Annual Reports

 
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  • 10-Q (Nov 2, 2017)
  • 10-Q (Aug 3, 2017)
  • 10-Q (May 4, 2017)
  • 10-Q (Nov 3, 2016)
  • 10-Q (Aug 4, 2016)
  • 10-Q (May 5, 2016)

 
8-K

 
Other

Ecolab 10-Q 2016

Documents found in this filing:

  1. 10-Q
  2. Ex-10.1
  3. Ex-15.1
  4. Ex-31.1
  5. Ex-32.1
  6. Ex-32.1
ecl_Current folio_10Q

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended June 30, 2016

 

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.)

 

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  No 

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   No 

 

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 

 

Accelerated filer 

 

 

 

Non-accelerated filer 

 

Smaller reporting company 

(Do not check if a smaller reporting company)

 

 

 

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

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of June 30, 2016.

 

291,595,269 shares of common stock, par value $1.00 per share.

 

 

 

 


 

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

 

CONSOLIDATED STATEMENT OF INCOME

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Second Quarter Ended

 

Six Months Ended 

 

 

 

June 30

 

June 30

 

(millions, except per share amounts)

    

2016

    

2015

    

2016

    

2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

 

$
3,317.2

 

 

 

$
3,389.1

 

 

$
6,414.6

 

 

 

$
6,686.7

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales (including special charges (a))

 

 

1,785.2

 

 

 

1,806.5

 

 

3,416.6

 

 

 

3,571.8

 

Selling, general and administrative expenses

 

 

1,093.3

 

 

 

1,079.2

 

 

2,181.5

 

 

 

2,216.0

 

Special (gains) and charges

 

 

26.2

 

 

 

65.6

 

 

32.5

 

 

 

73.4

 

Operating income

 

 

412.5

 

 

 

437.8

 

 

784.0

 

 

 

825.5

 

Interest expense, net

 

 

65.3

 

 

 

61.2

 

 

131.4

 

 

 

123.7

 

Income before income taxes

 

 

347.2

 

 

 

376.6

 

 

652.6

 

 

 

701.8

 

Provision for income taxes

 

 

83.6

 

 

 

67.8

 

 

157.0

 

 

 

157.6

 

Net income including noncontrolling interest

 

 

263.6

 

 

 

308.8

 

 

495.6

 

 

 

544.2

 

Net income attributable to noncontrolling interest

 

 

5.2

 

 

 

6.8

 

 

6.4

 

 

 

8.8

 

Net income attributable to Ecolab

 

 

$
258.4

 

 

 

$
302.0

 

 

$
489.2

 

 

 

$
535.4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings attributable to Ecolab per common share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

$
0.88

 

 

 

$
1.02

 

 

$
1.67

 

 

 

$
1.80

 

Diluted

 

 

$
0.87

 

 

 

$
1.00

 

 

$
1.64

 

 

 

$
1.77

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared per common share

 

 

$
0.350

 

 

 

$
0.330

 

 

$
0.700

 

 

 

$
0.660

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

292.4

 

 

 

296.2

 

 

293.4

 

 

 

297.2

 

Diluted

 

 

296.5

 

 

 

301.1

 

 

297.5

 

 

 

302.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a)

Cost of sales includes special charges of $61.9 and $11.0 in the second quarter of 2016 and 2015, respectively, and $61.9 and $11.6 in the first six months of 2016 and 2015, respectively.

 

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

 

 

 

2


 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Second Quarter Ended

 

Six Months Ended 

 

(millions)

 

June 30

 

June 30

 

 

    

2016

    

2015

 

2016

    

2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income including noncontrolling interest

 

 

$
263.6

 

 

 

$
308.8

 

 

$
495.6

 

 

 

$
544.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation

 

 

77.8

 

 

 

(35.4)

 

 

(18.5)

 

 

 

(344.8)

 

Gain (loss) on net investment hedges

 

 

(12.9)

 

 

 

21.8

 

 

(27.9)

 

 

 

78.8

 

 

 

 

64.9

 

 

 

(13.6)

 

 

(46.4)

 

 

 

(266.0)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives and hedging instruments

 

 

(20.2)

 

 

 

(2.9)

 

 

(30.7)

 

 

 

4.9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pension and postretirement benefits

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of net actuarial loss and prior service costs included in

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

net periodic pension and postretirement costs

 

 

5.5

 

 

 

8.1

 

 

11.1

 

 

