<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---------------- ---------------
Commission File No. 1-9328
ECOLAB INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 41-0231510
- -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
370 Wabasha Street N., St. Paul, Minnesota 55102
- --------------------------------------------------------------------------------
(Address of principal executive offices)(Zip Code)
651-293-2233
------------
(Registrant's telephone number, including area code)
(Not Applicable)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------ -------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of April 30, 2000.
129,658,718 shares of common stock, par value $1.00 per share.
1
<PAGE>
PART I - FINANCIAL INFORMATION
ECOLAB INC.
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
First Quarter Ended
March 31
(thousands, except per share) 2000 1999
------------ ---------
(unaudited)
<S> <C> <C>
Net sales $ 526,260 $ 489,304
Cost of sales 236,484 220,425
Selling, general
and administrative expenses 217,095 206,616
------------ ---------
Operating income 72,681 62,263
Interest expense, net 5,357 5,750
------------ ---------
Income before income taxes and equity
in earnings of Henkel-Ecolab 67,324 56,513
Provision for income taxes 27,603 23,622
Equity in earnings of Henkel-Ecolab 2,891 2,147
------------ ---------
Net income $ 42,612 $ 35,038
============ =========
Net income per common share
Basic $ 0.33 $ 0.27
Diluted $ 0.32 $ 0.26
Dividends per common share $ 0.12 $ 0.105
Weighted-average common shares outstanding
Basic 128,944 129,539
Diluted 133,330 134,626
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
2
<PAGE>
ECOLAB INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
March 31 December 31
(thousands) 2000 1999
------------ ------------
(unaudited)
ASSETS
<S> <C> <C>
Current assets
Cash and cash equivalents $ 22,764 $47,748
Accounts receivable, net 311,457 299,751
Inventories 184,175 176,369
Deferred income taxes 41,897 41,701
Other current assets 15,728 11,752
------------ -----------
Total current assets 576,021 577,321
Property, plant and equipment, net 451,900 448,116
Investment in Henkel-Ecolab 211,818 219,003
Other assets 393,015 341,506
----------- -----------
Total assets $1,632,754 $1,585,946
=========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
ECOLAB INC.
CONSOLIDATED BALANCE SHEET (Continued)
<TABLE>
<CAPTION>
March 31 December 31
(thousands, except per share) 2000 1999
------------ ------------
(unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term debt $ 139,990 $ 112,060
Accounts payable 118,502 122,701
Compensation and benefits 75,447 90,618
Income taxes 13,394 5,743
Other current liabilities 148,466 139,552
---------- ------------
Total current liabilities 495,799 470,674
Long-term debt 171,382 169,014
Postretirement health care
and pension benefits 97,370 97,527
Other liabilities 79,915 86,715
Shareholders' equity
(common stock, par value $1.00 per
share; shares outstanding:
March 31, 2000 - 129,703;
December 31, 1999 - 129,416) 788,288 762,016
---------- ------------
Total liabilities and
shareholders' equity $1,632,754 $1,585,946
========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE>
ECOLAB INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
First Quarter Ended
March 31
(thousands) 2000 1999
------------ ----------
(unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 42,612 $ 35,038
Adjustments to reconcile net income
to cash provided by operations:
Depreciation 29,742 26,778
Amortization 6,657 5,939
Deferred income taxes (187) (1,582)
Equity in earnings of Henkel-Ecolab (2,891) (2,147)
Henkel-Ecolab royalties and dividends 248 2,751
Other, net (186) (130)
Changes in operating assets and liabilities:
Accounts receivable (7,521) (32,728)
Inventories (3,757) (195)
Other assets (2,296) (3,022)
Accounts payable (7,590) (3,251)
Other liabilities (7,602) 17,713
----------- ----------
Cash provided by operating activities $ 47,229 $ 45,164
----------- ----------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
(Continued)
5
<PAGE>
ECOLAB INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
<TABLE>
<CAPTION>
First Quarter Ended
March 31
(thousands) 2000 1999
---------- ----------
(unaudited)
<S> <C> <C>
INVESTING ACTIVITIES
Capital expenditures $ (32,923) $ (29,337)
Property disposals 512 687
Businesses acquired (40,328) (34,191)
Other, net (37)
---------- ----------
Cash used for investing activities (72,739) (62,878)
---------- ----------
FINANCING ACTIVITIES
Notes payable 25,408 11,122
Long-term debt borrowings 21,810
Long-term debt repayments (4,997) (603)
Reacquired shares (8,306) (9,722)
Cash dividends on common stock (15,526) (13,552)
