million
at December 31, 1996, $125 million at December 31, 1995, and $110 million at
December 31, 1994. 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 1996, 1995 and 1994 were:
December 31 (thousands) 1996 1995 1994
- ------------------------------------------------------------------------------
Carrying amount
Cash and cash equivalents $ 69,275 $ 24,718 $ 98,255
Long-term investments in securities 5,000 5,000 5,000
Short-term debt 27,609 71,647 41,820
Long-term debt 148,683 89,402 105,393
Fair value
Long-term debt $ 155,558 $ 98,513 $109,792
- ------------------------------------------------------------------------------
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. BUSINESS ACQUISITIONS
BUSINESSES ACQUIRED
In February 1996, the company acquired Huntington Laboratories, Inc. of
Huntington, Indiana. Huntington is a supplier of sanitizing and infection-
control products for the U.S. healthcare market and a supplier of gym floor
finishes. Huntington has become part of the company's Professional Products
Division (formerly the Janitorial Division), complementing the division's
existing 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. Huntington's Gam-Med business was also
sold in early 1997. Annual sales of the core Huntington operations, which the
company retained, were approximately $50 million. 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.
In August 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 annual sales of approximately $30 million
and has become part of the company's Food and Beverage Division.
These acquisitions have been accounted for as purchases and, accordingly, the
results of their operations have been included in the financial statements of
the company from the dates of acquisition.
KAY MERGER
In December 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.
37 ECOLAB 1996 ANNUAL REPORT
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. BUSINESS ACQUISITIONS (continued)
In connection with the merger, $8.0 million of merger costs and expenses ($6.9
million after-tax, or $0.10 per common 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 common 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
common share amounts for 1994, which reflect the elimination of the nonrecurring
merger costs and expenses and pro forma adjustments to present income taxes on
the basis on which they are being reported subsequent to the merger.
(thousands, except per share) 1994
- --------------------------------------------------------------
Net income, as reported $84,562
Merger costs and expenses 6,900
Kay net deferred tax liability 1,300
Kay Subchapter S status (2,298)
- --------------------------------------------------------------
Pro forma net income $90,464
- --------------------------------------------------------------
- --------------------------------------------------------------
Net income per common share
As reported $ 1.25
Pro forma $ 1.34
- --------------------------------------------------------------
- --------------------------------------------------------------
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:
(thousands) 1996 1995 1994
- ------------------------------------------------------------------------------
Joint venture
Net sales $905,402 $909,196 $776,647
Gross profit 497,909 502,849 440,993
Income before income taxes 65,091 44,392 48,389
Net income $34,808 $22,406 $26,109
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Ecolab equity in earnings
Ecolab equity in net income $17,404 $11,203 $13,605
Ecolab royalty income from joint
venture, net of income taxes 4,730 5,814 5,745
Amortization expense for the excess
of cost over the underlying net
assets of the joint venture (9,123) (9,315) (8,399)
- ------------------------------------------------------------------------------
Equity in earnings of Henkel-Ecolab
joint venture $ 13,011 $ 7,702 $ 10,951
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
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 $174 million at December 31, 1996, 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:
December 31 (thousands) 1996 1995 1994
- ------------------------------------------------------------------------------
Current assets $425,225 $393,391 $360,648
Noncurrent assets 142,227 145,722 127,244
Current liabilities 309,599 247,980 233,876
Noncurrent liabilities $ 75,360 $ 71,119 $ 59,710
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
7. Income Taxes
Income before income taxes and equity in earnings of joint venture consisted of:
(thousands) 1996 1995 1994
- ------------------------------------------------------------------------------
Domestic $144,888 $123,628 $108,656
Foreign 26,057 27,553 15,399
- ------------------------------------------------------------------------------
Total $170,945 $151,181 $124,055
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
ECOLAB 1996 ANNUAL REPORT 38
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The provision for income taxes consisted of:
(thousands) 1996 1995 1994
- ------------------------------------------------------------------------------
Federal, state and Puerto Rico $66,868 $52,473 $44,619
Foreign 10,781 7,980 3,473
- ------------------------------------------------------------------------------
Currently payable 77,649 60,453 48,092
- ------------------------------------------------------------------------------
Federal, state and Puerto Rico (6,748) 74 300
Foreign (130) (833) 2,052
- ------------------------------------------------------------------------------
Deferred (6,878) (759) 2,352
- ------------------------------------------------------------------------------
Provision for income taxes $70,771 $59,694 $50,444
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
The company's overall net deferred tax assets (current and noncurrent) were
comprised of the following:
December 31 (thousands) 1996 1995 1994
- ------------------------------------------------------------------------------
