FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to -------------- -------------- Commission File No. 1-9328 ------- ECOLAB INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 41-0231510 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Ecolab Center, 370 Wabasha Street N., St. Paul, Minnesota 55102 - -------------------------------------------------------------------------------- (Address of principal executive offices)(Zip Code) 651-293-2233 ------------ (Registrant's telephone number, including area code) (Not Applicable) - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------- ------- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of July 31, 1998. 129,641,053 shares of common stock, par value $1.00 per share. - -----------
PART I - FINANCIAL INFORMATION ECOLAB INC. CONSOLIDATED STATEMENT OF INCOME <TABLE> <CAPTION> Second Quarter Ended June 30 (thousands, except per share) 1998 1997 -------- -------- (unaudited) <S> <C> <C> Net Sales $468,460 $411,810 Cost of Sales 210,116 183,322 Selling, General and Administrative Expenses 194,604 175,685 -------- -------- Operating Income 63,740 52,803 Interest Expense, Net 5,400 3,054 -------- -------- Income Before Income Taxes and Equity in Earnings of Joint Venture 58,340 49,749 Provision for Income Taxes 24,475 20,397 Equity in Earnings of Henkel-Ecolab Joint Venture 3,824 3,542 -------- -------- Net Income $ 37,689 $ 32,894 -------- -------- -------- -------- Net Income Per Common Share Basic $ 0.29 $ 0.25 Diluted $ 0.28 $ 0.25 Dividends Per Common Share $ 0.095 $ 0.08 Weighted Average Common Shares Outstanding Basic 128,667 129,779 Diluted 133,803 133,963 </TABLE> See notes to consolidated financial statements. 2
ECOLAB INC. CONSOLIDATED STATEMENT OF INCOME <TABLE> <CAPTION> Six Months Ended Year Ended June 30 December 31 ----------------------- ----------- (thousands, except per share) 1998 1997 1997 --------- -------- ----------- (unaudited) <S> <C> <C> <C> Net Sales $904,822 $785,570 $1,640,352 Cost of Sales 406,025 349,048 722,084 Selling, General and Administrative Expenses 381,337 340,289 699,764 --------- -------- ----------- Operating Income 117,460 96,233 218,504 Interest Expense, Net 10,806 6,052 12,637 --------- -------- ----------- Income Before Income Taxes and Equity in Earnings of Joint Venture 106,654 90,181 205,867 Provision for Income Taxes 44,764 36,974 85,345 Equity in Earnings of Henkel-Ecolab Joint Venture 6,387 5,891 13,433 --------- -------- ----------- Net Income $ 68,277 $ 59,098 $ 133,955 --------- -------- ----------- --------- -------- ----------- Net Income Per Common Share Basic $ 0.53 $ 0.46 $ 1.03 Diluted $ 0.51 $ 0.44 $ 1.00 Dividends Per Common Share $ 0.19 $ 0.16 $ 0.335 Weighted Average Common Shares Outstanding Basic 128,813 129,664 129,446 Diluted 133,871 133,762 133,822 </TABLE> See notes to consolidated financial statements. 3
ECOLAB INC. CONSOLIDATED BALANCE SHEET <TABLE> <CAPTION> June 30 June 30 December 31 (thousands) 1998 1997 1997 ----------- ---------- ----------- (unaudited) <S> <C> <C> <C> ASSETS Cash and cash equivalents $ 27,242 $ 70,550 $ 61,169 Accounts receivable, net 247,783 217,550 246,041 Inventories 153,275 130,211 154,831 Deferred income taxes 35,175 29,227 34,978 Other current assets 35,794 8,145 12,482 ----------- ---------- ----------- Current Assets 499,269 455,683 509,501 Property, Plant and Equipment, Net 396,458 342,984 395,562 Investment in Henkel-Ecolab Joint Venture 233,903 248,297 239,879 Other Assets 269,181 161,410 271,357 ----------- ---------- ----------- Total Assets $1,398,811 $1,208,374 $1,416,299 ----------- ---------- ----------- ----------- ---------- ----------- </TABLE> See notes to consolidated financial statements. (Continued) 4
ECOLAB INC. CONSOLIDATED BALANCE SHEET (Continued) <TABLE> <CAPTION> (thousands, except per share) June 30 June 30 December 31 1998 1997 1997 ---------- ---------- ----------- (unaudited) LIABILITIES AND SHAREHOLDERS' EQUITY <S> <C> <C> <C> Short-term debt $ 88,789 $ 29,638 $ 48,884 Accounts payable 116,684 100,623 130,682 Compensation and benefits 66,478 62,322 74,317 Income taxes 8,973 15,036 13,506 Other current liabilities 131,836 115,714 137,075 ---------- ---------- ----------- Current Liabilities 412,760 323,333 404,464 Long-Term Debt 240,382 149,196 259,384 Postretirement Health Care and Pension Benefits 88,856 82,591 76,109 Other Liabilities 89,705 121,290 124,641 Shareholders' Equity (common stock, par value $1.00 per share; shares outstanding: June 30, 1998 - 128,650; June 30, 1997 - 129,783; December 31, 1997 - 129,127) 567,108 531,964 551,701 ----------- ---------- ----------- Total Liabilities and Shareholders' Equity $1,398,811 $1,208,374 $1,416,299 ----------- ---------- ----------- ----------- ---------- ----------- </TABLE> See notes to consolidated financial statements. 5
ECOLAB INC. CONSOLIDATED STATEMENT OF CASH FLOWS <TABLE> <CAPTION> Six Months Ended Year Ended June 30 December 31 (thousands) 1998 1997 1997 -------- -------- -------- (unaudited) <S> <C> <C> <C> OPERATING ACTIVITIES Net income $ 68,277 $ 59,098 $133,955 Adjustments to reconcile net income to cash provided by operating activities: Depreciation 47,575 42,674 84,415 Amortization 10,965 7,431 16,464 Deferred income taxes (318) (430) (2,074) Equity in earnings of joint venture (6,387) (5,891) (13,433) Joint venture royalties and dividends 7,241 15,546 25,367 Other, net 766 628 4,630 Changes in operating assets and liabilities: Accounts receivable (3,670) (10,009) (21,231) Inventories (607) (6,306) (14,395) Other assets (4,304) (5,645) (10,993) Accounts payable (14,016) (3,608) 20,876 Other liabilities (4,659) (13,030) 11,517 -------- -------- -------- Cash provided by continuing operations 100,863 80,458 235,098 Cash used for discontinued operations (30,200) -------- -------- -------- Cash provided by operating activities $ 70,663 $ 80,458 $235,098 -------- -------- -------- </TABLE> Bracketed amounts indicate a use of cash. See notes to consolidated financial statements. (Continued) 6
ECOLAB INC. CONSOLIDATED STATEMENT OF CASH FLOWS (Continued) <TABLE> <CAPTION> Six Months Ended Year Ended June 30 December 31 1997 1998 1997 -------- -------- ----------- (thousands) (unaudited) <S> <C> <C> <C> INVESTING ACTIVITIES Capital expenditures $(68,172) $(54,435) $ (121,667) Property disposals 1,571 1,197 3,424 Businesses acquired (27,766) (12,974) (157,234) Sale of investments in securities 5,000 Other, net (139) (235) (1,240) -------- -------- ----------- Cash used for investing activities (89,506) (66,447) (276,717) -------- -------- ----------- FINANCING ACTIVITIES Notes payable 39,543 2,395 9,280 Long-term debt borrowings 16,940 1,000 117,000 Long-term debt repayments (22,540) (470) (15,210) Reacquired shares (26,281) (14,145) (60,795) Cash dividends on commmon stock (24,491) (20,727) (41,456) Other, net 3,323 19,051 26,278 -------- -------- ----------- Cash provided by (used for) financing activities (13,506) (12,896) 35,097 -------- -------- ----------- Effect of exchange rate changes on cash (1,578) 160 (1,584) -------- -------- ----------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (33,927) 1,275 (8,106) Cash and Cash Equivalents, at beginning of period 61,169 69,275 69,275 -------- -------- ----------- Cash and Cash Equivalents, at end of period $ 27,242 $ 70,550 $ 61,169 -------- -------- ----------- -------- -------- ----------- </TABLE> Bracketed amounts indicate a use of cash. See notes to consolidated financial statements. 7
