FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended MARCH 31, 1997 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 N. Wabasha Street, St. Paul, Minnesota 55102 - ---------------------------------------------------------------- (Address of principal executive offices)(Zip Code) 612-293-2233 ------------ (Registrant's telephone number, including area code) (Not Applicable) - ---------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------- ------- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of April 30, 1997. 64,878,010 shares of common stock, par value $1.00 per share.
PART I - FINANCIAL INFORMATION ECOLAB INC. CONSOLIDATED STATEMENT OF INCOME First Quarter Ended Year Ended March 31 December 31 (thousands, except per share) 1997 1996 1996 -------- -------- ---------- (unaudited) Net Sales $373,760 $333,720 $1,490,009 Cost of Sales 165,726 152,589 674,953 Selling, General and Administrative Expenses 164,604 147,333 629,739 -------- -------- ---------- Operating Income 43,430 33,798 185,317 Interest Expense, Net 2,998 3,440 14,372 -------- -------- ---------- Income Before Income Taxes and Equity in Earnings of Joint Venture 40,432 30,358 170,945 Provision for Income Taxes 16,577 12,171 70,771 Equity in Earnings of Henkel-Ecolab Joint Venture 2,349 1,458 13,011 -------- -------- ---------- Net Income $ 26,204 $ 19,645 $ 113,185 -------- -------- ---------- -------- -------- ---------- Net Income Per Share Net Income Per Common Share $ 0.40 $ 0.30 $ 1.75 Fully Diluted $ 0.39 $ 0.30 $ 1.69 Dividends Per Common Share $ 0.16 $ 0.14 $ 0.58 Average Common Shares Outstanding 64,774 64,590 64,496 See notes to consolidated financial statements. -2-
ECOLAB INC. CONSOLIDATED BALANCE SHEET March 31 March 31 December 31 (thousands) 1997 1996 1996 -------- -------- ----------- (unaudited) ASSETS Cash and cash equivalents $ 63,510 $ 18,034 $ 69,275 Accounts receivable, net 205,426 194,407 205,026 Inventories 131,110 123,058 122,248 Deferred income taxes 29,107 23,010 29,344 Other current assets 8,669 28,902 9,614 ---------- ---------- --------- Current Assets 437,822 387,411 435,507 Property, Plant and Equipment, Net 335,221 302,351 332,314 Investment in Henkel-Ecolab Joint Venture 248,983 298,776 285,237 Other Assets 157,745 138,357 155,351 ---------- ---------- --------- Total Assets $1,179,771 $1,126,895 $1,208,409 ----------- ---------- --------- ----------- ---------- --------- See notes to consolidated financial statements. (Continued) -3-
ECOLAB INC. CONSOLIDATED BALANCE SHEET, Continued March 31 March 31 December 31 (thousands, except per share) 1997 1996 1996 ----------- --------- ----------- (unaudited) LIABILITIES AND SHAREHOLDERS' EQUITY Short-term debt $ 30,232 $ 55,043 $ 27,609 Accounts payable 97,877 84,835 103,803 Compensation and benefits 53,864 46,528 71,533 Income taxes 28,868 20,201 26,977 Other current liabilities 108,332 92,893 97,849 ---------- --------- ---------- Current Liabilities 319,173 299,500 327,771 Long-Term Debt 148,403 163,842 148,683 Postretirement Health Care and Pension Benefits 79,192 74,102 73,577 Other Liabilities 121,448 134,326 138,415 Shareholders' Equity (common stock, par value $1.00 per share; shares outstanding: March 31, 1997 - 64,809; March 31, 1996 - 64,420; December 31, 1996 - 64,800) 511,555 455,125 519,963 ---------- --------- ---------- Total Liabilities and Shareholders' Equity $1,179,771 $1,126,895 $1,208,409 ---------- --------- ---------- ---------- --------- ---------- See notes to consolidated financial statements. -4-
ECOLAB INC. CONSOLIDATED STATEMENT OF CASH FLOWS First Quarter Ended Year Ended March 31 December 31 (thousands) 1997 1996 1996 ---------- --------- ----------- (unaudited) OPERATING ACTIVITIES Net income $ 26,204 $19,645 $113,185 Adjustments to reconcile net income to cash provided by operating activities: Depreciation 20,846 18,527 75,185 Amortization 3,817 3,080 14,338 Deferred income taxes 31 (126) (6,878) Equity in earnings of joint venture (2,349) (1,458) (13,011) Joint venture royalties and dividends 13,787 1,244 15,769 Other, net 279 25 1,023 Changes in operating assets and liabilities: Accounts receivable 247 10,059 2,809 Inventories (7,587) (11,694) (6,852) Other assets (4,645) (5,168) (5,255) Accounts payable (6,058) (107) 16,397 Other liabilities (17,867) 671 47,559 ------- -------- -------- Cash provided by operating activities $26,705 $34,698 $254,269 ------- -------- -------- ------- -------- -------- Bracketed amounts indicate a use of cash. See notes to consolidated financial statements. (Continued) -5-
