XNYS:ECL Ecolab Inc Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-Q

 

(Mark One)

 

x      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2012

 

OR

 

o         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.)

 

370 Wabasha Street N., 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 x No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes x No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer x

 

Accelerated filer o

 

 

 

Non-accelerated filer o

 

Smaller reporting company o

(Do not check if a smaller reporting company)

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of June 30, 2012.

 

292,512,285 shares of common stock, par value $1.00 per share.

 

 

 



 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

ECOLAB INC.

CONSOLIDATED STATEMENT OF INCOME

 

 

 

Second Quarter Ended

 

 

 

June 30

 

(millions, except per share amounts)

 

2012

 

2011

 

 

 

(unaudited)

 

 

 

 

 

 

 

Net sales

 

$

2,958.7

 

$

1,698.8

 

Cost of sales (including special charges of $3.1 in 2012)

 

1,608.9

 

860.8

 

Selling, general and administrative expenses

 

981.7

 

609.6

 

Special (gains) and charges

 

41.6

 

30.1

 

Operating income

 

326.5

 

198.3

 

Interest expense, net

 

63.9

 

13.1

 

Income before income taxes

 

262.6

 

185.2

 

Provision for income taxes

 

79.2

 

59.0

 

Net income including noncontrolling interest

 

183.4

 

126.2

 

Less: Net income (loss) attributable to noncontrolling interest

 

(1.1

)

0.3

 

Net income attributable to Ecolab

 

$

184.5

 

$

125.9

 

 

 

 

 

 

 

Earnings attributable to Ecolab per common share

 

 

 

 

 

Basic

 

$

0.63

 

$

0.54

 

Diluted

 

$

0.62

 

$

0.53

 

 

 

 

 

 

 

Dividends declared per common share

 

$

0.2000

 

$

0.1750

 

 

 

 

 

 

 

Weighted-average common shares outstanding

 

 

 

 

 

Basic

 

291.9

 

231.6

 

Diluted

 

298.2

 

236.1

 

 

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

 

2



 

ECOLAB INC.

CONSOLIDATED STATEMENT OF INCOME

 

 

 

Six Months Ended

 

 

 

June 30

 

(millions, except per share amounts)

 

2012

 

2011

 

 

 

(unaudited)

 

 

 

 

 

 

 

Net sales

 

$

5,769.6

 

$

3,217.1

 

Cost of sales (including special charges of $79.1 in 2012 and $0.8 in 2011)

 

3,222.9

 

1,631.2

 

Selling, general and administrative expenses

 

1,971.4

 

1,191.2

 

Special (gains) and charges

 

83.0

 

44.7

 

Operating income

 

492.3

 

350.0

 

Interest expense, net (including special charges of $18.2 in 2012)

 

150.0

 

26.6

 

Income before income taxes

 

342.3

 

323.4

 

Provision for income taxes

 

114.8

 

103.4

 

Net income including noncontrolling interest

 

227.5

 

220.0

 

Less: Net income (loss) attributable to noncontrolling interest (including special charges of $4.5 in 2012)

 

(6.7

)

0.5

 

Net income attributable to Ecolab

 

$

234.2

 

$

219.5

 

 

 

 

 

 

 

Earnings attributable to Ecolab per common share

 

 

 

 

 

Basic

 

$

0.80

 

$

0.95

 

Diluted

 

$

0.79

 

$

0.93

 

 

 

 

 

 

 

Dividends declared per common share

 

$

0.4000

 

$

0.3500

 

 

 

 

 

 

 

Weighted-average common shares outstanding

 

 

 

 

 

Basic

 

291.7

 

231.8

 

Diluted

 

298.1

 

236.2

 

 

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

 

3



 

ECOLAB INC.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)

 

 

 

Second Quarter Ended

 

Six Months Ended

 

 

 

June 30

 

June 30

 

(millions)

 

2012

 

2011

 

2012

 

2011

 

 

 

(unaudited)

 

(unaudited)

 

Net income including noncontrolling interest

 

$

183.4

 

$

126.2

 

$

227.5

 

$

220.0

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

Foreign currency translation

 

(251.3

)

59.6

 

(168.9

)

139.4

 

Gain (loss) on net investment hedge

 

18.1

 

(11.0

)

25.7

 

(27.9

)

 

 

(233.2

)

48.6

 

(143.2

)

111.5

 

Derivatives & hedging instruments

 

 

 

 

 

 

 

 

 

Unrealized gains (losses) during the period

 

4.4

 

(10.1

)

1.5

 

(13.4

)

Reclassification adjustment for (gains) losses included in net income

 

(1.4

)

1.9

 

(0.1

)

3.9

 

 

 

3.0

 

(8.2

)

1.4

 

(9.5

)

Pension and postretirement benefits

 

 

 

 

 

 

 

 

 

Pension and postretirement benefit adjustment

 

(1.6

)

 

(1.6

)

 

Amortization of net actuarial loss and prior service cost included in net periodic pension cost

 

7.6

 

5.3

 

14.6

 

10.4

 

 

 

6.0

 

5.3

 

13.0

 

10.4

 

 

 

 

 

 

 

 

 

 

 

Subtotal

 

(224.2

)

45.7

 

(128.8

)

112.4

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive income (loss), including noncontrolling interest

 

(40.8

)

171.9

 

98.7

 

332.4

 

 

 

 

 

 

 

 

 

 

 

Less: Comprehensive income (loss) attributable to noncontrolling interest

 

(2.6

)

0.2

 

(7.9

)

0.4

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income (loss) attributable to Ecolab

 

$

(38.2

)

$

171.7

 

$

106.6

 

$

332.0

 

 

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

 

4



 

ECOLAB INC.

