SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended DECEMBER 31, 1998 Commission File No. 1-9328
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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ECOLAB INC.
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(Exact name of registrant as specified in its charter)
Delaware 41-0231510
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
370 N. Wabasha Street, St. Paul, Minnesota 55102
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (651) 293-2233
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Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
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Common Stock, $1.00 par value New York Stock Exchange, Inc.
Pacific Exchange, Inc.
Preferred Stock Purchase Rights New York Stock Exchange, Inc.
Pacific Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. /X/
Aggregate market value of voting stock held by non-affiliates of Registrant
on March 16, 1999: $5,115,683,817 (see Item 12, on page 21 hereof). The
number of shares of Registrant's Common Stock, par value $1.00 per share,
outstanding as of March 16, 1999: 129,597,754 shares.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of Registrant's Annual Report to Stockholders for the year
ended December 31, 1998 (hereinafter referred to as "Annual Report")
are incorporated by reference into Parts I, II and IV.
2. Portions of the Proxy Statement for the Annual Meeting of Stockholders
to be held May 14, 1999 and to be filed within 120 days after the
Registrant's fiscal year ended December 31, 1998 (hereinafter referred
to as "Proxy Statement") are incorporated by reference into Part III.
PART I
FORWARD-LOOKING STATEMENTS AND RISK FACTORS
The Private Securities Litigation Reform Act of 1995 provides a safe harbor
for forward-looking statements. In this Report on Form 10-K (including the
Management Discussion and Analysis incorporated into Item 7 hereof),
Management discusses expectations regarding future performance of the Company
which may include anticipated financial performance, business prospects,
prospects for international growth, investments in the sales and service
force, year 2000 issues, Euro conversion, the impact of legislation and
environmental compliance, the effect of litigation, production capability,
share repurchases, the effect of new accounting principles and similar
matters. Without limiting the foregoing, words or phrases such as "will
likely result," "are expected to," "will continue," "is anticipated," "we
believe," "estimate," "project" (including the negative or variations
thereof) or similar terminology, generally identify forward-looking
statements.
Forward-looking statements represent challenging goals for the Company. As
such, they are based on certain assumptions and estimates and are subject to
certain risks and uncertainties. The Company cautions that undue reliance
should not be placed on such forward-looking statements which speak only as
of the date made. In order to comply with the terms of the safe harbor, the
Company hereby identifies important factors which could affect the Company's
financial performance and could cause the Company's actual results for future
periods to differ materially from the anticipated results or other
expectations expressed in the forward-looking statements. These factors
should be considered, together with any similar risk factors or other
cautionary language which may be made in the section of this Report on Form
10-K containing the forward-looking statement.
Risks and uncertainties that may affect operating results and business
performance include: pricing flexibility; availability of adequate and
reasonably-priced raw materials; the occurrence of capacity constraints, or the
loss of a key supplier, which in either case limit the production of certain
products; ability to carry out the Company's acquisition strategy, including
difficulties in rationalizing acquired businesses and in realizing related cost
savings and other benefits; the costs and effects of year 2000 computer software
issues (described under the heading "Year 2000 Conversion" beginning on page 30
of the Financial Discussion incorporated from the Annual Report into Item 7
hereof); the costs and effects of complying with: (i) the significant
environmental laws and regulations which apply to the Company's operations and
facilities, (ii) government regulations relating to the manufacture, storage,
distribution and labeling of the Company's products and (iii)
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changes in tax, fiscal, governmental and other regulatory policies; economic
factors such as the worldwide economy, interest rates, currency movements,
Euro conversion and the development of markets; the occurrence of (i)
litigation or claims, (ii) natural or man-made disasters and (iii) severe
weather conditions affecting the food service and hospitality industry; loss
of, or changes in, executive management; the Company's ability to continue
product introductions and technological innovations; and other uncertainties
or risks reported from time-to-time in the Company's reports to the
Securities and Exchange Commission. In addition, the Company notes that its
stock price can be affected by fluctuations in quarterly earnings. Despite
favorable year-over-year quarterly comparisons in recent years, there can be
no assurances that earnings will continue to increase or that the degree of
improvement will meet investors' expectations.
The year 2000 issue is the result of computer programs having date-sensitive
software which may recognize a date using 00 as the year 1900 rather than the
year 2000. If not detected and corrected, this can result in system failure
or miscalculations causing disruptions of operations, including a temporary
inability to process transactions, send invoices, or engage in similar normal
business activities. The year 2000 issue can arise at any point in the
Company's supply, manufacturing, processing, distribution and any financial
chains. Accordingly, the failure to resolve year 2000 issues could have a
material adverse impact on the Company. The Company has put in place plans
and processes (see "Year 2000 Conversion" on page 30 of the Financial
Discussion incorporated from the Annual Report into Item 7 hereof) which it
believes will be sufficient to evaluate and manage risk associated with year
2000 issues. However, estimates of year 2000 costs, time schedules and the
Company's belief that it can successfully resolve year 2000 issues are based
on presently available information and are subject to certain assumptions and
risks. These include the availability of necessary and trained personnel who
can be hired or retained on a contract basis, the ability to locate and
correct all relevant computer codes and, in particular, uncertainties
surrounding the ability of suppliers, vendors and customers to resolve their
year 2000 issues since their year 2000 conversion processes are not within
the Company's control. The ability of governmental agencies to resolve year
2000 issues is an additional risk and uncertainty.
ITEM 1. BUSINESS
ITEM 1(a) GENERAL DEVELOPMENT OF BUSINESS
Except where the context otherwise requires, the terms "Company" and
"Ecolab," as used herein, include Ecolab Inc. and its subsidiaries. Ecolab
Inc. was incorporated as a Delaware corporation in 1924. The Company's
fiscal year is the calendar year ending December 31.
The Company and Henkel KGaA of Dsseldorf, Germany ("Henkel"), each have a 50%
economic interest in a joint venture which operates institutional and
industrial cleaning and sanitizing businesses in Europe, and which is
referred to hereafter as the "Henkel-Ecolab Joint Venture" or "Joint
Venture." Strategic decisions concerning the Joint Venture require the
agreement of Henkel and the Company. Henkel has a tie-breaking vote on
certain matters pertaining to continuation of business in the event mutual
agreement is not reached. These include the appointment of the Joint Venture
senior executives and adoption of the annual business plan. The Company
accounts for its interest in the Henkel-Ecolab Joint Venture under the equity
method of accounting and therefore does not consolidate the Henkel-Ecolab
Joint Venture balance sheet accounts, revenues and expenses. Financial
statements of the Henkel-Ecolab Joint Venture as listed under Item 14, I(3)
of Part IV hereof are included as a part of this Report and a review of the
financial performance of the Joint Venture is found under the heading
"Henkel-Ecolab Joint Venture" contained in the Financial
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Discussion which is incorporated from the Annual Report into Item 7 hereof.
Except where the Henkel-Ecolab Joint Venture is specifically referred to, the
description of business in Part I does not include the business of the Joint
Venture.
During 1998, the Company continued to make business acquisitions which
broadened its product and service offerings in line with its Circle the
Customer - Circle the Globe strategy. The integration of the business of
Gibson Chemical Industries Limited located in Melbourne, Australia was
completed. The Company added commercial food equipment service and part
sales to its operations through the acquisition of GCS Service, Inc.
Additional products and services were added to the United States
Institutional and Food & Beverage business units and to the Company's
Japanese operations through business acquisitions. Detail on these
acquisitions is found under the heading "Business Acquisitions" in Note 6,
located on pages 40 and 41 of the Annual Report and incorporated into Item 14
hereof.
ITEM 1(b) FINANCIAL INFORMATION ABOUT OPERATING SEGMENTS
The financial information about reportable segments appearing under the
heading "Operating Segments" in Note 15, located on pages 46 and 47 of the
Annual Report, is incorporated herein by reference.
ITEM 1(c) NARRATIVE DESCRIPTION OF BUSINESS
GENERAL: The Company is engaged in the development and marketing of premium
products and services for the hospitality, institutional and industrial
markets. The Company provides cleaning, sanitizing, pest elimination and
maintenance products, systems and services primarily to hotels and
restaurants, foodservice, healthcare and educational facilities, quickservice
(fast-food and other convenience store units), groceries, commercial and
institutional laundries, light industry, dairy plants and farms, and food and
beverage processors. A strong commitment to service is a distinguishing
characteristic of the Company.
The following description of business is based upon the Company's three
reportable segments ("segments") as reported in the Company's financial
statements. However, the Company pursues a "Circle the Customer - Circle the
Globe" strategy by developing relationships and partnerships with customers
who require a broad range of cleaning and sanitizing services. Therefore,
one customer may utilize the services of all three of the segments and there
is a degree of interdependence among the operating segments--particularly
between the International Cleaning and Sanitizing business and the United
States Cleaning and Sanitizing businesses.
UNITED STATES CLEANING AND SANITIZING SEGMENT
The "United States Cleaning and Sanitizing" segment is comprised of six
divisions which provide cleaning and sanitizing services to United States
markets.
INSTITUTIONAL: The Institutional Division is the Company's largest division
and sells specialized cleaners and sanitizers for washing dishes, glassware,
flatware, foodservice utensils and kitchen equipment ("warewashing"), for
on-premise laundries (typically used by customers having smaller machines and
laundry needs) and for general housekeeping functions, as well as dishwasher
racks and related kitchen sundries to the foodservice, lodging, educational
and healthcare industries and water filters to the foodservice industry. The
Division also provides pool and spa treatment
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programs for commercial and hospitality customers and products and services
for the vehicle wash industry. The Institutional Division also markets
various chemical dispensing device systems, which are made available to
customers, to dispense the Company's cleaners and sanitizers. Through its
Ecotemp offering, the Institutional Division markets, primarily to smaller
and mid-size customer units, a program comprised of energy-efficient
dishwashing machines, detergents, rinse additives and sanitizers including
full machine maintenance.
The Company believes it is the leading supplier of chemical warewashing
products to institutions in the United States.
The Institutional Division sells its products and services primarily through
Company-employed field sales and service personnel. However, the Company, to
a significant degree, also utilizes food-service distributors to market and
sell its products to smaller accounts or accounts which purchase through food
distributors and the Company provides the same service to accounts served by
food distributors as to direct customers.
KAY: The Kay Division supplies chemical cleaning and sanitizing products
primarily to the quick-service restaurant industry. This includes
traditional fast food restaurants but, increasingly, other retail locations
where "fast food" is prepared and served, such as convenience stores, airport
and shopping center kiosks, discount stores, stadiums, grocery store delis
and other venues. Kay's products include specialty and general purpose hard
surface cleaners, degreasers, sanitizers, polishes, hand care products and
assorted cleaning tools. Products are sold under the "Kay" brand or the
customer's private label. In addition, Kay supports its product sales with
employee training programs and technical support designed to meet the special
needs of its customers which have a relatively high employee turnover. Kay's
customized cleaning and sanitation programs are designed to reduce labor
costs and product usage while increasing sanitation levels, cleaning
performance, equipment life and safety levels.
Kay employs a direct field sales force which primarily calls upon national
and regional quickservice restaurant chains and franchisees, although the
sales are made to distributors who supply the chain or franchisee's
restaurants.
The Company believes that its Kay Division is the leading supplier of
chemical cleaning and sanitizing products to the quickservice restaurant
industry in the United States. While Kay's customer base has been growing,
Kay's business is largely dependent upon a limited number of major
quickservice restaurant chains and franchisees.
FOOD & BEVERAGE: The Food & Beverage Division addresses cleaning and
sanitation at the start of the food chain to facilitate the production of
products safe for human consumption. The Division provides detergents,
cleaners, sanitizers, lubricants, animal health and water treatment products,
as well as cleaning systems, electronic dispensers and chemical injectors for
the application of chemical products, primarily to dairy plants, dairy,
poultry and swine farms, breweries, soft-drink bottling plants, and meat,
poultry and other food processors as well as to pharmaceutical and cosmetic
plants. The Food & Beverage Division also designs, engineers and installs CIP
("clean-in-place") process control systems and facility cleaning systems to
its customer base. Farm products (which include bovine teat products) are
sold through dealers and distributors, while plant products are sold
primarily by the Company's field sales personnel. The Company believes that
it is one of the leading suppliers of cleaning and sanitizing products to the
dairy plant, dairy farm and beverage processor industries in the United
States.
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TEXTILE CARE: The Textile Care Division provides chemical laundry products
and proprietary dispensing systems, as well as related services, to large
institutional and commercial laundries and to certain smaller laundry
operations. Typically these customers process a minimum of 1,000,000 pounds
of linen each year and include free-standing laundry plants used by
institutions such as hotels, restaurants and healthcare facilities as well as
industrial, textile rental and shirt laundries. Products and services
include laundry cleaning and specialty products and related dispensing
equipment, which are marketed primarily through a Company-employed sales
force and, to a lesser extent, through distributors. The Division's programs
are designed to meet the customer's need for exceptional cleaning, while
extending the useful life of linen and reducing the customer's overall
operating cost. Textile Care offerings complement the Institutional
Division's offerings to small-to-medium size on-premise laundry facilities.
PROFESSIONAL PRODUCTS: The Professional Products Division provides a full
line of infection- prevention and janitorial offerings that are sold to the
medical and janitorial markets in the United States. The Professional
Products Division sells its proprietary products under the brand names Airkem
(detergents, general purpose cleaners, carpet care, furniture polishes,
disinfectants, floor care products, hand soaps and odor counteractants) and
Huntington (infection control and gym floor products).
The Company believes it is among the largest suppliers of
infection-prevention and general cleaners to the United States healthcare
industry as well as one of the market leaders in the overall United States
janitorial market. Products are sold through a Company-employed sales force
as well as a network of independent manufacturing representatives in both
janitorial and medical markets who sell products and services to the
institutional, healthcare and industrial marketplaces. A private-label
program also manufactures non-proprietary janitorial-related products for
resale by major distributor organizations and infection prevention products
to companies selling into consumer markets. In addition, the Division,
through its JaniSource operation, markets brand name products for sale
through mass distribution.
WATER CARE SERVICES: The Water Care Services Division expands the Company's
"Circle the Customer - Circle the Globe" strategy by adding an offering which
is critical to companies in the Company's customer base--water treatment
programs. The Water Care Services Division provides water and wastewater
treatment products, services and systems for commercial/institutional
customers (hospitals, healthcare, commercial real estate, government,
shopping malls and commercial laundries) and light industry (food and
beverage accounts, textile mills, electronic plants and other industries).
As a facet of its growth strategy, Water Care Services works closely with the
Company's Institutional, Textile Care and Food & Beverage Divisions to offer
customized water care strategies to their accounts that have water care
needs, primarily to treat water used in heating and cooling systems and
manufacturing processes and to treat waste water.
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UNITED STATES OTHER SERVICES SEGMENT
The "United States Other Services" segment is comprised of three business
units: Pest Elimination Division; Jackson Equipment and GCS Service, Inc. In
general, all three businesses provide service or equipment which can augment
or extend the Company's product offering to its business customers as a part
of the Circle the Customer approach.
PEST ELIMINATION: The Pest Elimination Division provides services for the
elimination and prevention of pests to restaurants, food and beverage
processors, educational and healthcare facilities, hotels and other
institutional and commercial customers. These services are sold and
performed by Company-employed sales and service personnel. The Pest
Elimination business acquires all of its insecticides and pesticides from
third-party vendors. The Company believes it is the largest provider of
premium pest elimination services to institutions in the United States.