ECOLAB INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS The unaudited consolidated statements of income for the second quarter and the six months ended June 30, 1998 and 1997, reflect, in the opinion of management, all adjustments necessary for a fair statement of the results of operations for the interim periods. These adjustments consist of normal, recurring items. The results of operations for any interim period are not necessarily indicative of results for the full year. The consolidated balance sheet data as of December 31, 1997 and the related consolidated statements of income and cash flows data for the year then ended were derived from audited consolidated financial statements, but do not include all disclosures required by generally accepted accounting principles. The unaudited consolidated financial statements should be read in conjunction with the financial statements and notes thereto incorporated in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. PricewaterhouseCoopers LLP, the Company's independent accountants, have performed a limited review of the interim financial information included herein. Their report on such review accompanies this filing. BALANCE SHEET INFORMATION <TABLE> <CAPTION> June 30 June 30 December 31 1998 1997 1997 (thousands) --------- --------- ----------- (unaudited) <S> <C> <C> <C> Accounts Receivable, Net Accounts receivable $ 259,420 $ 227,460 $ 256,919 Allowance for doubtful accounts (11,637) (9,910) (10,878) --------- --------- ----------- Total $ 247,783 $ 217,550 $ 246,041 --------- --------- ----------- --------- --------- ----------- Inventories Finished goods $ 62,793 $ 53,782 $ 67,823 Raw materials and parts 93,287 79,794 89,716 Excess of fifo cost over lifo cost (2,805) (3,365) (2,708) --------- --------- ----------- Total $ 153,275 $ 130,211 $ 154,831 --------- --------- ----------- --------- --------- ----------- Property, Plant and Equipment, Net Land $ 11,980 $ 8,257 $ 18,184 Buildings and leaseholds 148,478 133,499 145,021 Machinery and equipment 250,662 217,508 232,940 Merchandising equipment 405,995 351,801 379,531 Construction in progress 16,248 9,818 19,862 --------- --------- ----------- 833,363 720,883 795,538 Accumulated depreciation and amortization (436,905) (377,899) (399,976) --------- --------- ----------- Total $ 396,458 $ 342,984 $ 395,562 --------- --------- ----------- --------- --------- ----------- </TABLE> 8
ECOLAB INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) BALANCE SHEET INFORMATION (Continued) <TABLE> <CAPTION> June 30 June 30 December 31 1998 1997 1997 (thousands) --------- --------- ----------- (unaudited) <S> <C> <C> <C> Other Assets Intangible assets, net $ 214,864 $ 102,965 $ 217,120 Investments in securities 5,000 5,000 Deferred income taxes 25,237 26,591 23,444 Other 29,080 26,854 25,793 --------- --------- ----------- Total $ 269,181 $ 161,410 $ 271,357 --------- --------- ----------- --------- --------- ----------- Short-Term Debt Notes payable $ 73,014 $ 14,363 $ 33,440 Long-term debt, current maturities 15,775 15,275 15,444 --------- --------- ----------- Total $ 88,789 $ 29,638 $ 48,884 --------- --------- ----------- --------- --------- ----------- Shareholders' Equity Common stock $ 143,210 $ 71,199 $ 142,797 Additional paid-in capital 155,457 193,984 149,137 Retained earnings 538,796 443,016 494,950 Deferred compensation (7,235) (6,027) (9,160) Cumulative translation (39,691) (14,406) (28,943) Treasury stock (223,429) (155,802) (197,080) --------- --------- ----------- Total $ 567,108 $ 531,964 $ 551,701 --------- --------- ----------- --------- --------- ----------- </TABLE> Interest expense related to all debt was $12,581,000 and $8,500,000 for the six months ended June 30, 1998 and 1997, respectively, and $18,043,000 for the year ended December 31, 1997. Other noncurrent liabilities decreased from $125 million at year-end 1997 to $90 million at June 30, 1998 principally due to a deposit made to post a bond with the Internal Revenue Service against outstanding issues related to the disposal of a discontinued business in 1992. 9
ECOLAB INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) BUSINESS ACQUISITIONS GIBSON BUSINESS ACQUISITION In October 1997, the Company made a public tender offer for all of the outstanding stock of Gibson Chemical Industries Limited (Gibson) located in Melbourne, Australia. Gibson is a manufacturer and marketer of cleaning and sanitizing products, primarily for the Australian and New Zealand institutional, healthcare and industrial markets. On November 5, 1997, the Company waived all of the remaining conditions to its tender offer and, effective November 30, 1997, had acquired substantially all of the outstanding Gibson shares. During the first quarter of 1998, the Company completed its plan for integration of the Gibson businesses, including the determination of which of the acquired businesses will not be retained, and decisions related to certain duplicate facilities. The net assets related to these businesses and facilities which are being held for sale totaled approximately $25 million and were reclassified to other current assets at March 31, 1998. The acquisition was accounted for as a purchase. The purchase price of the shares and the direct costs of the transaction totaled approximately $130 million and were financed through the Company's Multicurrency Credit Agreement. The excess of the purchase price over the tangible net assets acquired was approximately $85 million and is being amortized on a straight-line basis over an average useful life of 25 years. The Company's international subsidiaries are included in the financial statements on the basis of their November 30 fiscal year ends and, therefore, Gibson's operations were included in the Company's consolidated statement of income beginning in the 1998 reporting period. The assets acquired and the liabilities assumed in the transaction were included in the Company's consolidated balance sheet as of the November 30 effective date. The following unaudited pro forma financial information reflects the combined results of the Company and the retained Gibson businesses assuming the acquisition had occurred at the beginning of 1997. Pro forma adjustments have been included to give effect to amortization of the excess of the purchase price over the tangible net assets acquired, interest expense on debt incurred to finance the acquisition and the related income tax effects. The Company expects that certain efficiencies and synergies will result from the business combination, however, in accordance with the pro forma adjustment guidelines, these anticipated cost savings have not been reflected in the information shown below. <TABLE> <CAPTION> Year Ended December 31 (thousands, except per share) 1997 ----------- <S> <C> Net sales $1,741,006 Net income 131,455 Diluted net income per common share $ 0.98 </TABLE> 10
