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.
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
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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.
Positions Held
Name Age Office Since Jan. 1, 1993
- ---- --- ------ ------------------
A. L. Schuman 63 President and Chief March 1995 - Present
Executive Officer
President and Chief Jan. 1993 - Feb. 1995
Operating Officer
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Positions Held
Name Age Office Since Jan. 1, 1993
- ---- --- ------ ------------------
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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Positions Held
Name Age Office Since Jan. 1, 1993
- ---- --- ------ ------------------
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
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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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
SIZE OWNED/
LOCATION (SQ. FT.) TYPES OF PRODUCTS LEASED
- -------- --------- ----------------- ------
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
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ECOLAB OPERATIONS PLANT PROFILES (CONTINUED)
SIZE OWNED/
LOCATION (SQ. FT.) TYPES OF PRODUCTS LEASED
- -------- --------- ----------------- ------
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
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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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:
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1997 1996
-------- --------
Quarter High Low High Low
------- ---- --- ---- ---
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
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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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.
-19-
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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(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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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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(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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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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(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-
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-
(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-
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-
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-
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-
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
ECOLAB INC.
(In Thousands)
- -------------------------------------------------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------------------------------------------------
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
(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-
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-
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-
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-
HENKEL-ECOLAB JOINT VENTURE
COMBINED STATEMENTS OF INCOME
Twelve Months ended Twelve Months ended Twelve Months ended
(Thousands) November 30, 1997 November 30, 1996 November 30, 1995
- ------------------------------------------------------------------------------------------------------------------
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
-- ------ -- ------ -- ------
-- ------ -- ------ -- ------
See accompanying Notes to Combined Financial Statements
-35-
HENKEL-ECOLAB JOINT VENTURE
COMBINED BALANCE SHEETS
November 30, November 30, November 30,
(Thousands) 1997 1996 1995
- ------------------------------------------------------------------------------------------
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
------------ ------------ ------------
See accompanying Notes to Combined Financial Statements
-36-
HENKEL-ECOLAB JOINT VENTURE
COMBINED STATEMENTS OF CASH FLOWS
Twelve Months ended Twelve Months ended Twelve Months ended
(Thousands) November, 30 1997 November, 30 1996 November, 30 1995
- ----------------------------------------------------------------------------------------------------------------------
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
------------- ------------- -------------
------------- ------------- -------------
See accompanying Notes to Combined Financial Statements
-37-
HENKEL-ECOLAB JOINT VENTURE
COMBINED STATEMENTS OF EQUITY
(Thousands)
Contributed Retained Cumulative
Capital Earnings Foreign Total
Currency
Translation
---------------------------------------------------------
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
- ----------------------- ------- ------- -------- -------
See accompanying Notes to Combined Financial Statements
-38-
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-
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-
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-
HENKEL-ECOLAB JOINT VENTURE
2. BALANCE SHEET INFORMATION
(Thousands) November 30, November 30, November 30,
1997 1996 1995
- ------------------------------------------------------------------------------------------------
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
------- -------
------- -------
-42-
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-
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-
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:
Deferred tax assets: November November November
30, 1997 30, 1996 30, 1995
-------- -------- --------
TDM TDM TDM
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
-------------------------------------
-------------------------------------
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-
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:
1997 1996 1995
---- ---- ----
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%
----- ----- -----
----- ----- -----
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-
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):
1997 1996 1995
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
------- ------- -------
------- ------- -------
The status of the above employee pension benefit plans at November 30, 1997,
1996 and 1995 is summarized below (TDM):
Actuarial present value of: 1997 1996 1995
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
------- ------- -------
------- ------- -------
-47-
The following assumptions have been used to develop net periodic pension expense
and the actuarial present value of projected benefit obligations:
1997 1996 1995
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 %
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-
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
1997 1996 1995
----- ----- -----
TDM TDM TDM
Notes 5,418 6,035 6,617
Less current maturities 656 652 712
----- ----- -----
Total 4,762 5,383 5,905
----- ----- -----
----- ----- -----
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-
7. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
The Joint Venture operates internationally, giving rise to exposure to market
risks from changes in interest rates and foreign exchange rates. Derivative
financial instruments are utilized by the Joint Venture to reduce certain of
these risks, as explained in this note. The Joint Venture does not hold or issue
financial instruments for trading purposes. The Joint Venture is exposed to
credit-related losses in the event of nonperformance by counterparties to
financial instruments, but it does not expect any counterparties to fail to meet
their obligations given their high credit ratings.
a) Notional Amounts and Credit Exposures of Derivatives
The notional amounts of derivatives summarized in section b) do not represent
amounts exchanged by the parties and, thus, are not a measure of the exposure of
the Joint Venture through its use of derivatives. The amounts exchanged are
calculated on the basis of the notional amounts and the other terms of the
derivatives, which relate to exchange rates.
b) Foreign Exchange Risk Management
The Joint Venture enters into various types of foreign exchange contracts in
managing its foreign exchange risk, as indicated in the following table (TDM):
November 30,1997 November 30,1996
---------------- ----------------
Notional Credit Notional Credit
Amount Exposure Amount Exposure
------ -------- ------ --------
Forwards 57,077 0 17,562 0
Options purchased 7,054 0 0 0
------ - ------ -
64,131 0 17,562 0
------ - ------ -
------ - ------ -
-50-
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):
1997 1996
-------------- --------------
Buy Sell Buy Sell
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
------ ------ ------ ------
------ ------ ------ ------
c) Fair Value of Off Balance Sheet Financial Instruments
The fair value of off balance sheet financial instruments is not significant.
-51-
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-
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):
1998 24,014
1999 19,147
2000 12,246
2001 5,668
2002 5,315
thereafter 6,078
------
Total 72,468
------
------
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-
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-
HENKEL-ECOLAB JOINT VENTURE
Schedule - Valuation and Qualifying Accounts and Reserves
(Thousands)
- ----------------------------------------------------------------------
Description Balance, Additions Deductions Balance,
Beg. of (a) from Close of
Period Reserve Period
(b)
- ----------------------------------------------------------------------
Period Ended
November 30, 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
----------------------------------------------
----------------------------------------------
(a) Provision for doubtful accounts
(charged to expenses)
(b) Items determined to be uncollectible,
less recovery of amounts previously written off.
-55-
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-
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-
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-
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-
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-
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-
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-