FINANCIAL DISCUSSION
The following discussion and analysis provides information that management
believes is useful in understanding the company's operating results, cash flows
and financial condition. The discussion should be read in conjunction with the
consolidated financial statements and related notes.
This financial discussion and other portions of this Annual Report to
Shareholders contain various "Forward-Looking Statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. These statements, which
represent Ecolab's expectations or beliefs concerning various future events, are
based on current expectations that involve a number of risks and uncertainties
which could cause actual results to differ materially from those of such
Forward-Looking Statements. We refer readers to the company's statement entitled
"Forward-Looking Statements and Risk Factors" which is contained under Item 1 of
the Company's Annual Report on Form 10-K for the year ended December 31, 1997.
Additional risk factors may be described from time to time in Ecolab's filings
with the Securities and Exchange Commission.
1997 OVERVIEW
Ecolab achieved another year of exceptionally strong financial results in 1997.
It was the sixth consecutive year of record financial results for the company.
These financial accomplishments were recognized in the marketplace as Ecolab's
stock price increased 47 percent during 1997 and, including cash dividends,
yielded a 49 percent total return to shareholders. The more significant
accomplishments included:
TOTAL RETURN TO SHAREHOLDERS
(Percent)
[GRAPH]
- - For the second year in a row, the company exceeded all three of its long-term
financial objectives of 15 percent growth in net income per common share, 20
percent return on beginning shareholders' equity and an investment grade balance
sheet.
- - Consolidated net sales reached a record $1.6 billion, an increase of 10
percent over the prior year.
- - The core Institutional and Food & Beverage operations had strong performances.
As a result, the company's gross profit margin reached 56.0 percent of net sales
and the 1997 operating income margin increased to 13.3 percent of net sales;
both representing record levels.
- - Net income for 1997 increased to a record level of $134 million, or basic net
income per common share of $1.03. During 1997, the company also reported diluted
net income per common share, as required under new accounting standards. For
1997, diluted net income per common share was $1.00, a record high and an 18
percent increase over the prior year.
- - The company continued to realize strong operating cash flows and maintained
moderate debt levels. As a result, Ecolab maintained its long-term financial
objective of an investment grade balance sheet and the company's debt was rated
within the "A" categories by the major rating agencies.
- - Return on beginning shareholders' equity reached a record 25.8 percent. 1997
was the sixth consecutive year that the company exceeded its long-term financial
objective to achieve a 20 percent return on beginning shareholders' equity.
RETURN ON BEGINNING EQUITY
(Percent)
[GRAPH]
- - The company increased its annual dividend rate for the sixth consecutive year.
The annual dividend rate was increased 19 percent to an annual rate of $0.38 per
common share. The company has paid dividends on its common stock for 61
consecutive years.
- - The company's common stock was split two-for-one in the form of a 100 percent
stock dividend paid January 15, 1998 to shareholders of record on December 26,
1997. This was the third such stock split in the last 11 years. All per share
and number of share data included in the 1997 financial report have been
retroactively restated to reflect the stock split, except for the Consolidated
Statement of Shareholders' Equity.
- - The company made several business acquisitions during 1997. At year-end 1997,
the company acquired Gibson Chemical Industries Limited (Gibson) located in
Melbourne, Australia. Gibson is a manufacturer and marketer of cleaning
28
FINANCIAL DISCUSSION
and sanitizing products, primarily for the Australian and New Zealand
institutional, healthcare and industrial markets. Gibson has been included in
the company's consolidated balance sheet at year-end 1997 and will be included
in the company's consolidated results of operations beginning in 1998. Gibson
had annual sales of approximately $130 million in 1997.
During 1997, the company also added to its Institutional and Food &
Beverage operations in the United States and to its operations in Canada and in
the Central Africa region through business acquisitions.
All of these acquisitions have been accounted for as purchases, and
accordingly, the results of their operations have been included in the company's
financial statements from the dates of acquisition. Additional information
related to these acquisitions is included in Note 5 of the notes to consolidated
financial statements.
OPERATING RESULTS
CONSOLIDATED
(thousands, except per share) 1997 1996 1995
- ----------------------------- ---------- ---------- ----------
Net sales $1,640,352 $1,490,009 $1,340,881
Operating income 218,504 185,317 162,686
Net income $ 133,955 $ 113,185 $ 99,189
Net income per common share
Basic $ 1.03 $ 0.88 $ 0.75
Diluted $ 1.00 $ 0.85 $ 0.73
Consolidated net sales for 1997 were over $1.6 billion, an increase of 10
percent compared to net sales of nearly $1.5 billion in 1996. Both the company's
U.S. and International operations contributed to this sales growth. Business
acquisitions in 1997 and the annualized effect of businesses acquired in 1996
accounted for approximately one-fourth of the growth in sales for 1997. The
growth in sales also reflected the benefits of new product introductions, an
increased sales-and-service force, new customers and competitive gains. A
continuation of generally good conditions in the hospitality and lodging
industries, particularly in the United States, also had a favorable effect on
sales for 1997.
Consolidated
Business Mix
Sales
(Dollars in Millions)
[Graph]
Consolidated operating income increased 18 percent for 1997 and reached
$219 million compared to consolidated operating income of $185 million in 1996.
This growth included the benefits of business acquisitions, which accounted for
approximately 20 percent of the increase. The consolidated operating income
margin was 13.3 percent in 1997, a substantial improvement over the 1996
consolidated operating income margin of 12.4 percent. Most of the company's
businesses contributed to these income improvements; however, strong
performances by the core U.S. Institutional and Food & Beverage businesses
during 1997 were the major contributors to the company's overall profit
improvement. The increase in the operating income margin for 1997 reflected a
substantial increase in the gross profit margin, which was partially offset by a
modest increase in selling, general and administrative expenses as a percentage
of net sales. The gross profit margin improved to 56.0 percent in 1997 from a
gross profit margin of 54.7 percent in 1996. The increase in gross profit margin
reflected higher sales levels of the company's more profitable core U.S.
operations, a more stable raw material cost environment and good sales volume
growth, particularly in the sales of new products. The benefits of selling price
increases continued to be limited due to market pressures. Selling, general and
administrative expenses were 42.7 percent of net sales in 1997, compared to 42.3
percent of net sales in 1996. This increase reflected investments in the
sales-and-service force and the higher sales levels of the core U.S. operations,
which have relatively higher selling expenses. These increases were partially
offset by continued tight cost controls, improved sales productivity levels and
strong sales growth during 1997. The company anticipates that the monetary
problems which began in East Asia in late 1997 will slow the growth of
consolidated operating income results in 1998, particularly early in the year.
However, the impact is expected to be limited unless substantially broader areas
of the Asia Pacific region are affected.
Net income for 1997 reached $134 million, or $1.00 per share on a diluted
basis, and increased 18 percent over last year's net income of $113 million, or
$0.85 per share. Net income improved to 8.2 percent of net sales, compared to
29
FINANCIAL DISCUSSION
7.6 percent in 1996. The increase in net income reflected the benefits of strong
operating income performance, lower net interest expense and modestly higher
equity in earnings of the Henkel-Ecolab joint venture, which were partially
offset by increased income taxes.
1996 COMPARED WITH 1995
Consolidated net sales were nearly $1.5 billion in 1996 and increased 11 percent
over net sales of $1.3 billion in 1995. Both the company's U.S. and
International operations contributed to this sales improvement. Businesses
acquired during 1996 and during late 1995 accounted for approximately one-half
of the growth in sales for 1996. New product introductions continued to
contribute significantly to sales growth, with additions to the sales force and
competitive gains also adding to the sales improvement.
Consolidated operating income reached $185 million in 1996, an increase of
14 percent over operating income of $163 million in 1995. This improvement
included good growth in the company's core U.S. Institutional operations and
double-digit growth in all of the company's other U.S. businesses and in all
major regions of International operations. The consolidated operating income
margin was 12.4 percent in 1996, an improvement over the operating income margin
of 12.1 percent in 1995. The benefits of the company's continuing cost-control
efforts more than offset increased raw material costs and limited selling price
increases.
Net income for 1996 was $113 million, an increase of 14 percent over net
income of $99 million in 1995. The increase in net income reflected strong
operating income performance and increased equity in earnings of the
Henkel-Ecolab joint venture, partially offset by increases in net interest
expense and income taxes. Diluted net income per common share was $0.85 for 1996
and increased 16 percent over 1995's diluted net income per common share of
$0.73. The comparison of net income per common share benefited from a smaller
number of average shares outstanding in 1996, principally due to the purchase of
approximately 7 million shares of the company's common stock in mid-1995 under
the terms of a "Dutch auction" self-tender offer.
UNITED STATES
(thousands) 1997 1996 1995
- ----------------------------- ---------- ---------- ----------
Net sales $1,275,828 $1,148,778 $1,030,126
Operating income $ 195,630 $ 164,886 $ 147,330
Percent of sales 15.3% 14.4% 14.3%
Sales of the company's U.S. operations were nearly $1.3 billion in 1997 and
increased 11 percent over sales of $1.1 billion in 1996. U.S. sales reflected
strong growth in the core Institutional and Food & Beverage operations and in
Pest Elimination sales and included benefits from business acquisitions,
significant new product introductions, new customers and competitive gains,
investments in the sales-and-service force and a continuation of good business
trends in the hospitality and lodging industries. The benefits of selling price
increases continued to be limited due to tight pricing conditions in several of
the markets in which the company does business. Business acquisitions accounted
for approximately 25 percent of U.S. sales growth for 1997. Sales of the U.S.
Institutional Division increased 10 percent for 1997. Institutional's growth
reflected strong sales in all of its business units, significant new customer
business and competitive gains, continued strong growth in its ECOTEMP program
and the successful rollout of its new KEYSTONE product line sold through
partnership with a distributor. The Pest Elimination Division also reported a 10
percent sales growth for 1997, despite increased competitive activity. Pest
Elimination continues to develop new programs to leverage its alliances with
Ecolab's other divisions. Sales of Kay's U.S. operations increased 6 percent for
1997. Kay was unfavorably affected by a more competitive quickservice market;
however, Kay added another major quickservice chain customer in 1997 and had
good growth in sales to the grocery market, which it entered last year. Sales of
the Textile Care Division decreased 3 percent for 1997. Continued plant
consolidations, particularly in laundries serving the healthcare market,
increased competitive activity and comparison against periods that benefited
significantly from new product introductions unfavorably affected Textile Care's
sales growth. The company expects the U.S. Textile Care
UNITED STATES
BUSINESS MIX
SALES
(Dollars in Millions)
[GRAPH]
30
FINANCIAL DISCUSSION
business to continue to experience challenging market conditions over the near
term. The Professional Products Division reported sales growth of 12 percent for
1997. This sales improvement reflected last year's acquisition of Huntington
Laboratories, good growth in sales to corporate accounts, and the addition of
new products to its commercial mass distribution line. Sales of the company's
Water Care Services Division were down 2 percent for 1997 and reflected the
elimination of low margin business, consolidation of business acquisitions made
over the past three years, integration of disparate product lines, and the
refining of sales efforts. The Food & Beverage Division reported a sales
increase of 24 percent for 1997. Food & Beverage sales growth included the
benefits of Chemidyne, a provider of cleaning and sanitizing products and
equipment to the meat, poultry and processed food markets, which was acquired in
August 1997, and the annualized effect of the acquisition of Monarch in August
of 1996. Excluding these business acquisitions, Food & Beverage sales growth was
9 percent for 1997 and included growth in sales to all of its markets with
double-digit growth in sales to the food processing and beverage markets.
Operating income for the company's U.S. operations reached $196 million, an
increase of 19 percent over operating income of $165 million in 1996. Business
acquisitions accounted for approximately 20 percent of U.S. operating income
growth for 1997. With the exception of the Textile Care Division, all of the
company's U.S. businesses reported increased operating income, with particularly
strong growth in the core Institutional and Food & Beverage operations. The U.S.
operating income margin improved to 15.3 percent of net sales from 14.4 percent
in 1996. The improved operating income margin reflected the benefits of strong
core business sales, sales of new products, stable raw material costs, sales
productivity improvements and tight cost controls, which were partially offset
by investments in the sales-and-service force. During 1997, the company added
approximately 285 sales-and-service personnel, including Chemidyne associates.
