10-Q 1 ecl-20180930x10q.htm 10-Q 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 September 30, 2018

 

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 every Interactive Data File required to be submitted 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 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    

 

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 September 30, 2018.

 

288,873,052 shares of common stock, par value $1.00 per share.

 

 

 

 


 

PART I - FINANCIAL INFORMATION

 

 

Item 1. Financial Statements

 

 

CONSOLIDATED STATEMENT OF INCOME

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Third Quarter Ended 

 

Nine Months Ended 

 

 

September 30

 

September 30

(millions, except per share amounts)

 

2018

    

2017

    

2018

    

2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product and equipment sales

 

 

$3,090.3

 

 

 

$2,931.9

 

 

$8,985.7

 

 

 

$8,376.9

Service and lease sales

 

 

656.9

 

 

 

632.6

 

 

1,922.0

 

 

 

1,810.0

Net sales

 

 

3,747.2

 

 

 

3,564.5

 

 

10,907.7

 

 

 

10,186.9

Product and equipment cost of sales

 

 

1,811.4

 

 

 

1,676.9

 

 

5,259.9

 

 

 

4,834.2

Service and lease cost of sales

 

 

388.8

 

 

 

387.7

 

 

1,178.5

 

 

 

1,127.6

Cost of sales (including special charges (a))

 

 

2,200.2

 

 

 

2,064.6

 

 

6,438.4

 

 

 

5,961.8

Selling, general and administrative expenses

 

 

955.2

 

 

 

930.9

 

 

2,990.5

 

 

 

2,836.3

Special (gains) and charges

 

 

75.6

 

 

 

4.9

 

 

113.7

 

 

 

47.9

Operating income

 

 

516.2

 

 

 

564.1

 

 

1,365.1

 

 

 

1,340.9

Other (income) expense

 

 

(21.0)

 

 

 

(16.9)

 

 

(60.0)

 

 

 

(50.5)

Interest expense, net

 

 

55.7

 

 

 

55.1

 

 

168.4

 

 

 

177.2

Income before income taxes

 

 

481.5

 

 

 

525.9

 

 

1,256.7

 

 

 

1,214.2

Provision for income taxes

 

 

43.2

 

 

 

129.3

 

 

216.6

 

 

 

264.0

Net income including noncontrolling interest

 

 

438.3

 

 

 

396.6

 

 

1,040.1

 

 

 

950.2

Net income attributable to noncontrolling interest

 

 

2.9

 

 

 

3.4

 

 

6.1

 

 

 

8.2

Net income attributable to Ecolab

 

 

$435.4

 

 

 

$393.2

 

 

$1,034.0

 

 

 

$942.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings attributable to Ecolab per common share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

$ 1.51

 

 

 

$ 1.36

 

 

$ 3.58

 

 

 

$ 3.25

Diluted

 

 

$ 1.48

 

 

 

$ 1.34

 

 

$ 3.53

 

 

 

$ 3.20

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared per common share

 

 

$ 0.41

 

 

 

$ 0.37

 

 

$ 1.23

 

 

 

$ 1.11

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

288.8

 

 

 

289.0

 

 

288.8

 

 

 

289.8

Diluted

 

 

293.4

 

 

 

293.4

 

 

293.1

 

 

 

294.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a)

Cost of sales includes special (gains) and charges of $3.6 and $0.3 million in the third quarter of 2018 and 2017, respectively, and $3.5 and $26.2 million in the first nine months of 2018 and 2017, respectively, which is recorded in product and equipment cost of sales.

