UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2011 |
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Commission File No. 1-9328 |
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o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
ECOLAB INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or
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41-0231510 (I.R.S. Employer Identification No.) |
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370 Wabasha Street North, St. Paul, Minnesota (Address of principal executive offices) |
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55102 (Zip Code) |
Registrants telephone number, including area code: 1-800-232-6522
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Name of each exchange on which registered |
Common Stock, $1.00 par value |
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New York Stock Exchange, Inc. |
Preferred Stock Purchase Rights |
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New York Stock Exchange, Inc. |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. x YES o NO
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. o YES x NO
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. x YES o NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. 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 Regulation 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. x YES o NO
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 |
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Accelerated filer o |
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Non-accelerated filer o (Do not check if a smaller reporting company) |
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Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o YES x NO
Aggregate market value of voting and non-voting common equity held by non-affiliates of registrant on June 30, 2011: $ 13,036,575,000 (see Item 12, under Part III hereof), based on a closing price of registrants Common Stock of $56.38 per share.
The number of shares of registrants Common Stock, par value $1.00 per share, outstanding as of January 31, 2012: 291,269,964 shares.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the registrants Annual Report to Stockholders for the year ended December 31, 2011 (hereinafter referred to as Annual Report) are incorporated by reference into Parts I and II.
2. Portions of the registrants Proxy Statement for the Annual Meeting of Stockholders to be held May 3, 2012 and to be filed within 120 days after the registrants fiscal year ended December 31, 2011 (hereinafter referred to as Proxy Statement) are incorporated by reference into Part III.
Except where the context otherwise requires, references in this Form 10-K to Ecolab, Company, we and our are to Ecolab Inc. and its subsidiaries, collectively.
This Annual Report on Form 10-K, including Managements Discussion and Analysis of Financial Condition and Results of Operation incorporated by reference into Item 7 of this Form 10-K, contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include expectations concerning items such as demographic trends and their impact on end-markets; focus areas and priorities; benefits from planned initiatives; margin compression from Nalco mix; outlook for growth; end-market trends and long-term potential; sales and earnings growth; special (gains) and charges; restructuring activity, timing and charges and associated cost savings; benefits of and synergies from the Nalco merger; bad debt experiences and customer credit worthiness; disputes, claims and litigation; environmental contingencies; returns on pension plan assets; currency gains and losses; investments; cash flow and uses for cash; business acquisitions; dividends; share repurchases, including the accelerated share repurchase program; debt repayments; pension and post-retirement medical contributions and benefit payments; liquidity requirements and borrowing methods; impact of credit rating downgrade; finalization of purchase accounting; new accounting pronouncements; tax deductibility of goodwill; non performance of counterparties; hedged transactions; and income taxes, including loss carry forwards, unrecognized tax benefits and uncertain tax positions. Without limiting the foregoing, words or phrases such as will likely result, are expected to, will continue, is anticipated, we believe, we expect, estimate, project (including the negative or variations thereof) or similar terminology, generally identify forward-looking statements. Forward-looking statements may also represent challenging goals for us. These statements, which represent the Companys expectations or beliefs concerning various future events, are based on current expectations that involve a number of risks and uncertainties that could cause actual results to differ materially from those of such forward-looking statements. We caution that undue reliance should not be placed on such forward-looking statements, which speak only as of the date made. Some of the factors which could cause results to differ from those expressed in any forward-looking statement are set forth under Item 1A of this Form 10-K, entitled Risk Factors.
Item 1. Business .
Item 1(a) General Development of Business .
Ecolab was incorporated as a Delaware corporation in 1924. Our fiscal year is the calendar year ending December 31.
During 2011, we took the following actions to continue to build our business:
· In December 2010, subsequent to our 2010 year-end for international operations, we completed the purchase of selected assets of the Cleantec business of Campbell Brothers Ltd. in Australia. Cleantec is a developer, manufacturer and marketer of cleaning and hygiene products principally within the Australian food and beverage processing, food service, hospitality and commercial laundry 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 our International segment during the first quarter of 2011.
· In February 2011, following the implementation of new business systems in Europe, we commenced a comprehensive plan to substantially improve the efficiency and effectiveness of our European business, sharpen its competitiveness and accelerate its growth and profitability.
· In March 2011, we purchased 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. The business, which had annual sales of approximately $55 million, became part of our U.S. Cleaning & Sanitizing segment during the first quarter of 2011.
· On December 1, 2011, we completed the merger announced in July with Nalco Holding Company (Nalco). Based in Naperville, Illinois, Nalco is the worlds leading water treatment and process improvement company, offering water management sustainability services focused on industrial, energy and institutional market segments. Nalco sales were $4.3 billion in 2010. We issued 68.3 million shares of Ecolab stock and paid $1.6 billion in cash to Nalco shareholders in the merger. The Nalco business will be operated under three new reportable segments: Water Services, Paper Services and Energy Services.
Subsequent to our 2011 year-end, significant developments included:
· In December 2011, following our fiscal year-end for international operations, we completed the acquisition of Esoform, the largest independent Italian healthcare manufacturer focused on infection prevention and personal care. Based outside of Venice, Italy, Esoform had annual sales of approximately $12 million, and will be included in our International reportable segment beginning in 2012.
· Also in December 2011, we 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 will be integrated with our existing Brazil Pest Elimination business, and will be included in our International reportable segment beginning in 2012.
· In January 2012, we redeemed $1.7 billion of Nalco outstanding senior notes.
· Also in January 2012, we announced that we are undertaking a restructuring and other cost-saving actions in connection with the integration of the Nalco business, which will include a reduction of our global workforce and the streamlining of our supply chain footprint. We expect total charges relating to these actions to be approximately $180 million and for the restructuring plan to be completed by the end of 2013.
Item 1(b) Financial Information About Operating Segments .
The financial information about reportable segments appearing under the heading Operating Segments in Note 16, located on pages 49 to 51 of the Annual Report, is incorporated herein by reference.
Item 1(c) Narrative Description of Business .
General : On December 1, 2011, Ecolab completed the Nalco merger creating the global leader in water, hygiene and energy technologies and services that provide and protect clean water, safe food, abundant energy and healthy environments. The combined company develops and markets premium programs, products and services for the hospitality, foodservice, healthcare, industrial and energy markets in more than 160 countries. Our cleaning and sanitizing programs and products, pest elimination services, and equipment maintenance and repair services support customers in the foodservice, food and beverage processing, hospitality, healthcare, government and education, retail, textile care, commercial facilities management and vehicle wash sectors. Our technologies, chemicals and services are also used in water treatment, pollution control, energy conservation, oil production and refining, steelmaking, papermaking, mining, and other industrial processes.
The following description of our business is based upon six reportable segments as reported in our consolidated financial statements for the year ended December 31, 2011, as incorporated by reference into
Part II of this Form 10-K. Prior to the Nalco merger, we aggregated our twelve operating units into three reportable segments: U.S. Cleaning & Sanitizing, U.S. Other Services and International. Effective with the Nalco merger, we continue to aggregate the legacy Ecolab operating units into the same three reportable segments and have added Nalcos three legacy operating units (Water Services, Paper Services and Energy Services) as reportable segments to our reporting structure.
We pursue a Circle the Customer Circle the Globe strategy by providing an array of programs, products and services which serve our customer base, and do so on a global basis to meet the needs of our customers various operations around the world. Through this strategy and our varied product and service mix, one customer may utilize the products or services of several of our reportable segments.
LEGACY ECOLAB
United States Cleaning & Sanitizing Segment
Our United States Cleaning & Sanitizing segment is comprised of six operating units which provide cleaning and sanitizing products and programs to United States markets.
Institutional : Our Institutional Division sells specialized cleaners and sanitizers for washing dishes, glassware, flatware, foodservice utensils and kitchen equipment (warewashing), for on premise laundries (typically used by hotel and healthcare customers) and for general housekeeping functions, as well as food safety products and equipment, water filters, dishwasher racks and related kitchen sundries to the foodservice, lodging, educational and healthcare industries. The Institutional Division also provides pool and spa treatment programs for hospitality and other commercial customers, as well as a broad range of janitorial cleaning and floor care products and programs to customers in hospitality, healthcare and commercial facilities. The Institutional Division develops various chemical dispensing systems which are used by our customers to efficiently and safely dispense our cleaners and sanitizers. In addition, the Institutional Division markets a lease program comprised of energy-efficient dishwashing machines, detergents, rinse additives and sanitizers, including full machine maintenance.
Our Institutional Division sells its products and programs primarily through Company-employed field sales personnel. Corporate account sales personnel establish relationships and negotiate contracts with larger multi-unit or chain customers. We also utilize independent, third-party foodservice, broad-line and janitorial distributors to provide logistics to end customers for accounts that prefer to purchase through these distributors. Many of these distributors also participate in marketing our product and service offerings to the end customers. Through our Company-employed field sales and service personnel, we generally provide the same customer support to end-use customers supplied by these distributors as we do to direct customers.
We believe that we are the leading supplier of chemical warewashing products and programs to institutions in the United States.
Food & Beverage : Our Food & Beverage Division addresses cleaning and sanitation at the beginning of the food chain to facilitate the processing of products for human consumption. The Food & Beverage Division provides detergents, cleaners, sanitizers, lubricants and animal health products, as well as cleaning systems, electronic dispensers and chemical injectors for the application of chemical products, primarily to dairy plants, dairy farms, breweries, soft-drink bottling plants, and meat, poultry and other food processors. The Food & Beverage Division is also a leading developer and marketer of antimicrobial products used in direct contact with meat, poultry, seafood and produce during processing in order to reduce microbial contamination.The Food & Beverage Division also designs, engineers and installs CIP (clean-in-place) process control systems and facility cleaning systems for its customer base. Products for use on farms are sold through dealers and independent, third-party distributors, while products for use in processing facilities are sold primarily by our corporate account and field sales employees.
We believe that we are one of the leading suppliers of cleaning and sanitizing products to the dairy plant, dairy farm, food, meat and poultry, and beverage/brewery processor industries in the United States.
Kay : Our Kay business unit supplies cleaning and sanitizing chemical products and related items primarily to regional, national and international quick service restaurant (QSR) chains and to regional and national food retailers (i.e., supermarkets and grocery stores). Its products include specialty and general purpose hard surface cleaners, degreasers, sanitizers, polishes, hand care products and assorted cleaning tools and equipment which are primarily sold under the Kay and Ecolab brand names. Kays cleaning and sanitation programs are customized to meet the needs of the market segments it serves and are designed to provide highly effective cleaning performance, promote food safety, reduce labor costs and enhance user and guest safety. A number of product dispensing options are available for products in the core product range. Kay supports its product sales with employee training programs and technical support designed to meet the special needs of its customers.
Both Kays QSR business and its food retail business utilize a corporate account sales force which establishes relationships and negotiates contracts with customers at the corporate headquarters and regional office levels (and, in the QSR market segment, at the franchisee level) and a field sales force which provides program support at the individual restaurant or store level. Customers in the QSR market segment are primarily supplied through third party distributors while most food retail customers utilize their own distribution networks.
We believe that Kay is the leading supplier of chemical cleaning and sanitizing products to the QSR market segment and a leading supplier of chemical cleaning and sanitizing products to the food retail market segment in the United States. While Kays customer base has grown over the years, Kays business remains largely dependent upon a limited number of major QSR chains and franchisees and large food retail customers.
Healthcare : Our Healthcare Division provides infection prevention and other healthcare related offerings to acute care hospitals, surgery centers, dental offices and veterinary clinics. The Healthcare Divisions proprietary infection prevention products (hand hygiene, hard surface disinfectants, instrument cleaners, patient drapes, fluid control products, equipment drapes and surgical fluid, warming and cooling systems) are sold primarily under the Ecolab and Microtek brand names to various departments within the acute care environment (Infection Control, Environmental Services, Central Sterile and Operating Room). The Healthcare Divisions Microtek Medical business is a leader in niche branded specialty surgical drapes and fluid control products. The Healthcare Divisions recently acquired OR Solutions business is a leading developer and marketer of surgical fluid warming and cooling systems. The Healthcare Division sells its products and programs primarily through Company-employed field sales personnel but also sells through healthcare distributors.
Textile Care : Our Textile Care Division provides chemical laundry products and proprietary dispensing systems, as well as related programs, to large industrial and commercial laundries. Typically these customers include free-standing laundry plants used by institutions such as hotels, restaurants and healthcare facilities as well as industrial and textile rental laundries. Products and programs include laundry cleaning and specialty products, related dispensing equipment, plus water and energy management which are marketed primarily through Company-employed field sales personnel and, to a lesser extent, through independent, third-party distributors. The Textile Care Divisions programs are designed to meet our customers needs for exceptional cleaning, while extending the useful life of linen and reducing the customers overall operating cost.
Vehicle Care : Our Vehicle Care Division provides vehicle appearance products which include soaps, polishes, sealants, wheel and tire treatments and air fresheners. The Vehicle Care Division sells to vehicle rental, fleet and consumer car wash and detail operations using brands that include Blue Coral Ò , Black Magic Ò and Rain-X Ò .
United States Other Services Segment
Our United States Other Services segment is comprised of two operating units: Pest Elimination and Equipment Care (formerly GCS Service). In general, these businesses provide service which can augment or extend our product offering to our business customers as a part of our Circle the Customer approach and, in particular, by enhancing our food safety capabilities.
Pest Elimination : Our Pest Elimination Division provides services designed to detect, eliminate and prevent pests, such as rodents and insects, in restaurants, food and beverage processors, educational and healthcare facilities, hotels, quick service restaurant and grocery operations and other institutional and commercial customers. The services of the Pest Elimination Division are sold and performed by Company-employed field sales and service personnel. In addition, through our EcoSure Food Safety Management business, we provide customized on-site evaluations, training and quality assurance services to foodservice operations.
Equipment Care : Our Equipment Care Division provides equipment repair and maintenance services for the commercial food service industry. Repair services are offered for in-warranty repair, acting as the manufacturers authorized service agent, as well as after warranty repair. In addition, Equipment Care operates as a parts distributor to repair service companies and end-use customers.
International Segment
Our legacy Ecolab businesses directly operate in 74 countries outside of the United States through wholly-owned subsidiaries or, in the case of Venezuela, through a joint venture with a local partner. In other countries, selected products are sold by our export operations to distributors, agents or licensees, although the volume of those sales is not significant in terms of our overall revenues. Our largest International operations are located in Europe, Asia Pacific, Latin America and Canada, with smaller operations in Africa and the Middle East.
In general, our International businesses are similar to those conducted in the United States but are managed on a geographic basis. The businesses which are similar to the United States Institutional and Food & Beverage businesses are the largest businesses in our International operations. They are conducted in virtually all of our International locations and, compared to the United States, constitute a larger portion of the overall business. Healthcare and Textile Care are also meaningful businesses in our International operations, particularly in Europe. Kay has sales in a number of International locations. A significant portion of Kays international sales are to international units of United States-based quick service restaurant chains. Consequently, a substantial portion of Kays international sales are made either to domestic or internationally-located third-party distributors who serve these chains.
