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Ecolab 10-Q 2008

Documents found in this filing:

  1. 10-Q
  2. Ex-10.A
  3. Ex-10.B
  4. Ex-15
  5. Ex-31
  6. Ex-32
  7. Ex-32

Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-Q

 

(Mark One)

 

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2008

 

OR

 

o

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.)

 

370 Wabasha Street N., St. Paul, Minnesota  55102

(Address of principal executive offices) (Zip Code)

 

1-800-232-6522

(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    o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer  x

 

Accelerated filer  o

 

 

 

Non-accelerated filer  o  (Do not check if a smaller reporting company)

 

Smaller reporting company  o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o  No x

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of September 30, 2008.

 

247,836,093 shares of common stock, par value $1.00 per share.

 

 

 



Table of Contents

 

TABLE OF CONTENTS

 

PART I

FINANCIAL INFORMATION

 

Item 1.

Financial Statements

 

·  

Consolidated Statement of Income

 

·  

Consolidated Balance Sheet

 

·  

Consolidated Statement of Cash Flows

 

·  

Condensed Notes to Consolidated Financial Statements

 

 

1.

Consolidated Financial Information

 

 

2.

Special Gains and Charges

 

 

3.

Share-Based Compensation

 

 

4.

Selected Balance Sheet Information

 

 

5.

Interest

 

 

6.

Financial Instruments

 

 

7.

Comprehensive Income

 

 

8.

Business Acquisitions and Investments

 

 

9.

Net Income Per Common Share

 

 

10.

Pension and Postretirement Plans

 

 

11.

Operating Segments

 

 

12.

Goodwill and Other Intangible Assets

 

 

13.

New Accounting Pronouncements

 

 

14.

Accounting for Uncertain Tax Positions

 

 

 

Report of Independent Registered Public Accounting Firm

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

·  

Overview

 

·  

Results of Operations

 

·  

Financial Position and Liquidity

 

·  

New Accounting Pronouncements

 

 

 

Forward-Looking Statements

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

 

 

 

Item 4.

Controls and Procedures

 

 

 

PART II 

OTHER INFORMATION

 

Item 1.  

Legal Proceedings

 

 

 

 

Item 1A.

Risk Factors

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

 

 

 

Item 5.

Other Information

 

 

 

 

Item 6.

Exhibits

 



Table of Contents

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

ECOLAB INC.

CONSOLIDATED STATEMENT OF INCOME

 

 

 

Third Quarter Ended

 

 

 

September 30

 

(millions, except per share)

 

2008

 

2007

 

 

 

(unaudited)

 

 

 

 

 

 

 

Net sales

 

$

1,626.3

 

$

1,413.2

 

 

 

 

 

 

 

Cost of sales

 

834.3

 

690.1

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

578.5

 

523.7

 

 

 

 

 

 

 

Special charges

 

11.8

 

27.8

 

 

 

 

 

 

 

Operating income

 

201.7

 

171.6

 

 

 

 

 

 

 

Interest expense, net

 

16.0

 

12.8

 

 

 

 

 

 

 

Income before income taxes

 

185.7

 

158.8

 

 

 

 

 

 

 

Provision for income taxes

 

59.5

 

44.8

 

 

 

 

 

 

 

Net income

 

$

126.2

 

$

114.0

 

 

 

 

 

 

 

Net income per common share

 

 

 

 

 

Basic

 

$

0.51

 

$

0.46

 

Diluted

 

$

0.50

 

$

0.46

 

 

 

 

 

 

 

Dividends declared per common share

 

$

0.1300

 

$

0.1150

 

 

 

 

 

 

 

Weighted-average common shares outstanding

 

 

 

 

 

Basic

 

247.5

 

245.2

 

Diluted

 

251.8

 

249.7

 

 

The accompanying notes are an integral part of the consolidated financial information.

 

2



Table of Contents

 

ECOLAB INC.