1996 COMPARED WITH 1995
Sales of the company's U.S. operations exceeded $1.1 billion in 1996, an
increase of 12 percent over U.S. sales of $1.0 billion in 1995. U.S. sales
growth reflected business acquisitions and the benefits of significant new
product introductions. Business acquisitions accounted for approximately
one-half of the increase in U.S. sales. Sales of the U.S. Institutional Division
increased 4 percent for 1996. Institutional sales growth reflected competitive
gains and continued strong growth in its ECOTEMP program and the specialty
products group. Pest Elimination sales increased 12 percent over the prior year,
reflecting new business and a continued high retention of key customers. Kay's
U.S. operations reported sales growth of 11 percent for 1996 due to new customer
business and the growth of the large quickservice chains, which are the core of
Kay's business. The Textile Care Division reported sales growth of 9 percent for
1996, with continued success in sales of new products and double-digit growth in
sales to the commercial laundry market. Sales of the company's Professional
Products Division nearly doubled due to the February 1996 acquisition of
Huntington Laboratories. Excluding sales of the Huntington operations,
Professional Products sales for 1996 increased 3 percent over 1995, principally
due to sales growth of its Airkem products. Sales of the Food & Beverage
Division increased 13 percent for 1996 and included the operations of Monarch
since its acquisition from H.B. Fuller in August 1996. Excluding Monarch sales,
Food & Beverage sales growth was 5 percent for 1996, and reflected new customer
gains and good growth in sales to the beverage and food processing markets.
Sales of the company's recently formed Water Care Services Division more than
doubled during 1996 due to the annualization of sales from business acquisitions
and sales gained by successfully leveraging its alliances with Ecolab's other
divisions.
Operating income for the company's U.S. businesses totaled $165 million for
1996 and increased 12 percent over operating income of $147 million in 1995. The
growth in operating income included good growth in the company's U.S.
Institutional business and double-digit increases in operating income of all of
the company's other U.S. divisions. The U.S. operating income margin was 14.4
percent, up slightly compared to the operating income margin of 14.3 percent in
1995. The improvement in operating income margin reflected higher sales levels,
sales productivity gains and the benefits of company-wide cost-control programs.
31
FINANCIAL DISCUSSION
INTERNATIONAL
(thousands) 1997 1996 1995
- --------------------------------- -------- -------- --------
Net sales $364,524 $341,231 $310,755
Operating income $ 26,962 $ 23,871 $ 19,580
Percent of sales 7.4% 7.0% 6.3%
The company's International business consists of established major
operations in Asia Pacific, Latin America and Canada. In addition, on a smaller
scale, Kay serves various international markets and the company has start-up
operations in Africa and serves various international locations through its
export business. Net sales of the company's International operations totaled
$365 million for 1997, which represented growth of 7 percent over sales of $341
million in 1996. International sales growth included benefits of business
acquisitions and significant new product introductions. Businesses acquired in
Canada and Africa in 1997 and the annualization of 1996 Canadian business
acquisitions accounted for approximately 50 percent of International's sales
growth for 1997. Changes in currency translation had a negative impact on
reported sales, particularly in the Asia Pacific region. Excluding the effects
of currency translation, sales of International operations increased 11 percent
for 1997. The Asia Pacific region, International's largest operation, reported
sales growth of 2 percent for 1997. However, when measured in local currencies,
Asia Pacific had sales growth of 9 percent with double-digit growth in Japan,
modest growth in New Zealand and flat results in Australia. Asia Pacific sales
to institutional markets increased at double-digit rates and the region recorded
good growth in sales to the food and beverage markets. The acquisition of
Gibson, primarily serving the Australian and New Zealand institutional,
healthcare and industrial markets, was effective at year-end 1997 and will add
significantly to the company's operations in the Asia Pacific region in 1998.
Latin America reported U.S. dollar sales growth of 9 percent for 1997. The
effects of changes in currency translation did not have a significant impact on
Latin America's reported sales. Growth in the Latin America region was led by
Mexico with significant double-digit growth and included good growth in Brazil.
The region reported double-digit growth in sales to the food and beverage
markets and good growth in Institutional sales. Canada reported sales growth of
15 percent for 1997, which included a modest negative impact from changes in
currency translation. Approximately 70 percent of Canada's sales growth was due
to business acquisitions. Canada's results also included good growth in sales to
the institutional and food and beverage markets. Overall International sales
results for 1997 included the benefits of business acquisitions in Central
Africa during 1997 and good growth in sales of Kay's international operations.
Sales in South Africa decreased during 1997, principally due to the elimination
of low margin business.
INTERNATIONAL
BUSINESS MIX
SALES
(Dollars in Millions)
[GRAPH]
Operating income for International's operations totaled $27 million in
1997, an increase of 13 percent over operating income of $24 million in 1996.
Business acquisitions accounted for approximately 40 percent of the growth in
International's operating income for 1997. Excluding the effects of currency
translation, International operating income growth was 21 percent for 1997.
Reported operating income margins improved to 7.4 percent of net sales in
1997 compared with 7.0 percent in 1996. Double-digit operating income growth
in Asia Pacific and Canada more than offset a decrease in operating income in
the Latin America region, which was principally due to investments in Brazil
and Argentina. The company expects the monetary problems that began in East
Asia in late 1997 to impact the Asia Pacific region in 1998. Although the
company's operations in the areas primarily affected are limited, the company
is cautious about growth for the year due to the uncertain economic
conditions in the region.
Operating income margins of the company's International operations are
substantially less than the operating income margins realized for the company's
U.S. operations. The lower International margins are due to the difference in
scale of International operations, where operating locations are smaller in
size, and to the additional costs of operating in numerous and diverse foreign
jurisdictions. Proportionately larger investments in sales and administrative
personnel are also necessary in order to facilitate growth of International
operations.
1996 COMPARED WITH 1995
Total revenues for International operations of $341 million in 1996 increased 10
percent over revenues of $311 million in 1995. International's sales growth
reflected the benefits of business acquisitions and sales of new products.
Business acquisitions accounted for approximately 40 percent of International's
sales growth over 1995. Changes in currency translation had a negative impact on
sales, particularly in the Asia Pacific region. Asia Pacific reported sales
growth of 4 percent for 1996. When measured in local currencies, the Asia
Pacific region had sales
32
FINANCIAL DISCUSSION
growth of 9 percent, with double-digit growth in Japan and New Zealand and
modest growth in Australia. Reported sales of the Latin America region increased
13 percent over the prior year. Excluding the effects of currency translation,
Latin America recorded sales growth of 16 percent for 1996, which included a
continuation of significant double-digit growth in Brazil and good sales growth
in Mexico and Puerto Rico. Sales in Canada increased 9 percent over sales in
1995 and reflected the benefits of the Huntington and Monarch acquisitions and
good growth in sales to institutional markets. Sales in South Africa more than
doubled over the prior year, reflecting the annualization of sales from
businesses acquired in late 1995. Sales of Kay's international operations
increased 16 percent for 1996.
The company's International operations reported operating income of $24
million in 1996, an increase of 22 percent over operating income of $20 million
in 1995. Excluding the effects of currency translation, International operating
income growth was 29 percent for 1996. The reported operating income margin
improved to 7.0 percent compared with the operating income margin of 6.3 percent
in the prior year. Operating income results included double-digit growth and
improved operating income margins in each of the major regions of Asia Pacific,
Latin America and Canada, with a continuation of particularly strong growth in
Brazil.
HENKEL-ECOLAB JOINT VENTURE
The company operates institutional and industrial cleaning and sanitizing
businesses in Europe through its 50 percent economic interest in the
Henkel-Ecolab joint venture. The company includes the operations of the
Henkel-Ecolab joint venture in its financial statements using the equity method
of accounting. The company's equity in earnings of the joint venture, including
royalty income and after deduction of intangible amortization, was $13 million
in 1997, a 3 percent increase over 1996. Results were negatively affected by the
stronger U.S. dollar. When measured in Deutsche marks, net income of the joint
venture increased 11 percent and reflected increased sales, improved gross
margins and lower interest expense, partially offset by investments in the
sales-and-service force.
Joint venture sales, although not consolidated in Ecolab's financial
statements, increased 7 percent for 1997 when measured in Deutsche marks and
included the benefits of a business acquisition, benefits of new product
transfers from Ecolab to the joint venture and good sales to the institutional
and food hygiene markets. When measured in U.S. dollars, however, joint venture
sales for 1997 decreased 7 percent.
HENKEL-ECOLAB
BUSINESS MIX
ECOLAB'S EQUITY
IN EARNINGS
(Dollars in Millions)
[GRAPH]
1996 COMPARED WITH 1995
The company's equity in earnings of the Henkel-Ecolab joint venture was $13
million for 1996, a 69 percent increase over weak results of $8 million in 1995.
The improvement reflected the benefits from a number of cost-control programs
that were put into effect in 1996. Operating results at the joint venture also
reflected lower interest expense and lower overall income tax rates. Joint
venture revenues increased 4 percent for 1996 when measured in Deutsche marks.
When measured in U.S. dollars, joint venture sales were negatively affected by
the strengthening U.S. dollar, and totaled $905 million, just below the $909
million of sales recorded for 1995.
CORPORATE
Corporate operating expense was $4 million in 1997, $3 million in 1996 and $4
million in 1995. Corporate operating expense includes overhead costs directly
related to the joint venture.
INTEREST AND INCOME TAXES
Net interest expense decreased 12 percent to less than $13 million in 1997,
compared to net interest expense of over $14 million in 1996. This decrease was
principally due to a scheduled debt repayment on the company's 9.68 percent
senior notes and to increased interest income earned on higher average levels of
cash and cash equivalents held during 1997. The company anticipates that its net
interest expense will increase substantially for 1998 compared with 1997 levels,
due to borrowings incurred under the Multicurrency Credit Agreement in late 1997
for the Gibson acquisition.
Net interest expense for 1996 increased 25 percent over net interest
expense of $12 million in 1995. This increase was due to higher debt levels
during 1996, particularly during the first half of the year, reflecting cash
used during 1995 for the stock purchase self-tender offer and for business
acquisitions during late 1995 and during 1996.
33
FINANCIAL DISCUSSION
The company's annual effective income tax rate was 41.5 percent for 1997, a
modest increase from the 1996 effective income tax rate of 41.4 percent. This
increase was due to a slightly higher overall effective rate on earnings of
International operations. International's effective income tax rate varies from
year to year with the pre-tax income mix of the various countries in which the
company operates and savings related to the availability of one-time tax
strategies.
The company's annual effective income tax rate of 41.4 percent in 1996
increased from 39.5 percent in 1995. The increase in the effective income tax
rate for 1996 was primarily due to a higher overall effective rate on earnings
of International operations and to the effects of business acquisitions.
As a result of tax losses on the disposition of a discontinued business in
1992, the company's U.S. federal income tax payments were reduced in 1995 and
prior years by a total of approximately $58 million, including $3 million in
1995. However, pending final acceptance of the company's treatment of the
losses, no income tax benefit has been recognized for financial reporting
purposes. Additional reductions in U.S. federal income tax payments are not
anticipated.
YEAR 2000 CONVERSION
The "year 2000" issue is the result of computer programs having date-sensitive
software which may recognize a date using "00" as the year 1900 rather than the
year 2000. This can result in system failure or miscalculations. The company
recognizes the need to ensure that its operations will not be adversely affected
by year 2000 issues and is establishing processes which it believes will be
sufficient to evaluate and manage risks associated with the problem.
The company has largely completed a review of year 2000 compliance for its
critical operating and application systems, particularly customer-oriented
systems such as sales and order processing, billing and collections. As a
result, the company has determined that it will be required to modify or replace
significant portions of its software. This process is in progress and the
intention is to complete it by the end of 1998. The costs are not expected to be
significant.
The company is also in the process of analyzing its dispensing and cleaning
systems and its manufacturing and building maintenance operations for dependence
on date-sensitive software to identify and resolve any relevant issues in
advance of the year 2000. Although a final cost estimate has not been
determined, at this time the company does not believe the cost will be material.
The company has begun the process of surveying key suppliers, vendors and
customers to determine the status of such third parties' year 2000 remediation
plans. If the company were to determine that a supplier, vendor or customer will
not be able to remediate its year 2000 issue, the company would anticipate
taking such steps as it reasonably could to mitigate the effects.
As part of its year 2000 process the company anticipates testing its
systems for compliance; however, at this time only limited testing has occurred.
Risks and uncertainties associated with the year 2000 conversion are
discussed in the company's Form 10-K for the year ended December 31, 1997 under
the heading "Forward-Looking Statements and Risk Factors".