Our Pest Elimination business continues to expand its geographic coverage. We operate this business in various countries in Asia Pacific, Western Europe, Latin America and South Africa, with the largest operations in France and the United Kingdom.
Our other legacy Ecolab businesses are conducted less extensively internationally. However, in general, most of the principal businesses conducted in the United States are also operated in Canada.
International businesses are subject to the usual risks of foreign operations, including possible changes in trade and foreign investment laws, international business laws and regulations, tax laws, currency exchange rates and economic and political conditions abroad. The profitability of our International operations has historically been lower than the profitability of our businesses in the United States, due to (i) the smaller scale of International operations where many operating locations are smaller in size, (ii) the additional cost of operating in numerous and diverse foreign jurisdictions and (iii) higher costs of importing certain raw materials and finished goods in some regions. Proportionately larger investments in sales, technical support and administrative personnel are also necessary in order to facilitate the growth of our International operations.
LEGACY NALCO
Water Services and Paper Services Segments
Our Water and Process Services business encompasses two reportable segments Water Services, which focuses on customers across industrial and institutional markets, and Paper Services, serving the pulp and paper industries. Within both segments, we provide water and process applications aimed at combining environmental benefits with economic gains for our customers. Typically, water savings, energy savings, maintenance and capital expenditure avoidance are among the primary sources of value to our customers, with product quality and production enhancement improvements also providing a key differentiating feature for many of our offerings.
Our offerings are organized according to the markets we serve so we can address the unique drivers faced by each market. We serve customers in the aerospace, chemical, pharmaceutical, mining and primary metals, power, food and beverage, medium and light manufacturing and pulp and papermaking industries as well as institutional clients such as hospitals, universities, commercial buildings and hotels. We provide integrated solutions to complex issues for our customers. These solutions are often adapted on-site by our technical sales professionals, and our sales teams are supported by a variety of innovative service offerings. Our on-site experts, industry technical consultants and researchers develop appropriate solutions for a broad range of customer requirements, such as single process optimization, system-wide program implementation, troubleshooting or increasing efficiencies. We provide numerous plant, process and application audits and surveys in water, energy or paper processing. We offer consulting for all water use and discharge areas and make recommendations for improvements, cost reductions or efficiency improvements through our Advanced Recycle Technology programs.
Within our Water Services segment, our innovative treatment of cooling water, boiler water, influent, and wastewater, along with practical solutions for process improvements and pollutant control, create benefits for our customers. Typically, these benefits are measured by reductions in total costs of operation and capital expenditure avoidance.
Our Paper Services segment offers a comprehensive portfolio of programs that are used in all principal steps of the papermaking process and across all grades of paper, including graphic grades, board and packaging, and tissue and towel.
We have typically served our largest customers in Water and Process Services for 15 years or longer. Our offerings are sold primarily by our field sales employees.
We believe that we have the leading market position among suppliers of products and services for chemical treatment applications for water and wastewater and that we are one of the leading suppliers of water treatment products and process aids to the pulp and papermaking industry.
Water Treatment Applications: Our water treatment capabilities are applied across a broad array of industries, including those covered by our various industry focused business units. The following descriptions include water treatment applications used across all of our segments.
Cooling Water Applications. Our cooling water treatment programs are designed to control the main problems associated with cooling water systems corrosion, scale and microbial fouling and contamination in open recirculating, once-through and closed systems. Our 3D TRASAR ® technology for cooling water is the worlds first automated system for simultaneous control of corrosion, scale and microbial fouling and contamination.
Boiler Water Applications. Corrosion and scale buildup are the most common problems addressed by our boiler water treatment programs. We have helped our customers overcome various boiler system challenges by providing integrated chemical solutions, process improvements and mechanical component modifications
to optimize boiler performance. Our 3D TRASAR technology for boilers uses unique sensors such as the Nalco Corrosion Stress Monitor and is the only such offering available in the industry.
Raw Water/Potable Water Preparation. Our programs assist customers making potable water or water for plant processes by optimizing the performance of treatment chemicals and equipment in order to minimize costs and maximize return on investment.
Wastewater Applications. Our wastewater products and programs focus on improving overall plant economics, addressing compliance issues, optimizing equipment efficiency and improving operator capabilities and effectiveness. Nalco takes a holistic approach to integrated water system management, we identify innovative ways to isolate and treat particular waste streams. We combine practical engineering approaches and hands-on knowledge of system operations to design, build, operate and/or maintain the optimal reuse solution for each application and customer.
Water Reuse and Recycling . We have proprietary knowledge and tools to increase customers awareness of water usage in either an individual facility or across several facilities. Additionally, we effectively document best practices across several regions and industries to benchmark consumption and also to identify key areas for conserving water and energy.
Pulp and Papermaking Applications:
Pulp Applications. Our programs maximize process efficiency and increase pulp cleanliness and brightness in bleaching operations, as well as predict and monitor scaling potential utilizing on-line monitoring to design effective treatment programs and avoid costly failures.
Paper Applications. Our paper process applications focus on the key business drivers that are critical to the success of our customers businesses. We integrate the entire papermaking process through mechanical, operational and chemical means to concentrate specifically on what our customers need to succeed in their market segments and improve their overall operational efficiency. Advanced sensing, monitoring and automation combine with innovative chemistries and detailed process knowledge to provide a broad range of customer solutions.
Energy Services Segment
Our Energy Services Division provides on-site, technology-driven solutions to the global drilling, oil and gas production, refining, and petrochemical industries. In addition to recovery, production and process enhancements, we deliver a full range of water treatment offerings to refineries and petrochemical plants. Our upstream process applications improve oil and gas recovery and production, extend production equipment life and decrease operating costs through services that include scale, paraffin and corrosion control, oil and water separation, and gas hydrate management solutions. Our downstream process applications increase refinery and petrochemical plant efficiency and the useful life of customer assets, while improving refined and petrochemical product quality and yields. We continue to emphasize safety and environmental leadership in our product development and implementation efforts. Our customers include nearly all of the largest publicly traded oil companies. Our Energy Services offerings are sold primarily by our corporate account and field sales employees.
The Energy Services Division is divided into an Upstream group composed of our Adomite, Oil Field Chemicals and Enhanced Oil Recovery businesses and a Downstream refinery and petrochemical processing service business. We believe that our Energy Services Division enjoys a leading market position in the markets it serves.
Well Stimulation and Completion: Our Adomite group offers a range of product solutions specifically designed to enhance performance even in the most severe environments. We supply chemicals for the cementing, drilling, fracturing and acidizing phases of well drilling and stimulation. Our integrated approach to product development combines marketing and research efforts supported with process simulation, pilot
plants and full-scale manufacturing capabilities. Importantly, we are committed to the development of sustainable solutions to meet the demanding environmental requirements in the industry.
Oilfield Applications: Our Oilfield Chemicals business provides solutions to the oil and gas production sector. We have expertise in crude oil and natural gas production, pipeline gathering/transmission systems, gas processing, and heavy oil and bitumen upgrading. Our priority is to safely manage the critical challenges facing todays oil and gas producers throughout the lifecycle of their assets. Starting with the design/capital investment phase to asset decommission, a lifecycle approach to chemical solutions and services help our customers minimize risk, achieve their production targets and maximize profitability.
Our Asset Integrity team uses processes and technologies to help producers mitigate corrosion. We work with our customers to utilize state-of-the-art laboratory methods to design best-in-class chemistries to mitigate corrosion of the equipment, and we monitor oil and gas systems to track the success of corrosion mitigation programs. We also deploy the latest molecular monitoring tools to measure and control microbiological influenced corrosion and provide environmentally friendly chemistries worldwide.
Enhanced Oil Recovery: Our TIORCO ® business globally markets custom-engineered chemical solutions that increase production of crude oil and gas from existing fields. TIORCO integrates enhanced oil recovery (EOR) processes by leveraging polymer and reservoir expertise, our extensive reach in global upstream energy markets and, through a joint venture with Stepan Company, Stepans global surfactant technology and manufacturing capabilities. TIORCO also leverages our water treatment expertise and allows us to complete this one-stop-shop EOR solution package to exploration and production companies globally. Services include: reservoir screening, target validation, laboratory and reservoir simulation work, secondary flood optimization, tertiary recovery flood design and implementation and when needed, a produced water treatment solution.
Downstream Refining Applications: Our industry-focused sales engineers provide process and water treatment applications specific to the petroleum refining and fuels industry, enabling our customers to profitably refine and upgrade hydrocarbons. Our heavy oil upgrading programs minimize operation costs and mitigate fouling, corrosion, foaming and the effects of heavy metals when refining opportunity crudes.
Our total systems approach to water and process enables our customers to minimize energy use on the utilities side. With advances in monitoring, chemistry and application, 3D TRASAR technology for cooling water has reduced shutdowns for customers, resulting in maximum operational efficiency. The rollout of 3D TRASAR Boiler Technology began in 2010 and permits our customers to enjoy increased boiler system reliability, reduced total cost of operation, and significant energy and water savings are key benefits delivered by this state-of-the-art technology.
Clean fuels regulations require drastic reduction in the level of sulfur allowed in fuels. Our H2S Scavengers, such as the SULFA-CHECK ® system, help our customers to comply with all regulatory standards. We offer an entire line of fuel additives, including corrosion inhibitors, to protect engine fuel systems and pre-market underground storage tanks and piping. In addition, we offer fuel stabilizers, pour point depressants, cetane improvers, detergents and antioxidants for home heating oil and premium diesel and gasoline packages.
Downstream Chemical Processing Applications: We work with customers globally to overcome the increasing challenges associated with capacity increases, plant revamps and constantly changing feedstocks. Our customized process and water treatment programs are delivered by onsite technical experts who are focused on providing improved system reliability, reduced total cost of operations, environmental compliance, sustainability in the form of energy and water savings and reduced carbon emissions.
Water Treatment Applications: We provide total water management solutions specific to customers refining and chemical processing needs including boiler treatment, cooling water treatment and wastewater treatment. See Water Services and Paper Services Segments Water Treatment Applications.
Additional Information
Competition : Our Legacy Ecolab business units have two significant classes of competitors. First, each business unit competes with a small number of large companies selling directly or through distributors on a national or international scale. Second, all of these business units have numerous smaller regional or local competitors which focus on more limited geographies, product lines and/or end-use customer segments. Our objective is to achieve a significant presence in each of our business markets. In general, competition is based on customer support, product performance and price. We believe we compete principally by providing superior value, premium customer support and differentiated products to help our customers protect their brand reputation. We create value by providing state-of-the-art cleaning, sanitation, water treatment and maintenance products and systems coupled with high customer support standards and continuing dedication to customer satisfaction. This is made possible, in part, by our significant on-going investment in training and technology and by our standard practice of advising customers on ways to lower operating costs and helping them comply with safety, environmental and sanitation regulations. In addition to our consultative approach, we emphasize our ability to uniformly provide a variety of related premium cleaning and sanitation programs to our customers and to provide that level of customer support to multiple locations of chain customer organizations worldwide. This approach is succinctly stated in our Circle the Customer - Circle the Globe strategy which is discussed above in this Item 1(c) under the heading General.
Legacy Nalcos water management and process improvement service business units compete on the basis of their demonstrated value, technical expertise, chemical formulations, consulting services, detection equipment, monitoring services, and dosing and metering equipment. In general, the markets in which the business units compete are led by a few large companies, with the rest of the market served by smaller entities focusing on more limited geographic regions. The market for water treatment chemicals is highly fragmented, but is led by Nalco. Four other companies are present in at least two of the major geographic regions of the globe, with one present in all regions. These global or regional service providers tend to focus either on a limited geographic region or a smaller subset of products and services. The remainder of the market is comprised of local competitors. Collectively, local players have the largest share of the market, but are individually much smaller and tend to focus on servicing local businesses typically requiring less sophisticated applications.
The market for specialty and water treatment chemicals used in the pulp and paper industry is fragmented. We are one of the leading suppliers with four other multi-nationals having significant presence. The remainder of the market is comprised of smaller, regional participants.
The largest participants in the energy services sector are Nalco and three other multi-nationals. The remainder of the market consists of smaller, regional niche companies focused on limited geographic areas.
Sales : Products, systems and services are primarily marketed in domestic and international markets by Company-trained field sales personnel who also advise and assist our customers in the proper and efficient use of the products and systems in order to meet a full range of cleaning and sanitation, water treatment and process chemistry needs. Independent, third-party distributors are utilized in several markets, as described in the business unit descriptions found under the discussion of the six reportable segments above.
Number of Employees : We had approximately 40,200 employees as of December 31, 2011.
Customers and Classes of Products : We believe that our business is not materially dependent upon a single customer. Additionally, although we have a diverse customer base and no customer or distributor constitutes 10 percent or more of our 2011 consolidated revenues, we do have customers and independent, third-party distributors, the loss of which could have a material adverse effect on results of operations for the affected earnings periods; however, we consider it unlikely that such an event would have a material adverse impact on our financial position. No material part of our business is subject to renegotiation or termination at the election of a governmental unit. We sell two classes of products which constituted 10 percent or more of consolidated sales in any of the last three years. Sales of warewashing products were approximately 18% of consolidated 2011 sales, and approximately 19% in both 2010 and 2009. In addition, through our
Institutional and Textile Care businesses around the world, we sell laundry products and provide customer support to a broad range of laundry customers. Sales of laundry products were approximately 10% of consolidated net sales in 2011 and 2010 and 11% in 2009.
Patents and Trademarks : We own and license a number of patents, trademarks and other intellectual property. While we have an active program to protect our intellectual property by filing for patents or trademarks, and pursuing legal action, when appropriate, to prevent infringement, we do not believe that our overall business is materially dependent on any individual patent or trademark except patents related to our TRASAR and 3D TRASAR technology, which are material to our Water Services and Paper Services segments, and trademarks related to Ecolab, Nalco Company and 3D TRASAR. The Ecolab trademarks are material to the legacy Ecolab segments and the Nalco trademarks are material to the legacy Nalco segments. The 3D TRASAR trademarks predominantly relate to our Water Services and Paper Services segments. U.S. and foreign patents protect aspects of our key TRASAR and 3D TRASAR technology until at least 2024. The Ecolab, Nalco Company and 3D TRASAR trademarks are registered or applied for in all of our key markets, and we anticipate maintaining them indefinitely.
Seasonality : We do experience variability in our quarterly operating results due to seasonal sales volume and business mix fluctuations in our operating segments. Note 17, entitled Quarterly Financial Data located on page 51 of the Annual Report, is incorporated herein by reference.
Working Capital : We have invested in the past, and will continue to invest in the future, in merchandising and customer equipment consisting primarily of systems used by customers to dispense our products as well as to monitor water systems. Otherwise, we have no unusual working capital requirements.
Manufacturing and Distribution : We manufacture most of our products and related equipment in Company-operated manufacturing facilities. Some products are also produced for us by third-party contract manufacturers. Other products and equipment are purchased from third-party suppliers. Additional information on product/equipment sourcing is found in the segment discussions above and additional information on our manufacturing facilities is located beginning at page 24 of this Form 10-K under the heading Properties.
