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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1997 Commission File No. 1-9328
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ............ to .............
ECOLAB INC.
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(Exact name of registrant as specified in its charter)
Delaware 41-0231510
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Ecolab Center, St. Paul, Minnesota 55102
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (612) 293-2233
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Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
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Common Stock, $1.00 par value New York Stock Exchange, Inc.
Pacific Exchange, Inc.
Preferred Stock Purchase Rights New York Stock Exchange, Inc.
Pacific Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
Aggregate market value of voting stock held by non-affiliates of Registrant on
March 2, 1998: $3,717,650,500 (see Item 12, on page 19 hereof). The number of
shares of Registrant's Common Stock, par value $1.00 per share, outstanding as
of March 2, 1998: 129,035,624 shares.
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DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of Registrant's Annual Report to Stockholders for the year
ended December 31, 1997 (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 8, 1998 and to be filed within 120 days after the
Registrant's fiscal year ended December 31, 1997 (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.
Effective at the end of 1997, the Company acquired the outstanding shares of
Gibson Chemical Industries Limited ("Gibson") headquartered in Melbourne,
Victoria, Australia for a purchase price of approximately A$192,000,000. Gibson
is engaged principally in the supply of cleaning and sanitation chemicals and
services to the hospitality and healthcare industries and to catering
institutions and the supply of specialty chemicals and services to major
manufacturing and mining industries. Its manufacturing and/or distribution
operations are located primarily in Australia and New Zealand, with smaller
operations in Southeast Asia, the United Kingdom and the United States. The
acquisition of Gibson will substantially increase the Company's operations in
the Asia Pacific region.
ITEM 1(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Company's operations are all conducted in one industry segment.
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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 and other
convenience store 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 in order to meet a full range of cleaning and sanitation needs.
Distributors are utilized in several markets, as described 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 are
purchased from third party suppliers. Additional information on the Company's
manufacturing facilities is located under Item 2 below under the heading
"Properties."
In the United States and Canada, the Company operates through seven divisions:
Institutional, Kay, Food and Beverage, Pest Elimination, Textile Care,
Professional Products 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
and the extent and nature of such international businesses varies by location;
however, these businesses are expanding into a number of international
locations. 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.
The Company conducts business in approximately 35 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,
agents or licensees, although those sales are not significant in terms of the
Company's overall sales. The largest international operations are located in
Asia Pacific, Latin America and Canada with smaller start-up operations in
Africa. For the year ended December 31, 1997, international sales comprised
approximately 22 percent 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 North American divisions include a
discussion, where applicable, of similar businesses currently conducted
elsewhere internationally. The Company pursues a "Circle the Customer - Circle
the Globe" strategy by developing relationships and
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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. In some circumstances, the business of the Company's
divisions, or of the business units within the divisions, may be conducted by
one or more subsidiaries of the Company.
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. By the acquisition of certain assets of Grace-Lee
Products in late 1997, the Division also entered the vehicle wash industry. The
Institutional Division also markets various chemical dispensing device systems,
which are made available to customers, to dispense the Company's cleaners and
sanitizers. Also, through its Ecotemp offering, the Institutional Division
markets, primarily to smaller and mid-size customer units, a program comprised
of energy-efficient dishwashing machines, detergents, rinse additives and
sanitizers including full machine maintenance. Similar dishwashing machines and
other customized equipment is sold to third parties through the Company's
Jackson line. The Division's warewashing, on-premise laundry and housekeeping
businesses are, in general, conducted in all international locations but may be
tailored to meet unique local needs. The other businesses are concentrated in
North America and offered less extensively internationally.
The Company believes it is the leading supplier of chemical warewashing products
to institutions in the United States and Canada and, including the Henkel-Ecolab
Joint Venture in Europe, is one of the leading suppliers worldwide.
The Institutional Division sells its products and services primarily through
Company-employed field sales and service personnel. The Company also utilizes
food-service distributors to market and sell its products to smaller accounts or
accounts which purchase through food distributors 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 industry. This includes traditional
fast food restaurants but, increasingly, other places where "fast food" is
prepared and served such as convenience stores, airport and shopping center
kiosks, discount stores, stadiums, grocery store delis and other venues. 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's customized cleaning and sanitation
programs are designed to reduce labor costs and product usage while increasing
sanitation levels, cleaning performance, equipment life and safety levels.
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
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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 addresses cleaning and
sanitation at the start of the food chain to facilitate the production of
products safe for human consumption. The 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 performed
by Company-employed sales and service personnel. The Pest Elimination business
acquires most of its insecticides and pesticides from third-party vendors. 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. The Division's programs are designed to meet the
customer's need for exceptional cleaning, while extending the useful life of
linen and reducing the customer's overall operating cost. 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 infection control and janitorial offerings that are sold to the medical and
janitorial markets in the United States and Canada. The Professional Products
Division sells its proprietary products under the brand names
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Airkem (detergents, general purpose cleaners, carpet care, furniture polishes,
disinfectants, floor care products, hand soaps and odor counteractants) and
Huntington (infection control and gym floor products).
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. Similar businesses are conducted on a
limited basis in other international markets, primarily Brazil and South Africa.
WATER CARE SERVICES: The Water Care Services 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 commercial/institutional customers
(hospitals, healthcare, commercial real estate, government, shopping malls and
commercial laundries) and light industry (food and beverage accounts, textile
mills, electronic plants and other industries). As a facet of its growth
strategy, Water Care Services works closely with the Company's Institutional,
Textile Care and Food and Beverage Divisions to offer customized water care
strategies to their accounts that have water care needs, 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 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 and differentiated products. 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 Company's significant on-going investment in training
and technology development and by the Company's standard practice of assisting
customers in lowering operating costs and complying with safety, 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
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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 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 1997, 1996 and 1995 approximated 31, 31 and 33 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 1997, 1996 and 1995 approximated 14, 14 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.
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FORWARD-LOOKING STATEMENTS AND RISK FACTORS
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements. From time to time, in written reports (including
reports to the Securities and Exchange Commission, press releases and reports to
shareholders among others) and oral statements, the Company or its Management
discusses expectations regarding future performance of the Company including
anticipated financial performance, business prospects, acquisition programs, new
products, research and development activity, plans for international expansion,
capital expenditures and similar matters. Without limiting the foregoing, words
or phrases such as "will likely result," "are expected to," "will continue," "is
anticipated," "we believe," "estimate," "project" (including the negative or
variations thereof) or similar terminology, generally identify forward-looking
statements.
Forward-looking statements represent challenging goals for the Company. As
such, they are based on certain assumptions and estimates and are subject to
certain risks and uncertainties. The Company cautions that undue reliance
should not be placed on such forward-looking statements which speak only as of
the date made. In order to comply with the terms of the safe harbor, the
Company hereby identifies important factors which could affect the Company's
financial performance and could cause the Company's actual results for future
periods to differ materially from the anticipated results or other expectations
expressed in the forward-looking statements. These factors should be
considered, together with any similar risk factors or other cautionary language
which may be made in connection with, or at the time of, the making of the
forward-looking statement, or in other filings with the Securities and Exchange
Commission.
Risks and uncertainties that may affect operating results and business
performance include: pricing flexibility; availability of adequate and
reasonably-priced raw materials; the occurrence of capacity constraints limiting
the production of certain products; ability to carry out the Company's
acquisition strategy, including difficulties in rationalizing acquired
businesses and in realizing related cost savings and other benefits; the costs
and effects of "year 2000" computer software issues (described below); the costs
and effects of complying with: (i) the significant environmental laws and
regulations which apply to the Company's operations and facilities, (ii)
government regulations relating to the manufacture, storage, distribution and
labeling of the Company's products and (iii) changes in tax, fiscal,
governmental and other regulatory policies; economic factors such as the
worldwide economy, interest rates, currency movements and the development of
markets; the occurrence of (i) litigation or claims, (ii) natural or man-made
disasters and (iii) severe weather conditions affecting the food service and
hospitality industry; loss of, or changes in, executive management; the
Company's ability to continue product introductions and technological
innovations; and other uncertainties or risks reported from time-to-time in the
Company's reports to the Securities and Exchange Commission. In addition, the
Company notes that its stock price can be affected by fluctuations in quarterly
earnings. Despite favorable year-over-year quarterly comparisons in recent
years, there can be no assurances that earnings will continue to improve or that
the degree of improvement will meet investors' expectations.
The "year 2000" issue is the result of computer programs having date-sensitive
software which may recognize a date using 00 as the year 1900 rather than the
year 2000. If not detected and corrected, this can result in system failure or
miscalculations causing disruptions of operations, including a temporary
inability to process transactions, send invoices, or engage in similar normal
business activities. Accordingly, the failure to resolve year 2000 issues could
have a material impact on the Company. The Company has put in place plans and
processes which it believes will be sufficient
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to evaluate and manage risk associated with year 2000 issues and will use both
internal and external resources. However, estimates of year 2000 costs, time
schedules and the Company's belief that it can successfully resolve year 2000
issues are based on presently available information and are subject to certain
assumptions and risks. These include the availability of necessary and trained
personnel who can be hired or retained on a contract basis, the ability to
locate and correct all relevant computer codes and uncertainties surrounding the
ability of suppliers and vendors to resolve their year 2000 issues. The ability
of governmental agencies to resolve year 2000 issues is an additional risk and
uncertainty. However, although such risks and uncertainties exist, the Company
believes that its exposure to year 2000 issues is not dissimilar to that of
other companies engaged in similar businesses.
This summary of risks and uncertainties supersedes the summary provided in the
Company's Current Report on Form 8-K dated February 20, 1998.
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, development and engineering
personnel. Note 12, entitled "Research Expenditures" located on page 47 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 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
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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.
Approximately 280 of 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 cost of complying with rules
as to pesticides has not had a material adverse effect on the Company's
financial condition, liquidity or the results of its operations to date, the
costs and delays in receiving necessary approvals for these products have
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
$1,200,000 in 1997. Such costs will increase somewhat in 1998, but not in
amounts which are expected to significantly affect the Company's results of
operations, liquidity or consolidated financial condition.
In addition, the Company's Pest Elimination Division applies restricted-use
pesticides which it purchases from third parties. That Division must comply
with certain standards pertaining to the use of such pesticides and to the
licensing of employees who apply such pesticides. Such regulations are enforced
primarily by the states or local jurisdictions in conformity with federal
regulations. The Company has not experienced material difficulties in complying
with these requirements.
OTHER ENVIRONMENTAL LEGISLATION: The Company's manufacturing plants are subject
to federal, state, local or foreign jurisdiction laws and regulations relating
to discharge of hazardous substances into the environment and to the
transportation, handling and disposal of such substances. The primary federal
statutes that apply to the Company's activities are the Clean Air Act, the Clean
Water Act and the Resource Conservation and Recovery Act ("RCRA"). The Company
makes capital investments and expenditures to comply with environmental laws and
regulations, to ensure employee safety and to carry out its announced
environmental stewardship principles. To date such expenditures have not had a
significant adverse effect on the financial condition of the Company or its
results of operations. The Company's capital expenditures for environmental
control projects incurred for 1997 were approximately $942,000 and approximately
$1,500,000 has been budgeted for 1998. 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
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Environmental Response, Compensation and Liability Act ("CERCLA") or state
equivalents at 15 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 15 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 has
requested that the U.S. Environmental Protection Agency place the site on the
National Priority List of federal superfund sites. 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 16 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 property
owned 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.
The New South Wales (Australia) Environmental Protection Authority has
identified a property owned by Maxwell Chemicals Pty Limited, a subsidiary of
the Company, as impacted by contamination. Because a remedial action plan has
not yet been completed for the site, remedial costs cannot be predicted but the
Company believes the cost will not be material.
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 1997, the Company's net expenditures for contamination remediation were
approximately $300,000. The accrual at the end of 1997 for future remediation
expenditures was approximately $10,000,000. The Company reviews its exposure
for contamination remediation costs periodically
-11-
<PAGE>
and its accruals are adjusted as considered appropriate. In establishing
accruals, potential insurance 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 10,210 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 47 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. Profitability of international operations is lower than profitability
of businesses in the United States because of lower international operating
income margins due to the difference in scale of international operations where
operating locations are smaller in size and due to the additional costs of
operating in numerous and diverse foreign jurisdictions.
EXECUTIVE OFFICERS OF THE COMPANY
The persons listed in the following table are the current executive officers of
the Company. Officers are elected annually. There is no family relationship
among any of the directors or executive officers, and none of such persons has
been involved during the past five years in any legal proceedings described in
applicable Securities and Exchange Commission regulations.
<TABLE>
<CAPTION>
Positions Held
Name Age Office Since Jan. 1, 1993
- ---- --- ------ ------------------
<S> <C> <C> <C>
A. L. Schuman 63 President and Chief March 1995 - Present
Executive Officer
President and Chief Jan. 1993 - Feb. 1995
Operating Officer
-12-
<PAGE>
<CAPTION>
Positions Held
Name Age Office Since Jan. 1, 1993
- ---- --- ------ ------------------
<S> <C> <C> <C>
M. E. Shannon 61 Chairman of the Board, Chief Jan. 1996 - Present
Financial and Administrative
Officer
Vice Chairman, Chief Jan. 1993 - Dec. 1995
Financial and
Administrative Officer
L. T. Bell 50 Vice President-Law Jan. 1998 - Present
and General Counsel
Vice President, Assistant Jan. 1997 - Dec. 1997
General Counsel and
Assistant Secretary
Associate General Counsel July 1995 - Dec. 1996
and Assistant Secretary
Associate General Counsel Jan. 1993 - June 1995
G. K. Carlson 54 Senior Vice President - June 1996 - Present
Corporate Planning
and Development
Senior Vice President- Jan. 1994 - May 1996
International
Senior Vice President Jan. 1993 - Dec. 1993
and General Manager-
Institutional North
America
P. D'Almada 50 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
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<PAGE>
<CAPTION>
Positions Held
Name Age Office Since Jan. 1, 1993
- ---- --- ------ ------------------
<S> <C> <C> <C>
International Vice Jan. 1993 - Sep. 1993
President - Central America
and the Caribbean
S. L. Fritze 43 Vice President and Mar. 1995 - Present
Treasurer
Institutional Vice Jan. 1993 - Feb. 1995
President, Planning
and Control
A. E. Henningsen, Jr. 51 Senior Vice President Mar. 1996 - Present
and Controller
Vice President and Jan. 1993 - Feb. 1996
Controller
R. L. Marcantonio 48 Senior Vice President- Mar. 1997 - Present
Industrial
J. L. McCarty 60 Senior Vice President- Jan. 1994 - Present
Institutional North America
Vice President and General Jan. 1993 - Dec. 1993
Manager - Pest Elimination
M. Nisita 57 Senior Vice President- Jan. 1994 - Present
Global Operations
Vice President-Operations Jan. 1993 - Dec. 1993
J. P. Spooner 51 Senior Vice President- June 1996 - Present
International
Senior Vice President- June 1994 - May 1996
Industrial
F. W. Tuominen, 55 Senior Vice President Jan. 1993 - Present
Ph.D. and Chief Technical and
Environmental Officer
</TABLE>
Mr. Spooner joined the Company as Senior Vice President-Industrial in June 1994.
Prior to joining the Company, Mr. Spooner was employed by PepsiCo, Inc. for 15
years, holding various positions in operations and business development,
including most recently, President of the North Division of Frito-Lay, Inc.
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<PAGE>
Mr. Marcantonio joined the Company as Senior Vice President-Industrial in March
1997. Prior to joining the Company, Mr. Marcantonio was employed by
subsidiaries of United Biscuits (Holdings) Plc. for 20 years, holding various
positions in sales, marketing and general management, including most recently,
Senior Vice President - Cookies and Crackers of the Keebler Company.
ITEM 2. PROPERTIES
The Company's manufacturing facilities produce chemical products or equipment
for all the Company's businesses, although the Pest Elimination Division
purchases most of its products and 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 equipment
manufacturing operations consist primarily of producing chemical product
dispensers and ejectors and other mechanical equipment (South Beloit, Illinois),
dishwasher racks and related sundries (Elk Grove Village, Illinois and Shika,
Japan) and dishwashing machines, a portion of which is sold to third party
dishwashing machine distributors (Barbourville, Kentucky). The Company's
philosophy is to manufacture products wherever an economic, process or quality
assurance advantage exists or where proprietary manufacturing techniques dictate
internal production processes. Currently most products used by the Company are
manufactured at Company facilities.
The following chart profiles the Company's manufacturing facilities which are
approximately 50,000 square feet or larger in size.
ECOLAB OPERATIONS PLANT PROFILES
<TABLE>
<CAPTION>
SIZE OWNED/
LOCATION (SQ. FT.) TYPES OF PRODUCTS LEASED
- -------- --------- ----------------- ------
<S> <C> <C> <C>
UNITED STATES
Joliet, IL 610,000 Solids, Liquids, Powders Owned
Woodbridge, NJ 248,000 Solids, Liquids Owned
Garland, TX 239,000 Solids, Liquids Owned
Greensboro, NC 193,000 Liquids, Powders Owned
Hebron, OH 192,000 Liquids Owned
San Jose, CA 175,000 Liquids Owned
South Beloit, IL 155,000 Equipment Owned
McDonough, GA 141,000 Solids, Liquids Owned
Eagan, MN (pilot plant) 133,000 Solids, Liquids, Emulsions, Powders Owned
City of Industry, CA 125,000 Liquids Owned
Barbourville, KY 109,000 Equipment Owned
Huntington, IN 90,000 Liquids, Powders Owned
Elk Grove Village, IL 66,000 Equipment Leased
INTERNATIONAL
Santa Cruz, BRAZIL 142,000 Liquids, Powders Owned
</TABLE>
-15-
<PAGE>
ECOLAB OPERATIONS PLANT PROFILES (CONTINUED)
<TABLE>
<CAPTION>
SIZE OWNED/
LOCATION (SQ. FT.) TYPES OF PRODUCTS LEASED
- -------- --------- ----------------- ------
<S> <C> <C> <C>
Melbourne, AUSTRALIA 130,000 Liquids, Powders Owned
Johannesburg, SOUTH AFRICA 100,000 Liquids, Powders Owned
Toronto, CANADA 88,000 Liquids Leased
Hamilton, NEW ZEALAND 58,000 Solids, Liquids, Powders Owned
Sydney, AUSTRALIA 51,000 Liquids, Powders Leased
Noda, JAPAN 49,000 Solids, Liquids, Powders Owned
</TABLE>
Additional United States manufacturing facilities owned by the Company are
located in North Kansas City, Missouri; Grand Forks, ND and Dallas, Texas. The
Company also operates smaller international manufacturing facilities in
Argentina; Australia; Chile; Costa Rica; Fiji; Indonesia; Japan; New Zealand;
Papua New Guinea; People's Republic of China; Philippines; Puerto Rico;
Singapore; South Korea; Tanzania and Thailand.
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 139 leased offices. Additional
sales offices are located internationally.
The Company's corporate headquarters is comprised of three multi-storied
buildings located in downtown St. Paul, Minnesota. The main 19-story building
was constructed to the Company's specifications and is leased through 2003.
Thereafter, it is subject to multiple renewals at the Company's option. Another
building is owned. The third building is also subject to a long-term lease by
the Company. In 1997, the Company began an extensive renovation and expansion
of the corporate headquarters which will include a state-of-the-art training
center and facilities to add several hundred additional jobs at the Company's
headquarters. The Company also owns a computer center in St. Paul and a
research facility and chemical pilot plant both of which are located in suburbs
of St. Paul.
ITEM 3. LEGAL PROCEEDINGS
Proceedings arising under laws relating to protection of the environment are
discussed at Item 1(c) above, under the heading "Environmental Considerations."
As previously reported in the Company's Form 10-Q for the quarter ended
September 30, 1997, the legal action commenced by ten distributors of the
Company's Airkem janitorial products was reduced in scope by summary judgment
rendered by the Court in April 1997 in favor of the Company. Two claims
remained pending. Subsequently, the legal action was divided into separate
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<PAGE>
trials for each of the plaintiff distributors. The first trial took place in
May-June 1997, with a jury verdict in favor of the plaintiff in the amount of
$29,000 on one of the claims, and a verdict in favor of the Company on the
second claim. That part of the jury's decision favoring the plaintiff has been
appealed by the Company. Prior to trial, the Company settled the claims of two
of the plaintiffs on a basis not material to the Company. The trials of the
other seven plaintiffs will likely be scheduled for later in 1998. Those
plaintiffs may also appeal the Court's summary judgment decision.
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
A Special Meeting of the Stockholders was held on October 22, 1997. At the
meeting, 91.6 percent of the outstanding shares of the Company's voting stock
was represented in person or by proxy. The sole proposal voted upon was to
amend and restate the Company's Restated Certificate of Incorporation to
increase the authorized Common Stock of the Company from 100,000,000 shares to
200,000,000 shares. The increase in the authorized capital was approved as
follows (there were no broker non-votes):
FOR AGAINST ABSTAINED
58,288,378 937,041 108,815
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
All per share and number of share data in Item 5, including dividends per share
in Item 5(c), reflect a two-for-one stock split paid January 15, 1998 in the
form of a 100% stock dividend to shareholders of record on December 26, 1997
("Stock Split").
ITEM 5(a) MARKET INFORMATION
The Company's Common Stock is listed on the New York Stock Exchange and the
Pacific Exchange, Inc. 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 1997 and 1996 were as follows:
-17-
<PAGE>
<TABLE>
<CAPTION>
1997 1996
-------- --------
Quarter High Low High Low
------- ---- --- ---- ---
<S> <C> <C> <C> <C>
First $19-9/16 $18-1/8 $16-5/16 $14-9/16
Second $24-1/32 $19-1/16 $16-15/16 $14-3/4
Third $24-15/16 $21-9/32 $16-7/8 $14-3/4
Fourth $28 $23-1/16 $19-3/4 $16-3/4
</TABLE>
The closing stock price on March 2, 1998 was $29-1/16.
ITEM 5(b) HOLDERS
On March 2, 1998, the Company had 5,074 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 $0.07 per share were declared in February, May
and August, 1996. Dividends of $0.08 per share were declared in December, 1996
and February, May and August, 1997. A dividend of $0.095 per share was declared
in December 1997.
ITEM 5(d) RECENT SALES OF UNREGISTERED SECURITIES
On December 22, 1997, the Company issued 616,686 (308,343 prior to the Stock
Split) shares of Common Stock to Grace-Lee Products, Incorporated ("Grace-Lee")
in a private transaction for the acquisition of Grace-Lee's chemical business.
The transaction was exempt from registration pursuant to Section 4(2) of the
Securities Act of 1933.
ITEM 6. SELECTED FINANCIAL DATA
The comparative data for the years ended December 31, 1997, 1996, 1995, 1994 and
1993 inclusive, which are set forth under the heading entitled "Summary
Operating and Financial Data" and which are located on pages 50 and 51 of the
Annual Report, are incorporated herein by reference.
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 28 through 35 of the Annual Report, is incorporated herein by
reference.
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<PAGE>
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 36
through 49 of the Annual Report, are filed as a part of this Report and are
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The biographical material located on pages 6 through 10 and the paragraph
relating to understandings concerning the election of directors between Henkel
KGaA and the Company located on page 5 of the Proxy Statement appearing under
the heading entitled "Election of Directors," is incorporated herein by
reference. Information regarding executive officers is presented under the
heading "Executive Officers of the Company" in Part I of this Report on pages 12
through 15.
ITEM 11. EXECUTIVE COMPENSATION
The material appearing under the heading entitled "Executive Compensation,"
located on pages 11 through 18 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, under the heading
"Stockholder Agreement," which is incorporated herein by reference.
A total of 1,116,467 shares of Common Stock held by the Company's directors
and executive officers, some of whom may be affiliates of the Company, have
been excluded from the computation of market value of the Company's Common
Stock on the cover page of this Report. This total represents that portion
of the shares reported as beneficially owned by officers and directors of the
Company in the table entitled "Security Ownership of Management" located on
page 3 of the Proxy Statement, which are actually issued and outstanding.
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<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The material appearing under the headings entitled "Certain Transactions,"
"Stockholder Agreement" and "Company Transactions" on pages 19 through 21 of the
Proxy Statement and the biographical material located on pages 6, 7 and 9 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, 1997, 1996 and 1995, Annual Report page 36.
(ii) Consolidated Balance Sheet at December 31, 1997, 1996 and
1995, Annual Report page 37.
(iii) Consolidated Statement of Cash Flows for the years ended
December 31, 1997, 1996 and 1995, Annual Report page 38.
(iv) Consolidated Statement of Shareholders' Equity for the years
ended December 31, 1997, 1996 and 1995, Annual Report page
39.
(v) Notes to Consolidated Financial Statements, Annual Report
pages 40 through 48.
(vi) Report of Independent Accountants, Annual Report page 49.
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,
1997, 1996 and 1995 located on page 31 hereof, and the Report of
Independent Accountants on Financial Statement Schedule at page 29
hereof are filed as part of this Report.
(i) Schedule II -- Valuation and Qualifying Accounts for the
years ended December 31, 1997, 1996 and 1995.
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 32 to 54 hereof, are filed as part of this Report.
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<PAGE>
(i) Report of Independent Accountants.
(ii) Combined Statements of Income for the years ended November
30, 1997, 1996 and 1995.
(iii) Combined Balance Sheets at November 30, 1997, 1996 and 1995.
(iv) Combined Statements of Cash Flows for the years ended
November 30, 1997, 1996 and 1995.
(v) Combined Statements of Equity for the years ended November
30, 1997, 1996 and 1995.
(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, 1997, 1996 and 1995 located on page 55 hereof, and
the Report of Independent Accountants on pages 32 and 33 hereof are
filed as part of this Report.
(i) Schedule -- Valuation and Qualifying Accounts and Reserves
for the years ended November 30, 1997, 1996 and 1995.
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 Section 18 of the
Securities Exchange Act of 1934.
(3)A. Restated Certificate of Incorporation - Incorporated by
reference to Exhibit (3) to the Company's Current
Report on Form 8-K dated October 22, 1997.
B. By-Laws, as amended through February 20, 1998.
(4)A. Common Stock - see Exhibits (3)A and (3)B.
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<PAGE>
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.
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. (i) Multicurrency Credit Agreement ("Credit
Agreement") dated as of September 29, 1993,
as Amended and Restated as of October 17,
1997, 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)A of the Company's
Form 10-Q for the quarter ended September 30,
1997.
(ii) Australian Dollar Local Currency Addendum to
the Credit Agreement - Incorporated by
reference to Exhibit (4)B of the Company's
Form 10-Q for the quarter ended September 30,
1997.
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)Q(iv) hereof.
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<PAGE>
(10)A. Ecolab Inc. 1977 Stock Incentive Plan, as amended
through November 1, 1996.
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 - Incorporated by
reference to Exhibit (10)C of the Company's Form 10-K
for the year ended December 31, 1996.
D. 1988 Non-Employee Director Stock Option Plan as amended
through February 23, 1991 - Incorporated by reference
to Exhibit (10)D of the Company's Form 10-K Annual
Report for the year ended December 31, 1990.
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 - Incorporated by reference to
Exhibit (10)F of the Company's Form 10-K for the year
ended December 31, 1996.
G. 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.
H. (i) Ecolab Non-Employee Directors' Retirement Plan -
Incorporated by reference to Exhibit (10)I of the
Company's Form 10-K Annual Report for the year
ended December 31, 1991.
(ii) First Declaration of Amendment to Ecolab
Non-Employee Directors' Retirement Plan.
I. (i) 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)O
hereof.
(ii) Amendment No. 1 to Ecolab Executive Death
Benefits Plan.
J. Ecolab Executive Long-Term Disability Plan, as amended
and restated effective January 1, 1994 - Incorporated
by reference to
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<PAGE>
Exhibit (10)K of the Company's 10-K Annual Report for
the year ended December 31, 1994. See also Exhibit
(10)O hereof.
K. 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.
L. (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)O
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.
M. (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)O
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 -
Incorporated by reference to Exhibit (10)O(iii)
of the Company's Form 10-K Annual Report for
the year ended December 31, 1996.
(iv) Third Declaration of Amendment to Ecolab Mirror
Savings Plan effective November 13, 1997.
N. (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)O hereof.
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<PAGE>
(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.
O. (i) 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.
(ii) Amendment No. 1 to the Ecolab Inc.
Administrative Document for Non-Qualified
Benefit Plans effective July 1, 1997.
(iii) First Declaration to Amendment to the Ecolab Inc.
Administrative Document for Non-Qualified Benefit
Plans effective November 13, 1997.
P. 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.
Q. (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
-25-
<PAGE>
Investments, Inc.'s and Henkel KGaA's Amendment
No. 4 to Schedule 13D dated July 16, 1991.
R. Description of Ecolab Management Incentive Plan.
(13) Those portions of the Company's Annual Report to
Stockholders for the year ended December 31, 1997 which are
incorporated by reference into Parts I, II and IV hereof.
(21) List of Subsidiaries as of March 2, 1998.
(23)A. Consent of Coopers & Lybrand L.L.P. to Incorporation by
Reference at page 30 hereof is filed as a part hereof.
B. Consent of KPMG Deutsche Treuhand-Gesellschaft
Aktiengesellschaft.
(24) Powers of Attorney.
(27)A. Financial Data Schedule for year ended December 31,
1997.
B. Restated Financial Data Schedules for periods ended
September 30, June 30 and March 31, 1997; and December
31, 1996.
C. Restated Financial Data Schedules for periods ended
September 30, June 30 and March 31, 1996; and December
31, 1995.
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)H. Ecolab Non-Employee Directors' Retirement Plan.
(10)I. Ecolab Executive Death Benefits Plan.
(10)J. Ecolab Executive Long-Term Disability Plan.
(10)K. Ecolab Executive Financial Counseling Plan.
-26-
<PAGE>
(10)L. Ecolab Supplemental Executive Retirement Plan.
(10)M. Ecolab Mirror Savings Plan.
(10)N. Ecolab Mirror Pension Plan.
(10)O. The Ecolab Inc. Administrative Document for Non-Qualified Benefit
Plans.
(10)P. Ecolab Management Performance Incentive Plan.
(10)R. Ecolab Management Incentive Plan.
III. Reports on Form 8-K:
The Company filed five Current Reports on Form 8-K for the quarter ended
December 31, 1997.
(i) Update of developments regarding the acquisition of Gibson
Chemical Industries Limited of Melbourne, Victoria, Australia
("Gibson") (filed October 2, 1997).
(ii) Announcement that Gibson Board of Directors recommended the
Company's tender offer to Gibson shareholders (filed October 9,
1997).
(iii) Announcement of voting results of Special Meeting of Stockholders
(filed October 22, 1997).
(iv) Announcement of stock split and increased quarterly dividend
(filed December 15, 1997).
(v) Announcement of acquisition of controlling interest in Gibson
(filed December 16, 1997).
In addition, subsequent to the quarter ended December 31, 1997, the Company
filed February 20, 1998 a Current Report on Form 8-K identifying important
factors that could cause the Company's actual results to differ materially
from those projected in the forward-looking statements of the Company.
-27-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Ecolab Inc. has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized, on the 10th day of March, 1998.
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 10th day of March, 1998.