ECOLAB INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) BUSINESS ACQUISITIONS (continued) GIBSON BUSINESS ACQUISITION (continued) The pro forma results are presented for information purposes only and are not necessarily indicative of the results of operations which actually would have resulted had the combination occurred at the beginning of 1997 or of future results of operations of the consolidated businesses. OTHER BUSINESS ACQUISITIONS At the beginning of the first quarter of 1998, the Company acquired a cleaning and sanitizing business in Japan from Henkel KGaA. Sales of the acquired business were approximately $10 million in 1997. In June 1998, the Company acquired certain assets of American Fluid Technologies (AFT) which is based in Hopkins, Minnesota. AFT provides cleaning and optimization products and services for membrane systems used to process water for food, beverage, pharmaceutical and industrial applications. AFT has become part of the Company's Food & Beverage division. AFT sales were approximately $3 million in 1997. Also in June 1998, the Company acquired certain assets of Puremark International, a Fairfield, New Jersey-based manufacturer of systems which help purify and condition water used in food service soda fountain dispensers, ice makers, coffee makers and similar items. The acquired businesses had sales of approximately $2 million in 1997, and have become part of the Company's Institutional division. Subsequent to the end of the second quarter, in July 1998, the Company completed the purchase of GCS Service, Inc., a Danbury, Connecticut-based provider of commercial kitchen equipment repair services. GCS Service, Inc. sales were $48 million in 1997. These acquisitions have been accounted for as purchases and, accordingly, the results of operations have been included in the financial statements of the Company from the dates of acquisition. Net sales and operating income of these businesses are not significant to the Company's consolidated results of operations, financial position and cash flows. 11
ECOLAB INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) COMPREHENSIVE INCOME In the first quarter of 1998, the Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income." The standard requires the display and reporting of comprehensive income, which includes all changes in shareholders' equity with the exception of additional investments by shareholders or distributions to shareholders. Comprehensive income for the Company includes net income and foreign currency translation that is charged or credited to the cumulative translation account within shareholders' equity. Comprehensive income for the second quarter and six months ended June 30, 1998 and 1997 and the year ended December 31, 1997, was as follows: <TABLE> <CAPTION> Second Quarter Six Months Year Ended Ended Ended June 30 June 30 December 31 (thousands) 1998 1997 1998 1997 1997 ------- ------- -------- -------- ----------- (unaudited) (unaudited) <S> <C> <C> <C> <C> <C> Net income $37,689 $32,894 $ 68,277 $ 59,098 $133,955 Change in cumulative translation (2,200) (1,269) (10,748) (21,193) (35,730) ------- ------- -------- -------- ----------- Comprehensive income $35,489 $31,625 $ 57,529 $ 37,905 $ 98,225 ------- ------- -------- -------- ----------- ------- ------- -------- -------- ----------- </TABLE> NET INCOME PER COMMON SHARE The computation of the basic and diluted per share amounts were as follows: <TABLE> <CAPTION> Second Quarter Six Months Year Ended Ended Ended (thousands, June 30 June 30 December 31 except per share) 1998 1997 1998 1997 1997 -------- -------- -------- -------- ----------- (unaudited) (unaudited) <S> <C> <C> <C> <C> <C> Net income $ 37,689 $ 32,894 $ 68,277 $ 59,098 $133,955 -------- -------- -------- -------- ----------- -------- -------- -------- -------- ----------- Weighted average common shares outstanding Basic (actual shares outstanding) 128,667 129,779 128,813 129,664 129,446 Effect of dilutive stock options 5,136 4,184 5,058 4,098 4,376 -------- -------- -------- -------- ----------- Diluted 133,803 133,963 133,871 133,762 133,822 -------- -------- -------- -------- ----------- -------- -------- -------- -------- ----------- Net income per common share Basic $0.29 $0.25 $0.53 $0.46 $1.03 Diluted $0.28 $0.25 $0.51 $0.44 $1.00 </TABLE> 12
ECOLAB INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NET INCOME PER COMMON SHARE (continued) Stock options for approximately 2.3 million shares were granted in 1998 with exercise prices substantially greater than the market value of the Company's common stock. These stock options were not dilutive and therefore were not included in the computation of diluted net income per common share for the second quarter and six months ended June 30, 1998. Virtually all stock options outstanding during the second quarter and six months ended June 30, 1997, and the year ended December 31, 1997, were dilutive and included in the calculation of the diluted per share amounts. GEOGRAPHIC SEGMENTS The Company is the leading global developer and marketer of premium cleaning, sanitizing and maintenance products and services for the hospitality, institutional and industrial markets. Customers include hotels and restaurants; foodservice, healthcare and educational facilities; quickservice (fast-food) units; commercial laundries; light industry; dairy plants and farms; and food and beverage processors around the world. International consists of Canadian, Asia Pacific, Latin American, African and Kay's international operations. In addition, the Company and Henkel KGaA of Dusseldorf, Germany, each have a 50% economic interest in the Henkel-Ecolab joint venture, which operates institutional and industrial cleaning and sanitizing businesses in Europe. Information concerning the Company's equity in earnings of the Henkel-Ecolab joint venture is provided in a separate note to the consolidated financial statements. <TABLE> <CAPTION> Second Quarter Ended Six Months Ended Year Ended June 30 June 30 December 31 (thousands) 1998 1997 1998 1997 1997 -------- -------- -------- -------- ---------- (unaudited) (unaudited) <S> <C> <C> <C> <C> <C> Net Sales United States $359,254 $319,633 $691,868 $610,336 $1,275,828 International 109,206 92,177 212,954 175,234 364,524 -------- -------- -------- -------- ---------- Total $468,460 $411,810 $904,822 $785,570 $1,640,352 -------- -------- -------- -------- ---------- -------- -------- -------- -------- ---------- Operating Income United States $ 57,369 $ 47,184 $104,905 $ 85,625 $ 195,630 International 7,850 6,669 14,944 12,539 26,962 Corporate (1,479) (1,050) (2,389) (1,931) (4,088) -------- -------- -------- -------- ---------- Total $ 63,740 $ 52,803 $117,460 $ 96,233 $ 218,504 -------- -------- -------- -------- ---------- -------- -------- -------- -------- ---------- </TABLE> 13