Deliveries to customers are made from our manufacturing plants and a network of distribution centers and third-party logistics service providers. We use common carriers, our own delivery vehicles, and distributors for transport. Additional information on our plant and distribution facilities is located beginning at page 24 of this Form 10-K under the heading Properties.
Raw Materials : Raw materials purchased for use in manufacturing our products are inorganic chemicals, including alkalis, acids, biocides, phosphonates, phosphorous materials, silicates and salts; and organic chemicals, including acids, amines, fatty acids, surfactants, solvents, monomers and polymers. Our Healthcare Division purchases plastic films and parts to manufacture medical devices that serve the surgical and infection prevention markets. Pesticides used by our Pest Elimination Division are purchased as finished products under contract or purchase order from the producers or their distributors. We also purchase packaging materials for our manufactured products and components for our specialized cleaning equipment and systems. We purchase more than 8,000 raw materials, with the largest single raw material representing less than 3% of raw material purchases. Our raw materials, with the exception of a few specialized chemicals which we manufacture, are generally purchased on an annual contract basis and are ordinarily available in adequate quantities from a diverse group of suppliers globally. When practical, global sourcing is used so that purchasing or production locations can be shifted to control product costs at globally competitive levels.
Research and Development : Our research and development program consists principally of devising and testing new products, processes, techniques and equipment, improving the efficiency of existing ones, improving service program content, evaluating the environmental compatibility of products and technical support. Key disciplines include analytical and formulation chemistry, microbiology, process and packaging engineering, remote monitoring engineering and product dispensing technology. Substantially all of our principal products have been developed by our research, development and engineering personnel. At times, technology has also been licensed from third parties to develop offerings.
We believe that continued research and development activities are critical to maintaining our leadership position within the industry and will provide us with a competitive advantage as we seek additional business with new and existing customers.
Note 13, entitled Research Expenditures located on page 42 of the Annual Report, is incorporated herein by reference.
Joint Ventures : Over time, our Nalco businesses have entered into general partnerships or joint ventures for limited scope business opportunities. In 2004 Nalco entered into a joint venture with Katayama Chemical, Inc., or KCI, for the marketing and sale of our water treatment and process chemicals in Japan. KCI is a leading participant in these markets in Japan and the venture permits the combination of our broad product portfolio with KCIs strong market presence. This joint venture does not include manufacturing, research and administrative resources, which are provided to the joint venture by the parents. In 2008 we formed a joint venture with Stepan Company operating under the TIORCO brand to globally market custom-engineered chemical solutions for increased production of crude oil and gas from existing fields. The joint venture is equally owned and controlled by Nalco and Stepan. The two partners will capture most of the value generation directly. Nalco has a joint venture with Siemens Water Technologies Inc., Treated Water Outsourcing, to pursue process water treatment outsourcing projects and to supply standard water treatment equipment packages with our chemicals and service offerings. Additionally, we maintain longstanding partnerships in Saudi Arabia and in Spain. In 2010, Nalco formed new joint ventures in South Africa with a subsidiary of Protea Chemicals and in Russia with a subsidiary of Lukoil. We also maintain joint ventures in jurisdictions requiring local participation in our business. We will continue to evaluate the potential for partnerships and joint ventures that can assist us in increasing our geographic, technological and product reach.
Environmental and Regulatory Considerations : Our businesses are subject to various legislative enactments and regulations relating to the protection of the environment and public health. While we cooperate with governmental authorities and take commercially practicable measures to meet regulatory requirements and avoid or limit environmental effects, some risks are inherent in our businesses. Among the risks are costs associated with transporting and managing hazardous materials and waste disposal and plant site clean-up, fines and penalties if we are found to be in violation of law, as well as modifications, disruptions or discontinuation of certain operations or types of operations including product recalls and reformulations. Similarly, the need for certain of our products and services is dependent upon or might be limited by governmental laws and regulations. Changes in such laws and regulations, including among others, air pollution regulations and regulations relating to oil and gas production (including those related to hydraulic fracturing), could impact the sales of some of our products or services. In addition to an increase in costs of manufacturing and delivering products, a change in production regulations or product regulations could result in interruptions to our business and potentially cause economic or consequential losses should we be unable to meet the demands of our customers for products.
Additionally, although we are not currently aware of any such circumstances, there can be no assurance that future legislation or enforcement policies will not have a material adverse effect on our consolidated results of operations, financial position or cash flows. Environmental and regulatory matters most significant to us are discussed below.
Ingredient Legislation : Various laws and regulations have been enacted by state, local and foreign jurisdictions pertaining to the sale of products which contain phosphorous, volatile organic compounds, or other ingredients that may impact human health or the environment. Under California Proposition 65, label disclosures are required for certain products containing chemicals listed by California. Chemical management initiatives that promote pollution prevention through research and development of safer chemicals and safer chemical processes are being advanced by certain states, including California, Maine, Massachusetts, Minnesota and Oregon. Environmentally preferable purchasing programs for cleaning products have been enacted in nine states to date, and in 2011 were considered by several other state legislatures. Cleaning
product ingredient disclosure legislation was re-introduced in the U.S. Congress in 2011 but did not pass, and several states including California and New York are considering further regulations in this area. To date, we generally have been able to comply with such legislative requirements by reformulation or labeling modifications. Such legislation has not had a material adverse effect on our consolidated results of operations, financial position or cash flows to date.
TSCA : Re-authorization of the Toxic Substances Control Act (TSCA) and an update of the chemicals on the TSCA Inventory (the so-called reset of the TSCA Inventory) are being discussed in the U.S. Congress. The U.S. Environmental Protection Agency (EPA) is also more aggressively using the existing TSCA tools to manage chemicals of concern. We anticipate that compliance with new requirements under TSCA could be similar to the costs associated with REACH in the European Union, which is discussed below.
REACH : The European Union has enacted a regulatory framework for the Registration, Evaluation and Authorization of Chemicals (REACH). It established a new European Chemicals Agency (ECHA) in Helsinki, Finland, which is responsible for evaluating data to determine hazards and risks and to manage this program for authorizing chemicals for sale and distribution in Europe. We have met the pre-registration requirements of REACH, the 2010 registration deadline, and are on track to meet the upcoming registration deadlines and requirements in 2013 and beyond. To help manage this new program, we are simplifying our product line and working with chemical suppliers to comply with registration requirements. The impact of REACH will also be felt by our competitors. Potential costs to us are not yet fully quantifiable, but are not expected to have a material adverse effect our consolidated results of operations or cash flows in any one reporting period or our financial position.
GHS : In 2003, the United Nations issued a standard on hazard communication and labeling of chemical products known as the Globally Harmonized System of Classification and Labeling of Chemicals (GHS). GHS is designed to facilitate international trade and increase safe handling and use of hazardous chemicals through a worldwide system that classifies chemicals based on their intrinsic hazards and communicates information about those hazards through standardized product labels and safety data sheets (SDSs). Most countries in which we operate will adopt GHS-related legislation, and a few countries already have done so. The primary cost of compliance revolves around reclassifying products and revising SDSs and product labels, and we are working toward a phased-in approach to mitigate the costs of GHS implementation. The impact of GHS will also be felt by our competitors. Potential costs to us are not yet fully quantifiable, but are not expected to have a material adverse effect on our consolidated results of operations or cash flows in any one reporting period or our financial position.
Pesticide and Biocide Legislation : Various international, federal and state environmental laws and regulations govern the manufacture and/or use of pesticides. We manufacture and sell certain disinfecting and sanitizing products which kill or reduce microorganisms (bacteria, viruses, fungi) on hard environmental surfaces and on certain food products. Such products constitute pesticides or antimicrobial pesticides under the current definitions of the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA), as amended by the Food Quality Protection Act of 1996, the principal federal statute governing the manufacture, labeling, handling and use of pesticides. We maintain several hundred product registrations with the U.S. Environmental Protection Agency (EPA). Registration entails the necessity to meet certain efficacy, toxicity and labeling requirements and to pay on-going registration fees. In addition, each state in which these products are sold requires registration and payment of a fee. In general, the states impose no substantive requirements different from those required by FIFRA. However, California and certain other states have adopted additional regulatory programs, and California imposes a tax on total pesticide sales in that state. While the cost of complying with rules as to pesticides has not had a material adverse effect on our consolidated results of operations, financial condition, or cash flows to date, the costs and delays in receiving necessary approvals for these products continue to increase. Total fees paid to the EPA and the states to obtain or maintain pesticide
registrations, and for the California tax, were approximately $3 million in 2011 and 2010.
In Europe, the Biocidal Product Directive (BPD) established a program to evaluate and authorize marketing of biocidal active substances and products. We are working with suppliers and industry groups to manage requirements associated with the BPD, and have met the first relevant deadline of the program by the timely submission of dossiers for active substances. Anticipated registration costs, which will be incurred through the multi-year BPD phase-in period, will be significant; however, these costs are not expected to significantly affect our consolidated results of operations or cash flows in any one reporting period or our financial position.
In addition, our Pest Elimination Division applies restricted-use pesticides that it generally purchases from third parties. That Division must comply with certain standards pertaining to the use of such pesticides and to the licensing of employees who apply such pesticides. Such regulations are enforced primarily by the states or local jurisdictions in conformity with federal regulations. We have not experienced material difficulties in complying with these requirements.
FDA Antimicrobial Product Requirements : Various laws and regulations have been enacted by federal, state, local and foreign jurisdictions regulating certain products manufactured and sold by us for controlling microbial growth on humans, animals and foods. In the United States, these requirements generally are administered by the U.S. Food and Drug Administration (FDA). However, the U.S. Department of Agriculture and EPA also may share in regulatory jurisdiction of antimicrobials applied to food. The FDA codifies Good Manufacturing Practices for these products in order to ensure product quality, safety and effectiveness. The FDA also has been expanding requirements applicable to such products, including proposing regulations in a Tentative Final Monograph for Healthcare Antiseptic Drug Products dated June 17, 1994, which may impose additional requirements associated with antimicrobial hand care products and associated costs when finalized by the FDA. To date, such requirements have not had a material adverse effect on our consolidated results of operations, financial position or cash flows.
Medical Device and Drug Product Requirements : As a manufacturer and marketer of medical devices, we also are subject to regulation by the FDA and corresponding regulatory agencies of the state, local and foreign governments in which we sell our products. These regulations govern the development, testing, manufacturing, packaging, labeling and marketing of medical devices. We also are required to register with the FDA as a device manufacturer and to comply with the FDAs Quality System Regulations, which require that we have a quality system for the design and production of our products intended for commercial distribution in the United States and satisfy recordkeeping requirements with respect to our manufacturing, testing and control activities. Countries in the European Union require that certain products being sold within their jurisdictions obtain a CE mark, an international symbol of adherence to quality assurance standards, and be manufactured in compliance with certain requirements (e.g., ISO standard 13485). We have CE mark approval to sell various medical device products in Europe. Our other international non-European operations also are subject to government regulation and country-specific rules and regulations. Regulators at the federal, state and local level have imposed, are currently considering and are expected to continue to impose regulations on medical devices and drug products. No prediction can be made of the potential effect of any such future regulations, and there can be no assurance that future legislation or regulations will not increase the costs of our products or prohibit the sale or use of certain products.
Other Environmental Legislation : Our manufacturing plants are subject to federal, state, local or foreign jurisdiction laws and regulations relating to discharge of hazardous substances into the environment and to the transportation, handling and disposal of such substances. The primary federal statutes that apply to our activities in the United States are the Clean Air Act, the Clean Water Act and the Resource Conservation and Recovery Act. We are also subject to the Superfund Amendments and Reauthorization Act of 1986, which imposes certain reporting requirements as to emissions of hazardous substances into the air, land and water. Similar legal
requirements apply to Ecolabs facilities globally. We make capital investments and expenditures to comply with environmental laws and regulations, to ensure employee safety and to carry out our announced environmental sustainability principles. To date, such expenditures have not had a significant adverse effect on our consolidated results of operations, financial position or cash flows. Our capital expenditures for environmental, health and safety projects worldwide were approximately $10 million in 2011 and $6 million in 2010. Approximately $16 million has been budgeted globally for projects in 2012.
Climate Change : Various laws and regulations pertaining to climate change have been implemented or are being considered for implementation at the international, national, regional and state levels, particularly as they relate to the reduction of greenhouse gas (GHG) emissions. None of these laws and regulations directly applies to Ecolab at the present time; however, as a matter of corporate policy, Ecolab supports a balanced approach to reducing GHG emissions while sustaining economic growth and competitiveness. Ecolab is committed to reducing its carbon footprint. To help manage risks from GHG emissions and identify cost-effective reduction opportunities, Ecolab joined U.S. EPAs Climate Leaders program in 2005. Though EPA announced in 2010 that it was dissolving the program, Ecolab has continued with much of its work to reduce its carbon footprint. For example, Ecolab has developed a GHG inventory of the six major greenhouse gases and reported progress against Ecolabs goal of reducing GHG emissions by 20% per dollar sales from 2006 to 2012. We are currently evaluating what impact the recent Nalco merger will have on our ability to achieve this goal.
Environmental Remediation and Proceedings : Along with numerous other potentially responsible parties (PRP), we are currently involved with waste disposal site clean-up activities imposed by the federal Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) or state equivalents at 27 sites in the United States. Additionally, we have similar liability at five sites outside the United States. In general, under CERCLA, we and each other PRP that actually contributes hazardous substances to a Superfund site are jointly and severally liable for the costs associated with cleaning up the site. Customarily, the PRPs will work with the EPA to agree and implement a plan for site remediation.
Based on an analysis of our experience with such environmental proceedings, our estimated share of all hazardous materials deposited on the sites referred to in the preceding paragraph, and our estimate of the contribution to be made by other PRPs which we believe have the financial ability to pay their shares, we have accrued our best estimate of our probable future costs relating to such known sites. Unasserted claims are not reflected in the accrual. In establishing accruals, potential insurance reimbursements are not included. The accrual is not discounted. It is not feasible to predict when the amounts accrued will be paid due to the uncertainties inherent in the environmental remediation and associated regulatory processes.
We have also been named as a defendant in lawsuits where our products have not caused injuries, but the claimants wish to be monitored for potential future injuries. We cannot predict with certainty the outcome of any such tort claims or the involvement we or our products might have in such matters in the future and there can be no assurance that the discovery of previously unknown conditions will not require significant expenditures. In each of these chemical exposure cases, our insurance carriers have accepted the claims on our behalf (with or without reservation) and our financial exposure should be limited to the amount of our deductible; however, we cannot predict the number of claims that we may have to defend in the future and we may not be able to continue to maintain such insurance.
We have also been named as a defendant in a number of lawsuits alleging personal injury due to exposure to hazardous substances, including multi-party lawsuits alleging personal injury in connection with our products and services. While we do not believe that any of these suits will be material to us based upon present information, there can be no assurance that these environmental matters could not have, either individually or in the aggregate, a material adverse
effect on our consolidated results of operations, financial position or cash flows.