 

16.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Subtotal

 

 

50.2

 

 

 

(8.4)

 

 

(66.0)

 

 

 

(245.0)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive income, including noncontrolling interest

 

 

313.8

 

 

 

300.4

 

 

429.6

 

 

 

299.2

 

Comprehensive income attributable to noncontrolling interest

 

 

5.2

 

 

 

6.0

 

 

9.8

 

 

 

7.0

 

Comprehensive income attributable to Ecolab

 

 

$
308.6

 

 

 

$
294.4

 

 

$
419.8

 

 

 

$
292.2

 

 

 

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

 

3


 

CONSOLIDATED BALANCE SHEET

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(millions, except shares and per share amounts)

 

June 30

 

December 31

 

 

    

2016

 

2015

 

ASSETS

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

$
167.4

 

 

 

$
92.8

 

Accounts receivable, net

 

 

2,318.0

 

 

 

2,390.2

 

Inventories

 

 

1,331.7

 

 

 

1,388.2

 

Deferred income taxes

 

 

 -

 

 

 

250.0

 

Other current assets

 

 

278.3

 

 

 

326.3

 

Total current assets

 

 

4,095.4

 

 

 

4,447.5

 

Property, plant and equipment, net

 

 

3,257.3

 

 

 

3,228.3

 

Goodwill

 

 

6,504.4

 

 

 

6,490.8

 

Other intangible assets, net

 

 

3,978.3

 

 

 

4,109.2

 

Other assets

 

 

389.2

 

 

 

365.9

 

Total assets

 

 

$
18,224.6

 

 

 

$
18,641.7

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Short-term debt

 

 

$
1,749.9

 

 

 

$
2,205.3

 

Accounts payable

 

 

977.8

 

 

 

1,049.6

 

Compensation and benefits

 

 

459.9

 

 

 

509.0

 

Income taxes

 

 

86.6

 

 

 

52.2

 

Other current liabilities

 

 

964.2

 

 

 

948.3

 

Total current liabilities

 

 

4,238.4

 

 

 

4,764.4

 

Long-term debt

 

 

5,097.0

 

 

 

4,260.2

 

Postretirement health care and pension benefits

 

 

968.4

 

 

 

1,117.1

 

Deferred income taxes

 

 

1,023.4

 

 

 

1,281.2

 

Other liabilities

 

 

227.8

 

 

 

238.4

 

Total liabilities

 

 

11,555.0

 

 

 

11,661.3

 

 

 

 

 

 

 

 

 

 

Equity (a)

 

 

 

 

 

 

 

 

Common stock

 

 

351.6

 

 

 

350.3

 

Additional paid-in capital

 

 

5,181.1

 

 

 

5,086.1

 

Retained earnings

 

 

6,444.6

 

 

 

6,160.3

 

Accumulated other comprehensive loss

 

 

(1,492.7)

 

 

 

(1,423.3)

 

Treasury stock

 

 

(3,884.1)

 

 

 

(3,263.5)

 

Total Ecolab shareholders’ equity

 

 

6,600.5

 

 

 

6,909.9

 

Noncontrolling interest

 

 

69.1

 

 

 

70.5

 

Total equity

 

 

6,669.6

 

 

 

6,980.4

 

Total liabilities and equity

 

 

$
18,224.6

 

 

 

$
18,641.7

 

 

(a)

Common stock, 800.0 million shares authorized, $1.00 par value per share, 291.6 million shares outstanding at June 30, 2016, 296.0 million shares outstanding at December 31, 2015. Shares outstanding are net of treasury stock.

 

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

 

4


 

CONSOLIDATED STATEMENT OF CASH FLOWS

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended 

 

(millions)

 

 

June 30

 

 

 

 

2016

 

2015

 

OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

 

Net income including noncontrolling interest

 

 

 

$
495.6

 

 

 

$
544.2

 

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

 

 

 

 

 

 

 

 

 

Depreciation

 

 

 

276.0

 

 

 

285.8

 

Amortization

 

 

 

145.3

 

 

 

149.9

 

Deferred income taxes

 

 

 

(28.8)

 

 

 

(34.9)

 

Share-based compensation expense

 

 

 

53.6

 

 

 

47.1

 

Excess tax benefits from share-based payment arrangements

 

 

 

(19.6)

 

 

 

(31.4)

 

Pension and postretirement plan contributions

 

 

 

(192.0)

 

 

 

(38.0)

 

