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Ecolab 10-Q 2017
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, 2017

 

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.)

 

1 Ecolab Place, 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, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

 

 

 

Large accelerated filer

 

Accelerated filer

 

 

 

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

 

Smaller reporting company

 

 

 

Emerging growth company

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   

 

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, 2017.

 

289,381,301 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)

 

2017

    

2016

    

2017

    

2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

 

$ 3,462.7

 

 

 

$ 3,317.2

 

 

$ 6,624.3

 

 

 

$ 6,414.6

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales (including special charges (a))

 

 

1,871.6

 

 

 

1,785.2

 

 

3,563.1

 

 

 

3,416.6

 

Selling, general and administrative expenses

 

 

1,115.3

 

 

 

1,093.3

 

 

2,205.9

 

 

 

2,181.5

 

Special (gains) and charges

 

 

36.8

 

 

 

26.2

 

 

43.0

 

 

 

32.5

 

Operating income

 

 

439.0

 

 

 

412.5

 

 

812.3

 

 

 

784.0

 

Interest expense, net

 

 

59.6

 

 

 

65.3

 

 

122.1

 

 

 

131.4

 

Income before income taxes

 

 

379.4

 

 

 

347.2

 

 

690.2

 

 

 

652.6

 

Provision for income taxes

 

 

81.3

 

 

 

83.6

 

 

135.3

 

 

 

157.0

 

Net income including noncontrolling interest

 

 

298.1

 

 

 

263.6

 

 

554.9

 

 

 

495.6

 

Net income attributable to noncontrolling interest

 

 

1.5

 

 

 

5.2

 

 

4.8

 

 

 

6.4

 

Net income attributable to Ecolab

 

 

$ 296.6

 

 

 

$ 258.4

 

 

$ 550.1

 

 

 

$ 489.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings attributable to Ecolab per common share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

$ 1.02

 

 

 

$ 0.88

 

 

$ 1.90

 

 

 

$ 1.67

 

Diluted

 

 

$ 1.01

 

 

 

$ 0.87

 

 

$ 1.87

 

 

 

$ 1.64

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared per common share

 

 

$ 0.370

 

 

 

$ 0.350

 

 

$ 0.740

 

 

 

$ 0.700

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

289.8

 

 

 

292.4

 

 

290.2

 

 

 

293.4

 

Diluted

 

 

294.1

 

 

 

 296.5

 

 

294.6

 

 

 

297.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

(a)

Cost of sales includes special charges of $24.4 and $61.9 in the second quarter of 2017 and 2016, respectively, and $25.9 and $61.9 in the first six months of 2017 and 2016, respectively.

 

 

 

 

 

2


 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Second Quarter Ended

 

Six Months Ended 

 

 

 

June 30

 

June 30

 

(millions)

    

2017

    

2016

 

2017

    

2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income including noncontrolling interest

 

 

$ 298.1

 

 

 

$ 263.6

 

 

$ 554.9

 

 

 

$ 495.6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation

 

 

44.0

 

 

 

77.8

 

 

125.2

 

 

 

(18.5)

 

Loss on net investment hedges

 

 

(55.6)

 

 

 

(12.9)

 

 

(52.8)

 

 

 

(27.9)

 

 

 

 

(11.6)

 

 

 

64.9

 

 

72.4

 

 

 

(46.4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives and hedging instruments

 

 

0.9

 

 

 

(20.2)

 

 

(8.3)

 

 

 

(30.7)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pension and postretirement benefits

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of net actuarial loss and prior service costs included in

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

net periodic pension and postretirement costs

 

 

3.6

 

 

 

5.5

 

 

6.9

 

 

 

11.1

 

 

 

 

3.6

 

 

 

5.5

 

 

6.9

 

 

 

11.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Subtotal

 

 

(7.1)

 

 

 

50.2

 

 

71.0

 

 

 

(66.0)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive income, including noncontrolling interest

 

 

291.0

 

 

 

313.8

 

 

625.9

 

 

 

429.6

 

Comprehensive income attributable to noncontrolling interest

 

 

2.3

 

 

 

5.2

 

 

6.8

 

 

 

9.8

 

Comprehensive income attributable to Ecolab

 

 

$ 288.7

 

 

 