FINANCIAL POSITION, CASH FLOWS AND LIQUIDITY
FINANCIAL POSITION
The company reached its long-term financial objective of an investment grade
balance sheet in 1993 and has continued to maintain this objective for the last
five years. The company's debt was rated within the "A" categories by the major
rating agencies during 1997. Significant changes to the company's balance sheet
during 1997 included the following:
- - The company's balance sheet as of December 31, 1997 reflected the assets and
liabilities of Gibson and the other businesses acquired during 1997. The
increase in other noncurrent assets from year-end 1996 was principally due to
these acquisitions. Significant levels of accounts receivable, inventories,
property, plant and equipment and other current liabilities were also added
during 1997 as a result of these business acquisitions.
- - Total debt was $308 million as of December 31, 1997 and increased from total
debt of $176 million at year-end 1996 and $161 million at year-end 1995. The
increase in total debt during 1997 included $116 million of borrowings incurred
under the company's Multicurrency Credit Agreement to finance the purchase of
the outstanding common shares of Gibson, and $22 million of debt which was
included on Gibson's balance sheet at the time of acquisition. As of December
31, 1997, the ratio of total debt to capitalization was 36 percent, compared to
25 percent at year-end 1996 and 26 percent at year-end 1995.
TOTAL DEBT TO
CAPITALIZATION
[GRAPH]
34
FINANCIAL DISCUSSION
In late 1997, the company amended and restated its $225 million
Multicurrency Credit Agreement in order to provide for financing of the Gibson
acquisition. The amended and restated agreement increased the credit available
to $275 million, extended the term one year to September 2002 and specifically
provided for anticipated borrowings of Australian dollars.
- - Working capital was $105 million at December 31, 1997, compared with working
capital of $108 million at year-end 1996 and $48 million at year-end 1995. The
levels of cash and cash equivalents and short-term debt at year-end 1995 were
affected by the company's stock purchase self-tender offer in mid-1995.
- - The lower level of the company's investment in the Henkel-Ecolab joint venture
at year-end 1997 was principally due to the effects of changes in currency
translation and dividends which were received from the joint venture.
- - Other noncurrent liabilities were $125 million at December 31, 1997 and
decreased from year-end 1996 due to an income tax deposit made against
outstanding federal income tax issues.
- - The company capitalizes certain costs of computer software developed or
obtained for internal use. The amounts capitalized are not significant and the
company's policy for the capitalization of these costs is consistent with the
guidelines included in the American Institute of Certified Public Accountants
recent Statement of Position for accounting for costs of computer software
developed or obtained for internal use.
CASH FLOWS
For 1997, the company generated $235 million of cash from continuing operating
activities, compared with $254 million in 1996 and $163 million in 1995. The
decrease in operating cash flows from 1996 reflected the reversal of favorable
timing of payments, which affected the fourth quarter of 1996 and an income tax
deposit made in 1997 against outstanding federal income tax issues that had been
accrued for in other noncurrent liabilities. The decrease also reflected
favorable cash flows during 1996 from the collection of accounts receivable
related to strong fourth quarter 1995 sales. The comparison of cash provided by
continuing operating activities was favorably affected by increased earnings
during 1997 and higher dividends received from the Henkel-Ecolab joint venture.
CASH FROM CONTINUING OPERATING ACTIVITIES
(Dollars in Millions)
[GRAPH]
Cash provided by discontinued operations in 1995 reflects a reduction in
income tax payments as a result of the loss on the disposition of a discontinued
business.
Cash flows used for investing activities included capital expenditures of
$122 million in 1997, $112 million in 1996 and $110 million in 1995. Worldwide
additions of merchandising equipment, primarily cleaning and sanitizing product
dispensers, accounted for approximately 70 percent of each year's capital
expenditures. The company has expanded its manufacturing facilities over the
last two years through construction and business acquisitions in order to meet
sales requirements more efficiently. Cash was also used in 1997 for business
acquisitions, primarily Gibson and Chemidyne.
Cash provided by financing activities included $116 million of debt
incurred under the Multicurrency Credit Agreement to acquire Gibson. Strong
operating cash flows were used to provide cash for shares reacquired, cash
dividends and a scheduled repayment on the company's 9.68 percent senior notes.
In 1997, the company increased its annual dividend rate for the sixth
consecutive year. The company has paid dividends on its common stock for 61
consecutive years. Cash dividends declared per share of common stock, by
quarter, for each of the last three years were as follows:
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
- ---------- ------- ------- ------- ------- ------
1997 $0.08 $0.08 $0.08 $0.095 $0.335
1996 0.07 0.07 0.07 0.08 0.29
1995 0.0625 0.0625 0.0625 0.07 0.2575
LIQUIDITY
The company maintains a committed line of credit under the Multicurrency Credit
Agreement for general corporate financing needs. The agreement includes a
competitive bid feature to minimize the cost of the company's borrowings. The
company also has a $200 million shelf registration as an alternative source of
liquidity. The company believes its existing cash balances, cash generated by
operating activities, including cash flows from the joint venture, and available
credit are adequate to fund all of its 1998 requirements for growth, possible
acquisitions, new program investments, scheduled debt repayments and dividend
payments.
35
CONSOLIDATED STATEMENT OF INCOME
Year ended December 31 (thousands, except per share) 1997 1996 1995
- ------------------------------------------------------------------ ---------- ----------
Net Sales $1,640,352 $1,490,009 $1,340,881
Cost of Sales 722,084 674,953 603,167
Selling, General and Administrative Expenses 699,764 629,739 575,028
---------- ---------- ----------
Operating Income 218,504 185,317 162,686
Interest Expense, Net 12,637 14,372 11,505
---------- ---------- ----------
Income Before Income Taxes and Equity in
Earnings of Joint Venture 205,867 170,945 151,181
Provision for Income Taxes 85,345 70,771 59,694
Equity in Earnings of Henkel-Ecolab
Joint Venture 13,433 13,011 7,702
---------- ---------- ----------
Net Income $ 133,955 $ 113,185 $ 99,189
---------- ---------- ----------
---------- ---------- ----------
Net Income Per Common Share
Basic $ 1.03 $ 0.88 $ 0.75
Diluted $ 1.00 $ 0.85 $ 0.73
Weighted Average Common Shares Outstanding
Basic 129,446 128,991 132,193
Diluted 133,822 132,817 134,956
See notes to consolidated financial statements.
36
CONSOLIDATED BALANCE SHEET
December 31 (thousands, except per share) 1997 1996 1995
- ----------------------------------------------------------------------- ----------- -----------
ASSETS
Cash and cash equivalents $ 61,169 $ 69,275 $ 24,718
Accounts receivable, net 246,041 205,026 198,432
Inventories 154,831 122,248 106,117
Deferred income taxes 34,978 29,344 21,617
Other current assets 12,482 9,614 7,188
---------- ---------- -----------
Current Assets 509,501 435,507 358,072
Property, Plant and Equipment, Net 395,562 332,314 292,937
Investment in Henkel-Ecolab Joint Venture 239,879 285,237 302,298
Other Assets 271,357 155,351 107,573
---------- ---------- -----------
Total Assets $1,416,299 $1,208,409 $1,060,880
---------- ---------- -----------
---------- ---------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term debt $ 48,884 $ 27,609 $ 71,647
Accounts payable 130,682 103,803 81,931
Compensation and benefits 74,317 71,533 59,766
Income taxes 13,506 26,977 18,248
Other current liabilities 137,075 97,849 78,946
---------- ---------- -----------
Current Liabilities 404,464 327,771 310,538
Long-Term Debt 259,384 148,683 89,402
Postretirement Health Care and Pension Benefits 76,109 73,577 70,666
Other Liabilities 124,641 138,415 133,616
Shareholders' Equity (common stock,
par value $1.00 per share; shares
outstanding: 1997 - 129,127;
1996 - 129,600; 1995 - 129,403) 551,701 519,963 456,658
---------- ---------- -----------
Total Liabilities and Shareholders' Equity $1,416,299 $1,208,409 $1,060,880
---------- ---------- -----------
---------- ---------- -----------
See notes to consolidated financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended December 31 (thousands) 1997 1996 1995
- ----------------------------------------------------------------------- ----------- -----------
OPERATING ACTIVITIES
Net income $133,955 $113,185 $ 99,189
Adjustments to reconcile net income
to cash provided by operating activities:
Depreciation 84,415 75,185 64,651
Amortization 16,464 14,338 11,628
Deferred income taxes (2,074) (6,878) (759)
Equity in earnings of joint venture (13,433) (13,011) (7,702)
Joint venture royalties and dividends 25,367 15,769 5,610
Other, net 4,630 1,023 801
Changes in operating assets and liabilities:
Accounts receivable (21,231) 2,809 (26,843)
Inventories (14,395) (6,852) (4,136)
Other assets (10,993) (5,255) (11,371)
Accounts payable 20,876 16,397 4,561
Other liabilities 11,517 47,559 27,834
-------- -------- --------
Cash provided by continuing operations 235,098 254,269 163,463
Cash provided by discontinued operations 3,000
-------- -------- --------
Cash provided by operating activities 235,098 254,269 166,463
-------- -------- --------
INVESTING ACTIVITIES
Capital expenditures (121,667) (111,518) (109,894)
Property disposals 3,424 3,284 1,806
Sale of investments in securities 4,007
Businesses acquired (157,234) (54,911) (26,437)
Other, net (1,240) (1,449) 6,991
-------- -------- --------
Cash used for investing activities (276,717) (164,594) (123,527)
-------- -------- --------
FINANCING ACTIVITIES
Notes payable 9,280 (42,045) 29,355
Long-term debt borrowings 117,000 75,000 2,141
Long-term debt repayments (15,210) (35,690) (20,060)
Reacquired shares (60,795) (22,790) (90,391)
Cash dividends on common stock (41,456) (36,096) (33,114)
Other, net 26,278 17,088 (4,561)
-------- -------- --------
Cash provided by (used for) financing activities 35,097 (44,533) (116,630)
-------- -------- --------
Effect of exchange rate changes on cash (1,584) (585) 157
-------- -------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (8,106) 44,557 (73,537)
Cash and cash equivalents,
beginning of year 69,275 24,718 98,255
-------- -------- --------
Cash and cash equivalents,
end of year $ 61,169 $ 69,275 $ 24,718
-------- -------- --------
-------- -------- --------
Bracketed amounts indicate a use of cash.
See notes to consolidated financial statements.
38
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Additional Deferred
Common Paid-in Retained Compen- Cumulative Treasury
(thousands) Stock Capital Earnings sation Translation Stock Total
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1994 $ 69,659 $164,858 $257,462 $ (4,192) $ 6,756 $ (32,735) $461,808
Net income 99,189 99,189
Cash dividends on common stock (33,715) (33,715)
Stock options 419 6,422 6,841
Stock awards 485 2,738 (4,745) 2,479 957
Reacquired shares (90,391) (90,391)
Amortization 2,453 2,453
Translation 9,516 9,516
-------- -------- -------- -------- -------- --------- ---------
BALANCE DECEMBER 31, 1995 70,078 171,765 325,674 (6,484) 16,272 (120,647) 456,658
Net income 113,185 113,185
Cash dividends on common stock (37,409) (37,409)
Stock options 673 14,824 15,497
Stock awards 522 2,912 (3,638) 1,779 1,575
Reacquired shares (22,790) (22,790)
Amortization 2,732 2,732
Translation (9,485) (9,485)
-------- -------- -------- -------- -------- --------- ---------
BALANCE DECEMBER 31, 1996 70,751 187,111 404,362 (7,390) 6,787 (141,658) 519,963
Net income 133,955 133,955
Cash dividends on common stock (43,367) (43,367)
Stock options 648 15,877 16,525
Stock awards 5,093 (5,200) 1,427 1,320
Business acquisitions 12,454 3,946 16,400
Reacquired shares (60,795) (60,795)
Amortization 3,430 3,430
Translation (35,730) (35,730)
Stock dividend 71,398 (71,398)
-------- -------- -------- -------- -------- --------- ---------
BALANCE DECEMBER 31, 1997 $142,797 $149,137 $494,950 $ (9,160) $(28,943) $(197,080) $551,701
-------- -------- -------- -------- -------- --------- ---------
-------- -------- -------- -------- -------- --------- ---------
COMMON STOCK ACTIVITY
1997 1996 1995
Year ended December 31 (shares) COMMON STOCK TREASURY STOCK Common Stock Treasury Stock Common Stock Treasury Stock
- ------------------------------- ------------ -------------- ------------- -------------- ------------- --------------
Shares, beginning of year 70,750,741 (5,950,518) 70,078,398 (5,376,917) 69,659,101 (1,988,427)
Stock options 648,085 672,343 419,297
Stock awards 124,440 150,010 198,314
Business acquisitions 308,343
Reacquired shares (1,317,077) (723,611) (3,586,804)
Stock dividend 71,397,826 (6,834,812)
----------- ----------- --------- ---------- ---------- -----------
Shares, end of year 142,796,652 (13,669,624) 70,750,741 (5,950,518) 70,078,398 (5,376,917)
-------------------------- ------------------------- --------------------------
-------------------------- ------------------------- --------------------------
See notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS
The company is the leading global developer and marketer of premium cleaning,
sanitizing and maintenance products and services for the hospitality,
institutional and industrial markets. Customers include hotels and restaurants;
foodservice, healthcare and educational facilities; quickservice (fast-food)
units; commercial laundries; light industry; dairy plants and farms; and food
and beverage processors around the world.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the company and
all majority-owned subsidiaries. The company accounts for its investment in the
Henkel-Ecolab joint venture under the equity method of accounting. International
subsidiaries and the Henkel-Ecolab joint venture are included in the financial
statements on the basis of their November 30 fiscal year ends.