Other, net 3,435 6,106
---------- ----------
Cash provided by financing activities 14 15,161
---------- ----------
Effect of exchange rate changes on cash 512 (454)
---------- ----------
DECREASE IN CASH AND CASH EQUIVALENTS (24,984) (3,007)
Cash and cash equivalents,
beginning of period 47,748 28,425
---------- ----------
Cash and cash equivalents,
end of period $ 22,764 $ 25,418
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
6
<PAGE>
ECOLAB INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. CONSOLIDATED FINANCIAL STATEMENTS
The unaudited consolidated financial statements for the first quarter ended
March 31, 2000 and 1999, reflect, in the opinion of management, all adjustments
necessary for a fair presentation of the financial position, results of
operations and cash flows of the Company for the interim periods. These
adjustments consisted of normal, recurring items. The financial results for any
interim period are not necessarily indicative of results for the full year. The
consolidated balance sheet data as of December 31, 1999 were derived from
audited consolidated financial statements, but do not include all disclosures
required by accounting principles generally accepted in the United States. The
unaudited consolidated financial statements should be read in conjunction with
the financial statements and notes thereto incorporated in the Company's Annual
Report on Form 10-K for the year ended December 31, 1999. PricewaterhouseCoopers
LLP, the Company's independent accountants, have performed limited reviews of
the interim financial information included herein. Their report on such reviews
accompanies this filing.
2. BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
March 31 December 31
(thousands) 2000 1999
------------ ------------
(unaudited)
<S> <C> <C>
Accounts Receivable, Net
Accounts receivable $ 328,263 $ 320,720
Allowance for doubtful accounts (16,806) (20,969)
---------- ----------
Total $ 311,457 $ 299,751
========== ==========
Inventories
Finished goods $ 78,629 $ 71,395
Raw materials and parts 107,016 106,239
Excess of fifo cost over lifo cost (1,470) (1,265)
---------- ----------
Total $ 184,175 $ 176,369
========== ==========
Property, Plant and Equipment, Net
Land $ 13,194 $ 13,516
Buildings and leaseholds 162,864 162,955
Machinery and equipment 274,727 273,101
Merchandising equipment 502,205 492,160
Construction in progress 17,890 15,522
---------- ----------
970,880 957,254
Accumulated depreciation
and amortization (518,980) 509,138)
---------- ----------
Total $ 451,900 $ 448,116
========== ==========
</TABLE>
7
<PAGE>
ECOLAB INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. BALANCE SHEET INFORMATION (Continued)
<TABLE>
<CAPTION>
March 31 December 31
(thousands) 2000 1999
----------- -----------
(unaudited)
<S> <C> <C>
Other Assets
Intangible assets, net $ 299,609 $ 249,756
Deferred income taxes 24,887 24,591
Other 68,519 67,159
----------- ----------
Total $ 393,015 $ 341,506
=========== ==========
Short-Term Debt
Notes payable $ 124,742 $ 96,992
Long-term debt, current maturities 15,248 15,068
----------- ----------
Total $ 139,990 $ 112,060
=========== ==========
Shareholders' Equity
Common stock $ 146,097 $ 145,556
Additional paid-in capital 238,894 223,290
Retained earnings 783,634 756,601
Deferred compensation (12,025) (13,714)
Accumulated other comprehensive
income: translation (69,207) (59,363)
Treasury stock (299,105) (290,354)
----------- ----------
Total $ 788,288 $ 762,016
=========== ==========
</TABLE>
Interest expense was $5,938,000 and $6,211,000 for the first quarter ended March
31, 2000 and 1999, respectively.
8
<PAGE>
ECOLAB INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. COMPREHENSIVE INCOME
Comprehensive income for the Company includes net income and foreign currency
translation adjustments which are charged or credited to the accumulated other
comprehensive income account within shareholders' equity. Comprehensive income
for the quarters ended March 31, 2000 and 1999 was as follows:
<TABLE>
<CAPTION>
First Quarter Ended
March 31
(thousands) 2000 1999
---------- ----------
(unaudited)
<S> <C> <C>
Net income $ 42,612 $ 35,038
Foreign currency translation (9,844) (17,657)
---------- ---------
Comprehensive income $ 32,768 $ 17,381
========== =========
</TABLE>
4. BUSINESS ACQUISITIONS
In February 2000, the Company issued 424,111 shares of common stock plus other
cash consideration to acquire Southwest Sanitary Distributing Company (SSDC) of
Carrollton, Texas. SSDC is a provider of cleaning and sanitizing products to the
quickservice (fast-food) restaurant industry and has become part of the
Company's Kay division. Annual sales of SSDC were approximately $24 million in
1999.
