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Ecolab Delivers Strong Third Quarter

We evaluate the performance of our international operations based on fixed currency rates of foreign exchange. Fixed currency sales and fixed currency operating income measures (and the applicable 2011 pro forma equivalent for each) eliminate the impact of exchange rate fluctuations on our international sales and operating income, respectively, and promote a better understanding of our sales and operating income trends from underlying business performance. Fixed currency amounts included in this release are based on translation into U.S. dollars at the fixed foreign currency exchange rates established by management at the beginning of 2012.

These non-GAAP financial measures are not in accordance with, or an alternative to, GAAP and may be different from non-GAAP measures used by other companies. Investors should not rely on any single financial measure when evaluating our business. We recommend that investors view these measures in conjunction with the GAAP measures included in this news release. A reconciliation of reported diluted earnings per share to adjusted diluted earnings per share is provided in the table "Supplemental Diluted Earnings per Share Information" included in this news release.

(ECL-E)

ECOLAB INC.
CONSOLIDATED STATEMENT OF INCOME
THIRD QUARTER & NINE MONTHS ENDED SEPTEMBER 30
(unaudited)
           
Third Quarter Ended Nine Months Ended
September 30 % September 30 %
(millions, except per share) 2012 2011 Change 2012 2011 Change
 
Net sales $ 3,023.3 $ 1,736.1 74% $ 8,792.9 $ 4,953.2 78%
 
Cost of sales (1) 1,616.4 877.9 84% 4,839.3 2,509.1 93%
Selling, general and administrative expenses 977.7 595.3 64% 2,949.1 1,786.5 65%
Special (gains) and charges (1)   28.0     23.3   111.0     68.0
Operating income 401.2 239.6 67% 893.5 589.6 52%
Interest expense, net (1)   64.2     13.2 386%   214.2     39.8 438%
Income before income taxes 337.0 226.4 49% 679.3 549.8 24%
Provision for income taxes   97.7     71.9 36%   212.5     175.3 21%
Net income including noncontrolling interest 239.3 154.5 55% 466.8 374.5 25%
Less: NI (loss) attrib. to noncontrolling interest (1)   1.3     0.2   (5.4 )   0.7
Net income attributable to Ecolab $ 238.0   $ 154.3 54% $ 472.2   $ 373.8 26%
 
Earnings attributable to Ecolab per common share
Basic $ 0.81 $ 0.67 21% $ 1.62 $ 1.61 1%
Diluted $ 0.80 $ 0.65 23% $ 1.58 $ 1.58 0%
 
 
Weighted-average common shares outstanding
Basic 292.7 231.9 26% 292.0 231.8 26%
Diluted 298.6 236.1 26% 298.3 236.2 26%
 
 
(1) Special gains and charges in the Consolidated Statement of Income above include the following:
 
(millions) 2012 2011 2012 2011
 
Cost of sales
Restructuring $ 1.7 $ 4.5 $ 9.6 $ 5.3
Recognition of Nalco inventory fair value step-up   1.5     -   72.7     -
Subtotal cost of sales 3.2 4.5 82.3 5.3
 
Special (gains) and charges
Restructuring 20.8 12.6 73.2 52.8
Champion acquisition costs 3.8 - 3.8 -
Nalco merger and integration costs 16.4 10.3 47.0 10.3
Gain on sale of business (13.0 ) - (13.0 ) -
Business structure and optimization - 0.3 - 1.2
Cleantec acquisition integration charges   -     0.1   -     3.7
Subtotal special (gains) and charges 28.0 23.3 111.0 68.0
                   
Operating income subtotal   31.2     27.8   193.3     73.3
 
Interest expense, net
Debt extinguishment costs - - 18.2 -
 
Net income attributable to noncontrolling interest
Recognition of Nalco inventory fair value step-up - - (4.5 ) -
       
Total $ 31.2   $ 27.8 $ 207.0   $ 73.3
 
ECOLAB INC.
OPERATING SEGMENT INFORMATION
THIRD QUARTER & NINE MONTHS ENDED SEPTEMBER 30
(unaudited)
                       
Third Quarter Ended Nine Months Ended
September 30 September 30
Reported Reported Pro forma % Change Reported Reported Pro forma % Change
(millions) 2012 2011 2011 Reported   Pro forma 2012 2011 2011 Reported   Pro forma
 