JACKSON MSC: Jackson MSC designs, manufactures and markets dishwashing and
customized machines for the foodservice industry. Jackson, which
manufactures its equipment at its Barbourville, Kentucky facility, sells
products for use by the Company's other businesses, most notably, the
energy-efficient dishwashing machines used by the Institutional Division in
its Ecotemp offering. Jackson also sells its equipment to third parties
through independent sales representatives and foodservice dealers.
GCS SERVICE, INC.: GCS provides commercial kitchen equipment repair
services. GCS, which was acquired by the acquisition of GCS Service, Inc. in
July, 1998 by the Company, offers both chain account customers of the Company
and equipment manufacturers the benefits of working with a single national
equipment repair service provider.
INTERNATIONAL CLEANING AND SANITIZING SEGMENT
The Company conducts business in approximately 35 countries outside of the
United States through wholly-owned subsidiaries or, in the case of Venezuela,
China and Indonesia, through majority-owned joint ventures with local
partners. In other countries, selected products are sold by the Company's
export operations to distributors, agents or licensees, although those sales
are not significant in terms of the Company's overall sales. The largest
International operations are located in Asia Pacific, Latin America and
Canada with smaller operations in Africa. With limited exceptions, the
Company does not conduct business directly in Europe. In that region,
business is conducted by the Henkel-Ecolab Joint Venture which is described
in Item 1(a) hereof under the heading "General Development of Business."
In general, the businesses conducted internationally are similar to those
conducted in the United States through the United States Cleaning and
Sanitizing Segment. Institutional and Food and Beverage businesses are the
largest businesses and are conducted at virtually all international
locations. The other businesses (Kay, Textile Care, Professional Products
and Water Care) are conducted less extensively in international locations.
Because a significant portion of Kay's international sales are to non-United
States units of United States-based quick service restaurant chains, a
substantial portion of Kay's international sales are made either to domestic
or internationally-located distributors who serve these chains. In general,
all of the businesses conducted in the United States Cleaning and Sanitizing
Segment are operated in Canada.
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International businesses are subject to the usual risks of foreign operations
including possible changes in trade and foreign investment laws, tax laws,
currency exchange rates and economic and political conditions abroad. The
profitability of International operations is lower than the profitability of
businesses in the United States. This is due to lower International
operating income margins caused by the difference in scale of International
operations where operating locations are smaller in size as well as to the
additional cost of operating in numerous and diverse foreign jurisdictions.
Proportionately larger investments in sales, administrative and technical
personnel are also necessary in order to facilitate growth in International
operations.
ADDITIONAL INFORMATION
COMPETITION: The Company's business units have two significant classes of
competitors. First, each business unit competes with a small number of large
companies selling directly or through distributors on a national or
international scale. Some of these large competitors have substantially
greater assets and financial resources than the Company. Second, all of the
Company's business units have numerous smaller regional or local competitors
which focus on more limited geographies, product lines, and/or end-user
segments.
The Company's objective is to achieve a significant presence in each of its
business markets. In general, competition is based on service, product
performance and price. The Company believes it competes principally by
providing superior value and differentiated products. Value is provided by
state-of-the-art, environmentally-compatible cleaning, sanitation and
maintenance products and systems coupled with high service standards and
dedication to customer satisfaction after the initial sale. This is made
possible, in part, by the Company's significant on-going investment in
training and technology development and by the Company's standard practice of
assisting customers in lowering operating costs and complying with safety,
environmental and sanitation regulations. In addition, the Company
emphasizes its ability to uniformly provide a variety of related premium
cleaning and sanitation services to its customers and to provide that level
of service to multiple locations of chain customer organizations worldwide.
This approach is succinctly stated in the Company's "Circle the Customer -
Circle the Globe" strategy which is discussed above in this Item 1(c) under
the heading "General."
SALES AND SERVICE: Products, systems and services are primarily marketed in
domestic and international markets by Company-trained sales and service
personnel who also advise and assist customers in the proper and efficient
use of the products and systems in order to meet a full range of cleaning and
sanitation needs. Distributors are utilized in several markets, as described
in the business unit descriptions found under the discussion of the three
reportable segments above.
CUSTOMERS AND CLASSES OF SERVICE: The Company believes that its business is
not materially dependent upon a single customer although, as described above
in this Item 1(c) under the description of the Kay business, Kay is largely
dependent upon a limited number of national and international quickservice
chains and franchisees. No material part of the Company's business is
subject to renegotiation or termination at the election of a governmental
unit. The Company sells two classes of products which each constitute 10
percent or more of its sales. Worldwide sales of warewashing products in
1998, 1997 and 1996 approximated 28, 31 and 31 percent, respectively, of the
Company's consolidated net sales. In addition, the Company, through its
Institutional and Textile Care businesses, sells laundry products and
services to a broad range of laundry customers. Total laundry sales in 1998,
1997 and 1996 approximated 13, 14 and 14 percent respectively, of the
Company's consolidated net sales.
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PATENTS AND TRADEMARKS: The Company owns a number of patents and trademarks.
Management does not believe that the Company's overall business is materially
dependent on any individual patent or trademark.
SEASONALITY: The Company's business has little seasonality.
WORKING CAPITAL: The Company has invested in the past, and will continue to
invest in the future, in merchandising equipment consisting primarily of
systems used by customers to dispense the Company's cleaning and sanitizing
products. The Company, otherwise, has no unusual working capital
requirements. The investment in merchandising equipment is discussed under
the heading "Cash Flows" located on page 33 of the Annual Report and
incorporated into Item 7 hereof.
MANUFACTURING AND DISTRIBUTION: The Company manufactures most of its products
and related equipment in Company-owned manufacturing facilities. Some are
also produced for the Company by third party contract manufacturers. Other
products and equipment are purchased from third party suppliers. Additional
information on product/equipment sourcing is found in the segment discussions
above and additional information on the Company's manufacturing facilities is
located in Item 2 under the heading "Properties" on pages 15 through 17
hereof.
Deliveries to customers are made from the Company's manufacturing plants and
a network of distribution centers and public warehouses. The Company uses
common carriers, its own delivery vehicles and distributors. Additional
information on the Company's plant and distribution facilities is located in
Item 2 under the heading "Properties" on pages 15 through 17 hereof.
RAW MATERIALS: Raw materials purchased for use in manufacturing products for
the Company are inorganic chemicals, including phosphates, silicates,
alkalies, salts and petrochemical-based materials, including surfactants and
solvents. These materials are generally purchased on an annual contract basis
from a diverse group of chemical manufacturers. Pesticides used by the Pest
Elimination Division are purchased as finished products under contract or
purchase order from the producers or their distributors. The Company also
purchases packaging materials for its manufactured products and components
for its specialized cleaning equipment and systems. Most raw materials, or
substitutes for those materials, used by the Company, with the exception of a
few specialized chemicals which the Company manufactures, are available from
several suppliers.
RESEARCH AND DEVELOPMENT: The Company's research and development program
consists principally of devising and testing new products, processes,
techniques and equipment, improving the efficiency of existing ones,
improving service program content, and evaluating the environmental
compatibility of products. Key disciplines include analytical and formulation
chemistry, microbiology, process and packaging engineering and product
dispensing technology. Substantially all of the Company's principal products
have been developed by its research, development and engineering personnel.
Note 12, entitled "Research Expenditures" located on page 44 of the Annual
Report, is incorporated herein by reference.
ENVIRONMENTAL CONSIDERATIONS: This discussion of Environmental
Considerations should be read in light of the Forward-Looking Statements and
Risk Factors discussion found under Part I at the beginning of this Report.
The Company's businesses are subject to various legislative enactments and
regulations relating to the protection of the environment. While the Company
cooperates with governmental authorities and takes commercially practicable
measures to meet regulatory
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requirements and avoid or limit environmental effects, some risks are
inherent in the Company's businesses. The Company's management believes
these are risks which the Company has in common with other companies engaged
in similar businesses. Among the risks are costs associated with managing
hazardous substances, waste disposal or plant site clean-up, fines and
penalties if the Company were found in violation of law, as well as
modifications, disruptions or discontinuation of certain operations or types
of operations. Although the Company is not currently aware of any such
circumstances, there can be no assurance that future legislation or
enforcement policies will not have a material adverse effect on the Company's
financial condition or results of operations. Environmental matters most
significant to the Company are discussed below.
PHOSPHOROUS LEGISLATION: Various laws and regulations have been enacted by
state, local and foreign jurisdictions pertaining to the sale of products
which contain phosphorous. The primary thrust of such laws and regulations
is to regulate the phosphorous content of home laundry detergents, a market
not served by the Company. However, certain of the Company's products are
affected by such laws and regulations, including some commercial laundry
and warewashing detergents, cleaners and sanitizers. Three types of
legislative restrictions are common: (1) labeling of phosphorous content,
(2) percentage limitation on the amount of phosphorous permitted and (3) a
ban on the use of phosphorous in certain products or in products sold for a
particular purpose. The Company has been able to comply with legislative
requirements and, where necessary, has developed products which, although
typically less effective than the products they replace, contain no
phosphorous or lower amounts of phosphorous to satisfy the legislative
limitations or bans. In limited geographic areas, the Company has obtained
a variance from existing zero-phosphorous legislation. Phosphorous
legislation has not had a material negative effect on the Company's
operations to date.
PESTICIDE LEGISLATION: Various federal and state environmental laws and
regulations govern the manufacture and/or use of pesticides. The Company
manufactures and sells certain disinfecting and sanitizing products which
kill microorganisms (bacteria, viruses, fungi) on environmental surfaces.
Such products constitute "pesticides" or "antimicrobial pesticides" under
the current definitions of the Federal Insecticide Fungicide and
Rodenticide Act ("FIFRA"), as amended by the Food Quality Protection Act of
1996, the principal federal statute governing the manufacture, labeling,
handling and use of pesticides. Approximately 350 of these products must
be registered with the United States Environmental Protection Agency
("EPA"). Registration entails the necessity to meet certain efficacy,
toxicity and labeling requirements and to pay initial and on-going
registration fees. In addition, each state in which these products are
sold requires registration and payment of a fee. In general, the states
impose no substantive requirements different from those required by FIFRA.
However, California does have its own regulatory scheme and certain other
states have regulatory schemes under consideration. In addition,
California imposes a tax on total pesticide sales in that State. While the
cost of complying with rules as to pesticides has not had a material
adverse effect on the Company's financial condition, liquidity or the
results of its operations to date, the costs and delays in receiving
necessary approvals for these products have increased in recent years. The
Company believes that the nature of these costs and regulatory delays are
similar to those encountered by other companies in similar businesses.
Total fees paid to the EPA and the states to obtain or maintain pesticide
registrations, and for the California
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tax, were approximately $1,386,000 in 1998. Such costs will increase
somewhat in 1999, but not in amounts which are expected to significantly
affect the Company's results of operations, financial position, or
liquidity.
In addition, the Company's Pest Elimination Division applies restricted-use
pesticides which it purchases from third parties. That Division must
comply with certain standards pertaining to the use of such pesticides and
to the licensing of employees who apply such pesticides. Such regulations
are enforced primarily by the states or local jurisdictions in conformity
with federal regulations. The Company has not experienced material
difficulties in complying with these requirements.
OTHER ENVIRONMENTAL LEGISLATION: The Company's manufacturing plants are
subject to federal, state, local or foreign jurisdiction laws and
regulations relating to discharge of hazardous substances into the
environment and to the transportation, handling and disposal of such
substances. The primary federal statutes that apply to the Company's
activities are the Clean Air Act, the Clean Water Act and the Resource
Conservation and Recovery Act ("RCRA"). The Company is also subject to the
Superfund Amendments and Reauthorization Act of 1986, which imposes certain
reporting requirements as to emissions of toxic substances into the air,
land and water. The Company makes capital investments and expenditures to
comply with environmental laws and regulations, to ensure employee safety
and to carry out its announced environmental stewardship principles. To
date, such expenditures have not had a significant adverse effect on the
financial condition of the Company or its results of operations. The
Company's capital expenditures for environmental control projects incurred
for 1998 were approximately $1,502,000 and approximately $2,553,000 has
been budgeted for 1999.
ENVIRONMENTAL REMEDIATION AND PROCEEDINGS: Along with numerous other
potentially responsible parties ("PRPs"), the Company is currently involved
with waste disposal site clean-up activities imposed by the federal
Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA") or state equivalents at 14 waste disposal sites which received
nominal amounts of waste materials alleged to have been generated by the
Company or its subsidiaries. In general, under CERCLA, the Company and
each other PRP which actually contributes hazardous substances to a
superfund site are jointly and severally liable for the costs associated
with cleaning up the site. Customarily, the PRPs will work with the EPA to
agree and implement a plan for site remediation.
In addition to the 14 sites noted above, the Illinois Environmental
Protection Agency ("Agency"), in 1996, identified the Company, along with
two other corporations, as PRPs in connection with groundwater
contamination near the Company's South Beloit, Illinois manufacturing
facility. The U.S. Environmental Protection Agency has proposed listing
the site on the National Priority List of federal superfund sites. The
Company has denied liability and has requested that the Agency withdraw its
identification of the Company as a PRP. The Company has recently entered
into a tentative settlement with the EPA, the Agency, and the other two
corporations. The Company anticipates that this settlement will not have a
material effect on the Company's results of operations, financial position
or liquidity.
-11-
Based on an analysis of the Company's experience with such environmental
proceedings, the Company's estimated share of all hazardous materials
deposited on the 15 sites referred to in the two preceding paragraphs, and
the Company's estimate of the contribution to be made by other PRPs which
the Company believes have the financial ability to pay their shares, the
Company has accrued its best estimate of the Company's future costs
relating to such known sites.
The New South Wales (Australia) Environmental Protection Authority has
identified a property owned by Maxwell Chemicals Pty. Limited, a subsidiary
of the Company, as subject to environmental impacts. A property in Georgia
owned by Puritan Services Inc., a subsidiary of the Company, also has been
identified as subject to environmental impacts. Remediation of a New
Jersey property owned by the Company is on-going as required by New Jersey
environmental authorities. The Company has accrued for estimated future
costs relating to these properties.
A legal action commenced in August, 1989 in the District Court in Zwolle,
Netherlands, by the Netherlands government against a former subsidiary of
the Company remains pending. Netherlands authorities are seeking monetary
damages to cover the cost of investigation and planned clean-up of soil and
groundwater contamination, allegedly resulting from the discharge of
wastewater and chemicals during a period ended in 1981, when the subsidiary
operated a plant on the site. Damages claimed are approximately
$5,000,000. The former subsidiary, now owned by the Henkel-Ecolab Joint
Venture, has denied liability and believes it complied with applicable
Netherlands law. The Company has agreed to indemnify the Henkel-Ecolab
Joint Venture as to any liability associated with this matter.
Accordingly, an accrual has been recorded, reflecting management's best
estimate of future costs.