In February 2000, the Company also acquired Spartan de Chile Limitada and
Spartan de Argentina S.A. Both companies are leaders in the institutional and
industrial cleaning and sanitizing markets in their countries. Annual sales for
the combined companies were approximately $20 million in 1999 and these
acquisitions have become part of the Company's Latin America 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 are not significant to the Company's consolidated results of
operations, financial position and cash flows.
9
<PAGE>
ECOLAB INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. NET INCOME PER COMMON SHARE
The computations of the basic and diluted net income per share amounts for the
Company's operations were as follows:
<TABLE>
<CAPTION>
First Quarter Ended
March 31
(thousands, except per share) 2000 1999
----------- -----------
(unaudited)
<S> <C> <C>
Net income $ 42,612 $ 35,038
---------- ----------
Weighted-average common shares outstanding
Basic (actual shares outstanding) 128,944 129,539
Effect of dilutive stock options
and awards 4,386 5,087
---------- ----------
Diluted 133,330 134,626
========== ==========
Net income per common share
Basic $ 0.33 $ 0.27
Diluted $ 0.32 $ 0.26
</TABLE>
Stock options to purchase approximately 3.7 million shares and 2.2 million
shares for the first quarter ended March 31, 2000 and 1999, respectively,
were not dilutive and, therefore, were not included in the computations of
diluted net income per common share amounts.
6. OPERATING SEGMENTS
The Company's operating segments have generally similar products and services
and the Company is organized to manage its operations geographically. The
Company's operating segments have been aggregated into three reportable
segments.
The "United States Cleaning & Sanitizing" segment provides cleaning and
sanitizing products and services to United States markets through its
Institutional, Kay, Textile Care, Professional Products, Water Care, Vehicle
Care and Food & Beverage operations.
The "United States Other Services" segment includes all other U.S. operations of
the Company. This segment provides pest elimination, equipment repair and
maintenance, and commercial dishwashing services through its Pest Elimination,
GCS and Jackson operations.
The Company's "International Cleaning & Sanitizing" segment provides cleaning
and sanitizing product and service offerings to international markets in Asia
Pacific, Latin America, Africa, Canada, and through its Export operations.
10
<PAGE>
ECOLAB INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. OPERATING SEGMENTS (CONTINUED)
The Company evaluates the performance of its international operations based on
fixed management currency exchange rates. All other accounting policies of the
reportable segments are consistent with accounting principles generally accepted
in the United States and the accounting policies of the Company. The
profitability of the Company's operating segments is evaluated by management
based on operating income. Intersegment sales and transfers were not
significant. Financial information for each of the Company's reportable segments
is as follows:
<TABLE>
<CAPTION>
First Quarter Ended
March 31
(thousands) 2000 1999
---------- -----------
(unaudited)
<S> <C> <C>
Net Sales
United States
Cleaning & Sanitizing $ 360,387 $ 336,822
Other Services 54,548 47,328
---------- ----------
Total 414,935 384,150
International Cleaning & Sanitizing 111,708 106,067
Effect of Foreign Currency Translation (383) (913)
---------- ----------
Consolidated $ 526,260 $ 489,304
========== ==========
Operating Income
United States
Cleaning & Sanitizing $ 53,858 $ 50,863
Other Services 5,434 4,551
---------- ----------
Total 59,292 55,414
International Cleaning & Sanitizing 10,858 8,151
Corporate income (expense) 2,584 (1,099)
Effect of Foreign Currency Translation (53) (203)
---------- ----------
Consolidated $ 72,681 $ 62,263
========== ==========
</TABLE>
The International Cleaning & Sanitizing amounts included above are based on
translation into U.S. dollars at the fixed currency exchange rates used by
management for 2000.
Corporate income (expense), which normally represents only overhead costs
directly related to Henkel-Ecolab, also included the recognition of $3.8 million
of income related to net reductions in damages claimed in environmental matters
in the first quarter of 2000.