Net Sales
U.S. Cleaning & Sanitizing $ 774.1 $ 763.1 $ 741.8 1% 4% $ 2,243.9 $ 2,197.0 $ 2,126.7 2% 6%
U.S. Other Services 124.2 119.6 119.6 4% 4% 357.1 343.3 343.3 4% 4%
Int'l Cleaning, Sanitizing & Other Services 813.5 788.1 776.7 3% 5% 2,342.7 2,268.7 2,234.4 3% 5%
Global Water 542.9 - 517.7 5% 1,551.2 - 1,493.7 4%
Global Paper 202.4 - 210.2 -4% 602.2 - 609.9 -1%
Global Energy   586.6     -     489.6   20%   1,671.8     -     1,367.2   22%
Subtotal at fixed currency rates 3,043.7 1,670.8 2,855.6 82% 7% 8,768.9 4,809.0 8,175.2 82% 7%
Effect of foreign currency translation   (20.4 )   65.3     111.7     24.0     144.2     244.4  
Consolidated $ 3,023.3   $ 1,736.1   $ 2,967.3   74% 2% $ 8,792.9   $ 4,953.2   $ 8,419.6   78% 4%
 
Operating Income
U.S. Cleaning & Sanitizing $ 183.9 $ 157.7 $ 161.0 17% 14% $ 482.6 $ 412.6 $ 421.8 17% 14%
U.S. Other Services 21.6 20.9 20.9 3% 3% 53.9 51.5 51.5 5% 5%
Int'l Cleaning, Sanitizing & Other Services 96.8 86.1 85.1 12% 14% 227.3 199.5 196.0 14% 16%
Global Water 69.8 - 55.8 25% 167.6 - 146.8 14%
Global Paper 23.7 - 20.4 16% 60.7 - 61.0 0%
Global Energy 94.2 - 72.8 29% 257.4 - 194.9 32%
Corporate   (87.0 )   (33.4 )   (82.5 )   (357.5 )   (89.7 )   (98.4 )
Subtotal at fixed currency rates 403.0 231.3 333.5 74% 21% 892.0 573.9 973.6 55% -8%
Effect of foreign currency translation   (1.8 )   8.3     12.8     1.5     15.7     24.2  
Consolidated $ 401.2   $ 239.6   $ 346.3   67% 16% $ 893.5   $ 589.6   $ 997.8   52% -10%
 

Note: The Corporate segment includes amortization from the Nalco merger's intangible assets, merger integration costs, investments in the development of business systems and other corporate investments made as part of Ecolab's ongoing efforts to improve efficiency and returns. The Corporate segment also includes special (gains) and charges reported on the Consolidated Statement of Income.

 

Pro forma amounts for 2011 reflect the impact of the Nalco merger as if the transaction had been completed as of January 1, 2010, as well as the movement of certain water treatment related business to better align with internal management of those businesses.

 

ECOLAB INC.
CONSOLIDATED BALANCE SHEET
(unaudited)
     
 
September 30 December 31 September 30
(millions) 2012 2011 2011
 
Assets
Current assets
Cash and cash equivalents $ 324.0 $ 1,843.6 $ 207.3
Accounts receivable, net 2,199.0 2,095.3 1,143.1
Inventories 1,103.8 1,069.6 504.9
Deferred income taxes 186.3 164.0 86.5
Other current assets   259.8     223.5     149.2  
Total current assets 4,072.9 5,396.0 2,091.0
 
Property, plant and equipment, net 2,334.2 2,295.4 1,218.2
Goodwill 5,893.7 5,855.3 1,504.0
Other intangible assets, net 4,103.3 4,275.2 418.8
Other assets   318.7     362.8     273.6  
 
Total assets $ 16,722.8   $ 18,184.7   $ 5,505.6  
 
Liabilities and Equity
Current liabilities
Short-term debt $ 631.0 $ 1,023.0 $ 336.8
Accounts payable 858.6 815.7 413.4
Compensation and benefits 459.6 497.2 300.0
Income taxes 73.0 81.7 36.5
Other current liabilities   796.5     748.7     531.0  
Total current liabilities 2,818.7 3,166.3 1,617.7
 
Long-term debt 5,386.7 6,613.2 700.2
Postretirement health care and pension benefits 997.0 1,173.4 494.8
Other liabilities   1,494.2     1,490.7     222.0  
Total liabilities 10,696.6 12,443.6 3,034.7
 
Equity
Common stock 340.1 336.1 335.1
Additional paid-in capital 4,162.5 3,980.8 1,404.8
Retained earnings 3,856.9 3,559.9 3,531.2
Accumulated other comprehensive loss (353.6 ) (344.9 ) (160.7 )
Treasury stock   (2,060.5 )   (1,865.2 )   (2,643.4 )
Total Ecolab shareholders' equity 5,945.4 5,666.7 2,467.0
Noncontrolling interest   80.8     74.4     3.9  
Total equity 6,026.2 5,741.1 2,470.9
 
Total liabilities and equity $ 16,722.8   $ 18,184.7   $ 5,505.6  
 
ECOLAB INC.
SUPPLEMENTAL DILUTED EARNINGS PER SHARE INFORMATION
(unaudited)
             

The table below provides a reconciliation of diluted earnings per share, as reported, to the non-GAAP measure of adjusted diluted earnings per share.