During 1998, the Company's net expenditures for contamination remediation
were approximately $475,000. The accrual at the end of 1998 for future
remediation expenditures was approximately $13,000,000. The Company
reviews its exposure for contamination remediation costs periodically and
its accruals are adjusted as considered appropriate. In establishing
accruals, potential insurance reimbursements are not included. While the
final resolution of these issues could result in costs below or above
current accruals and, therefore, have an impact on the Company's
consolidated financial results in a future reporting period, the Company
believes the ultimate resolution of these matters will not have a
significant effect on the Company's consolidated financial position or
liquidity or, on an on-going basis, its results of operations.
In addition, the Company has retained responsibility for certain sites
where the Company's former ChemLawn business is a PRP. Currently there are
eight such locations and, at each, ChemLawn is a de minimis party.
Anticipated costs currently accrued for these matters were included in the
Company's loss from its discontinued ChemLawn operations in 1991. The
accrual remaining reflects management's best estimate of future costs.
NUMBER OF EMPLOYEES: The Company currently has approximately 12,000 employees
worldwide.
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ITEM 1(d) FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS
The financial information about geographic areas appearing under the heading
"Operating Segments" in Note 15, located on pages 46 and 47 of the Annual
Report, is incorporated herein by reference.
EXECUTIVE OFFICERS OF THE COMPANY
The persons listed in the following table are the current executive officers of
the Company. Officers are elected annually. There is no family relationship
among any of the directors or executive officers, and none of such persons has
been involved during the past five years in any legal proceedings described in
applicable Securities and Exchange Commission regulations.
Positions Held
Name Age Office Since Jan. 1, 1994
- ---- --- ------ ------------------
A. L. Schuman 64 President and Chief March 1995 - Present
Executive Officer
President and Chief Jan. 1994 - Feb. 1995
Operating Officer
M. E. Shannon 62 Chairman of the Board, Chief Jan. 1996 - Present
Financial and Administrative
Officer
Vice Chairman, Chief Jan. 1994 - Dec. 1995
Financial and
Administrative Officer
L. T. Bell 51 Vice President-Law Jan. 1998 - Present
and General Counsel
Vice President, Assistant Jan. 1997 - Dec. 1997
General Counsel and
Assistant Secretary
Associate General Counsel July 1995 - Dec. 1996
and Assistant Secretary
Associate General Counsel Jan. 1994 - June 1995
P. D'Almada 51 Senior Vice President - Jan. 1999 - Present
Institutional North America
Senior Vice President - Mar. 1996 - Dec. 1998
Global Accounts
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Positions Held
Name Age Office Since Jan. 1, 1994
- ---- --- ------ ------------------
Vice President - May 1995 - Feb. 1996
Institutional Corporate
Accounts and Distributor
Sales
Vice President - Jan. 1994 - Apr. 1995
Institutional National
Accounts and Distributor
Sales
S. L. Fritze 44 Vice President and Mar. 1995 - Present
Treasurer
Institutional Vice Jan. 1994 - Feb. 1995
President, Planning
and Control
A. E. Henningsen, Jr. 52 Senior Vice President Mar. 1996 - Present
and Controller
Vice President and Jan. 1994 - Feb. 1996
Controller
R. L. Marcantonio 49 Executive Vice President - Jan. 1999 - Present
Industrial Group
Senior Vice President - Mar. 1997 - Dec. 1998
Industrial
J. L. McCarty 61 Senior Executive Vice Jan. 1999 - Present
President - Institutional
Group
Senior Vice President- Jan. 1994 - Dec. 1998
Institutional North America
M. Nisita 58 Senior Vice President- Jan. 1994 - Present
Global Operations
J. P. Spooner 52 Executive Vice President - Jan. 1999 - Present
International Group
Senior Vice President- June 1996 - Dec. 1998
International
Senior Vice President - June 1994 - May 1996
Industrial
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Positions Held
Name Age Office Since Jan. 1, 1994
- ---- --- ------ ------------------
F. W. Tuominen, 56 Senior Vice President Jan. 1994 - Present
Ph.D. and Chief Technical and
Environmental Officer
Mr. Spooner joined the Company as Senior Vice President-Industrial in June
1994. Prior to joining the Company, Mr. Spooner was employed by PepsiCo, Inc.
for 15 years, holding various positions in operations and business
development, including most recently, President of the North Division of
Frito-Lay, Inc.
Mr. Marcantonio joined the Company as Senior Vice President-Industrial in
March 1997. Prior to joining the Company, Mr. Marcantonio was employed by
subsidiaries of United Biscuits (Holdings) Plc. for 20 years, holding various
positions in sales, marketing and general management including, most
recently, Senior Vice President - Cookies and Crackers of the Keebler Company.
ITEM 2. PROPERTIES
The Company's manufacturing facilities produce chemical products or equipment
for all the Company's businesses, although the Pest Elimination Division and
the GCS business purchase most of their products and equipment from outside
suppliers. The Company's chemical production process consists primarily of
blending and packaging powders and liquids and casting solids. The Company's
equipment manufacturing operations consist primarily of producing chemical
product dispensers and ejectors and other mechanical equipment (South Beloit,
Illinois), dishwasher racks and related sundries (Elk Grove Village, Illinois
and Shika, Japan) and dishwashing machines, a portion of which is sold to
third party dishwashing machine distributors (Barbourville, Kentucky). The
Company's philosophy is to manufacture products wherever an economic, process
or quality assurance advantage exists or where proprietary manufacturing
techniques dictate internal production processes. Currently, most products
sold by the Company are manufactured at Company facilities.
The following chart profiles the Company's manufacturing facilities which are
approximately 50,000 square feet or larger in size.
In general, manufacturing facilities located in the United States serve the
"United States Cleaning and Sanitizing" segment and facilities located
outside of the United States serve the "International Cleaning and
Sanitizing" segment. However, certain of the United States facilities do
manufacture products for export and which are used by the International
segment. The facilities having export involvement are marked with an
asterisk(*). The Barbourville, Kentucky manufacturing facility is operated by
the Jackson MSC unit which is reported herein as a part of the "United States
Other Services" segment.
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ECOLAB OPERATIONS PLANT PROFILES
SIZE OWNED/
LOCATION (SQ. FT.) TYPES OF PRODUCTS LEASED
- -------- --------- ----------------- ------
UNITED STATES
*Joliet, IL 610,000 Solids, Liquids, Powders Owned
*Woodbridge, NJ 248,000 Solids, Liquids Owned
*Garland, TX 239,000 Solids, Liquids Owned
*Greensboro, NC 193,000 Liquids, Powders Owned
*Hebron, OH 192,000 Liquids Owned
San Jose, CA 175,000 Liquids Owned
*South Beloit, IL 155,000 Equipment Owned
*McDonough, GA 141,000 Solids, Liquids Owned
Eagan, MN
(pilot plant) 133,000 Solids, Liquids,
Emulsions, Powders Owned
City of Industry, CA 125,000 Liquids Owned
*Barbourville, KY 109,000 Equipment Owned
*Huntington, IN 90,000 Liquids, Powders Owned
*Elk Grove Village, IL 66,000 Equipment Leased
INTERNATIONAL
Santa Cruz, BRAZIL 142,000 Liquids, Powders Owned
Melbourne, AUSTRALIA 130,000 Liquids, Powders Owned
Johannesburg, SOUTH AFRICA 100,000 Liquids, Powders Owned
Botany, AUSTRALIA 97,000 Liquids, Powders Owned
Toronto, CANADA 88,000 Liquids Leased
Shika, JAPAN 60,000 Liquids, Powders Owned
Hamilton, NEW ZEALAND 58,000 Solids, Liquids, Powders Owned
Sydney, AUSTRALIA 51,000 Liquids, Powders Leased
Noda, JAPAN 49,000 Liquids, Powders Owned
Additional smaller United States manufacturing facilities owned by the
Company are located in North Kansas City, Missouri, Grand Forks, North Dakota
and Dallas, Texas. The Company also owns or leases smaller international
manufacturing facilities in Argentina, Australia, Chile, Columbia, Costa
Rica, Fiji, Indonesia, Japan, Kenya, Mexico, New Zealand, Papua New Guinea,
People's Republic of China, Philippines, Puerto Rico, Singapore, South Korea,
Tanzania and Thailand.
The Company believes its manufacturing facilities are in good condition and
are adequate to meet existing production needs.
-16-
Most of the Company's manufacturing plants also serve as distribution
centers. In addition, around the world, the Company operates distribution
centers, all of which are leased, and utilizes various public warehouses to
facilitate the distribution of its products and services. In the United
States, the Company's sales associates are located in approximately 110
leased offices. Additional sales offices are located internationally.
The Company's corporate headquarters is comprised of three multi-storied
buildings located adjacent to one another in downtown St. Paul, Minnesota.
The main 19-story building was constructed to the Company's specifications
and is leased through 2003. Thereafter, it is subject to multiple renewals
at the Company's option. The second building is also subject to a long-term
lease by the Company and the third building is owned. In 1998, the Company
completed extensive renovation and expansion of the corporate headquarters
which included a state-of-the-art training center and facilities to add
several hundred additional jobs at the Company's headquarters. The Company
also owns a computer center in St. Paul and a research facility located in a
suburb of St. Paul.
ITEM 3. LEGAL PROCEEDINGS
Proceedings arising under laws relating to protection of the environment are
discussed at Item 1(c) above, under the heading "Environmental
Considerations."
DISTRIBUTOR LITIGATION: As previously reported in the Company's Form 10-K
for the year ended December 31, 1997, and in certain previous quarterly
reports on Form 10-Q, ten distributors of the Company's Airkem Janitorial
product line brought action in 1995 against the Company in Hennepin County
District Court, Minnesota alleging 16 causes of action including anti-trust
violations, breach of contract and breach of the Minnesota Franchise Act. In
April 1997, the Company was granted summary judgment dismissing all but two
of the distributors' claims. Subsequently, the action was divided into
separate trials for each of the plaintiff distributors. The first trial took
place in mid-1997 with a jury verdict in favor of the plaintiff distributor
on the breach of contract claim in the amount of $29,000 and against the
plaintiff distributor on the Minnesota Franchise Act claim.
The Company has reached settlement with four of the other distributors on a
basis which were not adversely material to the Company.
The first of the remaining five distributor cases is scheduled for trial in
August 1999. The five distributors are claiming estimated damages of
$10,000,000.
LUBRICANT LITIGATION: On July 1, 1996, Diversey Lever, Inc. filed suit
against the Company in Federal District Court, Eastern District of Michigan,
Southern Division. The suit alleges that two Company products, which
lubricate plastic beverage bottles, infringe two patents held by Diversey
Lever. The Company believes it has the right under an earlier agreement with
Diversey Lever to make and sell the products.
On June 15, 1998, the District Court issued an order denying the Company's
right to make and sell the products. The court also found that the Company
had infringed the two patents held by Diversey
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Lever. The court also entered an injunction against the manufacturing or sale
by the Company of the products which were alleged to infringe the patents.
The Company has appealed the District Court's ruling to the Federal Circuit
Court of Appeals. Before that court, the Company is arguing, among other
things, that the District Court ruling was erroneous on the question of
whether the Company had a right under the earlier agreement with Diversey
Lever to make and sell the products. The Company is also arguing that if the
court affirms the District Court holding, then it has a right to challenge
the validity of the underlying patents.
The Company understands Diversey Lever's damage request to be in the range of
$3,000,000 to $5,000,000. Diversey Lever is also requesting that damages be
enhanced to up to three times if willful infringement is found.
The Company has developed, and has been selling since July of 1998, a new
lubricant to replace the allegedly infringing lubricants.
The Company and certain of its subsidiaries are defendants in various other
lawsuits and claims arising out of the normal course of business. Accruals
have been established reflecting management's best estimate of future costs
relating to such matters and, in the opinion of management, the ultimate
resolution of this litigation will not have a material effect on the
Company's results of operations, financial position, or liquidity. However,
the estimated effects of the future result of existing litigation is subject
to certain estimates, assumptions and uncertainties and should be considered
in light of the discussion of Forward-Looking Statements and Risk Factors
found under Part I at the beginning of this Report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the security holders, through the
solicitation of proxies, or otherwise, during the fourth quarter of 1998.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
All per share and number of share data in Item 5, including dividends per
share in Item 5(c), reflect a two-for-one stock split paid January 15, 1998
in the form of a 100% stock dividend to shareholders of record on December
26, 1997 ("Stock Split").
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ITEM 5(a) MARKET INFORMATION
The Company's Common Stock is listed on the New York Stock Exchange and the
Pacific Exchange, Inc. under the symbol "ECL." The Common Stock is also
traded on an unlisted basis on certain other United States exchanges. The
high and low sales prices of the Company's Common Stock on the consolidated
transaction reporting system during 1998 and 1997 were as follows:
1998 1997
---------------- -------------------
Quarter High Low High Low
------- ---- --- ---- ---
First $29-5/8 $26-5/8 $19-9/16 $18-1/8
Second $33 $28-3/16 $24-1/32 $19-1/16
Third $33-29/256 $27-1/8 $24-15/16 $21-9/32
Fourth $38 $26-1/8 $28 $23-1/16
The closing stock price on March 1, 1999 was $39-11/16.
ITEM 5(b) HOLDERS
On March 1, 1999, the Company had 5,544 holders of Common Stock of record.
ITEM 5(c) DIVIDENDS
Quarterly cash dividends customarily are paid on the 15th of January, April,
July and October. Dividends of $0.08 per share were declared in February,
May and August, 1997. Dividends of $0.095 per share were declared in
December, 1997 and February, May and August, 1998. A dividend of $0.105 per
share was declared in December 1998.
ITEM 5(d) RECENT SALES OF UNREGISTERED SECURITIES
On November 5, 1998, the Company issued 14,500 shares of Common Stock to a
trust for the benefit of two individual former owners of Schaefer Chemical
Company Inc. in a private transaction. The transaction was the final
installment on a stock purchase transaction in which the Company acquired the
business of Schaefer Chemical Company in 1996. The transaction was exempt
from registration pursuant to Section 4(2) of the Securities Act of 1933.
ITEM 6. SELECTED FINANCIAL DATA
The comparative data for the years ended December 31, 1998, 1997, 1996, 1995
and 1994 inclusive, which are set forth under the heading entitled "Summary
Operating and Financial Data" located on pages 50 and 51 of the Annual
Report, are incorporated herein by reference.
-19-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The material appearing under the heading entitled "Financial Discussion,"
located on pages 24 through 33 of the Annual Report, is incorporated herein
by reference.
ITEM 7(a) QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company enters into contractual arrangements (derivatives) in the
ordinary course of business to manage foreign currency exposure and interest
rate risks. The Company does not enter into derivatives for trading purposes.
The Company's use of derivatives is subject to internal policies which
provide guidelines for control, counterparty risk, and ongoing monitoring and
reporting.
The Company enters into forward contracts, swaps, and foreign currency
options to hedge certain intercompany financing arrangements, and to hedge
against the effect of exchange rate fluctuations on transactions related to
cash flows denominated in currencies other than U.S. dollars.
The Company manages interest expense using a mix of fixed and floating rate
debt. To help manage borrowing costs, the Company may enter into interest
rate swaps. Under these arrangements, the Company agrees to exchange, at
specified intervals, the difference between fixed and floating interest
amounts calculated by reference to an agreed-upon notional principal amount.