CONSOLIDATED STATEMENT OF INCOME

 

 

 

Nine Months Ended

 

 

 

September 30

 

(millions, except per share)

 

2008

 

2007

 

 

 

(unaudited)

 

 

 

 

 

 

 

Net sales

 

$

4,654.2

 

$

4,029.8

 

 

 

 

 

 

 

Cost of sales

 

2,371.4

 

1,975.3

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

1,715.7

 

1,533.7

 

 

 

 

 

 

 

Special (gains) and charges

 

(5.6

)

27.8

 

 

 

 

 

 

 

Operating income

 

572.7

 

493.0

 

 

 

 

 

 

 

Interest expense, net

 

46.1

 

37.9

 

 

 

 

 

 

 

Income before income taxes

 

526.6

 

455.1

 

 

 

 

 

 

 

Provision for income taxes

 

158.5

 

141.3

 

 

 

 

 

 

 

Net income

 

$

368.1

 

$

313.8

 

 

 

 

 

 

 

Net income per common share

 

 

 

 

 

Basic

 

$

1.49

 

$

1.27

 

Diluted

 

$

1.46

 

$

1.25

 

 

 

 

 

 

 

Dividends declared per common share

 

$

0.3900

 

$

0.3450

 

 

 

 

 

 

 

Weighted-average common shares outstanding

 

 

 

 

 

Basic

 

247.2

 

246.9

 

Diluted

 

251.7

 

251.8

 

 

The accompanying notes are an integral part of the consolidated financial information.

 

3



Table of Contents

 

ECOLAB INC.

CONSOLIDATED BALANCE SHEET

 

 

 

September 30

 

December 31

 

(millions)

 

2008

 

2007

 

 

 

(unaudited)

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

102.1

 

$

137.4

 

 

 

 

 

 

 

Accounts receivable (net of allowance of $48.2 at September 30, 2008 and $42.7 at December 31, 2007)

 

1,100.8

 

974.0

 

 

 

 

 

 

 

Inventories

 

500.2

 

450.8

 

 

 

 

 

 

 

Deferred income taxes

 

91.4

 

89.4

 

 

 

 

 

 

 

Other current assets

 

99.7

 

65.7

 

 

 

 

 

 

 

Total current assets

 

1,894.2

 

1,717.3

 

 

 

 

 

 

 

Property, plant and equipment, net

 

1,161.3

 

1,083.4

 

 

 

 

 

 

 

Goodwill

 

1,391.9

 

1,279.2

 

 

 

 

 

 

 

Other intangible assets, net

 

355.9

 

328.9

 

 

 

 

 

 

 

Other assets

 

310.6

 

314.0

 

 

 

 

 

 

 

Total assets

 

$

5,113.9

 

$

4,722.8

 

 

The accompanying notes are an integral part of the consolidated financial information.

 

(Continued)

 

4



Table of Contents

 

ECOLAB INC.

CONSOLIDATED BALANCE SHEET (Continued)

 

 

 

September 30

 

December 31

 

(millions, except per share)

 

2008

 

2007

 

 

 

(unaudited)

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

 

 

 

Short-term debt

 

$

179.0

 

$

403.5

 

 

 

 

 

 

 

Accounts payable

 

394.9

 

343.7

 

 

 

 

 

 

 

Compensation and benefits

 

260.5

 

280.2

 

 

 

 

 

 

 

Income taxes

 

 

27.7

 

 

 

 

 

 

 

Other current liabilities

 

503.6

 

463.2

 

 

 

 

 

 

 

Total current liabilities

 

1,338.0

 

1,518.3

 

 

 

 

 

 

 

Long-term debt

 

859.4

 

599.9

 

 

 

 

 

 

 

Postretirement health care and pension benefits

 

405.5

 

418.5

 

 

 

 

 

 

 

Other liabilities

 

277.7

 

250.4

 

 

 

 

 

 

 

Shareholders’ equity (a)

 

 

 

 

 

Common stock

 

327.9

 

326.5

 