FOREIGN CURRENCY TRANSLATION
Financial position and results of operations of the company's international
subsidiaries and the Henkel-Ecolab joint venture generally are measured using
local currencies as the functional currency. Assets and liabilities of these
operations are translated at the exchange rates in effect at each fiscal year
end. Income statement accounts are translated at the average rates of exchange
prevailing during the year. Translation adjustments arising from the use of
differing exchange rates from period to period are included in the cumulative
translation account in shareholders' equity. Translation adjustments for
operations in highly inflationary economies are included in net income and were
not significant.
CASH AND CASH EQUIVALENTS
Cash equivalents include highly liquid investments with a maturity of three
months or less when purchased.
INVENTORY VALUATIONS
Inventories are valued at the lower of cost or market. Domestic chemical
inventory costs are determined on a last-in, first-out (lifo) basis. Lifo
inventories represented 40 percent, 44 percent and 38 percent of consolidated
inventories at year-end 1997, 1996 and 1995, respectively. All other inventory
costs are determined on a first-in, first-out (fifo) basis.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Merchandising equipment
consists principally of various systems that dispense cleaning and sanitizing
products and low-temperature dishwashing machines. The dispensing systems are
accounted for on a mass asset basis, whereby equipment is capitalized and
depreciated as a group and written off when fully depreciated. Depreciation and
amortization are charged to operations using the straight-line method over the
assets' estimated useful lives.
INTANGIBLE ASSETS
Intangible assets arise principally from business acquisitions and are stated at
cost. The assets are amortized on a straight-line basis over their estimated
economic lives, generally not exceeding 30 years.
LONG-LIVED ASSETS
The company periodically assesses the recoverability of long-lived and
intangible assets based on anticipated future earnings and operating cash flows.
NET INCOME PER COMMON SHARE
In the fourth quarter of 1997, the company adopted Statement of Financial
Accounting Standards No. 128, a new standard of computing and presenting both
basic and diluted net income per common share amounts. All prior periods have
been changed to conform with the new presentation. However, basic and diluted
net income per share amounts are generally consistent with net income per share
amounts previously reported.
The computation of the basic and diluted per share amounts were as follows:
(thousands, except per share) 1997 1996 1995
- ---------------------------- -------- -------- --------
Net income $133,955 $113,185 $ 99,189
-------- -------- --------
-------- -------- --------
Weighted average common
shares outstanding
Basic (actual shares
outstanding) 129,446 128,991 132,193
Effect of dilutive
stock options 4,376 3,826 2,763
-------- -------- --------
Diluted 133,822 132,817 134,956
-------- -------- --------
-------- -------- --------
Net income per common share
Basic $ 1.03 $ 0.88 $ 0.75
Diluted $ 1.00 $ 0.85 $ 0.73
Virtually all stock options outstanding for each of these periods were
dilutive and included in the calculation of the diluted per share amounts.
USE OF ESTIMATES
The preparation of the company's financial statements requires management to
make certain estimates and assumptions that affect the reported amounts of
assets and liabilities as of the date of the financial statements and the
reported amounts of revenues and expenses during the reporting periods. Actual
results could differ from these estimates.
40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. BALANCE SHEET INFORMATION
December 31 (thousands) 1997 1996 1995
- ------------------------------- --------- --------- ---------
ACCOUNTS RECEIVABLE, NET
Accounts receivable $ 256,919 $ 214,369 $ 206,763
Allowance for doubtful accounts (10,878) (9,343) (8,331)
--------- --------- ---------
Total $ 246,041 $ 205,026 $ 198,432
--------- --------- ---------
--------- --------- ---------
INVENTORIES
Finished goods $ 67,823 $ 52,232 $ 47,035
Raw materials and parts 89,716 73,060 62,132
Excess of fifo cost over lifo cost (2,708) (3,044) (3,050)
--------- --------- ---------
Total $ 154,831 $ 122,248 $ 106,117
--------- --------- ---------
--------- --------- ---------
PROPERTY, PLANT AND EQUIPMENT, NET
Land $ 18,184 $ 7,969 $ 6,941
Buildings and leaseholds 145,021 129,781 117,042
Machinery and equipment 232,940 208,704 188,453
Merchandising equipment 379,531 330,277 292,962
Construction in progress 19,862 11,745 14,571
--------- --------- ---------
795,538 688,476 619,969
Accumulated depreciation
and amortization (399,976) (356,162) (327,032)
--------- --------- ---------
Total $ 395,562 $ 332,314 $ 292,937
--------- --------- ---------
--------- --------- ---------
OTHER ASSETS
Intangible assets, net $ 217,120 $ 96,865 $ 50,773
Investments in securities 5,000 5,000 5,000
Deferred income taxes 23,444 26,582 27,383
Other 25,793 26,904 24,417
--------- --------- ---------
Total $ 271,357 $ 155,351 $ 107,573
--------- --------- ---------
--------- --------- ---------
SHORT-TERM DEBT
Notes payable $ 33,440 $ 12,333 $ 54,950
Long-term debt,
current maturities 15,444 15,276 16,697
--------- --------- ---------
Total $ 48,884 $ 27,609 $ 71,647
--------- --------- ---------
--------- --------- ---------
LONG-TERM DEBT
7.19% senior notes, due 2006 $ 75,000 $ 75,000 $
9.68% senior notes,
due 1995-2001 57,143 71,429 85,714
Multicurrency Credit
Agreement, due 2002 116,450
Other 26,235 17,530 20,385
--------- --------- ---------
274,828 163,959 106,099
Long-term debt,
current maturities (15,444) (15,276) (16,697)
--------- --------- ---------
Total $ 259,384 $ 148,683 $ 89,402
--------- --------- ---------
--------- --------- ---------
The 9.68 percent senior notes include covenants regarding consolidated
shareholders' equity and amounts of certain long-term debt.
In late 1997, the company amended and restated its $225 million
Multicurrency Credit Agreement, increasing the credit available to $275 million,
extending the term one year to September 2002, and specifically providing for
anticipated borrowings of Australian dollars to acquire the outstanding shares
of Gibson Chemical Industries Limited, as described in Note 5. The terms of the
amended and restated agreement are otherwise generally similar to the agreement
which it replaced. The company may borrow varying amounts from time to time on a
revolving credit basis, with loans denominated in G-7 currencies, or certain
other currencies, if available. The company has the option of borrowing based on
various short-term interest rates. The agreement includes a covenant regarding
the ratio of total debt to capitalization. Amounts outstanding under the
agreement at year-end 1997 were denominated in Australian dollars and had an
average annual interest rate of 5.2 percent.
In October 1996, the company filed a shelf registration with the Securities
and Exchange Commission for the issuance of up to $200 million of debt
securities. The filing is intended to enhance the company's future financial
flexibility in funding general business needs. The company has no immediate
plans to issue debt under the registration.
As of December 31, the weighted-average interest rate on notes payable was
5.4 percent for 1997, 5.1 percent for 1996 and 6.3 percent for 1995.
As of December 31, 1997, the aggregate annual maturities of long-term debt
for the next five years were: 1998 - $15,444,000; 1999 - $15,184,000; 2000 -
$15,155,000; 2001 - $14,988,000 and 2002 - $126,770,000.
Interest expense was $18,043,000 in 1997, $19,084,000 in 1996 and
$15,857,000 in 1995. Total interest paid was $18,168,000 in 1997, $16,897,000 in
1996 and $16,170,000 in 1995.
Other noncurrent liabilities included income taxes payable of $82 million
at December 31, 1997, $100 million at December 31, 1996 and $96 million at
December 31, 1995. Income taxes payable reflected a reduction in U.S. federal
income tax payments during 1995 and prior years, as a result of tax losses on
the disposition of a discontinued business in 1992.
4. FINANCIAL INSTRUMENTS
FOREIGN CURRENCY INSTRUMENTS
The company uses hedging and derivative financial instruments to limit financial
risk related to foreign currency exchange rates, interest rates and other market
risks. The company does not hold hedging or derivative financial instruments of
a speculative nature.
The company enters into foreign currency forward and option contracts to
hedge specific foreign currency exposures, principally related to intercompany
debt and joint venture royalty transactions. These contracts generally expire
within one year. Gains and losses on these contracts are deferred and recognized
as part of the specific transactions hedged. The cash flows from these contracts
are classified in the same category as the transaction hedged in the
Consolidated Statement of Cash Flows.
41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. FINANCIAL INSTRUMENTS (continued)
The company had foreign currency forward exchange contracts with a face amount
denominated primarily in Deutsche marks and totaling approximately $70 million
at December 31, 1997, $115 million at December 31, 1996 and $125 million at
December 31, 1995. The unrealized gains on these contracts were not significant.
FAIR VALUE OF OTHER FINANCIAL INSTRUMENTS
The carrying amount and the estimated fair value of other financial instruments
held by the company were:
December 31 (thousands) 1997 1996 1995
- ----------------------------- -------- -------- ---------
Carrying amount
Cash and cash equivalents $ 61,169 $ 69,275 $24,718
Long-term investments
in securities 5,000 5,000 5,000
Short-term debt 48,884 27,609 71,647
Long-term debt 259,384 148,683 89,402
Fair value
Long-term debt $266,926 $155,558 $98,513
The carrying amounts of cash equivalents and short-term debt approximate
fair value because of their short maturities.
Long-term investments in securities are carried at cost. The carrying
amount of these securities approximates fair value based on quoted market
prices. These securities mature in periods of less than 10 years.
The fair value of long-term debt is based on quoted market prices for the
same or similar issues.
5. BUSINESS ACQUISITIONS
GIBSON BUSINESS ACQUISITION
In October 1997, the company made a public tender offer for all of the
outstanding stock of Gibson Chemical Industries Limited (Gibson) located in
Melbourne, Australia. Gibson is a manufacturer and marketer of cleaning and
sanitizing products, primarily for the Australian and New Zealand
institutional, healthcare and industrial markets. On November 5, 1997, the
company waived all of the remaining conditions to its tender offer and,
effective November 30, 1997, had acquired substantially all of the
outstanding Gibson shares.
The acquisition has been accounted for as a purchase. The purchase price of
the shares and the direct costs of the transaction totaled approximately $130
million and were financed through the company's Multicurrency Credit Agreement.
The company's international subsidiaries are included in the financial
statements on the basis of their November 30 fiscal year ends, and, therefore,
Gibson's operations are not included in the company's Consolidated Statement of
Income for 1997. The assets acquired and the liabilities assumed in the
transaction are included in the company's Consolidated Balance Sheet as of the
November 30 effective date.
The company's plan for integration is not complete and, therefore, the
allocation of the purchase price to the assets acquired and the liabilities
assumed is preliminary. The significant open issues in the integration plan are
the determination of which of the acquired businesses may not be retained, and
decisions relative to certain duplicate facilities. Management expects the
integration plan to be completed near the end of the first quarter of 1998.
The following unaudited pro forma financial information reflects the
combined results of the company and Gibson assuming the acquisition had occurred
at the beginning of 1997.
