10-QPeriod: Q3 FY2007

ECOLAB INC. Quarterly Report for Q3 Ended Sep 30, 2007

Filed November 2, 2007For Securities:ECL

Summary

Ecolab Inc. reported a solid third quarter and nine-month performance for 2007, demonstrating growth in both sales and net income. Consolidated net sales increased by 11% year-over-year for both the quarter and the nine-month period, reaching $1.4 billion and $4.0 billion, respectively. This growth was driven by strong performance in U.S. Cleaning & Sanitizing and Other Services segments, as well as international operations, particularly in Latin America. While the company experienced a notable $27.4 million special charge related to an arbitration settlement for wage/hour claims, it was partially offset by discrete tax benefits. Despite this charge, diluted net income per share saw a modest increase of 7% for the third quarter and 15% for the nine months, reaching $0.46 and $1.25, respectively. The company also continues to actively manage its capital structure, with a decrease in total debt and a reduction in the debt-to-capitalization ratio, alongside ongoing share repurchases.

Key Highlights

  • 1Consolidated net sales increased 11% to $1.4 billion for the third quarter of 2007 compared to the prior year.
  • 2Diluted net income per share rose 7% to $0.46 for the third quarter of 2007.
  • 3A significant special charge of $27.4 million was recorded in the third quarter related to an arbitration settlement, impacting net income.
  • 4U.S. Cleaning & Sanitizing sales grew 8% and U.S. Other Services sales grew 10% in the third quarter.
  • 5International sales, at fixed currency rates, increased 6% for the third quarter, with Latin America showing double-digit growth.
  • 6The company's debt-to-capitalization ratio improved to 32.9% from 38.8% at the end of 2006, reflecting debt reduction.
  • 7Ecolab repurchased 8.2 million shares in the first nine months of 2007 under its share repurchase program.

Frequently Asked Questions

The primary reason for the special charges was a $27.4 million arbitration settlement related to wage/hour claims filed by former and current employees in the Pest Elimination division. Additionally, $0.4 million in one-time costs were incurred for establishing the company's Pan-European headquarters in Zurich, Switzerland.

For the third quarter of 2007, currency translation had a positive impact, increasing net income by approximately $3.5 million. On a reported basis, International sales increased by 13% due to favorable currency movements, although the fixed currency rate growth was 6%.

The company reported sufficient borrowing capacity to meet its foreseeable operating needs and believes its financial position remains strong. This is supported by a decrease in total debt and a lower debt-to-capitalization ratio. They expect to fund requirements through operating cash flow, reserves, and borrowings, with potential for additional borrowing or equity issuance for significant acquisitions.

During the nine months ended September 30, 2007, Ecolab completed several small acquisitions, including Apprise Technologies, Inc. and Green Harbour. They also announced a definitive agreement to acquire Microtek Medical Holdings, Inc. In September 2007, Ecolab completed the sale of its UK-based Peter Cox Limited business.