ECOLAB INC. - Capital/Financing Update 2001

8-K 1 j2546_8k.htm 8-K Prepared by MERRILL CORPORATION

*SECURITIES AND EXCHANGE COMMISSION*

*Washington, D.C. 20549*

*FORM 8-K*

*CURRENT REPORT*

*Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934*

Date of Report (Date of earliest event reported): *November 30, 2001*

*ECOLAB INC.*

(Exact name of registrant as specified in its charter)

Delaware	1-9328	41-0231510
(State or other

| 370

Wabasha Street North, St. Paul, Minnesota	55102
(Address of principal

executive offices) | (Zip Code) |

Registrant's telephone number, include area code: *651-293-2233*

*(Not applicable)*

(Former name or former address, if changed from last report.)

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Item 2. Acquisition or Disposition of Assets .

On November 30, 2001, Ecolab Inc., a Delaware corporation (the "Company") acquired the 50 percent of the Henkel-Ecolab joint venture ("Henkel-Ecolab") which the Company did not own, from its joint venture partner, Henkel KGaA, Dusseldorf, Germany ("Henkel") for a purchase price of 483,631,000 Euro (approximately $433,000,000 at November 30, 2001 exchange rates), subject to adjustment for post-closing adjustments and indemnity claims ("Purchase Price"). The Company and Henkel had jointly operated Henkel-Ecolab since July 1991. The acquisition is referred to herein as the "Transaction."

Henkel-Ecolab provides cleaning and sanitizing systems and service solutions to institutional and industrial companies throughout Europe. Offerings include detergents, sanitation cleaners, dispensing and measuring equipment, cleaning machines, training and service. Customers include hotels and restaurants; foodservice, healthcare and educational facilities; light industry; dairy plants and farms, as well as food and beverage processors throughout Europe.

Prior to the Transaction, the Company accounted for its interest in Henkel-Ecolab under the equity method of accounting. As a result of the Transaction, the legal entities constituting Henkel-Ecolab became wholly-owned entities of the Company's international operations. The assets, liabilities, revenues, expenses and cash flows of Henkel-Ecolab will be reflected in the Company's consolidated financial statements from the date of acquisition.

The Company paid the Purchase Price by issuing Euro-denominated notes to Henkel or its affiliates (the "Notes"). The Notes are due in 60 days, bear interest at a rate per annum of 3.73708 percent and are prepayable in full or in part.

The Company intends to retire these Notes at or prior to their maturity with proceeds from the issuance of U.S. dollar commercial paper supported by bank credit facilities. The Company has entered into a 364-day Revolving Credit Facility in the amount of $175,000,000 and a 180-day Revolving Credit Facility in the amount of $275,000,000 (collectively, the "Credit Facilities") with a consortium of banks with Citicorp USA, Inc. as Agent for the banks. The Credit Facilities will be available to repay the Notes or to support issuance of commercial paper for such purpose and for general corporate purposes. The Company is considering the issuance of term debt at a later time to replace some of the commercial paper.

In connection with the Transaction, Henkel and the Company entered into a Second Amended and Restated Stockholder's Agreement (the "Stockholder's Agreement") containing certain restrictions pertaining to, among other things, Henkel's acquisition, transfer and voting of the Company's Common Stock. In addition, Henkel is entitled to designate nominees for election to the Company's Board of Directors proportionate to its ownership of Common Stock (rounded down to the nearest whole number). Currently, three Henkel-designated nominees serve on the Company's 11-member Board of Directors. A copy of the Stockholder's Agreement is included in this Current Report on Form 8-K as Exhibit (4), and the description herein is qualified in its entirety by reference to the Stockholder's Agreement.

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As a part of the Transaction, Henkel will continue for up to two years, subject to mutually agreed year-to-year extensions, to provide to the Company's European businesses certain services and arrangements which Henkel previously provided to HenkelEcolab prior to the Transaction on financial and other terms substantially similar to those in place on November 30, 2001. These include leased office space; certain accounting, finance, payroll, human resources, information and other administrative services; and contract manufacturing and supply agreements.

Pursuant to an Intellectual Property Agreement entered into in connection with the Transaction: (i) Henkel transferred certain trademarks and patents used by Henkel-Ecolab to the Company and the Company granted a perpetual royalty-free license back to Henkel to use such transferred intellectual property outside of the cleaning and sanitizing field; and (ii) Henkel granted a perpetual (in a limited number of cases, the license for certain trademarks is limited to five years) royalty-free license to the Company to use certain other trademarks, patents and technology used by Henkel-Ecolab which were not transferred to the Company. The Intellectual Property Agreement is included in this Current Report on Form 8-K as Exhibit (10) and the description herein is qualified in its entirety by reference to the Intellectual Property Agreement.