$ 308.6

 

 

$ 619.1

 

 

 

$ 419.8

 

 

 

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

 

3


 

CONSOLIDATED BALANCE SHEET

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30

 

December 31

(millions, except shares and per share amounts)

    

2017

 

2016

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

$ 260.7

 

 

 

$ 327.4

Accounts receivable, net

 

 

2,446.8

 

 

 

2,341.2

Inventories

 

 

1,469.8

 

 

 

1,319.4

Other current assets

 

 

354.8

 

 

 

291.4

Total current assets

 

 

4,532.1

 

 

 

4,279.4

Property, plant and equipment, net

 

 

3,497.4

 

 

 

3,365.0

Goodwill

 

 

7,003.8

 

 

 

6,383.0

Other intangible assets, net

 

 

4,061.6

 

 

 

3,817.8

Other assets

 

 

428.5

 

 

 

485.0

Total assets

 

 

$ 19,523.4

 

 

 

$ 18,330.2

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

Short-term debt

 

 

$ 1,770.6

 

 

 

$ 541.3

Accounts payable

 

 

1,123.6

 

 

 

983.2

Compensation and benefits

 

 

445.4

 

 

 

516.3

Income taxes

 

 

53.0

 

 

 

87.4

Other current liabilities

 

 

925.8

 

 

 

891.2

Total current liabilities

 

 

4,318.4

 

 

 

3,019.4

Long-term debt

 

 

5,909.3

 

 

 

6,145.7

Postretirement health care and pension benefits

 

 

1,040.1

 

 

 

1,019.2

Deferred income taxes

 

 

1,028.7

 

 

 

970.2

Other liabilities

 

 

238.2

 

 

 

204.8

Total liabilities

 

 

12,534.7

 

 

 

11,359.3

 

 

 

 

 

 

 

 

Equity (a)

 

 

 

 

 

 

 

Common stock

 

 

354.1

 

 

 

352.6

Additional paid-in capital

 

 

5,375.5

 

 

 

5,270.8

Retained earnings

 

 

7,312.6

 

 

 

6,975.0

Accumulated other comprehensive loss

 

 

(1,643.9)

 

 

 

(1,712.9)

Treasury stock

 

 

(4,478.6)

 

 

 

(3,984.4)

Total Ecolab shareholders’ equity

 

 

6,919.7

 

 

 

6,901.1

Noncontrolling interest

 

 

69.0

 

 

 

69.8

Total equity

 

 

6,988.7

 

 

 

6,970.9

Total liabilities and equity

 

 

$ 19,523.4

 

 

 

$ 18,330.2

 

(a)

Common stock, 800.0 million shares authorized, $1.00 par value per share, 289.4 million shares outstanding at June 30, 2017 and 291.8 million shares outstanding at December 31, 2016. 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 

 

 

 

 

June 30

 

(millions)

 

 

2017

 

2016

 

 

    

 

 

 

 

 

 

 

 

OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

 

Net income including noncontrolling interest

 

 

 

$ 554.9

 

 

 

$ 495.6

 

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

 

 

 

 

 

 

 

 

 

Depreciation

 

 

 

286.3

 

 

 

276.0

 

Amortization

 

 

 

150.9

 

 

 

145.3

 

Deferred income taxes

 

 

 

(14.1)

 

 

 

(28.8)

 

Share-based compensation expense

 

 

 

57.5

 

 

 

53.6

 

Excess tax benefits from share-based payment arrangements

 

 

 

 -

 

 

 

(19.6)

 

Pension and postretirement plan contributions

 

 

 

(37.0)

 

 

 

(192.0)

 

Pension and postretirement plan expense

 

 

 

17.3

 

 

 

28.6

 

Restructuring charges, net of cash paid

 

 

 

20.3

 

 

 

(27.1)

 

Asset charges and write-downs

 

 

 

 -

 

 

 

50.9

 

Other, net

 

 

 

12.6

 

 

 

12.7

 

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

 

 

 

 

 

 

 

 

 

Accounts receivable

 

 

 

16.0

 

 

 

62.5

 

Inventories

 

 

 

(95.8)

 

 

 

40.6

 

Other assets

 

 

 

(9.6)

 

 

 

19.7

 

Accounts payable

 

 

 

