Ecolab Reports 16% Second Quarter EPS Increase to $0.36.ST. PAUL St. Paul as a missionary he fearlessly confronts the “perils of waters, of robbers, in the city, in the wilderness.” [N.T.: II Cor. 11:26] See : Bravery , Minn. -- Ecolab Ecolab, Inc., is a St. Paul, Minnesota based sanitation supply company founded in 1923. It was named "Economics Laboratory" before its name was changed to Ecolab in 1986. (NYSE NYSE See: New York Stock Exchange :ECL (Emitter-Coupled Logic) A digital circuit composed of bipolar transistors in which the emitter ends are wired together. ECL gates switch faster than TTL gates, but consume more power. See TTL, I2L and bipolar. 1. ): 2006 SECOND QUARTER HIGHLIGHTS: --Record diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. net income per share, +16% --Record sales, +7% at fixed currency rates; unfavorable currency impact yields 6% gain to $1.2 billion --Continued strong North America North America, third largest continent (1990 est. pop. 365,000,000), c.9,400,000 sq mi (24,346,000 sq km), the northern of the two continents of the Western Hemisphere. , Latin America Latin America, the Spanish-speaking, Portuguese-speaking, and French-speaking countries (except Canada) of North America, South America, Central America, and the West Indies. and Asia Pacific businesses lead sales growth --Double-digit sales gains in Institutional, Pest Elimination and Kay KAY Kick Ass Year KAY Kansas Association of Youth businesses lead U.S. growth. --Full year EPS (Encapsulated PostScript) A PostScript file format used to transfer a graphic image between applications and platforms. EPS files contain PostScript code as well as an optional preview image in TIFF, WMF, PICT or EPSI, the latter being an ASCII-only format. forecast range improved to 15%-16% growth
Second Quarter and Six Months Ended June 30
-------------------------------------------
Second Quarter % Six Months %
------------------- -------------------
2006 2005 increase 2006 2005 increase
---- ---- -------- ---- ---- --------
(Millions, (unaudited) (unaudited)
except per
share)
Net Sales $1,225.9 $1,158.7 6% $2,346.0 $2,228.5 5%
Operating
Income 153.1 138.3 11% 284.6 256.2 11%
Pretax
Income 142.1 126.1 13% 263.2 232.9 13%
Taxes 48.9 44.7 10% 92.2 82.0 12%
----- ----- --- ------ ------ ----
Net Income $93.2 $81.4 14% $171.1 $150.8 13%
===== ===== === ====== ====== ====
Diluted Net
Income Per
Common
Share $0.36 $0.31 16% $0.66 $0.58 14%
Diluted
Average
Shares
Outstanding 256.7 259.6 -1% 257.4 260.1 -1%
Note: Results for both 2005 and 2006 reflect Ecolab's adoption of SFAS
123 (R), which requires the expensing of stock options, and Ecolab's
restatement of prior period results as part of its transition to this
new accounting standard.
Continued strong sales trends in its North American North American named after North America. North American blastomycosis see North American blastomycosis. North American cattle tick see boophilusannulatus. , Latin Lat·in n. 1. a. The Indo-European language of the ancient Latins and Romans and the most important cultural language of western Europe until the end of the 17th century. b. American and Asia Pacific businesses led Ecolab's second quarter results to record levels for the period ended June 30, 2006. Ecolab's consolidated sales increased 6% to a record $1.2 billion in the second quarter. Net income increased to a record $93 million. Earnings per diluted share grew 16% to $0.36. Currency translation had an unfavorable impact on net income growth of approximately $1 million for the second quarter of 2006. All financial results presented in this release include the impact of expensing stock options. Ecolab adopted SFAS SFAS Statement of Financial Accounting Standards SFAS Special Forces Assessment and Selection SFAS Student Financial Aid Services SFAS Sport Fishing Association of Singapore SFAS Safety Features Actuation System SFAS Statewide Fixed Assets System 123(R), the accounting standard for expensing stock options, in the fourth quarter of 2005. As part of the transition to the new standard, Ecolab restated its earnings per share in line with the pro forma As a matter of form or for the sake of form. Used to describe accounting, financial, and other statements or conclusions based upon assumed or anticipated facts. The phrase pro forma amounts historically disclosed in the notes to Ecolab's financial statements. These restated results were included in Ecolab's 2005 annual report and are available at Ecolab's website at www.ecolab.com/investor. Commenting on the quarter, Douglas M. Baker, Ecolab's Chairman, President and Chief Executive Officer said, "We had a great quarter. New accounts, new products and productivity gains led our growth. Better pricing and operating efficiency improvements lifted operating margins Operating Margin A ratio used to measure a company's pricing strategy and operating efficiency. Calculated by: ." "The outlook for 2006 remains strong. Strong new account gains and our focus on driving growth and operational improvement should yield further attractive sales and profit gains in the second half of the year. We also continue to take advantage of competitive changes in our market as we work to deliver the best solutions to our existing and new customers. We are building a stronger Ecolab to generate sustainable