11
<PAGE>
ECOLAB INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. EQUITY IN EARNINGS OF HENKEL-ECOLAB
Certain financial data of Henkel-Ecolab and the components of the Company's
equity in earnings of Henkel-Ecolab for the quarters ended March 31, 2000 and
1999 were:
<TABLE>
<CAPTION>
First Quarter Ended
March 31
(thousands) 2000 1999
----------- -----------
(unaudited)
<S> <C> <C>
Henkel-Ecolab
Net sales $ 212,121 $ 223,185
Gross profit 119,512 124,673
Income before income taxes 14,575 11,941
Net income $ 8,250 $ 6,913
Ecolab equity in earnings
Ecolab equity in net income $ 4,125 $ 3,457
Ecolab royalty income from
Henkel-Ecolab, net of income taxes 525 706
Amortization expense for the
excess of cost over the
underlying net assets of
Henkel-Ecolab (1,759) (2,016)
---------- --------
Equity in earnings of Henkel-Ecolab $ 2,891 $ 2,147
========== ========
</TABLE>
At March 31, 2000, the Company's investment in Henkel-Ecolab included
approximately $106 million of unamortized excess of the Company's investment
over its equity in Henkel-Ecolab's net assets. This excess is being amortized on
a straight-line basis over estimated economic useful lives of up to 30 years.
8. REVENUE RECOGNITION
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101, which summarizes certain of the staff's views in applying
generally accepted accounting principles to revenue recognition in financial
statements. The Company is in the process of analyzing the requirements of the
Bulletin and is required to comply with the Bulletin by the second quarter of
2000.
12
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Directors
Ecolab Inc.
We have reviewed the accompanying consolidated balance sheet of Ecolab Inc.
as of March 31, 2000, and the related consolidated statements of income and of
cash flows for the three-month periods ended March 31, 2000 and 1999. These
financial statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with auditing standards generally accepted in the United States, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the accompanying consolidated financial statements for them to
be in conformity with accounting principles generally accepted in the United
States.
We have previously audited, in accordance with auditing standards generally
accepted in the United States, the consolidated balance sheet as of December 31,
1999, and the related consolidated statements of income, of comprehensive income
and shareholders' equity and of cash flows for the year then ended (not
presented herein); and in our report dated February 28, 2000, we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying consolidated balance sheet as of
December 31, 1999, is fairly presented, in all material respects, in relation to
the consolidated balance sheet from which it has been derived.
/s/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
Saint Paul, Minnesota
April 20, 2000
13
<PAGE>
ECOLAB INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 included in this Form 10-Q.
The following discussion contains various "Forward-Looking Statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. We refer
readers to the Company's statement entitled "Forward-Looking Statements and Risk
Factors" beginning on page 18 of this report. Additional risk factors may be
described from time to time in Ecolab's filings with the Securities and Exchange
Commission.
RESULTS OF OPERATIONS - FIRST QUARTER ENDED MARCH 31, 2000
Consolidated net sales for the first quarter ended March 31, 2000 were $526
million, an increase of 8 percent over net sales of $489 million in the first
quarter of last year. Businesses acquired in the first quarter of 2000 and the
annualized effect of businesses acquired in 1999 accounted for approximately
one-fourth of the growth in consolidated net sales. Changes in currency
translation had an insignificant effect on sales. The growth in sales also
reflected benefits from new products, new customers, investments in the growth
and training of the sales-and-service force, and a continuation of generally
good conditions in the hospitality and lodging industries in the United States.
For the first quarter of 2000, the gross profit margin was 55.1 percent of net
sales, up slightly from last year's first quarter gross profit margin of 55.0
percent. The increase in gross profit margin reflected increased sales of higher
margin products for the Company's U.S. core operations and sales volume growth
of new products, which were partially offset by poor results from the Company's
Professional Products operations and the effects of the lower gross profit
margins of businesses acquired.
Selling, general and administrative expenses were 41.3 percent of consolidated
net sales for the first quarter of 2000, a decrease from 42.2 percent of net
sales in the comparable quarter of last year. Selling, general and
administrative expenses for the first quarter of 2000 included $3.8 million of
income related to favorable settlements anticipated on environmental claims,
which more than offset $1.7 million of bad debt expense related to a bankruptcy
filing by AmeriServe, a large distributor for the Company. Excluding these
unusual items, selling, general and administrative expenses were 41.6 percent of
consolidated net sales in the first quarter of 2000. This improvement in the
selling, general and administrative expense margin reflected the benefits of
cost controls, lower expenses related to retirement plans, synergies from the
integration of businesses acquired and strong sales growth. These benefits were
partially offset by continued investments
14
<PAGE>
ECOLAB INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
RESULTS OF OPERATIONS - FIRST QUARTER ENDED MARCH 31, 2000 (continued)
in the growth and training of the sales-and-service force. The Company expects
to continue investing in its sales-and-service force, including investments in
training and productivity.