ECOLAB INC. CONSOLIDATED STATEMENT OF CASH FLOWS, Continued First Quarter Ended Year Ended March 31 December 31 (thousands) 1997 1996 1996 ------- --------- ----------- (unaudited) INVESTING ACTIVITIES Capital expenditures $(25,145) $(25,563) $(111,518) Property disposals 595 576 3,284 Businesses acquired (6,068) (39,930) (54,911) Other, net (230) (144) (1,449) -------- -------- --------- Cash used for investing activities (30,848) (65,061) (164,594) -------- -------- --------- FINANCING ACTIVITIES Notes payable 3,152 (16,164) (42,045) Long-term debt borrowings 75,000 75,000 Long-term debt repayments (235) (19,459) (35,690) Reacquired shares (8,753) (11,143) (22,790) Dividends on common stock (10,366) (9,057) (36,096) Other, net 15,008 4,417 17,088 -------- -------- --------- Cash provided by (used for) financing activities (1,194) 23,594 (44,533) -------- -------- --------- Effect of exchange rate changes on cash (428) 85 (585) -------- -------- --------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (5,765) (6,684) 44,557 Cash and Cash Equivalents, at beginning of period 69,275 24,718 24,718 -------- -------- --------- Cash and Cash Equivalents, at end of period $ 63,510 $ 18,034 $ 69,275 -------- -------- --------- -------- -------- --------- Bracketed amounts indicate a use of cash. See notes to consolidated financial statements. -6-
ECOLAB INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS The unaudited consolidated statements of income for the first quarter ended March 31, 1997 and 1996, reflect, in the opinion of management, all adjustments necessary for a fair statement of the results of operations for the interim periods. 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, 1996 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, 1996. Coopers & Lybrand L.L.P., 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 March 31 March 31 December 31 (thousands) 1997 1996 1996 --------- --------- ----------- (unaudited) Accounts Receivable, Net Accounts receivable $ 215,247 $ 202,710 $ 214,369 Allowance for doubtful accounts (9,821) (8,303) (9,343) --------- --------- --------- Total $ 205,426 $ 194,407 $ 205,026 --------- --------- --------- --------- --------- --------- Inventories Finished goods $ 57,102 $ 60,955 $ 52,232 Raw materials and parts 77,294 66,073 73,060 Excess of fifo cost over lifo cost (3,286) (3,970) (3,044) --------- --------- --------- Total $ 131,110 $ 123,058 $ 122,248 --------- --------- --------- --------- --------- --------- Property, Plant and Equipment, Net Land $ 8,183 $ 6,915 $ 7,969 Buildings and leaseholds 132,301 118,860 129,781 Machinery and equipment 212,572 196,988 208,704 Merchandising equipment 340,797 298,973 330,277 Construction in progress 8,501 12,659 11,745 --------- --------- --------- 702,354 634,395 688,476 Accumulated depreciation and amortization (367,133) (332,044) (356,162) --------- --------- --------- Total $ 335,221 $ 302,351 $ 332,314 --------- --------- --------- --------- --------- --------- -7-
ECOLAB INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) BALANCE SHEET INFORMATION (CONTINUED) March 31 March 31 December 31 (thousands) 1997 1996 1996 -------- -------- ----------- (unaudited) Other Assets Intangible assets, net $ 99,965 $ 76,849 $ 96,865 Investments in securities 5,000 5,000 5,000 Deferred income taxes 26,305 27,548 26,582 Other 26 475 28,960 26,904 --------- -------- --------- Total $ 157,745 $138,357 $ 155,351 --------- -------- --------- --------- -------- --------- Short-Term Debt Notes payable $ 14,979 $ 38,552 $ 12,333 Long-term debt, current maturities 15,253 16,491 15,276 --------- -------- --------- Total $ 30,232 $ 55,043 $ 27,609 --------- -------- --------- --------- -------- --------- Shareholders' Equity Common stock $ 70,992 $ 70,148 $ 70,751 Additional paid-in capital 190,548 172,713 187,111 Retained earnings 420,333 336,498 404,362 Deferred compensation (6,768) (6,109) (7,390) Cumulative translation (13,137) 13,601 6,787 Treasury stock (150,413) (131,726) (141,658) --------- -------- --------- Total $ 511,555 $455,125 $ 519,963 --------- -------- --------- --------- -------- --------- Interest expense related to all debt was $4,141,000 and $4,645,000 for the first quarter ended March 31, 1997 and 1996, respectively, and $19,084,000 for the year ended December 31, 1996. Other noncurrent liabilities included income taxes payable of $82 million at March 31, 1997, $100 million at December 31, 1996, and $96 million at March 31,1996. -8-