CONSOLIDATED BALANCE SHEET

 

 

 

June 30

 

December 31

 

(millions)

 

2012

 

2011

 

 

 

(unaudited)

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

304.9

 

$

1,843.6

 

 

 

 

 

 

 

Accounts receivable, net

 

2,076.9

 

2,095.3

 

 

 

 

 

 

 

Inventories

 

1,071.7

 

1,069.6

 

 

 

 

 

 

 

Deferred income taxes

 

189.5

 

164.0

 

 

 

 

 

 

 

Other current assets

 

265.5

 

223.5

 

 

 

 

 

 

 

Total current assets

 

3,908.5

 

5,396.0

 

 

 

 

 

 

 

Property, plant and equipment, net

 

2,285.1

 

2,295.4

 

 

 

 

 

 

 

Goodwill

 

5,821.8

 

5,855.3

 

 

 

 

 

 

 

Other intangible assets, net

 

4,140.9

 

4,275.2

 

 

 

 

 

 

 

Other assets

 

309.1

 

362.8

 

 

 

 

 

 

 

Total assets

 

$

16,465.4

 

$

18,184.7

 

 

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

 

(Continued)

 

5



 

ECOLAB INC.

CONSOLIDATED BALANCE SHEET (continued)

 

(millions, except shares and per share

 

June 30

 

December 31

 

amounts)

 

2012

 

2011

 

 

 

(unaudited)

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

 

 

 

Short-term debt

 

$

1,445.3

 

$

1,023.0

 

 

 

 

 

 

 

Accounts payable

 

785.1

 

815.7

 

 

 

 

 

 

 

Compensation and benefits

 

401.0

 

497.2

 

 

 

 

 

 

 

Income taxes

 

58.1

 

81.7

 

 

 

 

 

 

 

Other current liabilities

 

761.2

 

748.7

 

 

 

 

 

 

 

Total current liabilities

 

3,450.7

 

3,166.3

 

 

 

 

 

 

 

Long-term debt

 

4,879.2

 

6,613.2

 

 

 

 

 

 

 

Postretirement health care and pension benefits

 

994.0

 

1,173.4

 

 

 

 

 

 

 

Other liabilities

 

1,439.3

 

1,490.7

 

 

 

 

 

 

 

Total liabilities

 

10,763.2

 

12,443.6

 

 

 

 

 

 

 

Equity (a) 

 

 

 

 

 

Common stock

 

339.7

 

336.1

 

Additional paid-in capital

 

4,137.4

 

3,980.8

 

Retained earnings

 

3,677.5

 

3,559.9

 

Accumulated other comprehensive loss

 

(473.7

)

(344.9

)

Treasury stock

 

(2,059.1

)

(1,865.2

)

Total Ecolab shareholders’ equity

 

5,621.8

 

5,666.7

 

Noncontrolling interest

 

80.4

 

74.4

 

Total equity

 

5,702.2

 

5,741.1

 

 

 

 

 

 

 

Total liabilities and equity

 

$

16,465.4

 

$

18,184.7

 

 


(a)   Common stock, 800 million shares authorized, $1.00 par value per share, 292.5 million shares outstanding at June 30, 2012, 292.0 million shares outstanding at December 31, 2011. Shares outstanding are net of treasury stock.

 

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

 

6



 

ECOLAB INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

 

 

 

Six Months Ended

 

 

 

June 30

 

(millions)

 

2012

 

2011

 

 

 

(unaudited)

 

OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

Net income including noncontrolling interest

 

$

227.5

 

$

220.0

 

 

 

 

 

 

 

Adjustments to reconcile net income including noncontrolling interest to cash provided by operating activities:

 

 

 

 

 

 

 

 

 

 

 

Depreciation

 

231.8

 

162.4

 

Amortization

 

123.8

 

25.5

 

Deferred income taxes

 

(26.1

)

7.3

 

Share-based compensation expense

 

38.3

 

21.0

 

Excess tax benefits from share-based payment arrangements

 

(24.4

)

(7.8

)

Pension and postretirement plan contributions

 

(201.0

)

(123.0

)

Pension and postretirement plan expense

 

55.4

 

40.1

 

Restructuring, net of cash paid

 

27.7

 

36.3

 

Other, net

 

6.4

 

4.0

 

 

 

 

 

 

 

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

 

 

 

 

 

Accounts receivable

 

(73.0

)

(34.3

)

Inventories

 

(4.3

)

(16.8

)

Other assets

 

(34.0

)

(26.1

)

Accounts payable

 

(20.5

)

34.4

 

Other liabilities

 

(116.5

)

(40.9

)

 

 

 

 

 

 

Cash provided by operating activities

 

$

211.1

 

$

302.1

 

 

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

 

(Continued)

 

7



 

ECOLAB INC.

CONSOLIDATED STATEMENT OF CASH FLOWS (continued)

 

 

 

Six Months Ended

 

 

 

June 30

 

(millions)

 

2012

 

2011

 

 

 

(unaudited)

 

 

 

 

 

 

 

INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

$

(254.5

)

$

(145.8

)

Capitalized software expenditures

 

(8.0

)

(11.9

)

Property and other assets sold

 

8.0

 

2.5

 

Businesses acquired and investments in affiliates, net of cash acquired

 

(27.4

)

(281.1

)

Sale of business

 

0.8

 

 

Deposit into indemnification escrow

 

(1.3

)

(28.1

)

Receipt from indemnification escrow

 

2.1

 

 

Cash used for investing activities

 

(280.3

)

(464.4

)

 

 

 

 

 

 

FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

Net issuances (repayments) of commercial paper and notes payable

 

426.4

 

362.3

 

Long-term debt repayments

 

(1,691.1

)

(153.8

)

Reacquired shares

 

(190.9

)

(122.2

)

Cash dividends on common stock

 

(120.9

)

(81.2

)

Exercise of employee stock options

 

98.0

 

50.7

 

Excess tax benefits from share-based payment arrangements

 

24.4

 

7.8

 

Other, net

 

 

(0.1

)

Cash provided by (used for) financing activities

 

(1,454.1

)

63.5

 

 

 

 

 

 

 

Effect of exchange rate changes on cash

 

(15.4

)