At the time of the Transaction, Henkel reported that it beneficially owned approximately 27.6 percent of the Company's outstanding Common Stock ( 27.3 percent on a fully diluted basis).

A copy of the news release issued by the Company on November 30, 2001 is attached as Exhibit (99)A.

FORWARD-LOOKING STATEMENTS AND RISK FACTORS

This Current Report on Form 8-K contains various "Forward-Looking Statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements, which represent Ecolab's expectations or beliefs concerning various future events, include the expectation for refinancing the 60-day Notes, and are based on current expectations that involve a number of risks and uncertainties which could cause actual results to differ materially from those of such Forward-Looking Statements. Ecolab's ability to initially refinance the 60-day Notes with commercial paper can be affected by then-prevailing market conditions when commercial paper would be issued. Ecolab undertakes no duty to update these Forward-Looking Statements.

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Item 7. Financial Statements and Exhibits .

| (a) — (1) | Pursuant to General Instruction B(3) of Form 8-K, the

Combined Balance Sheets as of November 30, 2000 and 1999 and the Combined

Statements of Income and Comprehensive Income, of Cash Flows and of Equity

for each of the three years in the period ended November 30, 2000 of

Henkel-Ecolab, together with the related Report of Independent Accountants

have been previously filed by the Company under Item 14 I(3) of the Company's

Annual Report on Form 10-K for the year ended December 31, 2000 (File No. 19328). | |
| --- | --- | --- |
| (2) | The following unaudited interim financial statements

of Henkel-Ecolab and footnotes thereto are filed as a part of this Current

and Comprehensive Income for the nine months ended August 31, 2001 and

|
| | (ii) | The unaudited interim Combined Balance Sheet as of

August 31, 2001. |
| | (iii) | The unaudited interim Combined Statements of Cash

soon as practicable, but in any event not later than 60 days after the date

Ecolab Inc. and Henkel KGaA Incorporated by reference to Exhibit 18 of HC

Investments, Inc.'s and Henkel KGaA's Amendment No. 5 to Schedule 13D dated

July 16, 1991. |
| | (2)B. | Amendment No. 1 to the Master Agreement, dated

December 7, 2000, between Ecolab Inc. and Henkel KGaA Incorporated by

reference to Exhibit (10)A of the Company's Form 10-Q for the quarter ended

September 30, 2001. |
| | (4) | Second Amended and Restated Stockholder's Agreement

between Henkel KGaA and Ecolab Inc., dated November 30, 2001. |
| | (10) | Intellectual Property Agreement dated November 30,

7, 2001, among the Company, the banks parties thereto (the Banks) and

Citicorp USA, Inc., as Agent for the Banks. |
| | (99)C. | Credit Agreement (180 Day Facility) dated December

7, 2001, among the Company, the banks parties thereto (the Banks) and

Citicorp USA, Inc., as Agent for the Banks. |

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

ECOLAB INC.
By:	/s/Kenneth A. Iverson
	Kenneth A. Iverson
	Vice President and Secretary

Date: December 12, 2001

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*Henkel-Ecolab*

Combined Statements of Income and Comprehensive Income

| (Thousands EUR) | Nine Months ended — August 31, 2001 | | Nine

Months ended — August 31, 2000 | |
| --- | --- | --- | --- | --- |
| | (unaudited) | | (unaudited) | |
| Net Sales | 720,297 | | 685,724 | |
| Cost of Sales | 320,913 | | 299,544 | |
| Selling, General

and Administrative Expenses | 336,436 | | 318,945 | |
| Royalties to

Parents | 5,676 | | 5,479 | |
| Operating Income | 57,272 | | 61,756 | |
| Other Income

(Expense), net | 369 | | (344 | ) |
| Income before

Income Taxes | 57,641 | | 61,412 | |
| Provision for

Income Taxes | 23,131 | | 26,478 | |
| Net Income | 34,510 | | 34,934 | |
| Other

Comprehensive Income (Expense), net of Tax | (2,742 | ) | 5,094 | |
| Comprehensive

Income | 31,768 | | 40,028 | |

See accompanying Notes to Combined Financial Statements

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*Henkel-Ecolab*

Combined Balance Sheet

| (Thousands EUR) | August

31, — 2001 | |
| --- | --- | --- |
| | (unaudited) | |
| Assets | | |
| Cash and Cash