/s/ Allan L. Schuman President and Chief Executive Officer
- ----------------------------- (Principal Executive Officer
Allan L. Schuman 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
Les S. Biller, Ruth S. Block,
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
-28-
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To the Shareholders and Board of Directors
of Ecolab Inc.
Our report on the consolidated financial statements of Ecolab Inc. has been
incorporated by reference in this Form 10-K from page 49 of the 1997 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 31 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Saint Paul, Minnesota
February 23, 1998
-29-
<PAGE>
CONSENT OF COOPERS & LYBRAND L.L.P.
TO INCORPORATION BY REFERENCE
We consent to the incorporation by reference in the Registration Statements
on Form S-8 of Ecolab Inc. (Registration Nos. 2-60010; 2-74944; 33-1664;
33-41828; 2-90702; 33-18202; 33-55986; 33-56101; 33-26241; 33-34000; 33-56151;
333-18627; 33-39228; 33-56125; 33-55984; 33-60266; 33-65364; 33-59431;
333-18617; 333-18627; 333-21167; 333-35519; and 333-40239) and the Registration
Statements of Ecolab Inc. on Form S-3 (Registration Nos. 333-14771 and
333-45295) of our reports dated February 23, 1998 on our audits of the
consolidated financial statements and the related financial statement schedule
of Ecolab Inc. as of December 31, 1997, 1996 and 1995, and for the years ended
December 31, 1997, 1996 and 1995, 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; 333-21167; 333-35519; and 333-40239) and under
the caption "Experts" in the Registration Statements on Form S-3 of Ecolab Inc.
(Registration Nos. 333-14771 and 333-45295).
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Saint Paul, Minnesota
March 10, 1998
-30-
<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, 1997 $9,343 $6,644 $ 58 $(5,167) $10,878
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
</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.
-31-
<PAGE>
INDEPENDENT AUDITORS' REPORT
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 audits 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.
-32-
<PAGE>
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 1997, 1996, 1995 and the results of its
operations and its cash flows for the periods beginning December 1, 1996, 1995
and 1994, and ended November 30, 1997, 1996 and 1995 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 23, 1998
KPMG Deutsche Treuhand-Gesellschaft
Aktiengesellschaft
Wirtschaftsprufungsgesellschaft
/s/Haas /s/ Momken
Haas Momken [seal]
Wirtschaftsprufer Wirtschaftsprufer
-33-
<PAGE>
Henkel-Ecolab Joint Venture
INDEX TO COMBINED FINANCIAL STATEMENTS FOR THE YEARS ENDED NOVEMBER 30, 1997,
NOVEMBER 30, 1996 AND NOVEMBER 30, 1995
- -----------------------------------------------------------------------------
Independent Auditors' Report
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
-34-
<PAGE>
HENKEL-ECOLAB JOINT VENTURE
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Twelve Months ended Twelve Months ended Twelve Months ended
(Thousands) November 30, 1997 November 30, 1996 November 30, 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales DM 1,447,443 DM 1,354,809 DM 1,308,935
Cost of Sales 640,396 610,020 585,002
Selling, General and Administrative Expenses 671,635 620,778 624,032
Royalties to Parents 24,372 22,718 28,180
- ------------------------------------------------------------------------------------------------------------------
Operating Income 111,040 101,293 71,721
Other Expenses/Income, principally Interest Expense, 2,471 4,171 7,977
Equity in Income of Affiliate 406 320 132
- ------------------------------------------------------------------------------------------------------------------
Income before Income Taxes 108,975 97,442 63,876
Provision for Income Taxes 51,267 45,334 31,637
- ------------------------------------------------------------------------------------------------------------------
Net Income DM 57,708 DM 52,108 DM 32,239
-- ------ -- ------ -- ------
-- ------ -- ------ -- ------
</TABLE>
See accompanying Notes to Combined Financial Statements
-35-
<PAGE>
HENKEL-ECOLAB JOINT VENTURE
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
November 30, November 30, November 30,
(Thousands) 1997 1996 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets
Cash and Cash Equivalents DM 34,233 DM 125,645 DM 67,272
Accounts Receivable, net 326,539 284,016 269,160
Accounts Receivable from Related Parties 13,214 12,536 22,349
Loans to Related Parties 6,894 8,007 15,778
Inventories 180,682 183,192 165,604
Prepaid Expenses and Other Current Assets 41,878 34,144 23,869
Deferred Taxes 7,323 5,647 5,275
- ------------------------------------------------------------------------------------------
Current Assets 610,763 653,187 569,307
- ------------------------------------------------------------------------------------------
Investment in Affiliated Company, net 5,688 8,073 8,330
Property, Plant and Equipment, net 178,125 167,555 160,118
Intangible and Other Assets, net 60,490 32,122 31,098
Deferred Taxes 12,943 10,724 11,339
- ------------------------------------------------------------------------------------------
Total Assets DM 868,009 DM 871,661 DM 780,192
------------ ------------ ------------
- ------------------------------------------------------------------------------------------
Liabilities and Equity
Current Portion of Long Term Debt DM 656 DM 652 DM 712
Short Term Debt 24,318 72,972 17,695
Loans from Related Parties 1,159 7,445 48,437
Accounts Payable 103,429 98,274 84,764
Accounts Payable to Related Parties 31,840 82,294 28,906
Accrued Liabilities 180,031 177,668 140,361
Income Taxes 54,600 36,269 37,996
- ------------------------------------------------------------------------------------------
Current Liabilities 396,033 475,574 358,871
- ------------------------------------------------------------------------------------------
Employee Benefit Obligations 127,818 106,766 94,528
Long Term Debt, less Current Maturities 4,762 5,383 5,905
Deferred Taxes 3,998 3,612 2,489
- ------------------------------------------------------------------------------------------
Combined Equity 335,398 280,326 318,399
- ------------------------------------------------------------------------------------------
Total Liabilities and Equity DM 868,009 DM 871,661 DM 780,192
------------ ------------ ------------
</TABLE>
See accompanying Notes to Combined Financial Statements
-36-
<PAGE>
HENKEL-ECOLAB JOINT VENTURE
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Twelve Months ended Twelve Months ended Twelve Months ended
(Thousands) November, 30 1997 November, 30 1996 November, 30 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET INCOME DM 57,708 DM 52,108 DM 32,239
ADJUSTMENTS TO RECONCILE NET INCOME TO CASH
PROVIDED BY OPERATING ACTIVITIES
Depreciation and Amortization 64,556 59,880 54,153
Equity in Income of Affiliated Company (406) (320) (132)
Provision for Doubtful Accounts and Other 6,668 1,477 791
Gain on Sale of Property and Equipment (996) (1,580) (1,075)
Deferred Income Taxes (3,509) 1,366 (624)
CHANGES IN OPERATING ASSETS AND LIABILITIES
(Increase) in Accounts Receivable (45,557) (16,333) (9,255)
(Increase) / Decrease in Due from Related
Parties (2,038) 9,813 (6,718)
Decrease / (Increase) in Inventories 5,092 (17,588) (3,190)
Increase in Accounts Payable and Accrued
Liabilities 2,530 50,817 16,064
Increase/(Decrease) in Due to Related Parties 14,724 (7,412) (4,164)
Increase / (Decrease) in Income Taxes Payable 17,597 (1,727) (3,382)
(Increase) in Other Current Assets (7,619) (10,275) (1,341)
Increase in Employee Benefit Obligations 15,802 12,238 9,979
------------- ------------- -------------
Cash Provided by Operating Activities 124,552 132,464 83,345
------------- ------------- -------------
INVESTING ACTIVITIES
Expenditures for Property and Equipment (72,764) (69,942) (63,024)
Expenditures for Intangible and Other Assets (4,662) (10,920) (11,825)
Purchase of Businesses Net of Cash Acquired (32,961) - -
Proceeds from Sale of Property and Equipment 12,374 21,444 8,070
Decrease in Loans to Related Parties 1,113 7,771 22,362
------------- ------------- -------------
Cash Used for Investing Activities (96,900) (51,647) (44,417)
------------- ------------- -------------
FINANCING ACTIVITIES
(Repayments of) / Proceeds from Bank Debt, net (48,672) 54,695 (2,192)
(Decrease) in Loans from Related Parties (6,286) (40,992) (15,373)
Dividends and Withdrawals from Equity (65,530) (33,245) (17,063)
------------- ------------- -------------
Cash Used for Financing Activities (120,488) (19,542) (34,628)
------------- ------------- -------------
EFFECT OF EXCHANGE RATE CHANGES ON NET CASH 1,424 (2,902) 1,994
------------- ------------- -------------
(DECREASE) / INCREASE IN CASH AND
CASH EQUIVALENTS (91,412) 58,373 6,294
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 125,645 67,272 60,978
------------- ------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD DM 34,233 DM 125,645 DM 67,272
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See accompanying Notes to Combined Financial Statements
-37-
<PAGE>
HENKEL-ECOLAB JOINT VENTURE
COMBINED STATEMENTS OF EQUITY
(Thousands)
<TABLE>
<CAPTION>
Contributed Retained Cumulative
Capital Earnings Foreign Total
Currency
Translation
---------------------------------------------------------
<S> <C> <C> <C> <C>
Balance
November 30, 1994 DM 211,704 114,829 (21,375) 305,158
Net Income 32,239 32,239
Dividends (17,063) (17,063)
Translation
Adjustment (1,935) (1,935)
---------------------------------------------------------
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
Adjustment 3,864 3,864
---------------------------------------------------------
Balance
November 30, 1996 DM 162,704 137,068 (19,446) 280,326
Net Income 57,708 57,708
Dividends (4,730) (4,730)
Contributions 1,515 1,515
Translation
Adjustment 579 579
---------------------------------------------------------
Balance
November 30, 1997 DM 164,219 190,046 (18,867) 335,398
- ----------------------- ------- ------- -------- -------
</TABLE>
See accompanying Notes to Combined Financial Statements
-38-
<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.
-39-
<PAGE>
The Joint Venture enters into foreign currency forward and option contracts to
hedge specific foreign currency exposures. Gains and losses on these contracts
are deferred and recognized as part of the specific transaction hedged or
included in other expenses, principally interest expense, net. The cash flows
from such contracts are classified in the same category as the transaction
hedged in the Combined Statement of Cash Flows.
CASH EQUIVALENTS
Cash equivalents are highly liquid investments with a maturity of three months
or less when purchased. Interest income for the period totaled TDM 4,599 in
1997, TDM 4,479 in 1996 and TDM 3,494 in 1995.
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 3,200 at
November 30, 1997, TDM 3,948 at November 30, 1996 and TDM 4,696 at November 30,
1995. The market value of the investment cannot be determined.
-40-
<PAGE>
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at original cost. Merchandise
equipment consists primarily of various systems for dispensing cleaning and
sanitizing products. Depreciation and amortization are charged to operations
using the straight-line and declining balance methods over the following
estimated useful lives:
Buildings and improvements 8 to 40 years
Machinery and equipment 3 to 20 years
Furniture, fixtures and equipment 3 to 16 years
Leasehold improvements are amortized over a period which is the lesser of the
useful life of the asset or the remaining term of the associated lease.
Betterments, renewals and extraordinary repairs that extend the life of the
asset are capitalized; other repairs and maintenance are expensed. The cost and
accumulated depreciation applicable to the assets retired are removed from the
accounts and any gain or loss credited or charged to income.
INTANGIBLE ASSETS
Intangible assets primarily consist of amounts by which cost of acquisitions
exceeded the values assigned to net tangible assets. These assets are amortized
over their estimated lives, periods from 3 to 15 years. Total amortization of
all intangible assets amounted to TDM 11,188 in 1997, TDM 12,588 in 1996 and TDM
7,469 in 1995.
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.
-41-
<PAGE>
HENKEL-ECOLAB JOINT VENTURE
2. BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
(Thousands) November 30, November 30, November 30,
1997 1996 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ACCOUNTS RECEIVABLE, NET
Accounts Receivable, Trade DM 349,054 DM 300,215 DM 283,434
Allowance for Doubtful Accounts 22,515 16,199 14,274
--------------------------------------------
DM 326,539 DM 284,016 DM 269,160
------- ------- -------
------- ------- -------
INVENTORIES
Raw Materials DM 40,355 DM 39,097 DM 41,646
Work in Process 11,494 10,673 10,773
Finished Goods 128,833 133,422 113,185
--------------------------------------------
Total DM 180,682 DM 183,192 DM 165,604
------- ------- -------
------- ------- -------
PROPERTY, PLANT AND EQUIPMENT, NET
Land DM 6,380 DM 6,316 DM 6,273
Buildings and Improvements 75,072 73,487 75,122
Machinery and Equipment 139,943 126,852 112,230
Merchandising Equipment, Furniture and
Fixtures 240,151 199,073 199,713
Construction in Progress 6,118 3,828 3,204
--------------------------------------------
467,664 409,556 396,542
Accumulated Depreciation and Amortization 289,539 242,001 236,424
--------------------------------------------
Total DM 178,125 DM 167,555 DM 160,118
------- ------- -------
------- ------- -------
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 54,112 20,578 16,469
Additional Minimum Pension Liability 3,487
Other Intangible Assets, including
Capitalized Computer Software 31,198 32,322 19,542
--------------------------------------------
109,738 73,841 56,952
Accumulated Depreciation 49,736 42,032 27,367
--------------------------------------------
Total Intangible Assets, net 60,002 31,809 29,585
Other Assets, net 488 313 1,513
--------------------------------------------
Total DM 60,490 DM 32,122 DM 31,098
------- ------- -------
------- ------- -------
COMBINED EQUITY
Contributed Capital DM 162,704 DM 162,704
Retained Earnings 173,703 137,068
Cumulative Foreign Currency Translation (20,240) (19,446)
---------------------------
DM 316,167 DM 280,326
------- -------
------- -------
</TABLE>
-42-
<PAGE>
3. RELATED PARTY TRANSACTIONS
The Joint Venture has entered into a variety of contractual arrangements,
including those discussed in the following paragraphs for the supply of
products, the performance of general and administrative services and the
transfer of technology.
Certain Joint Venture entities purchase institutional and industrial hygiene
products (primarily finished goods inventory) from Henkel and its subsidiaries
under a variety of supply agreements. The terms of these agreements require
these entities to purchase specified quantities at agreed upon prices as defined
by an annual supply plan submitted to the related manufacturing facility.
Purchases totalled TDM 221,341 in 1997, TDM 232,581 in 1996 and TDM 239,819 in
1995.
Henkel also provides certain Joint Venture entities with elective services which
include, but are not limited to General Administration, Payroll Administration,
Accounting, Research and Development. The cost of services are charged by Henkel
on a monthly basis and may not reflect the costs which the Joint Venture would
incur if it were necessary to procure such services from outside sources or if
such services were performed internally by the Joint Venture. Fees paid by the
Joint Venture in consideration for these services amounted to TDM 14,807 in
1997, TDM 14,228 in 1996 and TDM 20,356 in 1995.
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 24,372 in 1997, TDM 22,718 in 1996 and TDM
28,180 in 1995.
-43-
<PAGE>
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 3.625 % per November 30, 1997 and 3.80 % for 3 month
short term German Marks loans per November 30, 1997); on overdrafts,
approximately between 0.5 - 1.25 percentage point is paid to compensate Henkel
for administration costs.
At November 30, 1997 the Joint Venture had borrowed TDM 1,159, from Henkel Group
Companies, TDM 7,445 in 1996 and TDM 48,437 in 1995. The loans receivable from
Henkel Group Companies had totalled TDM 6,894 in 1997, TDM 8,007 in 1996 and TDM
15,778 in 1995. The fair values of intercompany loans receivable and payable
approximate book value.
Interest expense to related companies totalled TDM 1,302 in the year ended
November 30, 1997, TDM 1,463 in 1996 and TDM 6,235 in 1995. Interest income from
related companies amounted to TDM 982 for the year ended November 30, 1997, TDM
1,180 in 1996 and TDM 3,251 in 1995.
During 1997 the Joint Venture began to charge the parents for certain costs
incurred on behalf of the parents which by their nature are not arm's length.
The Joint Venture has reflected such costs in the amount of TDM 1,515 as
contributed capital.
-44-
<PAGE>
4. INCOME TAXES
The provision for income taxes totalled TDM 51,267, compared to November 30,
1996 TDM 45,334 and November 30, 1995 TDM 31,637. The net deferred taxes
included in the provision for income taxes for 1997 were TDM 3,509 credit, for
1996 TDM 1,366 debit and for 1995 TDM 624 credit.
The components of the Joint Venture's overall net deferred tax asset at November
30, 1997, at November 30, 1996 and at November 30, 1995 are as follows:
<TABLE>
<CAPTION>
Deferred tax assets: November November November
30, 1997 30, 1996 30, 1995
-------- -------- --------
TDM TDM TDM
<S> <C> <C> <C>
Goodwill amortization 0 0 642
Tax loss carryforwards 10,256 9,576 7,894
Accruals, not permitted for
tax purposes 4,823 3,612 3,355
Inventory valuation 3,316 2,530 1,847
Pension provision, not deductible 9,292 7,024 4,926
Intangible assets (other than
goodwill) amortization 227 1,663 1,535
Fixed assets 6,606 2,692 5,203
Other 2,831 1,605 1,516
-------------------------------------
Total gross deferred tax assets 37,351 28,702 26,918
Valuation allowance (15,450) (10,387) (7,665)
-------------------------------------
Total deferred tax assets 21,901 18,315 19,521
-------------------------------------
Deferred tax liabilities:
Depreciation on tangible assets (4,127) (3,995) (3,555)
Other (1,506) (1,561) (1,573)
-------------------------------------
Total deferred tax liabilities (5,633) (5,556) (5,128)
-------------------------------------
Net deferred tax asset 16,268 12,759 14,125
-------------------------------------
-------------------------------------
</TABLE>
At November 30, 1997, the Joint Venture had net foreign operating loss
carryforwards for tax purposes of approximately TDM 30,987 compared to November
30, 1996 TDM 27,535 and compared to November 30, 1995 TDM 25,163. A significant
portion of these losses have an indefinite carryforward period; the remaining
losses have expiration dates up to five years.
-45-
<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,
1997.
A reconciliation of the statutory German trade tax and federal corporate income
tax rate to the effective income tax rate was:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Statutory German rate 44.4% 44.4% 44.4%
Other European rates (4.4) (8.0) (7.5)
Losses and deferred items
without offsetting tax benefits 1.0 1.9 5.8
Provision for taxes arising
from tax examination 4.6 4.9 5.9
Different tax base in Germany 1.5 1.4 0.5
Deferred taxes refundable to
parent 0.2 0.6 3.8
Other (0.3) (1.3) (3.4)
----- ----- -----
Effective income tax rate 47.0% 46.5% 49.5%
----- ----- -----
----- ----- -----
</TABLE>
The deferred taxes refundable to parent reflect the Joint Venture Agreement in
which the partners also agreed that all tax benefits realized after the
formation of the Joint Venture should be refunded to the respective parents if
the benefits relate to temporary differences that originated in periods prior to
the formation of the Joint Venture.
In 1997, the tax payments were TDM 32,756, in 1996 TDM 19,128 and in 1995 TDM
24,503.
-46-
<PAGE>
5. RETIREMENT PLANS
The Joint Venture's German entities have noncontributory defined benefit pension
plans to provide pension benefits to substantially all eligible employees.
Employees of countries outside of Germany participate in various local plans,
principally contributory plans.
Benefits for the German plans are based upon salary and years of service. The
funding of these pension plans is not a common practice as funding provides no
economic (tax) benefit.
A summary of 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, 1997, 1996 and 1995 follows (TDM):
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Service cost-employee benefits 8,594 7,131 6,876
Interest cost 10,429 9,109 8,256
Return on assets (4,178) (3,130) (2,922)
Net amortization and deferral 768 74 261
Employee contributions (370) (329) (273)
------- ------- -------
Total pension expense 15,243 12,855 12,198
------- ------- -------
------- ------- -------
</TABLE>
The status of the above employee pension benefit plans at November 30, 1997,
1996 and 1995 is summarized below (TDM):
<TABLE>
<CAPTION>
Actuarial present value of: 1997 1996 1995
<S> <C> <C> <C>
Vested benefit obligation 138,931 105,068 94,350
Non-vested accumulated
benefit obligation 10,458 9,513 8,967
------- ------- -------
Accumulated benefit obligation 149,389 114,581 103,307
------- ------- -------
------- ------- -------
Projected benefit obligation 171,497 138,189 126,351
Fair value of plan assets 61,854 45,839 41,855
------- ------- -------
Funded status 109,643 92,350 84,496
Unrecognized net transition
obligation 7,839 4,709 5,190
Unrecognized prior service cost 325 0 0
Unrecognized net (gain)/loss 605 4,175 5,252
Additional minimum pension
liability 3,487 0 0
------- ------- -------
Unfunded accrued pension cost 104,361 83,466 74,054
------- ------- -------
------- ------- -------
</TABLE>
-47-
<PAGE>
The following assumptions have been used to develop net periodic pension expense
and the actuarial present value of projected benefit obligations:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Assumed discount rate 7.5- 6.0 % 7.0- 5.0 % 7.0- 5.0 %
Expected return on plan 6,0-10,0 % 7,0-10,0 % 7,0-10,0 %
assets
Rate of increase in future
compensation levels 6.0- 2.5 % 5.0- 3.0 % 5.0- 3.0 %
</TABLE>
Pursuant to the provisions of Statement of Financial Accounting Standards No.
87, "Employer's Accounting for Pensions", the Joint Venture recorded an
additional minimum pension liability adjustment of TDM 3,487 as of November 30,
1997, representing the amount by which the accumulated benefit obligation
exceeded the accrued pension liability for the German plans. The additional
liability is offset by an intangible asset recorded under "Intangible and Other
Assets, net" as of November 30, 1997.
Other Joint Venture-specific saving plans, post-retirement and post-employment
benefit plans requiring contribution by the Joint Venture are not material.
-48-
<PAGE>
6. TOTAL INDEBTEDNESS
Short Term Debt
As of November 30, 1997 short term debt totalled TDM 24,318 compared to
November 30, 1996 TDM 72,972 and compared to November 30, 1995 TDM 17,695,
generally in short term credit line facilities with interest rates based on
local money market rates. As of November 30, 1997 the three main balances are in
Italian Lira in the equivalent amount of TDM 7,669 at an interest rate of 6.67 %
p.a., in Dutch Guilders in the equivalent amount of TDM 7,099 at an interest
rate of 4.05 % p.a. and in Spanish Peseta in the equivalent amount of TDM 2,687
at an interest rate of 7.9 % p.a..
Long Term Debt
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
TDM TDM TDM
<S> <C> <C> <C>
Notes 5,418 6,035 6,617
Less current maturities 656 652 712
----- ----- -----
Total 4,762 5,383 5,905
----- ----- -----
----- ----- -----
</TABLE>
The total long term debt amount is borrowed in Danish Krona at an average
interest rate of 10.15 % p.a.. As of November 30, 1997, the aggregate annual
maturities of long term debt were:
1998 - TDM 656 1999 - TDM 656
2000 - TDM 164 2001 - TDM 3,940
Interest expense related to all debt was TDM 6,146 in 1997, compared to November
30, 1996 TDM 4,133 and compared to November 30, 1995 TDM 4,329. No significant
differences existed between interest expense and interest paid.
The fair value of short and long term debt approximates the book value.
-49-
<PAGE>
7. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
The Joint Venture operates internationally, giving rise to exposure to market
risks from changes in interest rates and foreign exchange rates. Derivative
financial instruments are utilized by the Joint Venture to reduce certain of
these risks, as explained in this note. The Joint Venture does not hold or issue
financial instruments for trading purposes. The Joint Venture is exposed to
credit-related losses in the event of nonperformance by counterparties to
financial instruments, but it does not expect any counterparties to fail to meet
their obligations given their high credit ratings.
a) Notional Amounts and Credit Exposures of Derivatives
The notional amounts of derivatives summarized in section b) do not represent
amounts exchanged by the parties and, thus, are not a measure of the exposure of
the Joint Venture through its use of derivatives. The amounts exchanged are
calculated on the basis of the notional amounts and the other terms of the
derivatives, which relate to exchange rates.
b) Foreign Exchange Risk Management
The Joint Venture enters into various types of foreign exchange contracts in
managing its foreign exchange risk, as indicated in the following table (TDM):
<TABLE>
<CAPTION>
November 30,1997 November 30,1996
---------------- ----------------
Notional Credit Notional Credit
Amount Exposure Amount Exposure
------ -------- ------ --------
<S> <C> <C> <C> <C>
Forwards 57,077 0 17,562 0
Options purchased 7,054 0 0 0
------ - ------ -
64,131 0 17,562 0
------ - ------ -
------ - ------ -
</TABLE>
-50-
<PAGE>
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 and option contracts 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 month time horizon. Gains and losses arising on
hedged loan transactions are accrued to income over the period of the hedge.
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):
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
Buy Sell Buy Sell
<S> <C> <C> <C> <C>
Italian Lira/US-Dollar 9,494 9,668 0 0
Italian Lira/French Franc 6,009 5,977 0 0
Italian Lira/Danish Krona 4,488 4,466 0 0
Italian Lira/Swedish Krona 3,659 3,651 0 0
Pound Sterling 13,042 12,807 9,196 9,336
US-Dollar 10,647 10,551 0 0
French Franc 2,988 2,988 0 0
Finmark/Swedish Krona 1,832 1,826 2,291 2,287
Swiss Franc 6,182 6,186 0 0
Irish Pound 3,651 3,623 3,262 3,311
Pound Sterling/Belgium Franc 0 0 2,439 2,515
Swedish Krona/Belgium Franc 1,015 1,033 0 0
Swedish Krona/Danish Krona 1,124 1,154 374 387
-------------- --------------
64,131 63,930 17,562 17,836
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
c) Fair Value of Off Balance Sheet Financial Instruments
The fair value of off balance sheet financial instruments is not significant.
-51-
<PAGE>
8. RESEARCH EXPENDITURES
Research expenditures which relate to the development of new products and
processes, including significant improvements and refinements to existing
products, were DM 35.7 million in 1997, DM 31.8 million in 1996 and DM 33.0
million in 1995.
-52-
<PAGE>
9. COMMITMENTS AND CONTINGENCIES
The Joint Venture has a number of operating lease agreements primarily involving
motor vehicles, computer and other office equipment. The following is a schedule
by year of the future minimum lease payments required under the operating leases
that have initial or remaining noncancellable lease terms in excess of one year
as of November 30, 1997 (TDM):
<TABLE>
<CAPTION>
<S> <C>
1998 24,014
1999 19,147
2000 12,246
2001 5,668
2002 5,315
thereafter 6,078
------
Total 72,468
------
------
</TABLE>
Rent expense for the twelve month period ended November 30, 1997, was
approximately TDM 27,416, compared to November 30, 1996 approximately TDM 18,503
and compared to November 30, 1995 approximately TDM 17,790.
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.
-53-
<PAGE>
Therefore, the Joint Venture does not expect material adverse effects on its
financial position, results of operations or liquidity from the outcome of these
losses and claims.
The Joint Venture's 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
1997, 1996 and 1995, and there were no significant accounts receivable from a
single customer at November 30, 1997, 1996 and 1995. The Joint Venture
establishes an allowance for doubtful accounts based upon factors surrounding
the credit risk of specific customers, historical trends and other information.
-54-
<PAGE>
HENKEL-ECOLAB JOINT VENTURE
Schedule - Valuation and Qualifying Accounts and Reserves
(Thousands)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
Description Balance, Additions Deductions Balance,
Beg. of (a) from Close of
Period Reserve Period
(b)
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
----------------------------------------------
----------------------------------------------
Period Ended
November 30, 1997
Allowance for DM 16,199 13,400 7,084 22,515
doubtful
Accounts
----------------------------------------------
DM 16,199 13,400 7,084 22,515
----------------------------------------------
----------------------------------------------
</TABLE>
(a) Provision for doubtful accounts
(charged to expenses)
(b) Items determined to be uncollectible,
less recovery of amounts previously written off.
-55-
<PAGE>
EXHIBIT INDEX
The following documents are filed as exhibits to this Report.
METHOD OF
EXHIBIT NO. DOCUMENT FILING
- ----------- -------- ---------
(3)A. Restated Certificate of Incorporated by
Incorporation. reference to Exhibit
(3) to the Company's
Current Report on Form
8-K dated October 22,
1997.
B. By-Laws, as amended through Filed herewith
February 20, 1998. electronically.
(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 Incorporated by
February 24, 1996. reference to Exhibit
(4) of the Company's
Current Report on Form
8-K dated February 24,
1996.
D. Note Agreement dated as of Incorporated by
October 1, 1991 relating to reference to Exhibit
$100,000,000 9.68% Senior Notes (4)F of the Company's
Due October 1, 2001 between the Form 10-K Annual Report
Company and the insurance for the year ended
companies named therein. December 31, 1991.
E.(i) Multicurrency Credit Agreement Incorporated by
("Credit Agreement") dated as of reference to Exhibit
September 29, 1993, as Amended (4)A of the Company's
and Restated as of October 17, Form 10-Q for the
1997, among the Company, the quarter ended September
financial institutions party 30, 1997.
thereto, Citibank, N.A., as
Agent, Citibank International
Plc, as Euro-Agent and Morgan
Guaranty Trust Company of New
York as Co-Agent.
-56-
<PAGE>
METHOD OF
EXHIBIT NO. DOCUMENT FILING
- ----------- -------- ---------
(ii) Australian Dollar Local Currency Incorporated by
Addendum to the Credit Agreement. reference to Exhibit
(4)B of the Company's
Form 10-Q for the
quarter ended September
30, 1997.
F. Indenture dated as of November 1, Incorporated by
1996 as amended and supplemented, reference to Exhibit
between the Company and the First 4.1 of the Company's
National Bank of Chicago as Amendment No. 1 to Form
Trustee. 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
(9) Amended and Restated See Exhibit (10)Q(iv)
Stockholder's Agreement. hereof.
(10)A. Ecolab Inc. 1977 Stock Incentive Filed herewith
Plan, as amended through November electronically.
1, 1996.
B. Ecolab Inc. 1993 Stock Incentive Incorporated by
Plan. 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 Incorporated by
Plan. reference to Exhibit
(10)C of the Company's
Form 10-K Annual Report
for the year ended
December 31, 1997.
D. 1988 Non-Employee Director Stock Incorporated by
Option Plan as amended through reference to Exhibit
February 23, 1991. (10)D of the Company's
Form 10-K Annual Report
for the year ended
December 31, 1990.
-57-
<PAGE>
METHOD OF
EXHIBIT NO. DOCUMENT FILING
- ----------- -------- ---------
E. 1995 Non-Employee Director Stock Incorporated by
Option Plan. 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 Incorporated by
Director Deferred Compensation reference to Exhibit
Plan. (10)F of the Company's
Form 10-K for the year
ended December 31,
1996.
G. Form of Director Indemnification Incorporated by
Agreement dated August 11, 1989. reference to Exhibit
Substantially identical (19)A of the Company's
agreements are in effect as to Form 10-Q for the
each director of the Company. quarter ended
September 30, 1989.
H.(i) Ecolab Non-Employee Directors' Incorporated by
Retirement Plan. reference to Exhibit
(10)I of the Company's
Form 10-K Annual Report
for the year ended
December 31, 1991.
(ii) First Declaration of Amendment to Filed herewith
Ecolab Non-Employee Directors' electronically.