Based on a sensitivity analysis (assuming a 10% adverse change in market
rates) of the Company's foreign exchange and interest rate derivatives and
other financial instruments outstanding at December 31, 1998, changes in
exchange rates or interest rates would not materially affect the Company's
results of operations, financial position, or liquidity.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and material which are an integral part of the
financial statements listed under Item 14 I(1) below and located on pages 34
through 49 of the Annual Report, are filed as a part of this Report and are
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The biographical material located on pages 6 through 11 and the paragraph
relating to understandings concerning the election of directors between
Henkel KGaA and the Company located on page 5 of the Proxy Statement
appearing under the heading entitled "Election of Directors," is incorporated
herein by reference. Information regarding executive officers is presented
under the heading "Executive Officers of the Company" in Part I of this
Report on pages 13 through 15.
-20-
ITEM 11. EXECUTIVE COMPENSATION
The material appearing under the heading entitled "Executive Compensation,"
located on pages 12 through 20 of the Proxy Statement, is incorporated herein
by reference. However, pursuant to Securities and Exchange Commission
Regulation S-K, Item 402(a)(9), the material appearing under the headings
entitled "Report of the Compensation Committee on Executive Compensation" and
"Comparison of Five Year Cumulative Total Return," found, respectively, on
pages 12 through 15 and on page 19 of the Proxy Statement, is not
incorporated herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The material appearing under the headings entitled "Security Ownership of
Certain Beneficial Owners" and "Security Ownership of Management" located on
pages 2 and 3 of the Proxy Statement is incorporated herein by reference.
The holdings of Henkel KGaA and HC Investments, Inc. are subject to certain
limitations with respect to the Company's voting securities as more fully
described in the Company's Proxy Statement on page 22, under the heading
"Stockholder Agreement," which is incorporated herein by reference.
A total of 1,103,341 shares of Common Stock held by the Company's directors
and executive officers, some of whom may be affiliates of the Company, have
been excluded from the computation of market value of the Company's Common
Stock on the cover page of this Report. This total represents that portion
of the shares reported as beneficially owned by officers and directors of the
Company in the table entitled "Security Ownership of Management" located on
pages 2 and 3 of the Proxy Statement, which are actually issued and
outstanding.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The material appearing under the headings entitled "Certain Transactions,"
"Stockholder Agreement" and "Company Transactions" on pages 21 through 23 of
the Proxy Statement and the biographical material located on pages 7, 10 and
11 of the Proxy Statement pertaining to Messrs. Roland Schulz, Hugo
Uyterhoeven and Albrecht Woeste is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K
I(1). The following financial statements of the Company, included in the
Annual Report, are incorporated in Item 8 hereof.
(i) Consolidated Statement of Income for the years ended
December 31, 1998, 1997 and 1996, Annual Report page 34.
(ii) Consolidated Balance Sheet at December 31, 1998, 1997
and 1996, Annual Report page 35.
(iii) Consolidated Statement of Cash Flows for the years ended
December 31, 1998, 1997 and 1996, Annual Report page 36.
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(iv) Consolidated Statement of Comprehensive Income and
Shareholders' Equity for the years ended December 31,
1998, 1997 and 1996, Annual Report page 37.
(v) Notes to Consolidated Financial Statements, Annual
Report pages 38 through 48.
(vi) Report of Independent Accountants, Annual Report page
49.
I(2). The following financial statement schedule to the Company's financial
statements listed in Item 14 I(1) for the years ended December 31, 1998,
1997 and 1996 located on page 34 hereof, and the Report of Independent
Accountants on Financial Statement Schedule at page 32 hereof, are filed
as part of this Report.
(i) Schedule II -- Valuation and Qualifying Accounts for the
years ended December 31, 1998, 1997 and 1996.
All other schedules, for which provision is made in the
applicable regulations of the Securities and Exchange
Commission, are not required under the related instructions or
are inapplicable and therefore have been omitted. All
significant majority-owned subsidiaries are included in the
filed consolidated financial statements.
I(3). The following financial statements of the Henkel-Ecolab Joint Venture
located on pages 35 to 58 hereof, are filed as part of this Report.
(i) (a) Report of Independent Accountants -
PricewaterhouseCoopers Gesellschaft mit
beschrankter Haftung
Wirtschaftsprufungsgesellschaft.
(b) Report of Independent Accountants - KPMG
Deutsche Treuhand-Gesellschaft Aktiegesellschaft
Wirtschaftsprufungsgesellchaft.
(ii) Combined Statements of Income for the years ended
November 30, 1998, 1997 and 1996.
(iii) Combined Balance Sheets at November 30, 1998, 1997 and
1996.
(iv) Combined Statements of Cash Flows for the years ended
November 30, 1998, 1997 and 1996.
(v) Combined Statements of Equity for the years ended
November 30, 1998, 1997 and 1996.
(vi) Notes to the Combined Financial Statements.
I(4). The following financial statement schedule to the Henkel-Ecolab Joint
Venture financial statements listed in Item 14 I(3) for the years ended
November 30, 1998, 1997 and 1996
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located on page 60 hereof, and the Reports of the Independent
Accountants on pages 36 and 59 hereof are filed as part of this
Report.
(i) Schedule -- Valuation and Qualifying Accounts and
Reserves for the years ended November 30, 1998, 1997 and
1996.
All other schedules, for which provision is made in the
applicable regulations of the Securities and Exchange
Commission, are not required under the related instructions or
are inapplicable and therefore have been omitted. All entities
of the Henkel-Ecolab Joint Venture are included in the filed
combined financial statements.
II. The following documents are filed as exhibits to this Report. The
Company will, upon request and payment of a fee not exceeding the rate
at which copies are available from the Securities and Exchange
Commission, furnish copies of any of the following exhibits to
stockholders. The Financial Data Schedule (Exhibit 27) is filed as an
Exhibit to this Report but, pursuant to paragraph (c)(1)(iv) of Item 601
of Regulation S-K, shall not be deemed filed for purposes of Section 11
of the Securities Act of 1933 or Section 18 of the Securities Exchange
Act of 1934.
(3)A. Restated Certificate of Incorporation - Incorporated by
reference to Exhibit (3) to the Company's Current Report
on Form 8-K dated October 22, 1997.
B. By-Laws, as amended through February 18, 1999.
(4)A. Common Stock - see Exhibits (3)A and (3)B.
B. Form of Common Stock Certificate - Incorporated by
reference to Exhibit (4)B of the Company's Form 10-K
Annual Report for the year ended December 31, 1995.
C. Rights Agreement dated as of February 24, 1996 -
Incorporated by reference to Exhibit (4) of the
Company's Current Report on Form 8-K dated February 24,
1996.
D. Note Agreement dated as of October 1, 1991 relating to
$100,000,000 9.68% Senior Notes Due October 1, 2001
between the Company and the insurance companies named
therein - Incorporated by reference to Exhibit (4)F of
the Company's Form 10-K Annual Report for the year ended
December 31, 1991.
E. (i) Multicurrency Credit Agreement ("Credit
Agreement") dated as of September 29, 1993, as
Amended and Restated as of October 17, 1997,
among the Company, the financial institutions
party thereto, Citibank, N.A., as Agent,
Citibank International Plc, as Euro-Agent and
Morgan Guaranty Trust Company of New York as
Co-Agent -
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Incorporated by reference to Exhibit (4)A of
the Company's Form 10-Q for the quarter ended
September 30, 1997.
(ii) Australian Dollar Local Currency Addendum to the
Credit Agreement - Incorporated by reference to
Exhibit (4)B of the Company's Form 10-Q for the
quarter ended September 30, 1997.
(iii) Amendment No. 1 dated as of June 23, 1998 to
Multicurrency Credit Agreement dated as of
September 29, 1993, as Amended and Restated as
of October 17, 1997, and to Local Currency
Addendum dated as of October 17, 1997, with
respect to the Multicurrency Credit Agreement,
among Ecolab Inc., the Banks parties thereto,
Citibank, N.A., as Agent for the Banks, Citibank
International Plc, as Euro-Agent for the Banks
and Morgan Guaranty Trust Company of New York as
Co-Agent; and with respect to the Local Currency
Addendum among Ecolab Inc., Ecolab PTY Limited,
the Local Currency Banks party thereto,
Citibank, N.A., as Agent and Citisecurities
Limited, as Local Currency Agent - Incorporated
by reference to Exhibit (4)A of the Company's
Form 10-Q for the quarter ended June 30, 1998.
(iv) Australian Dollar Local Currency Addendum dated
as of June 23, 1998 among Ecolab Finance PTY
Limited, Ecolab Inc., Citibank, N.A., the Local
Currency Agent named therein and the Local
Currency Banks party thereto - Incorporated by
reference to Exhibit (4)B of the Company's Form
10-Q for the quarter ended June 30, 1998.
F. Indenture dated as of November 1, 1996 as amended and
supplemented, between the Company and the First National
Bank of Chicago as Trustee - Incorporated by reference
to Exhibit 4.1 of the Company's Amendment No. 1 to Form
S-3 filed November 15, 1996.
G. Form of Underwriting Agreement - Incorporated by
reference to Exhibit 1 of the Company's Amendment No. 1
to Form S-3 filed November 15, 1996.
Copies of other constituent instruments defining the rights of
holders of long-term debt of the Company and its subsidiaries
are not filed herewith, pursuant to Section (b)(4)(iii) of Item
601 of Regulation S-K, because the aggregate amount of
securities authorized under each of such instruments is less
than 10% of the total assets of the Company and its subsidiaries
on a consolidated basis. The Company hereby agrees that it
will, upon request by the Securities and Exchange Commission,
furnish to the Commission a copy of each such instrument.
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(9) Amended and Restated Stockholder's Agreement - See
Exhibit (10)P(v) hereof.
(10)A. Ecolab Inc. 1977 Stock Incentive Plan, as amended
through November 1, 1996 - Incorporated by reference to
Exhibit (10)A of the Company's Form 10-K Annual Report
for the year ended December 31, 1997.
B. Ecolab Inc. 1993 Stock Incentive Plan - Incorporated by
reference to Exhibit (10)B of the Company's Form 10-K
Annual Report for the year ended December 31, 1992.
C. Amended and Restated Ecolab Inc. 1997 Stock Incentive
Plan. This Plan amendment will become effective only
upon approval by the Stockholders of the Company at the
Company's Annual Meeting scheduled to be held May 14,
1999.
(i) Non-Statutory Stock Option Agreement between the
Company and Allan L. Schuman with respect to
premium-priced option grant effective February
20, 1998 under the Ecolab Inc. 1997 Stock
Incentive Plan. Similar option grants were made
to each of the named executive officers of the
Company covering varying, but smaller number of
shares - Incorporated by reference to Exhibit
(10) of the Company's Form 10-Q for the quarter
ended June 30, 1998.
D. 1988 Non-Employee Director Stock Option Plan as amended
through February 23, 1991 - Incorporated by reference to
Exhibit (10)D of the Company's Form 10-K Annual Report
for the year ended December 31, 1990.
E. 1995 Non-Employee Director Stock Option Plan -
Incorporated by reference to Exhibit (10)D of the
Company's Form 10-K Annual Report for the year ended
December 31, 1994.
F. Ecolab Inc. 1997 Non-Employee Director Deferred
Compensation Plan - Incorporated by reference to Exhibit
(10)F of the Company's Form 10-K for the year ended
December 31, 1996.
G. Form of Director Indemnification Agreement dated August
11, 1989. Substantially identical agreements are in
effect as to each director of the Company - Incorporated
by reference to Exhibit (19)A of the Company's Form 10-Q
for the quarter ended September 30, 1989.
H. (i) Ecolab Executive Death Benefits Plan, as amended
and restated effective March 1, 1994 -
Incorporated by reference to Exhibit (10)J of
the Company's 10-K Annual
-25-
Report for the year ended December 31, 1994.
See also Exhibit (10)O hereof.
(ii) Amendment No. 1 to Ecolab Executive Death
Benefits Plan.
(iii) Second Declaration of Amendment to Ecolab
Executive Death Benefits Plan, effective March
1, 1998.
I. Ecolab Executive Long-Term Disability Plan, as amended
and restated effective January 1, 1994 - Incorporated by
reference to Exhibit (10)K of the Company's 10-K Annual
Report for the year ended December 31, 1994. See also
Exhibit (10)O hereof.
J. Ecolab Executive Financial Counseling Plan -
Incorporated by reference to Exhibit (10)K of the
Company's Form 10-K Annual Report for the year ended
December 31, 1992.
K. (i) Ecolab Supplemental Executive Retirement Plan,
as amended and restated effective July 1, 1994 -
Incorporated by reference to Exhibit (10)M(i) of
the Company's 10-K Annual Report for the year
ended December 31, 1994. See also Exhibit (10)O
hereof.
(ii) First Declaration of Amendment to Ecolab
Supplemental Executive Retirement Plan effective
as of July 1, 1994 - Incorporated by reference
to Exhibit (10)M(ii) of the Company's 10-K
Annual Report for the year ended December 31,
1994.
(iii) Second Declaration of Amendment to Ecolab
Supplemental Executive Retirement Plan effective
as of July 1, 1994 - Incorporated by reference
to Exhibit (10)M(iii) of the Company's Form 10-K
Annual Report for the year ended December 31,
1995.
(iv) Third Declaration of Amendment to Ecolab
Supplemental Executive Retirement Plan,
effective March 1, 1998.
L. (i) Ecolab Mirror Savings Plan, as amended and
restated effective September 1, 1994 -
Incorporated by reference to Exhibit (10)N of
the Company's 10-K Annual Report for the year
ended December 31, 1994. See also Exhibit (10)O
hereof.
(ii) First Declaration of Amendment to Ecolab Mirror
Savings Plan effective as of January 1, 1995 -
Incorporated by reference to Exhibit (10)N(ii)
of the Company's Form 10-K Annual Report for the
year ended December 31, 1995.
-26-
(iii) Second Declaration of Amendment to Ecolab Mirror
Savings Plan effective January 1, 1997 -
Incorporated by reference to Exhibit (10)O(iii)
of the Company's Form 10-K Annual Report for the
year ended December 31, 1996.
(iv) Third Declaration of Amendment to Ecolab Mirror
Savings Plan effective November 13, 1997.
(v) Fourth Declaration of Amendment to Ecolab Mirror
Savings Plan, effective September 1, 1998.
M. (i) Ecolab Mirror Pension Plan effective July 1,
1994 - Incorporated by reference to Exhibit
(10)O(i) of the Company's Annual Report on Form
10-K for the year ended December 31, 1994. See
also Exhibit (10)O hereof.
(ii) First Declaration of Amendment to Ecolab Mirror
Pension Plan effective as of July 1, 1994 -
Incorporated by reference to Exhibit (10)O(ii)
of the Company's Annual Report on Form 10-K for
the year ended December 31, 1994.
(iii) Second Declaration of Amendment to Ecolab Mirror
Pension Plan effective as of July 1, 1994 -
Incorporated by reference to Exhibit (10)O(iii)
of the Company's Form 10-K Annual Report for the
year ended December 31, 1995.
(iv) Third Declaration of Amendment to Ecolab Mirror
Pension Plan, effective March 1, 1998.
N. (i) Ecolab Inc. Administrative Document for
Non-Qualified Benefit Plans - Incorporated by
reference to Exhibit (10)P of the Company's 10-K
Annual Report for the year ended December 31,
1994.
(ii) Amendment No. 1 to the Ecolab Inc.