Net income for the first quarter ended March 31, 2000 totaled $43 million, an
increase of 22 percent over net income of $35 million in the first quarter of
1999. On a per share basis, diluted net income per common share was $0.32 for
the first quarter of 2000 and increased 23 percent over diluted net income of
$0.26 per share in the first quarter of last year. Excluding the unusual items
mentioned above, diluted net income per common share was $0.31 per share for an
increase of 19 percent over the first quarter of last year. These earnings
improvements reflected strong double-digit growth in operating income, a lower
effective income tax rate, and double-digit growth in the Company's equity in
earnings of Henkel-Ecolab. As stated in the Company's news release dated April
20, 2000, the Company believes diluted net income per share for the full year in
the $1.50 per share range will be achievable for 2000.
Sales of the Company's United States Cleaning & Sanitizing operations were $360
million, an increase of 7 percent compared with sales of $337 million in the
first quarter of last year. Sales benefited from double-digit growth in sales of
Kay operations and good growth from Institutional and Food & Beverage
businesses. Growth also reflected benefits from sales of new products, new
customers, investments in the sales-and-service force and generally good
conditions in the hospitality and lodging industries. Business acquisitions
accounted for approximately 25 percent of the growth in U.S. Cleaning &
Sanitizing sales. Selling price increases during the first quarter of 2000 were
not significant. Sales of the Company's Institutional operations increased 7
percent for the first quarter of 2000. Institutional's results included strong
double-digit growth in its specialty program and good growth in its
Raburn/Equipment businesses. Kay's U.S. operations reported sales growth of 26
percent for the first quarter. Excluding the acquisition of SSDC, Kay's sales
increased 13 percent with continued double-digit growth in its food retail
services business and good results in sales to its core quickservice customers.
Textile Care sales were flat for the first quarter of 2000. Textile Care
continues to experience pressures from consolidations in the commercial laundry
market and a difficult pricing environment. The Company expects the U.S. Textile
Care business to continue to experience challenging market conditions over the
near term. Sales of Professional Products operations were down 7 percent
reflecting lower specialty product sales, distributor sales and sales to
government and education markets. Water Care sales increased 4 percent for the
first quarter with good growth in sales to the food and beverage, hospitality
and commercial laundry markets. The Company's Food & Beverage operations
reported sales growth of 5 percent with good growth in sales to the food, meat
and beverage
15
<PAGE>
ECOLAB INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
RESULTS OF OPERATIONS - FIRST QUARTER ENDED MARCH 31, 2000 (continued)
processing markets. Vehicle Care sales increased 30 percent for the first
quarter of 2000. When adjusted for the impact of the Blue Coral acquisition in
1999, sales were flat principally due to unusual weather conditions, which
depressed car wash usage.
For the first quarter ended March 31, 2000, sales of the Company's United States
Other Services operations increased 15 percent to $55 million. Pest Elimination
sales increased 11 percent for the first quarter with double-digit sales in most
areas of their business. GCS Service sales increased 24 percent for the first
quarter of 2000. Excluding the effects of an acquisition in late 1999, sales
increased 14 percent. The Company is focusing on coordinating GCS operations
with other Ecolab businesses and expanding operations to provide national
coverage.
Management rate sales for the Company's International Cleaning & Sanitizing
operations were $112 million for the first quarter of 2000, an increase of 5
percent over sales of $106 million in the comparable quarter of last year. The
growth in sales in Latin America along with the benefits of business
acquisitions are the primary reasons for this increase. Sales in the Asia
Pacific region were flat for the first quarter. Double-digit sales increases in
East Asia were offset by lower sales in Japan and Australia. Latin America sales
rose 22 percent for the quarter with especially strong results in Mexico and
improved growth in Brazil. Sales in Canada increased 7 percent with good growth
in sales to both the institutional and food & beverage markets.