ECOLAB INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) EQUITY IN EARNINGS OF HENKEL-ECOLAB JOINT VENTURE Certain financial data of the Henkel-Ecolab joint venture and the components of the Company's equity in earnings of the joint venture for the second quarter and six months ended June 30, 1998 and 1997 and for the year ended December 31, 1997 were: <TABLE> <CAPTION> Second Quarter Ended Six Months Ended Year Ended June 30 June 30 December 31 (thousands) 1998 1997 1998 1997 1997 -------- -------- -------- -------- ------------ (unaudited) (unaudited) <S> <C> <C> <C> <C> <C> Joint venture Net sales $223,498 $212,768 $423,408 $422,365 $844,689 Gross profit 122,629 119,720 235,050 234,778 470,698 Income before income taxes 16,208 15,434 28,286 27,407 63,640 Net income $ 9,224 $ 8,924 $ 15,998 $ 15,594 $ 33,701 Ecolab equity in earnings Ecolab equity in net income $ 4,612 $ 4,462 $ 7,999 $ 7,797 $ 16,851 Ecolab royalty income from joint venture, net of income taxes 1,112 1,085 2,196 2,220 4,583 Amortization expense for the excess of cost over the underlying net assets of the joint venture (1,900) (2,005) (3,808) (4,126) (8,001) -------- -------- -------- -------- ------------ Equity in earnings of Henkel-Ecolab joint venture $ 3,824 $ 3,542 $ 6,387 $ 5,891 $ 13,433 -------- -------- -------- -------- ------------ -------- -------- -------- -------- ------------ </TABLE> At June 30, 1998, the Company's investment in the Henkel-Ecolab joint venture included approximately $139 million for the unamortized excess of the Company's investment over its equity in the joint venture's net assets. This excess is being amortized on a straight-line basis over estimated economic useful lives of up to 30 years. 14
ECOLAB INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) SUBSEQUENT EVENT As a result of tax losses on the disposition of a business in 1992, the Company's U.S. federal income tax payments were reduced in 1992 through 1995 by approximately $58 million. However, pending final acceptance of the Company's treatment of the losses, no income tax benefit has been recognized for financial reporting purposes. On August 5, 1998 an agreement was reached with the Internal Revenue Service on the final tax treatment for the losses. This agreement will result in the recognition of income from discontinued operations in the Company's financial statements for the period ending September 30, 1998. Because this one-time gain relates to a previously discontinued business and a major portion of the tax liability due was funded by a deposit to post a bond with the Internal Revenue Service during the second quarter 1998, the settlement is not expected to have a material impact on the Company's overall results from continuing operations, financial position or liquidity. 15
REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Directors Ecolab Inc. We have reviewed the accompanying consolidated balance sheet of Ecolab Inc. as of June 30, 1998 and 1997, and the related consolidated statements of income for the three-month and six-month periods ended June 30, 1998 and 1997, and the consolidated statement of cash flows for the six-month periods ended June 30, 1998 and 1997. These financial statements are the responsibility of the Company's management. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to the accompanying consolidated financial statements for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet as of December 31, 1997, and the related consolidated statements of income, shareholders' equity and cash flows for the year then ended (not presented herein); and in our report dated February 23, 1998, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 1997, and the related consolidated statements of income and cash flows for the year then ended is fairly presented, in all material respects, in relation to the consolidated balance sheet and statements of income and cash flows from which it has been derived. /s/ PricewaterhouseCoopers LLP PRICEWATERHOUSECOOPERS LLP Saint Paul, Minnesota July 21, 1998 16
ECOLAB INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis provides information that management believes is useful in understanding the Company's operating results, cash flows and financial condition. The discussion should be read in conjunction with the consolidated financial statements and related notes in this Form 10-Q. The following discussion contains various "Forward-Looking Statements" within the meaning of the Private Securities Litigation Reform Act of 1995. The statements, which represent Ecolab's expectations or beliefs concerning various future events, are based on current expectations that involve a number of risks and uncertainties that could cause actual results to differ materially from those of such Forward-Looking Statements. We refer readers to the Company's statement entitled "Forward-Looking Statements and Risk Factors" which is contained under Item 1 of the Company's Annual Report on Form 10-K for the year ended December 31, 1997. Additional risk factors may be described from time to time in Ecolab's filings with the Securities and Exchange Commission. RESULTS OF OPERATIONS - SECOND QUARTER AND SIX MONTHS ENDED JUNE 30, 1998 Net sales for the second quarter ended June 30, 1998 were $468 million, an increase of 14 percent over net sales of $412 million in the second quarter of last year. For the first six months of 1998, net sales increased 15% to $905 million from $786 in the first six months of 1997. Business acquisitions made a significant contribution to the Company's sales growth and accounted for approximately one-half of the Company's growth in both the second quarter and six-month periods. Changes in currency translation decreased the Company's sales growth rates by approximately two percentage points in each of the reporting periods. The growth in sales also reflected new products, a larger sales-and-service force, new customers, competitive gains and a continuation of generally good conditions in the hospitality and lodging industries, particularly in the United States. The gross profit margin for the second quarter of 1998 was 55.1 percent of net sales, compared with the gross profit margin of 55.5 percent of net sales in the second quarter of last year. For the six-month period, the gross profit margin was also 55.1 percent of net sales, down from the six month 1997 margin of 55.6 percent. These lower gross profit margins were primarily due to lower margins in the Asia Pacific region, which were negatively affected by economic and monetary problems in the area, and to businesses the Company added to the region 17