19.7

 

 

 

 

 

 

 

DECREASE IN CASH AND CASH EQUIVALENTS

 

(1,538.7

)

(79.1

)

 

 

 

 

 

 

Cash and cash equivalents, beginning of period

 

1,843.6

 

242.3

 

 

 

 

 

 

 

Cash and cash equivalents, end of period

 

$

304.9

 

$

163.2

 

 

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

 

8



 

ECOLAB INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

1.       Consolidated Financial Information

 

The unaudited consolidated financial information for the second quarter and six months ended June 30, 2012 and 2011 reflect, in the opinion of management, all adjustments necessary for a fair presentation of the financial position, results of operations, comprehensive income (loss) and cash flows of Ecolab Inc. (“Ecolab” or “the company”) for the interim periods presented. The financial results for any interim period are not necessarily indicative of results for the full year. The consolidated balance sheet data as of December 31, 2011 was derived from the audited consolidated financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. The unaudited consolidated financial information should be read in conjunction with the consolidated financial statements and notes thereto incorporated in the company’s Annual Report on Form 10-K for the year ended December 31, 2011.

 

With respect to the unaudited financial information of the company for the second quarter and six months ended June 30, 2012 and 2011 included in this Form 10-Q, PricewaterhouseCoopers LLP reported that they have applied limited procedures in accordance with professional standards for a review of such information. However, their separate report dated August 2, 2012 appearing herein states that they did not audit and they do not express an opinion on that unaudited financial information. Accordingly, the degree of reliance on their report on such information should be restricted in light of the limited nature of the review procedures applied. PricewaterhouseCoopers LLP is not subject to the liability provisions of Section 11 of the Securities Act of 1933, as amended (the “Act”), for their report on the unaudited financial information because that report is not a “report” or a “part” of a registration statement prepared or certified by PricewaterhouseCoopers LLP within the meaning of Sections 7 and 11 of the Act.

 

The company has revised its consolidated balance sheet as of December 31, 2011 to correct the jurisdictional netting of long-term deferred tax assets and liabilities. This revision decreased other assets and other liabilities by $56.l million and does not impact the consolidated statements of income or comprehensive income or the consolidated statement of cash flows for any period.  This correction also impacted the March 31, 2012 interim financial statements.  In addition to jurisdictional netting, additional classification differences primarily related to the January debt repayment were identified between deferred income taxes and income taxes payable which together had the net effect of reducing other assets by $57.1 million, income taxes payable by $64.9 million, and increasing other liabilities by $7.8 million as of March 31, 2012.  There was no impact to total cash provided by operations on the statement of cash flows for the three months ended March 31, 2012, but cash used by deferred income taxes was reduced by $64.9 million with an offsetting impact to other liabilities within the components of operating cash flows.  There was no impact on the consolidated statements of income or comprehensive income.  The company believes that these revisions were immaterial to previously issued financial statements.

 

9



 

ECOLAB INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

2.       Special (Gains) and Charges

 

Special (gains) and charges reported on the Consolidated Statement of Income include the following:

 

 

 

Second Quarter Ended

 

Six Months Ended

 

 

 

June 30

 

June 30

 

(millions)

 

2012

 

2011

 

2012

 

2011

 

Cost of sales

 

 

 

 

 

 

 

 

 

Restructuring charges

 

$

5.8

 

$

 

$

7.9

 

$

0.8

 

Recognition of Nalco inventory fair value step-up

 

(2.7

)

 

71.2

 

 

Subtotal

 

3.1

 

 

79.1

 

0.8

 

 

 

 

 

 

 

 

 

 

 

Special (gains) and charges

 

 

 

 

 

 

 

 

 

Restructuring charges

 

25.9

 

29.8

 

52.4

 

40.2

 

Business structure and optimization

 

 

0.3

 

 

0.9

 

Nalco merger and integration costs

 

15.7

 

 

30.6

 

 

Cleantec acquisition integration costs

 

 

 

 

3.6

 

Subtotal

 

41.6

 

30.1

 

83.0

 

44.7

 

 

 

 

 

 

 

 

 

 

 

Operating income subtotal

 

44.7

 

30.1

 

162.1

 

45.5

 

 

 

 

 

 

 

 

 

 

 

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 special (gains) and charges

 

$

44.7

 

$

30.1

 

$

175.8

 

$

45.5

 

 

For segment reporting purposes, special (gains) and charges are included in the Corporate segment, which is consistent with the company’s internal management reporting.

 

Restructuring Charges

 

Restructuring actions generally include significant actions involving employee-related severance charges, contract termination costs and asset write-downs associated with such actions. Employee termination costs are largely based on policies and severance plans, and include personnel reductions and related costs for severance, benefits and outplacement services. These charges are reflected in the quarter when the actions are probable and the amounts are estimable, which typically is when management approves the associated actions. Asset disposals include leasehold improvement write-downs and other asset write-downs associated with combining operations. Other charges include lease terminations prior to the end of their respective terms.

 

Restructuring charges have been included as a component of both cost of sales and special (gains) and charges on the Consolidated Statement of Income. Amounts included as a component of cost of sales include supply chain related severance and other asset write-downs associated with combining operations. Restructuring liabilities have been classified as a component of other current liabilities on the Consolidated Balance Sheet.

 

10



 

ECOLAB INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

2.     Special (Gains) and Charges (Continued)

 

2011 Restructuring Plan

 

In February 2011, the company commenced a comprehensive plan to substantially improve the efficiency and effectiveness of its European business, sharpen its competitiveness and accelerate its growth and profitability. Additionally, restructuring has been and will continue to be undertaken outside of Europe, the costs of which have not been and are not expected to be significant (collectively, the “2011 Restructuring Plan”). Through the 2011 Restructuring Plan, approximately 750 positions are expected to be eliminated.

 

The company expects to incur pretax restructuring charges of approximately $150 million ($125 million after tax) under the 2011 Restructuring Plan through the completion of the Plan in 2013. Approximately $60 million ($50 million after tax) of those charges are expected to occur in 2012.