(thousands, except per share) 1997
- ------------------------------------ ----------
Net sales $1,769,590
Net income 133,454
Diluted net income per common share $ 1.00
The pro forma results are presented for information purposes only and
include all of the acquired Gibson businesses and the preliminary purchase
accounting as described above. Therefore, the pro forma results do not reflect
any purchase accounting refinements that may arise when the integration plan is
completed and approved. At that time, the pro forma results for Gibson will be
adjusted to reflect the final plan.
OTHER BUSINESS ACQUISITIONS
In January 1997, the company acquired three small institutional and food
and beverage businesses in the Central Africa region. Sales of the acquired
businesses were approximately $6 million in 1996.
In March 1997, the company acquired the institutional, food and beverage
and commercial laundry cleaning and sanitizing businesses of the Savolite Group,
which is based in Vancouver, British Columbia, Canada. The acquired Savolite
businesses complement the company's operations, primarily in Canada, with
limited operations also in the U.S. Pacific Northwest. Sales of the acquired
Savolite businesses were approximately $8 million in 1996.
In August 1997, the company acquired the Chemidyne Marketing Division of
Chemidyne Corp. in Macedonia, Ohio. Chemidyne Marketing is a provider of
cleaning and sanitizing products and equipment to the meat, poultry and
processed food markets in the United States. Chemidyne Marketing has become part
of the company's Food & Beverage Division. Sales of the acquired Chemidyne
business were approximately $17 million in 1996.
42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In December 1997, the company issued common stock to purchase the specialty
chemical business of Grace-Lee Products Incorporated, a Minneapolis,
Minnesota-based manufacturer and marketer of cleaning products for the U.S.
industrial market. Sales of the business acquired, which primarily serves the
vehicle wash market, were approximately $16 million in 1996. The acquired
Grace-Lee business has become part of the company's Institutional Division.
These acquisitions have been accounted for as purchases and, accordingly,
the results of their operations have been included in the financial statements
of the company from the dates of acquisition. Net sales and operating income of
these businesses were not significant.
6. HENKEL-ECOLAB JOINT VENTURE
The company and Henkel KGaA, Dusseldorf, Germany, each own 50 percent of
Henkel-Ecolab, a joint venture of their respective European institutional and
industrial cleaning and sanitizing businesses. The joint venture's operations
and the company's equity in earnings of the joint venture included:
(thousands) 1997 1996 1995
- -------------------------------------- -------- -------- --------
Joint venture
Net sales $844,689 $905,402 $909,196
Gross profit 470,698 497,909 502,849
Income before income taxes 63,640 65,091 44,392
Net income $ 33,701 $ 34,808 $ 22,406
Ecolab equity in earnings
Ecolab equity in net income $ 16,851 $ 17,404 $ 11,203
Ecolab royalty income from joint
venture, net of income taxes 4,583 4,730 5,814
Amortization expense for the
excess of cost over the
underlying net assets of
the joint venture (8,001) (9,123) (9,315)
-------- -------- --------
Equity in earnings of Henkel-
Ecolab joint venture $ 13,433 $ 13,011 $ 7,702
-------- -------- --------
-------- -------- --------
The company's investment in the Henkel-Ecolab joint venture includes the
unamortized excess of the company's investment over its equity in the joint
venture's net assets. This excess was $145 million at December 31, 1997, and is
being amortized on a straight-line basis over estimated economic useful lives of
up to 30 years.
Condensed balance sheet information for the Henkel-Ecolab joint venture
was:
December 31 (thousands) 1997 1996 1995
- ------------------------------ -------- -------- --------
Current assets $345,692 $425,225 $393,391
Noncurrent assets 145,601 142,227 145,722
Current liabilities 224,155 309,599 247,980
Noncurrent liabilities $ 77,303 $ 75,360 $ 71,119
7. INCOME TAXES
Income before income taxes and equity in earnings of joint venture consisted of:
(thousands) 1997 1996 1995
- ---------------------------- -------- -------- --------
Domestic $173,851 $144,888 $123,628
Foreign 32,016 26,057 27,553
-------- -------- --------
Total $205,867 $170,945 $151,181
-------- -------- --------
-------- -------- --------
The provision for income taxes consisted of:
(thousands) 1997 1996 1995
- --------------------------------- -------- -------- --------
Federal and state $ 76,399 $ 66,868 $ 52,473
Foreign 11,020 10,781 7,980
-------- -------- --------
Currently payable 87,419 77,649 60,453
-------- -------- --------
Federal and state (3,675) (6,748) 74
Foreign 1,601 (130) (833)
-------- -------- --------
Deferred (2,074) (6,878) (759)
-------- -------- --------
Provision for income taxes $ 85,345 $ 70,771 $ 59,694
-------- -------- --------
-------- -------- --------
The company's overall net deferred tax assets (current and noncurrent) were
comprised of the following:
December 31 (thousands) 1997 1996 1995
- ------------------------------------- -------- -------- --------
Deferred tax assets
Postretirement health care
and pension benefits $ 30,991 $ 29,596 $ 28,689
Other accrued liabilities 41,611 39,151 28,339
Loss carryforwards 3,541 4,780 5,482
Other, net 12,766 8,814 9,209
Valuation allowance (1,462) (1,462) (1,462)
-------- -------- --------
Total 87,447 80,879 70,257
-------- -------- --------
Deferred tax liabilities
Property, plant and equipment
basis differences 27,606 23,496 19,524
Other, net 1,419 1,457 1,733
-------- -------- --------
Total 29,025 24,953 21,257
-------- -------- --------
Net deferred tax assets $ 58,422 $ 55,926 $ 49,000
-------- -------- --------
-------- -------- --------
A reconciliation of the statutory U.S. federal income tax rate to the
company's effective income tax rate was:
1997 1996 1995
- ------------------------------- -------- -------- --------
Statutory U.S. rate 35.0% 35.0% 35.0%
State income taxes, net of
federal benefit 4.2 4.2 4.2
Foreign operations .6 .5 (1.2)
Other, net 1.7 1.7 1.5
-------- -------- --------
Effective income tax rate 41.5% 41.4% 39.5%
-------- -------- --------
-------- -------- --------
Cash paid for income taxes was approximately $100 million in 1997, $72
million in 1996 and $55 million in 1995. As a result of tax losses on the
disposition of a discontinued business in 1992, the company's U.S. federal
income tax payments were reduced in 1995 and prior years by a total of
approximately
43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. INCOME TAXES (continued)
$58 million, including $3 million in 1995. However, pending final
acceptance of the company's treatment of the losses, no income tax benefit has
been recognized for financial reporting purposes. These income tax benefits will
be recognized as income attributable to discontinued operations to the extent
the company's treatment of the losses is accepted.
As of December 31, 1997, undistributed earnings of international
subsidiaries and the Henkel-Ecolab joint venture of approximately $43 million
and $46 million, respectively, were considered to have been reinvested
indefinitely and, accordingly, the company has not provided U.S. income taxes on
such earnings. If those earnings were remitted to the company, applicable income
taxes would be offset substantially by available foreign tax credits.
8. RETIREMENT PLANS
PENSION PLANS
The company has a noncontributory defined benefit pension plan covering
substantially all of its U.S. employees. Plan benefits are based on years of
service and highest average compensation for five consecutive years of
employment. Various international subsidiaries also have defined benefit pension
plans. Pension expense included the following components:
(thousands) 1997 1996 1995
- ---------------------------------- -------- -------- --------
Service cost -- employee benefits
earned during the year $ 13,330 $ 12,615 $ 9,878
Interest cost on projected
benefit obligation 18,371 16,084 14,481
Actual return on plan assets (28,531) (20,389) (27,356)
Net amortization and deferral 13,257 7,542 15,430
-------- -------- --------
U.S. pension expense 16,427 15,852 12,433
International pension expense 1,112 1,261 1,040
-------- -------- --------
Total pension expense $ 17,539 $ 17,113 $ 13,473
-------- -------- --------
-------- -------- --------
The funded status of the U.S. pension plan was:
December 31 (thousands) 1997 1996 1995
- ---------------------------------- -------- -------- --------
Actuarial present value of:
Vested benefit obligation $201,288 $ 167,652 $ 150,521
Non-vested benefit obligation 12,619 10,701 12,089
--------- --------- ---------
Accumulated benefit obligation 213,907 178,353 162,610
Effect of projected future
salary increases 73,120 61,763 54,398
--------- --------- ---------
Projected benefit obligation 287,027 240,116 217,008
Plan assets at fair value 237,304 196,839 167,231
--------- --------- ---------
Plan assets less than the
projected benefit obligation (49,723) (43,277) (49,777)
Unrecognized prior service cost 18,056 20,325 22,230
Unrecognized net loss 46,028 37,763 44,258
Unrecognized net transition asset (10,523) (11,926) (13,329)
--------- --------- ---------
Prepaid pension expense $ 3,838 $ 2,885 $ 3,382
--------- --------- ---------
--------- --------- ---------
The company's policy is to fund pension costs currently to the extent
deductible for income tax purposes. U.S. pension plan assets consist primarily
of equity and fixed income securities. International pension benefit obligations
and plan assets were not significant.
U.S. pension plan assumptions, in addition to projections for employee
turnover and retirement ages, were:
1997 1996 1995
- ---------------------------------- -------- -------- --------
Discount rate for service and
interest cost, at beginning of year 7.75% 7.50% 8.25%
Projected salary increases,
weighted average 5.1 5.1 5.1
Expected return on plan assets 9.0 9.0 9.0
Discount rate for year-end
benefit obligation 7.25% 7.75% 7.50%
At December 31, 1996, the company updated the mortality assumptions used in
its actuarial pension plan calculations. The effect of this change and a change
in 1995 for projected salary increases, as well as the effect of changes in the
discount rate used for determining the year-end pension benefit obligations and
future service and interest cost was:
(millions, increase (decrease)) 1997 1996 1995
- ---------------------------------- -------- -------- --------
Pension expense $ 0.6 $ 2.1 $ (3.4)
Projected benefit obligation $22.5 $ 1.2 $ 17.6
The company also has noncontributory non-qualified defined benefit plans
which provide for benefits to employees in excess of limits permitted under its
U.S. pension plan. The recorded obligation for these plans was approximately $11
million at December 31, 1997 and the annual expense for these plans was
approximately $2 million in each of the years 1997, 1996 and 1995.
POSTRETIREMENT HEALTH CARE BENEFITS
The company provides postretirement health care benefits to substantially all
U.S. employees. The plan is contributory based on years of service and family
status, with retiree contributions adjusted annually.
Employees outside the U.S. are generally covered under government-sponsored
programs and the cost for providing benefits under company plans was not
significant.
Postretirement health care benefits expense was:
(thousands) 1997 1996 1995
- ---------------------------------- -------- -------- --------
Service cost -- benefits attributed
to service during the period $ 4,325 $3,298 $2,473
Interest cost on accumulated post-
retirement benefit obligation 5,711 4,398 3,972
Actual return on plan assets (1,609) (863) (703)
Net amortization and deferral 167 (213) (271)
-------- -------- --------
Total expense $ 8,594 $6,620 $5,471
-------- -------- --------
-------- -------- --------
44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The funded status of the postretirement health care benefits plan was:
December 31 (thousands) 1997 1996 1995
- ---------------------------------- -------- -------- --------
Actuarial present value of accumu-
lated postretirement
benefit obligation for:
Retirees $ 24,835 $ 22,932 $ 18,112
Fully eligible active
participants 8,357 6,533 5,450
Other active participants 57,929 42,084 35,885
--------- --------- ---------
Total 91,121 71,549 59,447
Plan assets at fair value 16,764 11,885 9,269
--------- --------- ---------
Plan assets less than accumulated
postretirement benefit obligation (74,357) (59,664) (50,178)
Unrecognized gain for prior service (9,097) (9,648) (10,199)
Unrecognized net loss (gain) 17,280 5,984 (968)
--------- --------- ---------
Unfunded accrued postretirement
health care benefits $(66,174) $(63,328) $(61,345)
--------- --------- ---------
--------- --------- ---------
The assumptions for the discount rate and expected return on plan assets
for the postretirement health care benefits plan were:
1997 1996 1995
- ---------------------------------- -------- -------- --------
Discount rate for service and interest
cost, at beginning of year 7.75% 7.50% 8.25%
Expected return on plan assets 9.0 9.0 6.0
Discount rate for year-end
benefit obligation 7.25% 7.75% 7.50%
The decrease in the discount rate at year-end 1997 resulted in an increase
in the accumulated benefit obligation of approximately $7 million. All other
changes in the discount rate and the expected rate of return on plan assets did
not have a significant effect on the expense or obligation of the plan. Plan
assets consist primarily of equity and fixed income securities.