above-average growth. We have accomplished a great deal, and have even more opportunity to expand our sources for growth and shareholder returns. We think the outlook for our company remains bright, and are determined to aggressively develop it." Second quarter sales for Ecolab's United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. Cleaning & Sanitizing operations increased 10% to $544 million, as Institutional and Kay led the growth with double-digit gains. Ecolab's United States Cleaning & Sanitizing operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. rose 19% to $86 million, as the benefits of the higher sales, cost efficiencies and increased pricing offset higher delivered product costs, investments to install new business, and a charge related to a licensing agreement. United States Other Services sales increased 9% to $105 million in the second quarter led by double-digit gains by Pest Elimination. Operating income in the second quarter of 2006 increased 3% to $11 million as gains at Pest Elimination were offset by a regulatory expense in Pest Elimination as well as by accelerated investments at GCS GCS Glasgow Coma Scale GCS Guilford County Schools (North Carolina) GCS Ground Control Station GCS Grand Central Station GCS Ground Control System GCS Ground Combat Systems GCS Group Communication Systems . Sales of Ecolab's International operations Internal Operations (I.O., IO or I/O) is a fictional American Intelligence Agency in Wildstorm comics. It was originally called International Operations. I.O. first appeared in WildC.A.T.S. volume 1 #1 (August, 1992) and was created by Brandon Choi and Jim Lee. , when measured at fixed currency rates, rose 5% to $562 million in the second quarter. Latin America and Canada showed double-digit sales gains, and Asia Pacific sales also showed good increases; Europe recorded a moderate sales gain as markets in our major central countries continued to slow results. Fixed currency operating income rose 5% to $55 million, as sales growth, pricing initiatives and cost efficiencies offset higher delivered product costs and business investments. At public currency rates, International sales and operating income both grew 2%. The tax rate for the second quarter was 34.4% in 2006 and compared to 35.4% in 2005. The second quarter 2006 tax rate includes a benefit from a favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. tax settlement related to stewardship stewardship the occupation of being a steward or custodian. Referring to animals it implies the caring sort of relationship based on an acceptance of the need to include the rights of animals in overall plans to maintain financial viability. costs. Excluding that benefit, the tax rate was 35.7% in the second quarter 2006. Ecolab reacquired 2.9 million shares of its common stock during the second quarter under its share repurchase Share Repurchase A program by which a company buys back its own shares from the marketplace, reducing the number of outstanding shares. This is usually an indication that the company's management thinks the shares are undervalued. program. Business Outlook The following statements are based on current expectations. These statements are forward-looking and actual results may differ materially. These statements do not include the potential impact of business acquisitions, divestitures, higher than anticipated raw material price increases, or other material corporate events, which may be completed after the date of this release. This Business Outlook section should be read in conjunction with the information on "Forward-Looking Statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. " at the end of this release. Ecolab expects sales for both domestic and international operations (in fixed currencies) to increase in the third quarter 2006 over the third quarter 2005. Gross margins are expected to approximate 51%, and selling, general and administrative expenses are expected to approximate 37%. Interest expense is expected to be approximately $12 million. The effective tax rate should be approximately 36%. Overall, currency translation is expected to benefit third quarter earnings. Diluted earnings per share diluted earnings per share An earnings measure calculated by dividing net income less preferred stock dividends for a period by the average number of shares of common stock that would be outstanding if all convertible securities were converted into shares of are expected to be in the $0.42-$0.43 range in the third quarter of 2006. Diluted earnings per share were $0.38 for the third quarter of 2005. For the full year ending December 31, 2006, Ecolab increased the lower end of the earnings per share range by $0.01 and now looks for diluted earnings per share in the $1.41-$1.43 range. In 2005, Ecolab reported diluted net income per share of $1.23. With 2005 sales of $4.5 billion, Ecolab is the leading global developer and marketer of premium cleaning, sanitizing, pest elimination, maintenance and repair products for the hospitality, foodservice, healthcare and industrial markets. Ecolab shares are traded on the New York Stock Exchange New York Stock Exchange (NYSE) World's largest marketplace for securities. The exchange began as an informal meeting of 24 men in 1792 on what is now Wall Street in New York City. under