ECOLAB INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) RESULTS OF OPERATIONS - SECOND QUARTER AND SIX MONTHS ENDED JUNE 30, 1998 (continued) through acquisitions. The lower Asia Pacific margin was partially offset by modestly higher gross margins in virtually all of the Company's other operations which included the benefits of higher sales of the higher margin products of the Company's U.S. core operations and sales volume growth of new products. The benefits from selling price increases improved modestly over last year, however, continued to be limited due to market pressures. Selling, general and administrative expenses represented 41.5 percent of net sales in the second quarter of 1998, a decrease from selling, general and administrative expenses of 42.7 percent of net sales in the second quarter of last year. For the first six months of 1998, selling, general and administrative expenses were 42.1 percent of net sales, compared with 43.3 percent in the comparable period of last year. Selling, general and administrative margins were down for both the Company's U.S. and international operations with significant decreases in the Asia Pacific region. These decreases reflected benefits of tight cost controls, the integration of businesses acquired and strong sales growth. These benefits were partially offset by investments in the sales-and-service force and additional business investments. The Company expects to continue investing in its sales-and-service force, including investments in training and productivity. For the second quarter of 1998, net income totaled $38 million, an increase of 15% percent over net income of $33 million in the second quarter of last year. On a per share basis, diluted net income per common share increased 12 percent to $0.28 from $0.25 in the second quarter of last year. For the six-month period, net income of $68 million or $0.51 per diluted share was up 16 percent over net income of $59 million or $0.44 per diluted share in the comparable period of last year. These earnings improvements reflected double-digit growth in operating income, principally due to the stronger performances of the Company's U.S. core operations, and a higher equity in earnings of the Henkel-Ecolab joint venture. Earnings were negatively affected by increased interest expense and income taxes compared with the second quarter and six-month period of last year. Net sales for the Company's United States operations were $359 million for the second quarter of 1998, an increase of 12 percent over net sales of $320 million in the second quarter of last year. United States sales totaled $692 million for the first six months of 1998, up 13 percent compared with sales of $610 million in the comparable period of 1997. Sales benefited from business acquisitions, a continuation of strong growth in the core Institutional and Food & Beverage operations, sales of new products, and good business trends in the hospitality and lodging industries. Business acquisitions 18
ECOLAB INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) RESULTS OF OPERATIONS - SECOND QUARTER AND SIX MONTHS ENDED JUNE 30, 1998 (continued) accounted for approximately one-third of the growth in U.S. sales during each of the reporting periods. Selling price increases continued to be limited due to tight pricing conditions in several of the markets in which the Company does business. Sales of the U.S. Institutional Division increased 11% for the second quarter and 13% for the first six months of 1998 with strong growth in sales of all of its business units, and the benefits of the December 1997 acquisition of the Grace-Lee Vehicle Wash business which added approximately 2 percentage points to the Division's sales growth rates. The Pest Elimination Division reported an improved sales growth rate of 16 percent for the second quarter of 1998 and a 14 percent growth rate for the first six months of 1998. Pest Elimination sales reflected good new contract sales, high retention of key customers and increased demand related to last winter's mild weather. Kay also reported an improved trend in its sales growth rate with a 10 percent increase in sales for the second quarter and a 9 percent growth rate for the first six months of 1998. Kay's growth reflected good results in sales to its core quickservice customers, due in part to new product and service offerings, and good growth in sales of its grocery/deli business. Sales of the Textile Care Division were down 1 percent for the second quarter and increased 2 percent for the first six months of 1998. Textile Care continues to experience pressures from plant consolidations, particularly in laundries serving the healthcare market, and challenging market conditions. Professional Products sales increased 4 percent for the second quarter and 7 percent for the six-month period with continued growth in sales of branded products through its mass commercial distribution line. Water Care sales were up 4 percent for the second quarter and 3 percent for the six-month period. The Water Care Division continues to concentrate on the hospitality, cruise ship, food and beverage, and laundry markets. The Company's Food & Beverage Division reported sales growth of 15 percent for the second quarter and 16 percent for the first half of 1998 reflecting the acquisition of Chemidyne in August of last year. Excluding Chemidyne, Food & Beverage sales increased 6 percent for the second quarter and 7 percent for the six-month period with good growth in sales to all of its markets. For the second quarter of 1998, operating income of the Company's United States operations was $57 million, up 22 percent over operating income of $47 million in the second quarter of last year. For the six-month period, U.S. operating income totaled $105 million, an increase of 23 percent over operating income of $86 million in the comparable period of 1997. U.S. operating income benefited from particularly good growth in the core Institutional and Food and Beverage operations and also in the Pest Elimination business. U.S. operating income improved to 16.0 percent of net sales in the second quarter from 14.8 percent of net sales in the second quarter of 1997. 19