Pension and postretirement plan expense

 

 

 

28.6

 

 

 

58.1

 

Restructuring charges, net of cash paid

 

 

 

(27.1)

 

 

 

(4.6)

 

Venezuelan charges

 

 

 

 -

 

 

 

30.2

 

Loss on sale of business

 

 

 

 -

 

 

 

13.7

 

Asset charges and write-downs

 

 

 

50.9

 

 

 

 -

 

Other, net

 

 

 

12.7

 

 

 

7.0

 

Changes in operating assets and liabilities, net of effect of acquisitions:

 

 

 

 

 

 

 

 

 

Accounts receivable

 

 

 

62.5

 

 

 

22.2

 

Inventories

 

 

 

40.6

 

 

 

(66.0)

 

Other assets

 

 

 

19.7

 

 

 

(58.4)

 

Accounts payable

 

 

 

(79.2)

 

 

 

(145.7)

 

Other liabilities

 

 

 

36.0

 

 

 

(142.6)

 

Cash provided by operating activities

 

 

 

874.8

 

 

 

636.6

 

 

 

 

 

 

 

 

 

 

 

INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

 

Capital expenditures

 

 

 

(303.7)

 

 

 

(327.5)

 

Capitalized software expenditures

 

 

 

(22.2)

 

 

 

(14.3)

 

Property and other assets sold

 

 

 

11.4

 

 

 

6.8

 

Acquisitions and investments in affiliates, net of cash acquired

 

 

 

(9.4)

 

 

 

(14.7)

 

Divestiture of businesses

 

 

 

 -

 

 

 

0.3

 

Release from acquisition related  escrow

 

 

 

 -

 

 

 

9.4

 

Cash used for investing activities

 

 

 

(323.9)

 

 

 

(340.0)

 

 

 

 

 

 

 

 

 

 

 

FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

 

Net issuances (repayments) of commercial paper and notes payable

 

 

 

(342.4)

 

 

 

449.6

 

Long-term debt borrowings

 

 

 

793.8

 

 

 

595.6

 

Long-term debt repayments

 

 

 

(130.0)

 

 

 

(380.0)

 

Reacquired shares

 

 

 

(637.9)

 

 

 

(726.3)

 

Dividends paid

 

 

 

(217.6)

 

 

 

(202.5)

 

Exercise of employee stock options

 

 

 

40.7

 

 

 

49.0

 

Excess tax benefits from share-based payment arrangements

 

 

 

19.6

 

 

 

31.4

 

Acquisition related liabilities and contingent consideration

 

 

 

(3.4)

 

 

 

(0.8)

 

Cash used for financing activities

 

 

 

(477.2)

 

 

 

(184.0)

 

 

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

 

 

0.9

 

 

 

(11.6)

 

 

 

 

 

 

 

 

 

 

 

Increase in cash and cash equivalents

 

 

 

74.6

 

 

 

101.0

 

Cash and cash equivalents, beginning of period

 

 

 

92.8

 

 

 

209.6

 

Cash and cash equivalents, end of period

 

 

 

$
167.4

 

 

 

$
310.6

 

 

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

 

 

5


 

 

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

1. CONSOLIDATED FINANCIAL INFORMATION

 

The unaudited consolidated financial information for the second quarter and six months ended June 30, 2016 and 2015 reflect, in the opinion of company management, all adjustments necessary for a fair presentation of the financial position, results of operations, comprehensive income (loss) and cash flows of Ecolab Inc. ("Ecolab" or "the company") for the interim periods presented. Any adjustments consist of normal recurring items.

 

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, 2015 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, 2015.

 

During the first quarter of 2016, the company early-adopted the accounting guidance issued in November 2015 that requires all deferred tax assets and liabilities to be classified as noncurrent on the Consolidated Balance Sheet, using the prospective application method. Periods prior to the first quarter of 2016 have not been retrospectively adjusted for adoption of this guidance. Previous guidance required the deferred taxes for each jurisdiction to be presented as a net current asset or liability and net noncurrent asset or liability. As a result of the new guidance, each jurisdiction now only has one net noncurrent deferred tax asset or liability. The new guidance does not change the existing requirement that only permits offsetting deferred tax assets and liabilities within a single jurisdiction.