Our worldwide net expenditures for contamination remediation were approximately $1 million in both 2011 and 2010. Our worldwide accruals at December 31, 2011 for probable future remediation expenditures, excluding potential insurance reimbursements, totaled approximately $5 million. We review our exposure for contamination remediation costs periodically and our accruals are adjusted as considered appropriate. While the final resolution of these issues could result in costs below or above current accruals and, therefore, have an impact on our consolidated financial results in a future reporting period, we believe the ultimate resolution of these matters will not have a material effect on our consolidated results of operations, financial position or cash flows.
Item 1(d) Financial Information About Geographic Areas .
The financial information about geographic areas appearing under the heading Operating Segments in Note 16, located on pages 49 to 51 of the Annual Report, is incorporated herein by reference.
Item 1(e) Available Information.
Our Internet address is www.ecolab.com. Copies of our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to these reports, are available free of charge on our website www.ecolab.com/investor as soon as reasonably practicable after such material is filed with, or furnished to, the Securities and Exchange Commission.
In addition, the following governance materials are available on our website at www.ecolab.com/investors/corporate-governance: (i) charters of the Audit, Compensation, Finance, Governance and Safety, Health and Environment Committees of our Board of Directors; (ii) our Boards Corporate Governance Principles; and (iii) our Code of Conduct, Code of Ethics for Senior Officers and Finance Associates and the Nalco Code of Ethical Business Conduct.
Executive Officers of the Registrant .
The persons listed in the following table are our current executive officers. Officers are elected annually. There is no family relationship among any of the directors or executive officers, and except as otherwise noted, no executive officer has been involved during the past ten years in any legal proceedings described in applicable Securities and Exchange Commission regulations.
Name |
|
Age |
|
Office |
|
Positions Held Since
|
|
|
|
|
|
|
|
Douglas M. Baker, Jr. |
|
53 |
|
Chairman of the Board and Chief Executive Officer |
|
Dec. 2011 - Present |
|
|
|
|
|
|
|
|
|
|
|
Chairman of the Board, President and Chief Executive Officer |
|
Jan. 2007 Nov. 2011 |
|
|
|
|
|
|
|
Larry L. Berger |
|
51 |
|
Executive Vice President and Chief Technical Officer |
|
Oct. 2011 - Present |
|
|
|
|
|
|
|
|
|
|
|
Senior Vice President and Chief Technical Officer |
|
Apr. 2008 Sept. 2011 (1) |
|
|
|
|
|
|
|
John J. Corkrean |
|
46 |
|
Senior Vice President and Corporate Controller |
|
Oct. 2011 - Present |
|
|
|
|
|
|
|
|
|
|
|
Vice President and Corporate Controller |
|
Apr. 2008 Sept. 2011 |
|
|
|
|
|
|
|
|
|
|
|
Vice President and Treasurer |
|
Jan. 2007 Mar. 2008 |
Name |
|
Age |
|
Office |
|
Positions Held Since
|
|
|
|
|
|
|
|
Steven L. Fritze |
|
57 |
|
Chief Financial Officer |
|
Feb. 2008 Present |
|
|
|
|
|
|
|
|
|
|
|
Executive Vice President and Chief Financial Officer |
|
Jan. 2007 Jan. 2008 |
|
|
|
|
|
|
|
J. Erik Fyrwald |
|
52 |
|
President |
|
Dec. 2011 Present (2) |
|
|
|
|
|
|
|
Thomas W. Handley |
|
57 |
|
Senior Executive Vice President and President Global Food & Beverage and Asia Pacific Latin America |
|
Oct. 2011 Present |
|
|
|
|
|
|
|
|
|
|
|
President, Global Food & Beverage and APLA Sectors |
|
Jan. 2011 Sep. 2011 |
|
|
|
|
|
|
|
|
|
|
|
President, Global Food & Beverage |
|
Sep. 2009 Dec. 2010 |
|
|
|
|
|
|
|
|
|
|
|
President Industrial and Services North America Sector |
|
Dec. 2007 Aug. 2009 |
|
|
|
|
|
|
|
|
|
|
|
Executive Vice President Industrial Sector |
|
Jan. 2007 Nov. 2007 |
|
|
|
|
|
|
|
Michael A. Hickey |
|
50 |
|
Executive Vice President and President Institutional |
|
Aug. 2011 Present |
|
|
|
|
|
|
|
|
|
|
|
Executive Vice President Global Services Sector |
|
Jan. 2011 Jul. 2011 |
|
|
|
|
|
|
|
|
|
|
|
Executive Vice President, Service Sector |
|
Jan. 2010 Dec. 2010 |
|
|
|
|
|
|
|
|
|
|
|
Senior Vice President Global Business Development and General Manager GCS Service |
|
Jan. 2009 Dec. 2009 |
|
|
|
|
|
|
|
|
|
|
|
Senior Vice President Global Business Development |
|
Jan. 2007 Dec. 2008 |
|
|
|
|
|
|
|
Phillip J. Mason |
|
61 |
|
Executive Vice President and President - EMEA |
|
Oct. 2011 - Present |
|
|
|
|
|
|
|
|
|
|
|
President EMEA Sector |
|
Jul. 2010 Sep. 2011 |
|
|
|
|
|
|
|
|
|
|
|
President International Sector |
|
Dec. 2007 Jun. 2010 |
|
|
|
|
|
|
|
|
|
|
|
Executive Vice President Asia Pacific and Latin America |
|
Jan. 2007 Nov. 2007 |
|
|
|
|
|
|
|
Michael L. Meyer |
|
54 |
|
Executive Vice President Human Resources |
|
Oct. 2011 Present |
|
|
|
|
|
|
|
|
|
|
|
Senior Vice President-Human Resources |
|
Feb. 2008 Sep. 2011(3) |
|
|
|
|
|
|
|
James A. Miller |
|
55 |
|
Executive Vice President and President Global Services and Specialty |
|
Oct. 2011 - Present |
|
|
|
|
|
|
|
|
|
|
|
President, Global Services and Specialty Sectors |
|
Jan. 2011 Sep. 2011 |
|
|
|
|
|
|
|
|
|
|
|
President, Specialty & Services Sector |
|
Sep. 2009 Dec. 2010 |
|
|
|
|
|
|
|
|
|
|
|
President Institutional North America Sector |
|
Dec. 2007 Aug. 2009 |
|
|
|
|
|
|
|
|
|
|
|
Executive Vice President Institutional Sector North America |
|
Jan. 2007 Nov. 2007 |
Name |
|
Age |
|
Office |
|
Positions Held Since
|
|
|
|
|
|
|
|
Timothy P. Mulhere |
|
49 |
|
Executive Vice President and President Global Healthcare |
|
Feb. 2012 Present |
|
|
|
|
|
|
|
|
|
|
|
Senior Vice President and General Manager Food & Beverage North America |
|
Apr. 2008 Jan. 2012 |
|
|
|
|
|
|
|
|
|
|
|
Senior Vice President and General Manager Healthcare North America |
|
Jan. 2007 Mar. 2008 |
|
|
|
|
|
|
|
James J. Seifert |
|
55 |
|
Executive Vice President, General Counsel and Secretary |
|
Oct. 2011 Present |
|
|
|
|
|
|
|
|
|
|
|
General Counsel & Secretary |
|
May 2010 Sep. 2011(4) |
|
|
|
|
|
|
|
Gregory E. Temple |
|
53 |
|
Executive Vice President and Chief Supply Chain Officer |
|
Apr. 2011 Present (5) |
(1) |
Prior to joining Ecolab in 2008, Dr. Berger spent 22 years with E.I. du Pont de Nemours and Company, most recently as Chief Technical Officer for du Pont Nonwovens. |
|
|
(2) |
Prior to joining Ecolab in 2011 upon closing of the Nalco merger, Mr. Fyrwald was Chairman of the Board, President and Chief Executive Officer of Nalco Holding Company since February 2008. From 2003 to 2008, Mr. Fyrwald served as Group Vice President of the Agriculture and Nutrition Division of E.I. du Pont de Nemours and Company. |
|
|
(3) |
Prior to joining Ecolab in 2008, Mr. Meyer was employed for 24 years by Abbott Laboratories, most recently as Vice President Vascular Business Latin America and Canada. Mr. Meyers management and executive experience includes 22 years in Human Resources and assignments in Canada and Hong Kong. |
|
|
(4) |
Prior to joining Ecolab in 2010, Mr. Seifert was Vice President, General Counsel and Secretary of Bemis Company, Inc. since 2002. |
|
|
(5) |
Prior to joining Ecolab in 2011, Mr. Temple was Corporate Vice President, Global Supply Chain for Avery Dennison Corporation since 2007. |
The following are important factors which could affect our financial performance and could cause our actual results for future periods to differ materially from our anticipated results or other expectations, including those expressed in any forward-looking statements made in this Form 10-K. See the section entitled Forward-Looking Statements located on page 1 of this Form 10-K.
We may also refer to this disclosure to identify factors that may cause results to differ from those expressed in other forward-looking statements including those made in oral presentations, including telephone conferences and/or webcasts open to the public.
Except as may be required under applicable law, we undertake no duty to update our Forward-Looking Statements.
We may be unable to integrate Nalco successfully and realize the anticipated benefits of the merger: On December 1, 2011, we completed the Nalco merger. The merger involves the combination of two companies that historically operated as independent public companies. We will need to devote significant management attention and resources to integrating the business and operations of Nalco. Potential difficulties that we may encounter as part of the integration process, which may preclude us from realizing the anticipated benefits of the merger, including expected synergies, include the following:
· complexities associated with managing the combined businesses, including the challenge of integrating complex information technology systems, communications systems, financial reporting systems, supply chain and procurement arrangements and other assets of Nalco in a seamless manner that minimizes any adverse impact on customers, suppliers, employees and other constituencies;
· the possibility that our businesses may suffer as a result of uncertainty surrounding the impact of the integration on employees and customers;
· potential unknown liabilities in the legacy Nalco business or arising out of the integration;
· unforeseen increased expenses or delays associated with the integration;
· the inability to successfully combine the businesses of Ecolab and Nalco in a manner that permits us to achieve the full revenue and cost synergies anticipated to result from the merger;
· problems that may arise in integrating the workforces of the two companies, including the possible loss of key employees;
· potential problems in maintaining and integrating effective disclosure controls and procedures and internal control over financial reporting for the combined company;
· the lack of depth of personnel or other resources to pursue other potential business opportunities, such as possible acquisition opportunities; and
· the disruption of, or the loss of momentum in, our ongoing businesses or inconsistencies in standards, controls, procedures and policies, any of which could adversely affect our ability to maintain relationships with customers, suppliers, employees and other constituencies or our ability to achieve the anticipated benefits of the merger or could reduce the combined companys earnings or otherwise adversely affect the business and financial results of the combined company.
In addition, with approximately $4.7 billion in sales in 2011 and approximately 13,700 employees, the merger of Nalcos business with Ecolab has increased the size of our business significantly. Our future success depends, in part, upon our ability to manage this expanded business. There can be no assurances that we will be successful or that we will realize the expected operating efficiencies, cost savings, revenue enhancements and other benefits anticipated from the merger.
We depend on key personnel to lead our business : Our continued success will largely depend on our ability to attract and retain a high caliber of talent and on the efforts and abilities of our executive officers and certain other key employees. This is even more crucial following the Nalco merger as important resources are shifted to planning and executing key integration initiatives as well as cost and growth synergies. During this stage in the integration, experienced business and financial leaders and experts are critical to the success of the merger. Our operations could be adversely affected if for any reason such officers or key employees did not remain with us.
Our results can be adversely affected by difficulties in securing the supply of certain raw materials or by fluctuations in the cost of raw materials : The prices of raw materials used in our business can fluctuate from time to time, and in recent years we have experienced periods of increased raw material costs. Changes in raw material prices, unavailability of adequate and reasonably priced raw materials or substitutes for those raw materials, or the inability to obtain or renew supply agreements on favorable terms can adversely affect our consolidated results of operations, financial position or cash flows. In addition, volatility and disruption in economic activity and conditions could disrupt or delay the performance of our suppliers and thus impact our ability to obtain raw materials at favorable prices or on favorable terms, which may adversely affect our business.
If we are unsuccessful in executing on key business initiatives, our business could be adversely affected : In addition to the Nalco merger, we continue to make investments and execute business initiatives to develop business systems and optimize our business structure as part of our ongoing efforts to improve our efficiency and returns. In particular, in February 2011 we announced various initiatives to capture financial and operational benefits in our European business, in part, by leveraging our new ERP system, and
to improve our competitiveness in the region. Those initiatives remain in progress, and the Nalco integration activities could impact our ability to timely execute these initiatives. If the projects in which we are investing or the initiatives which we are pursuing are not successfully executed, our consolidated results of operations, financial position or cash flows could be adversely affected.
Our results depend upon the continued vitality of the markets we serve : Economic downturns, and in particular downturns in the foodservice, hospitality, travel, health care, food processing, pulp and paper and energy industries, can adversely impact our end-users. In recent years, the weak global economic environment, particularly in the United States and Europe, have negatively impacted many of our end-markets. Further decline in economic activity may continue to adversely affect these markets. During such downturns, these end-users typically reduce their volume of purchases of cleaning and sanitizing products and water treatment and process chemicals, which has had, and may continue to have, an adverse effect on our business.
Our results are impacted by general worldwide economic factors: Economic factors such as the worldwide economy, capital flows, interest rates and currency movements including, in particular, our exposure to foreign currency risk have affected our business in the past and may have a material adverse impact on our business in the future. In 2008 and 2009, the global economy experienced considerable disruption and volatility, and the disruption was particularly acute in the global credit markets. In 2011, the European Unions sovereign debt crisis negatively impacted economic activity in that region as well as the strength of the euro versus the U.S. dollar. Further turmoil in the European Unions sovereign debt market, or a similar financial crisis, could have a material adverse impact on our consolidated results of operations, financial position and cash flows by negatively impacting economic activity, including in our key end-markets, and by further weakening the euro versus the U.S. dollar, resulting in reduced sales and earnings from our European operations, which are generated in euros and other European currencies, and then translated to U.S. dollars.
Our significant non-U.S. operations expose us to global economic, political and legal risks that could impact our profitability: We have significant operations outside the United States, including joint ventures and other alliances. We conduct business in approximately 160 countries and, in 2011, approximately 49% of our net sales originated outside the United States. Some of our business is conducted in politically unstable countries. There are inherent risks in our international operations, including:
· exchange controls and currency restrictions;
· currency fluctuations and devaluations;
· tariffs and trade barriers;
· export duties and quotas;
· changes in local economic conditions;
· changes in laws and regulations;
· difficulties in managing international operations and the burden of complying with foreign laws;
· exposure to possible expropriation, nationalization or other government actions;
· restrictions on our ability to repatriate dividends from our subsidiaries;
· unsettled political conditions, military action, civil unrest, acts of terrorism, force majeure, war or other armed conflict; and
· countries whose governments have been hostile to U.S.-based businesses.