Operating income of the Company's United States Cleaning & Sanitizing operations
was $54 million for the first quarter of 2000, an increase of 6 percent over
operating income of $51 million in the first quarter of last year. The operating
income margin for the U.S. Cleaning & Sanitizing operations decreased to 14.9
percent of sales from 15.1 percent of net sales in the first quarter of 1999.
Operating income margins benefited from strong core operations, higher sales
volume, sales of new products and cost controls, but were offset by the impact
of a $1.7 million bad debt expense from a major distributor, poor results of
Professional Products operations, and investments in the sales-and-service force
to support new business development. Excluding the impact of the $1.7 million
bad debt charge, operating income increased 9 percent for the first quarter and
operating margins rose to 15.4 percent in the quarter from 1999's 15.1 percent.
First quarter 2000 operating income of United States Other Services rose 19
percent to $5.4 million with strong performances by both Pest Elimination and
GCS. The operating income margin for U.S. Other Services increased to 10.0
percent of net sales from 9.6 percent in the first quarter of last year.
16
<PAGE>
ECOLAB INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
RESULTS OF OPERATIONS - FIRST QUARTER ENDED MARCH 31, 2000 (continued)
Operating income of International Cleaning & Sanitizing operations was $11
million for the first quarter, an increase of 33 percent over first quarter 1999
operating income of $8 million. The operating income margin improved to 9.7
percent of net sales in the first quarter of 2000 from 7.7 percent in the
comparable period of last year. Significant operating income growth and
operating income margin improvement in Latin America and Canada contributed to
this increase. Operating income in the Asia Pacific region was flat for the
first quarter.
The Company's equity in earnings of Henkel-Ecolab were $2.9 million for the
first quarter ended March 31, 2000, and increased 35 percent over $2.1 million
of equity in earnings in the first quarter of last year. Earnings of
Henkel-Ecolab reflected strong sales, favorable margins, and cost controls which
more than offset investments in the sales-and-service force. Henkel-Ecolab
sales, although not consolidated, increased 9 percent for the first quarter of
2000 when measured in Deutsche marks.
Corporate operating income was $2.6 million for the first quarter ended March
31, 2000. Corporate operations, which normally represents only overhead costs
directly related to Henkel-Ecolab, also included the recognition of $3.8 million
of income related to net reductions in damages claimed in environmental matters
in the first quarter of 2000.
Net interest expense totaled $5.4 million for the first quarter, a decrease of 7
percent from net interest expense of $5.8 million in the first quarter of 1999.
This decrease is primarily due to reduced debt levels.
The provision for income taxes for the first quarter of 2000 reflected an
estimated annual effective income tax rate of 41.0 percent, down from the first
quarter of 1999 estimated annual effective rate of 41.8 percent. This decrease
was principally due to lower anticipated overall effective rates on earnings of
international operations for 2000.
17
<PAGE>
ECOLAB INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
FINANCIAL POSITION AND LIQUIDITY
Total assets were $1.6 billion at March 31, 2000, an increase of 3 percent over
total assets at year-end 1999. The increase in March 31, 2000 other assets over
year-end 1999 was principally due to intangible assets added through business
acquisitions.
Total debt was $311 million at March 31, 2000, up from total debt of $281
million at year-end 1999. This increase in total debt was principally due to
business acquisitions. The ratio of total debt to capitalization was 28 percent
at March 31, 2000, compared with 27 percent at December 31, 1999.
Cash provided by operating activities totaled $47 million, an increase of 5
percent over $45 million in the first quarter of last year. Operating cash flows
for 2000 reflected strong earnings performance and the additional cash flows
from businesses acquired.
The Company reacquired 222,700 shares of its common stock during the first
quarter of 2000 under its two authorized share repurchase programs. The Company
maintains a share repurchase program which is intended to offset the dilutive
effect of shares issued for employee benefit plans. The Company also reacquires
shares for general corporate purposes under a separate program established in
1995. At March 31, 2000, there were approximately 3.0 million shares remaining
to be purchased under this general program. The Company anticipates that it will
continue to periodically reacquire shares under its share repurchase programs.
FORWARD-LOOKING STATEMENTS AND RISK FACTORS
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements. In this report on Form 10-Q, management discusses
expectations regarding future performance of the Company which may include
anticipated financial performance including year 2000 earnings per share
expectations, business prospects, in particular for the Textile Care and GCS
divisions, investments in the sales-and-service force, continuation of share
repurchases, 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.