For measurement purposes, 9.5 percent (for pre-age 65 retirees) and 7.5
percent (for post-age 65 retirees) annual rates of increase in the per capita
cost of covered health care were assumed for 1998. The rates were assumed to
decrease gradually to 6.5 percent and 5.5 percent, respectively, at 2001 and
remain at that level thereafter. Health care costs which are eligible for
subsidy by the company are limited to a 4 percent annual increase beginning in
1996 for most employees. An increase in the assumed health care cost trend rate
by one percentage point in each year would increase the accumulated
postretirement benefit obligation as of year-end 1997 by approximately $6
million and 1997 expense by approximately $0.4 million.
SAVINGS PLAN
The company provides a 401(k) savings plan for substantially all U.S. employees.
Employee contributions of up to 6 percent of eligible compensation are matched
50 percent by the company. The company's contributions are invested in Ecolab
common stock and amounted to $7,156,000 in 1997, $6,622,000 in 1996 and
$5,919,000 in 1995.
9. STOCK INCENTIVE AND OPTION PLANS
The company's stock incentive and option plans provide for grants of stock
options and stock awards. Common shares available for grant as of December 31
were 5,274,652 for 1997, 840,096 for 1996 and 2,249,536 for 1995.
Options may be granted to purchase shares of the company's stock at not
less than fair market value at the date of grant. Options generally become
exercisable over periods of up to four years from date of grant and expire
within ten years from date of grant. Stock option transactions were:
Shares 1997 1996 1995
- ---------------------------------- ----------- ----------- ---------
Granted 1,031,760 1,266,680 1,861,346
Exercised (1,295,170) (1,344,686) (838,594)
Canceled (63,416) (102,666) (73,400)
---------- ---------- ---------
December 31:
Outstanding 8,880,422 9,207,248 9,387,920
---------- ---------- ---------
---------- ---------- ---------
Exercisable 5,922,150 5,859,968 5,713,276
Average exercise price per share 1997 1996 1995
- ---------------------------------- ----------- ----------- ---------
Granted $21.72 $15.26 $12.68
Exercised 8.50 7.65 5.71
Canceled 14.07 12.16 10.32
December 31:
Outstanding 11.92 10.35 9.32
Exercisable $ 9.66 $ 8.75 $ 8.05
45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. STOCK INCENTIVE AND OPTION PLANS (continued)
Information related to stock options outstanding and stock options
exercisable as of December 31, 1997 was as follows:
Options Outstanding
- --------------------------------------------------------------------------------
Weighted- Weighted-
Range of Average Average
Exercise Options Remaining Exercise
Prices Outstanding Contractual Life Price
- ------------- ----------- ---------------- ---------
$ 5.69-$10.00 2,600,014 3.1 years $ 7.02
$10.01-$15.00 4,193,796 6.7 years $11.89
$15.01-$26.91 2,086,612 9.0 years $19.05
Options Exercisable
- --------------------------------------------------------------------------------
Weighted-
Range of Average
Exercise Options Exercise
Prices Exercisable Price
- ------------- ----------- ---------
$ 5.69-$10.00 2,600,014 $ 7.02
$10.01-$15.00 3,039,704 $11.57
$15.01-$26.91 282,432 $15.32
Stock awards are generally subject to restrictions, including forfeiture in
the event of termination of employment. Restrictions generally lapse over
periods of up to four years. The value of a stock award at date of grant is
charged to income over the periods during which the restrictions lapse.
The company adopted Statement of Financial Accounting Standards No. 123, a
new standard of accounting and reporting for stock-based compensation plans, in
1996. The company has continued to measure compensation cost for its stock
incentive and option plans using the intrinsic value-based method of accounting
it has historically used and, therefore, the new standard has no effect on the
company's operating results.
Had the company used the fair value-based method of accounting for its
stock option and incentive plans beginning in 1995 and charged compensation cost
against income, over the vesting periods, based on the fair value of options at
the date of grant, net income and diluted net income per common share for 1997,
1996 and 1995 would have been reduced to the following pro forma amounts:
(thousands, except per share) 1997 1996 1995
- ------------------------------------ -------- -------- --------
Net income
As reported $133,955 $113,185 $99,189
Pro forma 131,763 111,761 98,622
Diluted net income per common share
As reported 1.00 0.85 0.73
Pro forma $ 0.98 $ 0.84 $ 0.73
The pro forma information above only includes stock options granted since
1995. Compensation expense under the fair value-based method of accounting will
increase over the next few years as additional stock option grants are
considered.
The weighted-average grant-date fair value of options granted for 1997,
1996 and 1995 and the significant assumptions used in determining the underlying
fair value of each option grant on the date of grant utilizing the Black-Scholes
option-pricing model were as follows:
1997 1996 1995
- --------------------------------- -------- -------- ---------
Weighted-average grant-date fair
value of options granted $5.94 $4.15 $3.92
Assumptions
Risk-free interest rate 6.2% 6.2% 6.7%
Expected life 6 years 6 years 6 years
Expected volatility 19.6% 20.9% 24.8%
Expected dividend yield 1.8% 1.9% 1.9%
10. SHAREHOLDERS' EQUITY
The company's common stock was split two for one in the form of a 100 percent
stock dividend paid January 15, 1998 to shareholders of record on December 26,
1997. All per share and number of share data have been retroactively restated to
reflect the stock split, except for the Consolidated Statement of Shareholders'
Equity.
Authorized common stock, par value $1.00 per share, was 200 million shares
in 1997 and 100 million shares in 1996 and 1995. Treasury stock is stated at
cost. Dividends declared per share of common stock were $0.335 for 1997, $0.29
for 1996 and $0.2575 for 1995.
The company has 15 million shares, without par value, of authorized but
unissued preferred stock.
Each share of outstanding common stock entitles the holder to one-half of a
preferred stock purchase right. A right entitles the holder, upon occurrence of
certain events, to buy one one-hundredth of a share of Series A Junior
Participating Preferred Stock at a purchase price of $115, subject to
adjustment. The rights, however, will not become exercisable unless and until,
among other things, any person or group acquires 15 percent or more of the
outstanding common stock of the company, or the company's board of directors
declares a holder of 10 percent or more of the outstanding common stock to be an
"adverse person" as defined in the rights plan. Upon the occurrence of either of
these events, the rights will become exercisable for common stock of the company
(or in certain cases common stock of an acquiring company) having a market value
of twice the exercise price of a right. The rights provide that the holdings by
Henkel KGaA or its affiliates, subject to compliance by Henkel with certain
conditions, will not cause the rights to become exercisable nor cause Henkel to
be an "adverse person." The rights are redeemable under certain circumstances at
one cent per right and, unless redeemed earlier, will expire on March 11, 2006.
46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The company maintains a share repurchase program which is intended to offset the
dilutive effect of shares issued for employee benefit plans. The company
reacquired 1,944,600 shares of its common stock in 1997 and 1,154,600 shares in
1996 under this program through open and private market purchases. The company
anticipates that it will continue to periodically reacquire shares under its
share repurchase program.
In June 1995, the company purchased approximately 7 million shares
(approximately 5 percent of total shares then outstanding) of its common stock
at a price of $12.50 per share pursuant to the terms of a "Dutch auction"
self-tender offer. The total purchase price for these shares was approximately
$90 million and was funded by excess cash and cash equivalents and by
approximately $30 million of short-term borrowings. The company also reacquired
616,800 shares in 1997 and 105,800 shares in 1996 under this program and the
company may purchase approximately 4.2 million additional shares from time to
time through open market and privately negotiated transactions to complete the
remaining portion of a 12 million share repurchase program.
11. RENTALS AND LEASES
The company leases sales and administrative office facilities, distribution
center facilities, automobiles and computers and other equipment under operating
leases. Rental expense under all operating leases was $38,155,000 in 1997,
$35,071,000 in 1996 and $32,292,000 in 1995. As of December 31, 1997, future
minimum payments under operating leases with noncancelable terms in excess of
one year were:
(thousands)
- -----------------------------------------------------------------
1998 $11,549
1999 7,803
2000 5,186
2001 3,145
2002 1,848
Thereafter 11,916
-------
Total $41,447
-------
-------
12. RESEARCH EXPENDITURES
Research expenditures that related to the development of new products and
processes, including significant improvements and refinements to existing
products, were $30,420,000 in 1997, $28,676,000 in 1996 and $28,031,000 in 1995.
13. ENVIRONMENTAL COMPLIANCE COSTS
The company and certain subsidiaries are party to various environmental actions
that have arisen in the ordinary course of business. These include possible
obligations to investigate and mitigate the effects on the environment of the
disposal or release of certain chemical substances at various sites, such as
Superfund sites and other operating or closed facilities. The effect of these
actions on the company's financial position, results of operations and cash
flows to date has not been significant. The company is currently participating
in environmental assessments and remediation at a number of locations and
environmental liabilities have been accrued reflecting management's best
estimate of future costs. Potential insurance reimbursements are not
anticipated. While the final resolution of these contingencies could result in
expenses in excess of current accruals, and therefore have an impact on the
company's consolidated financial results in a future reporting period,
management believes the ultimate outcome will not have a significant effect on
the company's results of operations, consolidated financial position or
liquidity.
14. GEOGRAPHIC SEGMENTS
Summary information regarding the company's operations in United States and
International markets is presented below. International consists of Canadian,
Asia Pacific, Latin American, African and Kay's international operations.
(thousands) 1997 1996 1995
- ------------------------------- ---------- ---------- ----------
Net Sales
United States $1,275,828 $1,148,778 $1,030,126
International 364,524 341,231 310,755
---------- ---------- ----------
Total $1,640,352 $1,490,009 $1,340,881
---------- ---------- ----------
---------- ---------- ----------
Operating Income
United States $ 195,630 $ 164,886 $ 147,330
International 26,962 23,871 19,580
Corporate (4,088) (3,440) (4,224)
---------- ---------- ----------
Total $ 218,504 $ 185,317 $ 162,686
---------- ---------- ----------
---------- ---------- ----------
Identifiable Assets
United States $ 727,423 $ 641,831 $ 535,107
International 366,254 190,595 183,088
Joint venture 239,879 285,237 302,298
Corporate 82,743 90,746 40,387
---------- ---------- ----------
Total $1,416,299 $1,208,409 $1,060,880
---------- ---------- ----------
---------- ---------- ----------
In accordance with company policy, operating expenses incurred at the
corporate level totaling $27,554,000 in 1997, $23,766,000 in 1996 and
$22,688,000 in 1995 have been allocated to the geographic segments in
determining operating income.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, a new standard for reporting information
about operating or business segments in financial statements. The new standard
will be effective for the company's annual financial statements in 1998. The
company does not expect the business segment information reported under the new
standard to be substantially different than the information currently reported.