Our international operations also expose us to different local political and business risks and challenges. For example, in certain countries we are faced with periodic political issues that could result in difficulties in collecting receivables or realizing other assets, currency risks or the risk that we are required to include local
ownership or management in our businesses. Also, because of uncertainties regarding the interpretation and application of laws and regulations and the enforceability of intellectual property and contract rights, we face risks in some countries that our intellectual property rights and contract rights would not be enforced by local governments. We are also periodically faced with the risk of economic uncertainty, which has impacted our business in some countries. Other risks in international business also include difficulties in staffing and managing local operations, including our obligations to design local solutions to manage credit risk to local customers and distributors.
Further, our operations outside the United States require us to comply with a number of United States and international regulations, including anti-corruption laws such as the United States Foreign Corrupt Practices Act and the United Kingdom Bribery Act. We have internal policies relating to such regulations; however, there is risk that such policies and procedures will not always protect us from the reckless acts of employees or representatives, and violations of such laws could result in investigations of the Company and sanctions.
Our overall success as a global business depends, in part, upon our ability to succeed in differing economic, social, legal and political conditions. We may not continue to succeed in developing and implementing policies and strategies that are effective in each location where we do business, which could adversely affect our consolidated results of operations, financial position or cash flows.
Our business depends on our ability to comply with laws and governmental regulations, and we may be adversely affected by changes in laws and regulations : Our business is subject to numerous laws and regulations relating to the environment, including evolving climate change standards, and to the manufacture, storage, distribution, sale and use of our products as well as to the conduct of our business generally, including employment and labor laws. Compliance with these laws and regulations exposes us to potential financial liability and increases our operating costs. Regulation of our products and operations continues to increase with more stringent standards, causing increased costs of operations and potential for liability if a violation occurs. The potential cost to us relating to environmental and product registration laws and regulations is uncertain due to factors such as the unknown magnitude and type of possible contamination and clean-up costs, the complexity and evolving nature of laws and regulations, and the timing and expense of compliance. Changes to current laws (including tax laws), regulations and policies could impose new restrictions, costs or prohibitions on our current practices which would adversely affect our consolidated results of operations, financial position or cash flows.
Our subsidiaries are defendants in pending lawsuits alleging negligence and injury resulting from the use of our COREXIT dispersant in response to the Deepwater Horizon oil spill, which could expose us to monetary damages or settlement costs: Our subsidiaries are defendants in pending lawsuits alleging negligence and injury resulting from the use of our COREXIT dispersant in response to the Deepwater Horizon oil spill, which could expose us to monetary damages or settlement costs. On April 22, 2010, the deepwater drilling platform, the Deepwater Horizon, operated by a subsidiary of BP plc, sank in the Gulf of Mexico after a catastrophic explosion and fire that began on April 20, 2010. A massive oil spill resulted. Approximately one week following the incident, subsidiaries of BP plc, under the authorization of the responding federal agencies, formally requested our indirect subsidiary, Nalco Company, to supply large quantities of COREXIT 9500, a Nalco oil dispersant product listed on the U.S. EPA National Contingency Plan Product Schedule. Nalco Company responded immediately by providing available COREXIT and increasing production to supply the product to BPs subsidiaries for use, as authorized and directed by agencies of the federal government. Prior to the incident, Nalco and its subsidiaries had not provided products or services or otherwise had any involvement with the Deepwater Horizon platform. On July 15, 2010, BP announced that it had capped the leaking well, and the application of dispersants by the responding parties ceased shortly thereafter.
Nalco Company is a defendant in five putative class action lawsuits relating to the use of our COREXIT dispersant in the Gulf of Mexico in response to the Deepwater Horizon oil spill. The actions, as currently pleaded, allege several causes of action, including negligence and gross negligence. The plaintiffs in these actions seek, among other things, compensatory and punitive damages, medical monitoring and attorneys fees and costs. In addition, Nalco Company is a defendant in fifteen civil actions brought by individual
plaintiffs that contains factual allegations substantially similar to the putative class action lawsuits against Nalco Company, with the addition of claims of nuisance, trespass, battery, and strict liability for the physical injuries and property damage allegedly sustained by the plaintiffs. The plaintiffs in those actions seek, among other things, compensatory and punitive damages, and attorneys fees and costs.
All but two of these cases have been administratively transferred for pre-trial purposes to a judge in the United States District Court for the Eastern District of Louisiana with other related cases under In Re: Oil Spill by the Oil Rig Deepwater Horizon in the Gulf of Mexico, on April 20, 2010, Case No. 10-md-02179 (E.D. La.) (the MDL). Pursuant to orders issued in the MDL, the claims have been consolidated in several master complaints, including one naming Nalco and others who responded to the Gulf Oil Spill (known as the B3 Bundle). At this time, we do not know how many cases will be in the B3 Bundle. A tentative list of cases includes fifteen cases (including some putative class actions) in the B3 Bundle. Six cases previously filed against Nalco are not included in the B3 Bundle. The two cases that have not been consolidated in the MDL are pending in state court in Mississippi and Louisiana.
Nalco Company , the incident defendants and the other responder defendants have been named as third party defendants by Transocean Deepwater Drilling, Inc. and its affiliates (the Transocean Entities) (In re the Complaint and Petition of Triton Asset Leasing GmbH, et al, MDL No. 2179, Civil Action 10-2771). In April and May 2011, the Transocean Entities, Cameron International Corporation, Halliburton Energy Services, Inc., M-I L.L.C., Weatherford U.S., L.P. and Weatherford International, Inc. (collectively, the Cross Claimants) filed cross claims in MDL 2179 against Nalco Company and other unaffiliated cross defendants. The Cross Claimants generally allege, among other things, that if they are found liable for damages resulting from the Deepwater Horizon explosion, oil spill and/or spill response, they are entitled to indemnity or contribution from the cross defendants.
In April and June 2011, in support of its defense of the claims against it, Nalco Company filed counterclaims against the Cross Claimants. In its counterclaims, Nalco Company generally alleges that if it is found liable for damages resulting from the Deepwater Horizon explosion, oil spill and/or spill response, it is entitled to contribution or indemnity from the Cross Claimants.
We believe the claims against Nalco are without merit and intend to defend these lawsuits vigorously. We also believe that we have rights to contribution and/or indemnification (including legal expenses) from third parties. However, we cannot predict the outcome of these lawsuits, the involvement we might have in these matters in the future or the potential for future litigation. Accordingly, these lawsuits could have a material adverse affect on our consolidated results of operation, financial position and cash flows.
Our growth depends upon our ability to successfully compete with respect to value, innovation and customer support : Our competitive market is made up of numerous global, national, regional and local competitors. Our ability to compete depends in part upon our ability to maintain a superior technological capability and to continue to identify, develop and commercialize innovative, high value-added products for niche applications. There can be no assurance that we will be able to accomplish this or that technological developments by our competitors will not place certain of our products at a competitive disadvantage in the future. In addition, certain of the new products that we have under development will be offered in markets in which we do not currently compete, and there can be no assurance that we will be able to compete successfully in those new markets. If we fail to introduce new technologies on a timely basis, we may lose market share and our consolidated results of operations, financial position or cash flows could be adversely affected.
We have substantial indebtedness following the Nalco merger which will impact our financial flexibility: As of December 31, 2011, we had net debt of $5.8 billion. Our substantial indebtedness may adversely affect our business, consolidated results of operations and financial position including in the following respects:
· requiring us to dedicate a substantial portion of our cash flows to debt service obligations, thereby potentially reducing the availability of cash flows to pay cash dividends and to fund working capital, capital expenditures, acquisitions, investments and other general operating requirements and opportunities;
· limiting our ability to obtain additional financing to fund our working capital requirements, capital expenditures, acquisitions, investments, debt service obligations and other general operating requirements;
· placing us at a relative competitive disadvantage compared to competitors that have less debt;
· limiting flexibility to plan for, or react to, changes in the businesses and industries in which we operate, which may adversely affect our operating results and ability to meet our debt service obligations; and
· increasing our vulnerability to adverse general economic and industry conditions.
In addition, approximately $1.0 billion of our debt is floating rate debt. A one percentage point increase in the average interest rate on our floating rate debt would increase future interest expense by approximately $10 million per year. Accordingly a significant spike in interest rates would adversely affect our consolidated results of operations and cash flows.
If we incur additional indebtedness, the risks related to our substantial indebtedness may intensify.
We may be subject to information technology system failures, network disruptions and breaches in data security: We rely to a large extent upon sophisticated information technology systems and infrastructure. The size and complexity of our computer systems make them potentially vulnerable to breakdown, malicious intrusion and random attack. Likewise, data privacy breaches by employees and others with permitted access to our systems may pose a risk that sensitive data may be exposed to unauthorized persons or to the public. While we have invested heavily in protection of data and information technology, there can be no assurance that our efforts will prevent breakdowns or breaches in our systems that could adversely affect our business.
If we are unsuccessful in integrating acquisitions, our business could be adversely affected : As part of our long-term strategy, we seek to acquire complementary businesses. There can be no assurance that we will find attractive acquisition candidates or succeed at effectively managing the integration of acquired businesses into existing businesses. If the underlying business performance of such acquired businesses deteriorates, the expected synergies from such transactions do not materialize or we fail to successfully integrate new businesses into our existing businesses, our consolidated results of operations, financial position or cash flows could be adversely affected.
We enter into multi-year contracts with customers that can impact our results : Our multi-year contracts with some of our customers include terms affecting our pricing flexibility. There can be no assurance that these restraints will not have an adverse impact on our margins and consolidated results of operations.
Consolidation of our customers and vendors can affect our results : Customers and vendors in the foodservice, hospitality, travel, healthcare, food processing and pulp and paper industries as well as other industries we serve have consolidated in recent years and that trend may continue. This consolidation could have an adverse impact on our ability to retain customers and on our margins and consolidated results of operations.
Severe public health outbreaks may adversely impact our business : Our business could be adversely affected by the effect of a public health epidemic. The United States and other countries have experienced, and may experience in the future, public health outbreaks such as Avian Flu, SARS and H1N1 influenza. A prolonged occurrence of a contagious disease such as these could result in a significant downturn in the
foodservice, hospitality and travel industries and also may result in health or other government authorities imposing restrictions on travel further impacting our end markets. Any of these events could result in a significant drop in demand for some of our products and services and adversely affect our business.
We will incur significant expenses related to the amortization of intangible assets and may be required to report losses resulting from the impairment of goodwill or other assets recorded in connection with the merger: The Nalco merger is treated as an acquisition of Nalco by Ecolab for accounting purposes. Both Ecolab and Nalco have in the past expanded their operations through other acquisitions and joint ventures involving businesses owned by third parties. Ecolab expects to continue to complete selected acquisitions and joint venture transactions in the future. In connection with acquisition and joint venture transactions, applicable accounting rules generally require the tangible and intangible assets of the acquired business to be recorded on the balance sheet of the acquiring company at their fair values. Intangible assets other than goodwill are required to be amortized over their estimated useful lives and this expense may be significant. Any excess in the purchase price paid by the acquiring company over the fair value of tangible and intangible assets of the acquired business is recorded as goodwill. Our merger with Nalco resulted in goodwill of $4.4 billion which will ultimately be maintained in separate reporting units. If it is later determined that the anticipated future cash flows from the acquired business may be less than the carrying values of the assets and goodwill of the acquired business, the assets or goodwill may be deemed to be impaired. In this case, the acquiring company may be required under applicable accounting rules to write down the value of the assets or goodwill on its balance sheet to reflect the extent of the impairment. This write-down of assets or goodwill is generally recognized as a non-cash expense in the statement of operations of the acquiring company for the accounting period during which the write down occurs. If we determine that any of the assets or goodwill recorded in connection with the Nalco merger or any other prior or future acquisitions or joint venture transactions have become impaired, we will be required to record a loss resulting from the impairment. Impairment losses could be significant and could adversely affect our consolidated results of operations and financial position.
Future events may impact our deferred tax position, including the utilization of foreign tax credits and undistributed earnings of international affiliates that are considered to be reinvested indefinitely: We evaluate the recoverability of deferred tax assets and the need for deferred tax liabilities based on all available evidence. This process involves significant management judgment about assumptions that are subject to change from period to period based on changes in tax laws or variances between future projected operating performance and actual results. We are required to establish a valuation allowance for deferred tax assets if we determine, based on available evidence at the time the determination is made, that it is more likely than not that some portion or all of the deferred tax assets will not be realized. In making this determination, we evaluate all positive and negative evidence as of the end of each reporting period. Future adjustments (either increases or decreases), to the deferred tax asset valuation allowance are determined based upon changes in the expected realization of the net deferred tax assets. The realization of the deferred tax assets ultimately depends on the existence of sufficient taxable income in either the carry-back or carry-forward periods under the tax law. Due to significant estimates used to establish the valuation allowance and the potential for changes in facts and circumstances, it is reasonably possible that we will be required to record adjustments to the valuation allowance in future reporting periods. Changes to the valuation allowance or the amount of deferred tax liabilities could adversely affect our consolidated results of operations or financial position. Further, should the Company change its assertion regarding the permanent reinvestment of the undistributed earnings of international affiliates, a deferred tax liability may need to be established.
Extraordinary events may significantly impact our business : The occurrence of (a) litigation or claims, (b) the loss or insolvency of a major customer or distributor, (c) war (including acts of terrorism or hostilities which impact our markets), (d) natural or manmade disasters, (e) water shortages or (f) severe weather conditions affecting the foodservice, hospitality and travel industries may have a material adverse effect on our business.
Defense of litigation, particularly certain types of actions such as antitrust, patent infringement, wage hour and class action lawsuits, can be costly and time consuming even if ultimately successful, and if not
successful could have a material adverse effect on our consolidated results of operations, financial position or cash flows.
While we have a diverse customer base and no customer or distributor constitutes 10 percent or more of our consolidated revenues, we do have customers and independent, third-party distributors, the loss of which could have a material adverse effect on our consolidated results of operations or cash flows for the affected earnings periods; however, we consider it unlikely that such an event would have a material adverse effect on our financial position.
War (including acts of terrorism or hostilities), natural or manmade disasters, water shortages or severe weather conditions affecting the foodservice, hospitality and travel industries cause a downturn in the business of restaurants, motels and hotels and other of our customers, which in turn can have a material adverse effect on our consolidated results of operations, financial position or cash flows.
Item 1B. Unresolved Staff Comments .
We have no unresolved comments from the staff of the Securities and Exchange Commission.
Our manufacturing philosophy is to manufacture products wherever an economic, process or quality assurance advantage exists or where proprietary manufacturing techniques dictate in-house production. Currently, most products that we sell are manufactured at our facilities. We position our manufacturing locations and warehouses in a manner to permit ready access to our customers.
Our manufacturing facilities produce chemical products as well as medical devices and equipment for all of our businesses, although the businesses constituting the United States Other Services segment purchase the majority of their products and equipment from outside suppliers. Our chemical production process consists of blending and packaging powders and liquids, casting solids and reaction chemistry. Our devices and equipment manufacturing operations consist of producing chemical product dispensers and injectors and other mechanical equipment, medical devices, dishwasher racks, related sundries, dish machine refurbishment and water monitoring and maintenance equipment systems.