 

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

 

2


 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Third Quarter Ended 

 

Nine Months Ended 

 

 

September 30

 

September 30

(millions)

    

2018

    

2017

 

2018

    

2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income including noncontrolling interest

 

 

$438.3

 

 

 

$396.6

 

 

$1,040.1

 

 

 

$950.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation

 

 

(201.8)

 

 

 

150.0

 

 

(218.9)

 

 

 

274.6

Gain (loss) on net investment hedges

 

 

9.1

 

 

 

(50.9)

 

 

31.9

 

 

 

(103.7)

 

 

 

(192.7)

 

 

 

99.1

 

 

(187.0)

 

 

 

170.9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives and hedging instruments

 

 

11.0

 

 

 

(20.8)

 

 

26.3

 

 

 

(29.1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pension and postretirement benefits

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of net actuarial loss and prior service costs included in

 

 

 

 

 

 

 

 

 

 

 

 

 

 

net periodic pension and postretirement costs

 

 

7.8

 

 

 

1.3

 

 

24.1

 

 

 

8.2

Postretirement benefits changes

 

 

 -

 

 

 

 -

 

 

14.4

 

 

 

 -

 

 

 

7.8

 

 

 

1.3

 

 

38.5

 

 

 

8.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Subtotal

 

 

(173.9)

 

 

 

79.6

 

 

(122.2)

 

 

 

150.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive income, including noncontrolling interest

 

 

264.4

 

 

 

476.2

 

 

917.9

 

 

 

1,100.2

Comprehensive income attributable to noncontrolling interest

 

 

1.7

 

 

 

4.0

 

 

5.9

 

 

 

10.8

Comprehensive income attributable to Ecolab

 

 

$262.7

 

 

 

$472.2

 

 

$912.0

 

 

 

$1,089.4

 

 

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

 

 

3


 

CONSOLIDATED BALANCE SHEET

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30

 

December 31

(millions, except shares and per share amounts)

    

2018

 

2017

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

$203.6

 

 

 

$211.4

Accounts receivable, net

 

 

2,652.7

 

 

 

2,571.4

Inventories

 

 

1,587.9

 

 

 

1,446.5

Other current assets

 

 

378.1

 

 

 

365.0

Total current assets

 

 

4,822.3

 

 

 

4,594.3

Property, plant and equipment, net

 

 

3,778.0

 

 

 

3,707.1

Goodwill

 

 

7,078.4

 

 

 

7,167.1

Other intangible assets, net

 

 

3,820.4

 

 

 

4,017.6

Other assets

 

 

463.5

 

 

 

477.4

Total assets

 

 

$19,962.6

 

 

 

$19,963.5

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

Short-term debt

 

 

$769.4

 

 

 

$564.4

Accounts payable

 

 

1,195.3

 

 

 

1,177.1

Compensation and benefits

 

 

528.2

 

 

 

549.4

Income taxes

 

 

50.3

 

 

 

183.6

Other current liabilities

 

 

1,046.6

 

 

 

1,000.7

Total current liabilities

 

 

3,589.8

 

 

 

3,475.2

Long-term debt

 

 

6,334.8

 

 

 

6,758.3

Postretirement health care and pension benefits

 

 

966.9

 

 

 

1,025.5

Deferred income taxes

 

 

711.8

 

 

 

635.4

Other liabilities

 

 

376.3

 

 

 

415.3

Total liabilities

 

 

11,979.6

 

 

 

12,309.7

 

 

 

 

 

 

 

 

Equity (a)

 

 

 

 

 

 

 

Common stock

 

 

356.5

 

 

 

354.7

Additional paid-in capital

 

 

5,586.0

 

 

 

5,435.7

Retained earnings

 

 

8,646.9

 

 

 

8,011.6

Accumulated other comprehensive loss

 

 

(1,765.4)

 

 

 

(1,643.4)

Treasury stock

 

 

(4,894.6)

 

 

 

(4,575.0)

Total Ecolab shareholders’ equity

 

 

7,929.4

 

 

 

7,583.6

Noncontrolling interest

 

 

53.6

 

 

 

70.2

Total equity

 

 

7,983.0

 

 

 

7,653.8

Total liabilities and equity

 

 

$19,962.6

 

 

 

$19,963.5

 

(a)