 

The company anticipates that approximately $130 million of the pre-tax charge will represent cash expenditures. The remaining $20 million of the pre-tax charges represent estimated asset disposals. No decisions have been made for any remaining asset disposals and estimates could vary depending on the actual actions taken.

 

As a result of restructuring activities under the 2011 Restructuring Plan, the company has recorded restructuring charges of $100.3 million ($79.4 million after tax) since the inception of the Plan. During the second quarter of 2012 and 2011, the company recorded restructuring charges of $16.4 million ($12.6 million after tax) and $29.8 million ($25.2 million after tax), respectively. During the six months ended June 30, 2012 and 2011, the company recorded restructuring charges of $32.2 million ($25.2 million after tax) and $41.0 million ($34.2 million after tax), respectively.

 

Merger Restructuring Plan

 

In January 2012, following the merger with Nalco Holding Company (“Nalco”), the company formally commenced plans to undertake restructuring actions related to the reduction of its global workforce and optimization of its supply chain and office facilities, including planned reductions of plant and distribution center locations (the “Merger Restructuring Plan”). Actions associated with the merger to improve efficiency and effectiveness are expected to lead to a reduction of the company’s workforce by 500 to 700 positions through 2012, with additional productivity and efficiency actions beyond 2012 expected to reduce the need for future positions by approximately 1,500.

 

The company expects that restructuring activities under the Merger Restructuring Plan will be completed by the end of 2013, with total costs through the end of 2013 anticipated to be approximately $180 million ($120 million after tax). Approximately $60 to $70 million ($40 to $50 million after tax) of those charges are expected to occur in 2012.

 

The company anticipates that approximately $150 million of the pre-tax restructuring charges will represent cash expenditures. The remaining $30 million of the pretax charges represent estimated asset disposals. No decisions have been made for any remaining asset disposals and estimates could vary depending on the actual actions taken.

 

As a result of restructuring activities under the Merger Restructuring Plan, the company has recorded restructuring charges of $34.5 million ($24.1 million after tax) since the inception of the Plan. The company recorded restructuring charges of $15.2 million ($11.2 million after tax) and $27.9 million ($20.0 million after tax) during the second quarter and six months ended June 30, 2012, respectively.

 

11



 

ECOLAB INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

2.       Special (Gains) and Charges (Continued)

 

Restructuring charges and subsequent activity related to the 2011 Restructuring Plan and the Merger Restructuring Plan, since the inception of each respective Plan, include the following:

 

 

 

 

 

 

 

 

 

 

 

Merger

 

 

 

 

 

2011 Restructuring Plan

 

Restructuring Plan

 

 

 

 

 

Employee

 

 

 

 

 

 

 

Employee

 

 

 

 

 

 

 

 

 

 

 

Termination

 

Asset

 

 

 

 

 

Termination

 

Asset

 

 

 

 

 

 

 

(millions)

 

Costs

 

Disposals

 

Other

 

Subtotal

 

Costs

 

Disposals

 

Other

 

Subtotal

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2011 Activity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recorded expense and accrual

 

$

60.5

 

$

0.5

 

$

7.1

 

$

68.1

 

$

6.6

 

$

 

$

 

$

6.6

 

$

74.7

 

Cash payments

 

(22.2

)

 

(2.6

)

(24.8

)

(0.3

)

 

 

(0.3

)

(25.1

)

Non-cash charges

 

 

(0.5

)

 

(0.5

)

 

 

 

 

(0.5

)

Effect of foreign currency translation

 

(2.2

)

 

 

(2.2

)

 

 

 

 

(2.2

)

Restructuring liability, December 31, 2011

 

36.1

 

 

4.5

 

40.6

 

6.3

 

 

 

6.3

 

46.9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2012 Activity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recorded expense and accrual

 

30.7

 

 

1.5

 

32.2

 

24.1

 

1.8

 

2.0

 

27.9

 

60.1

 

Cash payments

 

(13.9

)

 

(4.9

)

(18.8

)

(8.8

)

 

(0.6

)

(9.4

)

(28.2

)

Non-cash charges

 

 

 

(0.8

)

(0.8

)

 

(1.6

)

 

(1.6

)

(2.4

)

Effect of foreign currency translation

 

(3.3

)

 

 

(3.3

)

(0.1

)

 

 

(0.1

)

(3.4

)

Restructuring liability, June 30, 2012

 

$

49.6

 

$

 

$

0.3

 

$

49.9

 

$

21.5

 

$

0.2

 

$

1.4

 

$

23.1

 

$

73.0

 

 

Nalco Restructuring Plan

 

Prior to the Nalco merger, Nalco conducted various restructuring programs to redesign and optimize its business and work processes (the “Nalco Restructuring Plan”). As part of the Nalco merger, Ecolab assumed the Nalco Restructuring Plan liability balance of $10.6 million, which was primarily related to accrued severance and termination benefits. As of June 30, 2012 and December 31, 2011, the remaining liability balance related to the Nalco Restructuring Plan was $6.5 million and $10.6 million, respectively. Cash payments during the first six months of 2012 related to this Plan were $4.2 million. The company expects to utilize the remaining liability through 2013 as part of the run-out of this Plan.

 

12



 

ECOLAB INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

2.       Special (Gains) and Charges (Continued)

 

Non-restructuring Special (Gains) and Charges

 

As a result of the Nalco merger, the company incurred special charges of $13.0 million ($8.8 million after tax) and $115.5 million ($86.5 million after tax) during the second quarter and first six months of 2012, respectively. Nalco related special charges have been included as a component of cost of sales, special (gains) and charges, net interest expense and net income attributable to noncontrolling interest on the Consolidated Statement of Income. Amounts within cost of sales and net income attributable to noncontrolling interest include the recognition of fair value step-up of Nalco inventory. Amounts within special (gains) and charges include merger and integration charges. Amounts within net interest expense include a loss on the extinguishment of Nalco’s senior notes, which were assumed as part of the merger. Further details related to the Nalco merger are included in Note 3.