Retirement Plan.
I.(i) Ecolab Executive Death Benefits Incorporated by
Plan, as amended and restated reference to Exhibit
effective March 1, 1994. (10)J of the Company's
10-K Annual Report for
the year ended December
31, 1994. See also
Exhibit (10)O hereof.
(ii) Amendment No. 1 to Ecolab Filed herewith
Executive Death Benefits Plan. electronically.
J. Ecolab Executive Long-Term Incorporated by
Disability Plan, as amended and reference to Exhibit
restated effective January 1, (10)K of the Company's
1994. 10-K Annual Report for
the year ended
December 31, 1994. See
also Exhibit (10)O
hereof.
-58-
<PAGE>
METHOD OF
EXHIBIT NO. DOCUMENT FILING
- ----------- -------- ---------
K. Ecolab Executive Financial Incorporated by
Counseling Plan. reference to Exhibit
(10)K of the Company's
Form 10-K Annual Report
for the year ended
December 31, 1992.
L.(i) Ecolab Supplemental Executive Incorporated by
Retirement Plan, as amended and reference to Exhibit
restated effective July 1, 1994. (10)M(i) of the
Company's 10-K Annual
Report for the year
ended December 31,
1994. See also Exhibit
(10)O hereof.
(ii) First Declaration of Amendment to Incorporated by
Ecolab Supplemental Executive reference to Exhibit
Retirement Plan effective as of (10)M(ii) of the
July 1, 1994. Company's 10-K Annual
Report for the year
ended December 31,
1994.
(iii) Second Declaration of Amendment Incorporated by
to Ecolab Supplemental Executive reference to Exhibit
Retirement Plan effective as of (10)M(iii) of the
July 1, 1994. Company's Form 10-K
Annual Report for the
year ended December 31,
1995
M.(i) Ecolab Mirror Savings Plan as Incorporated by
amended and restated effective reference to Exhibit
September 1, 1994. (10)N of the Company's
10-K Annual Report for
the year ended
December 31, 1994. See
also Exhibit (10)O
hereof.
(ii) First Declaration of Amendment to Incorporated by
Ecolab Mirror Savings Plan reference to Exhibit
effective as of January 1, 1995. (10)N(ii) of the
Company's Form 10-K
Annual Report for the
year ended December 31,
1995.
(iii) Second Declaration of Amendment Incorporated by
to Ecolab Mirror Savings Plan reference to Exhibit
effective January 1, 1997 (10)O(iii) of the
Company's Form 10-K
Annual Report for the
year ended December 31,
1996.
-59-
<PAGE>
METHOD OF
EXHIBIT NO. DOCUMENT FILING
- ----------- -------- ---------
(iv) Third Declaration of Amendment to Filed herewith
Ecolab Mirror Savings Plan electronically.
effective November 13, 1997.
N.(i) Ecolab Mirror Pension Plan Incorporated by
effective July 1, 1994. 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)O hereof.
(ii) First Declaration of Amendment to Incorporated by
Ecolab Mirror Pension Plan reference to Exhibit
effective as of July 1, 1994. (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 Incorporated by
to Ecolab Mirror Pension Plan reference to Exhibit
effective as of July 1, 1994. (10)O(iii) of the
Company's Form 10-K
Annual Report for the
year ended December 31,
1995.
O.(i) The Ecolab Inc. Administrative Incorporated by
Document for Non-Qualified reference to Exhibit
Benefit Plans. (10)P of the Company's
10-K Annual Report for
the year ended
December 31, 1994.
(ii) Amendment No. 1 to the Ecolab Filed herewith
Inc. Administrative Document for electronically.
Non-Qualified Benefit Plans
effective July 1, 1997.
(iii) First Declaration to Amendment to Filed herewith
the Ecolab Inc. Administrative electronically.
Document for Non-Qualified
Benefit Plans effective November
13, 1997.
P. Ecolab Management Performance Incorporated by
Incentive Plan. reference to Exhibit
(10)N of the Company's
Form 10-K Annual Report
for the year ended
December 31, 1993.
-60-
<PAGE>
METHOD OF
EXHIBIT NO. DOCUMENT FILING
- ----------- -------- ---------
Q.(i) Amended and Restated Umbrella Incorporated by
Agreement between Henkel KGaA and reference to Exhibit 13
Ecolab Inc. dated June 26, 1991. of HC Investments,
Inc.'s and Henkel
KGaA's Amendment No. 4
to Schedule 13D dated
July 16, 1991.
(ii) Amended and Restated Joint Incorporated by
Venture Agreement between Henkel reference to Exhibit 14
KGaA and Ecolab Inc. dated June of HC Investments,
26, 1991. Inc.'s and Henkel
KGaA's Amendment No. 4
to Schedule 13D dated
July 16, 1991.
(iii) Amended and Restated ROW Purchase Incorporated by
Agreement between Henkel KGaA and reference to Exhibit
Ecolab Inc. dated June 26, 1991. (7) of the Company's
Current Report on Form
8-K dated July 11,
1991.
(iv) Amended and Restated Incorporated by
Stockholder's Agreement between reference to Exhibit 15
Henkel KGaA and Ecolab Inc. dated of HC Investments,
June 26, 1991. Inc.'s and Henkel
KGaA's Amendment No. 4
to Schedule 13D dated
July 16, 1991.
R. Description of Ecolab Management Filed herewith
Incentive Plan. electronically.
(13) Those portions of the Company's Filed herewith
Annual Report to Stockholders for electronically.
the year ended December 31, 1997
which are incorporated by
reference into Parts I, II and IV
hereof.
(21) List of Subsidiaries as of March Filed herewith
2, 1998. electronically.
(23)A. Consent of Coopers & Lybrand Filed at page 30
L.L.P. to Incorporation by hereof.
Reference.
B. Consent of KPMG Deutsche Filed herewith
Treuhand-Gesellschaft electronically.
Aktiengesellschaft.
(24) Powers of Attorney. Filed herewith
electronically.
-61-
<PAGE>
METHOD OF
EXHIBIT NO. DOCUMENT FILING
- ----------- -------- ---------
(27)A. Financial Data Schedules for Filed herewith
year ended December 31, 1997. electronically.
B. Restated Financial Data Schedules Filed herewith
for periods ended September 30, electronically.
June 30 and March 31, 1997;
and December 31, 1996.
C. Restated Financial Data Schedules Filed herewith
for periods ended September 30, electronically.
June 30 and March 31, 1996;
and December 31, 1995.
COVER Cover Letter. Filed herewith
electronically.
-62-
<PAGE>
Exhibit (3)B
BY-LAWS
OF
ECOLAB INC.
(A DELAWARE CORPORATION)
AS AMENDED THROUGH FEBRUARY 20, 1998
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the Corporation in the
State of Delaware shall be at 1209 Orange Street, City of Wilmington, County of
New Castle, Delaware. The name of the resident agent in charge thereof shall be
The Corporation Trust Company.
SECTION 2. OTHER OFFICES. The Corporation may also have offices at such other
places, within or without the State of Delaware, as the Board of Directors may
from time to time determine or the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. PLACE OF MEETINGS. Meetings of stockholders may be held at such
place, within or without the State of Delaware, as the Board of Directors or the
officer calling the same shall designate.
SECTION 2. ANNUAL MEETING. An annual meeting of the stockholders of the
Corporation for the election of directors by written ballot and for the
transaction of such other business as may properly come before the meeting shall
be held at such time and on such day of each year as shall be designated by the
Board of Directors, the Chairman of the Board, the President or the Secretary.
SECTION 3. NOTICE OF STOCKHOLDER NOMINATIONS OF DIRECTORS. Only persons who
are nominated in accordance with the following procedures shall be eligible for
election as directors of the Corporation, except as may be otherwise provided in
the Restated Certificate of Incorporation of the Corporation. Nominations of
persons for election to the Board of Directors may be made at any annual meeting
of stockholders (a) by or at the direction of the Board of Directors (or any
duly authorized Committee thereof) or (b) by any stockholder of the Corporation
(i) who is a stockholder of record on the date of the giving of the notice
provided for in this Section 3 and on the record date for the determination of
stockholders entitled to vote at such annual meeting and (ii) who complies with
the notice procedures set forth in this Section 3.
In addition to any other applicable requirements, for a nomination to be
made by a stockholder, such stockholder must have given timely notice thereof in
proper written form to the Secretary of the Corporation.
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To be timely, a stockholder's notice to the Secretary must be delivered to
or mailed and received at the principal executive offices of the Corporation not
less than ninety (90) days nor more than one hundred thirty-five (135) days
prior to the anniversary date of the immediately preceding annual meeting of
stockholders; PROVIDED, HOWEVER, that in the event that the annual meeting is
called for a date that is not within thirty (30) days before or after such an
anniversary date, notice by the stockholder in order to be timely must be so
received not later than the close of business on the tenth (10th) day following
the day on which such notice of the date of the annual meeting was mailed or
public disclosure of the date of the annual meeting was made, whichever first
occurs. In no event shall the public disclosure of an adjournment of an annual
meeting commence a new time period for the giving of a stockholder's notice as
described above.
To be in proper written form, a stockholder's notice to the Secretary must
set forth (a) as to each person whom the stockholder proposes to nominate for
election as a director (i) the name, age, business address and residence address
of the person, (ii) the principal occupation or employment of the person, (iii)
the class or series and number of shares of capital stock of the Corporation
which are owned beneficially or of record by the person and (iv) any other
information relating to the person that would be required to be disclosed in a
proxy statement or other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to Section 14 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules
and regulations promulgated thereunder; and (b) as to the stockholder giving the
notice (i) the name and record address of such stockholder, (ii) the class or
series and number of shares of capital stock of the Corporation which are owned
beneficially or of record by such stockholder, (iii) a description of all
arrangements or understandings between such stockholder and each proposed
nominee and any other person or persons (including their names) pursuant to
which the nomination(s) are to be made by such stockholder, (iv) a
representation that such stockholder intends to appear in person or by proxy at
the meeting to nominate the persons named in its notice and (v) any other
information relating to such stockholder that would be required to be disclosed
in a proxy statement or other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to Section 14 of the
Exchange Act and the rules and regulations promulgated thereunder. Such notice
must be accompanied by a written consent of each proposed nominee to being named
as a nominee and to serve as a director if elected.
No person shall be eligible for election as a director of the Corporation
unless nominated in accordance with the procedures set forth in this Section 3.
If the Chairman of the meeting determines that a nomination was not made in
accordance with the foregoing procedures, the Chairman shall declare to the
meeting that the nomination was defective and such defective nomination shall be
disregarded.
Notwithstanding anything in the third paragraph of this Section 3 to the
contrary, in the event that the number of directors to be elected to the Board
of Directors of the Corporation is increased and there is no public disclosure
by the Corporation naming all of the nominees for director or specifying the
size of the increased Board of Directors at least 100 days prior to the first
anniversary of the preceding year's annual meeting, a stockholder's notice
required by this
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By-Law shall also be considered timely, but only with respect to nominees for
any new positions created by such increase, if it shall be delivered to the
Secretary at the principal executive offices of the Corporation not later than
the close of business on the 10th day following the day on which such public
disclosure is first made by the Corporation.
SECTION 4. NOTICE OF STOCKHOLDER PROPOSALS OF BUSINESS. No business may be
transacted at an annual meeting of stockholders, other than business that is
either (a) specified in the notice of meeting (or any supplement thereto) given
by or at the direction of the Board of Directors (or any duly authorized
committee thereof), (b) otherwise properly brought before the annual meeting by
or at the direction of the Board of Directors (or any duly authorized committee
thereof) or (c) otherwise properly brought before the annual meeting by any
stockholder of the Corporation (i) who is a stockholder of record on the date of
the giving of the notice provided for in this Section 4 and on the record date
for the determination of stockholders entitled to vote at such annual meeting
and (ii) who complies with the notice procedures set forth in this Section 4.
In addition to any other applicable requirements, for business to be
properly brought before an annual meeting by a stockholder, such stockholder
must have given timely notice thereof in proper written form to the Secretary of
the Corporation.
To be timely, a stockholder's notice to the Secretary must be delivered to
or mailed and received at the principal executive offices of the Corporation not
less than ninety (90) days nor more than one hundred thirty-five (135) days
prior to the anniversary date of the immediately preceding annual meeting of
stockholders; PROVIDED, HOWEVER, that in the event that the annual meeting is
called for a date that is not within thirty (30) days before or after such
anniversary date, notice by the stockholder in order to be timely must be so
received not later than the close of business on the tenth (10th) day following
the day on which such notice of the date of the annual meeting was mailed or
public disclosure of the date of the annual meeting was made, whichever first
occurs. In no event shall the public disclosure of an adjournment of an annual
meeting commence a new time period for the giving of a stockholder's notice as
described above.
To be in proper written form, a stockholder's notice to the Secretary must
set forth as to each matter such stockholder proposes to bring before the annual
meeting (i) a brief description of the business desired to be brought before the
annual meeting and the reasons for conducting such business at the annual
meeting, (ii) the name and record address of such stockholder, (iii) the class
or series and number of shares of capital stock of the Corporation which are
owned beneficially or of record by such stockholder, (iv) a description of all
arrangements or understandings between such stockholder and any other person or
persons (including their names) in connection with the proposal of such business
by such stockholder and any material interest of such stockholder in such
business and (v) a representation that such stockholder intends to appear in
person or by proxy at the annual meeting to bring such business before the
meeting.
No business shall be conducted at the annual meeting of stockholders except
business brought before the annual meeting in accordance with the procedures set
forth in this Section 4;
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PROVIDED, HOWEVER, that, once business has been properly brought before the
annual meeting in accordance with such procedures, nothing in this Section 4
shall be deemed to preclude discussion by any stockholder of any such business.
If the Chairman of an annual meeting determines that business was not properly
brought before the annual meeting in accordance with the foregoing procedures,
the Chairman shall declare to the meeting that the business was not properly
brought before the meeting and such business shall not be transacted.
SECTION 5. DEFINITION. For purposes of Sections 3 and 4 of these By-Laws,
"public disclosure" shall mean disclosure in a press release reported by the Dow
Jones News Service, Associated Press or comparable national news service or in a
document publicly filed by the Corporation with the Securities and Exchange
Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act."
SECTION 6. SPECIAL MEETINGS. Special meetings of the stockholders, for any
purpose or purposes, unless otherwise prescribed by statute, may be called at
any time by the Board of Directors or by the Chairman of the Board, and shall be
called by the Chairman of the Board, the President or the Secretary at the
written request of the majority of the Board of Directors or at the written
request of stockholders owning capital stock having eighty percent (80%) of the
voting power of the entire issued and outstanding capital stock of the
Corporation. Such request shall state the purpose or purposes of the proposed
meeting. No business shall be transacted at any special meeting of the
stockholders except that stated in the notice of the meeting.
SECTION 7. NOTICE OF MEETINGS. Written notice stating the place, date and hour
of each annual and special meeting of the stockholders and, in the case of a
special meeting, the purpose or purposes thereof, shall be given not less than
twenty (20) nor more than sixty (60) days before the date of such meeting to
each stockholder entitled to vote at such meeting. If mailed, notice shall be
deemed given when deposited in the United States mail, postage prepaid, directed
to the stockholder at such address as appears on the records of the Corporation.
Notice of any meeting of stockholders shall not be required to be given to any
stockholder who shall attend such meeting in person or by proxy and shall not,
at the beginning of such meeting, object to the transaction of any business
because the meeting is not lawfully called or convened, or who shall, either
before or after the meeting, submit a signed waiver of notice.
SECTION 8. QUORUM. At all meetings of the stockholders the holders of a
majority of the shares of stock of the Corporation issued and outstanding and
entitled to vote thereat, present in person or represented by proxy, shall be
requisite to constitute a quorum for the transaction of business, except as
otherwise provided by statute or in the Restated Certificate of Incorporation.
In the absence of a quorum, the holders of a majority of the shares of stock
present in person or by proxy and entitled to vote may adjourn the meeting until
the requisite amount of stock shall be present.
SECTION 9. ORGANIZATION AND ORDER OF BUSINESS. At each meeting of the
stockholders, the Chairman of the Board, or in his absence the President, or in
his absence any other person selected by the Board of Directors, shall act as
Chairman of the meeting. The Secretary, or in his absence an Assistant
Secretary, or any person appointed by the Chairman of the meeting, shall act as
Secretary of the meeting and keep the minutes thereof. The order of business at
all meetings of the stockholders shall be as determined by the Chairman of the
meeting.
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SECTION 10. VOTING. Except as otherwise provided by statute or by the Restated
Certificate of Incorporation, at each meeting of the stockholders each
stockholder having the right to vote thereat shall be entitled to (i) one vote
for each share of common stock of the Corporation standing in his name on the
record of stockholders of the Corporation, and (ii) such voting rights, if any,
as are provided in the applicable Certificate of Designation, Preferences and
Rights with respect to any series of preferred stock of the Corporation standing
in his name on the record of stockholders of the Corporation, in all such
instances on the date fixed by the Board of Directors as the record date for the
determination of the stockholders who shall be entitled to notice of and vote at
such meeting; or if no record date shall have been fixed, then at the close of
business on the day next preceding the day on which notice thereof shall be
given. Each stockholder entitled to vote at any meeting of stockholders may
authorize another person or persons to act for him by a proxy signed or
otherwise authorized in accordance with Section 212 of the General Corporation
Law of Delaware by such stockholder or his attorney-in-fact. No proxy shall be
valid after the expiration of three (3) years from the date thereof, unless
otherwise provided in the proxy. Except as otherwise provided by statute, these
By-Laws or the Restated Certificate of Incorporation, any corporate action to be
taken by vote of the stockholders shall be authorized by a majority of the total
votes cast at a meeting of stockholders by the holders of shares present in
person or represented by proxy and entitled to vote on such action. Unless
required by statute, or determined by the chairman of the meeting to be
advisable, the vote on any question other than elections need not be by written
ballot. On a vote by written ballot, each ballot shall be signed by the
stockholder, his attorney-in-fact, or his proxy if there be such proxy, and
shall state the stockholder's name and the number of shares voted.
SECTION 11. STOCKHOLDER LIST. The Secretary shall prepare and make, at least
ten (10) days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares registered
in the name of each stockholder. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten (10) days prior to the meeting,
either at a place within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting, or, if not so specified, at the
place where the meeting is to be held. This list shall also be produced and
kept at the time and place of the meeting during the whole time thereof, and may
be inspected by any stockholder who is present.
SECTION 12. INSPECTORS. The Board of Directors may, in advance of any meeting
of stockholders, appoint or provide for the appointment of one or more
inspectors to act at such meeting or any adjournments thereof. If the inspector
or inspectors shall not be appointed, or if any of them shall fail to appear or
act, the Chairman of the meeting may, and on the request of any stockholder
entitled to vote thereat shall, appoint one or more inspectors. Each inspector,
before entering upon the discharge of his duties, shall take and sign an oath
faithfully to execute the duties of inspector at such meeting with strict
impartiality and according to the best of his ability. On request of the
Chairman of the meeting or any stockholder entitled to vote thereat, the
inspectors shall make a report in writing of any challenge, request or matter
determined by them and shall execute a certificate of any fact found by them.
No director or candidate for the office of director shall act as inspector of
any election of directors. Inspectors need not be stockholders of the
Corporation.
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SECTION 13. ADJOURNED MEETINGS. A meeting of stockholders may be adjourned to
another time and to another place by either the chairman of the meeting or by
the stockholders and proxies present. When a meeting is adjourned to another
time or place, notice of such adjourned meeting need not be given if the time
and place to which the meeting shall be adjourned are announced at the meeting
at which the adjournment is taken. At the adjourned meeting, if a quorum is
present any business may be transacted which might have been transacted at the
original meeting. If the adjournment is for more than thirty (30) days or if
after the adjournment a new record date is fixed for the adjourned meeting,
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting.
SECTION 14. CONSENT OF STOCKHOLDERS. Unless otherwise provided in the Restated
Certificate of Incorporation, any action required or permitted to be taken at
any Annual or Special Meeting of Stockholders of the Corporation, may be taken
without a meeting, without prior notice and without a vote, if a consent in
writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking of
the corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. GENERAL POWERS. The business and affairs of the Corporation shall
be managed by or under the direction of the Board of Directors. The Board of
Directors may exercise all such authority and powers of the Corporation and do
all such lawful acts and things as are not by statute or the Restated
Certificate of Incorporation or these By-Laws directed or required to be
exercised or done by the stockholders.
SECTION 2. NUMBER AND ELECTION OF DIRECTORS. The number of directors of the
Corporation which shall constitute the entire Board of Directors shall be such
number as is fixed by the Board of Directors in accordance with the provisions
of the Restated Certificate of Incorporation. Directors shall be elected and
shall hold office in accordance with the provisions of the Restated Certificate
of Incorporation. Election of directors by the stockholders shall be by a
plurality of the votes cast. Directors need not be stockholders of the
Corporation.
SECTION 3. PLACE OF MEETING. The Board of Directors may hold meetings at such
place, within or without the State of Delaware, as the Board of Directors or the
officer calling the meeting may from time to time determine.
SECTION 4. ORGANIZATION MEETING. Promptly following the adjournment of the
annual meeting of the stockholders, and without other notice than this By-Law,
the newly constituted Board of Directors shall meet for the purpose of
organization, the election of officers, and the transaction of other business,
with power to adjourn and re-adjourn.
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SECTION 5. MEETINGS. Regular meetings of the Board of Directors shall be held
at such time and place as the Board of Directors may from time to time
determine. Special meetings of the Board of Directors may be called by the
Chairman of the Board, the President or any two (2) or more Directors.
SECTION 6. NOTICE OF MEETINGS. Notice of regular meetings of the Board of
Directors need not be given except as otherwise required by statute or these
By-Laws. Notice of the place, date and time of the holding of each special
meeting of the Board of Directors, and the purpose or purposes thereof, shall be
delivered to each director either personally or by mail, telephone, telegraph,
cable, or similar means, three (3) days before the day on which such meeting is
to be held, or on such shorter notice as the person or persons calling such
meeting deem appropriate in the circumstances. Such notice shall be deemed to
be given at the time it is dispatched by depositing it in the United States mail
with postage prepaid, by transmission by telephone, telegraph or cable, or by
personal delivery. Notice of any such meeting need not be given to any director
who shall, either before or after the meeting, submit a signed waiver of notice
or who shall attend such meeting without protesting, prior to or at its
commencement, the lack of notice to him.
SECTION 7. QUORUM AND MANNER OF ACTING. Except as otherwise provided by
statute, the Restated Certificate of Incorporation or these By-Laws, at all
meetings of the Board of Directors a majority of the directors then in office
shall constitute a quorum for the transaction of business; provided, however,
that if by reason of catastrophe or emergency, a majority of the entire Board is
not available or capable of acting, one third (1/3) of the entire Board of
Directors, but in any event not less than two (2) directors, shall constitute a
quorum for the transaction of business at any meeting of the Board of Directors.
The act of a majority of the directors present at any meeting at which there is
a quorum, as herein provided, shall be the act of the Board of Directors except
as may be otherwise specifically provided by statute, the Restated Certificate
of Incorporation or these By-Laws. In the absence of a quorum at any meeting of
the Board of Directors, a majority of the directors present thereat, or if no
director be present, the Secretary or an Assistant Secretary, may adjourn such
meeting to another time and place until the quorum is had. Notice of any
adjourned meeting need not be given. At any adjourned meeting at which a quorum
is present, any business may be transacted which might have been transacted at
the meeting as originally called.
SECTION 8. ORGANIZATION AND ORDER OF BUSINESS. At each meeting of the Board of
Directors, the Chairman of the Board, or in his absence the President, or in his
absence, a member of the Board of Directors selected by the directors in
attendance, shall act as Chairman of the meeting. The Secretary, or in his
absence, an Assistant Secretary, or any person appointed by the Chairman of the
meeting, shall act as Secretary of the meeting and keep the minutes thereof.
The order of business at all meetings of the directors shall be as determined by
the Chairman of the meeting.
SECTION 9. ACTION WITHOUT MEETING. Any action required or permitted to be
taken at any meeting of the Board of Directors, or of any committee thereof, may
be taken without a meeting if all members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of the proceedings of the Board of Directors
or committee.
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SECTION 10. CONFERENCE TELEPHONE. Members of the Board of Directors, or of any
committee thereof, may participate in a meeting of the Board of Directors or
committee by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and participation in a meeting in this manner shall constitute presence in
person at such meeting.
SECTION 11. COMMITTEES. The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of three (3) or more of the directors of the Corporation. The Board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. Any
such committee, to the extent provided in the resolution of the Board of
Directors, shall have and may exercise all the powers of the Board of Directors
in the management of the business and affairs of the Corporation which the Board
of Directors may lawfully delegate, and may authorize the seal of the
Corporation to be affixed to all papers which may require it. Meetings of
committees may be called by the committee chairman, if any, or as provided in
Section 5 of this Article III. Notice of such meetings shall be given to each
member of the committee in the manner set forth in Section 6 of this Article
III. Notice of any such meeting need not be given to any committee member who
shall, either before or after the meeting, submit a signed waiver of notice or
who shall attend such meeting without protesting prior to or at its
commencement, the lack of notice to him. A notice or waiver of notice of any
regular or special meeting of any committee need not state the purposes of such
meeting. A majority of any committee may determine its action, unless the Board
of Directors shall otherwise provide. Each committee shall keep written minutes
of its formal proceedings and shall report such proceedings to the Board. All
such proceedings shall be subject to revision or alteration by the Board of
Directors; provided, however, that third parties shall not be prejudiced by such
revision or alteration. The Board of Directors shall have power at any time to
fill vacancies in, to change the membership, duties or authority of, or to
dissolve any such committee.
SECTION 12. RESIGNATIONS. Any director of the Corporation may resign at any
time by giving written notice of his resignation to the Board of Directors, the
Chairman of the Board, the President or the Secretary. Such resignation shall
take effect at the date of the receipt of such notice, or at any later time
specified therein; and unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective.
SECTION 13. REMOVAL. Except as otherwise provided in the Restated Certificate
of Incorporation or in these By-Laws, any director may be removed at any time,
at a special meeting of the stockholders called and held for the purpose, but,
for so long as the Board of Directors is classified, only for cause, by the
affirmative vote of the holders of a majority of the shares then entitled to
vote at an election of directors; and the vacancy in the Board caused by any
such removal shall be filled as the Restated Certificate of Incorporation
provides.
SECTION 14. VACANCIES. Vacancies and newly created directorships resulting
from any increase in the authorized number of directors may be filled by a
majority of the directors then in office, in accordance with the Restated
Certificate of Incorporation.
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SECTION 15. COMPENSATION. The Board of Directors shall have authority to fix
the compensation, including fees and reimbursement of expenses, of directors for
services to the Corporation in any capacity and no such payment shall preclude
any director from serving the Corporation in any other capacity and receiving
compensation therefor.
ARTICLE IV
OFFICERS
SECTION 1. NUMBER AND QUALIFICATION. The officers of the Corporation shall be
elected by the Board of Directors. The officers shall be a Chairman of the
Board, a President, one or more Vice Presidents, a Secretary, a Treasurer, and a
Controller. The Board of Directors may also elect a Vice Chairman of the Board,
and one or more Assistant Secretaries, Assistant Treasurers, and Assistant
Controllers, and the Board of Directors may designate any Vice President as an
Executive Vice President, a Senior Vice President or a Group Vice President.
The Board of Directors may also designate from such officers (i) a Chief
Executive Officer who shall have general supervision and authority over the
business and affairs of the Corporation subject to the control of the Board of
Directors, (ii) a Chief Operating Officer who shall have general supervision and
authority over the operations of the Corporation subject to the control of the
Chief Executive Officer, if that designation has been made, and subject to the
control of the Board of Directors, or (iii) both a Chief Executive Officer and a
Chief Operating Officer. The Chairman of the Board, the Vice Chairman of the
Board and the President shall be chosen from among the directors, but no other
officer need be a director. Any two or more offices may be held by the same
person.
SECTION 2. ELECTION AND TERM. The officers of the Corporation shall be chosen
annually by the Board of Directors at the first meeting of the Board of
Directors following the annual meeting of stockholders or as soon thereafter as
is conveniently possible. Officers may also be elected from time to time at any
other meeting of the Board of Directors to fill vacancies and otherwise. Each
officer, except such officers as may be appointed in accordance with the
provisions of Section 3 of this Article IV, shall continue in office until his
successor shall have been duly elected and qualified or until his earlier
resignation or removal.
SECTION 3. OTHER OFFICERS AND AGENTS. The Board of Directors or the Chairman
of the Board, or in his absence or disability, the President, may appoint such
other officers and agents, each of whom shall hold office for such period, have
such authority and perform such duties as are provided for in these By-Laws, or
as the Board of Directors or Chairman of the Board, or the President, may from
time to time determine.
SECTION 4. RESIGNATION. Any officer may resign at any time by giving written
notice to the Chairman of the Board, the President or the Secretary of the
Corporation. Such resignation shall take effect at the date of the receipt of
such notice, or at any later time specified therein; and, unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.
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SECTION 5. REMOVAL. Any officer or agent may be removed, either with or
without cause, at any time by the vote of the majority of the whole Board of
Directors. Any subordinate officer or agent appointed in accordance with the
provisions of Section 3 of this Article IV may be removed, either with or
without cause, by a vote of the majority of the whole Board of Directors or,
except in the case of an officer or agent elected or appointed by the Board of
Directors, by the Chairman of the Board or the President.
SECTION 6. VACANCIES. A vacancy in any office because of death, resignation,
removal, disqualification or any other cause may be filled for the unexpired
portion of the term in the manner prescribed in these By-Laws for the regular
election or appointment to such office.
SECTION 7. COMPENSATION. The compensation of the officers of the Corporation
shall be fixed from time to time by the Board of Directors or by such officers
or a committee of the Board of Directors to which the Board of Directors has
delegated such authority. An officer of the Corporation shall not be prevented
from receiving compensation by reason of the fact that he is also a director of
the Corporation, but any such officer who shall also be a director shall not
have any vote in the determination of the amount of compensation paid to him.
SECTION 8. CHAIRMAN OF THE BOARD. The Chairman of the Board shall preside at
all meetings of the stockholders and of the Board of Directors. He shall
perform such duties with such authority as may be prescribed from time to time
by the Board of Directors.
SECTION 9. PRESIDENT. The President shall be responsible to the Chief
Executive Officer and shall perform such duties with such authority as may be
prescribed in these By-Laws and from time to time by the Board of Directors and
the Chief Executive Officer.
SECTION 10. VICE PRESIDENTS. Each Vice President shall have such powers and
shall perform such duties as shall from time to time be prescribed by the Board
and as shall from time to time be assigned to him by the Chairman of the Board
or the President.
SECTION 11. SECRETARY. The Secretary shall give or cause to be given all
required notices of meetings of stockholders and of the Board of Directors,
shall record all of the proceedings and act as custodian of the minutes of all
such meetings, shall have charge of the corporate seal and the corporate minute
books, and shall make such reports and perform such other duties as may be
assigned from time to time by the Board of Directors, the Chairman of the Board,
or the President. The Secretary shall keep in safe custody the seal of the
Corporation and the Secretary or any Assistant Secretary shall have authority to
affix the same to any instrument requiring it and when so affixed, it may be
attested by the signature of the Secretary or any Assistant Secretary. The
Assistant Secretaries, or any of them, shall perform such of the duties of the
Secretary as may from time to time be assigned to them by the Board of
Directors, the Chairman of the Board, the President, or the Secretary, and in
the absence of the Secretary or in the event of his disability or refusal to
act, shall perform the duties of the Secretary, and when so acting shall have
all the powers of and be subject to all the restrictions upon the Secretary.