Deferred tax assets
Postretirement health care
and pension benefits $29,596 $28,689 $28,084
Other accrued liabilities 39,151 28,339 26,616
Loss carryforwards 4,780 5,482 5,109
Other, net 8,814 9,209 9,405
Valuation allowance (1,462) (1,462) (1,462)
- ------------------------------------------------------------------------------
Total 80,879 70,257 67,752
- ------------------------------------------------------------------------------
Deferred tax liabilities
Property, plant and equipment
bases differences 23,496 19,524 17,579
- ------------------------------------------------------------------------------
Other, net 1,457 1,733 1,612
- ------------------------------------------------------------------------------
Total 24,953 21,257 19,191
- ------------------------------------------------------------------------------
Net deferred tax assets $55,926 $49,000 $48,561
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
A reconciliation of the statutory U.S. federal income tax rate to the
company's effective income tax rate was:
1996 1995 1994
- ------------------------------------------------------------------------------
Statutory U.S. rate 35.0% 35.0% 35.0%
State income taxes, net of federal benefit 4.2 4.2 3.8
Puerto Rico operations (1.3)
Foreign operations .5 (1.2) .4
Kay Subchapter S status (.1)
Kay deferred tax liability 1.0
Other, net 1.7 1.5 1.9
- ------------------------------------------------------------------------------
Effective income tax rate 41.4% 39.5% 40.7%
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Cash paid for income taxes was $71,963,000 in 1996, $55,214,000 in 1995 and
$34,686,000 in 1994. 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 and
$15 million in 1994. 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, 1996, undistributed earnings of international
subsidiaries and the Henkel-Ecolab joint venture of approximately $60 million
and $45 million, respectively, 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:
(thousands) 1996 1995 1994
- ------------------------------------------------------------------------------
Service cost - employee benefits
earned during the year $12,615 $9,878 $10,627
Interest cost on projected
benefit obligation 16,084 14,481 13,348
Actual return on plan assets (20,389) (27,356) 1,952
Net amortization and deferral 7,542 15,430 (11,260)
- ------------------------------------------------------------------------------
U.S. pension expense 15,852 12,433 14,667
International pension expense 1,261 1,040 1,005
- ------------------------------------------------------------------------------
Total pension expense $17,113 $13,473 $15,672
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
39 ECOLAB 1996 ANNUAL REPORT
<PAGE>
Notes to Consolidated Financial Statements
8. RETIREMENT PLANS (CONTINUED)
The funded status of the U.S. pension plan was:
December 31 (thousands) 1996 1995 1994
- ------------------------------------------------------------------------------
Actuarial present value of:
Vested benefit obligation $167,652 $150,521 $121,251
Non-vested benefit obligation 10,701 12,089 9,755
- ------------------------------------------------------------------------------
Accumulated benefit obligation 178,353 162,610 131,006
Effect of projected future
salary increases 61,763 54,398 46,801
- ------------------------------------------------------------------------------
Projected benefit obligation 240,116 217,008 177,807
Plan assets at fair value 196,839 167,231 130,262
- ------------------------------------------------------------------------------
Plan assets less than the projected
benefit obligation (43,277) (49,777) (47,545)
Unrecognized prior service cost 20,325 22,230 24,135
Unrecognized net loss 37,763 44,258 39,238
Unrecognized net transition asset (11,926) (13,329) (14,732)
Adjustment required to recognize
minimum liability (1,840)
- ------------------------------------------------------------------------------
Prepaid (accrued) pension expense $2,885 $3,382 $(744)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
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.
U.S. pension plan assumptions, in addition to projections
for employee turnover and retirement ages, were:
1996 1995 1994
- ------------------------------------------------------------------------------
Discount rate for service and
interest cost, at beginning of year 7.50% 8.25% 7.50%
Projected salary increases,
weighted average 5.1 5.1 5.6
Expected return on plan assets 9.0 9.0 9.0
Discount rate for year-end
benefit obligations 7.75% 7.50% 8.25%
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
At December 31, 1996, the company updated the mortality assumptions used in
its actuarial pension plan calculations. The effect of this change and the
change in 1995 for projected salary increases, as well as the effect of changes
in the discount rate used for determining the year-end pension benefit
obligations and future service and interest cost was:
(millions, increase (decrease)) 1996 1995 1994
- ------------------------------------------------------------------------------
Pension expense $2.1 $(3.4) $2.1
Projected benefit obligation $ 1.2 $17.6 $(22.0)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
The adjustment required to recognize a minimum liability as of year-end 1994
has been included in the company's noncurrent liability for postretirement
healthcare and pension benefits with an equal amount included in the
Consolidated Balance Sheet as an intangible asset.
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 $10 million at
December 31, 1996, and the annual expense for these plans was approximately
$2 million in each of the years 1996, 1995 and 1994.
POSTRETIREMENT HEALTH CARE BENEFITS
The company provides postretirement health care benefits to substantially
all U.S. employees. The plan is contributory based on years of service and
family status, with retiree contributions adjusted annually.