Equivalents | 5,349 | |
| Accounts

Receivable, net | 225,200 | |
| Accounts

Receivable from Related Parties | 4,332 | |
| Loans to Related

and Other Current Assets | 37,133 | |
| Deferred Taxes | 5,000 | |
| Current Assets | 403,168 | |
| Property, Plant

and Equipment, net | 96,664 | |
| Intangible and

Other Assets, net | 60,202 | |
| Deferred Taxes | 10,848 | |
| Total Assets | 570,882 | |
| Liabilities and

to Related Parties | 12,106 | |
| Loans from

Related Parties | - | |
| Accrued

Liabilities | 114,528 | |
| Income Taxes

of Employee Benefit Obligations | 5,145 | |
| Current

Liabilities | 257,580 | |
| Contingent

Liabilities | | |
| Employee Benefit

Obligations, less Current Portion | 70,513 | |
| Long Term Debt,

Capital | 85,906 | |
| Retained

Earnings | 157,779 | |
| Other

Accumulated Comprehensive Income | (4,881 | ) |
| | 238,804 | |
| Total

Liabilities and Equity | 570,882 | |

See accompanying Notes to Combined Financial Statements

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*Henkel-Ecolab*

Combined Statements of Cash Flows

| (Thousands EUR) | Nine Months ended — August 31, 2001 | | Nine

Months ended — August 31, 2000 | |
| --- | --- | --- | --- | --- |
| | (unaudited) | | (unaudited) | |
| Net

Income | 34,510 | | 34,934 | |
| Adjustments to Reconcile Net Income

to Cash Provided by Operating

Amortization | 33,966 | | 32,252 | |
| Equity in Income

of Affiliated Company | (958 | ) | (732 | ) |
| Provision for

Doubtful Accounts | 5,215 | | 2,561 | |
| Gain on Sale of

Property and Equipment | (139 | ) | (191 | ) |
| Deferred Income

Taxes | 1,049 | | (555 | ) |
| Changes

Accounts Receivable | (7,773 | ) | (10,746 | ) |
| Decrease in

Accounts Receivable from Related Parties | 4,499 | | 2,145 | |
| Increase in

Inventories | (23,161 | ) | (2,405 | ) |
| Decrease in Accounts Payable and Accrued Liabilities | (4,250 | ) | (9,900 | ) |
| Increase in

Accounts Payable to Related Parties | 1,443 | | 434 | |
| Increase in

Income Taxes Payable | 1,197 | | 5,610 | |
| Increase in

Prepaid Expenses and Other Current Assets | (6,151 | ) | (18,838 | ) |
| Increase in

Employee Benefit Obligations | 1,541 | | 4,207 | |
| Cash Provided by

Operating Activities | 40,988 | | 38,776 | |
| Investing

Property and Equipment | (30,036 | ) | (30,212 | ) |
| Expenditures for

Intangible and Other Assets | (1,532 | ) | (3,309 | ) |
| Proceeds from

Sale of Property and Equipment | 1,787 | | 7,333 | |
| Cash Used for

Investing Activities | (29,781 | ) | (26,188 | ) |
| Financing

Bank Debt, net | 18,830 | | 4,034 | |
| Increase in

Loans from Related Parties | 175 | | 3,812 | |
| Decrease in

Loans to Related Parties | 5,542 | | 5,183 | |
| Dividends paid | (37,636 | ) | (32,111 | ) |
| Cash Used for

Financing Activities | (13,089 | ) | (19,082 | ) |
| Effect

of Exchange Rate Changes | 163 | | 5,813 | |
| Decrease

in Cash and Cash Equivalents | (1,719 | ) | (681 | ) |
| Cash

and Cash Equivalents at Beginning of Period | 7,068 | | 6,037 | |
| Cash

and Cash Equivalents at End of Period | 5,349 | | 5,356 | |

See accompanying Notes to Combined Financial Statements

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*Henkel-Ecolab*

*Footnotes to the Combined Financial Statements (Unaudited)*

*1. COMBINED FINANCIAL STATEMENTS*

The unaudited combined balance sheet as of August 31, 2001 and the related combined statements of income and comprehensive income and of cash flows for the nine months ended August 31, 2001 and August 31, 2000, reflect, in the opinion of management, all adjustments necessary for a fair presentation of the financial condition and results of operations for the interim periods. The results of operations for any interim period are not necessarily indicative of results for the full year. The unaudited combined financial statements should be read in conjunction with the Companys combined financial statements and notes thereto for the year ended November 30, 2000.