Additional paid-in capital

 

1,078.3

 

1,015.2

 

Retained earnings

 

2,570.1

 

2,298.4

 

Accumulated other comprehensive income

 

45.6

 

63.1

 

Treasury stock

 

(1,788.6

)

(1,767.5

)

Total shareholders’ equity

 

2,233.3

 

1,935.7

 

 

 

 

 

 

 

Total liabilities and shareholders’ equity

 

$

5,113.9

 

$

4,722.8

 

 


(a)

Common stock, 400 million shares authorized, $1.00 par value per share, 247.8 million shares outstanding at September 30, 2008, 246.8 million shares outstanding at December 31, 2007.

 

The accompanying notes are an integral part of the consolidated financial information.

 

5



Table of Contents

 

ECOLAB INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

 

 

 

Nine Months Ended

 

 

 

September 30

 

(millions)

 

2008

 

2007

 

 

 

(unaudited)

 

 

 

 

 

 

 

OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

368.1

 

$

313.8

 

 

 

 

 

 

 

Adjustments to reconcile net income to cash provided by operating activities:

 

 

 

 

 

Depreciation and amortization

 

255.2

 

215.7

 

Deferred income taxes

 

70.4

 

(5.5

)

Share-based compensation expense

 

22.4

 

24.5

 

Excess tax benefits from share-based payment arrangements

 

(8.1

)

(12.8

)

Gain on sale of plant

 

(24.5

)

 

Other, net

 

(2.4

)

1.7

 

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable

 

(129.3

)

(84.8

)

Inventories

 

(48.5

)

(20.8

)

Other assets

 

(40.7

)

20.5

 

Accounts payable

 

40.9

 

(19.2

)

Other liabilities

 

(7.3

)

110.6

 

 

 

 

 

 

 

Cash provided by operating activities

 

$

496.2

 

$

543.7

 

 

The accompanying notes are an integral part of the consolidated financial information.

 

(Continued)

 

6



Table of Contents

 

ECOLAB INC.

CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)

 

 

 

Nine Months Ended

 

 

 

September 30

 

(millions)

 

2008

 

2007

 

 

 

(unaudited)

 

 

 

 

 

 

 

INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

$

(248.5

)

$

(221.5

)

Capitalized software expenditures

 

(51.3

)

(37.4

)

Property sold

 

35.7

 

6.5

 

Businesses acquired and investments in affiliates, net of cash acquired

 

(203.7

)

(52.0

)

Sale of businesses

 

2.2

 

1.1

 

Deposit into indemnification escrow

 

(21.0

)

 

 

 

 

 

 

 

Cash used for investing activities

 

(486.6

)

(303.3

)

 

 

 

 

 

 

FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

Net (repayment) issuances of notes payable

 

(229.3

)

149.6

 

Long-term debt borrowings

 

257.7

 

 

Long-term debt repayments

 

(3.4

)

(393.5

)

Reacquired shares

 

(20.9

)

(364.5

)

Cash dividends on common stock

 

(96.3

)

(85.8

)

Exercise of employee stock options

 

35.6

 

63.0

 

Excess tax benefits from share-based payment arrangements

 

8.1

 

12.8

 

Other, net

 

(0.6

)

 

 

 

 

 

 

 

Cash used for financing activities

 

(49.1

)

(618.4

)

 

 

 

 

 

 

Effect of exchange rate changes on cash

 

4.2

 

0.8

 

 

 

 

 

 

 

DECREASE IN CASH AND CASH EQUIVALENTS

 

(35.3

)

(377.2

)

 

 

 

 

 

 

Cash and cash equivalents, beginning of period

 

137.4

 

484.0

 

 

 

 

 

 

 

Cash and cash equivalents, end of period

 

$

102.1

 

$

106.8

 

 

The accompanying notes are an integral part of the consolidated financial information.