ECOLAB INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) BUSINESSES ACQUIRED In February 1997, the Company acquired three small Food and Beverage businesses in the Central Africa region. These acquisitions have been accounted for as purchases and, accordingly, the results of their operations have been included in the financial statements of the Company from the dates of acquisition. Net sales and operating income of these businesses for the first quarter ended March 31, 1997 were not significant. NET INCOME PER SHARE Net income per common share amounts are computed by dividing net income by the weighted average number of common shares outstanding. Fully diluted per share amounts are computed as above and assume exercise of dilutive stock options. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, a new standard for computing and presenting earnings per share. The Company is required to adopt the new standard in the fourth quarter of 1997; earlier adoption is not permitted. The Company expects that earnings per share computed under the new standard will approximate earnings per share currently reported. -9-
ECOLAB INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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 own 50% of Henkel-Ecolab, a 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. First Quarter Year Ended Ended March 31 December 31 (thousands) 1997 1996 1996 --------- --------- ----------- (unaudited) Net Sales United States $290,703 $255,695 $1,148,778 International 83,057 78,025 341,231 --------- -------- ----------- Total $373,760 $333,720 $1,490,009 -------- -------- ---------- -------- -------- ---------- Operating Income United States $ 38,441 $ 30,154 $ 164,886 International 5,870 4,378 23,871 Corporate (881) (734) (3,440) -------- -------- ---------- Total $ 43,430 $ 33,798 $ 185,317 -------- -------- ---------- -------- -------- ---------- -10-
ECOLAB INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) EQUITY IN EARNINGS OF HENKEL-ECOLAB JOINT VENTURE The Company's equity in earnings of the Henkel-Ecolab joint venture for the first quarter ended March 31, 1997 and 1996 and for the year ended December 31, 1996 was: First Quarter Year Ended Ended March 31 December 31 (thousands) 1997 1996 1996 -------- -------- ----------- (unaudited) Joint venture Net sales $209,597 $216,847 $905,402 Gross profit 115,058 118,850 497,909 Income before income taxes 11,973 10,558 65,091 Net income $ 6,670 $ 5,183 $ 34,808 Ecolab equity in earnings Ecolab equity in net income $ 3,335 $ 2,592 $ 17,404 Ecolab royalty income from joint venture, net of income taxes 1,135 1,193 4,730 Amortization expense for the excess of cost over the underlying net assets of the joint venture (2,121) (2,327) (9,123) -------- -------- -------- Equity in earnings of Henkel-Ecolab joint venture $ 2,349 $ 1,458 $ 13,011 -------- -------- -------- -------- -------- -------- At March 31, 1997, the Company's investment in the Henkel-Ecolab joint venture included approximately $156 million of 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. -11-
REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Board of Directors Ecolab Inc. We have reviewed the accompanying consolidated balance sheet of Ecolab Inc. as of March 31, 1997 and 1996, and the related consolidated statements of income and cash flows for the three-month periods then ended. 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, 1996, 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 24, 1997, 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, 1996, 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/ Coopers & Lybrand L.L.P. COOPERS & LYBRAND L.L.P. Saint Paul, Minnesota April 21, 1997 -12-