The following table profiles our main manufacturing facilities with ongoing production activities. In general, with respect to our legacy Ecolab businesses, manufacturing facilities located in the United States serve the United States Cleaning & Sanitizing segment and facilities located outside of the United States serve the International segment. However, certain of these United States facilities do manufacture products for export which are used by the International segment. The facilities having export involvement are marked with an asterisk (*). With respect to the legacy Nalco facilities, each of these facilities serve the legacy Nalco segments and manufacture product for export.
PLANT PROFILES
Location |
|
Approximate
|
|
Types of Products |
|
Majority
|
|
UNITED STATES CLEANING AND SANITIZING SEGMENT |
|
|
|
|
|
|
|
Joliet, IL * |
|
610,000 |
|
Solids, Liquids, Emulsions, Powders |
|
Owned |
|
South Beloit, IL * |
|
313,000 |
|
Equipment |
|
Owned |
|
Garland, TX * |
|
239,000 |
|
Solids, Liquids, Emulsions |
|
Owned |
|
Martinsburg, WV |
|
228,000 |
|
Liquids, Emulsions, Waxes |
|
Owned |
|
Greensboro, NC |
|
193,000 |
|
Solids, Liquids, Powders |
|
Owned |
|
San Jose, CA |
|
175,000 |
|
Liquids |
|
Owned |
|
McDonough, GA* |
|
141,000 |
|
Solids, Liquids, Emulsions |
|
Owned |
|
Location |
|
Approximate
|
|
Types of Products |
|
Majority
|
|
Eagan, MN * |
|
133,000 |
|
Solids, Liquids, Emulsions, Powders |
|
Owned |
|
Huntington, IN * |
|
127,000 |
|
Liquids |
|
Owned |
|
City of Industry, CA |
|
125,000 |
|
Liquids, Emulsions |
|
Owned |
|
Elk Grove Village, IL * |
|
115,000 |
|
Equipment |
|
Leased |
|
Fort Worth, TX |
|
101,000 |
|
Equipment |
|
Leased |
|
Jacksonville, FL * |
|
88,000 |
|
Medical Devices |
|
Leased |
|
Carrollton, TX |
|
70,000 |
|
Liquids |
|
Owned |
|
Tyler, TX * |
|
63,000 |
|
Medical Devices |
|
Leased |
|
Columbus, MS |
|
49,000 |
|
Medical Devices |
|
Owned |
|
St. Louis, MO |
|
37,000 |
|
Equipment |
|
Leased |
|
INTERNATIONAL SEGMENT |
|
|
|
|
|
|
|
Chalons, FRANCE |
|
280,000 |
|
Liquids, Powders |
|
Owned |
|
Nieuwegein, NETHERLANDS |
|
168,000 |
|
Powders |
|
Owned |
|
La Romana, DOMINICAN REPUBLIC |
|
160,000 |
|
Medical Devices |
|
Leased |
|
Tessenderlo, BELGIUM |
|
153,000 |
|
Solids, Liquids |
|
Owned |
|
Melbourne, AUSTRALIA |
|
145,000 |
|
Liquids, Powders |
|
Owned |
|
Brisbane, AUSTRALIA |
|
131,000 |
|
Liquids, Powders |
|
Owned |
|
Rozzano, ITALY |
|
126,000 |
|
Liquids |
|
Owned |
|
Mississauga, CANADA |
|
120,000 |
|
Liquids |
|
Leased |
|
Johannesburg, SOUTH AFRICA |
|
100,000 |
|
Liquids, Powders |
|
Owned |
|
Hamilton, NEW ZEALAND |
|
96,000 |
|
Solids, Liquids, Powders |
|
Owned |
|
Mullingar, IRELAND |
|
74,000 |
|
Liquids |
|
Leased |
|
Mosta, MALTA |
|
73,000 |
|
Medical Devices |
|
Leased |
|
Sao Paulo, BRAZIL |
|
62,000 |
|
Solids, Liquids |
|
Leased |
|
Shika, JAPAN |
|
60,000 |
|
Liquids |
|
Owned |
|
Santiago, CHILE |
|
60,000 |
|
Liquids, Powders |
|
Leased |
|
Revesby, AUSTRALIA |
|
59,000 |
|
Liquids, Powders |
|
Owned |
|
Cheadle (Hulme), UNITED KINGDOM |
|
53,000 |
|
Liquids |
|
Leased |
|
Guangzhou, CHINA |
|
50,000 |
|
Liquids, Powders |
|
Leased |
|
Baglan, UNITED KINGDOM |
|
50,000 |
|
Liquids |
|
Leased |
|
Noda, JAPAN |
|
49,000 |
|
Solids, Liquids, Powders |
|
Owned |
|
Siegsdorf, GERMANY |
|
42,000 |
|
Equipment |
|
Owned |
|
Zutphen, NETHERLANDS |
|
41,000 |
|
Medical Devices |
|
Leased |
|
Mexico City, MEXICO |
|
40,000 |
|
Liquids, Powders |
|
Owned |
|
Maribor, SLOVENIA |
|
39,000 |
|
Liquids, Powders |
|
Owned |
|
Leeds, UNITED KINGDOM |
|
35,000 |
|
Liquids |
|
Owned |
|
Pilar, ARGENTINA |
|
30,000 |
|
Liquids, Powders |
|
Owned |
|
Shanghai, CHINA |
|
27,000 |
|
Solids, Liquids, Powders |
|
Owned |
|
Perth, AUSTRALIA |
|
27,000 |
|
Liquids, Powders |
|
Owned |
|
Singapore, SINGAPORE |
|
25,000 |
|
Liquids, Powders |
|
Owned |
|
Seoul, SOUTH KOREA |
|
22,000 |
|
Liquids, Powders |
|
Owned |
|
Acuna, MEXICO |
|
21,000 |
|
Medical Devices |
|
Leased |
|
Location |
|
Approximate
|
|
Types of Products |
|
Majority
|
|
Racibor, POLAND |
|
20,000 |
|
Liquids |
|
Leased |
|
Mandras, GREECE |
|
18,000 |
|
Liquids |
|
Owned |
|
Varssesveld, NETHERLANDS |
|
17,000 |
|
Medical Devices |
|
Leased |
|
San Jose, COSTA RICA |
|
11,000 |
|
Liquids, Powders |
|
Owned |
|
Bogota, COLOMBIA |
|
11,000 |
|
Liquids |
|
Leased |
|
Cikarang, INDONESIA |
|
10,000 |
|
Solids, Liquids, Powders |
|
Owned |
|
Bangkok, THAILAND |
|
10,000 |
|
Liquids, Powders |
|
Owned |
|
Manilla, PHILIPPINES |
|
8,000 |
|
Liquids, Powders |
|
Owned |
|
WATER SERVICES, PAPER SERVICES AND ENERGY SERVICES SEGMENTS |
|
|
|
|
|
|
|
United States |
|
|
|
|
|
|
|
Sugar Land, TX |
|
350,000 |
|
Reactions and Blending |
|
Owned |
|
Clearing, IL |
|
270,000 |
|
Reactions and Blending |
|
Owned |
|
Elwood City, PA |
|
222,000 |
|
Reactions and Blending |
|
Owned |
|
Garyville, LA |
|
122,000 |
|
Reactions and Blending |
|
Owned |
|
Tulsa, OK |
|
62,000 |
|
Reactions and Blending |
|
Owned |
|
Carson, CA |
|
60,000 |
|
Reactions and Blending |
|
Owned |
|
Freeport, TX |
|
43,000 |
|
Reactions and Blending |
|
Owned |
|
Evansville, WY |
|
25,000 |
|
Blending |
|
Owned |
|
Odessa, TX |
|
25,000 |
|
Blending |
|
Owned |
|
Texarkana, TX |
|
21,000 |
|
Blending |
|
Owned |
|
Scott, LA |
|
18,000 |
|
Blending |
|
Owned |
|
Montgomery, AL |
|
17,000 |
|
Blending |
|
Owned |
|
Port Allen, LA |
|
15,000 |
|
Blending |
|
Owned |
|
Vancouver, WA |
|
14,000 |
|
Blending |
|
Owned |
|
International |
|
|
|
|
|
|
|
Weavergate, UNITED KINGDOM |
|
222,000 |
|
Blending |
|
Owned |
|
Burlington, ONTARIO |
|
136,000 |
|
Reactions and Blending |
|
Owned |
|
Biebesheim, GERMANY |
|
109,000 |
|
Reactions and Blending |
|
Owned |
|
Suzano, BRAZIL |
|
87,000 |
|
Reactions and Blending |
|
Owned |
|
Cisterna, ITALY |
|
80,000 |
|
Reactions and Blending |
|
Owned |
|
Botany, AUSTRALIA |
|
68,000 |
|
Reactions and Blending |
|
Owned |
|
Nanjing, CHINA |
|
60,000 |
|
Reactions and Blending |
|
Owned |
|
Citeureup, INDONESIA |
|
53,000 |
|
Blending |
|
Owned |
|
Calamba, PHILIPPINES |
|
50,000 |
|
Blending |
|
Owned |
|
Konnagar, INDIA |
|
48,000 |
|
Reactions and Blending |
|
Owned |
|
Tesjoki, FINLAND |
|
43,000 |
|
Reactions and Blending |
|
Owned |
|
Rayong, THAILAND |
|
38,000 |
|
Blending |
|
Owned |
|
Fawley, UNITED KINGDOM |
|
37,000 |
|
Reactions and Blending |
|
Owned |
|
Hu Kou, TAIWAN |
|
34,000 |
|
Blending |
|
Owned |
|
Location |
|
Approximate
|
|
Types of Products |
|
Majority
|
|
Lerma, MEXICO |
|
32,000 |
|
Reactions and Blending |
|
Owned |
|
Pilar, ARGENTINA |
|
30,000 |
|
Reactions and Blending |
|
Owned |
|
Celra, SPAIN |
|
27,000 |
|
Reactions and Blending |
|
Owned |
|
Soledad, COLOMBIA |
|
27,000 |
|
Reactions and Blending |
|
Owned |
|
Nisku, Alberta, CANADA |
|
26,000 |
|
Blending |
|
Owned |
|
Singapore, SINGAPORE |
|
25,000 |
|
Reactions and Blending |
|
Owned |
|
Yangsan, KOREA |
|
22,000 |
|
Reactions and Blending |
|
Owned |
|
Suzhou, CHINA |
|
18,000 |
|
Reactions and Blending |
|
Owned |
|
Kwinana, AUSTRALIA |
|
18,000 |
|
Reactions and Blending |
|
Owned |
|
Auckland, NEW ZEALAND |
|
13,000 |
|
Blending |
|
Owned |
|
Anaco, VENEZUELA |
|
10,000 |
|
Reactions and Blending |
|
Owned |
|
Quilicura, CHILE |
|
6,000 |
|
Blending |
|
Owned |
|
Alexandria, EGYPT |
|
5,000 |
|
Blending |
|
Owned |
|
Dammam, SAUDI ARABIA |
|
5,000 |
|
Blending |
|
Owned |
|
Generally, our manufacturing facilities are adequate to meet our existing in-house production needs. We continue to invest in our plant sites to maintain viable operations and to add capacity as necessary to meet business imperatives. A new manufacturing plant and distribution center near Shanghai, China is under construction with a planned start up in 2012. In addition, plans are under review with respect to the construction of a new plant in Asia to primarily serve our Energy Services business.
Most of our manufacturing plants also serve as distribution centers. In addition, we operate distribution centers around the world, most of which are leased, and utilize third party logistics service providers to facilitate the distribution of our products and services.
Ecolabs corporate headquarters is comprised of three adjacent multi-storied buildings located in downtown St. Paul, Minnesota. The main 19-story building was constructed to our specifications and is leased through 2013. Thereafter, it is subject to multiple renewals at our option. The second building is leased through 2019 with additional options available. The third building is owned. The corporate headquarters includes an employee training center. A 90 acre campus in Eagan, Minnesota is owned and provides for future growth. The Eagan facility houses a significant research and development center and a data center as well as several of our administrative functions.
We also have a significant business presence in Naperville, Illinois, where our Water and Process Services business maintains its principal administrative offices and research center. These facilities are leased. Our Energy Services business maintains administrative and research facilities in Sugar Land, Texas. Significant regional administrative and/or research facilities are located in Leiden, Netherlands, Campinas, Brazil, and Pune, India, which we own, and in Düsseldorf, Germany, Singapore, Shanghai, China, and Zurich, Switzerland, which we lease. We also have a network of small leased sales offices in the United States and, to a lesser extent, in other parts of the world.
Note 14, entitled Commitments and Contingencies located on pages 42 - 44 of the Annual Report, is incorporated herein by reference.
Other matters arising under laws relating to protection of the environment are discussed at Item 1(c) above, under the heading Environmental and Regulatory Considerations.
Item 4. Mine Safety Disclosures .
Not applicable.
Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities .
Market Information : Our Common Stock is listed on the New York Stock Exchange under the symbol ECL. The Common Stock is also traded on an unlisted basis on certain other United States exchanges. The high and low sales prices of our Common Stock on the consolidated transaction reporting system during 2011 and 2010 were as follows:
|
|
2011 |
|
2010 |
|
||||||||
Quarter |
|
High |
|
Low |
|
High |
|
Low |
|
||||
First |
|
$ |
51.08 |
|
$ |
46.80 |
|
$ |
47.40 |
|
$ |
40.66 |
|
Second |
|
$ |
56.45 |
|
$ |
49.97 |
|
$ |
49.70 |
|
$ |
44.10 |
|
Third |
|
$ |
57.19 |
|
$ |
43.81 |
|
$ |
51.23 |
|
$ |
44.66 |
|
Fourth |
|
$ |
58.13 |
|
$ |
47.27 |
|
$ |
52.46 |
|
$ |
46.64 |
|
The closing Common Stock price on the New York Stock Exchange February 1, 2012 was $60.61.
Holders : On February 1, 2012, we had 4,772 holders of Common Stock of record.
Dividends : We have paid Common Stock dividends for 75 consecutive years. Quarterly cash dividends of $0.155 per share were declared in February, May and August 2010. Cash dividends of $0.175 per share were declared in December 2010, and February, May and August 2011. A dividend of $0.20 per share was declared in December 2011.