47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. QUARTERLY FINANCIAL DATA (Unaudited)
First Second Third Fourth
(thousands, except per share) Quarter Quarter Quarter Quarter Year
- -------------------------------------------------- --------- --------- --------- ---------- ----------
1997
Net sales
United States $290,703 $319,633 $338,764 $326,728 $1,275,828
International 83,057 92,177 94,109 95,181 364,524
--------- --------- --------- --------- ----------
Total 373,760 411,810 432,873 421,909 1,640,352
Cost of sales 165,726 183,322 188,178 184,858 722,084
Selling, general and administrative expenses 164,604 175,685 177,899 181,576 699,764
--------- --------- --------- --------- ----------
Operating income
United States 38,441 47,184 60,738 49,267 195,630
International 5,870 6,669 7,102 7,321 26,962
Corporate (881) (1,050) (1,044) (1,113) (4,088)
--------- --------- --------- --------- ----------
Total 43,430 52,803 66,796 55,475 218,504
Interest expense, net 2,998 3,054 3,351 3,234 12,637
--------- --------- --------- --------- ----------
Income before income taxes and equity
in earnings of joint venture 40,432 49,749 63,445 52,241 205,867
Provision for income taxes 16,577 20,397 26,613 21,758 85,345
Equity in earnings of joint venture 2,349 3,542 3,657 3,885 13,433
--------- --------- --------- --------- ----------
Net income $ 26,204 $ 32,894 $ 40,489 $ 34,368 $ 133,955
--------- --------- --------- --------- ----------
--------- --------- --------- --------- ----------
Net income per common share
Basic $ 0.20 $ 0.25 $ 0.31 $ 0.27 $ 1.03
Diluted $ 0.20 $ 0.25 $ 0.30 $ 0.26 $ 1.00
Weighted average common shares outstanding
Basic 129,548 129,779 129,462 128,993 129,446
Diluted 133,520 133,963 133,930 133,740 133,822
1996
Net sales
United States $255,695 $287,278 $305,147 $300,658 $1,148,778
International 78,025 85,918 86,918 90,370 341,231
--------- --------- --------- --------- ----------
Total 333,720 373,196 392,065 391,028 1,490,009
Cost of sales 152,589 170,856 175,232 176,276 674,953
Selling, general and administrative expenses 147,333 156,991 160,534 164,881 629,739
--------- --------- --------- --------- ----------
Operating income
United States 30,154 39,919 49,889 44,924 164,886
International 4,378 6,271 7,242 5,980 23,871
Corporate (734) (841) (832) (1,033) (3,440)
--------- --------- --------- --------- ----------
Total 33,798 45,349 56,299 49,871 185,317
Interest expense, net 3,440 4,584 3,592 2,756 14,372
--------- --------- --------- --------- ----------
Income before income taxes and equity
in earnings of joint venture 30,358 40,765 52,707 47,115 170,945
Provision for income taxes 12,171 16,346 22,263 19,991 70,771
Equity in earnings of joint venture 1,458 3,179 5,084 3,290 13,011
--------- --------- --------- --------- ----------
Net income $ 19,645 $ 27,598 $ 35,528 $ 30,414 $ 113,185
--------- --------- --------- --------- ----------
--------- --------- --------- --------- ----------
Net income per common share
Basic $ 0.15 $ 0.21 $ 0.28 $ 0.23 $ 0.88
Diluted $ 0.15 $ 0.21 $ 0.27 $ 0.23 $ 0.85
Weighted average common shares outstanding
Basic 129,180 128,614 128,732 129,439 128,991
Diluted 132,788 132,424 132,384 133,658 132,817
48
MANAGEMENT AND ACCOUNTANT'S REPORTS
REPORT OF MANAGEMENT
Management is responsible for the integrity and objectivity of the consolidated
financial statements. The statements have been prepared in accordance with
generally accepted accounting principles and, accordingly, include certain
amounts based on management's best estimates and judgments.
To meet its responsibility, management has established and maintains a
system of internal controls that provides reasonable assurance regarding the
integrity and reliability of the financial statements and the protection of
assets from unauthorized use or disposition. These systems are supported by
qualified personnel, by an appropriate division of responsibilities and by an
internal audit function. There are limits inherent in any system of internal
controls since the cost of monitoring such systems should not exceed the desired
benefit. Management believes that the company's system of internal controls is
effective and provides an appropriate cost/benefit balance.
The Board of Directors, acting through its Audit Committee composed solely
of outside directors, is responsible for determining that management fulfills
its responsibilities in the preparation of financial statements and maintains
financial control of operations. The Audit Committee recommends to the Board of
Directors the appointment of the company's independent accountants, subject to
ratification by the shareholders. It meets regularly with management, the
internal auditors and the independent accountants.
The independent accountants provide an objective, independent review as to
management's discharge of its responsibilities insofar as they relate to the
fair presentation of the consolidated financial statements. Their report is
presented separately.
/s/ Allan L. Schuman
Allan L. Schuman
President and Chief Executive Officer
/s/ Michael E. Shannon
Michael E. Shannon
Chairman of the Board,
Chief Financial and Administrative Officer
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Directors
Ecolab Inc.
We have audited the accompanying consolidated balance sheet of Ecolab Inc. as of
December 31, 1997, 1996 and 1995, and the related consolidated statements of
income, shareholders' equity and cash flows for the years then ended. These
financial statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Ecolab Inc. as
of December 31, 1997, 1996 and 1995, and the consolidated results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
February 23, 1998
Saint Paul, Minnesota
49
SUMMARY OPERATING AND FINANCIAL DATA
December 31 (thousands, except per share) 1997 1996 1995 1994
- -------------------------------------------------------- ------------ ------------ ------------ ------------
OPERATIONS
Net sales
United States $ 1,275,828 $ 1,148,778 $ 1,030,126 $ 942,070
International 364,524 341,231 310,755 265,544
Europe
- -------------------------------------------------------- ------------ ------------ ------------ ------------
Total 1,640,352 1,490,009 1,340,881 1,207,614
Cost of sales 722,084 674,953 603,167 533,143
Selling, general and administrative expenses 699,764 629,739 575,028 529,507
Merger costs and nonrecurring expenses 8,000
- -------------------------------------------------------- ------------ ------------ ------------ ------------
Operating income 218,504 185,317 162,686 136,964
Interest expense, net 12,637 14,372 11,505 12,909
- -------------------------------------------------------- ------------ ------------ ------------ ------------
Income from continuing operations before income
taxes and equity in earnings of joint venture 205,867 170,945 151,181 124,055
Provision for income taxes 85,345 70,771 59,694 50,444
Equity in earnings of joint venture 13,433 13,011 7,702 10,951
- -------------------------------------------------------- ------------ ------------ ------------ ------------
Income from continuing operations 133,955 113,185 99,189 84,562
Income (loss) from discontinued operations
Extraordinary loss and changes in accounting principles
- -------------------------------------------------------- ------------ ------------ ------------ ------------
Net income (loss) 133,955 113,185 99,189 84,562
Preferred stock dividends
- -------------------------------------------------------- ------------ ------------ ------------ ------------
Net income (loss) to common shareholders, as reported 133,955 113,185 99,189 84,562
Pro forma adjustments 5,902
- -------------------------------------------------------- ------------ ------------ ------------ ------------
Pro forma net income (loss) to common shareholders $ 133,955 $ 113,185 $ 99,189 $ 90,464
- -------------------------------------------------------- ------------ ------------ ------------ ------------
- -------------------------------------------------------- ------------ ------------ ------------ ------------
Income (loss) per common share, as reported
Basic -- continuing operations $ 1.03 $ 0.88 $ 0.75 $ 0.63
Basic -- net income (loss) 1.03 0.88 0.75 0.63
Diluted -- continuing operations 1.00 0.85 0.73 0.62
Diluted -- net income (loss) 1.00 0.85 0.73 0.62
Pro forma income (loss) per common share
Basic -- continuing operations 1.03 0.88 0.75 0.67
Basic -- net income (loss) 1.03 0.88 0.75 0.67
Diluted -- continuing operations 1.00 0.85 0.73 0.66
Diluted -- net income (loss) $ 1.00 $ 0.85 $ 0.73 $ 0.66
Weighted average common shares outstanding -- basic 129,446 128,991 132,193 135,100
Weighted average common shares outstanding -- diluted 133,822 132,817 134,956 137,306
- -------------------------------------------------------- ------------ ------------ ------------ ------------
SELECTED INCOME STATEMENT RATIOS
Gross profit 56.0% 54.7% 55.0% 55.9%
Selling, general and administrative expenses 42.7 42.3 42.9 44.6
Operating income 13.3 12.4 12.1 11.3
Income from continuing operations before income taxes 12.6 11.5 11.3 10.3
Income from continuing operations 8.2 7.6 7.4 7.0
Effective income tax rate 41.5% 41.4% 39.5% 40.7%
- -------------------------------------------------------- ------------ ------------ ------------ ------------
FINANCIAL POSITION
Current assets $ 509,501 $ 435,507 $ 358,072 $ 401,179
Property, plant and equipment, net 395,562 332,314 292,937 246,191
Investment in Henkel-Ecolab joint venture 239,879 285,237 302,298 284,570
Other assets 271,357 155,351 107,573 88,416
- -------------------------------------------------------- ------------ ------------ ------------ ------------
Total assets $ 1,416,299 $ 1,208,409 $ 1,060,880 $ 1,020,356
- -------------------------------------------------------- ------------ ------------ ------------ ------------
- -------------------------------------------------------- ------------ ------------ ------------ ------------
Current liabilities $ 404,464 $ 327,771 $ 310,538 $ 253,665
Long-term debt 259,384 148,683 89,402 105,393
Postretirement health care and pension benefits 76,109 73,577 70,666 70,882
Other liabilities 124,641 138,415 133,616 128,608
Shareholders' equity 551,701 519,963 456,658 461,808
- -------------------------------------------------------- ------------ ------------ ------------ ------------
Total liabilities and shareholders' equity $ 1,416,299 $ 1,208,409 $ 1,060,880 $ 1,020,356
- -------------------------------------------------------- ------------ ------------ ------------ ------------
- -------------------------------------------------------- ------------ ------------ ------------ ------------
SELECTED CASH FLOW INFORMATION
Cash provided by operating activities $ 235,098 $ 254,269 $ 166,463 $ 169,346
Depreciation and amortization 100,879 89,523 76,279 66,869
Capital expenditures 121,667 111,518 109,894 88,457
EBITDA from continuing operations 319,383 274,840 238,965 203,833
Cash dividends declared per common share $ 0.335 $ 0.29 $ 0.2575 $ 0.2275
- -------------------------------------------------------- ------------ ------------ ------------ ------------
SELECTED FINANCIAL MEASURES/OTHER
Total debt and preferred stock $ 308,268 $ 176,292 $ 161,049 $ 147,213
Total debt and preferred stock to capitalization 35.8% 25.3% 26.1% 24.2%
Book value per common share $ 4.27 $ 4.01 $ 3.53 $ 3.41
Return on beginning equity 25.8% 24.8% 21.5% 21.6%
Dividends/diluted net income per common share 33.5% 34.1% 35.3% 36.7%
Annual common stock price range $28.00-18.13 $19.75-14.56 $15.88-10.00 $ 11.75-9.63
Number of employees 10,210 9,573 9,026 8,206
- -------------------------------------------------------- ------------ ------------ ------------ ------------
Pro forma results for 1994 and prior years reflect adjustments to eliminate
unusual items associated with Ecolab's merger with Kay Chemical Company in
December 1994. All per share, shares outstanding and market price data reflect
the 1997, 1993 and 1986 two-for-one stock splits. Other assets includes net
assets of Ecolab Europe and discontinued operations prior to 1992. Other
liabilities includes $110 million of convertible preferred stock at year-end
1989 and 1990. The ratios of return on beginning equity and dividends/diluted
net income per common share exclude the change in accounting principle and the
loss on the ChemLawn divestiture in 1991, and the Consumer gain in 1987. Number
of employees excludes ChemLawn operations.