 

In the first quarter of 2011, the company completed the purchase of the assets of the Cleantec business of Campbell Brothers Ltd., Brisbane, Queensland, Australia (“Cleantec”). Special (gains) and charges in 2011 include acquisition integration costs incurred to optimize the Cleantec business structure. Further details related to the Cleantec acquisition are included in Note 3.

 

3.       Acquisitions and Dispositions

 

Nalco Merger

 

On December 1, 2011, the company completed its merger with Nalco, the leading water treatment and process improvement company. The total fair value of cash and stock consideration transferred to acquire all of Nalco’s common stock was approximately $5.5 billion.

 

The company incurred certain Nalco related special charges associated with the merger during 2012, which were expensed as incurred and are reflected in the Consolidated Statement of Income. During the first six months of 2012, a total of $115.5 million were incurred with $30.6 million included in special (gains) and charges related to merger and integration charges, $71.2 million and a corresponding reduction of $4.5 million included in cost of sales and net income attributable to Ecolab, respectively, related to recognition of fair value step-up in Nalco inventory and $18.2 million included in net interest expense related to a loss on the extinguishment of Nalco’s senior notes. During the second quarter of 2012, $13.0 million of Nalco related special charges were incurred.

 

The merger has been accounted for using the acquisition method of accounting which requires, among other things, that most assets acquired and liabilities assumed be recognized at fair value as of the acquisition date. Certain estimated values are not yet finalized and are subject to change, which could be significant.

 

The following table summarizes the value of Nalco assets acquired and liabilities assumed as of the merger date. Also summarized in the table, subsequent to the merger, net adjustments of $48 million have been made to the purchase price allocations of the assets acquired and liabilities assumed, with a corresponding adjustment to goodwill, as part of finalizing the preliminary purchase price allocations. The additional consideration transferred in 2012 relates to the resolution of an appraisal action with respect to dissenting Nalco shares.

 

13



 

ECOLAB INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

3.       Acquisitions and Dispositions (Continued)

 

 

 

 

 

2012

 

 

 

 

 

Initial

 

Adjustments

 

June 30

 

(millions)

 

Valuation

 

to Fair Value

 

2012

 

Current assets

 

$

1,869.6

 

$

(0.1

)

$

1,869.5

 

Property, plant and equipment

 

1,069.2

 

(0.4

)

1,068.8

 

Other assets

 

97.3

 

(3.3

)

94.0

 

Identifiable intangible assets

 

 

 

 

 

 

 

Customer relationships

 

2,160.0

 

 

2,160.0

 

Patents

 

321.0

 

 

321.0

 

Trade names

 

1,230.0

 

 

1,230.0

 

Trademarks

 

79.0

 

 

79.0

 

Other technology

 

91.0

 

 

91.0

 

Total assets acquired

 

6,917.1

 

(3.8

)

6,913.3

 

 

 

 

 

 

 

 

 

Current liabilities

 

1,105.5

 

20.2

 

1,125.7

 

Long-term debt

 

2,858.4

 

 

2,858.4

 

Pension and postretirement benefits

 

505.7

 

2.2

 

507.9

 

Net deferred tax liability

 

1,188.7

 

(5.8

)

1,182.9

 

Noncontrolling interest and other liabilities

 

167.7

 

27.4

 

195.1

 

Total liabilities and noncontrolling interests assumed

 

5,826.0

 

44.0

 

5,870.0

 

 

 

 

 

 

 

 

 

Goodwill

 

4,403.9

 

49.9

 

4,453.8

 

 

 

 

 

 

 

 

 

Total consideration transferred

 

$

5,495.0

 

$

2.1

 

$

5,497.1

 

 

The adjustments to the purchase price allocation during 2012 primarily relate to accruals, contingent liabilities, current and noncurrent deferred tax assets and liabilities and other assets and liabilities of non-wholly owned subsidiaries.

 

The company will finalize the amounts recognized as information necessary to complete the analyses is obtained. The company expects to finalize these amounts no later than one year from the merger date. Amounts for certain contingent liabilities, certain deferred tax assets and liabilities and goodwill remain subject to change.

 

The customer relationships, patents, finite-lived trademarks and other technology are being amortized over weighted average lives of 15, 14, 15 and 8 years, respectively. The Nalco trade name has been determined to have an indefinite life.

 

14



 

ECOLAB INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

3.                     Acquisitions and Dispositions (continued)

 

The following table provides unaudited pro forma net sales and pro forma results of operations for the second quarter and six months ended June 30, 2011, assuming the Nalco merger had been completed on January 1, 2010. The unaudited pro forma results reflect certain adjustments that are directly attributable to the merger, supportable and expected to have a continuing impact on the combined results. The unaudited pro forma results do not include any anticipated cost savings from operating efficiencies or synergies that could result from the merger. Accordingly, such unaudited pro forma amounts are not necessarily indicative of the results that actually would have occurred had the merger been completed on January 1, 2010, nor are they indicative of future operating results of the combined company.

 

 

 

Second Quarter
Ended

 

Six Months
Ended

 

(millions)

 

June 30, 2011

 

June 30, 2011

 

Net sales

 

$

2,866.7

 

$

5,452.3

 

Net income attributable to Ecolab

 

178.0

 

359.3

 

Earnings attributable to Ecolab per common share

 

 

 

 

 

Basic

 

$

0.59

 

$

1.20

 

Diluted

 

$

0.58

 

$

1.17

 

 

Other significant acquisition activity

 

Other completed acquisitions during the first six months of 2012 and all of 2011 (excluding Nalco) were not material to the company’s consolidated financial statements; therefore pro forma financial information is not presented. The aggregate purchase price of acquisitions has been reduced for any cash or cash equivalents acquired with the acquisitions. Based upon purchase price allocations, excluding the Nalco merger, the components of the aggregate purchase prices of completed acquisitions during the second quarter and first six months 2012 and 2011 are shown in the following table.