SECTION 12. TREASURER. The Treasurer shall have custody of all moneys and
securities of the Corporation, shall have responsibility for disbursement of the
funds of the Corporation, shall make
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payment of the just demands on the Corporation, shall invest surplus cash of the
Corporation and manage its investment portfolio under the direction of the Board
of Directors, and shall render to the Board of Directors an account of all
transactions of the Corporation and of the financial condition of the
Corporation as may be required of him. The Treasurer shall also perform such
other duties as may be assigned to him from time to time by the Board of
Directors, the Chairman of the Board, the President or by the Chief Financial
Officer. The Assistant Treasurers, or any of them, shall perform such of the
duties of the Treasurer as may from time to time be assigned to them by the
Board of Directors, the Chairman of the Board, the President, the Chief
Financial Officer, or the Treasurer, and in the absence of the Treasurer or in
the event of his disability or refusal to act, shall perform the duties of the
Treasurer, and when so acting, shall have all the powers of and be subject to
all the restrictions upon the Treasurer.
SECTION 13. CONTROLLER. The Controller shall provide and maintain a system of
accounts and accounting records of the Corporation, shall provide and administer
a system of internal financial controls, and shall present such financial
statements to the Board of Directors as may be required. The Controller shall
also perform such other duties as may from time to time be assigned to him by
the Board of Directors, the Chairman of the Board, the President or by the Chief
Financial Officer. The Assistant Controllers, or any of them, shall perform
such of the duties of the Controller as may from time to time be assigned to
them by the Board of Directors, the Chairman of the Board, the President, the
Chief Financial Officer, or the Controller, and in the absence of the Controller
or in the event of his disability or refusal to act, shall perform the duties of
the Controller, and when so acting shall have all the powers of and be subject
to all the restrictions upon the Controller.
ARTICLE V
INDEMNIFICATION
SECTION 1. RIGHT TO INDEMNIFICATION. Every person who was or is a party or is
threatened to be made a party to or is involved in any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was a director or officer of
the Corporation or, while a director or officer of the Corporation, is or was
serving at the request of the Corporation or for its benefit as a director,
officer, employee or agent of another corporation, or as its representative in a
partnership, joint venture, trust or other enterprise, including any employee
benefit plan, shall be indemnified and held harmless by the Corporation to the
fullest extent legally permissible under the General Corporation Law of the
State of Delaware in the manner prescribed therein, from time to time, against
all expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection therewith.
Similar indemnification may be provided by the Corporation to an employee or
agent of the Corporation who was or is a party or is threatened to be made a
party to or is involved in any such threatened, pending or completed action,
suit or proceeding, by reason of the fact that he is or was an employee or agent
of the Corporation or is or was serving at the request of the Corporation or for
its benefit as a director, officer, employee, or agent of another corporation or
as its representative in a partnership, joint venture, trust or other
enterprise, including any employee benefit plan.
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SECTION 2. OTHER INDEMNIFICATION. The rights of indemnification conferred by
this Article shall not be exclusive of any other rights which such directors,
officers, employees or agents may have or hereafter acquire and, without
limiting the generality of such statement, they shall be entitled to their
respective rights of indemnification under any by-law, agreement, vote of
stockholders, provision of law or otherwise, as well as their rights under this
Article.
ARTICLE VI
SHARES AND THEIR TRANSFER
SECTION 1. STOCK CERTIFICATES. Each holder of stock in the Corporation shall
be entitled to have a numbered certificate in such form as shall be approved by
the Board of Directors, certifying the number of shares owned by him and signed
in the name of the Corporation by the Chairman of the Board or the President or
a Vice President and by the Treasurer or an Assistant Treasurer or the Secretary
or an Assistant Secretary, and sealed with the seal of the Corporation (which
seal may be a facsimile, engraved or printed). Any or all the signatures on the
certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent, or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if he were such officer, transfer agent, or registrar at the date
of issue.
SECTION 2. TRANSFER OF STOCK. Transfers of shares of stock of the Corporation
shall be made on the stock records of the Corporation only upon authorization by
the registered holder thereof, or by his attorney thereunto authorized by power
of attorney duly executed and filed with the Secretary or with a transfer agent
or transfer clerk, and on surrender of the certificate or certificates for such
shares properly endorsed or accompanied by a duly executed stock transfer power
with reasonable assurances given that such endorsement is genuine and that all
taxes thereon have been paid. Except as otherwise provided by law, the
Corporation shall be entitled to recognize the exclusive right of a person in
whose name any share or shares stand on the record of stockholders as the owner
of such share or shares for all purposes, including, without limitation, the
rights to receive dividends or other distributions, and to vote as such owner,
and the Corporation may hold any such stockholder or record liable for calls and
assessments, and the Corporation shall not be bound to recognize any equitable
or legal claim to or interest in any such share or shares on the part of any
other person whether or not it shall have express or other notice thereof.
SECTION 3. LOST CERTIFICATES. The Corporation may issue a new certificate of
stock in the place of any certificate theretofore issued by it, alleged to have
been lost, stolen or destroyed, or which shall have been mutilated, and the
Board of Directors may, in its discretion, require the owner of the lost,
stolen, destroyed or mutilated certificate, or his legal representative, to give
the Corporation a bond, limited or unlimited, in such sum and in such form and
with such surety or sureties as the Board of Directors in its absolute
discretion shall determine is sufficient to indemnify the Corporation against
any claim that may be made against it on account of the alleged loss, theft,
destruction or mutilation of any such certificate, or the issuance of a new
certificate. Anything herein to the contrary notwithstanding, the Board of
Directors in its absolute discretion may refuse
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to issue any such new certificate except pursuant to legal proceedings under the
laws of the State of Delaware.
SECTION 4. RULES AND REGULATIONS. The Board of Directors may make such
additional rules and regulations, not inconsistent with these By-Laws, the
Restated Certificate of Incorporation or the laws of the State of Delaware, as
it may deem expedient concerning the issuance, transfer and registration of
certificates for shares of stock of the Corporation. The Board of Directors may
appoint, or authorize any officer or officers of the Corporation to appoint, one
or more independent transfer agents and one or more independent registrars, and
may require all certificates for shares of stock to bear the signature or
signatures of any of them.
SECTION 5. RECORD DATE. In order to determine the stockholders entitled to
notice and to vote at any meeting of stockholders or adjournment thereof, or to
express consent to corporate action in writing without a meeting, or entitled
to receive payment of any dividend or other distribution or allotment of any
rights, or entitled to exercise any rights in respect of any change, conversion
or exchange of stock or for the purpose of any other lawful action, the Board of
Directors may fix, in advance, a record date, which shall not be less than ten
(10) nor more than sixty (60) days before the date of such meeting, nor more
than sixty (60) days prior to any other action. A determination of stockholders
of record entitled to notice of and to vote at a meeting of stockholders shall
apply to any adjournment of the meeting unless the Board of Directors shall
elect to fix a record date for the adjourned meeting.
ARTICLE VII
GENERAL PROVISIONS
SECTION 1. CONTRACTS AND OTHER INSTRUMENTS. The Chairman of the Board, the
Vice Chairman of the Board, the President, the Chief Operating Officer, the
Chief Financial Officer and any Senior Vice President may enter into any
contract or execute and deliver any instrument in the name of the Corporation
and on behalf of the Corporation except as in these By-Laws or by resolution
otherwise provided. The Board of Directors, except as in these By-Laws
otherwise provided, may authorize any other officer or officers, agent or agents
of the Corporation, to enter into any contract or execute and deliver any
instrument in the name of the Corporation and on behalf of the Corporation, and
such authority may be general or confined to specific instances, and unless so
authorized by the Board of Directors, no such other officer, agent or employee
shall have any power or authority to bind the Corporation by any contract or
engagement or to pledge its credit or to render it liable pecuniarily for any
purpose or to any amount.
SECTION 2. LOANS. No loans shall be contracted on behalf of the Corporation
and no negotiable paper shall be issued in its name unless, and on such terms as
shall be, authorized by the Board of Directors.
SECTION 3. DISBURSEMENTS. All checks, drafts, demands for money, notes or
other evidences of indebtedness of the Corporation shall be signed by such
officer or
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officers or such other person or persons as may from time to time be designated
by the Board of Directors or by any officer or officers or person or persons
authorized by the Board of Directors to make such designations. Facsimile
signatures may be authorized in any such case where authorized by the Board of
Directors.
SECTION 4. DEPOSITS. All funds of the Corporation not otherwise employed shall
be deposited from time to time to the credit of the Corporation under such
conditions and in such banks or other depositories as the Board of Directors may
designate, or as may be designated by any officer or officers, agent or agents
of the Corporation to whom such power of designation may from time to time be
delegated by the Board of Directors. For the purpose of deposit and for the
purpose of collection for the account of the Corporation, checks, drafts, and
other orders for the payment of money which are payable to the order of the
Corporation may be endorsed, assigned and delivered by any officer or agent of
the Corporation as the Board of Directors may determine by resolution.
SECTION 5. VOTING SECURITIES OF OTHER CORPORATIONS. Unless otherwise ordered
by the Board of Directors, the Chairman of the Board, the President or any
person either may designate, shall have full power and authority on behalf of
the Corporation, in person or by proxy, to attend and to act and to vote at any
meeting of the security holders of any other corporation in which this
Corporation may hold securities, and at any such meeting he or his proxy shall
possess and may exercise any and all rights and powers incident to the ownership
of such securities and which as the owner thereof the Corporation might have
possessed and exercised if present. The Board of Directors, by resolution from
time to time, may confer like powers upon any other person or persons.
SECTION 6. CORPORATE SEAL. The Board of Directors shall provide a corporate
seal, which shall be in the form of a circle, and which shall bear the words and
figures:
ECOLAB INC.
CORPORATE SEAL
1924
DELAWARE
SECTION 7. FISCAL YEAR. The fiscal year of the Corporation shall be as
determined by the Board of Directors.
SECTION 8. GENDER. Whenever used in these By-Laws, words in the masculine
gender shall include the feminine gender.
ARTICLE VIII
AMENDMENTS
Except as otherwise provided in the Restated Certificate of Incorporation or
these By-Laws, the Board of Directors may from time to time, by vote of a
majority of its members, alter, amend or rescind all or any of these By-Laws as
permitted, by law, subject to the power of the stockholders to change or repeal
such By-Laws.
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ECOLAB INC.
1977 STOCK INCENTIVE PLAN
As Amended Through
November 1, 1996
1. Purposes
The purposes of the Plan are to provide additional incentive for such Key
Employees of the Company, its subsidiaries and divisions, as may be
designated for participation in the Plan, by authorizing payment of
incentive compensation in shares of Common Stock and by encouraging such
Key Employees to invest in shares of Common Stock, thereby furthering their
identity of interest with the interest of the Company's stockholders,
increasing their stake in the future growth and prosperity of the Company
and stimulating and sustaining constructive and imaginative thinking; and
to enable the Company, by offering comparable incentives, to induce the
employment and continued employment of Key Employees and to compete with
other organizations in attracting and retaining the services of competent
executives.
2. Definitions
Unless otherwise required by the context, the following terms, when used in
the Plan, shall have the meanings set forth in this section 2.
Amendment Agreement: An agreement entered into between the Corporation and
an employee of the Corporation or a Subsidiary in order to amend a Stock
Incentive agreement relating to the Plan.
Board of Directors or Board: The Board of Directors of the Company.
Committee: Such committee or committees as shall be appointed by the Board
of Directors to administer the Plan pursuant to the provisions of section
10.
Common Stock: The Common Stock of the Company, par value $1.00 per share,
or such other class of shares or other securities as may be applicable
pursuant to the provisions of section 8.
Company: Ecolab Inc., a Delaware corporation.
Fair Market Value: As applied to any date, shall be the mean of the high
and low selling prices of Common Stock, as reported on the principal stock
exchange on which such stock is listed and traded, or if the stock is not
listed on an exchange, then Fair Market Value shall be the mean of the
representative bid and asked quotations for such stock in the
over-the-counter market on such date, or if no such sales were made on
such date, on the next preceding date on which there were such sales of
Common Stock on such Exchange or in the over-the-counter market, provided,
however, that if such method of determining Fair Market Value shall not be
consistent with regulations of the Treasury Department at the time
applicable to the determination of Fair Market Value in respect of a Stock
Incentive, Fair Market Value in the case of such Stock Incentive shall be
determined in accordance with such regulations and shall mean the value as
so determined.
ISO: An Option which is intended to qualify as an incentive stock option
under Section 422A of the Internal Revenue Code.
<PAGE>
Key Employee: An employee of the Company or of a Subsidiary, including an
officer or director who is an employee, who in the opinion of the Committee
can contribute significantly to the growth and successful operations of the
Company or a Subsidiary. The recommendation of the grant of a Stock
Incentive to an employee by the Committee shall be deemed a determination
by the Committee that such employee is a Key Employee.
Nonqualified Stock Option: An Option which is not intended to qualify as
an incentive stock option under Section 422A of the Internal Revenue Code.
Option: A Nonqualified Stock Option or an ISO.
Plan: The Ecolab Inc. 1977 Stock Incentive Plan herein set forth as the
same may from time to time be amended.
Stock Appreciation Right: A right to receive a number of shares of Common
Stock or, at the election of the Company, cash, in either event based on
the increase in the Fair Market Value of the number of shares of Common
Stock subject to such right as set forth in section 6.
Stock Award: An issuance or transfer of shares of Common Stock or an
undertaking to issue or transfer such shares in the future as set forth in
section 7.
Stock Incentive: An incentive granted under the Plan in one of the forms
provided for in section 3.
Subsidiary: A corporation or other form of business association of which
shares (or other ownership interests) having 50% or more of the voting
power are owned or controlled, directly or indirectly, by the Company.
Provided, that for the purpose of the continued effectiveness of Stock
Incentives granted to Key Employees of the Corporation or a Subsidiary
prior to the employment of such Key Employees by a joint venture entity
organized by the Corporation and Henkel KGaA ("the Joint Venture
Entities"), such Joint Venture Entities, for such initial period as the
Corporation, directly or indirectly, owns or controls shares or other
ownership interests having 20% or more of the voting power of such Joint
Venture Entity, shall be deemed to be a Subsidiary with respect to such Key
Employees who have entered into an Amendment Agreement with terms and
conditions satisfactory to the General Counsel of the Corporation.
3. Grants of Stock Incentives
(a) Subject to the provisions of the Plan, the Committee may at any time,
or from time to time, grant Stock Incentives under this Plan to, and
only to, Key Employees, provided, however, that no Stock Incentive
shall be granted to a Key Employee who at the time of such grant is a
member of the Board of Directors except by or upon the recommendation
of the Committee, or by a majority of disinterested members of the
Board as provided in paragraph (b) of section 10.
(b) Stock Incentives may be granted in the following forms:
(i) an Option, which may be an ISO or a Nonqualified Stock Option, in
accordance with section 5, or
(ii) a Stock Appreciation Right or Limited Right, in accordance with
section
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6, or
(iii) a Stock Award, in accordance with section 7, or
(iv) a combination of any of the foregoing.
4. Stock Subject to the Plan
(a) Subject to the provisions of paragraph (c) of this section 4 and of
section 8, the aggregate number of shares of Common Stock which may be
issued or transferred pursuant to Stock Incentives granted under the
Plan shall not exceed 2,382,115 shares of Common Stock.
(b) Authorized but unissued shares of Common Stock and shares of Common
Stock held in the treasury, whether acquired by the Company
specifically for use under the Plan or otherwise, may be used, as the
Board of Directors may from time to time determine, for purposes of
the Plan, provided, however, that any shares acquired or held by the
Company for the purposes of the Plan shall be and at all times remain
treasury shares of the Company, irrespective of whether such shares
are entered in a special account for purposes of the Plan, and shall
be available for any corporate purpose unless and until transferred to
a Key Employee in accordance with the terms and conditions of a Stock
Incentive.
(c) If any shares of Common Stock subject to a Stock Incentive shall not
be issued or transferred and shall cease to be issuable or
transferable because of the termination, in whole or in part, of such
Stock Incentive or, subject to the provisions of paragraph (h) of
section 5 and paragraph (d) of section 6, for any other reason, or if
any such shares shall, after issuance or transfer, be reacquired by
the Company or a Subsidiary because of an employee's failure to comply
with the terms and conditions of a Stock Incentive, the shares not so
issued or transferred, or the shares so reacquired by the Company or a
Subsidiary, shall no longer be charged against the limitation provided
for in paragraph (a) of this section 4 and may again be made subject
to Stock Incentives.
5. Options
Stock Incentives in the form of Options shall be subject to the following
provisions:
(a) The per share Option exercise price shall be determined by the
Committee from time to time, but in no instance shall be less than the
Fair Market Value of a share of Common Stock on the date the Option
shall be granted.
(b) Each Option shall expire at such time as is determined by the
Committee, which determination shall be made at the time such Option
is granted. No ISO shall expire later than ten years from the date
such ISO shall be granted, and no Nonqualified Stock Option shall
expire more than ten years and three months from the date such
Nonqualified Stock Option shall be granted. When an Option is granted
for a term of less than the maximum term specified in the foregoing
sentence, the Committee may, with the holder's consent and at any time
prior to the expiration of the Option, extend its term for a period
which, when added to the original term of the Option, shall not be
longer than such maximum term.
(c) The Option may be exercised solely by the person to whom granted
except as hereinafter provided in the case of such person's death.
During the lifetime of the optionee, the Option and any rights and
privileges pertaining thereto shall not
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be transferred, assigned, pledged or hypothecated in any way, whether
by operation of law or otherwise, and shall not be subject to
execution, attachment or similar process.
(d) The optionee must complete twelve months of continuous employment
with the Company or a Subsidiary, or both, immediately following the
date on which the Option shall be granted before any part of the
Option may be exercised by him. Whether authorized leave of absence
or absence for military or government service shall constitute
termination of employment or interruption of continuous employment for
the purposes of the Plan shall be determined by the Committee on an
individual basis.
(e) After the completion of the required period of employment, and subject
to the terms of the Option, the Option may be exercised, in whole or
in part, from time to time during the balance of the term of the
Option. The Committee may, in its discretion, accelerate the date on
which all or any portion of an Option becomes exercisable, provided,
however, that no ISO granted prior to January 1, 1987 shall be
exercisable while there is outstanding any incentive stock option
which was granted before the granting of such ISO, to purchase stock
in the Company or in a corporation which at the date of such ISO is a
parent or subsidiary of the Company or the predecessor of any such
corporation.
(f) The Option shall terminate if and when the optionee shall cease to be
an employee of the Company or its Subsidiaries, except as follows:
(i) If employment of the optionee by the Company or its Subsidiaries
shall be terminated, upon the retirement or disability of the
optionee under a retirement, pension or disability plan approved
by the Board or the Committee, after he shall have completed
twelve months of continuous employment following the date upon
which the Option was granted, then the Option shall be
exercisable within such period as shall be set forth in the
Option grant, but not later than three years after the date of
termination of employment and not after the expiration of the
specific period fixed in the Option grant as in effect at the
time.
(ii) If the optionee shall die while in the employ of the Company or a
Subsidiary, or within three months of the termination of his
employment with the Company or its Subsidiaries after he shall
have completed twelve months of continuous employment following
the date upon which the Option was granted, then the Option shall
be exercisable within such period as shall be set forth in the
Option grant by such person or persons as shall have acquired the
optionee's rights under the Option by Will or by the laws of
descent and distribution, but not later than three years after
the date of death and not after the expiration of the specific
period fixed in the Option grant as in effect at the time.
(iii) If employment of the optionee by the Company or its Subsidiaries
shall have terminated for any reason other than those specified
in subparagraphs (f)(i) and (f)(ii) above and after he shall have
completed at least twelve months of continuous employment
following the date upon which the Option is granted, subject to
subparagraph (f)(ii) above, the Option shall be exercisable by
him only within the three months after such termination, but not
after the expiration of the term of the Option.
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(g) (i) Shares purchased under the Option shall be paid for in full, in
cash or such other forms of payment as are approved by the
Committee, at the time of the exercise of the Option as to such
shares.
(ii) The Committee may, in its sole discretion, permit an optionee to
exercise an Option (other than an ISO granted prior to May 12,
1988) by delivering to the Company a properly executed Broker
Exercise Notice in form and substance acceptable to the
Committee. This Broker Exercise Notice shall contain irrevocable
instructions from the optionee to the Company to issue to a
broker the stock certificates for the shares to be purchased
upon exercise of the Option, and the Company shall, if the
Committee decides to permit the Option to be exercised in this
manner, acknowledge to the broker that the Company consents to
such procedure. In addition, the Broker Exercise Notice shall
contain or be accompanied by irrevocable instructions from the
optionee to such broker to sell a number of shares of Common
Stock, or loan to the optionee an amount, sufficient to pay the
exercise price of the Option and any withholding obligations due
upon such exercise and to promptly deliver to the Company the
amount of such sale or loan proceeds.
(h) The Option agreements or Option grants authorized by the Plan may
contain such other provisions as the Committee shall deem advisable.
Without limiting the foregoing and if so provided in the Option, or if
so authorized by the Committee and subject to such terms and
conditions as are specified in the Option or by the Committee, the
Company may, with the consent of the holder of the Option, and at any
time or from time to time, cancel all or a portion of the Option then
subject to exercise and discharge its obligation in respect of the
Option either by payment to the holder of an amount of money equal to
the excess, if any, of the Fair Market Value, at such time or times,
of the shares subject to the portion of the Option so cancelled over
the aggregate purchase price of such shares, or by issuance or
transfer to the holder of shares of Common Stock with a Fair Market
Value, at such time or times, equal to any such excess, or by a
combination of cash and shares. The number of shares of Common Stock
subject to the Option, or portion thereof, so cancelled shall, in the
event that a payment of money or transfer of shares is made by the
Company in respect of such cancellation, be charged against the
maximum limitation set forth in paragraph (a) of section 4.
(i) Options may be granted under the Plan from time to time in
substitution for stock options held by employees of other corporations
who are about to become employees of the Company or a Subsidiary as
the result of a merger or consolidation of the employing corporation
with the Company or a Subsidiary, or the acquisition by the Company or
a Subsidiary of the assets of the employing corporation, or the
acquisition by the Company or a Subsidiary of stock of the employing
corporation as the result of which it becomes a Subsidiary. The
terms and conditions of the substitute Options so granted may vary
from the terms and conditions set forth in paragraphs (a) through (h)
of this section 5 to such extent as the Board of Directors at the time
of grant may deem appropriate to conform, in whole or in part, to the
provision of the options in substitution for which they are granted.
This paragraph shall not require the Company to grant Options under
the Plan to any such persons, nor shall it prohibit the Company from
assuming any options as a part of any acquisition, merger, or
consolidation.
(j) (i) The aggregate Fair Market Value, determined as of the date an
Option is
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granted, of the Common Stock for which a Key Employee may be
granted ISOs in any calendar year after December 31, 1980 and
prior to January 1, 1987, under all stock option plans of the
Company and its Subsidiaries shall not exceed $100,000 plus any
unused limit carryover to such year (within the meaning of
Section 422A of the Internal Revenue Code).
(ii) With respect to ISOs granted on or after January 1, 1987, the
aggregate Fair Market Value, determined as of the date an ISO is
granted, of the Common Stock with respect to which incentive
stock options (within the meaning of Section 422A of the Internal
Revenue Code) are exercisable for the first time by an optionee
during any calendar year (under the Plan and any other incentive
stock option plans of the Company and any parent corporation
(within the meaning of Section 425(e) of the Internal Revenue
Code) or Subsidiary) shall not exceed $100,000.
(k) The Committee may, with the consent of the optionee affected thereby,
accept the surrender of any outstanding Option, to the extent not
previously exercised, and the Committee may authorize the grant of new
Options in substitution therefor to the extent not previously
exercised.
6. Stock Appreciation Rights and Limited Rights
(a) Stock Appreciation Rights may be granted in connection with any Option
granted under the Plan, either at the time of the grant of such Option
or at any time thereafter during the term of the Option, or may be
granted independently of the grant of an Option.
(b) If granted in connection with an Option, Stock Appreciation Rights
shall entitle the holder of the related Option, upon exercise of the
Stock Appreciation Rights, to surrender the Option, or any portion
thereof, to the extent unexercised, and to receive a number of shares
of Common Stock, or cash, determined pursuant to paragraph (c)(iii) of
this section 6. Such Option shall, to the extent so surrendered,
thereupon cease to be exercisable. If granted independently of an
Option, Stock Appreciation Rights shall entitle the holder of the
Stock Appreciation Rights to receive a number of shares of Common
Stock, or cash, determined pursuant to paragraph (c)(iii) of this
section 6.
(c) Stock Appreciation Rights shall be subject to the following terms and
conditions and to such other terms and conditions not inconsistent
with the Plan as shall from time to time be approved by the Committee.
(i) If granted in connection with an Option, Stock Appreciation
Rights shall be exercisable at such time or times and to the
extent, but only to the extent, that the Option to which they
relate shall be exercisable. If granted independently of an
Option, Stock Appreciation Rights shall be exercisable at such
time or times as shall be determined by the Committee at the time
of the grant of the Stock Appreciation Rights but in no event
later than three months after the employment of the holder of
the Stock Appreciation Rights by the Company or a Subsidiary
shall have terminated other than by reason of death or by reason
of retirement or disability under a retirement, pension or
disability plan approved by the Board or the Committee. In the
event of termination of employment by reason of death, Stock
Appreciation Rights shall be exercisable by the
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beneficiary designated pursuant to paragraph (g) of section 11 no
later than three years after such termination of employment. In
the event of termination of employment by reason of retirement or
disability under a plan specified above, Stock Appreciation
Rights shall be exercisable no later than three years after such
termination of employment.
(ii) Stock Appreciation Rights shall in no event be exercisable
unless and until the holder of the Stock Appreciation Rights
shall have completed at least twelve months of continuous service
with the Company or a Subsidiary, or both, immediately following
the date upon which the Stock Appreciation Rights shall have been
granted. Whether authorized leaves of absence or absence for
military or government service shall constitute termination of
employment or interruption of continuous employment for purposes
of the Plan shall be determined by the Committee on an individual
basis.
(iii) Upon exercise of a Stock Appreciation Right, the holder thereof
shall be entitled to receive a number of shares equal in Fair
Market Value to the amount by which the Fair Market Value of one
share of Common Stock on the date such Stock Appreciation Right
is exercised exceeds the Fair Market Value of one share of Common
Stock on the date of grant, multiplied by the number of shares
in respect of which the Stock Appreciation Right shall have been
exercised. All or any part of the Company's obligation arising
out of an exercise of Stock Appreciation Rights may, at the
discretion of the Company, be settled by the payment of cash
equal to the aggregate value of shares of Common Stock (or
fraction of a share) that the Company would otherwise be
obligated to deliver under the preceding sentence of this section
6(c)(iii).
(d) To the extent that Stock Appreciation Rights shall be exercised, an
Option in connection with which such Stock Appreciation Rights shall
have been granted shall be deemed to have been exercised for the
purpose of the maximum limitation set forth in paragraph (a) of
section 4. In the case of Stock Appreciation Rights granted
independently of an Option, the number of shares of Common Stock in
respect of which such Stock Appreciation Rights shall be exercised
shall be charged against the maximum limitation set forth in paragraph
(a) of section 4.
(e) Stock Appreciation Rights may provide that, upon exercise of such
Stock Appreciation Rights, the shares or cash, as the case may be,
which the holder of such Stock Appreciation Rights shall be entitled
to receive shall be distributed or paid in such installments and over
such number of years as the Committee may direct, with distribution or
payment of each such installment contingent upon continued services of
the employee to the Company or a Subsidiary, or both (except for
death, disability, or retirement pursuant to the provisions of the
pension plans of the Company or a Subsidiary, or termination of
employment by the Company or with its consent) to the time for
distribution or payment of such installment.
(f) (i) For Stock Incentives granted prior to August 11, 1989:
(A) if (i) any corporation, person or other entity (other than
the Company) makes a tender or exchange offer for shares of
Common Stock pursuant to which purchases are made ("Offer"),
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(ii) the stockholders of the Company approve a definitive
agreement to merge or consolidate the Company with or into
another corporation or to sell or otherwise dispose of all
or substantially all of its assets, (iii) more than 25
percent of the Company's then outstanding Common Stock is
acquired by any person or group, or (iv) during any period
of two consecutive years, individuals who at the beginning
of such period were members of the Board cease for any
reason to constitute at least a majority thereof (unless the
election, or the nomination for election by the Company's
stockholders, of each new director was approved by a vote of
at least two-thirds of the directors then still in office
who were directors at the beginning of the period), then the
date of the first purchase of Common Stock pursuant to such
Offer, or the date of any such stockholder approval, or the
date on which public announcement of the acquisition of such
percentage shall have been made, or the date on which the
change in the composition of the Board set forth above shall
have occurred shall be the "Effective Date" of such
transaction or occurrence.
(B) the preceding section 6(f)(i)(A) shall not apply to a merger
or consolidation in which the Company is the surviving
corporation and shares of Common Stock are not converted
into or exchanged for stock, securities of any other
corporation, cash or any other thing of value and such
transactions shall have no Effective Date for purposes of
this section 6. 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 8 shall
apply.
(ii) (A) For purposes of Stock Incentives granted on or after August
11, 1989, a "Change of Control" shall be deemed to have
occurred if:
(i) Any "person" as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934 (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
("Offer"), the "beneficial owner" (as defined in Rule
13d-3 under the Securities Exchange Act of 1934),
directly or indirectly of securities of the Company
representing 25 percent 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 of Directors prior to its occurrence; provided,
however, that if any such person
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shall become the beneficial owner, directly or
indirectly, of securities of the Company representing
34 percent or more of the combined voting power of the
Company's then outstanding securities, a Change of
Control shall 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 shall 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 percent 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 ("Shareholder
Agreement"), if, and so long as, such Shareholder
Agreement (or any amendment thereto approved by the
Board provided that no such amendment shall cure any
prior breach of such Shareholder 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 discretion) with the terms of such
Shareholder Agreement (including such amendment);
provided, however, that if any such person shall become
the beneficial owner directly or indirectly, of
securities of the Company representing 50 percent or
more of the combined voting power of the Company's then
outstanding securities, a Change of Control shall be
deemed to occur whether or not such beneficial
ownership was held in compliance with a binding
Shareholder Agreement.
(ii) During any period of two consecutive years (not
including any period prior to August 11, 1989),
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 of Control pursuant to
clause (i), (iii) or (iv) of this section 6(f)(ii)(A))
whose election by the Board or 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;
(iii) The stockholders of the Company approve a merger or
consolidation of the Company with any other
corporation, other than (x) 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
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percent of the combined voting power of the voting
securities of the Company or such surviving entity
outstanding immediately after such merger or
consolidation or (y) 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 of Control pursuant to section
6(f)(ii)(A)(i). 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 8 shall apply.