ECOLAB INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) RESULTS OF OPERATIONS - SECOND QUARTER AND SIX MONTHS ENDED JUNE 30, 1998 (continued) The U.S. operating income margin also improved for the first six months of 1998, to 15.2 percent of net sales from 14.0 percent in the comparable period of last year. The improvements in operating income margins reflected strong sales growth, sales of new products, modest increases in raw material costs, higher gross margins and the benefits of tight cost controls. Reported sales of the Company's International Operations were $109 million for the second quarter of 1998, an increase of 18 percent over sales of $92 million in the comparable period of last year. For the first six months of 1998, International reported a sales increase of 22 percent to $213 million from $175 million in the first half of 1997. International sales benefited from business acquisitions, however, were negatively affected by changes in currency translation, particularly in the Asia Pacific region. Excluding acquisitions, sales for the second quarter and six-month periods as reported in U.S. dollars were flat versus the same periods of last year. When measured in local currencies, total International sales increased approximately 30 percent for each of the reporting periods, and when acquisitions are excluded, sales for both the second quarter and first six months of 1998 increased approximately 10%. The Asia Pacific region reported U.S. dollar sales growth of 33 percent for the second quarter and 35 percent for the first six months of 1998. Excluding business acquisitions and when measured in local currencies, Asia Pacific sales increased 15 percent for the second quarter of 1998 and 17 percent for the six-month period with good growth in Japan, Australia and Southeast Asia. Reported sales of Latin America increased 4 percent for both the second quarter and six-month periods. When measured in local currencies, Latin America sales increased 10 percent in each period with strong double-digit growth in Mexico, Venezuela and Central America and modest growth in Brazil. Canada's reported sales were flat for the second quarter of 1998 and grew 5 percent for the six-month period. Canada's local currency growth, excluding the March 1997 acquisition of Savolite, was 4 percent for the second quarter and 6 percent for the first six months of 1998 and reflected good growth in Institutional and Food & Beverage sales. International reported operating income of $8 million for the second quarter ended June 30, 1998, an increase of 18 percent over second quarter 1997 operating income of $7 million. For the six-month period, International's reported operating income totaled $15 million and was up 19 percent over operating income of $13 million in the comparable period of 1997. Excluding the effects of business acquisitions, International's U.S. dollar operating income was down 12 percent for the second quarter and down 1 percent for the first six months of 1998, reflecting lower income in the Asia Pacific region due 20
ECOLAB INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) RESULTS OF OPERATIONS - SECOND QUARTER AND SIX MONTHS ENDED JUNE 30, 1998 (continued) to the difficult business and economic conditions in the region. Excluding business acquisitions and the negative effects of currency translation, International's operating income grew 8 percent for the second quarter and 24 percent for the six-month period and included significant growth in results of Latin America. The Company continues to be cautious about near-term growth in the Asia Pacific region due to the uncertain economic conditions in the region. The Company's equity in earnings of the Henkel-Ecolab joint venture increased 8 percent to $3.8 million in the second quarter of 1998 from $3.5 million in the second quarter of last year. For the first six months of 1998, the Company's equity in joint venture earnings was $6.4 million, up 8 percent over $5.9 million of equity in earnings recorded in the comparable period of last year. Joint venture sales, although not consolidated in the Company's financial statements, increased 11 percent for the second quarter and 9 percent for the six-month period when measured in Deutsche marks, with good growth in most markets and within most geographic regions. However, sales to the professional hygiene market and sales in Germany and the United Kingdom were weak, due in part to government and private spending cutbacks. When measured in U.S. dollars, joint venture sales were negatively affected by the strengthening U.S. dollar and increased only 5 percent for the second quarter and were flat for the first six months of 1998. Corporate operating expense was $1 million for the second quarter and $2 million for the first half of 1998 and represented overhead costs directly related to the joint venture. The major portion of the 41 percent increase in corporate operating expense for the second quarter was due to the timing of expenditures. Net interest expense totaled $5.4 million for the second quarter and $10.8 million for the first half of 1998 and increased nearly 80 percent over net interest expense in the comparable periods of last year. The increases were primarily due to debt incurred under the Company's Multicurrency Credit Agreement for the Gibson acquisition and for an income tax deposit made in the second quarter of 1998. For both the second quarter and six-month periods, the provisions for income taxes reflected estimated effective rates of 42.0 percent in 1998, a slight increase compared with last year's effective rates of 41.0 percent. The increases in the effective income tax rates were principally due to the effects of business acquisitions and higher overall effective rates on earnings of International operations. 21
ECOLAB INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) YEAR 2000 CONVERSION The Company has completed an assessment of Year 2000 compliance for its North American operations related to its critical operating and application systems, particularly customer-oriented systems such as sales and order processing, billing and collections and associated infrastructure. As a result, the Company has renovated or is replacing portions of its software and hardware. The renovation, validation and implementation processes are approximately 85% complete and the intention is to be completed by the end of 1998 in all material respects. The costs related to Year 2000 to complete this activity are not material and should not exceed $5 million, in both capital and expense, of which an estimated $3 million has been incurred to date. Of this cost, only a small part is related to accelerated replacement due to Year 2000 concerns. With regard to operations and application systems in operations outside of North America, the Company is in various stages of assessment, renovation, validation or implementation depending on the circumstances. The Company intends to follow the same process internationally, as it has taken in North America and intends to complete the process by the end of 1998 in all material respects. As a part of its Year 2000 process, the Company intends to demonstrate its Year 2000 readiness by simulating the Year 2000 in an orchestrated manner for its key infrastructure components, critical business processes and key application systems. The Company expects that minor Year 2000 compliance issues will be identified as an outcome of the Year 2000 simulation test and intends