Administrative Document for Non-Qualified
Benefit Plans effective July 1, 1997.
(iii) First Declaration to Amendment to the Ecolab
Inc. Administrative Document for Non-Qualified
Benefit Plans effective November 13, 1997.
O. 1999 Ecolab Inc. Management Performance Incentive Plan.
This Plan will become effective only upon approval by
the Stockholders of the
-27-
Company at the Company's Annual Meeting scheduled to be
held May 14, 1999.
P. (i) Amended and Restated Umbrella Agreement between
Henkel KGaA and Ecolab Inc. dated June 26, 1991
- Incorporated by reference to Exhibit 13 of HC
Investments, Inc.'s and Henkel KGaA's Amendment
No. 4 to Schedule 13D dated July 16, 1991.
(ii) Amended and Restated Joint Venture Agreement
between Henkel KGaA and Ecolab Inc. dated June
26, 1991 - Incorporated by reference to Exhibit
14 of HC Investments, Inc.'s and Henkel KGaA's
Amendment No. 4 to Schedule 13D dated July 16,
1991.
(iii) Amendment to the Amended and Restated Joint
Venture Agreement between Henkel KGaA and Ecolab
Inc. dated June 13, 1994.
(iv) Amended and Restated ROW Purchase Agreement
between Henkel KGaA and Ecolab Inc. dated June
26, 1991 - Incorporated by reference to Exhibit
(7) of the Company's Current Report on Form 8-K
dated July 11, 1991.
(v) Amended and Restated Stockholder's Agreement
between Henkel KGaA and Ecolab Inc. dated June
26, 1991 - Incorporated by reference to Exhibit
15 of HC Investments, Inc.'s and Henkel KGaA's
Amendment No. 4 to Schedule 13D dated July 16,
1991.
Q. Description of Ecolab Management Incentive Plan.
(13) Those portions of the Company's Annual Report to
Stockholders for the year ended December 31, 1998 which
are incorporated by reference into Parts I, II and IV
hereof.
(21) List of Subsidiaries as of March 16, 1999.
(23)A. Consent of PricewaterhouseCoopers LLP to Incorporation
by Reference at page 33 hereof is filed as a part
hereof.
B. Consent of PricewaterhouseCoopers Gesellschaft mit
beschrankter Haftung Wirschaftsprufungsgesellschaft.
C. Consent of KPMG Deutsche Treuhand-Gesellschaft
Aktiengesellschaft Wirtschaftsprufungsgesellschaft.
(24) Powers of Attorney.
-28-
(27) Financial Data Schedule for year ended December 31,
1998.
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
Included in the preceding list of exhibits are the following management
contracts or compensatory plans or arrangements:
Exhibit No. Description
- ----------- -----------
(10)A. Ecolab Inc. 1977 Stock Incentive Plan.
(10)B. Ecolab Inc. 1993 Stock Incentive Plan.
(10)C. Amended and Restated Ecolab Inc. 1997 Stock Incentive Plan.
(10)D. 1988 Non-Employee Director Stock Option Plan.
(10)E. 1995 Non-Employee Director Stock Option Plan.
(10)F. Ecolab Inc. 1997 Non-Employee Director Deferred Compensation
Plan.
(10)H. Ecolab Executive Death Benefits Plan.
(10)I. Ecolab Executive Long-Term Disability Plan.
(10)J. Ecolab Executive Financial Counseling Plan.
(10)K. Ecolab Supplemental Executive Retirement Plan.
(10)L. Ecolab Mirror Savings Plan.
(10)M. Ecolab Mirror Pension Plan.
(10)N. The Ecolab Inc. Administrative Document for Non-Qualified
Benefit Plans.
(10)O. Ecolab Management Performance Incentive Plan.
(10)P. Ecolab Management Incentive Plan.
-29-
III. Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter ended December 31,
1998. Subsequent to the quarter ended December 31, 1998, the Company filed
on March 25, 1999 a Current Report on Form 8-K to amend the Company's Form
S-8 registration statements filed pursuant to the Securities Act of 1933 in
order to obtain the benefits provided by Section 11(b)(3)(C) of the
Securities Act of 1933.
-30-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Ecolab Inc. has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 29th day of
March, 1999.
ECOLAB INC.
(Registrant)
By /s/ Allan L. Schuman
---------------------------------
Allan L. Schuman, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of Ecolab
Inc. and in the capacities indicated, on the 29th day of March, 1999.
/s/ Allan L. Schuman President and Chief Executive Officer
- ------------------------------- (Principal Executive Officer
Allan L. Schuman and Director)
/s/ Michael E. Shannon Chairman of the Board, Chief
- ------------------------------ Financial and Administrative Officer
Michael E. Shannon (Principal Financial Officer
and Director)
/s/ Arthur E. Henningsen, Jr. Senior Vice President and Controller
- ------------------------------ (Principal Accounting Officer)
Arthur E. Henningsen, Jr.
/s/ Kenneth A. Iverson Directors
- -------------------------------
Kenneth A. Iverson
as attorney-in-fact for
Les S. Biller, Ruth S. Block,
James J. Howard, Joel W. Johnson,
Jerry W. Levin, Reuben F. Richards,
Richard L. Schall, Roland Schulz,
Hugo Uyterhoeven and Albrecht Woeste
Directors not signing:
Jerry A. Grundhofer and
William L. Jews
-31-
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To the Shareholders and Board of Directors
of Ecolab Inc.
Our report on the consolidated financial statements of Ecolab Inc. has
been incorporated by reference in this Form 10-K from page 49 of the 1998
Annual Report to Shareholders of Ecolab Inc. In connection with our audits of
such financial statements, we have also audited the related financial
statement schedule included on page 34 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
PricewaterhouseCoopers LLP
Saint Paul, Minnesota
February 22, 1999
-32-
CONSENT OF PRICEWATERHOUSECOOPERS LLP
TO INCORPORATION BY REFERENCE
We consent to the incorporation by reference in the Registration
Statements on Form S-8 of Ecolab Inc. (Registration Nos. 2-60010; 2-74944;
33-1664; 33-41828; 2-90702; 33-18202; 33-55986; 33-56101; 33-26241; 33-34000;
33-56151; 333-18627; 33-39228; 33-56125; 333-70835; 33-60266; 33-65364;
33-59431; 333-18617; 333-21167; 333-35519; 333-40239; 333-50969; and
333-62183) and the Registration Statement of Ecolab Inc. on Form S-3
(Registration No. 333-14771) of our reports dated February 22, 1999 on our
audits of the consolidated financial statements and the related financial
statement schedule of Ecolab Inc. as of December 31, 1998, 1997 and 1996, and
for the years ended December 31, 1998, 1997 and 1996, which reports are
included or incorporated by reference in this Annual Report on Form 10-K. We
also consent to the references to our firm under the caption "Interests of
Named Experts and Counsel" or "Incorporation of Documents by Reference" in
the above-listed Registration Statements on Form S-8 of Ecolab Inc. and under
the caption "Experts" in the above-listed Registration Statement on Form S-3
of Ecolab Inc.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Saint Paul, Minnesota
March 29, 1999
-33-
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
ECOLAB INC.
(In Thousands)
- ---------------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- ---------------------------------------------------------------------------------------------------------------------------------
Additions
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at Charged to Charged Balance
Beginning Costs and to Other at End
Description of Period Expenses Accounts Deductions (A) of Period
- ---------------------------------------------------------------------------------------------------------------------------------
Allowance for Doubtful Accounts:
Year Ended December 31, 1998 $10,878 $8,090 $438 $(6,513) $12,893
Year Ended December 31, 1997 $ 9,343 $6,644 $ 58 $(5,167) $10,878
Year Ended December 31, 1996 $ 8,331 $4,695 $538 $(4,221) $ 9,343
(A) Uncollectible accounts charged off, net of recovery of accounts
previously written off.
[LETTERHEAD]
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS
OF HENKEL-ECOLAB JOINT VENTURE
In our opinion, the accompanying combined balance sheet and the related
combined statements of income and of cash flows present fairly, in all
material respects, the financial position of Henkel-Ecolab Joint Venture
("Henkel-Ecolab") at November 30, 1998, and the results of their operations
and their cash flows for the year ended November 30, 1998, in conformity with
generally accepted accounting principles in the United States. The financial
statements of Henkel-Ecolab for the years ended November 30, 1997 and 1996
were audited by other independent auditors, whose reports, dated January 23,
1998 and January 22, 1997, expressed an unqualified opinion on those
statements. 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 audit. We conducted our audit of these
statements in accordance with generally accepted auditing standards in the
United States which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
January 26, 1999
PricewaterhouseCoopers
Gesellschaft mit beschrankter Haftung
Wirtschaftsprufungsgesellschaft
/s/ Gunter Betz
/s/ Henri Leveque [SEAL]
-35-
[LETTERHEAD]
Independent Auditors' Report
The Board of Directors
Henkel-Ecolab Joint Venture:
We have audited the accompanying balance sheets of Henkel-Ecolab Joint
Venture as of November 30, 1997 and 1996, and the related statements of
income, equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Joint Venture's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with German generally accepted auditing
standards which in all material respects are similar to auditing standards
generally accepted in the United States. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Henkel-Ecolab Joint
Venture as of November 30, 1997 and 1996, and the results of its operations
and its cash flows for the years then ended in conformity with accounting
principles generally accepted in the United States.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplementary information
included in the Financial Statement Schedule: Valuation and Qualifying
Accounts and Reserves as of and for the years ended November 30, 1997 and
1996 is presented for purposes of additional analysis and is not a required
part of the basic financial statements. Such information has been subjected
to the auditing procedures applied in the audits of the basic financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic financial statements taken as a whole.
Dusseldorf, Germany
January 23, 1998
KPMG Deutsche Treuhand-Gesellschaft
AKTIENGESELLSCHAFT
WIRTSCHAFTSPRUFUNGSGESELLSCHAFT
/s/ Stefan Haas /s/ Bernhard Momken
Stefan Haas Bernhard Momken
Wirtschaftsprufer Wirtschaftsprufer [SEAL]
-36-
HENKEL-ECOLAB
COMBINED STATEMENTS OF INCOME
Twelve Months ended Twelve Months ended Twelve Months ended
(Thousands) November 30, 1998 November 30, 1997 November 30, 1996
- -----------------------------------------------------------------------------------------------------------------------------------
Net Sales DM 1,596,572 DM 1,447,443 DM 1,354,809
Cost of Sales 713,535 640,396 610,020
Selling, General and Administrative Expenses 736,197 671,635 620,778
Royalties to Parents 26,568 24,372 22,718
- -----------------------------------------------------------------------------------------------------------------------------------
Operating Income 120,272 111,040 101,293
Other Expenses/Income, net 3,759 2,065 3,851
- -----------------------------------------------------------------------------------------------------------------------------------
Income before Income Taxes 116,513 108,975 97,442
Provision for Income Taxes 48,421 51,267 45,334
- -----------------------------------------------------------------------------------------------------------------------------------
Net Income DM 68,092 DM 57,708 DM 52,108
See accompanying Notes to Combined Financial Statements
-37-
HENKEL-ECOLAB
COMBINED BALANCE SHEETS
November 30, November 30, November 30,
(Thousands) 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------------------
Assets
Cash and Cash Equivalents DM 20,375 DM 34,233 DM 125,645
Accounts Receivable, net 324,140 326,539 284,016
Accounts Receivable from Related Parties 11,133 13,214 12,536
Loans to Related Parties 7,342 6,894 8,007
Inventories 196,807 180,682 183,192
Prepaid Expenses and Other Current Assets 56,519 41,878 34,144
Deferred Taxes 7,380 7,323 5,647
- --------------------------------------------------------------------------------------------------------------------------------
Current Assets 623,696 610,763 653,187
- --------------------------------------------------------------------------------------------------------------------------------
Property, Plant and Equipment, net 183,381 178,125 167,555
Intangible and Other Assets, net 110,341 66,178 40,195
Deferred Taxes 9,473 12,943 10,724
- --------------------------------------------------------------------------------------------------------------------------------
Total Assets DM 926,891 DM 868,009 DM 871,661
- --------------------------------------------------------------------------------------------------------------------------------
Liabilities and Equity
Accounts Payable DM 106,839 DM 103,429 DM 98,274
Accounts Payable to Related Parties 17,808 31,840 82,294
Accrued Liabilities 188,862 180,031 177,668
Income Taxes Payable 47,309 54,600 36,269
Current Portion of Long Term Debt 657 656 652
Short Term Debt 49,066 24,318 72,972
Loans from Related Parties - 1,159 7,445
- --------------------------------------------------------------------------------------------------------------------------------
Current Liabilities 410,541 396,033 475,574
Contingencies and Commitments (Note 9)
- --------------------------------------------------------------------------------------------------------------------------------
Employee Benefit Obligations 131,398 127,818 106,766
Long Term Debt, less Current Maturities 4,768 4,762 5,383
Deferred Taxes 2,747 3,998 3,612
- --------------------------------------------------------------------------------------------------------------------------------
Combined Equity
Contributed Capital 165,889 164,219 162,704
Retained Earnings 235,934 190,046 137,068
Cumulative Foreign Currency Translation (23,641) (18,649) (19,446)
Minimum Pension Liability Adjustment (745) (218) -
-------- ------- -------
377,437 335,398 280,326
- --------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Equity DM 926,891 DM 868,009 DM 871,661
See accompanying Notes to Combined Financial Statements
-38-
HENKEL-ECOLAB
COMBINED STATEMENTS OF CASH FLOWS
Twelve Months ended Twelve Months ended Twelve Months ended
(Thousands) November 30, 1998 November 30, 1997 November 30, 1996
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCOME DM 68,092 DM 57,708 DM 52,108
ADJUSTMENTS TO RECONCILE NET INCOME TO CASH
PROVIDED BY OPERATING ACTIVITIES
Depreciation and Amortization 74,534 64,556 59,880
Equity in Income of Affiliated Company (1,421) (406) (320)
Provision for Doubtful Accounts and Other 9,325 6,668 1,477
Gain on Sale of Property and Equipment (976) (996) (1,580)
Deferred Income Taxes 2,162 (3,509) 1,366
CHANGES IN OPERATING ASSETS AND LIABILITIES
(Increase) in Accounts Receivable (6,926) (45,557) (16,333)
Decrease (Increase) in Accounts Receivable from Related Parties 2,081 (2,038) 9,813
(Increase) Decrease in Inventories (11,449) 5,092 (17,588)
Increase in Accounts Payable and Accrued Liabilities 12,199 2,530 50,817
(Decrease) Increase in Accounts Payable to Related Parties (14,032) 14,724 (7,412)
(Decrease) Increase in Income Taxes Payable (7,291) 17,597 (1,727)
(Increase) in Prepaid Expenses and Other Current Assets (16,628) (7,619) (10,275)
Increase in Employee Benefit Obligations 1,418 15,802 12,238
-------- -------- -------
Cash Provided by Operating Activities 111,088 124,552 132,464
-------- -------- -------
INVESTING ACTIVITIES
Expenditures for Property and Equipment (74,847) (72,764) (69,942)
Expenditures for Intangible and Other Assets (28,534) (4,662) (10,920)
Proceeds from Investment in Affiliated Company 700
Purchase of Businesses Net of Cash Acquired (32,748) (32,961)
Proceeds from Sale of Property and Equipment 9,989 12,374 21,444
-------- -------- -------
Cash Used for Investing Activities (125,440) (98,013) (59,418)
-------- -------- -------
FINANCING ACTIVITIES
Proceeds from (Repayments of) Debt, net 24,755 (48,672) 54,695
Proceeds from Capital Contrbutions, net 1,670 1,515
(Decrease) in Loans from Related Parties (1,159) (6,286) (40,992)
(Increase) Decrease in Loans to Related Parties (448) 1,113 7,771
Dividends paid (22,204) (67,045) (33,245)
-------- -------- -------
Cash Provided by (Used for) Financing Activities 2,614 (119,375) (11,771)
-------- -------- -------
EFFECT OF EXCHANGE RATE CHANGES ON NET CASH (2,120) 1,424 (2,902)
-------- -------- -------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (13,858) (91,412) 58,373
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 34,233 125,645 67,272
-------- -------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD DM 20,375 DM 34,233 DM 125,645
-------- -------- -------
See accompanying Notes to Combined Financial Statements
-39-
HENKEL-ECOLAB
COMBINED STATEMENTS OF EQUITY
(Thousands)
Contributed Retained Cumulative Cumulative
Capital Earnings Foreign Minimum Total
Currency Pension
Translation Liability
Adjustment
--------------------------------------------------------------------------------------------------
Balance
November 30, 1995 DM 211,704 130,005 (23,310) - 318,399
Net Income 52,108 52,108
Dividends (45,045) (45,045)
Equity Withdrawals (49,000) (49,000)
Translation Adjustment 3,864 3,864
--------------------------------------------------------------------------------------------------
Balance
November 30, 1996 DM 162,704 137,068 (19,446) - 280,326
Net Income 57,708 57,708
Dividends (4,730) (4,730)
Contributions 1,515 1,515
Minimum Pension Liability (218) (218)
Translation Adjustment 797 797
--------------------------------------------------------------------------------------------------
Balance
November 30, 1997 DM 164,219 190,046 (18,649) (218) 335,398
Net Income 68,092 68,092
Dividends (22,204) (22,204)
Contributions 1,670 1,670
Minimum Pension Liability (527) (527)
Translation Adjustment (4,992) (4,992)
--------------------------------------------------------------------------------------------------
Balance
November 30, 1998 DM 165,889 235,934 (23,641) (745) 377,437
See accompanying Notes to Combined Financial Statements
-40-
1. DESCRIPTION OF BUSINESS
Henkel-Ecolab (the "Company" or the "Joint Venture") is a leading European
company providing total cleaning and hygiene systems and service solutions to
institutional and industrial companies. See Basis of Presentation within Note 2
of the combined financial statements. The Company's offerings include
detergents, sanitation cleaners, dosing and measuring equipment, cleaning
machines, training and service. Customers include hotels and restaurants;
food service, healthcare and educational facilities; commercial laundries;
light industry; dairy plants and farms as well as food and beverage
processors throughout Europe.