(iv) 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.
(B) In the event a Change of Control shall be deemed to have
occurred pursuant to the foregoing section 6(f)(ii)(A), the
"Effective Date" of such Change of Control shall (1) in the
case of an Offer, be the date of the first purchase of
Common Stock pursuant to such Offer, (2) in the case of any
Change of Control (other than pursuant to an Offer) pursuant
to section 6(f)(ii)(A)(i), be the date on which public
announcement of the acquisition of the applicable triggering
percentage shall have been made, (3) in the case of a Change
of Control pursuant to section 6(f)(ii)(A)(ii), the date on
which the change in the composition of the Board shall have
occurred, (4) in the case of a Change of Control pursuant to
section 6(f)(ii)(A)(iii) or (iv), the date of the applicable
stockholder approval.
(g) (i) The Committee shall have authority to grant a limited stock
appreciation right (a "Limited Right") to the holder of any
Option granted under the Plan (the "Related LSAR Option") with
respect to all or some of the shares of Common Stock covered by
such Related LSAR Option. A Limited Right may be granted either
at the time of grant of the Related LSAR Option or any time
thereafter during its term. A Limited Right may be granted to an
optionee irrespective of whether such optionee is being granted
or has been granted a Stock Appreciation Right under this section
6. A Limited Right may be exercised only during the sixty-day
period beginning on an Effective Date (as defined in section
6(f)(i)(A) or section 6(f)(ii)(B) hereof). Each Limited Right
shall be exercisable only if, and to the extent that, the Related
LSAR Option is exercisable and, in the case of a Limited Right
granted in respect of an ISO, only when the Fair Market Value per
share of Common Stock exceeds the option price per share.
Notwithstanding the provisions of the two immediately preceding
sentences, no Limited Right may be exercised until the
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expiration of six (6) months from the date of grant of the
Limited Right. Upon the exercise of a Limited Right, such
Related LSAR Option and any Stock Appreciation rights granted in
connection therewith shall cease to be exercisable to the extent
of the shares of Common Stock with respect to which such Limited
Right is exercised, but shall be considered to have been
exercised, to that extent for purposes of determining the number
of shares of Common Stock available for the grant of further
Options and Stock Appreciation Rights pursuant to the Plan. Upon
the exercise or termination of a Related LSAR Option, the Limited
Right with respect to such Related LSAR Option shall terminate to
the extent of the shares of Common Stock with respect to which
the Related LSAR Option was exercised or terminated.
(ii) Upon the exercise of a Limited Right, the holder thereof shall
receive in cash whichever of the following amounts is applicable:
(A) in the case of exercise by reason of the occurrence of an
Offer (as defined in section 6(f)(i)(A) or section
6(f)(ii)(A)(i) hereof), an amount equal to the Offer Spread
(as defined in section 6(g)(iv) hereof);
(B) in the case of exercise by reason of stockholder approval of
an agreement described in section 6(f)(i)(A)(ii) or section
6(f)(ii)(A)(iii) or (iv), an amount equal to the Merger
Spread (as defined in section 6(g)(vi) hereof);
(C) in the case of exercise by reason of an acquisition of
Common Stock described in section 6(f)(i)(A)(iii) or section
6(f)(ii)(A)(i) if other than pursuant to an Offer, an amount
equal to the Acquisition Spread (as defined in section
6(g)(viii) hereof); or
(D) in the case of exercise by reason of the change in
composition of the Board of Directors described in section
6(f)(i)(A)(iv) or section 6(f)(ii)(A)(ii), an amount equal
to the Spread (as defined in section 6(g)(ix) hereof).
Notwithstanding the foregoing, in the case of a Limited Right
granted in respect of an ISO, the holder may not receive an
amount in excess of such amount as will enable such option to
qualify as an ISO.
(iii) The term "Offer Price per Share" as used in this section 6 shall
mean, with respect to the exercise of any Limited Right by reason
of the occurrence of an Offer, the greater of (1) the highest
price per share of Common Stock paid in any Offer, which Offer is
in effect at any time during the sixty-day period ending on the
date on which such Limited Right is exercised, or (2) the highest
Fair Market Value per share of the Common Stock during such
sixty-day period. Any securities or property which are part or
all of the consideration paid for shares of Common Stock in the
Offer shall be valued in determining the Offer Price per Share at
the higher of (A) the valuation placed on such securities or
property by the corporation, person or other entity making such
Offer or (B) the valuation placed on such securities or property
by the Committee.
(iv) The term "Offer Spread" as used in this section 6 shall mean an
amount
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equal to the product computed by multiplying (1) the excess of
(A) the Offer Price per Share over (B) the option price per share
of Common Stock at which the Related LSAR Option is exercisable,
by (2) the number of shares of Common Stock with respect to which
such Limited Right is being exercised.
(v) The term "Merger Price per Share" as used in this section 6 shall
mean, with respect to the exercise of any Limited Right by reason
of stockholder approval of an agreement described in section
6(f)(i)(A)(ii) or in section 6(f)(ii)(A)(iii), the greater of (1)
the fixed or formula price for the acquisition of shares of
Common Stock specified in such agreement if such fixed or formula
price is determinable on the date on which such Limited Right is
exercised, and (2) the highest Fair Market Value per share of
Common Stock during the sixty-day period ending on the date on
which such Limited Right is exercised.
(vi) The term "Merger Spread" as used in this section 6 shall mean an
amount equal to the product computed by multiplying (1) the
excess of (A) the Merger Price per Share over (B) the option
price per share of Common Stock at which the Related LSAR option
is exercisable, by (2) the number of shares of Common Stock with
respect to which such Limited Right is being exercised.
(vii) The term "Acquisition Price per Share" as used in this section 6
shall mean, with respect to the exercise of any Limited Right by
reason of an acquisition of Common Stock described in section
6(f)(i)(A)(iii) or in section 6(f)(ii)(A)(i) if other than
pursuant to an Offer, the greater of (1) the highest price per
share shown on the Statement of Schedule 13D or amendment thereto
filed by the holder of 25 percent or more of the Company's Common
Stock which gives rise to the exercise of such Limited Right, and
(2) the highest Fair Market Value per share of Common Stock
during the sixty-day period ending on the date the Limited Right
is exercised.
(viii) The term "Acquisition Spread" as used in this section 6 shall
mean an amount equal to the product computed by multiplying (1)
the excess of (A) the Acquisition Price per Share over (B) the
option price per share of Common Stock at which the Related LSAR
Option is exercisable, by (2) the number of shares of Common
Stock with respect to which such Limited Right is being
exercised.
(ix) The term "Spread" as used in this section 6 shall mean, with
respect to the exercise of any Limited Right by reason of a
change in the composition of the Board described in section
6(f)(i)(A)(iv) or in section 6(f)(ii)(A)(ii), an amount equal to
the product computed by multiplying (1) the excess of (A) the
highest Fair Market Value per share of Common Stock during the
sixty-day period ending on the date the Limited Right is
exercised over (B) the option price per share of Common Stock at
which the Related LSAR Option is exercisable, by (2) the number
of shares of Common Stock with respect to which the Limited Right
is being exercised.
(x) Notwithstanding any other provision of the Plan, no Stock
Appreciation Right granted hereunder may be exercised at a time
when any Limited
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<PAGE>
Right held by the holder of such Stock Appreciation Right may be
exercised.
7. Stock Awards
Stock Incentives in the form of Stock Awards shall be subject to the
following provisions:
(a) For the purposes of the Plan, in determining the value of a Stock
Award, all shares of Common Stock subject to such Stock Award shall be
valued at not less than 100% of the Fair Market Value of such shares
on the date such Stock Award is granted, regardless of whether or when
such shares are issued or transferred to the Key Employee and whether
or not such shares are subject to restrictions which affect their
value.
(b) Shares of Common Stock subject to a Stock Award may be issued or
transferred to a Key Employee at the time the Stock Award is granted,
or at any time subsequent thereto, or in installments from time to
time, as the Committee shall determine. Any amount payable in shares
of Common Stock under the terms of a Stock Award may, at the
discretion of the Company, be paid in cash on each date on which
delivery of shares would otherwise have been made, in an amount equal
to the Fair Market Value, on such date, of the shares which would
otherwise have been delivered.
(c) A Stock Award shall contain such terms and conditions as the Committee
shall determine with respect to payment or forfeiture of all or any
part of the Stock Award upon termination of employment.
(d) A Stock Award shall be subject to such other terms and conditions,
including, without limitation, restrictions on sale or other
disposition of the Stock Award or of the shares issued or transferred
pursuant to such Stock Award, as the Committee shall determine,
provided, however, that upon the issuance or transfer of shares
pursuant to a Stock Award, the recipient shall, with respect to such
shares, be and become a stockholder of the Company fully entitled to
receive dividends, to vote and exercise all other rights of a
stockholder except to the extent otherwise provided in the Stock
Award. Each Stock Award shall be evidenced by a written instrument in
such form as the Committee shall determine, provided the Stock Award
is consistent with the Plan and incorporates it by reference.
8. Adjustment Provisions
In the event that any recapitalization, or reclassification, split-up or
consolidation of shares of Common Stock shall be effected, or the
outstanding shares of Common Stock are, in connection with a merger or
consolidation of the Company or a sale by the Company of all or a part of
its assets, exchanged for a different number or class of shares of stock or
other securities of the Company or for shares of the stock or other
securities of any other corporation, or new, different or additional shares
or other securities of the Company or of another corporation are received
by the holder of Common Stock or any distribution is made to the holders of
Common Stock other than a cash dividend, (a) the number and class of shares
or other securities that may be issued or transferred pursuant to Stock
Incentives, (b) the number and class of shares or other securities which
have not been issued or transferred under outstanding Stock Incentives, (c)
the purchase price to be paid per share under outstanding Options, and (d)
the price to be paid per share by the Company or a Subsidiary for shares or
other securities issued or transferred pursuant to Stock Incentives which
are subject to a right of the Company or a Subsidiary to reacquire such
share or other securities, shall in each case be equitably adjusted.
9. Term
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The Plan shall become effective on the date it is approved by the
stockholders of the Company. No Stock Incentives shall be granted under
the Plan after May 31, 1993.
10. Administration
(a) The Plan shall be administered by a Committee which shall consist of
not less than three directors of the Company designated by the Board
of Directors, provided, however, that no director shall be designated
as or continue to be a member of the Committee unless he shall at the
time of designation and service be a "disinterested person" within the
meaning of Rule 16b-3 under the Securities Exchange Act of 1934 (or
any successor provision at the time in effect). In no event shall a
member of the Committee be eligible to be granted a Stock Incentive
while serving on the Committee. Grants of Stock Incentives may be
recommended or granted either in or without consultation with
employees, but, anything in the Plan to the contrary notwithstanding,
the Committee shall have full authority to act in the matter of
selection of all Key Employees who are members of the Board of
Directors and in recommending Stock Incentives to be granted to them.
(b) The Board of Directors may delegate to the Committee any or all of its
authority under the Plan, including the authority to award Stock
Incentives, except its authority to amend or discontinue the Plan.
Any powers conferred on the Committee by this section 10 or by any
other provision of the Plan shall, to the extent such authority shall
not have been so delegated by the Board of Directors, be exercised by
the Board, provided, however, that with respect to the participation
in the Plan of any director, unless his participation shall have been
recommended by the Committee, a majority of the members of the Board
and a majority of its members acting in the matter shall, at the time
so acting, be "disinterested persons" within the meaning of Rule 16b-3
under the Securities Exchange Act of 1934 (or any successor provision
at the time in effect).
(c) The Committee may establish such rules and regulations, not
inconsistent with the provisions of the Plan, as it deems necessary to
determine eligibility to participate in the Plan and for the proper
administration of the Plan, and may amend or revoke any rule or
regulation so established. The Committee may make such determinations
and interpretations under or in connection with the Plan as it deems
necessary or advisable. All such rules, regulations, determinations
and interpretations shall be binding and upon their and respective
legal representatives, beneficiaries, successors and assigns and upon
all other persons claiming under or through any of them.
(d) Any action required or permitted to be taken by the Committee under
the Plan shall require the affirmative vote of a majority of all the
members of the Committee. The Committee may act by written
determination instead of by affirmative vote at a meeting, provided
that any written determination shall be signed by all of the members
of the Committee, and any such written determination shall be as fully
effective as a majority vote at a meeting.
(e) Members of the Board of Directors and members of the Committee acting
under the Plan shall be fully protected in relying in good faith upon
the advice of counsel and shall incur no liability except for gross
negligence or willful misconduct in the performance of their duties.
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11. General Provisions
(a) Nothing in the Plan nor in any instrument executed pursuant thereto
shall confer upon any employee any right to continue in the employ of
the Company or a Subsidiary or shall affect the right of the Company
or of a Subsidiary to terminate the employment of any employee with or
without cause.
(b) No shares of Common Stock shall be issued or transferred pursuant to a
Stock Incentive unless and until all legal requirements applicable to
the issuance or transfer of such shares have, in the opinion of
counsel to the Company, been complied with. In connection with any
such issuance or transfer, the person acquiring the shares shall, if
requested by the Company, give assurances satisfactory to counsel to
the Company that the shares are being acquired for investment and not
with a view to resale or distribution thereof and assurances in
respect of such other matters as the Company or Subsidiary may deem
desirable to assure compliance with all applicable legal requirements.
(c) No employee (individually or as a member of a group), and no
beneficiary or other person claiming under or through him, shall have
any right, title or interest in or to any shares of Common Stock
allocated or reserved for the purposes of the Plan or subject to any
Stock Incentive except as to such shares of Common Stock, if any, as
shall have been issued or transferred to him.
(d) The Company or a subsidiary may, with the approval of the Committee,
enter into an agreement or other commitment to grant a Stock Incentive
in the future to a person who is or will be a Key Employee at the time
of grant, and, notwithstanding any other provision of the Plan, any
such agreement or commitment shall not be deemed the grant of a Stock
Incentive until the date on which the Committee takes action to
implement such agreement or commitment.
(e) In the case of a grant of a Stock Incentive to any employee of a
Subsidiary, such grant may, if the Committee so directs, be
implemented by the Company issuing or transferring the shares, if any,
covered by the Stock Incentive to the Subsidiary, for such lawful
consideration as the Committee may specify, upon the condition or
understanding that the Subsidiary will transfer the shares to the
employee in accordance with the terms of the Stock Incentive specified
by the Committee pursuant to the provisions of the Plan.
Notwithstanding any other provision hereof, such Stock Incentive may
be issued by and in the name of the Subsidiary and shall be deemed
granted on the date it is approved by the Committee, on the date it is
delivered by the Subsidiary, or on such other date between such two
dates, as the Committee shall specify.
(f) (i) The Company or a Subsidiary may make such provisions as it may
deem appropriate for the withholding of any taxes which the
Company or Subsidiary determines it is required to withhold in
connection with any Stock Incentive.
(ii) With respect to any withholding tax obligation which may arise in
connection with the exercise of a Nonqualified Stock Option, in
connection with a disqualifying disposition of stock received
upon the exercise of an Incentive Stock Option or in connection
with the receipt of, or the lapse or termination of restrictions
imposing a risk of forfeiture with respect to, a Stock Award, the
Committee may, in its discretion and subject to such rules as the
Committee may adopt, permit a Key Employee to satisfy, in whole
or in part, such withholding tax obligation
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by electing to have the Corporation withhold from the shares of
Common Stock to be issued upon exercise of the Nonqualified Stock
Option, to be issued in connection with the exercise of an
Incentive Stock Option, to be issued in connection with the grant
of a Stock Award or released in connection with the lapse or
termination of restrictions imposing a risk of forfeiture on all
or a part of a Stock Award or by electing to deliver to the
Corporation already-owned shares of Common Stock, in any case
having a Fair Market Value, on the date such tax is determined
under the Internal Revenue Code (the "Tax Date"), no greater than
the amount necessary to satisfy the withholding amount due. A
Key Employee's election to have the Corporation withhold shares
of Common Stock or deliver already-owned shares of Common Stock
is irrevocable and is subject to the consent or disapproval of
the Committee.
(g) No Stock Incentive and no rights under the Plan, contingent or
otherwise, shall be assignable or subject to any encumbrance, pledge
or charge of any nature except that, under such rules and regulations
as the Committee may establish, a beneficiary may be designated in
respect of a Stock Incentive in the event of the death of the holder
of such Stock Incentive and except, also, that if such beneficiary
shall be the executor or administrator of the estate of the holder of
such Stock Incentive, any rights in respect of such Stock Incentive
may be transferred to the person or persons or entity (including a
trust) entitled thereto under the Will of the holder of such Stock
Incentive or, in case of intestacy, under the laws relating to
intestacy.
(h) Nothing in the Plan is intended to be a substitute for, or shall
preclude or limit the establishment or continuation of, any other
plan, practice or arrangement for the payment of compensation or
fringe benefits to employees generally, or to any class or group of
employees which the Company or any Subsidiary now has or may hereafter
lawfully put into effect, including, without limitation, any
retirement, pension, insurance, stock purchase, incentive compensation
or bonus plan.
(i) The place of administration of the Plan shall conclusively be deemed
to be within the State of Minnesota and the validity, construction,
interpretation and administration of the Plan and of any rules and
regulations or determinations or decisions made thereunder, and the
rights of any and all persons having or claiming to have any interest
therein or thereunder, shall be governed by, and determined
exclusively and solely in accordance with, the laws of the State of
Minnesota. Without limiting the generality of the foregoing, the
period within which any action arising under or in connection with the
Plan must be commenced, shall be governed by the laws of the State of
Minnesota, irrespective of the place where the act or omission
complained of took place and of the residence of any party to such
action and irrespective of the place where the action may be brought.
12. Amendment or Discontinuance of Plan
(a) The Plan may be amended by the Board of Directors at any time,
provided that, without the approval of the stockholders of the
Company, no amendment shall be made which
(i) increases the aggregate number of shares of Common Stock that may
be issued or transferred pursuant to Stock Incentives as provided
in
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paragraph (a) of section 4,
(ii) amends the provisions of paragraph (a) of section 10 with respect
to eligibility and disinterest of a majority of members of the
Board of Directors,
(iii) permits any person who is not determined to be a Key Employee at
the time to be granted a Stock Incentive,
(iv) amends the provisions of paragraph (a) of section 5 or paragraph
(a) of section 7 to permit shares to be valued or to be optional
at less than 100% of Fair Market Value,
(v) amends section 9 to extend the term of the Plan, or
(vi) amends this section 12.
(b) The Board of Directors may by resolution adopted by a majority of the
entire Board of Directors discontinue the Plan.
(c) No amendment or discontinuance of the Plan by the Board of Directors
or the stockholders of the Company shall adversely affect, without the
consent of the holder, any Stock Incentive theretofore granted.
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ECOLAB
NON-EMPLOYEE DIRECTORS' RETIREMENT PLAN
(AS AMENDED FEBRUARY 24, 1990)
FIRST DECLARATION OF AMENDMENT
Pursuant to Section 6.1 of the instrument entitled "Ecolab Non-Employee
Directors' Retirement Plan (As Amended February 24, 1990)," Ecolab Inc. (the
"Company") hereby amends such instrument by adding thereto a new Section 6.4
which reads as follows:
"6.4. CONVERSION OF BENEFITS. Notwithstanding any other provisions in the
Plan to the contrary, as of the time (the "Effective Time") that the
Company's 1997 Non-Employee Director Deferred Compensation Plan (the "New
Plan") is approved by the Company's stockholders, each Director who elects
to convert his or her then existing accrued benefit under the Plan to a
balance in the Share Account under the New Plan pursuant to Section 3.2(a)
of the New Plan will not thereafter be entitled to participate in, or
receive any benefits pursuant to, the Plan. Each Director who does not so
elect to convert his or her then existing benefit under the Plan to a
balance in the Share Account under the New Plan will continue to
participate in, and receive benefits pursuant to, the Plan. Directors
first elected after the Effective Time will not be entitled to participate
in, or receive benefits from, the Plan but will only be entitled to
participate in, and receive benefits from, the New Plan. Other than as
amended as provided herein, the Plan shall remain in full force and
effect."
Capitalized terms used herein shall, unless otherwise defined herein, have the
meanings set forth in the Plan.
The foregoing amendment is effective as of the Effective Time.
IN WITNESS WHEREOF, the Company has caused this instrument to be executed by its
duly authorized officers and its corporate seal to be affixed this 15th day of
January, 1997.
ECOLAB INC.
By: /s/ Allan L. Schuman
---------------------------------------
Allan L. Schuman
President and Chief Executive Officer
(Corporate Seal)
ATTEST: /s/ K. A. Iverson
-----------------------------------
K. A. Iverson
Vice President and Secretary
<PAGE>
AMENDMENT NO. 1
TO THE
ECOLAB EXECUTIVE DEATH BENEFITS PLAN
(AS AMENDED AND RESTATED EFFECTIVE MARCH 1, 1994)
Pursuant to Section 1.3 of the Ecolab Executive Death Benefits Plan (As Amended
and Restated Effective March 1, 1994) (the "Plan") and Section 5.1. of the
Ecolab Inc. Administrative Document for Non-Qualified Benefit Plans (the
"Administrative Document"), which is incorporated into the Plan by reference,
Ecolab Inc. (the "Company") hereby amends the Plan as set forth below. Words
and phrases used herein with initial capital letters which are defined in the
Plan or the Administrative Document are used herein as so defined.
1. Section 2.1 of the Plan is hereby amended in its entirety to read as
follows:
"SECTION 2.1. "DEATH BENEFICIARY." An Executive's Death Beneficiary
shall be the person or persons (natural or otherwise) designated by
the Executive as his primary or contingent Death Beneficiary under
this Plan. Such a designation may be made, revoked or changed at any
time (without the consent of any previously designated Death
Beneficiary) only by a written instrument in a form prescribed by the
Administrator (or, if applicable, an insurance company providing
coverage on the Executive's life), signed by the Executive and
delivered to the Administrator (or, if applicable, an insurance
company providing coverage on the Executive's life) during the
Executive's lifetime."
2. Subsection (2)(b) of Section 3.2 of the Plan is hereby amended in its
entirety to read as follows:
"(b) The executive Death Benefit described in paragraph (a) of this
Subsection shall be reduced (but not below zero) by any amount payable
under any life insurance or other death benefit covering the Executive
which is provided by, or payable by or on behalf of a member of the
Controlled Group, or which was funded, directly or indirectly, by a
member of the Controlled Group (by the payment of premiums or
otherwise). If the benefits provided under any such life insurance
contract exceed the Executive Death Benefits described in paragraph
(a) for a particular Executive, such Executive's Death Beneficiary
shall be entitled to receive such additional benefits in addition to
the Executive Death Benefits described herein."
<PAGE>
3. Subsection (2)(b) of Section 3.3 of the Plan is hereby amended in its
entirety to read as follows:
"(b) The executive Death Benefit described in paragraph (a) of this
Subsection shall be reduced (but not below zero) by any amount payable
under any life insurance or other death benefit covering the Executive
which is provided by, or payable by or on behalf of a member of the
Controlled Group, or which was funded, directly or indirectly, by a
member of the Controlled Group (by the payment of premiums or
otherwise). If the benefits provided under any such life insurance
contract exceed the Executive Death Benefits described in paragraph
(a) for a particular Executive, such Executive's Death Beneficiary
shall be entitled to receive such additional benefits in addition to
the Executive Death Benefits described herein."
4. This amendment to the Plan shall be effective as of July 1, 1997.
IN WITNESS WHEREOF, the Company has caused this instrument to be executed by its
authorized officers and its corporate seal affixed, this 11th day of July, 1997.
ECOLAB INC.
By: /s/ Michael E. Shannon
---------------------------------------
(Seal) Michael E. Shannon
Chairman of the Board, Chief Financial
and Administrative Officer
/s/ Kenneth A. Iverson
- ------------------------------
Kenneth A. Iverson
Vice President and Secretary
<PAGE>
ECOLAB
MIRROR SAVINGS PLAN
THIRD 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 4.1(1) of the Plan is hereby amended by adding a new paragraph
(c) to the end thereof, to read as follows:
"(c) Notwithstanding any provision of the Plan to the contrary, if the
payment of all or any portion of an Executive's Account would, in the
sole opinion of the Company on the advice of its counsel, result in a
profit recoverable by the Company under Section 16(b) of the
Securities Exchange Act of 1934, but for the operation of this
paragraph, then such payment (or portion thereof) shall be deferred
and made at the earliest time that such payment (or portion thereof)
would no longer be subject to Section 16(b)."
2. This amendment to the Plan shall be effective as of November 13, 1997.
IN WITNESS WHEREOF, the Company has caused this instrument to be executed by its
authorized officers and its corporate seal affixed, this 11th day of November,
1997.
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>
AMENDMENT NO. 1
TO THE
ECOLAB INC.
ADMINISTRATIVE DOCUMENT
FOR NON-QUALIFIED BENEFIT PLANS
Pursuant to Section 5.1 of the Ecolab Inc. Administrative Document for
Non-Qualified Benefit Plans (the "Administrative Document"), Ecolab Inc. (the
"Company") hereby amends the Administrative Document as set forth below. Words
and phrases used herein with initial capital letters which are defined in the
Administrative Document are used herein as so defined.
1. Section 2.2 of the Administrative Document is hereby amended in its
entirety to read as follows:
"SECTION 2.2. WITHHOLDING/TAXES. To the extent required by applicable
law, the Company shall withhold (or cause to be withheld) from the Benefit
payments any taxes required to be withheld by any federal, state or local
government."
2. Subsection (2) of Section 2.4 of the Administrative Document is hereby
amended in its entirety to read as follows:
"(2) AMBIGUOUS DEATH BENEFICIARY DESIGNATION. In the event that the most
recent Death Beneficiary designation filed prior to the Executive's death
is ambiguous or incapable of reasonable construction, the Administrator may
(in his or her sole discretion) (a) construe such designation in such
manner as the Administrator deems closest to the Executive's intent, (b)
determine that such designation is void and distribute the Benefits as if
the Executive had not filed any designation, or (c) institute proceedings
in a court of competent jurisdiction for construction of such designation
and charge any expenses incurred in such proceedings, including reasonable
attorney's fees, against the Executive's Benefits. Notwithstanding the
foregoing, in the event that any benefits under the Plans are provided by
insurance contracts which are owned by the Executive and under which the
Executives are required to designate a Death Beneficiary, the terms of such
insurance contracts shall govern Death Beneficiary designations with
respect to such Benefits."
3. Section 2.6 of the Administrative Document is hereby amended in its
entirety to read as follows:
"SECTION 2.6. LIABILITY FOR PAYMENT. The Employer by which the Executive
was most recently employed at the time of his termination of
<PAGE>
employment with the Controlled Group shall pay the Benefits (or cause the
Benefits to be paid) to the Executive or his Death Beneficiary under the
Plans. In the event that an Executive transfers employment from one
Employer to another, the Executive's Benefits (and the underlying assets
and liabilities related thereto) shall automatically be transferred from
the Executive's former Employer to the Executive's new Employer."
4. Section 6.1 of the Plan is hereby amended in its entirety to read as
follows:
"SECTION 6.1. NONALIENATION. No right or interest of an Executive or his
Death Beneficiary under any Plan shall be anticipated, assigned (either in
law or in equity) or alienated by the Executive or his Death Beneficiary,
nor shall any such right or interest be subject to attachment, garnishment,
levy, execution or other legal or equitable process or in any manner be
liable for or subject to the debts of any Executive or Death Beneficiary.
The Company shall give no effect to any instrument purporting to alienate
any person's interest in any Benefits under the Plans. Notwithstanding the
foregoing, in the event that any Benefits under the Plans are provided by
insurance contracts which are owned by the Executives, such Executives may
assign ownership of such contracts to any other person(s), to the extent
permitted by law."
5. This amendment to the Administrative Document shall be effective as of July
1, 1997.
IN WITNESS WHEREOF, the Company has caused this instrument to be executed by its
authorized officers and its corporate seal affixed, this 11TH day of July, 1997.
ECOLAB INC.
By: /s/ Michael E. Shannon
-----------------------------------
(Seal) Michael E. Shannon
Chairman of the Board, Chief Financial
and Administrative Officer
/s/ Kenneth A. Iverson
- ------------------------------
Kenneth A. Iverson
Vice President and Secretary
<PAGE>
ECOLAB INC.
ADMINISTRATIVE DOCUMENT
FOR NON-QUALIFIED BENEFIT PLANS
FIRST DECLARATION OF AMENDMENT
Pursuant to Section 5.1 of the Ecolab Inc. Administrative Document for
Non-Qualified Benefit Plans ("Administrative Document"), the Company amends the
Administrative Document as set forth below.
1. Section 2.6 of the Administrative Document is hereby amended by adding the
following sentence to the end thereof.
"Notwithstanding the foregoing, the Company may (but shall not be
required to) guarantee some or all of the obligations of one or more
Employers under any one or all of the Plans, with respect to one or more
Executives or Death Beneficiaries, to the extent determined by the
Company in its sole and absolute discretion."
2. This amendment to the Administrative Document shall be effective as of
November 13, 1997.
IN WITNESS WHEREOF, the Company has caused this instrument to be executed by
its authorized officers and its corporate seal affixed, this 11th day of
November, 1997.
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)R
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. Economic projections and 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,
working capital and inventory, 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>
<PAGE>
FINANCIAL DISCUSSION
The following discussion and analysis provides information that management
believes is useful in understanding the company's operating results, cash flows
and financial condition. The discussion should be read in conjunction with the
consolidated financial statements and related notes.
This financial discussion and other portions of this Annual Report to
Shareholders contain various "Forward-Looking Statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. These statements, which
represent Ecolab's expectations or beliefs concerning various future events, are
based on current expectations that involve a number of risks and uncertainties
which could cause actual results to differ materially from those of such
Forward-Looking Statements. We refer readers to the company's statement entitled
"Forward-Looking Statements and Risk Factors" which is contained under Item 1 of
the Company's Annual Report on Form 10-K for the year ended December 31, 1997.
Additional risk factors may be described from time to time in Ecolab's filings
with the Securities and Exchange Commission.
1997 OVERVIEW
Ecolab achieved another year of exceptionally strong financial results in 1997.
It was the sixth consecutive year of record financial results for the company.
These financial accomplishments were recognized in the marketplace as Ecolab's
stock price increased 47 percent during 1997 and, including cash dividends,
yielded a 49 percent total return to shareholders. The more significant
accomplishments included:
TOTAL RETURN TO SHAREHOLDERS
(Percent)
[GRAPH]
- - For the second year in a row, 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.
- - Consolidated net sales reached a record $1.6 billion, an increase of 10
percent over the prior year.
- - The core Institutional and Food & Beverage operations had strong performances.
As a result, the company's gross profit margin reached 56.0 percent of net sales
and the 1997 operating income margin increased to 13.3 percent of net sales;
both representing record levels.
- - Net income for 1997 increased to a record level of $134 million, or basic net
income per common share of $1.03. During 1997, the company also reported diluted
net income per common share, as required under new accounting standards. For
1997, diluted net income per common share was $1.00, a record high and an 18
percent increase over the prior year.
- - The company continued to realize strong operating cash flows and maintained
moderate debt levels. As a result, 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 a record 25.8 percent. 1997
was the sixth consecutive year that the company exceeded its long-term financial
objective to achieve a 20 percent return on beginning shareholders' equity.