to address these compliance issues in the first quarter of 1999. On a worldwide basis, the Company is in the assessment stage relative to remediating its dispensing and cleaning systems and its manufacturing and building maintenance operations for date/time sensitivity and intends to proceed to the renovation, validation and implementation stages with the goal of completion by the end of 1998. The Company, while still only in the assessment stage, believes that its requirements relative to Year 2000 remediation for its dispensing and cleaning systems and manufacturing and building maintenance operations are limited in nature and although a final cost estimate has not been determined at this time, the Company does not believe the cost will be material. The Company has contacted key suppliers and vendors in order to determine the status of such third parties' Year 2000 remediation plans. This process will be ongoing into 1999. In the Company's experience, its suppliers and vendors are still only in the process of Year 2000 renovation. Therefore, the Company will be better able to fully assess the risk and prepare contingency plans when third party processes are more complete. 22
ECOLAB INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) YEAR 2000 CONVERSION (continued) The Company recognizes the need for Year 2000 contingency plans in the event that remediation is not fully successful or that the remediation efforts of its vendors, suppliers and governmental/regulatory agencies are not timely completed. The Company intends to address contingency planning during 1999. The Company intends to complete its Year 2000 remediation efforts primarily with in-house resources, but has and will continue to use consultants for specific tasks. The Company believes that costs of Year 2000 remediation described above can be funded from operations. The Company recognizes that issues related to Year 2000 constitute a material known uncertainty. The Company also recognizes the importance of ensuring its operations will not be adversely affected by Year 2000 issues. It believes that the processes described above will be effective to manage the risks associated with the problem. However, there can be no assurance that the process can be completed on the timetable described above or that the remediation processes will be fully effective. The failure to identify and remediate Year 2000 problems or, the failure of key third parties who do business with the Company or governmental/regulatory agencies to timely remediate their Year 2000 issues could cause system failures or errors, business interruptions and in a worst case scenario, the inability to engage in normal business practices for an unknown length of time. The effect on the Company's operations, income and financial condition could be materially adverse. There are numerous risks and uncertainties associated with management of Year 2000 risks and these are further discussed in the Company's Form 10-K for the year ended December 31, 1997 under the heading "Forward-Looking Statements and Risk Factors." FINANCIAL POSITION AND LIQUIDITY Total assets were approximately $1.4 billion at June 30, 1998, a slight decrease from total assets at year-end 1997 and an increase of 16 percent over total assets of $1.2 billion at June 30, 1997, due in part to business acquisitions. Other current assets at June 30, 1998, included approximately $23 million of net assets of the acquired Gibson businesses which the Company has determined it will not retain. During the first quarter of 1998 the Company completed its plan for the integration of Gibson and the majority of these net assets held for sale initially had been included in the Company's year-end 1997 balance sheet as property, plant and equipment, accounts receivable and inventories. Total debt was $329 million at June 30, 1998, up from total debt of $308 million at year-end 1997 and total debt of $179 million at June 30, 1997. The increases in total debt reflected an income tax deposit made in the second quarter of 1998 and debt incurred to finance the late-1997 acquisition of Gibson. The ratio of total debt to capitalization was 37 percent at June 30, 1998, compared with 36 percent at year-end 1997 and 25 percent at June 30, 1997. 23
ECOLAB INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) FINANCIAL POSITION AND LIQUIDITY (continued) Other noncurrent liabilities decreased from $125 million at year-end 1997 to $90 million at June 30, 1998 principally due to a deposit made to post a bond with the Internal Revenue Service against outstanding issues related to the disposal of a discontinued business in 1992. As a result of tax losses on the disposition of this business, the Company's U.S. federal income tax payments were reduced in 1992 through 1995 by approximately $58 million. However, pending final acceptance of the Company's treatment of the losses, no income tax benefit has been recognized for financial reporting purposes. On August 5, 1998 an agreement was reached with the Internal Revenue Service on the final tax treatment for the losses. This agreement will result in the recognition of income from discontinued operations in the Company's financial statements for the period ending September 30, 1998. While the computations necessary to determine the final amount of income are dependent on many factors, including the outcome from the filing of numerous amended state and local income tax returns, the Company believes that the final amount of income from discontinued operations could be in excess of $35 million. Because this one-time gain relates to a previously discontinued business and the major portion of the tax liability due has been funded by the above-mentioned bond posting, the settlement is not expected to have a material impact on the Company's results from continuing operations, financial position or liquidity. Cash provided by continuing operations totaled $101 million for the first six months of 1998, an increase of 25 percent over cash provided by continuing operations of $80 million in the first half of last year. The comparison of cash flow from continuing operations was favorably affected by a cash outflow in 1997 due to an income tax deposit made against outstanding federal income tax issues that had been accrued for in other noncurrent liabilities. Total cash provided by operating activities decreased to $71 million from $80 million in the first six months of last year due to a $30 million income tax deposit made in the second quarter of 1998 related to discontinued operations. During the first six months of 1998, the Company reacquired 454,242 shares of its common stock under its share repurchase program, which provides shares to fund employee benefit plans. The Company also acquired 432,358 shares of its common stock under a separate 12 million share repurchase program announced in May 1995. At June 30, 1998, there were 3,748,888 shares remaining for purchase from time to time under that 1995 purchase authorization. The Company anticipates that it will continue to periodically reacquire shares under these two programs. 24