The Company was formed in 1991 by Henkel KGaA (Henkel) and Ecolab, Inc.
(Ecolab) as a joint venture of their respective European institutional and
industrial hygiene businesses. Under the terms of the Amended and Restated
Joint Venture Agreement dated June 26, 1991 (Joint Venture Agreement), Henkel
and Ecolab have joint control over the activities of the Joint Venture. The
Joint Venture Agreement also provides that both partners will share an equal
economic interest in the profits or losses of the Joint Venture.
ACQUISITIONS
Ecosan Acquisition: In September 1997 and in December 1997, the Company
acquired 75% and 25%, respectively, of the outstanding shares of Ecosan
Hygiene GmbH (Ecosan) for a cash price of TDM 37,600 (TDM 28,200 in September
1997 and TDM 9,400 in December 1997). Ecosan, located in Hanau, Germany,
distributes institutional products and services in Germany. The acquisition
of Ecosan was recorded under the purchase method of accounting, and,
accordingly, the result of operations of Ecosan for the period from September
16, 1997 are included in the accompanying financial statements. The purchase
price has been allocated to assets acquired and liabilities assumed based on
the fair value at the date of acquisition. The excess of purchase price over
fair value of the assets and liabilities has been allocated to goodwill in
the amount of TDM 36,486 (TDM 27,153 as of November 30, 1997) and is being
amortized over 15 years.
- 41 -
Darenas Acquisition: In February 1998, the Company acquired certain assets
of ISS-Darenas Limited (Darenas) for a cash price of TDM 23,334. Darenas,
located in Birmingham, England, provides janitorial products and services for
contract and building cleaning as well as the catering industries. The
acquisition of Darenas was recorded under the purchase method of accounting,
and accordingly, the results of operations of Darenas for the period from
February 1, 1998 are included in the accompanying financial statements. The
purchase price has been allocated to assets acquired and liabilities assumed
based on the fair value at the date of the acquisition. The excess of
purchase price over fair value of the assets and liabilities has been
allocated to goodwill in the amount of TDM 17,302 and is being amortized over
15 years.
The Company made additional acquisitions during the fiscal year ended
November 30, 1998; the impact of which was immaterial to the combined
financial statements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The financial statements are presented in accordance with generally accepted
accounting principles in the United States and on a combined basis. The Joint
Venture is comprised of various entities. These entities have varying legal
structures, including stock corporations, limited liability corporations and
partnerships formed under the applicable laws in the jurisdictions in which
the Joint Venture operates. These entities are owned beneficially by
identical shareholders or their wholly- owned subsidiaries and are,
therefore, considered entities under common control. All significant
intergroup or affiliated company accounts and transactions have been
eliminated in combination. The Joint Venture's fiscal year end has been
designated as November 30.
FOREIGN CURRENCY TRANSLATION
The accounts of all foreign subsidiaries and affiliates are generally
measured using the local currency as the functional currency, except for
three countries where, due to hyperinflation, the functional currency (for
one country since 1994 and two beginning in 1998) has been changed to German
Mark. With the exception of the hyperinflation countries, assets and
liabilities are translated into German Marks, the Company's reporting
currency, at period-end exchange rates. Income statement accounts are
translated to German Marks at the average rates of exchange prevailing during
the year.
- 42 -
Net unrealized exchange gains or losses resulting from such translation are
excluded from net earnings and accumulated in a separate component of
combined equity. Gains and losses from foreign currency transactions are
included in the related income statement category.
The Joint Venture enters into foreign currency forward and option contracts
to hedge specific foreign currency exposures. Gains and losses on these
contracts are deferred and recognized as part of the specific transaction
hedged or included in Other Expenses/Income, net, principally interest
expense. The cash flows from such contracts are classified in the same
category as the transaction hedged in the Combined Statements of Cash Flows.
CASH EQUIVALENTS
Cash equivalents are highly liquid investments with a maturity of three
months or less when purchased. Interest income for the years ended November
30, 1998, 1997, and 1996 totaled TDM 4,800, TDM 4,599, and TDM 4,479,
respectively.
INVENTORIES
Inventories are stated at the lower of cost or market with cost determined on
the first-in first-out and average cost methods.
PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment are stated at original cost. Merchandising
equipment consists primarily of various systems for dispensing cleaning and
sanitizing products. Depreciation and amortization are charged to operations
using the straight-line and declining balance methods over the following
estimated useful lives:
Buildings and improvements 8 to 40 years
Machinery and equipment 3 to 20 years
Furniture, fixtures and merchandising equipment 3 to 16 years
Leasehold improvements are amortized on a straight-line basis over a period
which is the lesser of the useful life of the asset or the remaining term of
the associated lease. Betterments, renewals and extraordinary repairs that
extend the life of the asset are capitalized; other repairs and maintenance
are expensed. The cost and accumulated depreciation / amortization applicable
to the assets retired are removed from the accounts and any gain or loss is
reflected in the Company's net income in the year of disposal.
- 43 -
Total depreciation expense for property, plant and equipment amounted to TDM
60,948, TDM 53,320, and TDM 47,292 for the years ended November 30, 1998,
1997 and 1996, respectively.
During 1998, the Company adopted Statement of Position (SOP) 98-1,
"Accounting for the Costs of Software Developed or Obtained for Internal
Use." The impact of this adoption was immaterial to the combined financial
statements. In accordance with SOP 98-1, the Company capitalizes costs
associated with purchased software for internal use which is ready for
service and external development costs incurred from the time technological
feasibility of the software is established until the software is ready for
use to provide processing for internal purposes. The software development
costs and costs of purchased software are amortized using the straight-line
method over a maximum of three to five years or the expected life of the
product, whichever is less. The carrying value of a software and development
asset is regularly reviewed by the Company and a loss is recognized if the
unamortized cost is in excess of the net realizable value.
INTANGIBLE ASSETS
Intangible assets primarily consist of amounts by which cost of acquisitions
exceeded the values assigned to net tangible assets. These assets are
amortized on a straight-line basis over their estimated lives, periods from 3
to 15 years. Total amortization expense for all intangible assets amounted to
TDM 13,586, TDM 11,188 and TDM 12,588 during the years ended November 30,
1998, 1997, 1996, respectively.
LONG-LIVED ASSETS
The company periodically assesses the recoverability of long-lived and
intangible assets based on anticipated future earnings and operating cash
flows.
ADVERTISING COSTS
The Company expenses the production costs of advertising in the period in
which the costs are incurred. Advertising expenses were 35,696 TDM, 34,113
TDM and 28,806 TDM for the years ended November 30, 1998, 1997 and 1996,
respectively.
- 44 -
USE OF ESTIMATES
The preparation of financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results may differ from those estimates.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (FAS) No. 130, "Reporting
Comprehensive Income." The standard requires the display of comprehensive
income, which includes all changes in equity with the exception of additional
investments by shareholders and distributions to shareholders. This statement
does not impact the amounts recorded in the combined financial statements and
is effective for fiscal years beginning after December 15, 1997.
In June 1997, the FASB issued Statement of Financial Accounting Standards
(FAS) No. 131, "Disclosures about Segments of an Enterprise and Related
Information." FAS 131 specifies revised guidelines for determining an
entity's operating segments and the type and level of financial information
to be disclosed. FAS 131 is effective for fiscal years beginning after
December 15, 1997.
In February 1998, the FASB issued Statement of Financial Accounting Standards
(FAS) No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits --- an amendment of FASB Statements No. 87, 88 and
106." FAS 132 is effective for fiscal years beginning after December 15, 1997.
On June 16, 1998 the FASB issued Statement of Financial Accounting Standards
(FAS) No. 133, "Accounting for Derivative Instruments and Hedging
Activities." FAS 133 establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, (collectively referred to as derivatives) and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure
those instruments at fair value.
- 45 -
If certain conditions are met, a derivative may be specifically designated as
(a) a hedge of the exposure to changes in the fair value of a recognized
asset or liability or an unrecognized firm commitment, (b) a hedge of the
exposure to variable cash flows of a forecasted transaction, or (c) a hedge
of the foreign currency exposure of a net investment in a foreign operation,
an unrecognized firm commitment, and available-for-sale security, or a
foreign-currency-denominated forecasted transaction.
Management expects to adopt FAS 133 in the first quarter of the year ended
November 30, 2001 and is in the process of evaluating the impact on the
financial statements of adoption of this Statement.
REVENUE RECOGNITION
Substantially all revenue is recognized when products are shipped to
customers or distributors.
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform with current
year presentation. These reclassifications had no effect on previously
reported net income or combined equity.
- 46 -
3. BALANCE SHEET INFORMATION
(Thousands) November November November
30, 30, 30,
1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------------------
ACCOUNTS RECEIVABLE, NET
Accounts Receivable, Trade DM 341,458 DM 349,054 DM 300,215
Allowance for Doubtful Accounts 17,318 22,515 16,199
----------------------------------------------------
DM 324,140 DM 326,539 DM 284,016
-- ------- -- ------- -- -------
INVENTORIES
Raw Materials DM 41,550 DM 40,355 DM 39,097
Work in Process 11,075 11,494 10,673
Finished Goods 144,182 128,833 133,422
----------------------------------------------------
Total DM 196,807 DM 180,682 DM 183,192
-- ------- -- ------- -- -------
PROPERTY, PLANT AND EQUIPMENT, NET
Land DM 6,612 DM 6,380 DM 6,316
Buildings and Improvements 77,437 75,072 73,487
Machinery and Equipment 147,417 139,943 126,852
Merchandising Equipment and Other 273,305 240,151 199,073
Construction in Progress 9,539 6,118 3,828
----------------------------------------------------
514,310 467,664 409,556
Accumulated Depreciation and Amortization 330,929 289,539 242,001
----------------------------------------------------
Total DM 183,381 DM 178,125 DM 167,555
-- ------- -- ------- -- -------
INTANGIBLE AND OTHER ASSETS, NET
Goodwill on Acquisitions prior to July 1,1991 DM 20,941 DM 20,941 DM 20,941
Goodwill on Acquisitions after July 1,1991 79,850 54,112 20,578
Other Intangible Assets, including Capitalized Computer Software 64,803 31,198 32,322
Additional Minimum Pension Liability 5,123 3,487 0
----------------------------------------------------
170,717 109,738 73,841
Accumulated Amortization 66,550 49,736 42,032
----------------------------------------------------
Total Intangible Assets, net 104,167 60,002 31,809
Other Assets, net 6,174 6,176 8,386
----------------------------------------------------
Total DM 110,341 DM 66,178 DM 40,195
-- ------- -- ------- -- -------
- 47 -
4. RELATED PARTY TRANSACTIONS
The Joint Venture has entered into various contractual arrange-ments,
including those discussed in the following paragraphs, for the supply of
products, the performance of general and administrative services and the
transfer of technology.
Certain Joint Venture entities purchase institutional and indu-strial hygiene
products (primarily finished goods inventories) from Henkel and its
subsidiaries under a variety of supply agreements. The terms of these
agreements require these entities to purchase specified quantities at agreed
upon prices as defined by an annual supply plan submitted to the related
manufacturing facility. Related purchases totaled TDM 213,758, TDM 221,341
and TDM 232,581 for the years ended November 30, 1998, 1997 and 1996,
respectively.
Henkel also provides certain Joint Venture entities with elective services
which include, but are not limited to, general administration, payroll
administration, accounting and research and development. The cost of services
are charged by Henkel on a monthly basis and may not reflect the costs which
the Joint Venture would incur if it were necessary to procure such services
from outside sources or if such services were performed internally by the
Joint Venture. Fees incurred by the Joint Venture in consideration for these
services amounted to TDM 14,010, TDM 14,807 and TDM 14,228 for the years
ended November 30, 1998, 1997, and 1996, respectively.
Royalty payments are shared equally by both parent companies based upon a
technology transfer agreement which provides for the payment of royalties as
a percentage of third party sales. Royalty expense related to this technology
transfer agreement amounted to TDM 26,568, TDM 24,372 and TDM 22,718 during
the twelve month periods ended November 30, 1998, 1997 and 1996, respectively.
The Joint Venture has entered into agreements with Henkel under which the
Joint Venture can both borrow from and lend to Henkel both on an overdraft
basis and through short term loans of no more than 3 months. There is
currently no maximum level of borrowing specified under these agreements. The
interest rate basis for both arrangements is the London Interbank Offering
Rate (LIBOR) (interest rate for German Marks overdrafts 4.13 % and 3.83 % for
3 month short term German Marks loans at November 30, 1998); on overdrafts,
approximately 0.5 percentage points are paid to compensate Henkel for
administration costs.