 

With respect to the unaudited financial information of the company for the second quarter and six months ended June 30, 2016 and 2015 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. Their separate report dated August 4, 2016 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

 

Special (gains) and charges reported on the Consolidated Statement of Income include the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Second Quarter Ended

 

Six Months Ended 

 

 

 

June 30

 

June 30

 

(millions)

    

2016

 

2015

    

2016

 

2015

 

Cost of sales

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restructuring related activities

 

 

$
0.9

 

 

 

$
1.6

 

 

$
0.9

 

 

 

$
2.2

 

Energy related charges

 

 

51.0

 

 

 

 -

 

 

51.0

 

 

 

 -

 

Fixed asset impairment and other inventory charges

 

 

10.0

 

 

 

 -

 

 

10.0

 

 

 

 -

 

Venezuela related activities

 

 

 -

 

 

 

9.4

 

 

 -

 

 

 

9.4

 

Subtotal

 

 

61.9

 

 

 

11.0

 

 

61.9

 

 

 

11.6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Special (gains) and charges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restructuring related activities

 

 

(2.1)

 

 

 

18.9

 

 

0.9

 

 

 

21.0

 

Champion and Nalco integration costs

 

 

 -

 

 

 

4.5

 

 

 -

 

 

 

10.2

 

Energy related charges

 

 

12.6

 

 

 

 -

 

 

12.6

 

 

 

 -

 

Venezuela related activities

 

 

(7.8)

 

 

 

20.8

 

 

(7.8)

 

 

 

20.8

 

Other

 

 

23.5

 

 

 

21.4

 

 

26.8

 

 

 

21.4

 

Subtotal

 

 

26.2

 

 

 

65.6

 

 

32.5

 

 

 

73.4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total special (gains) and charges

 

 

$
88.1

 

 

 

$
76.6

 

 

$
94.4

 

 

 

$
85.0

 

 

For segment reporting purposes, special (gains) and charges are included in the Corporate segment, which is consistent with the company’s internal management reporting.

 

6


 

Restructuring Charges

 

The company’s restructuring activities are associated with plans to enhance its efficiency and effectiveness and sharpen its competitiveness. Its restructuring plans include net costs associated with significant actions involving employee-related severance charges, contract termination costs and asset write-downs and disposals. Employee termination costs are largely based on policies and severance plans, and include personnel reductions and related costs for severance, benefits and outplacement services. These charges are reflected in the quarter when the actions are probable and the amounts are estimable, which typically is when management approves the actions. Contract termination costs include charges to terminate leases prior to the end of their respective terms and other contract terminations. Asset write-downs and disposals include leasehold improvement write-downs, other asset write-downs associated with combining operations and disposal of assets.

 

Restructuring charges have been included as a component of cost of sales and special (gains) and charges on the Consolidated Statement of Income. Amounts included as a component of cost of sales include supply chain related severance and other asset write-downs associated with combining operations. Restructuring liabilities have been classified as a component of both other current and other noncurrent liabilities on the Consolidated Balance Sheet.

 

Energy Restructuring Plan

 

In April 2013, following the completion of the acquisition of privately held Champion Technologies and its related company Corsicana Technologies (collectively “Champion”), the company commenced plans to undertake restructuring and other cost-saving actions to realize its acquisition-related cost synergies as well as streamline and strengthen Ecolab’s position in the global energy market (the “Energy Restructuring Plan”). Actions associated with the acquisition to improve the effectiveness and efficiency of the business included a reduction of the combined business’s global workforce. Actions also included leveraging and simplifying its global supply chain, including the reduction of plant, distribution center and redundant facility locations and product line optimization.

 

Restructuring charges within the Energy Restructuring Plan were substantially completed during the fourth quarter of 2015. The company recorded charges of $1.7 million ($0.9 million after tax) and $13.1 million ($9.1 million after tax) during the second quarter of 2016 and 2015, respectively. During the six months ended June 30, 2016 and 2015, the company recorded charges of $4.6 million ($2.6 million after tax) and $14.1 million ($9.9 million after tax), respectively.

 

Restructuring charges and activity related to the Energy Restructuring Plan since inception of the underlying actions include the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Employee

    

    

 

 

    

 

 

    

 

 

 

 

Termination

 

Asset

 

 

 

 

 

 

 

(millions)

    

Costs

    

Disposals

    

Other

    

Total

 

2013 - 2015 Activity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recorded expense and accrual

 

$

55.6

 

 

$

13.2

 

 

$

15.3

 

 

$

84.1

 

 

Net cash payments

 

 

(44.3)

 

 

 

3.9

 

 

 

(2.1)

&