 

7



Table of Contents

 

ECOLAB INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

1.   Consolidated Financial Information

 

The unaudited consolidated financial information for the third quarter and nine months ended September 30, 2008 and 2007, reflect, in the opinion of management, all adjustments necessary for a fair statement of the financial position, results of operations and cash flows of Ecolab Inc. (“the company”) for the interim periods presented. The financial results for any interim period are not necessarily indicative of results for the full year. The consolidated balance sheet data as of December 31, 2007 was derived from the audited consolidated financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.  The unaudited consolidated financial information should be read in conjunction with the consolidated financial statements and notes thereto incorporated in the company’s Annual Report on Form 10-K for the year ended December 31, 2007.

 

With respect to the unaudited financial information of the company for the three and nine-month periods ended September 30, 2008 and 2007 included in this Form 10-Q, PricewaterhouseCoopers LLP reported that they have applied limited procedures in accordance with professional standards for a review of such information. Therefore, their separate report dated October 23, 2008 appearing herein, states that they did not audit and they do not express an opinion on that unaudited financial information. Accordingly, the degree of reliance on their report on such information should be restricted in light of the limited nature of the review procedures applied. PricewaterhouseCoopers LLP is not subject to the liability provisions of Section 11 of the Securities Act of 1933, as amended (the “Act”) for their report on the unaudited financial information because that report is not a report or a part of a registration statement prepared or certified by PricewaterhouseCoopers LLP within the meaning of Sections 7 and 11 of the Act.

 

2.   Special Gains and Charges

 

The company reported pre-tax special charges of $11.8 million for the third quarter of 2008 which included costs to optimize the company’s business structure including costs related to the establishment of a European headquarters in Zurich, Switzerland. For the nine months ended September 30, 2008, the company reported a net pre-tax gain in special gains and charges of $5.6 million, which included a gain of $24.0 million recorded in the second quarter from the sale of a plant in Denmark, a $1.7 million gain recorded in the first quarter of 2008 related to the sale of a business in the U.K., partially offset by costs to optimize the company’s business structure including costs related to the establishment of the European headquarters during the first nine months of 2008.

 

8



Table of Contents

 

ECOLAB INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

2.   Special Gains and Charges (Continued)

 

Special gains and charges for the third quarter and nine months ended September 30, 2007 include a $27.4 million pre-tax charge for an arbitration settlement as well as costs related to the establishment of the European headquarters.

 

For segment reporting purposes, special gains and charges have been included in the company’s corporate segment, which is consistent with the company’s internal management reporting.

 

3.   Share-Based Compensation

 

Statement of Financial Accounting Standards (SFAS) No. 123 (Revised 2004), Share-Based Payment, (“SFAS 123R”) requires the company to measure compensation expenses for share-based awards at fair value at the date of grant and recognize compensation expense over the service period for awards expected to vest.  Total compensation expense related to share-based compensation plans was $7.0 million ($4.5 million net of tax benefit) and $7.3 million ($4.7 million net of tax benefit) for the third quarters ended September 30, 2008 and 2007, respectively. Total compensation expense related to share-based compensation plans was $22.4 million ($14.4 million net of tax benefit) and $24.5 million ($15.6 million net of tax benefit) for the nine months ended September 30, 2008 and 2007, respectively.

 

4.  Selected Balance Sheet Information

 

 

 

September 30

 

December 31

 

(millions)

 

2008

 

2007

 

 

 

(unaudited)

 

 

 

 

 

 

 

Inventories

 

 

 

 

 

Finished goods

 

$

273.9

 

$

241.9

 

Raw materials and parts

 

263.7

 

224.9

 

Inventories at FIFO cost

 

537.6

 

466.8

 

Excess of FIFO cost over LIFO cost

 

(37.4

)

(16.0

)

Total

 

$

500.2

 

$

450.8

 

 

 

 

 

 

 

Property, plant and equipment, net

 

 

 

 

 

Land

 

$

29.1

 

$

30.7

 

Buildings and leaseholds

 

338.3

 