Employees outside the U.S. are generally covered under government-sponsored
programs and the cost for providing benefits under company plans was not
significant.
Postretirement health care benefit expense was:
(thousands) 1996 1995 1994
- ------------------------------------------------------------------------------
Service cost - benefits attributed to
service during the period $3,298 $2,473 $2,672
Interest cost on accumulated post-
retirement benefit obligation 4,398 3,972 3,740
Actual return on plan assets (863) (703) (66)
Net amortization and deferral (213) (271) (719)
- ------------------------------------------------------------------------------
Total expense $6,620 $5,471 $5,627
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
ECOLAB 1996 ANNUAL REPORT 40
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The funded status of the postretirement health care plan was:
<TABLE>
<CAPTION>
December 31 (thousands) 1996 1995 1994
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Actuarial present value of accumulated
postretirement benefit obligation for:
Retirees $ 22,932 $ 18,112 $ 16,453
Fully eligible active participants 6,533 5,450 4,044
Other active participants 42,084 35,885 29,389
- ---------------------------------------------------------------------------------------
Total 71,549 59,447 49,886
Plan assets at fair value 11,885 9,269 6,298
- ---------------------------------------------------------------------------------------
Plan assets less than accumulated
postretirement benefit obligation (59,664) (50,178) (43,588)
Unrecognized gain for prior service (9,648) (10,199) (10,750)
Unrecognized net loss (gain) 5,984 (968) (5,544)
- ---------------------------------------------------------------------------------------
Unfunded accrued postretirement
health care benefits $(63,328) $(61,345) $(59,882)
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
</TABLE>
As of December 31, the discount rate for the postretirement health care
benefits plan was 7.75 percent for 1996, 7.50 percent for 1995 and 8.25 percent
for 1994. The expected long-term rate of return on plan assets was changed to
9.0 percent at year-end 1996 from 6.0 percent in 1995 and 1994. The changes in
the discount rate and the expected rate of return on plan assets did not have a
significant effect on the expense or obligation of the plan. Plan assets consist
primarily of equity and fixed income securities.
For measurement purposes, 10.5 percent (for pre-age 65 retirees) and 8.3
percent (for post-age 65 retirees) annual rates of increase in the per capita
cost of covered health care were assumed for 1997. 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. An increase in the assumed health care cost trend
rate by one percentage point in each year would increase the accumulated
postretirement benefit obligation as of year-end 1996 by approximately $5
million and 1996 expense by approximately $0.4 million.
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 $6,622,000 in 1996, $5,919,000 in 1995 and
$5,156,000 in 1994.
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 420,048 for 1996, 1,124,768 for 1995 and 2,042,606 for 1994.
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 generally become
exercisable over periods of up to four years from date of grant and expire
within 10 years from date of grant. Stock option transactions were:
<TABLE>
<CAPTION>
Shares 1996 1995 1994
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Granted 633,340 930,673 806,550
Exercised (672,343) (419,297) (296,910)
Canceled (51,333) (36,700) (26,900)
- ---------------------------------------------------------------------------------------
December 31:
Outstanding 4,603,624 4,693,960 4,219,284
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
Exercisable 2,929,984 2,856,638 2,321,164
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Average exercise price per share 1996 1995 1994
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Granted $30.51 $25.35 $21.93
Exercised 15.30 11.42 10.60
Canceled 24.31 20.65 16.84
December 31:
Outstanding 20.70 18.64 16.49
Exercisable $17.50 $16.09 $13.99
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
</TABLE>
Stock options outstanding at December 31, 1996, had a range in
exercise prices of $11.38 to $37.44 and an average remaining contractual life
of 6.5 years. Approximately one-third of the options outstanding had an
exercise price of less than $20.00 and were generally exercisable.
Approximately one-half of the options outstanding had an exercise price of
$20.00 to $30.00. The weighted-average remaining contractual life for each of
these groups of options was four years and eight years, respectively.
Stock awards are generally 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.
41 ECOLAB 1996 ANNUAL REPORT
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. STOCK INCENTIVE AND
OPTION PLANS (CONTINUED)
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
adopted this new standard in 1996. The company has continued 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 has no effect on the company's operating results.
Had the company used the fair value-based method of accounting for its
stock option and incentive plans beginning in 1995 and charged compensation
cost against income, over the vesting period, based on the fair value of
options at the date of grant, net income and net income per common share for
1996 and 1995 would have been reduced to the following pro forma amounts:
(thousands, except per share) 1996 1995
- -----------------------------------------------------------------------------
Net income
As reported $113,185 $99,189
Pro forma 111,761 98,622
Net income per common share
As reported 1.75 1.50
Pro forma $ 1.73 $ 1.49
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
The pro forma information above only includes stock options granted in 1995
and 1996. Compensation expense under the fair value-based method of accounting
will increase over the next few years as additional stock option grants are
considered.