 

 

 

Second Quarter Ended

 

Six Months Ended

 

 

 

June 30

 

June 30

 

(millions)

 

2012

 

2011

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

Net tangible assets acquired

 

$

(2.1

)

$

3.5

 

$

(0.4

)

$

57.4

 

Identifiable intangible assets

 

 

 

 

 

 

 

 

 

Customer relationships

 

6.1

 

1.9

 

8.4

 

144.7

 

Trademarks

 

0.4

 

 

0.5

 

11.2

 

Patents

 

 

 

2.8

 

0.3

 

Other technology

 

0.1

 

(0.7

)

0.3

 

8.4

 

Total

 

6.6

 

1.2

 

12.0

 

164.6

 

Goodwill

 

9.0

 

3.6

 

23.2

 

91.9

 

Total aggregate purchase price

 

13.5

 

8.3

 

34.8

 

313.9

 

Contingent consideration

 

 

(4.7

)

(2.6

)

(4.7

)

Liability for indemnification

 

 

 

(0.8

)

(28.1

)

Net cash paid for acquisitions

 

$

13.5

 

$

3.6

 

$

31.4

 

$

281.1

 

 

The weighted average useful lives of identifiable intangible assets acquired in the above table during the first six months of 2012 and 2011 were 12 and 14 years, respectively.

 

15



 

ECOLAB INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

3.                     Acquisitions and Dispositions (continued)

 

2012 Activity

 

In December 2011, subsequent to the company’s fiscal year end for international operations, the company completed the acquisition of Esoform, an independent Italian healthcare manufacturer focused on infection prevention and personal care. Based outside of Venice, Italy, with annual sales of approximately $12 million, the business became part of the company’s International Cleaning, Sanitizing & Other Services reportable segment during the first quarter of 2012.

 

Also in December 2011, the company completed the acquisition of the InsetCenter pest elimination business in Brazil. Annual sales of the acquired business are approximately $6 million. The business operations and staff have been integrated with the company’s existing Brazil Pest Elimination business, and became part of the company’s International Cleaning, Sanitizing & Other Services reportable segment during the first quarter of 2012.

 

In March 2012, the company acquired Econ Indústria e Comércio de Produtos de Higiene e Limpeza Ltda., a provider of cleaning and sanitizing products and services to the Brazilian foodservice industry. Based in Sao Paulo, Brazil, its annual sales are approximately $9 million. The business operations have been integrated within the company’s existing Brazil Institutional business and became part of the company’s International Cleaning, Sanitizing & Other Services reportable segment during the second quarter of 2012.

 

There were no significant business disposals during the first six months of 2012.

 

2011 Activity

 

In December 2010, subsequent to the company’s fiscal year end for international operations, the company completed the purchase of the assets of Cleantec located in Brisbane, Queensland, Australia. Cleantec is a developer, manufacturer and marketer of cleaning and hygiene products principally within the Australian food and beverage processing, foodservice, hospitality and textile care markets. The total purchase price was approximately $43 million, of which $2 million remains payable and was placed in an escrow account for indemnification purposes. The business, which had annual sales of approximately $55 million, became part of the company’s International Cleaning, Sanitizing & Other Services segment during the first quarter of 2011.

 

In March 2011, the company closed on the purchase of the assets of O.R. Solutions, Inc., a privately-held developer and marketer of surgical fluid warming and cooling systems in the U.S. The total purchase price was approximately $260 million, of which $26 million remains payable and was placed in an escrow account for indemnification purposes related to general representations and warranties. The business, which had annual sales of approximately $55 million, became part of the company’s U.S. Cleaning & Sanitizing segment during the first quarter of 2011.

 

There were no business disposals during 2011.

 

16



 

ECOLAB INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

4.               Balance Sheet Information

 

 

 

June 30

 

December 31

 

(millions)

 

2012

 

2011

 

 

 

(unaudited)

 

Accounts receivable, net

 

 

 

 

 

Accounts receivable

 

$

2,133.9

 

$

2,144.6

 

Allowance for doubtful accounts

 

(57.0

)

(49.3

)

Total

 

$

2,076.9

 

$

2,095.3

 

 

 

 

 

 

 

Inventories

 

 

 

 

 

Finished goods

 

$

738.4

 

$

745.5

 

Raw materials and parts

 

352.1

 

351.4

 

Inventories at FIFO cost

 

1,090.5

 

1,096.9

 

Excess of FIFO cost over LIFO cost

 

(18.8

)

(27.3

)

Total

 

$

1,071.7

 

$

1,069.6

 

 

 

 

 

 

 

Property, plant and equipment, net

 

 

 

 

 

Land

 

$

149.1

 

$

158.8

 

Buildings and improvements

 

488.4

 

483.8

 

Leasehold improvements

 

78.0

 

77.3

 

Machinery and equipment

 

1,197.8

 

1,206.1

 

Merchandising and customer equipment

 

1,732.9

 

1,682.7

 

Capitalized software

 

355.8

 

385.7

 

Construction in progress

 

239.9

 

182.7

 

 

 

4,241.9

 

4,177.1

 

Accumulated depreciation

 

(1,956.8

)

(1,881.7

)

Total

 

$

2,285.1

 

$

2,295.4

 

 

 

 

 

 

 

Other intangible assets, net

 

 

 

 

 

Cost of intangible assets not subject to amortization

 

 

 

 

 

 

 

Trade names

 

$

1,230.0

 

$

1,230.0

 

Cost of intangible assets subject to amortization

 

 

 

 

 

Customer relationships

 

$

2,552.4

 

$

2,593.2

 

Trademarks

 

201.3

 

201.0

 

Patents

 

411.0

 

404.4

 

Other technology

 

174.3

 

174.6

 

 

 

$

3,339.0

 

$

3,373.2

 

Accumulated amortization

 