ECOLAB INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS - FIRST QUARTER ENDED MARCH 31, 1997 Net sales for the first quarter ended March 31, 1997 were $374 million, an increase of 12 percent over net sales of $334 million in the first quarter of last year. Both the Company's United States and International operations contributed to this sales improvement. Businesses acquired during 1996 accounted for approximately 40 percent of the growth in sales for the first quarter of 1997. New product introductions, generally good business conditions in the hospitality and lodging industries and comparison against a soft weather-affected first quarter of last year also added to the sales improvements. The gross profit margin for the first quarter of 1997 was 55.7 percent of net sales and increased significantly compared to the gross profit margin of 54.3 percent of net sales in the first quarter of last year. The improvement in the gross profit margin reflected higher sales levels of the higher margin products of the Company's core operations, a more stable raw material cost environment and good sales volume growth, particularly the growth in sales of new products. Selling price increases continued to be limited due to market pressures. Selling, general and administrative expenses totaled $165 million, or 44.0 percent of net sales for the first quarter ended March 31, 1997, an increase of 12 percent over selling, general and administrative expenses of $147 million, or 44.1 percent of net sales in the first quarter of last year. As a percentage of net sales, these expenses reflected strong sales growth during the first quarter of 1997 and continued tight control of costs partially offset by investments in the sales-and-service force. The Company expects to continue investing in its sales-and-service force, including investments in training and productivity. Net income for the first quarter of 1997 totaled $26 million, and increased 33 percent over net income of $20 million in the comparable period of last year. On a per share basis, net income per common share was $0.40 and also increased 33 percent over last year's first quarter net income per common share of $0.30. These earnings improvements reflected the benefits of higher sales, particularly in the Company's core operations, continued tight cost controls, higher equity in earnings of the Henkel-Ecolab joint venture and comparison against a soft weather-affected first quarter of last year. -13-
ECOLAB INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Net sales for the Company's United States operations were $291 million for the first quarter of 1997, an increase of 14 percent over first quarter 1996 sales of $256 million. United States sales benefited from business acquisitions, new product introductions and continued good business trends in the hospitality and lodging industries. Business acquisitions accounted for approximately 40 percent of the growth in United States sales. Selling price increases continued to be limited due to tight pricing conditions in several of the markets in which the Company does business. First quarter 1997 sales growth also benefited from comparison against weak core operation sales in the first quarter of last year due to the negative effects of severe winter weather on the customers of those businesses. Sales of the U.S. Institutional division increased 9 percent over the first quarter of last year and reflected strong growth in all product lines. Pest Elimination reported sales growth of 9 percent for the first quarter of 1997, reflecting new contracts and continued high retention of key customers. Sales of Kay's U.S. operations increased 4 percent and reflected slower new contract growth and comparison against a strong first quarter of last year when new accounts helped Kay reach double-digit sales growth. Textile Care Division sales were flat compared with the first quarter of last year. Continued consolidations in the laundry industry, increased competitive activity and a difficult comparison against a period which benefited significantly from new product introductions negatively affected Textile Care's sales growth. Sales of the Company's Professional Products Division increased 50 percent for the first quarter reflecting the February 1996 acquisition of Huntington Laboratories. Excluding Huntington's sales, Professional Products reported sales growth of 6 percent, which included increased sales to corporate accounts and to the addition of new branded products to its commercial mass distribution line. Sales of the Company's recently-formed Water Care Services Division decreased 4 percent compared to the first quarter of last year. Water Care Services sales reflected the consolidation of business acquisitions made over the past three years, integration of disparate product lines and the refining of sales efforts. The Food and Beverage Division reported sales growth of 32 percent for the first quarter of 1997 reflecting