*2. ADOPTION OF NEW ACCOUNTING STANDARDS*

In the first quarter, the Company adopted FAS 133 Accounting for Derivative Financial Instruments and Hedging Activities. The impact was immaterial to the combined financial statements.

The Company intends to adopt Emerging Issues Task Force Issue No. 00-10 Accounting for Shipping and Handling Fees and Costs in the fourth quarter. The Company currently records shipping and handling costs within selling, general and administrative expenses. These costs, which approximate 60 million Euros, will be reclassified to cost of goods sold in the year-end accounts and the prior years results will be adjusted to conform to the new presentation.

*3. ADOPTION OF NEW CURRENCY REPORTING*

Prior to April 1, 2001, Henkel-Ecolab prepared and reported its combined financial statements in Deutsche Marks (DM). Beginning April 1, 2001, Henkel-Ecolab presented its combined financial statements as of and for the quarter ended May 31, 2001 in Euro (EUR). Accordingly figures for 2000 are shown in EUR using the Official Fixed Exchange Rate of 1 EUR = DM 1.95583. Henkel-Ecolabs 2000 Euro combined financial statements depict the same trends as would have been presented if it had continued to present its Combined Financial Statements in Deutsche Marks. The Companys Combined Financial Statements will however not be comparable to the Euro financial statements of other companies that previously reported their financial information in a currency other than Deutsche Marks.

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*4. BALANCE SHEET INFORMATION*

(Thousands EUR)	August 31,
	2001
	(unaudited)
Accounts

Receivable, net | | |
| Accounts

Receivable, Trade | 239,131 | |
| Allowance for

Doubtful Accounts | (13,931 | ) |
| | 225,200 | |
| Inventories | | |
| Raw Materials | 24,299 | |
| Work in Process | 6,769 | |
| Finished Goods | 94,589 | |
| Total | 125,657 | |
| Property, Plant

Improvements | 38,366 | |
| Machinery and

Equipment | 86,781 | |
| Merchandising

Equipment, Furniture and Fixtures | 192,528 | |
| Construction in

Progress | 4,225 | |
| | 324,206 | |
| Accumulated

Depreciation and Amortization | (227,542 | ) |
| Total | 96,664 | |
| Intangible and

Other Assets, net | | |
| Goodwill on

Acquisitions prior to July 1,1991 | 10,707 | |
| Goodwill on

Acquisitions after July 1,1991 | 55,523 | |
| Other Intangible

Assets, including Capitalized | | |
| Computer

Software | 46,180 | |
| Additional

Minimum Pension Liability | 2,059 | |
| | 114,469 | |
| Accumulated

Amortization | (62,254 | ) |
| Total Intangible

Assets, net | 52,215 | |
| Other Assets,

net | 7,987 | |
| Total | 60,202 | |

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EXHIBIT INDEX

EXHIBIT NO.	DESCRIPTION	METHOD OF FILING
(2)A.	Master Agreement, dated December 7, 2000 between

Ecolab Inc. and Henkel KGaA Incorporated by reference to Exhibit 18 of HC

Investments, Inc.'s and Henkel KGaA's Amendment No. 5 to Schedule 13D dated

July 16, 1991. | Incorporated by reference to Exhibit 18 of HC

Investments, Inc.'s and Henkel KGaA's Amendment No. 5 to Schedule 13D dated

July 16, 1991. |
| (2)B. | Amendment No. 1 to the Master Agreement, dated

December 7, 2000, between Ecolab Inc. and Henkel KGaA Incorporated by

reference to Exhibit (10)A of the Company's Form 10-Q for the quarter ended

September 30, 2001. | Incorporated by reference to Exhibit (10)A of the

Company's Form 10-Q for the quarter ended September 30, 2001. |
| (4) | Second Amended and Restated Stockholder's Agreement

between Henkel KGaA and Ecolab Inc. dated November 30, 2001. | Filed herewith electronically. |
| (10) | Intellectual Property Agreement dated November 30,

7, 2001, among the Company, the banks parties thereto (the Banks) and

Citicorp USA, Inc., as Agent for the Banks. | Filed herewith electronically. |
| (99)C. | Credit Agreement (180 Day Facility) dated December

7, 2001, among the Company, the banks parties thereto (the Banks) and

Citicorp USA, Inc., as Agent for the Banks. | Filed herewith electronically. |

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ECOLAB INC. Capital/Financing Update 2001

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ECOLAB INC. — Capital/Financing Update 2001

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