331.9

 

Machinery and equipment

 

706.3

 

683.7

 

Merchandising equipment

 

1,435.2

 

1,330.1

 

Capitalized software

 

157.6

 

129.0

 

Construction in progress

 

139.2

 

113.0

 

 

 

2,805.7

 

2,618.4

 

Accumulated depreciation

 

(1,644.4

)

(1,535.0

)

Total

 

$

1,161.3

 

$

1,083.4

 

 

9



Table of Contents

 

ECOLAB INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

4.   Selected Balance Sheet Information (Continued)

 

 

 

September 30

 

December 31

 

(millions)

 

2008

 

2007

 

 

 

(unaudited)

 

 

 

 

 

 

 

Other intangible assets, gross

 

 

 

 

 

Customer relationships

 

$

298.6

 

$

291.6

 

Intellectual property

 

79.0

 

52.2

 

Trademarks

 

114.5

 

102.5

 

Other intangibles

 

56.2

 

45.8

 

 

 

548.3

 

492.1

 

Accumulated amortization

 

 

 

 

 

Customer relationships

 

(129.9

)

(108.5

)

Intellectual property

 

(22.6

)

(20.0

)

Trademarks

 

(30.7

)

(29.1

)

Other intangibles

 

(9.2

)

(5.6

)

Other intangible assets, net

 

$

355.9

 

$

328.9

 

 

 

 

 

 

 

Other assets

 

 

 

 

 

Deferred income taxes

 

$

63.3

 

$

137.6

 

Pension

 

61.3

 

23.2

 

Sole supply fees

 

47.2

 

56.3

 

Other

 

138.8

 

96.9

 

Total

 

$

310.6

 

$

314.0

 

 

 

 

 

 

 

Other current liabilities

 

 

 

 

 

Discounts and rebates

 

$

243.7

 

$

223.7

 

Dividends payable

 

32.2

 

32.1

 

Other

 

227.7

 

207.4

 

Total

 

$

503.6

 

$

463.2

 

 

 

 

 

 

 

Other liabilities

 

 

 

 

 

Deferred income taxes

 

$

84.0

 

$

86.1

 

Income taxes payable - non-current

 

66.2

 

57.3

 

Other

 

127.5

 

107.0

 

Total

 

$

277.7

 

$

250.4

 

 

 

 

 

 

 

Accumulated other comprehensive income

 

 

 

 

 

Unrealized loss on financial instruments

 

$

(1.4

)

$

(5.4

)

Unrecognized pension and postretirement benefit expense

 

(157.7

)

(162.7

)

Cumulative translation gain

 

204.7

 

231.2

 

Total

 

$

45.6

 

$

63.1

 

 

10



Table of Contents

 

ECOLAB INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

5.   Interest

 

 

 

Third Quarter Ended

 

Nine Months Ended

 

 

 

September 30

 

September 30

 

(millions)

 

2008

 

2007

 

2008

 

2007

 

 

 

(unaudited)

 

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

$

17.9

 

$

14.2

 

$

53.0

 

$

43.7

 

Interest income

 

(1.9

)

(1.4

)

(6.9

)

(5.8

)

Interest expense, net

 

$

16.0

 

$

12.8

 

$

46.1

 

$

37.9

 

 

6.   Financial Instruments

 

In December 2006, the company issued euro 300 million ($440 million as of September 30, 2008) aggregate principal amount of the company’s senior notes in two series: 4.355% Series A Senior Notes due 2013 in the aggregate principal amount of euro 125 million and 4.585% Series B Senior Notes due 2016 in the aggregate principal amount of euro 175 million. The company designated this debt and related accrued interest as a hedge of existing foreign currency exposures related to net investments the company has in certain European subsidiaries. Accordingly, the transaction gains and losses on all euronotes which are designated and are effective as hedges of the company’s net investments have been included as a component of the cumulative translation account. Total transaction gains of $16.7 million, net of tax, related to the euronotes were charged to shareholders’ equity in the third quarter of 2008. Total transaction losses of $0.4 million, net of tax, related to the euronotes were charged to shareholders’ equity for the first nine months of 2008. Total transaction losses of $3.3 million, net of tax, and $7.0 million, net of tax, related to the euronotes were charged to shareholders’ equity in the third quarter and first nine months of 2007, respectively.