the August 1996 acquisition of the operations of Monarch from H.B. Fuller. Excluding sales of the Monarch operations, Food and Beverage sales increased 10 percent and included good growth in sales to the beverage, food processing and dairy plant markets. Operating income of the Company's United States operations was $38 million for the first quarter ended March 31, 1997, up 27 percent over operating income of $30 million in the comparable quarter of last year. The operating income margin for United States operations improved to 13.2 percent of net sales in the first quarter of 1997 from 11.8 percent in the first quarter of last year. Operating income reflected significant double-digit growth in the core Institutional and Food and Beverage operations, as well as double-digit growth in the Professional Products and Pest Elimination Divisions. Operating -14-
ECOLAB INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) income of the Textile Care Division and Kay's U.S. operations decreased slightly compared with exceptionally strong operating income performance in the first quarter of last year. Water Care Service's operating income decreased reflecting the Company's repositioning of the business. The overall improvement in United States operating income reflected increased sales, particularly in the core operations, the benefits of stable raw material costs, and tight cost controls. Sales of the Company's International operations totaled $83 million for 1997's first quarter and increased 6 percent over sales of $78 million reported for the first quarter of last year. Approximately 30 percent of International's sales growth was due to business acquisitions. Changes in currency translation had a negative impact on reported sales of International operations, particularly in the Asia Pacific region. Excluding the effects of currency translation, International's sales growth was 10 percent. The Asia Pacific region reported sales growth of 4 percent for the first quarter of 1997. However, when measured in local currencies, Asia Pacific had sales growth of 8 percent, with double-digit growth in New Zealand and near double-digit growth in Japan. Sales in the Latin American region increased 14 percent on both a reported and local currency basis. Latin American sales included double-digit sales growth in Brazil and Mexico despite a slowdown in the hospitality and beverage markets. Canadian sales increased 15 percent as reported in U.S. dollars and 14 percent in local currency. Approximately 60 percent of Canada's sales growth was due to the 1996 Huntington and Monarch acquisitions. First quarter 1997 International sales also included double-digit growth in sales of Kay's international operations and weak sales in Africa. For the first quarter of 1997, International operations reported operating income of $6 million, an increase of 34 percent over operating income of $4 million in the first quarter of last year. Operating income margins increased to 7.1 percent of net sales in the first quarter of 1997, from 5.6 percent of net sales in the comparable period of last year. International operating income growth included double-digit growth in Asia Pacific and Canada. Operating income in the Latin American region decreased from last year's first quarter reflecting investments in the sales-and-service force, comparison against strong operating income levels of a year ago and a softening business environment. The Company's equity in earnings of the Henkel-Ecolab joint venture was $2.3 million for the first quarter ended March 31, 1997, an increase of 61 percent over $1.5 million of equity in earnings in the first quarter of last year. Earnings growth of the joint venture reflected product mix improvements, cost controls and savings, reduced project spending and a lower overall effective income tax rate. Joint venture sales, although not consolidated in Ecolab's financial statements, increased 7 percent when measured in Deutsche marks. When measured in U.S. dollars, joint venture sales were negatively affected by the strengthening U.S. dollar and decreased 3 percent to $210 million. -15-