- 48 -
At November 30, 1998, 1997, and 1996, respectively, the Joint Venture had
loans outstanding from Henkel and its subsidiaries of TDM -0-, TDM 1,159 and
TDM 7,445. As of the same dates, the loans receivable from Henkel and its
subsidiaries totaled TDM 7,342, TDM 6,894 and TDM 8,007, respectively. The
fair values of related party loans receivable and payable approximate book
value.
Interest expense to related parties totaled TDM 1,657, TDM 1,302 and TDM
1,463 for the years ended November 30, 1998, 1997 and 1996, respectively. For
the same periods, interest income from related parties totaled TDM 1,335, TDM
982 and TDM 1,180.
During 1997, the Joint Venture began to charge the parents for certain costs
incurred on behalf of the parents which by their nature are not arm's length.
The Joint Venture has reflected such costs, net of tax, in the amount of TDM
1,670 and TDM 1,515 as contributed capital for the years ended November 30,
1998 and 1997, respectively.
5. INCOME TAXES
The components of income before income taxes and the provision for income
taxes for the years ended November 30, 1998, 1997 and 1996, respectively, are
as follows:
1998 1997 1996
------- ------- -------
TDM TDM TDM
Income before income taxes:
Domestic 19,466 23,887 8,697
Foreign 97,047 85,088 88,745
------- ------- -------
Total 116,513 108.975 97,442
------- ------- -------
------- ------- -------
Income tax provision:
Current
Domestic 8,856 17,627 8,312
Foreign 37,403 37,149 35,656
------- ------- -------
Total current 46,259 54,776 43,968
Deferred
Domestic 2,063 (113) (1,296)
Foreign 99 (3,396) 2,662
------- ------- -------
Total deferred 2,162 (3,509) 1,366
Total income tax provision 48,421 51,267 45,334
------- ------- -------
------- ------- -------
- 49 -
The components of the Joint Venture's overall net deferred tax asset at
November 30:
1998 1997 1996
------- ------- -------
TDM TDM TDM
Deferred tax assets:
Tax loss carry forwards 7,705 10,256 9,576
Accruals, not deductible for tax purposes 4,668 4,823 3,612
Inventory valuation reserves 4,169 3,316 2,530
Accounts receivable reserves 1,106 968 976
Pension provision, not deductible 8,530 9,292 7,024
Amortization on intangible assets 0 227 1,663
Investment in affiliated company 1,158 1,210 0
Depreciation on fixed assets 5,074 6,606 2,692
Other 1,445 653 629
-------------------------------
Total deferred tax assets 33,855 37,351 28,702
Valuation allowance (11,693) (15,450) (10,387)
-------------------------------
Total deferred tax assets,
net of valuation allowance 22,162 21,901 18,315
-------------------------------
Deferred tax liabilities:
Amortization on intangible assets (1,187) 0 0
Depreciation on fixed assets (4,158) (4,127) (3,995)
Other (2,711) (1,506) (1,561)
-------------------------------
Total deferred tax liabilities (8,056) (5,633) (5,556)
-------------------------------
Net deferred tax asset 14,106 16,268 12,759
-------------------------------
-------------------------------
At November 30, 1998, 1997, and 1996, the Joint Venture had net foreign
operating loss carry forwards for tax purposes of approximately TDM 24,297,
TDM 30,987 and TDM 27,535, respectively. A significant portion of these
losses have an indefinite carry forward period; the remaining losses have
expiration dates up to five years.
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible.
Management considers the scheduled reversal of deferred tax liabilities,
projected future taxable income, and tax planning strategies in making this
assessment. Based upon the level of historical taxable income and projections
for future taxable income over the periods which the deferred tax assets are
deductible, management believes it is more likely than not the Joint Venture
will realize the benefits of these deductible differences, net of the
existing valuation allowances at November 30, 1998. During 1998, 1997 and
1998, the valuation allowance increased/(decreased) by TDM (3,757), TDM 5,063
and TDM 2,722, respectively.
- 50 -
A reconciliation of the statutory German trade tax and federal corporate
income tax rate to the effective income tax rate is as follows:
1998 1997 1996
---- ---- ----
Statutory German rate 45.0% 44.4% 44.4%
Other European rates (7.3) (4.4) (8.0)
Losses and deferred items
without offsetting tax benefits 0.8 1.0 1.9
Provision for taxes arising
from tax examination 1.0 4.6 4.9
Different tax base in Germany 0.9 1.5 1.4
Deferred taxes refundable to
parent 1.0 0.2 0.6
Other 0.2 (0.3) 1.3
---- ---- ----
Effective income tax rate 41.6% 47.0% 46.5%
---- ---- ----
---- ---- ----
The deferred taxes refundable to parent reflect the Joint Venture Agreement
in which the partners also agreed that all tax benefits realized after the
formation of the Joint Venture should be refunded to the respective parents
if the benefits relate to temporary differences that originated in periods
prior to the formation of the Joint Venture.
Cash paid for taxes for the years ended November 30, 1998, 1997 and 1996 was
TDM 35,897, TDM 32,756 and TDM 19,128, respectively.
6. PENSION AND OTHER BENEFIT PLANS
The Joint Venture's German entities have noncontributory defined benefit
pension plans to provide pension benefits to all eligible employees.
Benefits under the German plans are based upon salary and years of service.
The funding of these pension plans is not a common practice as funding
provides no economic (tax) benefit. Certain other Joint Venture entities have
noncontributory and contributory defined benefit plans, primarily based on
specific laws in particular countries. Plan assets outside of Germany consist
primarily of marketable securities and life insurance policies.
- 51 -
A summary of all the components of net periodic pension cost concerning the
noncontributory and contributory defined benefit pension plans in Austria,
Belgium, France, Germany, Great Britain, the Netherlands and Spain for the
years ended November 30, 1998, 1997 and 1996 is as follows (TDM):
1998 1997 1996
Service cost-employee benefits 9,659 8,594 7,131
Interest cost 11,252 10,429 9,109
Actual Return on assets (4,807) (4,178) (3,130)
Net amortization and deferral 661 768 74
Employee contributions (465) (370) (329)
------ ------ ------
Total pension expense 16,300 15,243 12,855
------ ------ ------
------ ------ ------
The status of the above employee pension benefit plans at November 30, 1998,
1997 and 1996 is summarized below (TDM):
Actuarial present value of: 1998 1997 1996
Vested benefit obligation 143,650 138,931 105,068
Non-vested accumulated
benefit obligation 7,280 10,458 9,513
------- ------- -------
Accumulated benefit obligation 150,930 149,389 114,581
------- ------- -------
------- ------- -------
Projected benefit obligation 203,804 171,497 138,189
Fair value of plan assets 81,259 61,854 45,839
------- ------- -------
Funded status 122,545 109,643 92,350
Unrecognized net transition
obligation 6,800 7,839 4,709
Unrecognized prior service cost (2,943) 325 0
Unrecognized net (gain)/loss 3,277 605 4,175
Additional minimum pension
liability 5,868 3,705 0
------- ------- -------
Unfunded accrued pension cost 121,279 104,579 83,466
------- ------- -------
------- ------- -------
The following assumptions have been used to develop net periodic pension
expense and the actuarial present value of projected benefit obligations:
Actuarial present value of: 1998 1997 1996
Assumed discount rate 4.0-6.0% 7.5-6.0% 7.0- 5.0%
Expected return on plan assets 4.0-8.5% 6.0-10.0% 7.0-10.0%
Rate of increase in future 1.75-4.5% 6.0- 2.5% 5.0- 3.0%
compensation levels
- 52 -
Pursuant to the provisions of Statement of Financial Accounting Standards
No. 87, "Employer's Accounting for Pensions", the Joint Venture recorded an
additional minimum pension liability adjustment of TDM 5,868 and TDM 3,709 as
of November 30, 1998 and 1997, respectively, representing the amount by which
the accumulated benefit obligation exceeded the accrued pension liability for
the German plans. The additional liability is offset by an intangible asset
recorded under Intangible and Other Assets, net and Minimum Pension Liability
Adjustment within Combined Equity.
Included in Employee Benefit Obligation in the balance sheet is the Italian
termination indemnity plan which provides a benefit that is payable upon
termination of employment in virtually all cases of termination. The
liability for the Italian termination indemnity plan was TDM 10,119, TDM
10,662 and TDM 10,526 for 1998, 1997 and 1996, respectively.
7. TOTAL INDEBTEDNESS
SHORT TERM DEBT
As of November 30, 1998, 1997 and 1996, respectively, short term debt totaled
TDM 49,066, TDM 24,318 and TDM 72,972, and consists of generally short term
credit facilities with interest rates based on local money market rates. As
of November 30, 1998, the five main facilities are in French Franc in the
equivalent amount of TDM 5,339 at an interest rate of 3,8% p.a., in Italian
Lira in the equivalent amount of TDM 4,600 at an interest rate of 4,9% p.a.,
in German Marks in the equivalent amount of TDM 29,000 at an interest rate of
3,4% p.a., in Dutch Guilders in the equivalent amount of TDM 3,858 at an
interest rate of 3,85% p.a. and in Spanish Peseta in the equivalent amount of
TDM 2,279 at an interest rate of 4,5% p.a.
LONG TERM DEBT
Long term debt of November 30, 1998, 1997 and 1996 consists of the following:
1998 1997 1996
TDM TDM TDM
Notes 5,425 5,418 6,035
Less current maturities 657 656 652
----- ----- -----
Total 4,768 4,762 5,383
----- ----- -----
----- ----- -----
- 53 -
All notes are denominated in Danish Krona at fixed annual interest rates
ranging from 10.07% to 10.30% at November 30, 1998. As of November 30, 1998,
the aggregate annual maturities of long term debt were:
1999 - TDM 657 2000 - TDM 657
2001 - TDM 165 2002 - TDM 3,946
Interest expense related to all debt excluding related party amounts for the
years ended November 30, 1998, 1997 and 1996 was TDM 7,972, TDM 6,146 and TDM
4,133, respectively. Interest paid to external and related parties for the
years ended November 30, 1998, 1997, 1996 was TDM 9,418, TDM 7,643 and TDM
6,408, respectively.
The fair value of short and long term debt approximates the book value.
8. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
The Joint Venture operates internationally, giving rise to exposure to market
risks from changes in interest rates and foreign exchange rates. Derivative
financial instruments are utilized by the Joint Venture to reduce certain of
these risks. The Joint Venture does not hold or issue financial instruments
for trading purposes. The Joint Venture is exposed to credit-related losses
in the event of nonperformance by counterparties to financial instruments,
but it does not expect any counterparties to fail to meet their obligations
given their high credit ratings.
a) Notional Amounts and Credit Exposures of Derivatives
The notional amounts of derivatives summarized in section b) do not represent
amounts exchanged by the parties and, thus, are not a measure of the exposure
of the Joint Venture through its use of derivatives. The amounts exchanged
are calculated on the basis of the notional amounts and the other terms of
the derivatives, which relate to exchange rates.
- 54 -
b) Foreign Exchange Risk Management
The Joint Venture enters into various types of foreign exchange contracts in
managing its foreign exchange risk, as indicated in the following table (TDM):
November 30, 1998 November 30,1997
----------------- -----------------
Notional Credit Notional Credit
Amount Exposure Amount Exposure
-------- -------- -------- --------
Forward exchange
contracts 94,779 0 57,077 0
Options purchased 2,553 0 7,054 0
------ - ------ -
97,332 0 64,131 0
------ - ------ -
------ - ------ -
The primary purpose of foreign exchange contracts is to hedge various
intercompany loans. The Joint Venture also enters, to a limited extent, into
forward exchange and option contracts to hedge certain existing and
anticipated future net foreign exchange exposures. The anticipated future
foreign exchange exposure of the Joint Venture is the total of the net
balances of all known and planned incoming and outgoing payments of the Joint
Venture's companies in foreign currencies during a twelve month time horizon.
Gains and losses arising on hedged loan transactions are accrued to income
over the period of the hedge. The deferred gains and losses as of November
30, 1998, 1997 and 1996 were not material. Losses on hedges of anticipated
exchange rate exposure are recorded as incurred whereas gains are deferred.
- 55 -
The table below summarizes by major currency the contractual amounts of the
Joint Venture's forward exchange and option contracts in German Marks.
Foreign currency amounts are translated at rates current at the reporting
date. The "buy" amounts represent the German Marks equivalent of commitments
to purchase foreign currencies, and the "sell" amounts represent the German
Marks equivalent of commitments to sell foreign currencies (TDM):
1998 1997
-------------- --------------
Buy Sell Buy Sell
Italian Lira/US-Dollar 27,374 27,374 9,494 9,668
Italian Lira/French Franc 6,009 5,977
Italian Lira/Danish Krona 4,488 4,466
Italian Lira/Swedish Krona 3,659 3,651
Pound Sterling/German Mark 44,362 44,661 13,042 12,807
French Franc/German Mark 2,988 2,988
Finmark/Swedish Krona 1,832 1,826
Swiss Franc/German Mark 14,925 14,940 6,182 6,186
Irish Pound/German Mark 3,651 3,623
US Dollar/German Mark 7,489 7,520 10,647 10,551
Swedish Krona/German Mark 2,626 2,625
Czech Krona/German Mark 556 556
Swedish Krona/Belgium Franc 1,015 1,033
Swedish Krona/Danish Krona 1,124 1,154
------ ------ ------ ------
97,332 97,676 64,131 63,930
------ ------ ------ ------
------ ------ ------ ------
c) Fair Value of Off Balance Sheet Financial Instruments
The fair value of off balance sheet financial instruments is not significant.
9. RESEARCH EXPENDITURES
Research expenditures which relate to the development of new products and
processes, including significant improvements and refinements to existing
products, were TDM 34,6, TDM 35,7, and TDM 31,8 for the years ended November
30, 1998, 1997 and 1996, respectively.
- 56 -
10. COMMITMENTS AND CONTINGENCIES
The Joint Venture has a number of operating lease agreements primarily
involving motor vehicles, computer and other office equipment. The following
is a schedule by year of the future minimum lease payments required under the
operating leases that have initial or remaining noncancellable lease terms in
excess of one year as of November 30, 1998 (TDM):
1999 26,270
2000 18,741
2001 6,958
2002 4,086
2003 3,144
thereafter 10,035
------
Total 69,234
------
------
Rent expense for the twelve month period ended November 30, 1998, 1997 and
1996, was approximately TDM 31,369, TDM 27,416 and TDM 18,503, respectively.
The Joint Venture is subject to lawsuits and claims arising out of the
conduct of its business, including those relating to commercial transactions
and environmental safety. As an integral part of the Joint Venture agreement,
Henkel and Ecolab have provided certain representations and warranties
against future expenditures arising from operations prior to July 1, 1991.
A subsidiary of the Joint Venture is named in an environmental legal action
related to the conduct of its business prior to the formation of the Joint
Venture on July 1, 1991. Based on the facts currently known to the Joint
Venture, and after consultation with legal counsel, management believes that
the Joint Venture is indemnified against any potential liability arising from
such action under the terms and conditions of the Amended and Restated
Umbrella Agreement dated June 26, 1991, by and between Henkel and Ecolab.