RETURN ON BEGINNING EQUITY
(Percent)
[GRAPH]
- - The company increased its annual dividend rate for the sixth consecutive year.
The annual dividend rate was increased 19 percent to an annual rate of $0.38 per
common share. The company has paid dividends on its common stock for 61
consecutive years.
- - The company's common stock was split two-for-one in the form of a 100 percent
stock dividend paid January 15, 1998 to shareholders of record on December 26,
1997. This was the third such stock split in the last 11 years. All per share
and number of share data included in the 1997 financial report have been
retroactively restated to reflect the stock split, except for the Consolidated
Statement of Shareholders' Equity.
- - The company made several business acquisitions during 1997. At year-end 1997,
the company acquired Gibson Chemical Industries Limited (Gibson) located in
Melbourne, Australia. Gibson is a manufacturer and marketer of cleaning
28
<PAGE>
FINANCIAL DISCUSSION
and sanitizing products, primarily for the Australian and New Zealand
institutional, healthcare and industrial markets. Gibson has been included in
the company's consolidated balance sheet at year-end 1997 and will be included
in the company's consolidated results of operations beginning in 1998. Gibson
had annual sales of approximately $130 million in 1997.
During 1997, the company also added to its Institutional and Food &
Beverage operations in the United States and to its operations in Canada and in
the Central Africa region through business acquisitions.
All of 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. Additional information
related to these acquisitions is included in Note 5 of the notes to consolidated
financial statements.
OPERATING RESULTS
CONSOLIDATED
<TABLE>
<CAPTION>
(thousands, except per share) 1997 1996 1995
- ----------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Net sales $1,640,352 $1,490,009 $1,340,881
Operating income 218,504 185,317 162,686
Net income $ 133,955 $ 113,185 $ 99,189
Net income per common share
Basic $ 1.03 $ 0.88 $ 0.75
Diluted $ 1.00 $ 0.85 $ 0.73
</TABLE>
Consolidated net sales for 1997 were over $1.6 billion, an increase of 10
percent compared to net sales of nearly $1.5 billion in 1996. Both the company's
U.S. and International operations contributed to this sales growth. Business
acquisitions in 1997 and the annualized effect of businesses acquired in 1996
accounted for approximately one-fourth of the growth in sales for 1997. The
growth in sales also reflected the benefits of new product introductions, an
increased sales-and-service force, new customers and competitive gains. A
continuation of generally good conditions in the hospitality and lodging
industries, particularly in the United States, also had a favorable effect on
sales for 1997.
Consolidated
Business Mix
Sales
(Dollars in Millions)
[Graph]
Consolidated operating income increased 18 percent for 1997 and reached
$219 million compared to consolidated operating income of $185 million in 1996.
This growth included the benefits of business acquisitions, which accounted for
approximately 20 percent of the increase. The consolidated operating income
margin was 13.3 percent in 1997, a substantial improvement over the 1996
consolidated operating income margin of 12.4 percent. Most of the company's
businesses contributed to these income improvements; however, strong
performances by the core U.S. Institutional and Food & Beverage businesses
during 1997 were the major contributors to the company's overall profit
improvement. The increase in the operating income margin for 1997 reflected a
substantial increase in the gross profit margin, which was partially offset by a
modest increase in selling, general and administrative expenses as a percentage
of net sales. The gross profit margin improved to 56.0 percent in 1997 from a
gross profit margin of 54.7 percent in 1996. The increase in gross profit margin
reflected higher sales levels of the company's more profitable core U.S.
operations, a more stable raw material cost environment and good sales volume
growth, particularly in the sales of new products. The benefits of selling price
increases continued to be limited due to market pressures. Selling, general and
administrative expenses were 42.7 percent of net sales in 1997, compared to 42.3
percent of net sales in 1996. This increase reflected investments in the
sales-and-service force and the higher sales levels of the core U.S. operations,
which have relatively higher selling expenses. These increases were partially
offset by continued tight cost controls, improved sales productivity levels and
strong sales growth during 1997. The company anticipates that the monetary
problems which began in East Asia in late 1997 will slow the growth of
consolidated operating income results in 1998, particularly early in the year.
However, the impact is expected to be limited unless substantially broader areas
of the Asia Pacific region are affected.
Net income for 1997 reached $134 million, or $1.00 per share on a diluted
basis, and increased 18 percent over last year's net income of $113 million, or
$0.85 per share. Net income improved to 8.2 percent of net sales, compared to
29
<PAGE>
FINANCIAL DISCUSSION
7.6 percent in 1996. The increase in net income reflected the benefits of strong
operating income performance, lower net interest expense and modestly higher
equity in earnings of the Henkel-Ecolab joint venture, which were partially
offset by increased income taxes.
1996 COMPARED WITH 1995
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 U.S. and
International operations contributed to this sales improvement. Businesses
acquired during 1996 and during late 1995 accounted for approximately one-half
of the growth in sales for 1996. New product introductions continued to
contribute significantly to sales growth, with additions to the sales force and
competitive gains 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 benefits of the company's continuing cost-control
efforts more than offset increased raw material costs and limited selling price
increases.
Net income for 1996 was $113 million, an increase of 14 percent 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. Diluted net income per common share was $0.85 for 1996
and increased 16 percent over 1995's diluted net income per common share of
$0.73. The comparison of net income per common share benefited from a smaller
number of average shares outstanding in 1996, principally due to the purchase of
approximately 7 million shares of the company's common stock in mid-1995 under
the terms of a "Dutch auction" self-tender offer.
UNITED STATES
<TABLE>
<CAPTION>
(thousands) 1997 1996 1995
- ----------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Net sales $1,275,828 $1,148,778 $1,030,126
Operating income $ 195,630 $ 164,886 $ 147,330
Percent of sales 15.3% 14.4% 14.3%
</TABLE>
Sales of the company's U.S. operations were nearly $1.3 billion in 1997 and
increased 11 percent over sales of $1.1 billion in 1996. U.S. sales reflected
strong growth in the core Institutional and Food & Beverage operations and in
Pest Elimination sales and included benefits from business acquisitions,
significant new product introductions, new customers and competitive gains,
investments in the sales-and-service force and a continuation of good business
trends in the hospitality and lodging industries. The benefits of selling price
increases continued to be limited due to tight pricing conditions in several of
the markets in which the company does business. Business acquisitions accounted
for approximately 25 percent of U.S. sales growth for 1997. Sales of the U.S.
Institutional Division increased 10 percent for 1997. Institutional's growth
reflected strong sales in all of its business units, significant new customer
business and competitive gains, continued strong growth in its ECOTEMP program
and the successful rollout of its new KEYSTONE product line sold through
partnership with a distributor. The Pest Elimination Division also reported a 10
percent sales growth for 1997, despite increased competitive activity. Pest
Elimination continues to develop new programs to leverage its alliances with
Ecolab's other divisions. Sales of Kay's U.S. operations increased 6 percent for
1997. Kay was unfavorably affected by a more competitive quickservice market;
however, Kay added another major quickservice chain customer in 1997 and had
good growth in sales to the grocery market, which it entered last year. Sales of
the Textile Care Division decreased 3 percent for 1997. Continued plant
consolidations, particularly in laundries serving the healthcare market,
increased competitive activity and comparison against periods that benefited
significantly from new product introductions unfavorably affected Textile Care's
sales growth. The company expects the U.S. Textile Care
UNITED STATES
BUSINESS MIX
SALES
(Dollars in Millions)
[GRAPH]
30
<PAGE>
FINANCIAL DISCUSSION
business to continue to experience challenging market conditions over the near
term. The Professional Products Division reported sales growth of 12 percent for
1997. This sales improvement reflected last year's acquisition of Huntington
Laboratories, good growth in sales to corporate accounts, and the addition of
new products to its commercial mass distribution line. Sales of the company's
Water Care Services Division were down 2 percent for 1997 and reflected the
elimination of low margin business, consolidation of business acquisitions made
over the past three years, integration of disparate product lines, and the
refining of sales efforts. The Food & Beverage Division reported a sales
increase of 24 percent for 1997. Food & Beverage sales growth included the
benefits of Chemidyne, a provider of cleaning and sanitizing products and
equipment to the meat, poultry and processed food markets, which was acquired in
August 1997, and the annualized effect of the acquisition of Monarch in August
of 1996. Excluding these business acquisitions, Food & Beverage sales growth was
9 percent for 1997 and included growth in sales to all of its markets with
double-digit growth in sales to the food processing and beverage markets.
Operating income for the company's U.S. operations reached $196 million, an
increase of 19 percent over operating income of $165 million in 1996. Business
acquisitions accounted for approximately 20 percent of U.S. operating income
growth for 1997. With the exception of the Textile Care Division, all of the
company's U.S. businesses reported increased operating income, with particularly
strong growth in the core Institutional and Food & Beverage operations. The U.S.
operating income margin improved to 15.3 percent of net sales from 14.4 percent
in 1996. The improved operating income margin reflected the benefits of strong
core business sales, sales of new products, stable raw material costs, sales
productivity improvements and tight cost controls, which were partially offset
by investments in the sales-and-service force. During 1997, the company added
approximately 285 sales-and-service personnel, including Chemidyne associates.
1996 COMPARED WITH 1995
Sales of the company's U.S. operations exceeded $1.1 billion in 1996, an
increase of 12 percent over U.S. sales of $1.0 billion in 1995. U.S. sales
growth reflected business acquisitions and the benefits of significant new
product introductions. Business acquisitions accounted for approximately
one-half of the increase in U.S. 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 12 percent over the prior year,
reflecting new business and a continued high retention of key customers. Kay's
U.S. 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 nearly doubled due to the February 1996 acquisition of
Huntington Laboratories. Excluding sales of the Huntington operations,
Professional Products sales for 1996 increased 3 percent over 1995, principally
due to sales growth of its Airkem products. Sales of the Food & 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 & 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 U.S. 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 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 operating income margin reflected higher sales levels,
sales productivity gains and the benefits of company-wide cost-control programs.
31
<PAGE>
FINANCIAL DISCUSSION
INTERNATIONAL
<TABLE>
<CAPTION>
(thousands) 1997 1996 1995
- --------------------------------- -------- -------- --------
<S> <C> <C> <C>
Net sales $364,524 $341,231 $310,755
Operating income $ 26,962 $ 23,871 $ 19,580
Percent of sales 7.4% 7.0% 6.3%
</TABLE>
The company's International business consists of established major
operations in Asia Pacific, Latin America and Canada. In addition, on a smaller
scale, Kay serves various international markets and the company has start-up
operations in Africa and serves various international locations through its
export business. Net sales of the company's International operations totaled
$365 million for 1997, which represented growth of 7 percent over sales of $341
million in 1996. International sales growth included benefits of business
acquisitions and significant new product introductions. Businesses acquired in
Canada and Africa in 1997 and the annualization of 1996 Canadian business
acquisitions accounted for approximately 50 percent of International's sales
growth for 1997. Changes in currency translation had a negative impact on
reported sales, particularly in the Asia Pacific region. Excluding the effects
of currency translation, sales of International operations increased 11 percent
for 1997. The Asia Pacific region, International's largest operation, reported
sales growth of 2 percent for 1997. However, when measured in local currencies,
Asia Pacific had sales growth of 9 percent with double-digit growth in Japan,
modest growth in New Zealand and flat results in Australia. Asia Pacific sales
to institutional markets increased at double-digit rates and the region recorded
good growth in sales to the food and beverage markets. The acquisition of
Gibson, primarily serving the Australian and New Zealand institutional,
healthcare and industrial markets, was effective at year-end 1997 and will add
significantly to the company's operations in the Asia Pacific region in 1998.
Latin America reported U.S. dollar sales growth of 9 percent for 1997. The
effects of changes in currency translation did not have a significant impact on
Latin America's reported sales. Growth in the Latin America region was led by
Mexico with significant double-digit growth and included good growth in Brazil.
The region reported double-digit growth in sales to the food and beverage
markets and good growth in Institutional sales. Canada reported sales growth of
15 percent for 1997, which included a modest negative impact from changes in
currency translation. Approximately 70 percent of Canada's sales growth was due
to business acquisitions. Canada's results also included good growth in sales to
the institutional and food and beverage markets. Overall International sales
results for 1997 included the benefits of business acquisitions in Central
Africa during 1997 and good growth in sales of Kay's international operations.
Sales in South Africa decreased during 1997, principally due to the elimination
of low margin business.
INTERNATIONAL
BUSINESS MIX
SALES
(Dollars in Millions)
[GRAPH]
Operating income for International's operations totaled $27 million in
1997, an increase of 13 percent over operating income of $24 million in 1996.
Business acquisitions accounted for approximately 40 percent of the growth in
International's operating income for 1997. Excluding the effects of currency
translation, International operating income growth was 21 percent for 1997.
Reported operating income margins improved to 7.4 percent of net sales in
1997 compared with 7.0 percent in 1996. Double-digit operating income growth
in Asia Pacific and Canada more than offset a decrease in operating income in
the Latin America region, which was principally due to investments in Brazil
and Argentina. The company expects the monetary problems that began in East
Asia in late 1997 to impact the Asia Pacific region in 1998. Although the
company's operations in the areas primarily affected are limited, the company
is cautious about growth for the year due to the uncertain economic
conditions in the region.
Operating income margins of the company's International operations are
substantially less than the operating income margins realized for the company's
U.S. 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.
1996 COMPARED WITH 1995
Total revenues for International operations of $341 million in 1996 increased 10
percent over revenues 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. Asia Pacific reported sales
growth of 4 percent for 1996. When measured in local currencies, the Asia
Pacific region had sales
32
<PAGE>
FINANCIAL DISCUSSION
growth of 9 percent, with double-digit growth in Japan and New Zealand and
modest growth in Australia. Reported sales of the Latin America region 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.
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.
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 1997, a 3 percent increase over 1996. Results were negatively affected by the
stronger U.S. dollar. When measured in Deutsche marks, net income of the joint
venture increased 11 percent and reflected increased sales, improved gross
margins and lower interest expense, partially offset by investments in the
sales-and-service force.
Joint venture sales, although not consolidated in Ecolab's financial
statements, increased 7 percent for 1997 when measured in Deutsche marks and
included the benefits of a business acquisition, benefits of new product
transfers from Ecolab to the joint venture and good sales to the institutional
and food hygiene markets. When measured in U.S. dollars, however, joint venture
sales for 1997 decreased 7 percent.
HENKEL-ECOLAB
BUSINESS MIX
ECOLAB'S EQUITY
IN EARNINGS
(Dollars in Millions)
[GRAPH]
1996 COMPARED WITH 1995
The company's equity in earnings of the Henkel-Ecolab joint venture was $13
million for 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
that 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 revenues 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.
CORPORATE
Corporate operating expense was $4 million in 1997, $3 million in 1996 and $4
million in 1995. Corporate operating expense includes overhead costs directly
related to the joint venture.
INTEREST AND INCOME TAXES
Net interest expense decreased 12 percent to less than $13 million in 1997,
compared to net interest expense of over $14 million in 1996. This decrease was
principally due to a scheduled debt repayment on the company's 9.68 percent
senior notes and to increased interest income earned on higher average levels of
cash and cash equivalents held during 1997. The company anticipates that its net
interest expense will increase substantially for 1998 compared with 1997 levels,
due to borrowings incurred under the Multicurrency Credit Agreement in late 1997
for the Gibson acquisition.
Net interest expense for 1996 increased 25 percent over net interest
expense of $12 million 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.
33
<PAGE>
FINANCIAL DISCUSSION
The company's annual effective income tax rate was 41.5 percent for 1997, a
modest increase from the 1996 effective income tax rate of 41.4 percent. This
increase was due to a slightly higher overall effective rate on earnings of
International operations. 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 company's annual effective income tax rate of 41.4 percent in 1996
increased from 39.5 percent in 1995. The increase in the effective income tax
rate for 1996 was primarily due to a higher overall effective rate on earnings
of International operations and to the effects of business acquisitions.
As a result of tax losses on the disposition of a discontinued business in
1992, the company's U.S. federal income tax payments were reduced in 1995 and
prior years by a total of approximately $58 million, including $3 million in
1995. 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.
YEAR 2000 CONVERSION
The "year 2000" issue is the result of computer programs having date-sensitive
software which may recognize a date using "00" as the year 1900 rather than the
year 2000. This can result in system failure or miscalculations. The company
recognizes the need to ensure that its operations will not be adversely affected
by year 2000 issues and is establishing processes which it believes will be
sufficient to evaluate and manage risks associated with the problem.
The company has largely completed a review of year 2000 compliance for its
critical operating and application systems, particularly customer-oriented
systems such as sales and order processing, billing and collections. As a
result, the company has determined that it will be required to modify or replace
significant portions of its software. This process is in progress and the
intention is to complete it by the end of 1998. The costs are not expected to be
significant.
The company is also in the process of analyzing its dispensing and cleaning
systems and its manufacturing and building maintenance operations for dependence
on date-sensitive software to identify and resolve any relevant issues in
advance of the year 2000. Although a final cost estimate has not been
determined, at this time the company does not believe the cost will be material.
The company has begun the process of surveying key suppliers, vendors and
customers to determine the status of such third parties' year 2000 remediation
plans. If the company were to determine that a supplier, vendor or customer will
not be able to remediate its year 2000 issue, the company would anticipate
taking such steps as it reasonably could to mitigate the effects.
As part of its year 2000 process the company anticipates testing its
systems for compliance; however, at this time only limited testing has occurred.
Risks and uncertainties associated with the year 2000 conversion are
discussed in the company's Form 10-K for the year ended December 31, 1997 under
the heading "Forward-Looking Statements and Risk Factors".
FINANCIAL POSITION, CASH FLOWS AND LIQUIDITY
FINANCIAL POSITION
The company reached its long-term financial objective of an investment grade
balance sheet in 1993 and has continued to maintain this objective for the last
five years. The company's debt was rated within the "A" categories by the major
rating agencies during 1997. Significant changes to the company's balance sheet
during 1997 included the following:
- - The company's balance sheet as of December 31, 1997 reflected the assets and
liabilities of Gibson and the other businesses acquired during 1997. The
increase in other noncurrent assets from year-end 1996 was principally due to
these acquisitions. Significant levels of accounts receivable, inventories,
property, plant and equipment and other current liabilities were also added
during 1997 as a result of these business acquisitions.
- - Total debt was $308 million as of December 31, 1997 and increased from total
debt of $176 million at year-end 1996 and $161 million at year-end 1995. The
increase in total debt during 1997 included $116 million of borrowings incurred
under the company's Multicurrency Credit Agreement to finance the purchase of
the outstanding common shares of Gibson, and $22 million of debt which was
included on Gibson's balance sheet at the time of acquisition. As of December
31, 1997, the ratio of total debt to capitalization was 36 percent, compared to
25 percent at year-end 1996 and 26 percent at year-end 1995.
TOTAL DEBT TO
CAPITALIZATION
[GRAPH]
34
<PAGE>
FINANCIAL DISCUSSION
In late 1997, the company amended and restated its $225 million
Multicurrency Credit Agreement in order to provide for financing of the Gibson
acquisition. The amended and restated agreement increased the credit available
to $275 million, extended the term one year to September 2002 and specifically
provided for anticipated borrowings of Australian dollars.
- - Working capital was $105 million at December 31, 1997, compared with working
capital of $108 million at year-end 1996 and $48 million at year-end 1995. 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.
- - The lower level of the company's investment in the Henkel-Ecolab joint venture
at year-end 1997 was principally due to the effects of changes in currency
translation and dividends which were received from the joint venture.
- - Other noncurrent liabilities were $125 million at December 31, 1997 and
decreased from year-end 1996 due to an income tax deposit made against
outstanding federal income tax issues.
- - The company capitalizes certain costs of computer software developed or
obtained for internal use. The amounts capitalized are not significant and the
company's policy for the capitalization of these costs is consistent with the
guidelines included in the American Institute of Certified Public Accountants
recent Statement of Position for accounting for costs of computer software
developed or obtained for internal use.
CASH FLOWS
For 1997, the company generated $235 million of cash from continuing operating
activities, compared with $254 million in 1996 and $163 million in 1995. The
decrease in operating cash flows from 1996 reflected the reversal of favorable
timing of payments, which affected the fourth quarter of 1996 and an income tax
deposit made in 1997 against outstanding federal income tax issues that had been
accrued for in other noncurrent liabilities. The decrease also reflected
favorable cash flows during 1996 from the collection of accounts receivable
related to strong fourth quarter 1995 sales. The comparison of cash provided by
continuing operating activities was favorably affected by increased earnings
during 1997 and higher dividends received from the Henkel-Ecolab joint venture.
CASH FROM CONTINUING OPERATING ACTIVITIES
(Dollars in Millions)
[GRAPH]
Cash provided by discontinued operations in 1995 reflects a reduction in
income tax payments as a result of the loss on the disposition of a discontinued
business.
Cash flows used for investing activities included capital expenditures of
$122 million in 1997, $112 million in 1996 and $110 million in 1995. Worldwide
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 over the
last two years through construction and business acquisitions in order to meet
sales requirements more efficiently. Cash was also used in 1997 for business
acquisitions, primarily Gibson and Chemidyne.
Cash provided by financing activities included $116 million of debt
incurred under the Multicurrency Credit Agreement to acquire Gibson. Strong
operating cash flows were used to provide cash for shares reacquired, cash
dividends and a scheduled repayment on the company's 9.68 percent senior notes.
In 1997, the company increased its annual dividend rate for the sixth
consecutive year. The company has paid dividends on its common stock for 61
consecutive years. Cash dividends declared per share of common stock, by
quarter, for each of the last three years were as follows:
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
- ---------- ------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
1997 $0.08 $0.08 $0.08 $0.095 $0.335
1996 0.07 0.07 0.07 0.08 0.29
1995 0.0625 0.0625 0.0625 0.07 0.2575
</TABLE>
LIQUIDITY
The company maintains a committed line of credit under the Multicurrency Credit
Agreement for general corporate financing needs. The agreement includes a
competitive bid feature to minimize the cost of the company's borrowings. The
company also has a $200 million shelf registration as an alternative source of
liquidity. The company believes its existing cash balances, cash generated by
operating activities, including cash flows from the joint venture, and available
credit are adequate to fund all of its 1998 requirements for growth, possible
acquisitions, new program investments, scheduled debt repayments and dividend
payments.
35
<PAGE>
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Year ended December 31 (thousands, except per share) 1997 1996 1995
- ------------------------------------------------------------------ ---------- ----------
<S> <C> <C> <C>
Net Sales $1,640,352 $1,490,009 $1,340,881
Cost of Sales 722,084 674,953 603,167
Selling, General and Administrative Expenses 699,764 629,739 575,028
---------- ---------- ----------
Operating Income 218,504 185,317 162,686
Interest Expense, Net 12,637 14,372 11,505
---------- ---------- ----------
Income Before Income Taxes and Equity in
Earnings of Joint Venture 205,867 170,945 151,181
Provision for Income Taxes 85,345 70,771 59,694
Equity in Earnings of Henkel-Ecolab
Joint Venture 13,433 13,011 7,702
---------- ---------- ----------
Net Income $ 133,955 $ 113,185 $ 99,189
---------- ---------- ----------
---------- ---------- ----------
Net Income Per Common Share
Basic $ 1.03 $ 0.88 $ 0.75
Diluted $ 1.00 $ 0.85 $ 0.73
Weighted Average Common Shares Outstanding
Basic 129,446 128,991 132,193
Diluted 133,822 132,817 134,956
</TABLE>
See notes to consolidated financial statements.
36
<PAGE>
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31 (thousands, except per share) 1997 1996 1995
- ----------------------------------------------------------------------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 61,169 $ 69,275 $ 24,718
Accounts receivable, net 246,041 205,026 198,432
Inventories 154,831 122,248 106,117
Deferred income taxes 34,978 29,344 21,617
Other current assets 12,482 9,614 7,188
---------- ---------- -----------
Current Assets 509,501 435,507 358,072
Property, Plant and Equipment, Net 395,562 332,314 292,937
Investment in Henkel-Ecolab Joint Venture 239,879 285,237 302,298
Other Assets 271,357 155,351 107,573
---------- ---------- -----------
Total Assets $1,416,299 $1,208,409 $1,060,880
---------- ---------- -----------
---------- ---------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term debt $ 48,884 $ 27,609 $ 71,647
Accounts payable 130,682 103,803 81,931
Compensation and benefits 74,317 71,533 59,766
Income taxes 13,506 26,977 18,248
Other current liabilities 137,075 97,849 78,946
---------- ---------- -----------
Current Liabilities 404,464 327,771 310,538
Long-Term Debt 259,384 148,683 89,402
Postretirement Health Care and Pension Benefits 76,109 73,577 70,666
Other Liabilities 124,641 138,415 133,616
Shareholders' Equity (common stock,
par value $1.00 per share; shares
outstanding: 1997 - 129,127;
1996 - 129,600; 1995 - 129,403) 551,701 519,963 456,658
---------- ---------- -----------
Total Liabilities and Shareholders' Equity $1,416,299 $1,208,409 $1,060,880
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31 (thousands) 1997 1996 1995
- ----------------------------------------------------------------------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $133,955 $113,185 $ 99,189
Adjustments to reconcile net income
to cash provided by operating activities:
Depreciation 84,415 75,185 64,651
Amortization 16,464 14,338 11,628
Deferred income taxes (2,074) (6,878) (759)
Equity in earnings of joint venture (13,433) (13,011) (7,702)
Joint venture royalties and dividends 25,367 15,769 5,610
Other, net 4,630 1,023 801
Changes in operating assets and liabilities:
Accounts receivable (21,231) 2,809 (26,843)
Inventories (14,395) (6,852) (4,136)
Other assets (10,993) (5,255) (11,371)
Accounts payable 20,876 16,397 4,561
Other liabilities 11,517 47,559 27,834
-------- -------- --------
Cash provided by continuing operations 235,098 254,269 163,463
Cash provided by discontinued operations 3,000
-------- -------- --------
Cash provided by operating activities 235,098 254,269 166,463
-------- -------- --------
INVESTING ACTIVITIES
Capital expenditures (121,667) (111,518) (109,894)
Property disposals 3,424 3,284 1,806
Sale of investments in securities 4,007
Businesses acquired (157,234) (54,911) (26,437)
Other, net (1,240) (1,449) 6,991
-------- -------- --------
Cash used for investing activities (276,717) (164,594) (123,527)
-------- -------- --------
FINANCING ACTIVITIES
Notes payable 9,280 (42,045) 29,355
Long-term debt borrowings 117,000 75,000 2,141
Long-term debt repayments (15,210) (35,690) (20,060)
Reacquired shares (60,795) (22,790) (90,391)
Cash dividends on common stock (41,456) (36,096) (33,114)
Other, net 26,278 17,088 (4,561)
-------- -------- --------
Cash provided by (used for) financing activities 35,097 (44,533) (116,630)
-------- -------- --------
Effect of exchange rate changes on cash (1,584) (585) 157
-------- -------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (8,106) 44,557 (73,537)
Cash and cash equivalents,
beginning of year 69,275 24,718 98,255
-------- -------- --------
Cash and cash equivalents,
end of year $ 61,169 $ 69,275 $ 24,718
-------- -------- --------
-------- -------- --------
</TABLE>
Bracketed amounts indicate a use of cash.
See notes to consolidated financial statements.
38
<PAGE>
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional Deferred
Common Paid-in Retained Compen- Cumulative Treasury
(thousands) Stock Capital Earnings sation Translation Stock Total
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE DECEMBER 31, 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
Net income 133,955 133,955
Cash dividends on common stock (43,367) (43,367)
Stock options 648 15,877 16,525
Stock awards 5,093 (5,200) 1,427 1,320
Business acquisitions 12,454 3,946 16,400
Reacquired shares (60,795) (60,795)
Amortization 3,430 3,430
Translation (35,730) (35,730)
Stock dividend 71,398 (71,398)
-------- -------- -------- -------- -------- --------- ---------
BALANCE DECEMBER 31, 1997 $142,797 $149,137 $494,950 $ (9,160) $(28,943) $(197,080) $551,701
-------- -------- -------- -------- -------- --------- ---------
-------- -------- -------- -------- -------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
COMMON STOCK ACTIVITY
1997 1996 1995
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 70,750,741 (5,950,518) 70,078,398 (5,376,917) 69,659,101 (1,988,427)
Stock options 648,085 672,343 419,297
Stock awards 124,440 150,010 198,314
Business acquisitions 308,343
Reacquired shares (1,317,077) (723,611) (3,586,804)
Stock dividend 71,397,826 (6,834,812)
----------- ----------- --------- ---------- ---------- -----------
Shares, end of year 142,796,652 (13,669,624) 70,750,741 (5,950,518) 70,078,398 (5,376,917)
-------------------------- ------------------------- --------------------------
-------------------------- ------------------------- --------------------------
</TABLE>
See notes to consolidated financial statements.
<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 40 percent, 44 percent and 38 percent of consolidated
inventories at year-end 1997, 1996 and 1995, 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 COMMON SHARE
In the fourth quarter of 1997, the company adopted Statement of Financial
Accounting Standards No. 128, a new standard of computing and presenting both
basic and diluted net income per common share amounts. All prior periods have
been changed to conform with the new presentation. However, basic and diluted
net income per share amounts are generally consistent with net income per share
amounts previously reported.
The computation of the basic and diluted per share amounts were as follows:
<TABLE>
<CAPTION>
(thousands, except per share) 1997 1996 1995
- ---------------------------- -------- -------- --------
<S> <C> <C> <C>
Net income $133,955 $113,185 $ 99,189
-------- -------- --------
-------- -------- --------
Weighted average common
shares outstanding
Basic (actual shares
outstanding) 129,446 128,991 132,193
Effect of dilutive
stock options 4,376 3,826 2,763
-------- -------- --------
Diluted 133,822 132,817 134,956
-------- -------- --------
-------- -------- --------
Net income per common share
Basic $ 1.03 $ 0.88 $ 0.75
Diluted $ 1.00 $ 0.85 $ 0.73
</TABLE>
Virtually all stock options outstanding for each of these periods were
dilutive and included in the calculation of the diluted per share amounts.
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. Actual
results could differ from these estimates.