ECOLAB INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) NEW ACCOUNTING PRONOUNCEMENT In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, a new standard of accounting and reporting for derivative instruments and hedging activities. The Company is required to adopt the new standard in the first quarter of 2000. Although the Company has not completed a full analysis of all of the requirements of the new standard, the Company's use of derivative and hedging financial instruments is limited and therefore the Company does not anticipate the impact of the new standard to be significant. 25
PART II. OTHER INFORMATION Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company's Annual Meeting of Stockholders was held on May 8, 1998. At the meeting, 92.57% of the outstanding shares of the Company's voting stock were represented in person or by proxy. The first proposal voted upon was the election of four Class III Directors for a term ending at the annual meeting in 2001. The four persons nominated by the Company's Board of Directors received the following votes and were elected: <TABLE> <CAPTION> Name For Withheld ---------------- ----------- -------- <S> <C> <C> Joel W. Johnson 118,534,635 720,980 Philip L. Smith 118,521,653 733,962 Hugo Uyterhoeven 118,506,599 749,016 Albrecht Woeste 118,499,056 756,559 </TABLE> In addition, the terms of office of the following directors continued after the meeting: Class I Directors for a term ending in 1999 - James J. Howard, Jerry W. Levin, Rueben F. Richards, Richard L. Schall and Roland Schulz; and Class II Directors for a term ending in 2000 - Leslie S. Biller, Ruth S. Block, Allan L. Schuman and Michael E. Shannon. The second proposal voted upon was the ratification of the appointment of PricewaterhouseCoopers LLP (on July 1, 1998, Coopers & Lybrand L.L.P. merged with Price Waterhouse LLP to form PricewaterhouseCoopers) as the Company's independent accountants for the year ending December 31, 1998. The appointment was ratified as follows: <TABLE> <CAPTION> For Against Abstained ----------- ------- --------- <S> <C> <C> 118,916,863 173,334 165,418 </TABLE> As to each proposal, there were no broker non-votes. Item 5(a) RECENT SALES OF UNREGISTERED SECURITIES On May 11, 1998, the Company issued 18,633 shares of Common Stock to Grace-Lee Products, Incorporated ("Grace-Lee") in a private transaction. The transaction represented a purchase price adjustment for the previously reported acquisition of Grace-Lee's chemical business in December, 1997. The transaction was exempt from registration pursuant to Section 4(2) of the Securities Act of 1933. 26
PART II. OTHER INFORMATION (continued) Item 5(b) ANNUAL MEETING - DISCRETIONARY VOTING AND ADVANCE NOTICE PROVISIONS The following information is provided to comply with Rules 14a - 4(c)(i) and 14a - 5(e) of the Securities and Exchange Commission: Rule 14(a) - 4(c)(i) of the Securities and Exchange Commission provides that persons named in the proxy which accompanies the Company's Proxy Statement, may be given discretionary authority to vote all proxies with respect to any matters not included in the Proxy Statement which come before the Annual Meeting of the Stockholders for a vote of the Stockholders unless advance notice of such matter is provided to the Company in accordance with the Company's Advance By-Law Notice provisions. The Company anticipates continuing its policy of granting such discretionary authority to the persons named in the proxy. As applied to the Company such discretionary authority will apply with respect to proxies solicited in connection with the next Annual Meeting of Stockholders expected to be held on May 14, 1999, unless notice is received by the Company not later than February 6, 1999. Notice may be given to the Secretary of the Company, c/o Ecolab Inc., Ecolab Center, 370 North Wabasha Street, St. Paul, Minnesota 55102. In addition, the Company's By-Laws contain advance notice provisions which require that written notice of a stockholder proposal or stockholder director nomination not included in the Proxy Statement be delivered to the Secretary not less than 90 and no more than 135 days prior to the anniversary date of the preceding Annual Meeting of Stockholders. Any Stockholder business, or nomination, which the presiding officer determines has not been brought before the meeting in accordance with those By-Law provisions, will not be voted upon at the meeting. The notice period, in respect of the next Annual Meeting expected to be held on May 14, 1999 shall be from December 24, 1998 through February 6, 1999 inclusive. A copy of the By-Laws of the Company may be obtained by contacting the Secretary of the Company at the above address. 27
PART II. OTHER INFORMATION (continued) Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) The following documents are filed as exhibits to this report: (4) A. 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 parties thereto, Citibank, N.A., as Agent and Citisecurities Limited, as Local Currency Agent. B. 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 parties thereto. (10) 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 numbers of shares. (15) Letter regarding unaudited interim financial information. (27) Financial Data Schedule. (b) Reports on Form 8-K: No reports on Form 8-K were filed during the quarter ended June 30, 1998. Subsequent to the quarter ended June 30, 1998, the Company filed on July 15, 1998, a Current Report on Form 8-K announcing completion of its previously announced acquisition of GCS Service, Inc. of Danbury, Connecticut. 28
SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized. ECOLAB INC. Date: August 12, 1998 By: /s/Michael E. Shannon Michael E. Shannon Chairman of the Board, Chief Financial and Administrative Officer (duly authorized officer and Principal Financial Officer) 29
EXHIBIT INDEX <TABLE> <CAPTION> Exhibit No. Document Method of Filing ----------- -------- ---------------- <S> <C> <C> (4) A. Amendment No. 1 dated as of June 23, 1998 to Filed herewith Multicurrency Credit Agreement dated as of electronically 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. (4) B. Australian Dollar Local Currency Addendum Filed herewith dated as of June 23, 1998 among Ecolab Finance electronically PTY Limited, Ecolab Inc., Citibank, N.A., the Local Currency Agent named therein and the Local Currency Banks party thereto. (10) Non-Statutory Stock Option Agreement between Filed herewith the Company and Allan L. Schuman with respect electronically 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. (15) Letter regarding unaudited interim financial Filed herewith information electronically (27) Financial Data Schedule Filed herewith electronically </TABLE> 30