Therefore, the Joint Venture does not expect material adverse effects on its
financial position, results of operations or liquidity from the outcome of
these losses and claims.
- 57 -
The Joint Venture's operations and customers are located throughout Europe
and operate in the industrial and institutional hygiene business. No single
customer accounted for a significant amount of the Joint Venture's sales in
1998, 1997 and 1996, and there were no significant accounts receivable from a
single customer at November 30, 1998, 1997 and 1996. The Joint Venture
establishes an allowance for doubtful accounts based upon factors surrounding
the credit risk of specific customers, historical trends and other
information.
- 58 -
[LETTERHEAD]
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS
OF HENKEL-ECOLAB JOINT VENTURE
Our audit of the combined financial statements as of and for the year ended
November 30, 1998 referred to in our report dated January 26, 1999 included
herein also included an audit of the financial statement schedule:
"Valuation and Qualifying Accounts and Reserves." In our opinion, this
financial statement schedule presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
combined financial statements. The financial statement schedule of
Henkel-Ecolab Joint Venture for the years ended November 30, 1997 and 1996
were audited by other independent auditors, whose reports, dated January 23,
1998 and January 22, 1997, expressed an unqualified opinion on those
schedules, when read in conjunction with the related combined financial
statements.
January 26, 1999
PricewaterhouseCoopers
Gesellschaft mit beschrankter Haftung
Wirtschaftsprufungsgesellschaft
/s/ Gunter Betz
/s/ Henri Leveque
- -------------------
- 59 -
HENKEL-ECOLAB
Schedule - Valuation and Qualifying Accounts and Reserves
(Thousands)
- ----------------------------------------------------------------------------------------------
Description Balance, Additions Deductions Balance,
Beg. of (a) from Close of
Period Reserve Period
(b)
- ----------------------------------------------------------------------------------------------
Period Ended
November 30, 1996
Allowance for DM 14,274 5,439 3,514 16,199
doubtful
Accounts
-----------------------------------------------------------------
DM 14,274 5,439 3,514 16,199
-----------------------------------------------------------------
-----------------------------------------------------------------
Period Ended
November 30, 1997
Allowance for DM 16,199 13,400 7,084 22,515
doubtful
Accounts
-----------------------------------------------------------------
DM 16,199 13,400 7,084 22,515
-----------------------------------------------------------------
-----------------------------------------------------------------
Period Ended
November 30, 1998
Allowance for DM 22,515 9,325 14,522 17,318
doubtful
Accounts
-----------------------------------------------------------------
DM 22,515 9,325 14,522 17,318
-----------------------------------------------------------------
-----------------------------------------------------------------
(a) Provision for doubtful accounts
(charged to expenses)
(b) Items determined to be uncollectible,
less recovery of amounts previously written off.
- 60 -
EXHIBIT INDEX
The following documents are filed as exhibits to this Report.
Exhibit No. Document Method of Filing
----------- -------- ----------------
(3)A. Restated Certificate of Incorporated by reference
Incorporation. to Exhibit (3) to the
Company's Current Report
on Form 8-K dated October
22, 1997.
B. By-Laws, as amended through February Filed herewith
18, 1999. electronically.
(4)A. Common Stock. See Exhibits (3)A and
(3)B.
B. Form of Common Stock Certificate. Incorporated by reference
to Exhibit (4)B of the
Company's Form 10-K
Annual Report for the
year ended December 31,
1995.
C. Rights Agreement dated as of Incorporated by reference
February 24, 1996. to Exhibit (4) of the
Company's Current Report
on Form 8-K dated
February 24, 1996.
D. Note Agreement dated as of October 1, Incorporated by reference
1991 relating to $100,000,000 9.68% to Exhibit (4)F of the
Senior Notes Due October 1, 2001 Company's Form 10-K
between the Company and the insurance Annual Report for the
companies named therein. year ended December 31,
1991.
E.(i) Multicurrency Credit Agreement Incorporated by reference
("Credit Agreement") dated as of to Exhibit (4)A of the
September 29, 1993, as Amended and Company's Form 10-Q for
Restated as of October 17, 1997, the quarter ended
among the Company, the financial September 30, 1997.
institutions party thereto, Citibank,
N.A., as Agent, Citibank
International Plc, as Euro-Agent and
Morgan Guaranty Trust Company of New
York as Co-Agent.
(ii) Australian Dollar Local Currency Incorporated by reference
Addendum to the Credit Agreement. to Exhibit (4)B of the
Company's Form 10-Q for
the quarter ended
September 30, 1997.
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Exhibit No. Document Method of Filing
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(iii) Amendment No. 1 dated as of June 23, Incorporated by reference
1998 to Multicurrency Credit to Exhibit (4)A of the
Agreement dated as of September 29, Company's Form 10-Q for
1993, as Amended and Restated as of the quarter ended June
October 17, 1997, and to Local 30, 1998.
Currency Addendum dated as of October
17, 1997, with respect to the
Multicurrency Credit Agreement, among
Ecolab Inc., the Banks parties
thereto, Citibank, N.A., as Agent for
the Banks, Citibank International
Plc, as Euro-Agent for the Banks and
Morgan Guaranty Trust Company of New
York as Co-Agent; and with respect to
the Local Currency Addendum among
Ecolab Inc., Ecolab PTY Limited, the
Local Currency Banks party thereto,
Citibank, N.A., as Agent and
Citisecurities Limited, as Local
Currency Agent.
(iv) Australian Dollar Local Currency
Addendum dated as of June 23, 1998 Incorporated by reference
among Ecolab Finance PTY Limited, to Exhibit (4)B of the
Ecolab Inc., Citibank, N.A., the Company's Form 10-Q for
Local Currency Agent named therein the quarter ended June
and the Local Currency Banks party 30, 1998.
thereto.
F. Indenture dated as of November 1, Incorporated by reference
1996 as amended and supplemented, to Exhibit 4.1 of the
between the Company and the First Company's Amendment No. 1
National Bank of Chicago as Trustee. to Form S-3 filed
November 15, 1996.
G. Form of Underwriting Agreement. Incorporated by reference
to Exhibit 1 of the
Company's Amendment No. 1
to Form S-3 filed
November 15, 1996.
(9) Amended and Restated Stockholder's See Exhibit (10)P(v)
Agreement. hereof.
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Exhibit No. Document Method of Filing
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(10)A. Ecolab Inc. 1977 Stock Incentive Incorporated by reference
Plan, as amended through November 1, to Exhibit (10)A of the
1996. Company's Form 10-K
Annual Report for the
year ended December 31,
1997.
B. Ecolab Inc. 1993 Stock Incentive Incorporated by reference
Plan. to Exhibit (10)B of the
Company's Form 10-K
Annual Report for the
year ended December 31,
1992.
C. Amended and Restated Ecolab Inc. 1997 Filed herewith
Stock Incentive Plan. This Plan electronically.
amendment will become effective only
upon approval by the Stockholders of
the Company at the Company's Annual
Meeting scheduled to be held May 14,
1999.
(i) Non-Statutory Stock Option Agreement Incorporated by reference
between the Company and Allan L. to Exhibit (10) of the
Schuman with respect to premium- Company's Form 10-Q for
priced option grant effective the quarter ended June
February 20, 1998 under the Ecolab 30, 1998.
Inc. 1997 Stock Incentive Plan.
Similar option grants were made to
each of the named executive officers
of the Company covering varying, but
smaller number of shares.
D. 1988 Non-Employee Director Stock Incorporated by reference
Option Plan as amended through to Exhibit (10)D of the
February 23, 1991. Company's Form 10-K
Annual Report for the
year ended December 31,
1990.
E. 1995 Non-Employee Director Stock Incorporated by reference
Option Plan. to Exhibit (10)D of the
Company's Form 10-K
Annual Report for the
year ended December 31,
1994.
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Exhibit No. Document Method of Filing
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F. Ecolab Inc. 1997 Non-Employee Incorporated by reference
Director Deferred Compensation Plan. to Exhibit (10)F of the
Company's Form 10-K for
the year ended December
31, 1996.
G. Form of Director Indemnification Incorporated by reference
Agreement dated August 11, 1989. to Exhibit (19)A of the
Substantially identical agreements Company's Form 10-Q for
are in effect as to each director of the quarter ended
the Company. September 30, 1989.
H.(i) Ecolab Executive Death Benefits Plan, Incorporated by reference
as amended and restated effective to Exhibit (10)J of the
March 1, 1994. Company's 10-K Annual
Report for the year ended
December 31, 1994. See
also Exhibit (10)O
hereof.
(ii) Amendment No. 1 to Ecolab Executive Filed herewith
Death Benefits Plan. electronically.
(iii) Second Declaration of Amendment to Filed herewith
Ecolab Executive Death Benefits Plan, electronically.
effective March 1, 1998.
I. Ecolab Executive Long-Term Disability Incorporated by reference
Plan, as amended and restated to Exhibit (10)K of the
effective January 1, 1994. Company's 10-K Annual
Report for the year ended
December 31, 1994. See
also Exhibit (10)O
hereof.
J. Ecolab Executive Financial Counseling Incorporated by reference
Plan to Exhibit (10)K of the
Company's Form 10-K
Annual Report for the
year ended December 31,
1992.
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Exhibit No. Document Method of Filing
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K.(i) Ecolab Supplemental Executive Incorporated by reference
Retirement Plan, as amended and to Exhibit (10)M(i) of
restated effective July 1, 1994. the Company's 10-K Annual
Report for the year ended
December 31, 1994. See
also Exhibit (10)O
hereof.
(ii) First Declaration of Amendment to Incorporated by reference
Ecolab Supplemental Executive to Exhibit (10)M(ii) of
Retirement Plan effective as of July the Company's 10-K Annual
1, 1994. Report for the year ended
December 31, 1994.
(iii) Second Declaration of Amendment to Incorporated by reference
Ecolab Supplemental Executive to Exhibit (10)M(iii) of
Retirement Plan effective as of July the Company's Form 10-K
1, 1994. Annual Report for the
year ended December 31,
1995.
(iv) Third Declaration of Amendment to Filed herewith
Ecolab Supplemental Executive electronically.
Retirement Plan, effective March 1,
1998.
L.(i) Ecolab Mirror Savings Plan, as Incorporated by reference
amended and restated effective to Exhibit (10)N of the
September 1, 1994. Company's 10-K Annual
Report for the year ended
December 31, 1994. See
also Exhibit (10)O
hereof.
(ii) First Declaration of Amendment to Incorporated by reference
Ecolab Mirror Savings Plan effective to Exhibit (10)N(ii) of
as of January 1, 1995. the Company's Form 10-K
Annual Report for the
year ended December 31,
1995.
(iii) Second Declaration of Amendment to Incorporated by reference
Ecolab Mirror Savings Plan effective to Exhibit (10)O(iii) of
January 1, 1997. the Company's Form 10-K
Annual Report for the
year ended December 31,
1996.
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Exhibit No. Document Method of Filing
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(iv) Third Declaration of Amendment to Filed herewith
Ecolab Mirror Savings Plan effective electronically.
November 13, 1997.
(v) Fourth Declaration of Amendment to Filed herewith
Ecolab Mirror Savings Plan, effective electronically.
September 1, 1998.
M.(i) Ecolab Mirror Pension Plan effective Incorporated by reference
July 1, 1994. to Exhibit (10)O(i) of
the Company's Annual
Report on Form 10-K for
the year ended December
31, 1994. See also
Exhibit (10)O hereof
(ii) First Declaration of Amendment to Incorporated by reference
Ecolab Mirror Pension Plan effective to Exhibit (10)O(ii) of
as of July 1, 1994. the Company's Annual
Report on Form 10-K for
the year ended December
31, 1994.
(iii) Second Declaration of Amendment to Incorporated by reference
Ecolab Mirror Pension Plan effective to Exhibit (10)O(iii) of
as of July 1, 1994. the Company's Form 10-K
Annual Report for the
year ended December 31,
1995.
(iv) Third Declaration of Amendment to Filed herewith
Ecolab Mirror Pension Plan, effective electronically.
March 1, 1998.
N.(i) Ecolab Inc. Administrative Document Incorporated by reference
for Non-Qualified Benefit Plans. to Exhibit (10)P of the
Company's 10-K Annual
Report for the year ended
December 31, 1994.
(ii) Amendment No. 1 to the Ecolab Inc. Filed herewith
Administrative Document for Non- electronically.
Qualified Benefit Plans effective
July 1, 1997.
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Exhibit No. Document Method of Filing
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(iii) First Declaration to Amendment to the Filed herewith
Ecolab Inc. Administrative Document electronically.
for Non-Qualified Benefit Plans
effective November 13, 1997.
O. 1999 Ecolab Inc. Management Filed herewith
Performance Incentive Plan. This electronically.
Plan will become effective only upon
approval by the Stockholders of the
Company at the Company's Annual
Meeting scheduled to be held May 14,
1999.
P.(i) Amended and Restated Umbrella Incorporated by reference
Agreement between Henkel KGaA and to Exhibit 13 of HC
Ecolab Inc. dated June 26, 1991. Investments, Inc.'s and
Henkel KGaA's Amendment
No. 4 to Schedule 13D
dated July 16, 1991.
(ii) Amended and Restated Joint Venture Incorporated by reference
Agreement between Henkel KGaA and to Exhibit 14 of HC
Ecolab Inc. dated June 26, 1991. Investments, Inc.'s and
Henkel KGaA's Amendment
No. 4 to Schedule 13D
dated July 16, 1991.
(iii) Amendment to the Amended and Restated Filed herewith
Joint Venture Agreement between electronically.
Henkel KGaA and Ecolab Inc. dated
June 13, 1994.
(iv) Amended and Restated ROW Purchase Incorporated by reference
Agreement between Henkel KGaA and to Exhibit (7) of the
Ecolab Inc. dated June 26, 1991. Company's Current Report
on Form 8-K dated July
11, 1991.
(v) Amended and Restated Stockholder's Incorporated by reference
Agreement between Henkel KGaA and to Exhibit 15 of HC
Ecolab Inc. dated June 26, 1991. Investments, Inc.'s and
Henkel KGaA's Amendment
No. 4 to Schedule 13D
dated July 16, 1991.
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Exhibit No. Document Method of Filing
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Q. Description of Ecolab Management Filed herewith
Incentive Plan. electronically.
(13) Those portions of the Company's Filed herewith
Annual Report to Stockholders for the electronically.
year ended December 31, 1998 which
are incorporated by reference into
Parts I, II and IV hereof.
(21) List of Subsidiaries as of March 16, Filed herewith
1999. electronically.
(23)A. Consent of PricewaterhouseCoopers LLP See page 33 hereof.
to Incorporation by Reference at page
33 hereof is filed as a part hereof.
B. Consent of PricewaterhouseCoopers Filed herewith
Gesellschaft mit beschrankter Haftung electronically.
Wirtschaftsprufungsgesellschaft.
C. Consent of KPMG Deutsche Treuhand- Filed herewith
Gesellschaft Aktiengesellschaft electronically.
Wirtschaftsprufungsgesellschaft.
(24) Powers of Attorney. Filed herewith
electronically.
(27) Financial Data Schedule for year Filed herewith
ended December 31, 1998. electronically.
COVER Cover Letter. Filed herewith
electronically.
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