Common stock, 800.0 million shares authorized, $1.00 par value per share, 288.9 million shares outstanding at September 30, 2018 and 289.3 million shares outstanding at December 31, 2017. 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)

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended 

 

 

 

September 30

(millions)

 

 

2018

 

2017

 

    

 

 

 

 

 

 

 

OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

Net income including noncontrolling interest

 

 

 

$1,040.1

 

 

 

$950.2

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

 

 

 

 

 

 

 

 

Depreciation

 

 

 

461.5

 

 

 

437.0

Amortization

 

 

 

238.9

 

 

 

228.5

Deferred income taxes

 

 

 

56.6

 

 

 

9.8

Share-based compensation expense

 

 

 

75.5

 

 

 

71.8

Pension and postretirement plan contributions

 

 

 

(46.0)

 

 

 

(131.0)

Pension and postretirement plan expense

 

 

 

23.4

 

 

 

26.5

Restructuring charges, net of cash paid

 

 

 

57.4

 

 

 

13.3

Other, net

 

 

 

20.0

 

 

 

19.9

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

 

 

 

 

 

 

 

 

Accounts receivable

 

 

 

(161.3)

 

 

 

(23.2)

Inventories

 

 

 

(171.2)

 

 

 

(116.9)

Other assets

 

 

 

(22.9)

 

 

 

8.4

Accounts payable

 

 

 

52.2

 

 

 

57.0

Other liabilities

 

 

 

(173.8)

 

 

 

(106.4)

Cash provided by operating activities

 

 

 

1,450.4

 

 

 

1,444.9

 

 

 

 

 

 

 

 

 

INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Capital expenditures

 

 

 

(634.1)

 

 

 

(594.0)

Property and other assets sold

 

 

 

29.5

 

 

 

4.1

Acquisitions and investments in affiliates, net of cash acquired

 

 

 

(77.6)

 

 

 

(831.2)

Divestiture of businesses

 

 

 

9.2

 

 

 

 -

Settlement of net investment hedges

 

 

 

14.1

 

 

 

 -

Other, net

 

 

 

10.0

 

 

 

(0.8)

Cash used for investing activities

 

 

 

(648.9)

 

 

 

(1,421.9)

 

 

 

 

 

 

 

 

 

FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Net issuances of commercial paper and notes payable

 

 

 

115.7

 

 

 

187.8

Long-term debt borrowings

 

 

 

 -

 

 

 

495.0

Long-term debt repayments

 

 

 

(301.8)

 

 

 

(20.1)

Reacquired shares

 

 

 

(321.4)

 

 

 

(587.7)

Dividends paid

 

 

 

(370.8)

 

 

 

(330.3)

Exercise of employee stock options

 

 

 

85.8

 

 

 

63.0

Acquisition related liabilities and contingent consideration

 

 

 

(10.2)

 

 

 

(8.2)

Acquisition of noncontrolling interests

 

 

 

(13.1)

 

 

 

 -

Other, net

 

 

 

(3.7)

 

 

 

 -

Cash used for financing activities

 

 

 

(819.5)

 

 

 

(200.5)

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash, cash equivalents and restricted cash

 

 

 

10.2

 

 

 

6.2

 

 

 

 

 

 

 

 

 

Decrease in cash, cash equivalents and restricted cash

 

 

 

(7.8)

 

 

 

(171.3)

Cash, cash equivalents and restricted cash, beginning of period (a)

 

 

 

211.4

 

 

 

380.4

Cash, cash equivalents and restricted cash, end of period (b)

 

 

 

$203.6

 

 

 

$209.1

 

 

 

 

 

 

 

 

 

 

(a)

2017 includes $53.0 million of restricted cash related to the Anios transaction, which was included in other assets on the Consolidated Balance Sheet as of December 31, 2016.

(b)

There was no restricted cash as of September 30, 2018 and 2017 and December 31, 2017.