 

7.   Comprehensive Income

 

Comprehensive income was as follows:

 

 

 

Third Quarter Ended

 

Nine Months Ended

 

 

 

September 30

 

September 30

 

(millions)

 

2008

 

2007

 

2008

 

2007

 

 

 

(unaudited)

 

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

126.2

 

$

114.0

 

$

368.1

 

$

313.8

 

Foreign currency translation

 

(86.4

)

14.0

 

(26.0

)

39.9

 

Derivative instruments

 

3.6

 

0.3

 

4.0

 

 

Pension and postretirement benefits

 

1.5

 

2.0

 

4.5

 

14.3

 

Comprehensive income

 

$

44.9

 

$

130.3

 

$

350.6

 

$

368.0

 

 

11



Table of Contents

 

ECOLAB INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

8.   Business Acquisitions and Investments

 

In December 2007, subsequent to the company’s year-end for International operations, the company purchased the Irish dairy hygiene business from Novartis Animal Health Ireland Ltd. The business, which has annual sales of approximately $3 million, became part of the company’s International operations during the first quarter of 2008.

 

In February 2008, the company acquired Ecovation, Inc., a Rochester, N.Y. area-based provider of renewable energy solutions and effluent management systems primarily for the food and beverage manufacturing industry in the U.S., including dairy, beverage, and meat and poultry producers. 2007 sales were approximately $50 million. The total purchase price was approximately $210 million, of which $21 million remains payable and was placed in escrow for indemnification purposes. Ecovation became part of the company’s U.S. Cleaning & Sanitizing operations during the first quarter of 2008.

 

The third quarter of 2008 included immaterial acquisition activity as well as immaterial purchase accounting adjustments to prior period acquisitions.  Acquisitions in 2008 and 2007 are not material to the company’s consolidated financial statements; therefore pro forma financial information is not presented. The aggregate purchase price of acquisitions and investments in affiliates has been reduced for any cash or cash equivalents acquired with the acquisitions.

 

Based upon purchase price allocations and subsequent adjustments thereto, the components of the aggregate purchase prices of the acquisitions and investments in affiliates made were as follows:

 

 

 

Third Quarter Ended

 

Nine Months Ended

 

 

 

September 30

 

September 30

 

(millions)

 

2008

 

2007

 

2008

 

2007

 

 

 

(unaudited)

 

(unaudited)

 

Net tangible assets acquired (liabilities assumed)

 

$

(10.5

)

$

13.8

 

$

38.9

 

$

9.3

 

 

 

 

 

 

 

 

 

 

 

Identifiable intangible assets

 

 

 

 

 

 

 

 

 

Customer relationships

 

0.4

 

3.0

 

10.7

 

10.4

 

Intellectual property

 

 

0.1

 

26.8

 

0.4

 

Trademarks

 

 

 

16.0

 

0.3

 

Other intangibles

 

0.3

 

 

9.9

 

8.3

 

Total

 

0.7

 

3.1

 

63.4

 

19.4

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

11.0

 

10.4

 

122.4

 

23.3

 

Total aggregate purchase price

 

1.2

 

27.3

 

224.7

 

52.0

 

 

 

 

 

 

 

 

 

 

 

Liability for indemnification

 

 

 

(21.0

)

 

Net cash paid for acquisitions

 

$

1.2

 

$

27.3

 

$

203.7

 

$

52.0

 

 

Amounts in table above include immaterial purchase accounting adjustments to prior period acquisitions.