The weighted-average grant-date fair value of options granted was $8.30
per option for 1996 and $7.83 per option for 1995. The weighted-average
grant-date fair value of options was determined by using the fair value of
each option grant on the date of grant, utilizing the Black-Scholes
option-pricing model and the following key assumptions:
1996 1995
- ---------------------------------------------------------------------------
Risk-free interest rate 6.2% 6.7%
Expected life 6 years 6 years
Expected volatility 20.9% 24.8%
Expected dividend yield 1.9% 1.9%
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
10. SHAREHOLDERS' EQUITY
Authorized common stock, par value $1.00 per share, was 100 million shares in
1996, 1995 and 1994. Treasury stock is stated at cost. Dividends declared per
share of common stock were $0.58 for 1996, $0.515 for 1995 and $0.455 for
1994.
The company has 15 million shares, without par value,
of authorized but unissued preferred stock.
Each share of outstanding common stock entitles the holder to one
preferred stock purchase right. A right entitles the holder, upon occurrence
of certain events, to buy one one-hundredth of a share of Series A Junior
Participating Preferred Stock at a purchase price of $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, 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 reacquired 577,300 shares of its common stock in 1996 and
364,000 shares in 1994 for this program through open and private market
purchases. The 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 shares then outstanding) of its common stock
at a price of $25.00 per share pursuant to the terms of a "Dutch auction"
self-tender offer.
ECOLAB 1996 ANNUAL REPORT 42
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. During 1996, the company purchased 52,900 shares under
this program and the company may purchase approximately 2.4 million additional
shares from time to time through open market and privately negotiated
transactions to complete the remaining portion of a six million share repurchase
program.
11. RENTALS AND LEASES
The company leases sales and administrative office facilities,
distribution center facilities, automobiles and computers and other equipment
under operating leases. Rental expense under all operating leases was
$35,071,000 in 1996, $32,292,000 in 1995 and $29,129,000 in 1994. As of December
31, 1996, future minimum payments under operating leases with noncancelable
terms in excess of one year were:
(thousands)
- -----------------------------------------------------------------------------
1997 $8,995
1998 5,674
1999 3,194
2000 2,058
2001 1,687
Thereafter 11,183
- -----------------------------------------------------------------------------
Total $32,791
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
12. RESEARCH EXPENDITURES
Research expenditures which related to the development of new products and
processes, including significant improvements and refinements to existing
products, were $28,676,000 in 1996, $28,031,000 in 1995 and $27,615,000 in 1994.
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 included. 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, South African and Kay's international
operations.
<TABLE>
<CAPTION>
(thousands) 1996 1995 1994
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales
United States $1,148,778 $1,030,126 $942,070
International 341,231 310,755 265,544
- ---------------------------------------------------------------------------------------
Total $1,490,009 $1,340,881 $1,207,614
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
Operating Income
United States $164,886 $147,330 $134,510
International 23,871 19,580 14,838
Corporate (3,440) (4,224) (12,384)
- ---------------------------------------------------------------------------------------
Total $185,317 $162,686 $136,964
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
Identifiable Assets
United States $641,831 $535,107 $453,121
International 190,595 183,088 158,064
Joint venture 285,237 302,298 284,570
Corporate 90,746 40,387 124,601
- ---------------------------------------------------------------------------------------
Total $1,208,409 $1,060,880 $1,020,356
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
</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 $23,766,000 in 1996, $22,688,000 in 1995 and
$21,702,000 in 1994 have been allocated to the geographic segments in
determining operating income.
43 ECOLAB 1996 ANNUAL REPORT
<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>
1996
Net sales
United States $255,695 $287,278 $305,147 $300,658 $1,148,778
International 78,025 85,918 86,918 90,370 341,231
- ----------------------------------------------------------------------------------------------------------------------------------
Total 333,720 373,196 392,065 391,028 1,490,009
Cost of sales 152,589 170,856 175,232 176,276 674,953
Selling, general and administrative expenses 147,333 156,991 160,534 164,881 629,739
- ----------------------------------------------------------------------------------------------------------------------------------
Operating income
United States 30,154 39,919 49,889 44,924 164,886
International 4,378 6,271 7,242 5,980 23,871
Corporate (734) (841) (832) (1,033) (3,440)
- ----------------------------------------------------------------------------------------------------------------------------------
Total 33,798 45,349 56,299 49,871 185,317
Interest expense, net 3,440 4,584 3,592 2,756 14,372
- ----------------------------------------------------------------------------------------------------------------------------------
Income before income taxes and equity in earnings of joint venture 30,358 40,765 52,707 47,115 170,945
Provision for income taxes 12,171 16,346 22,263 19,991 70,771
Equity in earnings of joint venture 1,458 3,179 5,084 3,290 13,011
- ----------------------------------------------------------------------------------------------------------------------------------
Net income $19,645 $27,598 $35,528 $30,414 $113,185
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Net income per share
Net income per common share $0.30 $0.43 $0.55 $0.47 $1.75
Fully diluted $0.30 $0.42 $0.54 $0.45 $1.69
Average common shares outstanding 64,590 64,307 64,366 64,720 64,496
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
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 share
Net income per common share $0.27 $0.38 $0.46 $0.39 $ 1.50
Fully diluted $0.27 $0.38 $0.44 $0.37 $ 1.46
Average common shares outstanding 67,742 67,444 64,537 64,664 66,097
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
ECOLAB 1996 ANNUAL REPORT 44
<PAGE>
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, 1996, 1995 and 1994, 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, 1996, 1995 and 1994, and the consolidated results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.