 

 

 

 

Customer relationships

 

$

(274.3

)

$

(204.8

)

Trademarks

 

(54.3

)

(48.6

)

Patents

 

(50.9

)

(36.3

)

Other technology

 

(48.6

)

(38.3

)

Other intangible assets, net

 

$

4,140.9

 

$

4,275.2

 

 

 

 

 

 

 

Other assets

 

 

 

 

 

Deferred income taxes

 

$

45.5

 

$

61.9

 

Pension

 

22.0

 

22.3

 

Other

 

241.6

 

278.6

 

Total

 

$

309.1

 

$

362.8

 

 

17



 

ECOLAB INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

4.                     Balance Sheet Information (Continued)

 

 

 

June 30

 

December 31

 

(millions)

 

2012

 

2011

 

 

 

(unaudited)

 

 

 

 

 

 

 

Other current liabilities

 

 

 

 

 

Discounts and rebates

 

$

246.5

 

$

239.9

 

Dividends payable

 

58.5

 

60.0

 

Interest payable

 

25.9

 

51.0

 

Taxes payable, other than income

 

64.0

 

74.1

 

Derivative liabilities

 

15.1

 

3.3

 

Restructuring

 

79.5

 

63.8

 

Other

 

271.7

 

256.6

 

Total

 

$

761.2

 

$

748.7

 

 

 

 

 

 

 

Other liabilities

 

 

 

 

 

Deferred income taxes

 

$

1,215.5

 

$

1,249.2

 

Income taxes payable - non-current

 

83.4

 

80.8

 

Other

 

140.4

 

160.7

 

Total

 

$

1,439.3

 

$

1,490.7

 

 

 

 

 

 

 

Accumulated other comprehensive loss

 

 

 

 

 

Unrealized loss on derivative financial instruments, net of tax

 

$

(12.1

)

$

(13.5

)

Unrecognized pension and postretirement benefit expense, net of tax

 

(465.8

)

(481.3

)

Cumulative translation, net of tax

 

4.2

 

149.9

 

Total

 

$

(473.7

)

$

(344.9

)

 

18



 

ECOLAB INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

5.                     Debt and Interest

 

 

 

June 30

 

December 31

 

(millions)

 

2012

 

2011

 

 

 

(unaudited)

 

 

 

 

 

 

 

Short-term debt

 

 

 

 

 

Commercial paper

 

$

1,322.0

 

$

916.1

 

Notes payable

 

117.1

 

100.3

 

Long-term debt, current maturities

 

6.2

 

6.6

 

Total

 

$

1,445.3

 

$

1,023.0

 

 

 

 

 

 

 

Long-term debt

 

 

 

 

 

Description / 2012 Principal Amount

 

 

 

 

 

Series A senior euro notes (125 million euro)

 

$

154.6

 

$

168.1

 

Series B senior euro notes (175 million euro)

 

216.4

 

235.3

 

Senior notes ($250 million)

 

249.2

 

249.1

 

Series A private placement senior notes ($250 million)

 

250.0

 

250.0

 

Series B private placement senior notes ($250 million)

 

250.0

 

250.0

 

Three year 2011 senior notes ($500 million)

 

499.8

 

499.7

 

Five year 2011 senior notes ($1.25 billion)

 

1,247.8

 

1,247.6

 

Ten year 2011 senior notes ($1.25 billion)

 

1,249.2

 

1,249.2

 

Thirty year 2011 senior notes ($750 million)

 

742.4

 

742.3

 

Nalco senior notes ($0)

 

 

838.7

 

Nalco senior euro notes ($0)

 

 

300.7

 

Nalco senior notes ($0)

 

 

558.5

 

Capital lease obligations

 

14.9

 

18.3

 

Other

 

11.1

 

12.3

 

Total debt

 

4,885.4

 

6,619.8

 

Long-term debt, current maturities

 

(6.2

)

(6.6

)

Total long-term debt

 

$

4,879.2

 

$

6,613.2

 

 

In January 2012, the company redeemed $1.7 billion of Nalco senior notes, which were assumed in 2011 as part of the merger. As part of the redemption, the company recognized an $18.2 million loss for debt extinguishment. As of December 31, 2011, the Nalco senior notes were fully and unconditionally guaranteed by certain Nalco subsidiaries. In conjunction with the redemption in January 2012, all guarantees in place as of December 31, 2011 were extinguished.

 

In April 2012, the company reduced its 364 day credit facility from $2.0 billion to $1.0 billion.

 

In February 2011, the company repaid its $150 million 6.875% senior notes when they became due.

 

19



 

ECOLAB INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

5.                     Debt and Interest (continued)

 

Interest expense and interest income recognized during the second quarter and first six months 2012 and 2011 were as follows:

 

 

 

Second Quarter Ended

 

Six Months Ended

 

 

 

June 30

 

June 30

 

(millions)

 

2012

 

2011

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

$

66.1

 

$

14.8

 

$

154.8

 

$

29.8

 

Interest income

 

(2.2

)

(1.7

)

(4.8

)

(3.2

)

Interest expense, net

 

$

63.9

 

$

13.1

 

$

150.0

 

$

26.6

 

 

The increase in interest expense was driven primarily by debt issued to fund the cash portion of the Nalco merger consideration, the repayment of Nalco debt and share repurchases. Interest expense for 2012 also includes an $18.2 million loss on extinguishment of Nalco debt, recognized in the first quarter.

 

6.                           Goodwill and Other Intangible Assets

 

The company tests goodwill for impairment on an annual basis during the second quarter. The company’s reporting units are its operating units, which subsequent to the Nalco merger also include Global Water, Global Paper and Global Energy. If circumstances change significantly, the company would also test a reporting unit’s goodwill for impairment during interim periods between its annual tests.