Issuer Purchases of Equity Securities :
Period |
|
(a)
|
|
(b)
|
|
(c)
|
|
(d)
|
|
|
October 1-31, 2011 |
|
78,386 |
|
$ |
50.5663 |
|
0 |
|
27,949,558 |
|
November 1-30, 2011 |
|
25,264 |
|
$ |
55.1749 |
|
0 |
|
27,949,558 |
|
December 1-31, 2011 |
|
9,451,390 |
|
$ |
54.7351 |
|
9,416,579 |
|
18,532,979 |
|
Total |
|
9,555,040 |
|
$ |
54.7021 |
|
9,416,579 |
|
18,532,979 |
|
(1) |
Includes 138,461 shares reacquired from employees and/or directors as swaps for the cost of stock options, or shares surrendered to satisfy minimum statutory tax obligations under our stock incentive plans. |
|
|
(2) |
The average price paid per share includes brokerage commissions associated with publicly announced plan purchases plus the value of such other reacquired shares. |
|
|
(3) |
As announced on February 26, 2010, our Board of Directors authorized the repurchase of up to 10,000,000 shares of Common Stock, including shares to be repurchased under Rule 10b5-1. As announced on May 5, 2011, our Board of Directors authorized the repurchase of up to 15,000,000 additional shares of Common Stock, including shares to be repurchased under Rule 10b5-1. As announced on August 23, 2011, the Finance Committee, via delegation by our Board of Directors, authorized the repurchase of up to an additional 10,000,000 shares contingent upon completion of the merger with Nalco. In September 2011, the Company announced a $1.0 billion share repurchase program under the existing Board authorizations. We intend to repurchase all shares under these authorizations, for which no expiration date has been established, in open market or privately negotiated transactions, subject to market conditions. |
Item 6. Selected Financial Data .
The comparative data for the years ended December 31, 2011, 2010, 2009, 2008 and 2007 inclusive, which are set forth under the heading entitled Summary Operating and Financial Data located on pages 54 and 55 of the Annual Report, are incorporated herein by reference.
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations .
The material appearing under the heading entitled Managements Discussion & Analysis, located on pages 9 through 22 of the Annual Report, is incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk .
The material appearing under the heading entitled Market Risk, located on page 21 of the Annual Report is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data .
The financial statements and material which are an integral part of the financial statements listed under Item 15(a)(1) below and located on pages 23 through 55 of the Annual Report, are incorporated herein by reference.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure .
None.
Item 9A. Controls and Procedures .
Disclosure Controls and Procedures : As of December 31, 2011, we carried out an evaluation, under the supervision and with the participation of our management, including our Chairman of the Board and Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 as amended). Based upon that evaluation, our Chairman of the Board and Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures are effective.
Internal Control Over Financial Reporting : Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Under the supervision and with the participation of our management, including our Chairman of the Board and Chief Executive Officer and our Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under this framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2011.
On December 1, 2011, the Company completed the Nalco merger (see Note 4, Acquisitions and Dispositions, beginning on page 31 of the Annual Report for additional information.) As permitted by the Securities and Exchange Commission, companies may exclude acquisitions from their assessment of internal controls over financial reporting during the first year of an acquisition, and management elected to exclude Nalco from its assessment of internal controls over financial reporting as of December 31, 2011. Total assets of Nalco represented 16% of the Companys consolidated total assets as of December 31, 2011 and Nalcos net sales represented 3% of the Companys consolidated net sales for the fiscal year ended December 31, 2011.
The Companys independent registered public accounting firm, PricewaterhouseCoopers LLP, has audited the effectiveness of the Companys internal control over financial reporting as of December 31, 2011. Their report, and our management reports, can be found in our Annual Report, the relevant portion of which has been filed as Exhibit (13.1) to this Form 10-K and is incorporated into Item 8 of this Form 10-K.
During the period October 1 - December 31, 2011, other than the Nalco merger, there were no changes in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 10. Directors, Executive Officers of the Registrant and Corporate Governance .
Information about our directors is incorporated by reference from the discussion under the heading Proposal 1: Election of Directors located in the Proxy Statement. Information about compliance with Section 16(a) of the Securities Exchange Act of 1934, as amended, is incorporated by reference from the discussion under the heading Section 16(a) Beneficial Ownership Reporting Compliance located in the Proxy Statement. Information about our Audit Committee, including the members of the Committee, and our Audit Committee financial experts, is incorporated by reference from the discussion under the heading Corporate Governance, and sub-headings Board Committees and Audit Committee, located in the Proxy Statement. Information about our Code of Conduct is incorporated by reference from the discussion under the heading Corporate Governance Materials and Code of Conduct located in the Proxy Statement. Information regarding our executive officers is presented under the heading Executive Officers of the Registrant in Part I on pages 15 through 17 of this Form 10-K, and is incorporated herein by reference.
Item 11. Executive Compensation .
Information appearing under the headings entitled Executive Compensation and Director Compensation located in the Proxy Statement is incorporated herein by reference. However, pursuant to Instructions to Item 407(e)(5) of Securities and Exchange Commission Regulation S-K, the material appearing under the sub-heading Compensation Committee Report shall not be deemed to be filed with the Commission, other than as provided in this Item 11.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters .
Information appearing under the heading entitled Security Ownership located in the Proxy Statement is incorporated herein by reference.
A total of 645,721 shares of Common Stock held by our directors and executive officers, some of whom may be deemed to be affiliates of the Company, have been excluded from the computation of market value of our Common Stock on the cover page of this Form 10-K. This total represents that portion of the shares reported as beneficially owned by our directors and executive officers as of June 30, 2011 which are actually issued and outstanding.
The following table presents, as of December 31, 2011, compensation plans (including individual compensation arrangements) under which our equity securities are authorized for issuance.
EQUITY COMPENSATION PLAN INFORMATION
Plan Category |
|
(a)
|
|
(b)
|
|
(c)
|
|
|
Equity compensation plans approved by security holders |
|
22,093,894 |
(1) |
$ |
42.20 |
|
8,605,190 |
|
Equity compensation plans not approved by security holders |
|
1,195,969 |
(2)(3) |
$ |
52.46 |
|
207,869 |
|
Total |
|
23,289,863 |
|
$ |
42.73 |
|
8,813,059 |
|
(1) |
Includes 181,380 Common Stock equivalents under our 2001 Non-Employee Director Stock Option and Deferred Compensation Plan. These Common Stock equivalents represent deferred compensation earned by non-employee directors and are included in the calculation of weighted average exercise price of outstanding options, warrants and rights in column (b) of this table. Includes 2,148,849 shares of our Common Stock subject to equity compensation awards with a weighted-average exercise price of $46.97, which we assumed in connection with the Nalco merger effective December 1, 2011. Includes 1,989,435 Common Stock equivalents under our 2005 and 2010 Stock Incentive Plans. These Common Stock equivalents represent performance-based restricted stock units payable to employees and are included in the calculation of weighted average exercise price of outstanding options, warrants and rights in column (b) of this table. Includes 722,620 Common Stock equivalents under our 2010 Stock Incentive Plan. These Common Stock equivalents represent restricted stock units payable to employees and are included in the calculation of weighted average exercise price of outstanding options, warrants and rights in column (b) of this table. |
|
|
(2) |
Includes 998,890 shares of our Common Stock which were formerly reserved for future issuance under the Amended and Restated Nalco Holding Company 2004 Stock Incentive Plan (the rollover shares) and granted to legacy Nalco associates on December 1, 2011 under the Ecolab Inc. 2010 Stock Incentive Plan. These rollover shares are deemed exempt from shareholder approval under Rule 303A.08 of the New York Stock Exchange in accordance with our notice to the NYSE dated December 16, 2011. The Nalco plan was amended to prohibit future grants. |
|
|
(3) |
Includes 197,079 shares of Common Stock issuable under outstanding awards granted by Nalco to J. Erik Fyrwald pursuant to an employment letter agreement dated as of February 21, 2008, which agreement was assumed in connection with the Nalco merger effective December 1, 2011. Specifically, 67,959 shares of our Common Stock are subject to a Restricted Stock Unit award vesting in first quarter 2012 and Mr. Fyrwald has two stock options to purchase a total of 129,120 shares at $30.67 per share which expire in March 2018. |
Item 13. Certain Relationships and Related Transactions, and Director Independence .
Information appearing under the headings entitled Director Independence Standards and Determinations and Related Person Transactions located in the Proxy Statement is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services .
Information appearing under the heading entitled Audit Fees located in the Proxy Statement is incorporated herein by reference.
Item 15. Exhibits, Financial Statement Schedules .
|
|
(4.5) Supplemental Indenture, dated as of February 8, 2008, between Ecolab Inc. and The Bank of New York Trust Company, N.A., as Trustee Incorporated by reference to Exhibit 4.2 of our Form 8-K dated February 8, 2008. |
|
|
|
|
|
(4.6) Form of 4.875% Note due February 15, 2015 Included in Exhibit (4.5) above. |
|
|
|
|
|
(4.7) Second Supplemental Indenture, dated as of December 8, 2011, between the Company, Wells Fargo Bank, National Association, as Trustee and the Bank of New York Mellon Trust Company, N.A. (formerly known as The Bank of New York Trust Company, N.A., as successor in interest to J.P. Morgan Trust Company, National Association and Bank One, National Association), as original trustee Incorporated by reference to Exhibit (4.2) of our Current Report on Form 8-K dated December 5, 2011. |
|
|
|
|
|
(4.8) Forms of 2.375% Notes due 2014 Notes, 3.000% Notes due 2016, 4.350% Notes due 2021 and 5.500% Notes due 2041 Included in Exhibit (4.7) above. |
|
|
|
|
|
Copies of other constituent instruments defining the rights of holders of our long-term debt are not filed herewith, pursuant to Section (b)(4)(iii) of Item 601 of Regulation S-K, because the aggregate amount of securities authorized under each of such instruments is less than 10% of our total assets on a consolidated basis. We will, upon request by the Securities and Exchange Commission, furnish to the Commission a copy of each such instrument. |
|
|
|
|
(10.1) |
$1.5 billion 5-Year Revolving Credit Facility, dated as of September 8, 2011, among Ecolab Inc., the lenders party thereto, the issuing banks party thereto, Bank of America, N.A., as administrative agent and swingline bank, and Citibank, N.A., JPMorgan Chase Bank, N.A. and The Bank of Tokyo-Mitsubishi UFJ, Ltd., as co-syndication agents Incorporated by reference to Exhibit (10.2) of our Form 8-K dated September 8, 2011. |
|
|
|
|
(10.2) |
First Amendment to Note Purchase Agreement dated July 26, 2006, dated as of October 27, 2011, by and among Ecolab Inc. and the Noteholders party thereto Incorporated by reference to Exhibit (10.2) of our Form 8-K dated October 27, 2011. |
|
|
|
|
(10.3) |
Note Purchase Agreement dated October 27, 2011, by and among Ecolab Inc. and the Purchasers party thereto Incorporated by reference to Exhibit (10.1) of our Form 8-K dated October 27, 2011. |
|
|
|
|
(10.4) |
$2.0 billion 364-Day Revolving Credit Facility, dated as of September 8, 2011, among Ecolab Inc., the lenders party thereto, Bank of America, N.A., as administrative agent, and JPMorgan Chase Bank, N.A., Sumitomo Mitsui Banking Corporation and The Bank of Tokyo-Mitsubishi UFJ, Ltd., as co-syndication agents Incorporated by reference to Exhibit (10.1) of our Form 8-K dated September 8, 2011. |
|
|
|
|
(10.5) |
Documents comprising global Commercial Paper Programs |
|
|
|
|
|
(i) U.S. $200,000,000 Euro-Commercial Paper Programme |
|
|
|
|
|
(a) Amended and Restated Dealer Agreement dated 2 December 2005 between Ecolab Inc. (as Guarantor), Ecolab B.V. and Ecolab Holding GmbH (as Issuers), Ecolab Inc., Credit Suisse First Boston (Europe) Limited (as Arranger), and Citibank International plc and Credit Suisse First Boston (Europe) Limited (as Dealers) Incorporated by reference to Exhibit (10)B(i)(a) of our Form 10-K Annual Report for the year ended December 31, 2005. |
|
|
|
|
|
(b) Amended and Restated Note Agency Agreement dated as of 2 December 2005 between Ecolab Inc., Ecolab B.V. and Ecolab Holding GmbH (as Issuers) and Citibank, N.A. as Issue and Paying Agent Incorporated by reference to Exhibit (10)B(i)(b) of our Form 10-K Annual Report for the year |
|
|
ended December 31, 2005. |
|
|
|
|
|
(c) Deed of Covenant made on 2 December 2005 by Ecolab Inc., Ecolab B.V. and Ecolab Holding GmbH Incorporated by reference to Exhibit (10)B(i)(c) of our Form 10-K Annual Report for the year ended December 31, 2005. |
|
|
|
|
|
(d) Deed of Guarantee made on 2 December 2005 Incorporated by reference to Exhibit (10)B(i)(d) of our Form 10-K Annual Report for the year ended December 31, 2005. |
|
|
|
|
|
(ii) U.S. $3,500,000,000 U.S. Commercial Paper Program |
|
|
|
|
|
(a) Form of Commercial Paper Dealer Agreement for 4 (2) Program. The dealers for the program are Citigroup Global Markets Inc., J.P. Morgan Securities LLC, Wells Fargo Securities, LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Credit Suisse Securities (USA) LLC and RBS Securities Inc. Incorporated by reference to Exhibit (10)A(ii)(a) of our Form 10-Q for the quarter ended June 30, 2003. |
|
|
|
|
|
(b) Issuing and Paying Agency Agreement dated as of July 10, 2000 between Ecolab Inc. and JPMorgan Chase Bank, N.A. (as successor to Bank One, National Association) as Issuing and Paying Agent - Incorporated by reference to Exhibit (10)A(ii)(b) of our Form 10-Q for the quarter ended June 30, 2003. |
|
|
|
|
|
(c) Corporate Commercial Paper Master Note dated July 10, 2000. |
|
|
|
|
|
(d) Annex to Corporate Commercial Paper Master Note dated July 10, 2000 effective January 9, 2012. |
|
|
|
|
(10.6) |
(i) Ecolab Inc. 1997 Stock Incentive Plan, as Amended and Restated as of August 18, 2000 - Incorporated by reference to Exhibit (10) of our Form 10-Q for the quarter ended September 30, 2000. |
|
|
|
|
|
(ii) Non-Statutory Stock Option Agreement as in effect for grants through May 12, 2000 Incorporated by reference to Exhibit (10)B(i) of our Form 10-Q for the quarter ended June 30, 2004. |
|
|
|
|
|
(iii) Non-Statutory Stock Option Agreement as in effect for grants beginning May 13, 2000 through May 10, 2002 Incorporated by reference to Exhibit (10)B(ii) of our Form 10-Q for the quarter ended June 30, 2004. |
|
|
|
|
(10.7) |
(i) Ecolab Inc. 2001 Non-Employee Director Stock Option and Deferred Compensation Plan as amended effective May 1, 2004 Incorporated by reference to Exhibit (10)H(ii) of our Form 10-K Annual Report for the year ended December 31, 2003. |
|
|
|
|
|
(ii) Amendment No. 1 adopted December 15, 2004 to Ecolab Inc. 2001 Non-Employee Director Stock Option and Deferred Compensation Plan, as amended and restated effective May 1, 2004, with respect to the American Jobs Creation Act of 2004 Incorporated by reference to Exhibit (10)F(ii) of our Form 10-K Annual Report for the year ended December 31, 2004. |
|
|
|
|
|
(iii) Master Agreement Relating to Options (as in effect through May 7, 2004) Incorporated by reference to Exhibit (10)D(i) of our Form 10-Q for the quarter ended June 30, 2004. |
|
|
|
|
|
(iv) Master Agreement Relating to Periodic Options, as amended effective as of May 1, 2004 Incorporated by reference to Exhibit (10)D(ii) of our Form 10-Q for the quarter ended June 30, 2004. |
|
|
|
|
|
(v) Amendment No. 2 to Ecolab Inc. 2001 Non-Employee Director Stock Option and |
(10.16) |
|
Ecolab Inc. Administrative Document for Non-Qualified Plans (Amended and Restated effective as of January 1, 2011). |
|
|
|
(10.17) |
|
Ecolab Inc. Management Performance Incentive Plan, as amended and restated on February 27, 2009 Incorporated by reference to Exhibit (10) of our Form 8-K dated May 8, 2009. |
|
|
|
(10.18) |
|
(i) Ecolab Inc. Change in Control Severance Compensation Policy, as amended and restated effective February 26, 2010 Incorporated by reference to Exhibit (10) of our Form 8-K dated February 26, 2010. |
|
|
|
|
|
(ii) Amendment No. 1 to Ecolab Inc. Change-in-Control Severance Policy (as Amended and Restated effective as of February 26, 2010). |
|
|
|
(10.19) |
|
Description of Ecolab Management Incentive Plan Incorporated by reference to Exhibit (10)Q of our Form 10-K Annual Report for the year ended December 31, 2008. |
|
|
|
(10.20) |
|
(i) Ecolab Inc. 2002 Stock Incentive Plan Incorporated by reference to Exhibit (10) of our Form 10-Q for the quarter ended June 30, 2002 |
|
|
|
|
|
(ii) Non-Statutory Stock Option Agreement as in effect for grants beginning May 11, 2002 through August 12, 2003 Incorporated by reference to Exhibit (10)A(i) of our Form 10-Q for the quarter ended June 30, 2004. |
|
|
|
|
|
(iii) Non-statutory Stock Option Agreement as in effect for grants beginning August 13, 2003 Incorporated by reference to Exhibit (10)A(ii) of our Form 10-Q for the quarter ended June 30, 2004. |
|
|
|
(10.21) |
|
(i) Ecolab Inc. 2005 Stock Incentive Plan Incorporated by reference to Exhibit (10)A of our Form 8-K dated May 6, 2005. |