the symbol ECL. Ecolab news releases and other investor information are available on the Internet Internet Publicly accessible computer network connecting many smaller networks from around the world. It grew out of a U.S. Defense Department program called ARPANET (Advanced Research Projects Agency Network), established in 1969 with connections between computers at the at http://www.ecolab.com. Ecolab will host a live webcast to review the second quarter earnings announcement today at 1:00 p.m. Eastern Time. The webcast will be available to the public on Ecolab's website at http://www.ecolab.com/investor. A replay of the webcast will be available at that site through August 4, 2006. Listening to the webcast requires Internet access See how to access the Internet. , a soundcard and the Windows Media Player Digital jukebox software for Windows from Microsoft that plays a variety of audio, video and streaming formats including MP3, WMA, CD audio and MIDI. Starting with Version 6.2 in 1999, the Windows Media Rights Manager was added for securing copyrighted content. or other compatible streaming media player See digital media hub. . If you do not have the Media Player client installed on your PC, you may download To receive a file transmitted over a network. In any communications session, "download" means receive, and "upload" means send. The download/upload often implies a big/little scenario, in which data is being downloaded from the "big" server into the "little" user's computer. a free version of Media Player at http://www.microsoft.com/windows/windowsmedia/download/default.asp. This news release contains various "Forward-Looking Statements" within the meaning of the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995. These include statements concerning our 2006 third quarter and full year financial and business prospects, including estimated sales, gross margins, selling, general and administrative expenses, effective tax rates, currency translation and earnings per share. These statements, which represent Ecolab's expectations or beliefs concerning various future events, are based on current expectations that involve a number of risks and uncertainties that could cause actual results to differ materially from those of such Forward-Looking Statements. Risks and uncertainties that may affect operating results and business performance include: --the vitality vi·tal·i·ty n. 1. The capacity to live, grow, or develop. 2. Physical or intellectual vigor; energy. of the foodservice, hospitality, travel, health care and food processing Food processing is the set of methods and techniques used to transform raw ingredients into food for consumption by humans or animals. The food processing industry utilises these processes. industries; --restraints on pricing flexibility due to competitive factors, customer or vendor consolidations, and existing contractual obligations; --changes in oil or raw material prices or unavailability un·a·vail·a·ble adj. Not available, accessible, or at hand. un  a·vail of
adequate and reasonably priced raw materials or substitutes therefor there·for adv. For that: ordering goods and enclosing payment therefor. Adv. 1. therefor ; --the occurrence of capacity constraints CONSTRAINTS - A language for solving constraints using value inference. ["CONSTRAINTS: A Language for Expressing Almost-Hierarchical Descriptions", G.J. Sussman et al, Artif Intell 14(1):1-39 (Aug 1980)]. or the loss of a key supplier or the inability to obtain or renew supply agreements on favorable terms; --the effect of future acquisitions or divestitures or other corporate transactions; --our ability to achieve plans for past acquisitions; --the costs and effects of complying with: (i) laws and regulations relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc the environment and to the manufacture, storage, distribution, efficacy and labeling of our products, and (ii) changes in tax, fiscal, governmental and other regulatory policies; --economic factors such as the worldwide economy, interest rates and currency movements including, in particular, our exposure to foreign currency risk; --the occurrence of (a) litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. or claims, (b) the loss or insolvency insolvency Condition in which liabilities exceed assets so that creditors cannot be paid. It is a financial condition that often precedes bankruptcy. In the context of equity, insolvency is the inability to pay debts as they become due; insolvency under the balance-sheet of a major customer or distributor, (c) war (including acts of terrorism or hostilities which impact our markets), (d) natural or manmade disasters, or (e) severe weather conditions or public health epidemics This article is a list of major epidemics. Worldwide Pandemics
--loss of, or changes in, executive management; --our ability to continue product introductions or reformulations and technological innovations; and --other uncertainties or risks reported from time to time in our reports to the Securities and Exchange Commission. In addition, we note that our stock price can be affected by fluctuations in quarterly earnings. There can be no assurances that our earnings levels will meet investors' expectations. We undertake no duty to update our Forward-Looking Statements.
ECOLAB INC.