40
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
December 31 (thousands) 1997 1996 1995
- ------------------------------- --------- --------- ---------
<S> <C> <C> <C>
ACCOUNTS RECEIVABLE, NET
Accounts receivable $ 256,919 $ 214,369 $ 206,763
Allowance for doubtful accounts (10,878) (9,343) (8,331)
--------- --------- ---------
Total $ 246,041 $ 205,026 $ 198,432
--------- --------- ---------
--------- --------- ---------
INVENTORIES
Finished goods $ 67,823 $ 52,232 $ 47,035
Raw materials and parts 89,716 73,060 62,132
Excess of fifo cost over lifo cost (2,708) (3,044) (3,050)
--------- --------- ---------
Total $ 154,831 $ 122,248 $ 106,117
--------- --------- ---------
--------- --------- ---------
PROPERTY, PLANT AND EQUIPMENT, NET
Land $ 18,184 $ 7,969 $ 6,941
Buildings and leaseholds 145,021 129,781 117,042
Machinery and equipment 232,940 208,704 188,453
Merchandising equipment 379,531 330,277 292,962
Construction in progress 19,862 11,745 14,571
--------- --------- ---------
795,538 688,476 619,969
Accumulated depreciation
and amortization (399,976) (356,162) (327,032)
--------- --------- ---------
Total $ 395,562 $ 332,314 $ 292,937
--------- --------- ---------
--------- --------- ---------
OTHER ASSETS
Intangible assets, net $ 217,120 $ 96,865 $ 50,773
Investments in securities 5,000 5,000 5,000
Deferred income taxes 23,444 26,582 27,383
Other 25,793 26,904 24,417
--------- --------- ---------
Total $ 271,357 $ 155,351 $ 107,573
--------- --------- ---------
--------- --------- ---------
SHORT-TERM DEBT
Notes payable $ 33,440 $ 12,333 $ 54,950
Long-term debt,
current maturities 15,444 15,276 16,697
--------- --------- ---------
Total $ 48,884 $ 27,609 $ 71,647
--------- --------- ---------
--------- --------- ---------
LONG-TERM DEBT
7.19% senior notes, due 2006 $ 75,000 $ 75,000 $
9.68% senior notes,
due 1995-2001 57,143 71,429 85,714
Multicurrency Credit
Agreement, due 2002 116,450
Other 26,235 17,530 20,385
--------- --------- ---------
274,828 163,959 106,099
Long-term debt,
current maturities (15,444) (15,276) (16,697)
--------- --------- ---------
Total $ 259,384 $ 148,683 $ 89,402
--------- --------- ---------
--------- --------- ---------
</TABLE>
The 9.68 percent senior notes include covenants regarding consolidated
shareholders' equity and amounts of certain long-term debt.
In late 1997, the company amended and restated its $225 million
Multicurrency Credit Agreement, increasing the credit available to $275 million,
extending the term one year to September 2002, and specifically providing for
anticipated borrowings of Australian dollars to acquire the outstanding shares
of Gibson Chemical Industries Limited, as described in Note 5. The terms of the
amended and restated agreement are otherwise generally similar to the agreement
which it replaced. 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. The agreement includes a covenant regarding
the ratio of total debt to capitalization. Amounts outstanding under the
agreement at year-end 1997 were denominated in Australian dollars and had an
average annual interest rate of 5.2 percent.
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
5.4 percent for 1997, 5.1 percent for 1996 and 6.3 percent for 1995.
As of December 31, 1997, the aggregate annual maturities of long-term debt
for the next five years were: 1998 - $15,444,000; 1999 - $15,184,000; 2000 -
$15,155,000; 2001 - $14,988,000 and 2002 - $126,770,000.
Interest expense was $18,043,000 in 1997, $19,084,000 in 1996 and
$15,857,000 in 1995. Total interest paid was $18,168,000 in 1997, $16,897,000 in
1996 and $16,170,000 in 1995.
Other noncurrent liabilities included income taxes payable of $82 million
at December 31, 1997, $100 million at December 31, 1996 and $96 million at
December 31, 1995. 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.
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 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.
41
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. FINANCIAL INSTRUMENTS (continued)
The company had foreign currency forward exchange contracts with a face amount
denominated primarily in Deutsche marks and totaling approximately $70 million
at December 31, 1997, $115 million at December 31, 1996 and $125 million at
December 31, 1995. 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 were:
<TABLE>
<CAPTION>
December 31 (thousands) 1997 1996 1995
- ----------------------------- -------- -------- ---------
<S> <C> <C> <C>
Carrying amount
Cash and cash equivalents $ 61,169 $ 69,275 $24,718
Long-term investments
in securities 5,000 5,000 5,000
Short-term debt 48,884 27,609 71,647
Long-term debt 259,384 148,683 89,402
Fair value
Long-term debt $266,926 $155,558 $98,513
</TABLE>
The carrying amounts of cash equivalents and short-term debt approximate
fair value because of their short maturities.
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
GIBSON BUSINESS ACQUISITION
In October 1997, the company made a public tender offer for all of the
outstanding stock of Gibson Chemical Industries Limited (Gibson) located in
Melbourne, Australia. Gibson is a manufacturer and marketer of cleaning and
sanitizing products, primarily for the Australian and New Zealand
institutional, healthcare and industrial markets. On November 5, 1997, the
company waived all of the remaining conditions to its tender offer and,
effective November 30, 1997, had acquired substantially all of the
outstanding Gibson shares.
The acquisition has been accounted for as a purchase. The purchase price of
the shares and the direct costs of the transaction totaled approximately $130
million and were financed through the company's Multicurrency Credit Agreement.
The company's international subsidiaries are included in the financial
statements on the basis of their November 30 fiscal year ends, and, therefore,
Gibson's operations are not included in the company's Consolidated Statement of
Income for 1997. The assets acquired and the liabilities assumed in the
transaction are included in the company's Consolidated Balance Sheet as of the
November 30 effective date.
The company's plan for integration is not complete and, therefore, the
allocation of the purchase price to the assets acquired and the liabilities
assumed is preliminary. The significant open issues in the integration plan are
the determination of which of the acquired businesses may not be retained, and
decisions relative to certain duplicate facilities. Management expects the
integration plan to be completed near the end of the first quarter of 1998.
The following unaudited pro forma financial information reflects the
combined results of the company and Gibson assuming the acquisition had occurred
at the beginning of 1997.
<TABLE>
<CAPTION>
(thousands, except per share) 1997
- ------------------------------------ ----------
<S> <C>
Net sales $1,769,590
Net income 133,454
Diluted net income per common share $ 1.00
</TABLE>
The pro forma results are presented for information purposes only and
include all of the acquired Gibson businesses and the preliminary purchase
accounting as described above. Therefore, the pro forma results do not reflect
any purchase accounting refinements that may arise when the integration plan is
completed and approved. At that time, the pro forma results for Gibson will be
adjusted to reflect the final plan.
OTHER BUSINESS ACQUISITIONS
In January 1997, the company acquired three small institutional and food
and beverage businesses in the Central Africa region. Sales of the acquired
businesses were approximately $6 million in 1996.
In March 1997, the company acquired the institutional, food and beverage
and commercial laundry cleaning and sanitizing businesses of the Savolite Group,
which is based in Vancouver, British Columbia, Canada. The acquired Savolite
businesses complement the company's operations, primarily in Canada, with
limited operations also in the U.S. Pacific Northwest. Sales of the acquired
Savolite businesses were approximately $8 million in 1996.
In August 1997, the company acquired the Chemidyne Marketing Division of
Chemidyne Corp. in Macedonia, Ohio. Chemidyne Marketing is a provider of
cleaning and sanitizing products and equipment to the meat, poultry and
processed food markets in the United States. Chemidyne Marketing has become part
of the company's Food & Beverage Division. Sales of the acquired Chemidyne
business were approximately $17 million in 1996.
42
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In December 1997, the company issued common stock to purchase the specialty
chemical business of Grace-Lee Products Incorporated, a Minneapolis,
Minnesota-based manufacturer and marketer of cleaning products for the U.S.
industrial market. Sales of the business acquired, which primarily serves the
vehicle wash market, were approximately $16 million in 1996. The acquired
Grace-Lee business has become part of the company's Institutional 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. Net sales and operating income of
these businesses were not significant.
6. HENKEL-ECOLAB JOINT VENTURE
The company and Henkel KGaA, Dusseldorf, Germany, each own 50 percent of
Henkel-Ecolab, a joint venture of their respective European institutional and
industrial cleaning and sanitizing businesses. The joint venture's operations
and the company's equity in earnings of the joint venture included:
<TABLE>
<CAPTION>
(thousands) 1997 1996 1995
- -------------------------------------- -------- -------- --------
<S> <C> <C> <C>
Joint venture
Net sales $844,689 $905,402 $909,196
Gross profit 470,698 497,909 502,849
Income before income taxes 63,640 65,091 44,392
Net income $ 33,701 $ 34,808 $ 22,406
Ecolab equity in earnings
Ecolab equity in net income $ 16,851 $ 17,404 $ 11,203
Ecolab royalty income from joint
venture, net of income taxes 4,583 4,730 5,814
Amortization expense for the
excess of cost over the
underlying net assets of
the joint venture (8,001) (9,123) (9,315)
-------- -------- --------
Equity in earnings of Henkel-
Ecolab joint venture $ 13,433 $ 13,011 $ 7,702
-------- -------- --------
-------- -------- --------
</TABLE>
The company's investment in the Henkel-Ecolab joint venture includes the
unamortized excess of the company's investment over its equity in the joint
venture's net assets. This excess was $145 million at December 31, 1997, and is
being amortized on a straight-line basis over estimated economic useful lives of
up to 30 years.
Condensed balance sheet information for the Henkel-Ecolab joint venture
was:
<TABLE>
<CAPTION>
December 31 (thousands) 1997 1996 1995
- ------------------------------ -------- -------- --------
<S> <C> <C> <C>
Current assets $345,692 $425,225 $393,391
Noncurrent assets 145,601 142,227 145,722
Current liabilities 224,155 309,599 247,980
Noncurrent liabilities $ 77,303 $ 75,360 $ 71,119
</TABLE>
7. INCOME TAXES
Income before income taxes and equity in earnings of joint venture consisted of:
<TABLE>
<CAPTION>
(thousands) 1997 1996 1995
- ---------------------------- -------- -------- --------
<S> <C> <C> <C>
Domestic $173,851 $144,888 $123,628
Foreign 32,016 26,057 27,553
-------- -------- --------
Total $205,867 $170,945 $151,181
-------- -------- --------
-------- -------- --------
</TABLE>
The provision for income taxes consisted of:
<TABLE>
<CAPTION>
(thousands) 1997 1996 1995
- --------------------------------- -------- -------- --------
<S> <C> <C> <C>
Federal and state $ 76,399 $ 66,868 $ 52,473
Foreign 11,020 10,781 7,980
-------- -------- --------
Currently payable 87,419 77,649 60,453
-------- -------- --------
Federal and state (3,675) (6,748) 74
Foreign 1,601 (130) (833)
-------- -------- --------
Deferred (2,074) (6,878) (759)
-------- -------- --------
Provision for income taxes $ 85,345 $ 70,771 $ 59,694
-------- -------- --------
-------- -------- --------
</TABLE>
The company's overall net deferred tax assets (current and noncurrent) were
comprised of the following:
<TABLE>
<CAPTION>
December 31 (thousands) 1997 1996 1995
- ------------------------------------- -------- -------- --------
<S> <C> <C> <C>
Deferred tax assets
Postretirement health care
and pension benefits $ 30,991 $ 29,596 $ 28,689
Other accrued liabilities 41,611 39,151 28,339
Loss carryforwards 3,541 4,780 5,482
Other, net 12,766 8,814 9,209
Valuation allowance (1,462) (1,462) (1,462)
-------- -------- --------
Total 87,447 80,879 70,257
-------- -------- --------
Deferred tax liabilities
Property, plant and equipment
basis differences 27,606 23,496 19,524
Other, net 1,419 1,457 1,733
-------- -------- --------
Total 29,025 24,953 21,257
-------- -------- --------
Net deferred tax assets $ 58,422 $ 55,926 $ 49,000
-------- -------- --------
-------- -------- --------
</TABLE>
A reconciliation of the statutory U.S. federal income tax rate to the
company's effective income tax rate was:
<TABLE>
<CAPTION>
1997 1996 1995
- ------------------------------- -------- -------- --------
<S> <C> <C> <C>
Statutory U.S. rate 35.0% 35.0% 35.0%
State income taxes, net of
federal benefit 4.2 4.2 4.2
Foreign operations .6 .5 (1.2)
Other, net 1.7 1.7 1.5
-------- -------- --------
Effective income tax rate 41.5% 41.4% 39.5%
-------- -------- --------
-------- -------- --------
</TABLE>
Cash paid for income taxes was approximately $100 million in 1997, $72
million in 1996 and $55 million in 1995. As a result of tax losses on the
disposition of a discontinued business in 1992, the company's U.S. federal
income tax payments were reduced in 1995 and prior years by a total of
approximately
43
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. INCOME TAXES (continued)
$58 million, including $3 million in 1995. 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, 1997, undistributed earnings of international
subsidiaries and the Henkel-Ecolab joint venture of approximately $43 million
and $46 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:
<TABLE>
<CAPTION>
(thousands) 1997 1996 1995
- ---------------------------------- -------- -------- --------
<S> <C> <C> <C>
Service cost -- employee benefits
earned during the year $ 13,330 $ 12,615 $ 9,878
Interest cost on projected
benefit obligation 18,371 16,084 14,481
Actual return on plan assets (28,531) (20,389) (27,356)
Net amortization and deferral 13,257 7,542 15,430
-------- -------- --------
U.S. pension expense 16,427 15,852 12,433
International pension expense 1,112 1,261 1,040
-------- -------- --------
Total pension expense $ 17,539 $ 17,113 $ 13,473
-------- -------- --------
-------- -------- --------
</TABLE>
The funded status of the U.S. pension plan was:
<TABLE>
<CAPTION>
December 31 (thousands) 1997 1996 1995
- ---------------------------------- -------- -------- --------
<S> <C> <C> <C>
Actuarial present value of:
Vested benefit obligation $201,288 $ 167,652 $ 150,521
Non-vested benefit obligation 12,619 10,701 12,089
--------- --------- ---------
Accumulated benefit obligation 213,907 178,353 162,610
Effect of projected future
salary increases 73,120 61,763 54,398
--------- --------- ---------
Projected benefit obligation 287,027 240,116 217,008
Plan assets at fair value 237,304 196,839 167,231
--------- --------- ---------
Plan assets less than the
projected benefit obligation (49,723) (43,277) (49,777)
Unrecognized prior service cost 18,056 20,325 22,230
Unrecognized net loss 46,028 37,763 44,258
Unrecognized net transition asset (10,523) (11,926) (13,329)
--------- --------- ---------
Prepaid pension expense $ 3,838 $ 2,885 $ 3,382
--------- --------- ---------
--------- --------- ---------
</TABLE>
The company's policy is to fund pension costs currently to the extent
deductible for income tax purposes. U.S. pension plan assets consist primarily
of equity and fixed income securities. International pension benefit obligations
and plan assets were not significant.
U.S. pension plan assumptions, in addition to projections for employee
turnover and retirement ages, were:
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------- -------- -------- --------
<S> <C> <C> <C>
Discount rate for service and
interest cost, at beginning of year 7.75% 7.50% 8.25%
Projected salary increases,
weighted average 5.1 5.1 5.1
Expected return on plan assets 9.0 9.0 9.0
Discount rate for year-end
benefit obligation 7.25% 7.75% 7.50%
</TABLE>
At December 31, 1996, the company updated the mortality assumptions used in
its actuarial pension plan calculations. The effect of this change and a 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:
<TABLE>
<CAPTION>
(millions, increase (decrease)) 1997 1996 1995
- ---------------------------------- -------- -------- --------
<S> <C> <C> <C>
Pension expense $ 0.6 $ 2.1 $ (3.4)
Projected benefit obligation $22.5 $ 1.2 $ 17.6
</TABLE>
The company also has noncontributory non-qualified defined benefit plans
which provide for benefits to employees in excess of limits permitted under its
U.S. pension plan. The recorded obligation for these plans was approximately $11
million at December 31, 1997 and the annual expense for these plans was
approximately $2 million in each of the years 1997, 1996 and 1995.
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 benefits expense was:
<TABLE>
<CAPTION>
(thousands) 1997 1996 1995
- ---------------------------------- -------- -------- --------
<S> <C> <C> <C>
Service cost -- benefits attributed
to service during the period $ 4,325 $3,298 $2,473
Interest cost on accumulated post-
retirement benefit obligation 5,711 4,398 3,972
Actual return on plan assets (1,609) (863) (703)
Net amortization and deferral 167 (213) (271)
-------- -------- --------
Total expense $ 8,594 $6,620 $5,471
-------- -------- --------
-------- -------- --------
</TABLE>
44
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The funded status of the postretirement health care benefits plan was:
<TABLE>
<CAPTION>
December 31 (thousands) 1997 1996 1995
- ---------------------------------- -------- -------- --------
<S> <C> <C> <C>
Actuarial present value of accumu-
lated postretirement
benefit obligation for:
Retirees $ 24,835 $ 22,932 $ 18,112
Fully eligible active
participants 8,357 6,533 5,450
Other active participants 57,929 42,084 35,885
--------- --------- ---------
Total 91,121 71,549 59,447
Plan assets at fair value 16,764 11,885 9,269
--------- --------- ---------
Plan assets less than accumulated
postretirement benefit obligation (74,357) (59,664) (50,178)
Unrecognized gain for prior service (9,097) (9,648) (10,199)
Unrecognized net loss (gain) 17,280 5,984 (968)
--------- --------- ---------
Unfunded accrued postretirement
health care benefits $(66,174) $(63,328) $(61,345)
--------- --------- ---------
--------- --------- ---------
</TABLE>
The assumptions for the discount rate and expected return on plan assets
for the postretirement health care benefits plan were:
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------- -------- -------- --------
<S> <C> <C> <C>
Discount rate for service and interest
cost, at beginning of year 7.75% 7.50% 8.25%
Expected return on plan assets 9.0 9.0 6.0
Discount rate for year-end
benefit obligation 7.25% 7.75% 7.50%
</TABLE>
The decrease in the discount rate at year-end 1997 resulted in an increase
in the accumulated benefit obligation of approximately $7 million. All other
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, 9.5 percent (for pre-age 65 retirees) and 7.5
percent (for post-age 65 retirees) annual rates of increase in the per capita
cost of covered health care were assumed for 1998. 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 1997 by approximately $6
million and 1997 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 contributions are invested in Ecolab
common stock and amounted to $7,156,000 in 1997, $6,622,000 in 1996 and
$5,919,000 in 1995.
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 5,274,652 for 1997, 840,096 for 1996 and 2,249,536 for 1995.
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 ten years from date of grant. Stock option transactions were:
<TABLE>
<CAPTION>
Shares 1997 1996 1995
- ---------------------------------- ----------- ----------- ---------
<S> <C> <C> <C>
Granted 1,031,760 1,266,680 1,861,346
Exercised (1,295,170) (1,344,686) (838,594)
Canceled (63,416) (102,666) (73,400)
---------- ---------- ---------
December 31:
Outstanding 8,880,422 9,207,248 9,387,920
---------- ---------- ---------
---------- ---------- ---------
Exercisable 5,922,150 5,859,968 5,713,276
<CAPTION>
Average exercise price per share 1997 1996 1995
- ---------------------------------- ----------- ----------- ---------
<S> <C> <C> <C>
Granted $21.72 $15.26 $12.68
Exercised 8.50 7.65 5.71
Canceled 14.07 12.16 10.32
December 31:
Outstanding 11.92 10.35 9.32
Exercisable $ 9.66 $ 8.75 $ 8.05
</TABLE>
45
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. STOCK INCENTIVE AND OPTION PLANS (continued)
Information related to stock options outstanding and stock options
exercisable as of December 31, 1997 was as follows:
<TABLE>
<CAPTION>
Options Outstanding
- --------------------------------------------------------------------------------
Weighted- Weighted-
Range of Average Average
Exercise Options Remaining Exercise
Prices Outstanding Contractual Life Price
- ------------- ----------- ---------------- ---------
<S> <C> <C> <C>
$ 5.69-$10.00 2,600,014 3.1 years $ 7.02
$10.01-$15.00 4,193,796 6.7 years $11.89
$15.01-$26.91 2,086,612 9.0 years $19.05
<CAPTION>
Options Exercisable
- --------------------------------------------------------------------------------
Weighted-
Range of Average
Exercise Options Exercise
Prices Exercisable Price
- ------------- ----------- ---------
<S> <C> <C>
$ 5.69-$10.00 2,600,014 $ 7.02
$10.01-$15.00 3,039,704 $11.57
$15.01-$26.91 282,432 $15.32
</TABLE>
Stock awards are generally subject to restrictions, including forfeiture in
the event of termination of employment. Restrictions generally lapse over
periods of 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.
The company adopted Statement of Financial Accounting Standards No. 123, a
new standard of accounting and reporting for stock-based compensation plans, 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 periods, based on the fair value of options at
the date of grant, net income and diluted net income per common share for 1997,
1996 and 1995 would have been reduced to the following pro forma amounts:
<TABLE>
<CAPTION>
(thousands, except per share) 1997 1996 1995
- ------------------------------------ -------- -------- --------
<S> <C> <C> <C>
Net income
As reported $133,955 $113,185 $99,189
Pro forma 131,763 111,761 98,622
Diluted net income per common share
As reported 1.00 0.85 0.73
Pro forma $ 0.98 $ 0.84 $ 0.73
</TABLE>
The pro forma information above only includes stock options granted since
1995. 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 for 1997,
1996 and 1995 and the significant assumptions used in determining the underlying
fair value of each option grant on the date of grant utilizing the Black-Scholes
option-pricing model were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------- -------- -------- ---------
<S> <C> <C> <C>
Weighted-average grant-date fair
value of options granted $5.94 $4.15 $3.92
Assumptions
Risk-free interest rate 6.2% 6.2% 6.7%
Expected life 6 years 6 years 6 years
Expected volatility 19.6% 20.9% 24.8%
Expected dividend yield 1.8% 1.9% 1.9%
</TABLE>
10. SHAREHOLDERS' EQUITY
The company's common stock was split two for one in the form of a 100 percent
stock dividend paid January 15, 1998 to shareholders of record on December 26,
1997. All per share and number of share data have been retroactively restated to
reflect the stock split, except for the Consolidated Statement of Shareholders'
Equity.
Authorized common stock, par value $1.00 per share, was 200 million shares
in 1997 and 100 million shares in 1996 and 1995. Treasury stock is stated at
cost. Dividends declared per share of common stock were $0.335 for 1997, $0.29
for 1996 and $0.2575 for 1995.
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-half of a
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.
46
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The company maintains a share repurchase program which is intended to offset the
dilutive effect of shares issued for employee benefit plans. The company
reacquired 1,944,600 shares of its common stock in 1997 and 1,154,600 shares in
1996 under this program through open and private market purchases. The company
anticipates that it will continue to periodically reacquire shares under its
share repurchase program.
In June 1995, the company purchased approximately 7 million shares
(approximately 5 percent of total shares then outstanding) of its common stock
at a price of $12.50 per share pursuant to the terms of a "Dutch auction"
self-tender offer. The total purchase price for these shares was approximately
$90 million and was funded by excess cash and cash equivalents and by
approximately $30 million of short-term borrowings. The company also reacquired
616,800 shares in 1997 and 105,800 shares in 1996 under this program and the
company may purchase approximately 4.2 million additional shares from time to
time through open market and privately negotiated transactions to complete the
remaining portion of a 12 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 $38,155,000 in 1997,
$35,071,000 in 1996 and $32,292,000 in 1995. As of December 31, 1997, future
minimum payments under operating leases with noncancelable terms in excess of
one year were:
<TABLE>
<CAPTION>
(thousands)
- -----------------------------------------------------------------
<S> <C>
1998 $11,549
1999 7,803
2000 5,186
2001 3,145
2002 1,848
Thereafter 11,916
-------
Total $41,447
-------
-------
</TABLE>
12. RESEARCH EXPENDITURES
Research expenditures that related to the development of new products and
processes, including significant improvements and refinements to existing
products, were $30,420,000 in 1997, $28,676,000 in 1996 and $28,031,000 in 1995.
13. ENVIRONMENTAL COMPLIANCE COSTS
The company and certain subsidiaries are party to various environmental actions
that 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, results of operations and cash
flows to date has not been significant. The company is currently participating
in environmental assessments and remediation at a number of locations and
environmental liabilities have been accrued reflecting management's best
estimate of future costs. Potential insurance reimbursements are not
anticipated. While the final resolution of these contingencies could result in
expenses in excess of current accruals, and therefore have an impact on the
company's consolidated financial results in a future reporting period,
management believes the ultimate outcome will not have a significant effect on
the company's results of operations, consolidated financial position or
liquidity.
14. GEOGRAPHIC SEGMENTS
Summary information regarding the company's operations in United States and
International markets is presented below. International consists of Canadian,
Asia Pacific, Latin American, African and Kay's international operations.
<TABLE>
<CAPTION>
(thousands) 1997 1996 1995
- ------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Net Sales
United States $1,275,828 $1,148,778 $1,030,126
International 364,524 341,231 310,755
---------- ---------- ----------
Total $1,640,352 $1,490,009 $1,340,881
---------- ---------- ----------
---------- ---------- ----------
Operating Income
United States $ 195,630 $ 164,886 $ 147,330
International 26,962 23,871 19,580
Corporate (4,088) (3,440) (4,224)
---------- ---------- ----------
Total $ 218,504 $ 185,317 $ 162,686
---------- ---------- ----------
---------- ---------- ----------
Identifiable Assets
United States $ 727,423 $ 641,831 $ 535,107
International 366,254 190,595 183,088
Joint venture 239,879 285,237 302,298
Corporate 82,743 90,746 40,387
---------- ---------- ----------
Total $1,416,299 $1,208,409 $1,060,880
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
In accordance with company policy, operating expenses incurred at the
corporate level totaling $27,554,000 in 1997, $23,766,000 in 1996 and
$22,688,000 in 1995 have been allocated to the geographic segments in
determining operating income.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, a new standard for reporting information
about operating or business segments in financial statements. The new standard
will be effective for the company's annual financial statements in 1998. The
company does not expect the business segment information reported under the new
standard to be substantially different than the information currently reported.
47
<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>
1997
Net sales
United States $290,703 $319,633 $338,764 $326,728 $1,275,828
International 83,057 92,177 94,109 95,181 364,524
--------- --------- --------- --------- ----------
Total 373,760 411,810 432,873 421,909 1,640,352
Cost of sales 165,726 183,322 188,178 184,858 722,084
Selling, general and administrative expenses 164,604 175,685 177,899 181,576 699,764
--------- --------- --------- --------- ----------
Operating income
United States 38,441 47,184 60,738 49,267 195,630
International 5,870 6,669 7,102 7,321 26,962
Corporate (881) (1,050) (1,044) (1,113) (4,088)
--------- --------- --------- --------- ----------
Total 43,430 52,803 66,796 55,475 218,504
Interest expense, net 2,998 3,054 3,351 3,234 12,637
--------- --------- --------- --------- ----------
Income before income taxes and equity
in earnings of joint venture 40,432 49,749 63,445 52,241 205,867
Provision for income taxes 16,577 20,397 26,613 21,758 85,345
Equity in earnings of joint venture 2,349 3,542 3,657 3,885 13,433
--------- --------- --------- --------- ----------
Net income $ 26,204 $ 32,894 $ 40,489 $ 34,368 $ 133,955
--------- --------- --------- --------- ----------
--------- --------- --------- --------- ----------
Net income per common share
Basic $ 0.20 $ 0.25 $ 0.31 $ 0.27 $ 1.03
Diluted $ 0.20 $ 0.25 $ 0.30 $ 0.26 $ 1.00
Weighted average common shares outstanding
Basic 129,548 129,779 129,462 128,993 129,446
Diluted 133,520 133,963 133,930 133,740 133,822
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 common share
Basic $ 0.15 $ 0.21 $ 0.28 $ 0.23 $ 0.88
Diluted $ 0.15 $ 0.21 $ 0.27 $ 0.23 $ 0.85
Weighted average common shares outstanding
Basic 129,180 128,614 128,732 129,439 128,991
Diluted 132,788 132,424 132,384 133,658 132,817
</TABLE>
48
<PAGE>
MANAGEMENT AND ACCOUNTANT'S REPORTS
REPORT OF MANAGEMENT
Management is responsible for the integrity and objectivity of the consolidated
financial statements. The statements have been prepared in accordance with
generally accepted accounting principles and, accordingly, include certain
amounts based on management's best estimates and judgments.
To meet its responsibility, management has established and maintains a
system of internal controls that provides reasonable assurance regarding the
integrity and reliability of the financial statements and the protection of
assets from unauthorized use or disposition. These systems are supported by
qualified personnel, by an appropriate division of responsibilities and by an
internal audit function. There are limits inherent in any system of internal
controls since the cost of monitoring such systems should not exceed the desired
benefit. Management believes that the company's system of internal controls is
effective and provides an appropriate cost/benefit balance.
The Board of Directors, acting through its Audit Committee composed solely
of outside directors, is responsible for determining that management fulfills
its responsibilities in the preparation of financial statements and maintains
financial control of operations. The Audit Committee recommends to the Board of
Directors the appointment of the company's independent accountants, subject to
ratification by the shareholders. It meets regularly with management, the
internal auditors and the independent accountants.
The independent accountants provide an objective, independent review as to
management's discharge of its responsibilities insofar as they relate to the
fair presentation of the consolidated financial statements. Their report is
presented separately.