84.0

 

 

 

(79.2)

 

Other liabilities

 

 

 

(183.6)

 

 

 

36.0

 

Cash provided by operating activities

 

 

 

859.7

 

 

 

874.8

 

 

 

 

 

 

 

 

 

 

 

INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

 

Capital expenditures

 

 

 

(340.2)

 

 

 

(303.7)

 

Capitalized software expenditures

 

 

 

(38.0)

 

 

 

(22.2)

 

Property and other assets sold

 

 

 

2.5

 

 

 

11.4

 

Acquisitions and investments in affiliates, net of cash acquired

 

 

 

(826.5)

 

 

 

(9.4)

 

Deposit into acquisition related escrow

 

 

 

(1.7)

 

 

 

 -

 

Restricted cash activity

 

 

 

53.8

 

 

 

 -

 

Cash used for investing activities

 

 

 

(1,150.1)

 

 

 

(323.9)

 

 

 

 

 

 

 

 

 

 

 

FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

 

Net issuances (repayments) of commercial paper and notes payable

 

 

 

909.8

 

 

 

(342.4)

 

Long-term debt borrowings

 

 

 

 -

 

 

 

793.8

 

Long-term debt repayments

 

 

 

(5.3)

 

 

 

(130.0)

 

Reacquired shares

 

 

 

(501.1)

 

 

 

(637.9)

 

Dividends paid

 

 

 

(222.9)

 

 

 

(217.6)

 

Exercise of employee stock options

 

 

 

54.6

 

 

 

40.7

 

Excess tax benefits from share-based payment arrangements

 

 

 

 -

 

 

 

19.6

 

Acquisition related liabilities and contingent consideration

 

 

 

(8.2)

 

 

 

(3.4)

 

Other, net

 

 

 

(0.9)

 

 

 

 -

 

Cash provided by (used for) financing activities

 

 

 

226.0

 

 

 

(477.2)

 

 

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

 

 

(2.3)

 

 

 

0.9

 

 

 

 

 

 

 

 

 

 

 

Increase (decrease) in cash and cash equivalents

 

 

 

(66.7)

 

 

 

74.6

 

Cash and cash equivalents, beginning of period

 

 

 

327.4

 

 

 

92.8

 

Cash and cash equivalents, end of period

 

 

 

$ 260.7

 

 

 

$ 167.4

 

 

 

 

 

 

 

 

 

 

 

 

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, 2017 and 2016 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, 2016 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, 2016.

 

During the first quarter of 2017, the Company adopted the accounting guidance issued in March 2016 that amends certain aspects of share-based compensation for employees, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classifications on the Consolidated Statement of Cash Flows. Under the new guidance, all excess tax benefits or deficiencies are to be recognized prospectively as discrete income tax items on the Consolidated Statement of Income, while previous guidance required realized excess tax benefits or deficiencies to be recognized in additional paid-in capital. The Company recorded $10.8 million and $26.8 million of excess tax benefits during the second quarter and first six months of 2017, respectively. The extent of excess tax benefits is subject to variation in stock price and stock option exercises. Adoption of the accounting standard also eliminated the requirement that excess tax benefits be realized before they can be recognized, and as a result, the Company recorded a $1.9 million cumulative-effect adjustment for previously unrecognized excess tax benefits. 

 

The Company’s adoption also resulted in associated excess tax benefits being classified as an operating activity in the statement of cash flows prospectively beginning January 1, 2017 with no changes to the prior year. Based on the adoption methodology applied, employee taxes paid remain classified as a financing activity on the statement of cash flows, and the statement of cash flows classification of prior periods has not changed.  With regards to forfeitures, the new guidance allows companies either to continue to estimate the number of awards that will be forfeited or to account for forfeitures as they occur. The Company has elected to continue to estimate the number of awards that will be forfeited based on an estimate of the number of outstanding awards expected to vest. 


With respect to the unaudited financial information of the Company for the second quarter and six months ended June 30, 2017 and 2016 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 3, 2017 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.

 

6


 

 

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)

    

2017

 

2016

    

2017

 

2016

Cost of sales

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restructuring activities

 

 

2.2

 

 

 

0.9

 

 

2.2

 

 

 

0.9

Acquisition and integration costs

 

 

11.1