 

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

 

 

5


 

CONSOLIDATED STATEMENT OF EQUITY

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ecolab Shareholders

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

Ecolab

 

Non-

 

 

 

 

 

 

Common

 

Paid-in

 

Retained

 

OCI

 

Treasury

 

Shareholders'

 

Controlling

 

Total

 

(millions)

      

Stock

      

Capital

      

Earnings

      

(Loss)

      

Stock

      

Equity

      

Interest

      

Equity

 

Balance, December 31, 2015

 

 

$350.3

 

 

$5,086.1

 

 

$6,160.3

 

 

$(1,423.3)

 

 

$(3,263.5)

 

 

$6,909.9

 

 

$70.5

 

 

$6,980.4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New accounting guidance adoption (a)

 

 

 

 

 

 

 

 

(29.3)

 

 

 

 

 

 

 

 

(29.3)

 

 

 

 

 

(29.3)

 

Net income

 

 

 

 

 

 

 

 

1,229.0

 

 

 

 

 

 

 

 

1,229.0

 

 

17.5

 

 

1,246.5

 

Comprehensive income (loss) activity

 

 

 

 

 

 

 

 

 

 

 

(289.6)

 

 

 

 

 

(289.6)

 

 

(1.3)

 

 

(290.9)

 

Cash dividends declared

 

 

 

 

 

 

 

 

(414.9)

 

 

 

 

 

 

 

 

(414.9)

 

 

(16.9)

 

 

(431.8)

 

Stock options and awards

 

 

2.3

 

 

200.2

 

 

 

 

 

 

 

 

3.2

 

 

205.7

 

 

 

 

 

205.7

 

Reacquired shares

 

 

 

 

 

(15.5)

 

 

 

 

 

 

 

 

(724.1)

 

 

(739.6)

 

 

 

 

 

(739.6)

 

Balance, December 31, 2016

 

 

352.6

 

 

5,270.8

 

 

6,945.1

 

 

(1,712.9)

 

 

(3,984.4)

 

 

6,871.2

 

 

69.8

 

 

6,941.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New accounting guidance adoption (b)

 

 

 

 

 

 

 

 

1.9

 

 

 

 

 

 

 

 

1.9

 

 

 

 

 

1.9

 

Net income

 

 

 

 

 

 

 

 

1,504.6

 

 

 

 

 

 

 

 

1,504.6

 

 

14.0

 

 

1,518.6

 

Comprehensive income (loss) activity

 

 

 

 

 

 

 

 

 

 

 

69.5

 

 

 

 

 

69.5

 

 

1.7

 

 

71.2

 

Cash dividends declared

 

 

 

 

 

 

 

 

(440.0)

 

 

 

 

 

 

 

 

(440.0)

 

 

(19.3)

 

 

(459.3)

 

Acquisition of noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4.0

 

 

4.0

 

Stock options and awards

 

 

2.1

 

 

170.3

 

 

 

 

 

 

 

 

4.3

 

 

176.7

 

 

 

 

 

176.7

 

Reacquired shares

 

 

 

 

 

(5.4)

 

 

 

 

 

 

 

 

(594.9)

 

 

(600.3)

 

 

 

 

 

(600.3)

 

Balance, December 31, 2017

 

 

354.7

 

 

5,435.7

 

 

8,011.6

 

 

(1,643.4)

 

 

(4,575.0)

 

 

7,583.6

 

 

70.2

 

 

7,653.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New accounting guidance adoption (c)

 

 

 

 

 

 

 

 

(43.6)

 

 

 

 

 

 

 

 

(43.6)

 

 

 

 

 

(43.6)

 

Net income

 

 

 

 

 

 

 

 

1,034.0

 

 

 

 

 

 

 

 

1,034.0

 

 

6.1

 

 

1,040.1

 

Comprehensive income (loss) activity

 

 

 

 

 

 

 

 

 

 

 

(122.0)

 

 

 

 

 

(122.0)