 

12



Table of Contents

 

ECOLAB INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

8.   Business Acquisitions and Investments (Continued)

 

The changes in the carrying amount of goodwill for each of the company’s reportable segments for the third quarter and nine months ended September 30, 2008 were as follows:

 

 

 

United States

 

 

 

 

 

(unaudited)

 

Cleaning &

 

Other

 

 

 

 

 

 

 

(millions)

 

Sanitizing

 

Services

 

Total

 

International

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2007

 

$

318.7

 

$

50.5

 

$

369.2

 

$

910.0

 

$

1,279.2

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill acquired during quarter*

 

111.0

 

 

111.0

 

 

111.0

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill allocated to business dispositions

 

 

 

 

(0.4

)

(0.4

)

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation

 

 

 

 

32.6

 

32.6

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of March 31, 2008

 

429.7

 

50.5

 

480.2

 

942.2

 

1,422.4

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill acquired during quarter*

 

(0.9

)

 

(0.9

)

1.3

 

0.4

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation

 

 

 

 

16.8

 

16.8

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of June 30, 2008

 

428.8

 

50.5

 

479.3

 

960.3

 

1,439.6

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill acquired during quarter*

 

10.9

 

 

10.9

 

0.1

 

11.0

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation

 

 

 

 

(58.7

)

(58.7

)

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of September 30, 2008

 

$

439.7

 

$

50.5

 

$

490.2

 

$

901.7

 

$

1,391.9

 

 


* Goodwill acquired in 2008 includes immaterial adjustments to prior period acquisitions.

 

13



Table of Contents

 

ECOLAB INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

9.   Net Income Per Common Share

 

The computations of the basic and diluted net income per share amounts were as follows:

 

 

 

Third Quarter Ended

 

Nine Months Ended

 

 

 

September 30

 

September 30

 

(millions, except per share)

 

2008

 

2007

 

2008

 

2007

 

 

 

(unaudited)

 

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

126.2

 

$

114.0

 

$

368.1

 

$

313.8

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding

 

 

 

 

 

 

 

 

 

Basic

 

247.5

 

245.2

 

247.2

 

246.9

 

Effect of dilutive stock options and awards

 

4.3

 

4.5

 

4.5

 

4.9

 

Diluted

 

251.8

 

249.7

 

251.7

 

251.8

 

 

 

 

 

 

 

 

 

 

 

Net income per common share

 

 

 

 

 

 

 

 

 

Basic

 

$

0.51

 

$

0.46

 

$

1.49

 

$

1.27

 

Diluted

 

$

0.50

 

$

0.46

 

$

1.46

 

$

1.25

 

 

Stock options to purchase approximately 3.1 million shares and 5.4 million shares for the third quarter and nine months ended September 30, 2008, respectively, and 2.8 million shares for the third quarter and nine months ended September 30, 2007 were non-dilutive and, therefore, were not included in the computation of diluted common shares outstanding.

 

Restricted stock awards of 76,872 shares and 84,454 shares for the third quarter and nine months ended September 30, 2008, respectively, and 49,341 shares and 39,341 shares for the third quarter and nine months ended September 30, 2007, respectively, were excluded from the computation of basic weighted-average shares outstanding because such shares were not yet vested at these dates.

 

14



Table of Contents

 

ECOLAB INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

10.   Pension and Postretirement Plans

 

The components of net periodic pension and postretirement health care benefit costs for the third quarter ended September 30 are as follows:

 

 

 

U.S. Pension Benefits

 

 

 

U.S.

