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 jurisdiction		(Commission		(IRS Employer
of incorporation)		File Number)		Identification No.)

 

 

 

 

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

 

 

(Not applicable)

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

 

 

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.

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 Henkel–Ecolab 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.

 

Item 7.  Financial Statements and Exhibits.

 

(a)	Financial statements of businesses acquired.
	(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. 1–9328).
	(2)	The following unaudited interim financial statements of Henkel-Ecolab and footnotes thereto are filed as a part of this Current Report on Form 8–K.
		(i)	The unaudited interim Combined Statements of Income and Comprehensive Income for the nine months ended August 31, 2001 and 2000.
		(ii)	The unaudited interim Combined Balance Sheet as of August 31, 2001.
		(iii)	The unaudited interim Combined Statements of Cash Flows for the nine months ended August 31, 2001 and 2000.
	(b)	Pro forma financial information.
		Pro forma financial information will be filed as soon as practicable, but in any event not later than 60 days after the date this Report on Form 8-K was required to be filed.
	(c)	Exhibits
		(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.
		(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, 2001, between Ecolab Inc. and Henkel KGaA.
		(99)A.	News Release dated November 30, 2001.
		(99)B.	Credit Agreement (364 Day Facility) dated December 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.

 

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

 

 

Henkel-Ecolab

 

Combined Statements of Income and Comprehensive Income

 

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

 

 

Henkel-Ecolab

 

Combined Balance Sheet

 

		August 31,
(Thousands EUR)		2001
		(unaudited)
Assets
Cash and Cash Equivalents		5,349
Accounts Receivable, net		225,200
Accounts Receivable from Related Parties		4,332
Loans to Related Parties		497
Inventories		125,657
Prepaid Expenses 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 Equity
Accounts Payable		66,009
Accounts Payable to Related Parties		12,106
Loans from Related Parties		-
Accrued Liabilities		114,528
Income Taxes Payable		30,835
Deferred Taxes		1,181
Current Portion of Long Term Debt		2,014
Short Term Debt		25,762
Current Portion of Employee Benefit Obligations		5,145
Current Liabilities		257,580
Contingent Liabilities
Employee Benefit Obligations, less Current Portion		70,513
Long Term Debt, less Current Maturities		-
Deferred Taxes		3,985
Combined Equity
Contributed 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

 

 

Henkel-Ecolab

 

Combined Statements of Cash Flows

 

		Nine Months ended		Nine Months ended
(Thousands EUR)		August 31, 2001		August 31, 2000
		(unaudited)		(unaudited)
Net Income		34,510		34,934
Adjustments to Reconcile Net Income to Cash Provided by Operating Activities
Depreciation and 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 in Operating Assets and Liabilities
Increase in 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 Activities
Expenditures for 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 Activities
Proceeds from 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

 

 

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 Company’s 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 year’s 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-Ecolab’s 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 Company’s 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.

 

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 and Equipment, net
Land		2,306
Buildings and 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

 

 

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, 2001 between Ecolab Inc. and Henkel KGaA.		Filed herewith electronically.
(99)A.		Ecolab Inc. News Release dated November 30, 2001.		Filed herewith electronically.
(99)B.		Credit Agreement (364 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.
(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.