 

During the second quarter ended June 30, 2012, the company completed its annual test for goodwill impairment. The current year review incorporated the new qualitative assessment guidance as discussed in Note 14. In addition to the qualitative analysis, the company performed quantitative procedures including a review of sensitivities around key inputs, assumptions and business projections for certain reporting units. Supplemental quantitative procedures were performed on the EMEA reporting unit given the current European economic conditions as well as the Global Water, Global Paper and Global Energy reporting units given the recent closing of the Nalco merger on December 1, 2011.

 

As expected the estimated fair value exceeded the carrying value of Global Water, Global Paper and Global Energy reporting units by a low margin as these separate reporting units were acquired on December 1, 2011 when the carrying value equaled the fair value. As part of this analysis the company updated the discount rate assumptions used in the quantitative procedures for the reduction in risk free rates in 2012 and other reductions in risk given the successful integration to date. The company used a range of discount rates from 9.6% to 10.4% compared to the 11.5% discount rate used in the purchase price allocation. The combined effect of lower discount rates and the updated projections drove an increase in estimated fair value for these reporting units in all cases.

 

Based on this testing, no adjustment to the carrying value of goodwill was necessary. There has been no impairment of goodwill since the adoption of FASB guidance for goodwill and other intangibles on January 1, 2002.

 

20



 

ECOLAB INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

6.                           Goodwill and Other Intangible Assets (continued)

 

The changes in the carrying amount of goodwill for each of the company’s reportable segments during the six months ended June 30, 2012 were as follows:

 

 

 

 

 

 

 

Int’l

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cleaning

 

 

 

 

 

 

 

 

 

 

 

U.S.

 

U.S.

 

Sanitizing

 

 

 

 

 

 

 

 

 

 

 

Cleaning &

 

Other

 

& Other

 

Global

 

Global

 

Global

 

 

 

(millions)

 

Sanitizing

 

Services

 

Services

 

Water(b)

 

Paper(b)

 

Energy(b)

 

Total

 

Goodwill as of December 31, 2011

 

$

543.6

 

$

50.5

 

$

857.3

 

$

1,933.0

 

$

179.3

 

$

2,291.6

 

$

5,855.3

 

Current year business acquisitions(a)

 

 

 

17.1

 

6.1

 

 

 

23.2

 

Prior year business acquisitions

 

 

 

 

21.5

 

9.5

 

18.9

 

49.9

 

Effect of foreign currency translation

 

 

 

(57.8

)

(21.4

)

(2.1

)

(25.3

)

(106.6

)

Goodwill as of June 30, 2012

 

$

543.6

 

$

50.5

 

$

816.6

 

$

1,939.2

 

$

186.7

 

$

2,285.2

 

$

5,821.8

 

 


(a)          For 2012, none of the goodwill related to businesses acquired is expected to be tax deductible.

(b)         The company completed its goodwill allocation related to the Nalco merger during the second quarter of 2012. As such, goodwill acquired through the Nalco merger has been disclosed for each legacy Nalco reportable segment beginning in the second quarter of 2012, with disclosure back to year end 2011.

 

The merger with Nalco resulted in the addition of $4.4 billion of goodwill. Subsequent performance of the reporting units acquired through the Nalco merger relative to projections used for the purchase price allocation of goodwill could result in an impairment if there is either underperformance by the reporting unit or if the carrying value of the reporting unit were to fluctuate due to working capital changes or other reasons that did not proportionately increase fair value.

 

As part of the Nalco merger, the company added the “Nalco” trade name as an indefinite life intangible asset. The $1.2 billion carrying value of this asset was subject to impairment testing during the second quarter. Based on this testing, no adjustment to the carrying value was necessary.

 

21



 

ECOLAB INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

6.                           Goodwill and Other Intangible Assets (continued)

 

The company’s other intangible assets subject to amortization primarily include customer relationships, trademarks, patents and other technology. Other intangible assets are amortized on a straight-line basis over their estimated economic lives. Total amortization expense related to other intangible assets during the second quarter ended June 30, 2012 and 2011 was $59.5 million and $13.8 million, respectively. Total amortization expense related to other intangible assets during the six months ended June 30, 2012 and 2011 was $118.7 million and $25.3 million, respectively. The large increase from 2011 to 2012 is primarily due to the Nalco merger. As of June 30, 2012, future estimated amortization expense related to amortizable other identifiable intangible assets is expected to be:

 

(millions)

 

 

 

 

 

 

 

2012 (Remainder: six-month period)

 

$

117

 

2013

 

234

 

2014

 

223

 

2015

 

220

 

2016

 

216

 

 

7.                     Fair Value Measurements

 

The company’s financial instruments include cash and cash equivalents, money market funds in a rabbi trust, accounts receivable, accounts payable, contingent consideration obligations, commercial paper, notes payable, foreign currency forward contracts and long-term debt.

 

Fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. A hierarchy has been established for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. The hierarchy is broken down into three levels:

 

Level 1 - Inputs are quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities.

 

Level 2 - Inputs include observable inputs other than quoted prices in active markets.

 

Level 3 - Inputs are unobservable inputs for which there is little or no market data available.

 

22



 

ECOLAB INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

7.       Fair Value Measurements (Continued)

 

The carrying amount and the estimated fair value for assets and liabilities measured on a recurring basis were:

 

 

 

2012

 

 

 

Carrying

 

Fair Value Measurements

 

June 30 (millions)

 

Amount

 

Level 1

 

Level 2

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

Money market funds held in rabbi trusts

 

$

0.9

 

$

0.9

 

$

 

$

 

Foreign currency forward contracts

 

18.5

 

 

18.5

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

Foreign currency forward contracts

 

15.1

 

 

15.1

 

 

Contingent consideration obligations

 

24.5

 

 

 

24.5

 

 

 

 

2011

 

 

 

Carrying

 

Fair Value Measurements

 

December 31 (millions)

 

Amount

 

Level 1

 

Level 2

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

Money market funds held in rabbi trusts

 

$

0.9

 

$

0.9

 

$

 

$

 

Foreign currency forward contracts

 

10.4

 

 

10.4