/s/ Allan L. Schuman
Allan L. Schuman
President and Chief Executive Officer
/s/ Michael E. Shannon
Michael E. Shannon
Chairman of the Board,
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, 1997, 1996 and 1995, 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, 1997, 1996 and 1995, 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 23, 1998
Saint Paul, Minnesota
49
<PAGE>
SUMMARY OPERATING AND FINANCIAL DATA
<TABLE>
<CAPTION>
December 31 (thousands, except per share) 1997 1996 1995 1994
- -------------------------------------------------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATIONS
Net sales
United States $ 1,275,828 $ 1,148,778 $ 1,030,126 $ 942,070
International 364,524 341,231 310,755 265,544
Europe
- -------------------------------------------------------- ------------ ------------ ------------ ------------
Total 1,640,352 1,490,009 1,340,881 1,207,614
Cost of sales 722,084 674,953 603,167 533,143
Selling, general and administrative expenses 699,764 629,739 575,028 529,507
Merger costs and nonrecurring expenses 8,000
- -------------------------------------------------------- ------------ ------------ ------------ ------------
Operating income 218,504 185,317 162,686 136,964
Interest expense, net 12,637 14,372 11,505 12,909
- -------------------------------------------------------- ------------ ------------ ------------ ------------
Income from continuing operations before income
taxes and equity in earnings of joint venture 205,867 170,945 151,181 124,055
Provision for income taxes 85,345 70,771 59,694 50,444
Equity in earnings of joint venture 13,433 13,011 7,702 10,951
- -------------------------------------------------------- ------------ ------------ ------------ ------------
Income from continuing operations 133,955 113,185 99,189 84,562
Income (loss) from discontinued operations
Extraordinary loss and changes in accounting principles
- -------------------------------------------------------- ------------ ------------ ------------ ------------
Net income (loss) 133,955 113,185 99,189 84,562
Preferred stock dividends
- -------------------------------------------------------- ------------ ------------ ------------ ------------
Net income (loss) to common shareholders, as reported 133,955 113,185 99,189 84,562
Pro forma adjustments 5,902
- -------------------------------------------------------- ------------ ------------ ------------ ------------
Pro forma net income (loss) to common shareholders $ 133,955 $ 113,185 $ 99,189 $ 90,464
- -------------------------------------------------------- ------------ ------------ ------------ ------------
- -------------------------------------------------------- ------------ ------------ ------------ ------------
Income (loss) per common share, as reported
Basic -- continuing operations $ 1.03 $ 0.88 $ 0.75 $ 0.63
Basic -- net income (loss) 1.03 0.88 0.75 0.63
Diluted -- continuing operations 1.00 0.85 0.73 0.62
Diluted -- net income (loss) 1.00 0.85 0.73 0.62
Pro forma income (loss) per common share
Basic -- continuing operations 1.03 0.88 0.75 0.67
Basic -- net income (loss) 1.03 0.88 0.75 0.67
Diluted -- continuing operations 1.00 0.85 0.73 0.66
Diluted -- net income (loss) $ 1.00 $ 0.85 $ 0.73 $ 0.66
Weighted average common shares outstanding -- basic 129,446 128,991 132,193 135,100
Weighted average common shares outstanding -- diluted 133,822 132,817 134,956 137,306
- -------------------------------------------------------- ------------ ------------ ------------ ------------
SELECTED INCOME STATEMENT RATIOS
Gross profit 56.0% 54.7% 55.0% 55.9%
Selling, general and administrative expenses 42.7 42.3 42.9 44.6
Operating income 13.3 12.4 12.1 11.3
Income from continuing operations before income taxes 12.6 11.5 11.3 10.3
Income from continuing operations 8.2 7.6 7.4 7.0
Effective income tax rate 41.5% 41.4% 39.5% 40.7%
- -------------------------------------------------------- ------------ ------------ ------------ ------------
FINANCIAL POSITION
Current assets $ 509,501 $ 435,507 $ 358,072 $ 401,179
Property, plant and equipment, net 395,562 332,314 292,937 246,191
Investment in Henkel-Ecolab joint venture 239,879 285,237 302,298 284,570
Other assets 271,357 155,351 107,573 88,416
- -------------------------------------------------------- ------------ ------------ ------------ ------------
Total assets $ 1,416,299 $ 1,208,409 $ 1,060,880 $ 1,020,356
- -------------------------------------------------------- ------------ ------------ ------------ ------------
- -------------------------------------------------------- ------------ ------------ ------------ ------------
Current liabilities $ 404,464 $ 327,771 $ 310,538 $ 253,665
Long-term debt 259,384 148,683 89,402 105,393
Postretirement health care and pension benefits 76,109 73,577 70,666 70,882
Other liabilities 124,641 138,415 133,616 128,608
Shareholders' equity 551,701 519,963 456,658 461,808
- -------------------------------------------------------- ------------ ------------ ------------ ------------
Total liabilities and shareholders' equity $ 1,416,299 $ 1,208,409 $ 1,060,880 $ 1,020,356
- -------------------------------------------------------- ------------ ------------ ------------ ------------
- -------------------------------------------------------- ------------ ------------ ------------ ------------
SELECTED CASH FLOW INFORMATION
Cash provided by operating activities $ 235,098 $ 254,269 $ 166,463 $ 169,346
Depreciation and amortization 100,879 89,523 76,279 66,869
Capital expenditures 121,667 111,518 109,894 88,457
EBITDA from continuing operations 319,383 274,840 238,965 203,833
Cash dividends declared per common share $ 0.335 $ 0.29 $ 0.2575 $ 0.2275
- -------------------------------------------------------- ------------ ------------ ------------ ------------
SELECTED FINANCIAL MEASURES/OTHER
Total debt and preferred stock $ 308,268 $ 176,292 $ 161,049 $ 147,213
Total debt and preferred stock to capitalization 35.8% 25.3% 26.1% 24.2%
Book value per common share $ 4.27 $ 4.01 $ 3.53 $ 3.41
Return on beginning equity 25.8% 24.8% 21.5% 21.6%
Dividends/diluted net income per common share 33.5% 34.1% 35.3% 36.7%
Annual common stock price range $28.00-18.13 $19.75-14.56 $15.88-10.00 $ 11.75-9.63
Number of employees 10,210 9,573 9,026 8,206
- -------------------------------------------------------- ------------ ------------ ------------ ------------
</TABLE>
Pro forma results for 1994 and prior years 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 1997, 1993 and 1986 two-for-one stock splits. Other assets includes net
assets of Ecolab Europe and discontinued operations prior to 1992. Other
liabilities includes $110 million of convertible preferred stock at year-end
1989 and 1990. The ratios of return on beginning equity and dividends/diluted
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.
50
<PAGE>
<TABLE>
<CAPTION>
December 31 (thousands, except per share) 1993 1992 1991 1990
- -------------------------------------------------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATIONS
Net sales
United States $ 867,415 $ 816,405 $ 757,564 $ 712,579
International 234,981 241,229 201,738 184,220
Europe 150,809
- -------------------------------------------------------- ------------ ------------ ------------ ------------
Total 1,102,396 1,057,634 959,302 1,047,608
Cost of sales 491,306 485,206 447,356 495,086
Selling, general and administrative expenses 481,639 446,814 393,700 425,983
Merger costs and nonrecurring expenses
- -------------------------------------------------------- ------------ ------------ ------------ ------------
Operating income 129,451 125,614 118,246 126,539
Interest expense, net 21,384 35,334 30,489 28,321
- -------------------------------------------------------- ------------ ------------ ------------ ------------
Income from continuing operations before income
taxes and equity in earnings of joint venture 108,067 90,280 87,757 98,218
Provision for income taxes 33,422 27,392 29,091 32,494
Equity in earnings of joint venture 8,127 8,600 4,573
- -------------------------------------------------------- ------------ ------------ ------------ ------------
Income from continuing operations 82,772 71,488 63,239 65,724
Income (loss) from discontinued operations (274,693) (4,408)
Extraordinary loss and changes in accounting principles 715 (24,560)
- -------------------------------------------------------- ------------ ------------ ------------ ------------
Net income (loss) 83,487 71,488 (236,014) 61,316
Preferred stock dividends (4,064) (7,700)
- -------------------------------------------------------- ------------ ------------ ------------ ------------
Net income (loss) to common shareholders, as reported 83,487 71,488 (240,078) 53,616
Pro forma adjustments (2,667) (2,797) (2,933) (2,956)
- -------------------------------------------------------- ------------ ------------ ------------ ------------
Pro forma net income (loss) to common shareholders $ 80,820 $ 68,691 $ (243,011) $ 50,660
- -------------------------------------------------------- ------------ ------------ ------------ ------------
- -------------------------------------------------------- ------------ ------------ ------------ ------------
Income (loss) per common share, as report
Basic -- continuing operations $ 0.61 $ 0.53 $ 0.51 $ 0.56
Basic -- net income (loss) 0.62 0.53 (2.05) 0.52
Diluted -- continuing operations 0.60 0.52 0.50 0.56
Diluted -- net income (loss) 0.61 0.52 (2.05) 0.51
Pro forma income (loss) per common share
Basic -- continuing operations 0.59 0.51 0.48 0.53
Basic -- net income (loss) 0.60 0.51 (2.08) 0.49
Diluted -- continuing operations 0.58 0.50 0.48 0.53
Diluted -- net income (loss) $ 0.59 $ 0.50 $ (2.08) $ 0.49
Weighted average common shares outstanding -- basic 135,056 134,408 117,050 103,298
Weighted average common shares outstanding -- diluted 137,421 136,227 118,178 104,258
- -------------------------------------------------------- ------------ ------------ ------------ ------------
SELECTED INCOME STATEMENT RATIOS
Gross profit 55.4% 54.1% 53.4% 52.7%
Selling, general and administrative expenses 43.7 42.2 41.1 40.6
Operating income 11.7 11.9 12.3 12.1
Income from continuing operations before income taxes 9.8 8.5 9.1 9.4
Income from continuing operations 7.5 6.8 6.6 6.3
Effective income tax rate 30.9% 30.3% 33.1% 33.1%
- -------------------------------------------------------- ------------ ------------ ------------ ------------
FINANCIAL POSITION
Current assets $ 311,051 $ 264,512 $ 293,053 $ 216,612
Property, plant and equipment, net 219,268 207,183 198,086 187,735
Investment in Henkel-Ecolab joint venture 255,804 289,034 296,292
Other assets 105,607 98,135 152,857 480,911
- -------------------------------------------------------- ------------ ------------ ------------ ------------
Total assets $ 891,730 $ 858,864 $ 940,288 $ 885,258
- -------------------------------------------------------- ------------ ------------ ------------ ------------
- -------------------------------------------------------- ------------ ------------ ------------ ------------
Current liabilities $ 201,498 $ 192,023 $ 240,219 $ 177,643
Long-term debt 131,861 215,963 325,492 208,147
Postretirement health care and pension benefits 72,647 63,393 56,427 8,742
Other liabilities 93,917 29,179 11,002 138,792
Shareholders' equity 391,807 358,306 307,148 351,934
- -------------------------------------------------------- ------------ ------------ ------------ ------------
Total liabilities and shareholders' equity $ 891,730 $ 858,864 $ 940,288 $ 885,258
- -------------------------------------------------------- ------------ ------------ ------------ ------------
- -------------------------------------------------------- ------------ ------------ ------------ ------------
SELECTED CASH FLOW INFORMATION
Cash provided by operating activities $ 175,674 $ 120,217 $ 128,999 $ 154,208
Depreciation and amortization 60,609 60,443 55,653 61,024
Capital expenditures 68,321 59,904 53,752 58,069
EBITDA from continuing operations 190,060 186,057 173,899 187,563
Cash dividends declared per common share $ 0.1975 $ 0.17875 $ 0.175 $ 0.1675
- -------------------------------------------------------- ------------ ------------ ------------ ------------
SELECTED FINANCIAL MEASURES/OTHER
Total debt and preferred stock $ 151,281 $ 236,695 $ 407,221 $ 353,886
Total debt and preferred stock to capitalization 27.9% 39.80% 57.00% 50.10%
Book value per common share $ 2.90 $2.66 $2.30 $ 3.41
Return on beginning equity 23.3% 23.30% 13.60% 12.9%
Dividends/diluted net income per common share 32.4% 34.40% 42.70% 32.8%
Annual common stock price range $11.91-9.07 $9.57-6.66 $8.38-4.88 $7.78-4.16
Number of employees 7,822 7,601 7,428 8,106
- -------------------------------------------------------- ------------ ------------ ------------ ------------
<CAPTION>
December 31 (thousands, except per share) 1989 1988 1987
- -------------------------------------------------------- ------------ ------------ ------------
<S> <C> <C> <C>
OPERATIONS
Net sales
United States $ 646,895 $ 589,715 $ 544,310
International 179,705 159,374 103,168
Europe 122,871 122,250 104,174
- -------------------------------------------------------- ------------ ------------ ------------
Total 949,471 871,339 751,652
Cost of sales 461,256 433,734 361,545
Selling, general and administrative expenses 383,512 337,707 307,851
Merger costs and nonrecurring expenses 12,978 18,441
- -------------------------------------------------------- ------------ ------------ ------------
Operating income 91,725 99,898 63,815
Interest expense, net 31,628 31,097 21,440
- -------------------------------------------------------- ------------ ------------ ------------
Income from continuing operations before income
taxes and equity in earnings of joint venture 60,097 68,801 42,375
Provision for income taxes 19,411 21,285 20,724
Equity in earnings of joint venture
- -------------------------------------------------------- ------------ ------------ ------------
Income from continuing operations 40,686 47,516 21,651
Income (loss) from discontinued operations (29,379) 4,238 126,551
Extraordinary loss and changes in accounting principles
- -------------------------------------------------------- ------------ ------------ ------------
Net income (loss) 11,307 51,754 148,202
Preferred stock dividends (429)
- -------------------------------------------------------- ------------ ------------ ------------
Net income (loss) to common shareholders, as reported 10,878 51,754 148,202
Pro forma adjustments (3,196) (2,622) (2,606)
- -------------------------------------------------------- ------------ ------------ ------------
Pro forma net income (loss) to common shareholders $ 7,682 $ 49,132 $ 145,596
- -------------------------------------------------------- ------------ ------------ ------------
- -------------------------------------------------------- ------------ ------------ ------------
Income (loss) per common share, as reported
Basic -- continuing operations $ 0.34 $ 0.41 $ 0.19
Basic -- net income (loss) 0.09 0.44 1.28
Diluted -- continuing operations 0.34 0.40 0.18
Diluted -- net income (loss) 0.09 0.43 1.23
Pro forma income (loss) per common share
Basic -- continuing operations 0.31 0.38 0.16
Basic -- net income (loss) 0.06 0.42 1.26
Diluted -- continuing operations 0.31 0.38 0.16
Diluted -- net income (loss) $ 0.06 $ 0.41 $ 1.20
Weighted average common shares outstanding -- basic 118,516 117,188 115,980
Weighted average common shares outstanding -- diluted 120,196 119,586 121,342
- -------------------------------------------------------- ------------ ------------ ------------
SELECTED INCOME STATEMENT RATIOS
Gross profit 51.4% 50.2% 51.9%
Selling, general and administrative expenses 41.7 38.7 43.4
Operating income 9.7 11.5 8.5
Income from continuing operations before income taxes 6.3 7.9 5.6
Income from continuing operations 4.3 5.5 2.9
Effective income tax rate 32.3% 30.9% 48.9%
- -------------------------------------------------------- ------------ ------------ ------------
FINANCIAL POSITION
Current assets $ 370,875 $ 265,291 $ 283,700
Property, plant and equipment, net 203,056 194,509 176,856
Investment in Henkel-Ecolab joint venture
Other assets 420,115 444,827 468,593
- -------------------------------------------------------- ------------ ------------ ------------
Total assets $ 994,046 $ 904,627 $ 929,149
- -------------------------------------------------------- ------------ ------------ ------------
- -------------------------------------------------------- ------------ ------------ ------------
Current liabilities $ 201,585 $ 181,758 $ 247,825
Long-term debt 228,632 257,500 258,273
Postretirement health care and pension benefits 12,859 12,768 12,150
Other liabilities 135,343 11,590 9,863
Shareholders' equity 415,627 441,011 401,038
- -------------------------------------------------------- ------------ ------------ ------------
Total liabilities and shareholders' equity $ 994,046 $ 904,627 $ 929,149
- -------------------------------------------------------- ------------ ------------ ------------
- -------------------------------------------------------- ------------ ------------ ------------
SELECTED CASH FLOW INFORMATION
Cash provided by operating activities $ 123,215 $ 113,514 $ 146,310
Depreciation and amortization 53,113 48,282 40,932
Capital expenditures 54,430 62,125 57,549
EBITDA from continuing operations 144,838 148,180 104,747
Cash dividends declared per common share $ 0.165 $ 0.16 $ 0.15
- -------------------------------------------------------- ------------ ------------ ------------
SELECTED FINANCIAL MEASURES/OTHER
Total debt and preferred stock $ 382,764 $ 300,448 $ 320,080
Total debt and preferred stock to capitalization 47.9% 40.5% 44.40%
Book value per common share $ 3.55 $ 3.73 $ 3.46
Return on beginning equity 2.5% 12.9% 19.5%
Dividends/diluted net income per common share 183.3% 37.2% 34.9%
Annual common stock price range $8.94-6.22 $6.94-5.32 $8.44-4.63
Number of employees 7,845 7,684 7,479
- -------------------------------------------------------- ------------ ------------ ------------
</TABLE>
Pro forma results for 1994 and prior years 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 1997, 1993 and 1986 two-for-one stock splits. Other assets includes net
assets of Ecolab Europe and discontinued operations prior to 1992. Other
liabilities includes $110 million of convertible preferred stock at year-end
1989 and 1990. The ratios of return on beginning equity and dividends/diluted
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.
51
<PAGE>
APPENDIX: GRAPHIC AND IMAGE MATERIAL
PAGE NUMBER DESCRIPTION
- ----------- -----------
28 Bar graph illustrating total return to shareholders
(share appreciation plus dividends) for the last five
fiscal years as follows:
1997 49.0%
1996 27.3%
1995 46.1%
1994 (5.3)%
1993 24.5%
28 Bar graph illustrating return on beginning equity for
the last five fiscal years as follows:
1997 25.8%
1996 24.8%
1995 21.5%
1994 21.6%
1993 23.3%
29 Pie chart illustrating United States and International
consolidated business mix for 1997 as well as
consolidated net sales (in millions) for the last three
fiscal years as follows:
1997 United States mix 78%
1997 International mix 22%
1997 sales $1,640
1996 sales $1,490
1995 sales $1,341
30 Pie chart illustrating the United States business mix
for Ecolab's seven divisions for 1997 as well as
consolidated United States net sales (in millions) for
the last three fiscal years as follows:
1997 Institutional mix 55%
1997 Food and Beverage mix 16%
1997 Pest Elimination mix 8%
1997 Professional Products mix 8%
1997 Kay mix 6%
1997 Textile Care mix 5%
1997 Water Care mix 2%
1997 U.S. sales $1,276
1996 U.S. sales $1,149
1995 U.S. sales $1,030
<PAGE>
PAGE NUMBER DESCRIPTION
32 Pie chart illustrating the International business mix
for Ecolab's non-U.S. operations for 1997 as well as
consolidated International net sales (in millions) for
the last three fiscal years as follows:
1997 Asia Pacific mix 43%
1997 Latin America mix 24%
1997 Canada mix 20%
1997 Kay, Africa and Other mix 13%
1997 International sales $365
1996 International sales $341
1995 International sales $311
33 Pie chart illustrating the Henkel-Ecolab Joint Venture
business mix for 1997 as well as Ecolab's equity in
earnings of Henkel-Ecolab (in millions) for the last
three fiscal years as follows:
1997 Institutional mix 36%
1997 Professional Hygiene mix 25%
1997 Food (P3) Hygiene mix 25%
1997 Textile Hygiene mix 14%
1997 Henkel-Ecolab equity $13
1996 Henkel-Ecolab equity $13
1995 Henkel-Ecolab equity $ 8
34 Pie chart illustrating mix of shareholders' equity and
total debt for 1997 as well as total debt to
capitalization ratio for the last three fiscal years as
follows:
1997 Shareholders' Equity mix 64%
1997 Total Debt mix 36%
1997 debt/equity ration 36%
1996 debt/equity ration 25%
1995 debt/equity ration 26%
35 Bar graph illustrating cash from continuing operating
activities (in millions) for the last five fiscal years
as follows:
1997 $235
1996 $254
1995 $163
1994 $154
1993 $151
<PAGE>
Exhibit (21)
REGISTRANT
ECOLAB INC.
<TABLE>
<CAPTION>
STATE OR OTHER
JURISDICTION OF PERCENTAGE
NAME OF AFFILIATE INCORPORATION OF OWNERSHIP
----------------- ------------- ------------
<S> <C> <C>
Ecolab S.A. Argentina 100
Ecolab Australia Pty Limited Australia 100
Ecolab Pty Limited Australia 100
Gibson Chemical Industries Australia 100
Limited
Gibson Chemicals Limited Australia 100
Gibson Chemicals (NSW) Pty Australia 100
Limited
Gibson Chemicals Fiji Pty Australia 100
Limited
Gibson Chemicals Great Britain Australia 100
Pty Limited
Intergrain Timber Finishes Pty Australia 100
Limited
Leonard Chemical Products Pty Australia 100
Limited
Maxwell Chemicals Pty Limited Australia 100
Nippon Thermochemical Pty Australia 60
Limited
Puritan/Churchill Chemical Australia 100
Holdings Pty Ltd.
Vessey Chemicals (Holdings) Pty Australia 100
Limited
Vessey Chemicals Pty Limited Australia 100
Vessey Chemicals (Vic.) Pty Australia 100
Limited
Ecolab Limited Bahamas 100
Ecolab (Barbados) Limited Barbados 100
Kay N.V. Belgium 100
Ecolab Quimica Ltda. Brazil 100
Ecolab Ltd. Canada 100
Ecolab S.A. Chile 100
Ecolab Colombia S.A. Colombia 100
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATE OR OTHER PERCENTAGE OF
JURISDICTION OF OWNERSHIP
NAME OF AFFILIATE INCORPORATION
----------------- ------------- ------------
<S> <C> <C>
Ecolab Sociedad Anonima Costa Rica 100
Ecolab S.A. France 100
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
Ecolab Export Limited Ireland 100
Ecolab Co. Ireland 100
Ecolab Limited Jamaica 100
Ecolab K.K. Japan 100
Ecolab East Africa (Kenya) Kenya 100
Limited
Ecolab Korea Ltd. Korea 100
Ecolab Lebanon S.a.r.l. Lebanon 100
Ecolab Sdn. Bhd. Malaysia 100
Gibson Chemicals MA Sdn. Bhd. Malaysia 100
Ecolab S.A. de C.V. Mexico 100
Ecolab Morocco Morocco 100
Ecolab Finance N.V. Netherlands Antilles 100
(Curacao)
Ecolab International B.V. Netherlands 100
Ecolab Limited New Zealand 100
Peterson Chemicals Limited New Zealand 100
Ecolab Nicaragua, S.A. Nicaragua 100
Ecolab S.A. Panama 100
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
STATE OR OTHER
JURISDICTION OF PERCENTAGE OF
NAME OF AFFILIATE INCORPORATION OWNERSHIP
----------------- ------------- ---------
<S> <C> <C>
Gibson Chemicals (PNG) Pty. Papua New Guinea 100
Limited
Ecolab Chemicals Ltd. People's Republic of 51
China
Ecolab Philippines, Inc. Philippines 100
Ecolab Pte. Ltd. Singapore 100
Klenzade South Africa South Africa 100
(Proprietary) Ltd.
Ecolab Ltd. Taiwan 100
Ecolab East Africa (Tanzania) Tanzania 100
Limited
Ecolab Limited Thailand 100
Ecolab East Africa (Uganda) Uganda 100
Limited
Ecolab Foreign Sales Corp. U.S. Virgin Islands 100
Ecolab S.A. Venezuela 51
UNITED STATES
Kay Chemical Company North Carolina 100
Kay Chemical International, North Carolina 100
Inc.
Ecolab Manufacturing Inc. Delaware 100
Ecolab Holdings Inc. Delaware 100
Ecolab Investment Inc. Delaware 100
Ecolab Foundation Minnesota 100
Ecolab Leasing Corporation Delaware 100
FastSource Leasing, Inc. Delaware 100
GLP Sales Inc. Delaware 100
Jackson MSC Inc. Delaware 100
Puritan/Churchill Chemical Georgia 100
Company
</TABLE>
- ---------------------------------------------------
Certain additional subsidiaries, which are not significant in the aggregate, are
not shown.
<PAGE>
Exhibit (23)b
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; 333-18627;
33-39228; 33-56125; 33-55984; 33-60266; 33-65364; 33-59431; 333-18617;
333-18627; 333-21167; 333-35519; and 333-40239) and the Registration Statements
on Form S-3 of Ecolab Inc. (Registration Nos. 333-14771 and 333-45295) of our
report dated January 23, 1998 on our audit of the combined financial statements
and schedule of the Henkel-Ecolab Joint Venture as of November 30, 1997, 1996
and 1995 and for the period beginning December 1, 1997, 1996 and 1995 and ended
November 30, 1997, 1996 and 1995, 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. 33-56101; 33-56151; 33-56125; 33-59431; 333-18617; 333-18627;
333-21167; 333-35519; and 333-40239) and under the caption "Experts" in the
Registration Statements on Form S-3 of Ecolab Inc. (Registration Nos. 333-14771
and 333-45295).
Dusseldorf, Germany
February 27, 1998
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 LAWRENCE T. BELL, 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, 1997, 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 20th day of
February, 1998.
/s/Les S. Biller
-----------------------------------
Les S. Biller
/s/Ruth S. Block
-----------------------------------
Ruth S. Block
/s/James J. Howard
-----------------------------------
James J. Howard
/s/Joel W. Johnson
-----------------------------------
Joel W. Johnson
/s/Jerry W. Levin
-----------------------------------
Jerry W. Levin
/s/Reuben F. Richards
-----------------------------------
Reuben F. Richards
/s/Richard L. Schall
-----------------------------------
Richard L. Schall
/s/Roland Schulz
-----------------------------------
Roland Schulz
/s/Philip L. Smith
-----------------------------------
Philip L. Smith
/s/Hugo Uyterhoeven
-----------------------------------
Hugo Uyterhoeven
/s/Albrecht Woeste
-----------------------------------
Albrecht Woeste
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF DEC-31-1997 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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 61,169
<SECURITIES> 0
<RECEIVABLES> 256,919
<ALLOWANCES> 10,878
<INVENTORY> 154,831
<CURRENT-ASSETS> 509,501
<PP&E> 795,538
<DEPRECIATION> 399,976
<TOTAL-ASSETS> 1,416,299
<CURRENT-LIABILITIES> 404,464
<BONDS> 259,384
0
0
<COMMON> 142,797
<OTHER-SE> 408,904
<TOTAL-LIABILITY-AND-EQUITY> 1,416,299
<SALES> 1,640,352
<TOTAL-REVENUES> 1,640,352
<CGS> 722,084
<TOTAL-COSTS> 722,084
<OTHER-EXPENSES> 699,764
<LOSS-PROVISION> 0<F1>
<INTEREST-EXPENSE> 18,043
<INCOME-PRETAX> 205,867
<INCOME-TAX> 85,345
<INCOME-CONTINUING> 133,955
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 133,955
<EPS-PRIMARY> 1.03<F2>
<EPS-DILUTED> 1.00<F2>
<FN>
<F1>THE AMOUNT OF "LOSS PROVISION" IS NOT SIGNIFICANT AND HAS BEEN INCLUDED IN
"OTHER EXPENSES."
<F2>REFLECTS STOCK-SPLIT PAID JAN-15-1998 IN FORM OF 100% STOCK DIVIDEND
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS RESTATED SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
RESPECTIVE CONSOLIDATED BALANCE SHEETS AS OF SEP-30-1997 JUN-30-1997 MAR-31-1997
AND DEC-31-1996 AND THE RELATED STATEMENTS OF INCOME AND CASH FLOWS FOR THE
RESPECTIVE PERIODS THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 9-MOS 6-MOS 3-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1997 JAN-01-1997 JAN-01-1996
<PERIOD-END> SEP-30-1997 JUN-30-1997 MAR-31-1997 DEC-31-1996
<CASH> 66,972 70,550 63,510 69,275
<SECURITIES> 0 0 0 0
<RECEIVABLES> 241,511 227,460 215,247 214,369
<ALLOWANCES> 10,902 9,910 9,821 9,343
<INVENTORY> 132,761 130,211 131,110 122,248
<CURRENT-ASSETS> 468,014 455,683 437,822 435,507
<PP&E> 734,452 720,883 702,354 688,476
<DEPRECIATION> 387,007 377,899 367,133 356,162
<TOTAL-ASSETS> 1,263,468 1,208,374 1,179,771 1,208,409
<CURRENT-LIABILITIES> 372,228 323,333 319,173 327,771
<BONDS> 148,934 149,196 148,403 148,683
0 0 0 0
0 0 0 0
<COMMON> 71,340 71,199 70,992 70,751
<OTHER-SE> 463,652 460,765 440,563 449,212
<TOTAL-LIABILITY-AND-EQUITY> 1,263,468 1,208,374 1,179,771 1,208,409
<SALES> 1,218,443 785,570 373,760 1,490,009
<TOTAL-REVENUES> 1,218,443 785,570 373,760 1,490,009
<CGS> 537,226 349,048 165,726 674,953
<TOTAL-COSTS> 537,226 349,048 165,726 674,953
<OTHER-EXPENSES> 518,188 340,289 164,604 629,739
<LOSS-PROVISION> 0<F1> 0<F1> 0<F1> 0<F1>
<INTEREST-EXPENSE> 13,256 8,500 4,141 19,084
<INCOME-PRETAX> 153,626 90,181 40,432 170,945
<INCOME-TAX> 63,587 36,974 16,577 70,771
<INCOME-CONTINUING> 99,587 59,098 26,204 113,185
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 99,587 59,098 26,204 113,185
<EPS-PRIMARY> 0.77<F2> 0.46<F2> 0.20<F2> 0.88<F2>
<EPS-DILUTED> 0.74<F2> 0.44<F2> 0.20<F2> 0.85<F2>
<FN>
<F1>THE AMOUNT OF "LOSS PROVISION" IS NOT SIGNIFICANT AND HAS BEEN INCLUDED IN
"OTHER EXPENSES."
<F2>REFLECTS STOCK-SPLIT PAID JAN-15-1998 IN FORM OF 100% STOCK DIVIDEND AND THE
ADOPTION IN FOURTH QUARTER 1997 OF FAS 128, A NEW STANDARD OF COMPUTING AND
PRESENTING BOTH BASIC AND DILUTED NET INCOME PER SHARE.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS RESTATED SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
RESPECTIVE CONSOLIDATED BALANCE SHEETS AS OF SEP-30-1996 JUN-30-1996 MAR-31-1996
AND DEC-31-1995 AND THE RELATED STATEMENTS OF INCOME AND CASH FLOWS FOR THE
RESPECTIVE PERIODS THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 9-MOS 6-MOS 3-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1996 JAN-01-1996 JAN-01-1995
<PERIOD-END> SEP-30-1996 JUN-30-1996 MAR-31-1996 DEC-31-1995
<CASH> 51,681 31,678 18,034 24,718
<SECURITIES> 0 0 0 0
<RECEIVABLES> 212,755 209,543 202,710 206,763
<ALLOWANCES> 9,294 8,296 8,303 8,331
<INVENTORY> 114,738 120,311 123,058 106,117
<CURRENT-ASSETS> 403,136 400,807 387,411 358,072
<PP&E> 672,901 651,480 634,395 619,969
<DEPRECIATION> 350,095 341,671 332,044 327,032
<TOTAL-ASSETS> 1,181,318 1,134,296 1,126,895 1,060,880
<CURRENT-LIABILITIES> 310,602 295,562 299,500 310,538
<BONDS> 163,814 163,875 163,842 89,402
0 0 0 0
0 0 0 0
<COMMON> 70,268 70,212 70,148 70,078
<OTHER-SE> 425,210 394,254 384,977 386,580
<TOTAL-LIABILITY-AND-EQUITY> 1,181,318 1,134,296 1,126,895 1,060,880
<SALES> 1,098,981 706,916 333,720 1,340,881
<TOTAL-REVENUES> 1,098,981 706,916 333,720 1,340,881
<CGS> 498,677 323,445 152,589 603,167
<TOTAL-COSTS> 498,677 323,445 152,589 603,167
<OTHER-EXPENSES> 464,858 304,324 147,333 575,028
<LOSS-PROVISION> 0<F1> 0<F1> 0<F1> 0<F1>
<INTEREST-EXPENSE> 14,604 10,129 4,645 15,857
<INCOME-PRETAX> 123,830 71,123 30,358 151,181
<INCOME-TAX> 50,780 28,517 12,171 59,694
<INCOME-CONTINUING> 82,771 47,243 19,645 99,189
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 82,771 47,243 19,645 99,189
<EPS-PRIMARY> 0.64<F2> 0.37<F2> 0.15<F2> 0.75<F2>
<EPS-DILUTED> 0.62<F2> 0.36<F2> 0.15<F2> 0.73<F2>
<FN>
<F1>THE AMOUNT OF "LOSS PROVISION" IS NOT SIGNIFICANT AND HAS BEEN INCLUDED IN
"OTHER EXPENSES."
<F2>REFLECTS STOCK-SPLIT PAID JAN-15-1998 IN FORM OF 100% STOCK DIVIDEND AND THE
ADOPTION IN FOURTH QUARTER 1997 OF FAS 128, A NEW STANDARD OF COMPUTING AND
PRESENTING BOTH BASIC AND DILLUTED NET INCOME PER SHARE.
</FN>
</TABLE>