 

 

 

(qualified and non-

 

International

 

Postretirement

 

(unaudited)

 

qualified plans)

 

Pension Benefits

 

Health Care Benefits

 

(millions)

 

2008

 

2007

 

2008

 

2007

 

2008

 

2007

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service cost

 

$

11.2

 

$

10.8

 

$

5.1

 

$

5.3

 

$

0.6

 

$

0.7

 

Interest cost on benefit obligation

 

13.0

 

11.9

 

6.7

 

5.6

 

2.4

 

2.4

 

Expected return on plan assets

 

(17.6

)

(16.4

)

(4.9

)

(4.0

)

(0.6

)

(0.6

)

Amortization of prior service cost (benefit)

 

0.3

 

0.5

 

0.1

 

 

(1.6

)

(1.6

)

Recognition of net actuarial loss

 

2.2

 

3.2

 

0.3

 

0.8

 

1.1

 

1.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total expense

 

$

9.1

 

$

10.0

 

$

7.3

 

$

7.7

 

$

1.9

 

$

2.7

 

 

The components of net periodic pension and postretirement health care benefit costs for the nine months ended September 30 are as follows:

 

 

 

U.S. Pension Benefits

 

 

 

U.S.

 

 

 

(qualified and non-

 

International

 

Postretirement

 

(unaudited)

 

qualified plans)

 

Pension Benefits

 

Health Care Benefits

 

(millions)

 

2008

 

2007

 

2008

 

2007

 

2008

 

2007

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service cost

 

$

33.6

 

$

32.4

 

$

15.2

 

$

15.5

 

$

1.8

 

$

2.1

 

Interest cost on benefit obligation

 

39.0

 

35.7

 

20.1

 

16.5

 

7.2

 

7.2

 

Expected return on plan assets

 

(52.8

)

(49.2

)

(14.6

)

(11.8

)

(1.8

)

(1.8

)

Amortization of prior service cost (benefit)

 

0.9

 

1.5

 

0.2

 

 

(4.8

)

(4.8

)

Recognition of net actuarial loss

 

6.6

 

9.6

 

0.8

 

2.3

 

3.3

 

5.4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total expense

 

$

27.3

 

$

30.0

 

$

21.7

 

$

22.5

 

$

5.7

 

$

8.1

 

 

The company is not required to make any contributions to its U.S. pension plan and postretirement health care benefits plans for 2008 based on plan asset values as of September 30, 2008. However, during the third quarter of 2008, the company made a $75 million voluntary contribution to the U.S. pension plan.  The company is currently evaluating potential additional contributions to the U.S. pension plan.

 

Certain international pension benefit plans are required to be funded in accordance with local government requirements. The company contributed approximately $19 million to its international pension benefit plans during the first nine months of 2008. The company currently estimates that it will contribute approximately $6 million to the international pension benefit plans during the remainder of 2008.

 

15



Table of Contents

 

ECOLAB INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

11.   Operating Segments

 

Financial information for each of the company’s reportable segments is as follows:

 

 

 

Third Quarter Ended

 

Nine Months Ended

 

 

 

September 30

 

September 30

 

(millions)

 

2008

 

2007

 

2008

 

2007

 

 

 

(unaudited)

 

(unaudited)

 

Net Sales

 

 

 

 

 

 

 

 

 

United States

 

 

 

 

 

 

 

 

 

Cleaning & Sanitizing

 

$

695.5

 

$

604.5

 

$

2,012.6

 

$

1,762.0

 

Other Services

 

124.7

 

119.3

 

356.0

 

335.1

 

Total

 

820.2

 

723.8

 

2,368.6

 

2,097.1

 

International

 

767.3

 

720.7

 

2,191.4

 

2,057.2

 

Effect of foreign currency translation

 

38.8

 

(31.3

)

94.2

 

(124.5

)

Consolidated

 

$

1,626.3

 

$

1,413.2

 

$

4,654.2

 

$

4,029.8

 

 

 

 

 

 

 

 

 

 

 

Operating Income

 

 

 

 

 

 

 

 

 

United States

 

 

 

 

 

 

 

 

 

Cleaning & Sanitizing

 

$

121.2

 

$

111.5

 

$

334.2

 

$

310.5

 

Other Services

 

17.9

 

12.9

 

37.9

 

33.2

 

Total

 

139.1

 

124.4

 

372.1

 

343.7

 

International

 

78.5

 

86.2

 

206.1