/S/ Coopers & Lybrand L.L.P.
February 24, 1997
Saint Paul, Minnesota
45 ECOLAB 1996 ANNUAL REPORT
<PAGE>
<TABLE>
<CAPTION>
SUMMARY OPERATING AND FINANCIAL DATA
December 31 (thousands, except per share) 1996 1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net sales
United States $1,148,778 $1,030,126 $942,070 $867,415 $816,405 $757,564
International 341,231 310,755 265,544 234,981 241,229 201,738
Europe/Magnus/Pulp & Paper
- ------------------------------------------------------------------------------------------------------------------------------------
Total 1,490,009 1,340,881 1,207,614 1,102,396 1,057,634 959,302
Cost of sales 674,953 603,167 533,143 491,306 485,206 447,356
Selling, general and administrative expenses 629,739 575,028 529,507 481,639 446,814 393,700
Merger costs and nonrecurring expenses 8,000
- ------------------------------------------------------------------------------------------------------------------------------------
Operating income 185,317 162,686 136,964 129,451 125,614 118,246
Interest expense, net 14,372 11,505 12,909 21,384 35,334 30,489
- ------------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before income
taxes and equity in earnings of joint venture 170,945 151,181 124,055 108,067 90,280 87,757
Provision for income taxes 70,771 59,694 50,444 33,422 27,392 29,091
Equity in earnings of joint venture 13,011 7,702 10,951 8,127 8,600 4,573
- ------------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations 113,185 99,189 84,562 82,772 71,488 63,239
Income (loss) from discontinued operations (274,693)
Extraordinary loss and changes in accounting principles 715 (24,560)
- ------------------------------------------------------------------------------------------------------------------------------------
Net income (loss) 113,185 99,189 84,562 83,487 71,488 (236,014)
Preferred stock dividends (4,064)
- ------------------------------------------------------------------------------------------------------------------------------------
Net income (loss) to common shareholders, as reported 113,185 99,189 84,562 83,487 71,488 (240,078)
Pro forma adjustments 5,902 (2,667) (2,797) (2,933)
- ------------------------------------------------------------------------------------------------------------------------------------
Pro forma net income (loss) to common shareholders $113,185 $99,189 $90,464 $80,820 $68,691 $(243,011)
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) per common share, as reported
Continuing operations $ 1.75 $ 1.50 $ 1.25 $ 1.23 $ 1.06 $ 1.01
Discontinued operations (4.69)
Extraordinary loss and changes in accounting principles 0.01 (0.42)
Net income (loss) 1.75 1.50 1.25 1.24 1.06 (4.10)
Pro forma income (loss) per common share
Continuing operations 1.75 1.50 1.34 1.19 1.02 0.96
Net income (loss) $ 1.75 $ 1.50 $ 1.34 $ 1.20 $ 1.02 $ (4.15)
Average common shares outstanding 64,496 66,097 67,550 67,528 67,204 58,525
- ------------------------------------------------------------------------------------------------------------------------------------
SELECTED INCOME STATEMENT RATIOS
Gross profit 54.7% 55.0% 55.9% 55.4% 54.1% 53.4%
Selling, general and administrative expenses 42.3 42.9 44.6 43.7 42.2 41.1
Operating income 12.4 12.1 11.3 11.7 11.9 12.3
Income from continuing operations before income taxes 11.5 11.3 10.3 9.8 8.5 9.1
Income from continuing operations 7.6 7.4 7.0 7.5 6.8 6.6
Effective income tax rate 41.4% 39.5% 40.7% 30.9% 30.3% 33.1%
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION
Current assets $435,507 $358,072 $401,179 $311,051 $264,512 $293,053
Property, plant and equipment, net 332,314 292,937 246,191 219,268 207,183 198,086
Investment in Henkel-Ecolab joint venture 285,237 302,298 284,570 255,804 289,034 296,292
Net assets of Ecolab Europe and discontinued operations 70,000
Other assets 155,351 107,573 88,416 105,607 98,135 82,857
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $1,208,409 $1,060,880 $1,020,356 $891,730 $858,864 $940,288
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Current liabilities $327,771 $310,538 $253,665 $201,498 $192,023 $240,219
Long-term debt 148,683 89,402 105,393 131,861 215,963 325,492
Postretirement health care and pension benefits 73,577 70,666 70,882 72,647 63,393 56,427
Other liabilities 138,415 133,616 128,608 93,917 29,179 11,002
Convertible preferred stock
Shareholders' equity 519,963 456,658 461,808 391,807 358,306 307,148