CONSOLIDATED STATEMENT OF INCOME
SECOND QUARTER AND SIX MONTHS ENDED JUNE 30, 2006
(unaudited)
Second Quarter Six Months
----------------------- -----------------------
(thousands, except per
share) 2006 2005 2006 2005
----------- ----------- ----------- -----------
Net Sales $1,225,884 $1,158,664 $2,345,959 $2,228,544
Cost of Sales 608,003 571,066 1,160,494 1,098,041
Selling, General and
Administrative
Expenses 464,754 449,346 900,881 874,264
----------- ----------- ----------- -----------
Operating Income 153,127 138,252 284,584 256,239
Interest Expense, Net 11,014 12,184 21,342 23,374
----------- ----------- ----------- -----------
Income before Income
Taxes 142,113 126,068 263,242 232,865
Provision for Income
Taxes 48,934 44,667 92,177 82,038
----------- ----------- ----------- -----------
Net Income $93,179 $81,401 $171,065 $150,827
=========== =========== =========== ===========
Diluted Net Income per
Common Share $0.36 $0.31 $0.66 $0.58
Weighted-Average
Common Shares
Outstanding
Basic 252,152 255,474 252,846 255,873
Diluted 256,692 259,594 257,389 260,122
2005 amounts have been restated for the adoption of SFAS No. 123(R),
"Share-Based Payment"
ECOLAB INC.
OPERATING SEGMENT INFORMATION
SECOND QUARTER AND SIX MONTHS ENDED JUNE 30, 2006
(unaudited)
Second Quarter Six Months
----------------------- -----------------------
(thousands) 2006 2005 2006 2005
----------- ----------- ----------- -----------
Net Sales
United States
Cleaning &
Sanitizing $544,477 $496,808 $1,057,924 $963,987
Other Services 104,902 96,328 198,135 182,138
----------- ----------- ----------- -----------
Total 649,379 593,136 1,256,059 1,146,125
International 561,800 536,454 1,071,888 1,020,451
Effect of Foreign
Currency
Translation 14,705 29,074 18,012 61,968
----------- ----------- ----------- -----------
Consolidated $1,225,884 $1,158,664 $2,345,959 $2,228,544
=========== =========== =========== ===========
Operating Income
United States
Cleaning &
Sanitizing $86,118 $72,660 $165,643 $144,265
Other Services 10,625 10,287 18,634 17,821
----------- ----------- ----------- -----------
Total 96,743 82,947 184,277 162,086
International 55,145 52,431 98,383 88,934
Effect of Foreign
Currency
Translation 1,239 2,874 1,924 5,219
----------- ----------- ----------- -----------
Consolidated $153,127 $138,252 $284,584 $256,239
=========== =========== =========== ===========
2005 amounts have been restated for the adoption of SFAS No. 123(R),
"Share-Based Payment"
ECOLAB INC.
CONSOLIDATED BALANCE SHEET
JUNE 30, 2006
June 30 December 31 June 30
(thousands) 2006 2005 2005
----------- ----------- -----------
(unaudited) (unaudited)
Assets
Current assets
Cash and cash equivalents $105,885 $104,378 $110,023
Short-term investments 125,063
Accounts receivable, net 831,762 743,520 767,612
Inventories 348,117 325,574 334,816
Deferred income taxes 62,722 65,880 73,962
Other current assets 69,883 57,251 69,174
----------- ----------- -----------
Total current assets 1,418,369 1,421,666 1,355,587
Property, plant and equipment, net 864,894 835,503 833,025
Goodwill, net 977,384 937,019 958,848
Other intangible assets, net 200,401 202,936 218,046
Other assets, net 450,235 399,504 364,977
----------- ----------- -----------
Total assets $3,911,283 $3,796,628 $3,730,483
=========== =========== ===========
Liabilities and Shareholders'
Equity
Current liabilities
Short-term debt $262,605 $226,927 $230,530
Accounts payable 274,803 277,635 249,437
Compensation and benefits 189,976 214,131 180,673
Income taxes 28,828 39,583 33,056
Other current liabilities 384,947 361,081 374,689
----------- ----------- -----------
Total current liabilities 1,141,159 1,119,357 1,068,385
Long-term debt 544,846 519,374 537,912
Postretirement health care and
pension benefits 328,186 302,048 287,459
Other liabilities 199,106 206,639 245,183
Shareholders' equity 1,697,986 1,649,210 1,591,544
----------- ----------- -----------
Total liabilities and
shareholders' equity $3,911,283 $3,796,628 $3,730,483
=========== =========== ===========
June 30, 2005 amounts have been restated for the adoption of SFAS No.
123(R), "Share-Based Payment"
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