50
December 31 (thousands, except per share) 1993 1992 1991 1990
- -------------------------------------------------------- ------------ ------------ ------------ ------------
OPERATIONS
Net sales
United States $ 867,415 $ 816,405 $ 757,564 $ 712,579
International 234,981 241,229 201,738 184,220
Europe 150,809
- -------------------------------------------------------- ------------ ------------ ------------ ------------
Total 1,102,396 1,057,634 959,302 1,047,608
Cost of sales 491,306 485,206 447,356 495,086
Selling, general and administrative expenses 481,639 446,814 393,700 425,983
Merger costs and nonrecurring expenses
- -------------------------------------------------------- ------------ ------------ ------------ ------------
Operating income 129,451 125,614 118,246 126,539
Interest expense, net 21,384 35,334 30,489 28,321
- -------------------------------------------------------- ------------ ------------ ------------ ------------
Income from continuing operations before income
taxes and equity in earnings of joint venture 108,067 90,280 87,757 98,218
Provision for income taxes 33,422 27,392 29,091 32,494
Equity in earnings of joint venture 8,127 8,600 4,573
- -------------------------------------------------------- ------------ ------------ ------------ ------------
Income from continuing operations 82,772 71,488 63,239 65,724
Income (loss) from discontinued operations (274,693) (4,408)
Extraordinary loss and changes in accounting principles 715 (24,560)
- -------------------------------------------------------- ------------ ------------ ------------ ------------
Net income (loss) 83,487 71,488 (236,014) 61,316
Preferred stock dividends (4,064) (7,700)
- -------------------------------------------------------- ------------ ------------ ------------ ------------
Net income (loss) to common shareholders, as reported 83,487 71,488 (240,078) 53,616
Pro forma adjustments (2,667) (2,797) (2,933) (2,956)
- -------------------------------------------------------- ------------ ------------ ------------ ------------
Pro forma net income (loss) to common shareholders $ 80,820 $ 68,691 $ (243,011) $ 50,660
- -------------------------------------------------------- ------------ ------------ ------------ ------------
- -------------------------------------------------------- ------------ ------------ ------------ ------------
Income (loss) per common share, as report
Basic -- continuing operations $ 0.61 $ 0.53 $ 0.51 $ 0.56
Basic -- net income (loss) 0.62 0.53 (2.05) 0.52
Diluted -- continuing operations 0.60 0.52 0.50 0.56
Diluted -- net income (loss) 0.61 0.52 (2.05) 0.51
Pro forma income (loss) per common share
Basic -- continuing operations 0.59 0.51 0.48 0.53
Basic -- net income (loss) 0.60 0.51 (2.08) 0.49
Diluted -- continuing operations 0.58 0.50 0.48 0.53
Diluted -- net income (loss) $ 0.59 $ 0.50 $ (2.08) $ 0.49
Weighted average common shares outstanding -- basic 135,056 134,408 117,050 103,298
Weighted average common shares outstanding -- diluted 137,421 136,227 118,178 104,258
- -------------------------------------------------------- ------------ ------------ ------------ ------------
SELECTED INCOME STATEMENT RATIOS
Gross profit 55.4% 54.1% 53.4% 52.7%
Selling, general and administrative expenses 43.7 42.2 41.1 40.6
Operating income 11.7 11.9 12.3 12.1
Income from continuing operations before income taxes 9.8 8.5 9.1 9.4
Income from continuing operations 7.5 6.8 6.6 6.3
Effective income tax rate 30.9% 30.3% 33.1% 33.1%
- -------------------------------------------------------- ------------ ------------ ------------ ------------
FINANCIAL POSITION
Current assets $ 311,051 $ 264,512 $ 293,053 $ 216,612
Property, plant and equipment, net 219,268 207,183 198,086 187,735
Investment in Henkel-Ecolab joint venture 255,804 289,034 296,292
Other assets 105,607 98,135 152,857 480,911
- -------------------------------------------------------- ------------ ------------ ------------ ------------
Total assets $ 891,730 $ 858,864 $ 940,288 $ 885,258
- -------------------------------------------------------- ------------ ------------ ------------ ------------
- -------------------------------------------------------- ------------ ------------ ------------ ------------
Current liabilities $ 201,498 $ 192,023 $ 240,219 $ 177,643
Long-term debt 131,861 215,963 325,492 208,147
Postretirement health care and pension benefits 72,647 63,393 56,427 8,742
Other liabilities 93,917 29,179 11,002 138,792
Shareholders' equity 391,807 358,306 307,148 351,934
- -------------------------------------------------------- ------------ ------------ ------------ ------------
Total liabilities and shareholders' equity $ 891,730 $ 858,864 $ 940,288 $ 885,258
- -------------------------------------------------------- ------------ ------------ ------------ ------------
- -------------------------------------------------------- ------------ ------------ ------------ ------------
SELECTED CASH FLOW INFORMATION
Cash provided by operating activities $ 175,674 $ 120,217 $ 128,999 $ 154,208
Depreciation and amortization 60,609 60,443 55,653 61,024
Capital expenditures 68,321 59,904 53,752 58,069
EBITDA from continuing operations 190,060 186,057 173,899 187,563
Cash dividends declared per common share $ 0.1975 $ 0.17875 $ 0.175 $ 0.1675
- -------------------------------------------------------- ------------ ------------ ------------ ------------
SELECTED FINANCIAL MEASURES/OTHER
Total debt and preferred stock $ 151,281 $ 236,695 $ 407,221 $ 353,886
Total debt and preferred stock to capitalization 27.9% 39.80% 57.00% 50.10%
Book value per common share $ 2.90 $2.66 $2.30 $ 3.41
Return on beginning equity 23.3% 23.30% 13.60% 12.9%
Dividends/diluted net income per common share 32.4% 34.40% 42.70% 32.8%
Annual common stock price range $11.91-9.07 $9.57-6.66 $8.38-4.88 $7.78-4.16
Number of employees 7,822 7,601 7,428 8,106
- -------------------------------------------------------- ------------ ------------ ------------ ------------
December 31 (thousands, except per share) 1989 1988 1987
- -------------------------------------------------------- ------------ ------------ ------------
OPERATIONS
Net sales
United States $ 646,895 $ 589,715 $ 544,310
International 179,705 159,374 103,168
Europe 122,871 122,250 104,174
- -------------------------------------------------------- ------------ ------------ ------------
Total 949,471 871,339 751,652
Cost of sales 461,256 433,734 361,545
Selling, general and administrative expenses 383,512 337,707 307,851
Merger costs and nonrecurring expenses 12,978 18,441
- -------------------------------------------------------- ------------ ------------ ------------
Operating income 91,725 99,898 63,815
Interest expense, net 31,628 31,097 21,440
- -------------------------------------------------------- ------------ ------------ ------------
Income from continuing operations before income
taxes and equity in earnings of joint venture 60,097 68,801 42,375
Provision for income taxes 19,411 21,285 20,724
Equity in earnings of joint venture
- -------------------------------------------------------- ------------ ------------ ------------
Income from continuing operations 40,686 47,516 21,651
Income (loss) from discontinued operations (29,379) 4,238 126,551
Extraordinary loss and changes in accounting principles
- -------------------------------------------------------- ------------ ------------ ------------
Net income (loss) 11,307 51,754 148,202
Preferred stock dividends (429)
- -------------------------------------------------------- ------------ ------------ ------------
Net income (loss) to common shareholders, as reported 10,878 51,754 148,202
Pro forma adjustments (3,196) (2,622) (2,606)
- -------------------------------------------------------- ------------ ------------ ------------
Pro forma net income (loss) to common shareholders $ 7,682 $ 49,132 $ 145,596
- -------------------------------------------------------- ------------ ------------ ------------
- -------------------------------------------------------- ------------ ------------ ------------
Income (loss) per common share, as reported
Basic -- continuing operations $ 0.34 $ 0.41 $ 0.19
Basic -- net income (loss) 0.09 0.44 1.28
Diluted -- continuing operations 0.34 0.40 0.18
Diluted -- net income (loss) 0.09 0.43 1.23
Pro forma income (loss) per common share
Basic -- continuing operations 0.31 0.38 0.16
Basic -- net income (loss) 0.06 0.42 1.26
Diluted -- continuing operations 0.31 0.38 0.16
Diluted -- net income (loss) $ 0.06 $ 0.41 $ 1.20
Weighted average common shares outstanding -- basic 118,516 117,188 115,980
Weighted average common shares outstanding -- diluted 120,196 119,586 121,342
- -------------------------------------------------------- ------------ ------------ ------------
SELECTED INCOME STATEMENT RATIOS
Gross profit 51.4% 50.2% 51.9%
Selling, general and administrative expenses 41.7 38.7 43.4
Operating income 9.7 11.5 8.5
Income from continuing operations before income taxes 6.3 7.9 5.6
Income from continuing operations 4.3 5.5 2.9
Effective income tax rate 32.3% 30.9% 48.9%
- -------------------------------------------------------- ------------ ------------ ------------
FINANCIAL POSITION
Current assets $ 370,875 $ 265,291 $ 283,700
Property, plant and equipment, net 203,056 194,509 176,856
Investment in Henkel-Ecolab joint venture
Other assets 420,115 444,827 468,593
- -------------------------------------------------------- ------------ ------------ ------------
Total assets $ 994,046 $ 904,627 $ 929,149
- -------------------------------------------------------- ------------ ------------ ------------
- -------------------------------------------------------- ------------ ------------ ------------
Current liabilities $ 201,585 $ 181,758 $ 247,825
Long-term debt 228,632 257,500 258,273
Postretirement health care and pension benefits 12,859 12,768 12,150
Other liabilities 135,343 11,590 9,863
Shareholders' equity 415,627 441,011 401,038
- -------------------------------------------------------- ------------ ------------ ------------
Total liabilities and shareholders' equity $ 994,046 $ 904,627 $ 929,149
- -------------------------------------------------------- ------------ ------------ ------------
- -------------------------------------------------------- ------------ ------------ ------------
SELECTED CASH FLOW INFORMATION
Cash provided by operating activities $ 123,215 $ 113,514 $ 146,310
Depreciation and amortization 53,113 48,282 40,932
Capital expenditures 54,430 62,125 57,549
EBITDA from continuing operations 144,838 148,180 104,747
Cash dividends declared per common share $ 0.165 $ 0.16 $ 0.15
- -------------------------------------------------------- ------------ ------------ ------------
SELECTED FINANCIAL MEASURES/OTHER
Total debt and preferred stock $ 382,764 $ 300,448 $ 320,080
Total debt and preferred stock to capitalization 47.9% 40.5% 44.40%
Book value per common share $ 3.55 $ 3.73 $ 3.46
Return on beginning equity 2.5% 12.9% 19.5%
Dividends/diluted net income per common share 183.3% 37.2% 34.9%
Annual common stock price range $8.94-6.22 $6.94-5.32 $8.44-4.63
Number of employees 7,845 7,684 7,479
- -------------------------------------------------------- ------------ ------------ ------------
Pro forma results for 1994 and prior years reflect adjustments to eliminate
unusual items associated with Ecolab's merger with Kay Chemical Company in
December 1994. All per share, shares outstanding and market price data reflect
the 1997, 1993 and 1986 two-for-one stock splits. Other assets includes net
assets of Ecolab Europe and discontinued operations prior to 1992. Other
liabilities includes $110 million of convertible preferred stock at year-end
1989 and 1990. The ratios of return on beginning equity and dividends/diluted
net income per common share exclude the change in accounting principle and the
loss on the ChemLawn divestiture in 1991, and the Consumer gain in 1987. Number
of employees excludes ChemLawn operations.
51
APPENDIX: GRAPHIC AND IMAGE MATERIAL
PAGE NUMBER DESCRIPTION
- ----------- -----------
28 Bar graph illustrating total return to shareholders
(share appreciation plus dividends) for the last five
fiscal years as follows:
1997 49.0%
1996 27.3%
1995 46.1%
1994 (5.3)%
1993 24.5%
28 Bar graph illustrating return on beginning equity for
the last five fiscal years as follows:
1997 25.8%
1996 24.8%
1995 21.5%
1994 21.6%
1993 23.3%
29 Pie chart illustrating United States and International
consolidated business mix for 1997 as well as
consolidated net sales (in millions) for the last three
fiscal years as follows:
1997 United States mix 78%
1997 International mix 22%
1997 sales $1,640
1996 sales $1,490
1995 sales $1,341
30 Pie chart illustrating the United States business mix
for Ecolab's seven divisions for 1997 as well as
consolidated United States net sales (in millions) for
the last three fiscal years as follows:
1997 Institutional mix 55%
1997 Food and Beverage mix 16%
1997 Pest Elimination mix 8%
1997 Professional Products mix 8%
1997 Kay mix 6%
1997 Textile Care mix 5%
1997 Water Care mix 2%
1997 U.S. sales $1,276
1996 U.S. sales $1,149
1995 U.S. sales $1,030
PAGE NUMBER DESCRIPTION
32 Pie chart illustrating the International business mix
for Ecolab's non-U.S. operations for 1997 as well as
consolidated International net sales (in millions) for
the last three fiscal years as follows:
1997 Asia Pacific mix 43%
1997 Latin America mix 24%
1997 Canada mix 20%
1997 Kay, Africa and Other mix 13%
1997 International sales $365
1996 International sales $341
1995 International sales $311
33 Pie chart illustrating the Henkel-Ecolab Joint Venture
business mix for 1997 as well as Ecolab's equity in
earnings of Henkel-Ecolab (in millions) for the last
three fiscal years as follows:
1997 Institutional mix 36%
1997 Professional Hygiene mix 25%
1997 Food (P3) Hygiene mix 25%
1997 Textile Hygiene mix 14%
1997 Henkel-Ecolab equity $13
1996 Henkel-Ecolab equity $13
1995 Henkel-Ecolab equity $ 8
34 Pie chart illustrating mix of shareholders' equity and
total debt for 1997 as well as total debt to
capitalization ratio for the last three fiscal years as
follows:
1997 Shareholders' Equity mix 64%
1997 Total Debt mix 36%
1997 debt/equity ration 36%
1996 debt/equity ration 25%
1995 debt/equity ration 26%
35 Bar graph illustrating cash from continuing operating
activities (in millions) for the last five fiscal years
as follows:
1997 $235
1996 $254
1995 $163
1994 $154
1993 $151