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $1,208,409 $1,060,880 $1,020,356 $891,730 $858,864 $940,288
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
SELECTED CASH FLOW INFORMATION
Cash provided by operating activities $254,269 $166,463 $169,346 $175,674 $120,217 $128,999
Capital expenditures 111,518 109,894 88,457 68,321 59,904 53,752
Long-term debt borrowings (repayments), net 39,310 (17,919) (14,621) (81,813) (164,541) 154,090)
Cash dividends on common stock 36,096 33,114 27,851 24,037 21,983 22,027
Cash dividends declared per common share $ 0.58 $ 0.515 $ 0.455 $ 0.395 $0.3575 $ 0.35
- ------------------------------------------------------------------------------------------------------------------------------------
SELECTED FINANCIAL MEASURES/OTHER
Total debt and preferred stock $176,292 $161,049 $147,213 $151,281 $236,695 $407,221
Total debt and preferred stock to capitalization 25.3% 26.1% 24.2% 27.9% 39.8% 57.0%
Book value per common share $ 8.02 $ 7.06 $ 6.82 $ 5.80 $ 5.31 $ 4.59
Return on beginning equity 24.8% 21.5% 21.6% 23.3% 23.3% 13.6%
Dividends/net income per common share 33.1% 34.3% 36.4% 31.9% 33.7% 42.7%
Annual common stock price range $39.50-29.13 $31.75-20.00 $23.50-19.25 $23.81-18.13 $19.13-13.31 $16.75-9.75
Number of employees 9,573 9,026 8,206 7,822 7,601 7,428
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
December 31 (thousands, except per share) 1990 1989 1988 1987 1986
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATIONS
Net sales
United States $712,579 $646,895 $589,715 $544,310 $485,638
International 184,220 179,705 159,374 103,168 64,973
Europe/Magnus/Pulp & Paper 150,809 122,871 122,250 104,174 93,502
- -------------------------------------------------------------------------------------------------------------------------------
Total 1,047,608 949,471 871,339 751,652 644,113
Cost of sales 495,086 461,256 433,734 361,545 304,942
Selling, general and administrative expenses 425,983 383,512 337,707 307,851 262,823
Merger costs and nonrecurring expenses 12,978 18,441
- -------------------------------------------------------------------------------------------------------------------------------
Operating income 126,539 91,725 99,898 63,815 76,348
Interest expense, net 28,321 31,628 31,097 21,440 2,975
- -------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before income 98,218 60,097 68,801 42,375 73,373
taxes and equity in earnings of joint venture 32,494 19,411 21,285 20,724 29,326
- ------------------------------------------------------------------------------------------------------------------------------------
Provision for income taxes
Equity in earnings of joint venture
Income from continuing operations 65,724 40,686 47,516 21,651 44,047
Income (loss) from discontinued operations (4,408) (29,379) 4,238 126,551 7,357
Extraordinary loss and changes in accounting principles
- -------------------------------------------------------------------------------------------------------------------------------
Net income (loss) 61,316 11,307 51,754 148,202 51,404
Preferred stock dividends (7,700) (429)
- -------------------------------------------------------------------------------------------------------------------------------
Net income (loss) to common shareholders, as reported 53,616 10,878 51,754 148,202 51,404
Pro forma adjustments (2,956) (3,196) (2,622) (2,606) (2,924)
- -------------------------------------------------------------------------------------------------------------------------------
Pro forma net income (loss) to common shareholders $50,660 $ 7,682 $49,132 $145,596 $48,480
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Income (loss) per common share, as reported
Continuing operations $ 1.12 $ 0.68 $ 0.81 $ 0.37 $ 0.75
Discontinued operations (0.09) (0.50) 0.07 2.18 0.13
Extraordinary loss and changes in accounting principles
Net income (loss) 1.04 0.18 0.88 2.56 0.88
Pro forma income (loss) per common share
Continuing operations 1.07 0.63 0.77 0.33 0.70
Net income (loss) $ 0.98 $ 0.13 $ 0.84 $ 2.51 $ 0.83
Average common shares outstanding 51,649 59,258 58,594 57,990 58,474
- -------------------------------------------------------------------------------------------------------------------------------
SELECTED INCOME STATEMENT RATIOS
Gross profit 52.7% 51.4% 50.2% 51.9% 52.7%
Selling, general and administrative expenses 40.6 41.7 38.7 43.4 40.8
Operating income 12.1 9.7 11.5 8.5 11.9