ECOLAB INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Corporate operating expense was $1 million for the first quarter of 1997 and represented overhead costs directly related to the joint venture. Net interest expense totaled $3 million for the first quarter of 1997 and decreased 13 percent compared with the first quarter of last year due to lower debt levels. For the first quarter of 1997, the provision for income taxes reflected an estimated effective rate of 41.0 percent, compared to last year's first quarter estimated effective rate of 40.1 percent. The increase in the effective income tax rate was principally due to the effects of business acquisitions made during 1996. FINANCIAL POSITION AND LIQUIDITY Total assets were approximately $1.2 billion as of March 31, 1997, a decrease of 2 percent from total assets as of year-end 1996. This decrease reflects a lower investment in the Henkel-Ecolab joint venture due to the effects of changes in currency translation and dividends which were received from the joint venture. Total debt was $179 million at March 31, 1997, virtually unchanged from $176 million of total debt as of December 31, 1996. The ratio of total debt to capitalization was 26 percent at March 31, 1997, compared with the ratio of 25 percent at year-end 1996. The modest increase in this ratio reflected a lower level of shareholders' equity due to the effects of currency translation, dividends on common stock and the repurchase of stock under the Company's repurchase programs. During the first quarter of 1997, approximately 230,000 shares were purchased under the Company's repurchase programs. The Company intends to continue making purchases from time to time in open market and privately-negotiated transactions. Cash provided by operating activities totaled $27 million for the first quarter of 1997, a decrease from $35 million of cash which was provided by operating activities in the first quarter of last year. This decrease reflected the reversal of favorable timing of payments which affected the fourth quarter of 1996 and an income tax deposit made in 1997 against outstanding federal income tax issues that had been accrued for in other noncurrent liabilities. NEW ACCOUNTING PRONOUNCEMENT In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, a new standard for computing and presenting earnings per share. The Company is required to adopt the new standard in the fourth quarter of 1997; earlier adoption is not permitted. The Company expects that earnings per share computed under the new standard will approximate earnings per share currently reported. -16-
PART II. OTHER INFORMATION Item 1. LEGAL PROCEEDINGS Further developments with respect to two matters reported in the Company's Form 10-K for the fiscal year ended December 31, 1996, are described below. The first matter was reported in the Form 10-K in the Narrative Description of Business of Item 1(c) under the heading, "Environmental Considerations," and the second was reported in the Legal Proceedings of Item 3. In April, the Illinois Environmental Protection Agency ("Agency") denied the Company's request that the Agency withdraw its identification of the Company as a potentially responsible party in connection with groundwater contamination near the Company's South Beloit, Illinois manufacturing facility. The Agency further indicated it plans to propose the site for the National Priorities List, which would make the site eligible for remedial action under the federal Superfund program. The legal action commenced by ten distributors of the Company's Airkem janitorial products was reduced in scope by summary judgment rendered by the Court in April in favor of the Company. Two claims remain pending, with the plaintiffs continuing to assert essentially the same range of damages as originally claimed. Trial is scheduled to commence May 19, 1997. Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) The following documents are filed as exhibits to this report: (15) Letter regarding unaudited interim financial information. (27) Financial Data Schedule. (b) Reports on Form 8-K: No current Reports on Form 8-K were filed during the quarter ended March 31, 1997. -17-
SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized. ECOLAB INC. Date: May 9, 1997 By:/s/ Michael E. Shannon ---------------------- ---------------------------- Michael E. Shannon Chairman of the Board, Chief Financial and Administrative Officer (duly authorized officer and Principal Financial Officer) -18-
EXHIBIT INDEX Exhibit No. Document Method of Filing - ----------- -------- ---------------- (15) Letter regarding unaudited Filed herewith interim financial electronically information (27) Financial Data Schedule Filed herewith electronically