 
First Second Six Third Nine Fourth
Quarter Quarter Months Quarter Months Quarter Year
Ended Ended Ended Ended Ended Ended Ended
Mar. 31 June 30 June 30 Sept. 30 Sept. 30 Dec. 31 Dec. 31
2011 2011 2011 2011 2011 2011 2011
Diluted earnings per share,
as reported (U.S. GAAP) $ 0.40 $ 0.53 $ 0.93 $ 0.65 $ 1.58 $ 0.34 $ 1.91
 
Adjustments:
Special (gains) and charges (1) 0.05 0.11 0.16 0.10 0.26 0.25 0.52
Tax expense (benefits) (2) 0.00 (0.01 ) (0.00 ) (0.00 ) (0.01 ) 0.03 0.03
Nalco merger impact (3) 0.07 0.08
 
Adjusted diluted earnings              
per share (Non-GAAP) $ 0.45 $ 0.64   $ 1.09   $ 0.75   $ 1.84   $ 0.70 $ 2.54
 
 
First Second Six Third Nine Fourth
Quarter Quarter Months Quarter Months Quarter Year
Ended Ended Ended Ended Ended Ended Ended
Mar. 31 June 30 June 30 Sept. 30 Sept. 30 Dec. 31 Dec. 31
2012 2012 2012 2012 2012 2012 2012
Diluted earnings per share,
as reported (U.S. GAAP) $ 0.17 $ 0.62 $ 0.79 $ 0.80 $ 1.58
 
Adjustments:
Special (gains) and charges (4) 0.33 0.11 0.44 0.07 0.51
Tax expense (benefits) (5) 0.00 (0.01 ) (0.00 ) (0.00 ) (0.01 )
 
Adjusted diluted earnings              
per share (Non-GAAP) $ 0.50 $ 0.72   $ 1.22   $ 0.87   $ 2.09      
 
Per share amounts do not necessarily sum due to changes in shares outstanding and rounding.
 

(1) Special (gains) and charges for 2011 include restructuring charges of $9.0 million, $25.2 million, $14.8 million and $8.9 million, net of tax, in the first, second, third and fourth quarters, respectively. Special (gains) and charges for 2011 also include $8.5 million and $37.1 million, net of tax, in the third and fourth quarters, respectively for Nalco merger and integration costs. Special (gains) and charges also include $18.4 million, net of tax, in the fourth quarter related to the modification of a customer agreement and Cleantec acquisition and integration costs of $2.9 million, net of tax, recorded in the first quarter, as well as other items, net of tax.

 

(2) First quarter 2011 discrete tax expense primarily includes the impact of a change in our blended U.S. state tax rate, partially offset by a discrete tax benefit related to a state refund claim. Second quarter 2011 discrete tax benefits primarily include discrete tax impacts of recognizing settlements and adjustments related to prior year tax returns. Third quarter 2011 discrete tax benefits primarily relate to net benefits from filing our 2010 U.S. federal and other International income tax returns and settlements and adjustments related to prior year tax returns. Fourth quarter discrete tax expense primarily includes a charge related to the realizability of foreign net operating loss carryforwards.

 
(3) The Nalco merger impact primarily relates to shares issued as consideration for the equity portion of the merger.
 

(4) Special (gains) and charges for 2012 include restructuring charges of $21.4 million, $23.8 million and $14.7 million, net of tax in the first, second and third quarters, respectively. Special (gains) and charges for 2012 also include $10.0 million, $8.8 million and $11.7 million, net of tax, in the first, second and third quarters, respectively related to Nalco merger and integration costs. Special gains and charges for 2012 also include $56.3 million, net of tax, in first quarter, for the recognition of Nalco inventory fair value step-up. Special (gains) and charges for 2012 also include debt extinguishment costs of $11.4 million, net of tax, in the first quarter. Special (gains) and charges for 2012 also include $3.3 million, net of tax in the third quarter related to Champion acquisition costs. Special (gains) and charges for 2012, also include a net of tax gain of $8.1 million in the third quarter related to the sale of an investment in a U.S. business, originally sold prior to 2012.

 

(5) First quarter 2012 tax expense includes various individually insignificant items, which net to total discrete tax expense of $1.4 million. Second quarter 2012 discrete tax net benefits of $2.6 million primarily include the impact of remeasurement of foreign deferred tax assets and liabilities due to the impact of tax rate changes resulting from a change in tax jurisdiction, offset partially by foreign audit settlements and adjustments. Third quarter 2012 discrete tax net benefits of $0.9 million primarily include net benefits from filing our 2011 U.S. federal tax return and a release of a valuation allowance related to a capital loss carryforward, partially offset by the remeasurement of certain deferred tax assets and liabilities resulting from changes in local country tax rates.

 





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