10-QPeriod: Q1 FY2002

ECOLAB INC. Quarterly Report for Q1 Ended Mar 31, 2002

Filed May 7, 2002For Securities:ECL

Summary

Ecolab Inc. reported net sales of $786.1 million for the first quarter ended March 31, 2002, a significant increase of 38% compared to $571.4 million in the prior year period. This growth was primarily driven by the full consolidation of the Henkel-Ecolab joint venture, which became effective at the beginning of 2002. Excluding acquisitions, consolidated net sales saw a more modest increase of 2%. The company also incurred significant restructuring charges and special expenses totaling $23.3 million related to integrating European operations, impacting reported net income. Despite the revenue increase, net income decreased by 12% to $38.9 million ($0.30 per diluted share) from $44.4 million ($0.34 per diluted share) in the prior year. This decline is attributed to the aforementioned restructuring charges, a gain from discontinued operations, and higher net interest expense resulting from debt used to finance the Henkel-Ecolab acquisition. The company is actively managing its debt levels and anticipates substantial cost savings from its restructuring initiatives in the coming years.

Key Highlights

  • 1Net sales increased by 38% to $786.1 million, largely due to the consolidation of Henkel-Ecolab.
  • 2Reported net income decreased by 12% to $38.9 million, impacted by significant restructuring charges.
  • 3The company incurred $23.3 million in restructuring expenses and special charges related to European integration.
  • 4Diluted earnings per share declined to $0.30 from $0.34 in the prior year.
  • 5Operating cash flow saw a substantial increase of 61% to $86.8 million.
  • 6The company issued €300 million in Eurobonds to repay commercial paper, demonstrating active debt management.
  • 7Two strategic acquisitions were completed in January 2002: Kleencare Hygiene operations in Europe and Audits International (Ecosure) in the US.

Frequently Asked Questions

The primary driver of the 38% increase in net sales to $786.1 million was the full consolidation of the Henkel-Ecolab joint venture, which became wholly-owned by Ecolab at the end of 2001 and its results were fully incorporated into the financial statements starting in the first quarter of 2002.

Net income decreased by 12% to $38.9 million due to several factors, including $23.3 million in restructuring expenses and special charges related to the integration of European operations, higher net interest expense resulting from increased borrowings for the Henkel-Ecolab acquisition, and a gain from discontinued operations.

Ecolab anticipates that its restructuring initiatives, which include workforce reductions, facility closures, and product line discontinuances, will result in annual pretax savings of $25 million to $30 million. These savings are expected to begin in 2002 and have a full impact in 2003 and subsequent years.

The adoption of SFAS No. 142, which discontinued the amortization of goodwill and indefinite-lived intangible assets, increased net income by approximately $7.2 million, or $0.06 per diluted share, in the first quarter of 2002. This change also impacted the effective income tax rate and made year-over-year comparisons of operating income require careful consideration of prior period amortization.