Income from continuing operations before income taxes 9.4 6.3 7.9 5.6 11.4
Income from continuing operations 6.3 4.3 5.5 2.9 6.8
Effective income tax rate 33.1% 32.3% 30.9% 48.9% 40.0%
- -------------------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION
Current assets $216,612 $370,875 $265,291 $283,700 $275,782
Property, plant and equipment, net 187,735 203,056 194,509 176,856 154,277
Investment in Henkel-Ecolab joint venture
Net assets of Ecolab Europe and discontinued operations 404,007 354,179 370,994 394,289
Other assets 76,904 65,936 73,833 74,304 56,318
- -------------------------------------------------------------------------------------------------------------------------------
Total assets $885,258 $994,046 $904,627 $929,149 $486,377
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Current liabilities $177,643 $201,585 $181,758 $247,825 $158,533
Long-term debt 208,147 228,632 257,500 258,273 39,565
Postretirement health care and pension benefits 8,742 12,859 12,768 12,150 9,371
Other liabilities 28,792 25,343 11,590 9,863 16,706
Convertible preferred stock 110,000 110,000
Shareholders' equity 351,934 415,627 441,011 401,038 262,202
- -------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $885,258 $994,046 $904,627 $929,149 $486,377
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
SELECTED CASH FLOW INFORMATION
Cash provided by operating activities $154,208 $123,215 $113,514 $146,310 $89,490
Capital expenditures 58,069 54,430 62,125 57,549 37,469
Long-term debt borrowings (repayments), net (15,842) (34,215) 4,916 162,631 (9,916)
Cash dividends on common stock 24,387 18,008 17,398 16,184 15,329
Cash dividends declared per common share $ 0.335 $ 0.33 $ 0.32 $ 0.30 $0.2825
- -------------------------------------------------------------------------------------------------------------------------------
SELECTED FINANCIAL MEASURES/OTHER
Total debt and preferred stock $353,886 $382,764 $300,448 $320,080 $83,645
Total debt and preferred stock to capitalization 50.1% 47.9% 40.5% 44.4% 24.2%
Book value per common share $ 6.81 $ 7.09 $ 7.45 $ 6.92 $ 4.59
Return on beginning equity 12.9% 2.5% 12.9% 19.5% 21.0%
Dividends/net income per common share 32.2% 183.3% 36.4% 34.1% 32.1%
Annual common stock price range $15.56-8.31 $17.88-12.44 $13.88-10.63 $16.88-9.25 $14.66-10.28
Number of employees 8,106 7,845 7,684 7,479 7,455
- -------------------------------------------------------------------------------------------------------------------------------
</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.
47 ECOLAB 1996 ANNUAL REPORT
<PAGE>
APPENDIX: Graphic and Image Material
PAGE NUMBER DESCRIPTION
- ----------- -----------
24 Pie chart illustrating United States and International
consolidated business mix for 1996 as follows:
United States 77%
International 23%
24 Bar graph of consolidated net sales in millions of dollars
for the last three fiscal years as follows:
1996 $1,490
1995 $1,341
1994 $1,208
26 Pie chart illustrating the United States business mix for
1996 of Ecolab's 7 divisions for 1996 as follows:
Institutional 55%
Food and Beverage 15%
Pest Elimination 9%
Professional Products 8%
Kay 6%
Textile Care 5%
Water Care 2%
26 Bar graph of United States net sales in millions of dollars
for the last three fiscal years as follows:
1996 $1,149
1995 $1,030
1994 $ 942
27 Pie chart illustrating the International business mix of
Ecolab for 1996 as follows:
Asia Pacific 45%
Latin America 24%
Canada 19%
Kay, Africa and Other 12%
<PAGE>
PAGE NUMBER DESCRIPTION
- ----------- -----------
27 Bar graph of International net sales in millions of dollars
for the last three fiscal years as follows:
1996 $341
1995 $311
1994 $266
28 Pie chart illustrating the business mix of the business
divisions of the Henkel-Ecolab Joint Venture for 1996 as
follows:
Institutional 33%
Professional Hygiene 26%
Food (P3) Hygiene 25%
Textile Hygiene 16%
28 Bar graph of Ecolab's equity in millions of dollars in the
earnings of the Henkel-Ecolab Joint Venture for the last
three fiscal years as follows:
1996 $13
1995 $ 8
1994 $11
29 Pie chart illustrating Ecolab's percentage of total debt and
shareholder's equity as of December 31, 1996 as follows:
Total Debt 25%
Shareholders' Equity 75%
29 Bar graph of the ratio of total debt to capitalization as of
December 31 for each of the last three years as follows:
1996 25%
1995 26%
1994 24%
<PAGE>
Exhibit (21)
REGISTRANT
ECOLAB INC.