18
<PAGE>
ECOLAB INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
FORWARD-LOOKING STATEMENTS AND RISK FACTORS (continued)
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 undo 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
the section of this report containing the forward-looking statement.
Risks and uncertainties that may affect operating results and business
performance include: restraints on pricing flexibility due to competitive
factors and customer consolidations, cost increases due to higher oil prices,
availability of adequate and reasonably priced raw materials; the occurrence of
capacity constraints, or the loss of a key supplier, which in either case limit
the production of certain products; the effects of acquisitions and difficulties
in carrying 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 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, euro conversion and the
development of markets; the occurrence of (i) litigation or claims, (ii) natural
or manmade disasters, and (iii) severe weather conditions affecting the food
service and the 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 increase
or that the degree of improvement will meet investors' expectations.
19
<PAGE>
PART II. - OTHER INFORMATION
Item 2(c) RECENT SALES OF UNREGISTERED SECURITIES
On February 22, 2000, the Company issued 424,111 shares of
Common Stock to the three owners of Southwest Sanitary
Distributing Company ("SSDC") in a private transaction as
partial consideration for the acquisition of SSDC. The
transaction was exempt from registration pursuant to Section
4(2) of the Securities Act of 1933.
Item 6 EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) The following documents are filed as exhibits to this report:
(15) Letter regarding unaudited interim financial information.
(27) Financial Data Schedule.
(b) No reports on Form 8-K were filed during the quarter ended March
31, 2000.
20
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
ECOLAB INC.
Date: May 5, 2000 By: /s/ S.L. Fritze
-------------------------------
Steven L. Fritze
Vice President and Controller
(duly authorized officer and
Principal Accounting Officer)
21
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DOCUMENT METHOD OF FILING
(15) Letter regarding unaudited Filed herewith
interim financial information electronically
(27) Financial Data Schedule Filed herewith
electronically
22
<PAGE>
Exhibit (15)
May 5, 2000
Securities and Exchange Commission
450 Fifth Street N.W.
Washington, DC 10549
RE: Ecolab Inc. Registration Statements on Form S-8 (Registration Nos. 2-60010;
2-74944; 33-1664; 33-41828; 2-90702; 33-18202; 33-55986; 33-56101;
333-95043; 33-26241; 33-34000; 33-56151; 333-18627; 33-39228; 33-56125;
333-70835; 33-60266; 333-95041; 33-65364; 33-59431; 333-18617; 333-79449;
333-21167; 333-35519; 333-40239; 333-95037; 333-50969; and 333-62183) and
Registration Statements on Form S-3 (Registration Nos. 333-14771 and
333-35378).
Commissioners:
We are aware that our report dated April 20, 2000, on our reviews of interim
financial information of Ecolab Inc. for the periods ended March 31, 2000 and
1999 and included in the Company's quarterly report on Form 10-Q for the quarter
ended March 31, 2000, is incorporated by reference in Ecolab Inc.'s Registration
Statements listed above.
Yours very truly,
/s/PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF MAR-31-2000 AND THE RELATED STATEMENTS OF
INCOME AND CASH FLOWS FOR THE THREE MONTH PERIOD THEN ENDED AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 22,764
<SECURITIES> 0
<RECEIVABLES> 328,263
<ALLOWANCES> 16,806
<INVENTORY> 184,175
<CURRENT-ASSETS> 576,021
<PP&E> 970,880
<DEPRECIATION> 518,980
<TOTAL-ASSETS> 1,632,754
<CURRENT-LIABILITIES> 495,799
<BONDS> 171,382
0
0
<COMMON> 146,097
<OTHER-SE> 642,191
<TOTAL-LIABILITY-AND-EQUITY> 1,632,754
<SALES> 526,260
<TOTAL-REVENUES> 526,260
<CGS> 236,484
<TOTAL-COSTS> 236,484
<OTHER-EXPENSES> 217,095
<LOSS-PROVISION> 0<F1>
<INTEREST-EXPENSE> 5,938
<INCOME-PRETAX> 67,324
<INCOME-TAX> 27,603
<INCOME-CONTINUING> 42,612
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 42,612
<EPS-BASIC> 0.33
<EPS-DILUTED> 0.32
<FN>
<F1>THE AMOUNT OF "LOSS PROVISION" IS NOT SIGNIFICANT AND HAS BEEN INCLUDED IN
"OTHER EXPENSES"
</FN>
</TABLE>