STATE OR OTHER PERCENTAGE
JURISDICTION OF OF
NAME OF AFFILIATE INCORPORATION OWNERSHIP
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 Ltd. Canada (Ont.) 100
Ecolab S.A. Chile 100
Ecolab Sociedad Anonima Costa Rica 100
Ecolab S.A. France 100
Societe Francaise de Produits Techniques France 100
(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
P.T. Ecolab Indonesia Indonesia 80
Eclab Export Limited Ireland 100
Ecolab Co. Ireland 100
Ecolab Limited Jamaica 100
Ecolab K.K. Japan 100
<PAGE>
STATE OR OTHER PERCENTAGE
JURISDICTION OF OF
NAME OF AFFILIATE INCORPORATION OWNERSHIP
Ecolab East Africa (Kenya) Limited Kenya 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 Morocco Morocco 100
Ecolab Finance N.V. Netherlands 100
Antilles
(Curacao)
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 East Africa (Tanzania) Limited Tanzania 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
2
<PAGE>
STATE OR OTHER PERCENTAGE
JURISDICTION OF OF
NAME OF AFFILIATE INCORPORATION OWNERSHIP
Kay Chemical International, Inc. North 100
Carolina
Ecolab Manufacturing Inc. Delaware 100
Ecolab Holdings Inc. Delaware 100
Ecolab Investment Inc. Delaware 100
Ecolab Foundation Minnesota 100
Ecolab Leasing Corporation Delaware 100
Jackson Machine Sales Company Delaware 100
Certain additional subsidiaries, which are not significant in the aggregate, are
not shown.
3
<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; 33-59431; 333-18617; 333-18627; and 333-
21167) and the Registration Statements on Form S-3 of Ecolab Inc. (Registration
Nos. 33-57197 and 333-14771) of our report dated January 22, 1997 on our audit
of the combined financial statements and schedule of the Henkel-Ecolab Joint-
Venture as of November 30, 1996, 1995 and 1994 and for the period beginning
December 1, 1995, 1994 and 1993 and ended November 30, 1996, 1995 and 1994,
which report is included 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 "or "Incorporation of Documents by Reference" in certain Registration
Statements on Form S-8 of Ecolab Inc. (Registration Nos. 33-55986; 33-56101; 33-
56151; 33-56125; 33-55984; 33-60266; 33-65364; 33-59431; 333-18617; 333-18627;
and 333-21167) and under the caption "Experts" in the Registration Statements on
Form S-3 of Ecolab Inc. (Registration Nos. 33-57197 and 333-14771).
Dusseldorf, Germany
March 27, 1997
KPMG Deutsche Treuhand-Gesselschaft
Aktiengesellschaft
Wirtschaftsprufungsgesellschaft
/s/ Stefan Haas /s/ Bernhard Momken
Stefan Haas Bernhard Momken
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, 1996, 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 21st day of
February, 1997.
/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, 1996, 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 21st day of
February, 1997.
/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, 1996, 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 21st day of
February, 1997.
/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, 1996, 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 21st day of
February, 1997.
/s/ Joel W. Johnson
-----------------------------------
Joel W. Johnson
<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, 1996, 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 21st day of
February, 1997.
/s/ Albrecht Woeste
-----------------------------------
Albrecht Woeste
<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, 1996, 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 21st day of
February, 1997.
/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, 1996, 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 21st day of
February, 1997.
/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, 1996, 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 21st day of
February, 1997.
/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, 1996, 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 21st day of
February, 1997.
/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, 1996, 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 21st day of
February, 1997.
/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, 1996, 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 21st day of
February, 1997.
/s/ Richard L. Schall
-----------------------------------
Richard L. Schall
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF DEC-31-1996 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>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 69,275
<SECURITIES> 0
<RECEIVABLES> 214,369
<ALLOWANCES> 9,343
<INVENTORY> 122,248
<CURRENT-ASSETS> 435,507
<PP&E> 688,476
<DEPRECIATION> 356,162
<TOTAL-ASSETS> 1,208,409
<CURRENT-LIABILITIES> 327,771
<BONDS> 148,683
0
0
<COMMON> 70,751
<OTHER-SE> 449,212
<TOTAL-LIABILITY-AND-EQUITY> 1,208,409
<SALES> 1,490,009
<TOTAL-REVENUES> 1,490,009
<CGS> 674,953
<TOTAL-COSTS> 674,953
<OTHER-EXPENSES> 629,739
<LOSS-PROVISION> 0<F1>
<INTEREST-EXPENSE> 19,084
<INCOME-PRETAX> 170,945
<INCOME-TAX> 70,771
<INCOME-CONTINUING> 113,185
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 113,185
<EPS-PRIMARY> 1.75
<EPS-DILUTED> 1.69
<FN>
<F1>The amount of "loss provision" is not significant and has been included in
"other expenses."
</FN>
</TABLE>