|
|
|
|
|
(ii) Amendment No. 1 to Ecolab Inc. 2005 Stock Incentive Plan, adopted October 31, 2008 Incorporated by reference to Exhibit (10)V(ii) of our Form 10-K Annual Report for the year ended December 31, 2008. |
|
|
|
|
|
(iii) Sample form of Non-Statutory Stock Option Agreement under the Ecolab Inc. 2005 Stock Incentive Plan in effect for grants prior to October 31, 2008 Incorporated by reference to Exhibit (10)B of our Form 8-K dated May 6, 2005. |
|
|
|
|
|
(iv) Sample form of Non-Statutory Stock Option Agreement under the Ecolab Inc. 2005 Stock Incentive Plan in effect for grants after October 31, 2008 Incorporated by reference to Exhibit (10)V(iv) of our Form 10-K Annual Report for the year ended December 31, 2008. |
|
|
|
|
|
(v) Sample form of Restricted Stock Award Agreement under the Ecolab Inc. 2005 Stock Incentive Plan Incorporated by reference to Exhibit (10)W(iii) of our Form 10-K Annual Report for the year ended December 31, 2006. |
|
|
|
|
|
(vi) Sample form of Performance Based Restricted Stock Unit Agreement under the Ecolab Inc. 2005 Stock Incentive Plan Incorporated by reference to Exhibit (10) of our Form 10-Q for the quarter ended September 30, 2009. |
|
|
|
(10.22) |
|
(i) Ecolab Inc. 2010 Stock Incentive Plan Incorporated by reference to Exhibit (10)A of our Form 8-K dated May 6, 2010. |
|
|
|
|
|
(ii) Sample form of Non-Statutory Stock Option Agreement under the Ecolab Inc. 2010 Stock Incentive Plan Incorporated by reference to Exhibit (10)B of our Form 8-K dated May 6, 2010. |
|
|
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(iii) Sample form of Restricted Stock Award Agreement under the 2010 Stock Incentive |
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Plan Incorporated by reference to Exhibit (10)C of our Form 8-K dated May 6, 2010. |
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(iv) Sample form of Performance-Based Restricted Stock Award Agreement under the Ecolab Inc. 2010 Stock Incentive Plan Incorporated by reference to Exhibit (10)D of our Form 8-K dated May 6, 2010. |
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(v) Sample form of Restricted Stock Unit Award Agreement under the Ecolab Inc. 2010 Stock Incentive Plan Incorporated by reference to Exhibit (10)A of our Form 10-Q for the quarter ended September 30, 2010. |
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(10.23) |
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Policy on Reimbursement of Incentive Payments adopted December 4, 2008 Incorporated by reference to Exhibit (10)W of our Form 10-K Annual Report for the year ended December 31, 2008. |
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(10.24) |
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Second Amended and Restated Nalco Holding Company 2004 Stock Incentive Plan Incorporated by reference to Exhibit (4.3) of our Post-Effective Amendment No. 1 on Form S-8 to Form S-4 Registration Statement dated December 2, 2011. |
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(10.25) |
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J. Erik Fyrwald Employment Letter Agreement dated as of February 21, 2008 Incorporated by reference to Exhibit (4.3) of our Post-Effective Amendment No. 1 on Form S-8 to Form S-4 Registration Statement dated December 2, 2011. |
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(10.26) |
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Non-Plan Inducement Award Non-Qualified Stock Option Agreement effective as of March 7, 2008, between Nalco Holding Company and J. Erik Fyrwald Incorporated by reference from Exhibit 99.1 on Form 8-K of Nalco Holding Company filed on March 12, 2008 (File No. 001-32342). |
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(10.27) |
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(i) Non-Plan Inducement Award Non-Qualified Restricted Stock Agreement effective as of March 7, 2008, between Nalco Holding Company and J. Erik Fyrwald Incorporated by reference from Exhibit 99.2 on Form 8-K of Nalco Holding Company filed on March 12, 2008 (File No. 001-32342). |
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(ii) Description of Amendment to Non-Plan Inducement Award Restricted Stock Award Agreement effective as of February 22, 2012. |
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(10.28) |
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(i) Severance Agreement dated January 1, 2011, between J. Erik Fyrwald and Nalco Company, a subsidiary of Nalco Holding Company Incorporated by reference from Exhibit 99.1 on Form 8-K of Nalco Holding Company filed on January 6, 2011 (File No. 001-32342). |
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(ii) First Amendment to Severance Agreement effective as of February 24, 2012. |
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(10.29) |
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(i) Change of Control Agreement dated January 1, 2011, between J. Erik Fyrwald and Nalco Holding Company Incorporated by reference from Exhibit 99.1 on Form 8-K of Nalco Holding Company filed on January 6, 2011 (File No. 001-32342). |
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(ii) First Amendment to Change of Control Agreement effective as of February 24, 2012. |
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(10.30) |
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(i) Nalco Company Supplemental Profit Sharing Plan, effective May 1, 2005 Incorporated by reference from Exhibit (99.1) on Form 8-K of Nalco Holding Company filed on May 11, 2005 (File No. 001-32342) |
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(ii) Amendment No. 1 to the Nalco Company Supplemental Profit Sharing Plan Incorporated by reference to Exhibit (99.2) on Form 8-K of Nalco Holding Company filed on August 9, 2007 (File No. 001-32342). |
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(iii) Amendment No. 2 to the Nalco Company Supplemental Profit Sharing Plan Incorporated by reference to Exhibit (10.26) on Form 10-K of Nalco Holding |
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Company filed on February 26, 2010 (File No. 001-32342). |
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(10.31) |
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Form of Nalco Company Death Benefit Agreement and Addendum to Death Benefit Agreement Incorporated by reference from Exhibit (99.2) on Form 8-K of Nalco Holding Company filed on May 11, 2005 (File No. 001-32342.) |
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(10.32) |
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Sublease Agreement, dated as of November 4, 2003 between Leo Holding Company, as sublandlord and Ondeo Nalco Company, as subtenant Incorporated by reference from Exhibit (10.6) of the Registration Statement on Form S-4 of Nalco Company filed on May 17, 2004 (File No. 333-115560). |
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(13.1) |
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Those portions of our Annual Report to Stockholders for the year ended December 31, 2011 which are incorporated by reference into Parts I and II hereof. |
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(14.1) |
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Ecolab Code of Conduct Incorporated by reference to Exhibit (99)A of our Form 10-K Annual Report for the year ended December 31, 2003. |
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(14.2) |
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Ecolab Code of Ethics for Senior Officers and Finance Associates Incorporated by reference to Exhibit (99)B of our Form 10-K Annual Report for the year ended December 31, 2003. |
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(14.3) |
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Nalco Code of Ethical Business Conduct dated May 3, 2007 Incorporated by reference to Exhibit (99.2) of Nalco Holding Companys Form 8-K dated May 3, 2007 (SEC File No. 1-32342). |
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(21.1) |
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List of Subsidiaries. |
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(23.1) |
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Consent of Independent Registered Public Accounting Firm at page 42 hereof is filed as a part hereof. |
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(24.1) |
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Powers of Attorney. |
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(31.1) |
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Rule 13a-14(a) Certifications. |
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(32.1) |
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Section 1350 Certifications. |
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(101.1) |
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Interactive Data File. |
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
Included in the preceding list of exhibits are the following management contracts or compensatory plans or arrangements:
Exhibit No. |
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Description |
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(10.6) |
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Ecolab Inc. 1997 Stock Incentive Plan. |
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(10.7) |
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Ecolab Inc. 2001 Non-Employee Director Stock Option and Deferred Compensation Plan. |
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(10.9) |
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Form of Director Indemnification Agreement. |
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(10.10) |
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Ecolab Executive Death Benefits Plan. |
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(10.11) |
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Ecolab Executive Long-Term Disability Plan. |
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(10.12) |
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Ecolab Executive Financial Counseling Plan. |
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(10.13) |
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Ecolab Supplemental Executive Retirement Plan. |
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(10.14) |
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Ecolab Mirror Savings Plan. |
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(10.15) |
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Ecolab Mirror Pension Plan. |
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(10.16) |
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Ecolab Inc. Administrative Document for Non-Qualified Plans. |
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(10.17) |
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Ecolab Inc. Management Performance Incentive Plan. |
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(10.18) |
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Ecolab Inc. Change in Control Severance Compensation Policy. |
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(10.19) |
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Description of Ecolab Inc. Management Incentive Plan. |
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(10.20) |
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Ecolab Inc. 2002 Stock Incentive Plan. |
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(10.21) |
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Ecolab Inc. 2005 Stock Incentive Plan. |
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(10.22) |
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Ecolab Inc. 2010 Stock Incentive Plan. |
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(10.23) |
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Policy on Reimbursement of Incentive Payments. |
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(10.24) |
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Second Amended and Restated Nalco Holding Company 2004 Stock Incentive Plan. |
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(10.25) |
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J. Erik Fyrwald Employment Letter Agreement dated as of February 21, 2008. |
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(10.26) |
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Non-Plan Inducement Award Non-Qualified Stock Option Agreement effective as of March 7, 2008, between Nalco Holding Company and J. Erik Fyrwald. |
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(10.27) |
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Non-Plan Restricted Stock Agreement between Nalco Holding Company and J. Erik Fyrwald. |
(10.28) |
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Severance Agreement between J. Erik Fyrwald and Nalco Company, a subsidiary of Nalco Holding Company. |
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(10.29) |
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Change of Control Agreement between J. Erik Fyrwald and Nalco Holding Company. |
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(10.30) |
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Nalco Company Supplemental Profit Sharing Plan. |
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(10.31) |
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Nalco Company Death Benefit Agreement and Addendum to Death Benefit Agreement. |
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Ecolab Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 28 th day of February, 2012.
|
ECOLAB INC. |
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(Registrant) |
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By: |
/s/Douglas M. Baker, Jr. |
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Douglas M. Baker, Jr. |
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Chairman of the Board and Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Ecolab Inc. and in the capacities indicated, on the 28 th day of February 2012.
/s/Douglas M. Baker, Jr. |
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Chairman of the Board and |
Douglas M. Baker, Jr. |
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Chief Executive Officer |
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(Principal Executive Officer and Director) |
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/s/Steven L. Fritze |
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Chief Financial Officer |
Steven L. Fritze |
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(Principal Financial Officer) |
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/s/John J. Corkrean |
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Senior Vice President and Corporate |
John J. Corkrean |
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Controller |
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(Principal Accounting Officer) |
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/s/James J. Seifert |
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Directors |
James J. Seifert |
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as attorney-in-fact for:
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CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Registration Nos. 2-90702; 33-18202; 33-55986; 33-56101; 333-95043; 333-109890; 33-34000; 33-56151; 333-18627; 333-109891; 33-39228; 33-56125; 333-70835; 33-60266; 333-95041; 333-18617; 333-79449; 333-40239; 333-95037; 333-50969; 333-58360; 333-97927; 333-115567; 333-129427; 333-129428; 333-140988; 333-115568; 333-132139; 333-147148; 333-163837; 333-163838; 333-165130; 333-165132; 333-166646; 333-174028; 333-176601; 333-178300; and 333-178302) and Form S-3 (Registration No. 333-178273) of Ecolab Inc. of our report dated February 28, 2012 relating to the consolidated financial statements and the effectiveness of internal control over financial reporting, which appears in the Annual Report to Shareholders, which is incorporated in this Annual Report on Form 10-K.
/s/ PricewaterhouseCoopers LLP |
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PricewaterhouseCoopers LLP |
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Minneapolis, Minnesota |
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February 28, 2012 |
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The following documents are filed as exhibits to this Report.
Exhibit No. |
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Document |
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Method of Filing |
||
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||
(2.1) |
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Agreement and Plan of Merger dated as of July 19, 2011, among Ecolab Inc., Sustainability Partners Corporation and Nalco Holding Company. |
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Incorporated by reference to Exhibit (2.1) of our Form 8-K dated July 19, 2011. |
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(3.1) |
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Restated Certificate of Incorporation of Ecolab Inc., effective as of December 1, 2011. |
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Incorporated by reference to Exhibit (3.1) of our Form 8-K dated December 1, 2011. |
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(3.2) |
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By-Laws, as amended through February 26, 2010. |
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Filed herewith electronically. |
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(4.1) |
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Common Stock - see Exhibits (3.1) and (3.2). |
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Included in Exhibits (3.1) and (3.2). |
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(4.2) |
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Form of Common Stock Certificate effective August 4, 2010. |
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Incorporated by reference to Exhibit (4) of our Form 10-Q for the quarter ended June 30, 2010. |
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(4.3) |
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Rights Agreement, dated as of February 24, 2006, between Ecolab Inc. and Computershare Investor Services, LLC, as Rights Agent, which includes the following exhibits thereto: (i) Exhibit A Form of Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock and (ii) Exhibit B Form of Rights Certificate. |
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Incorporated by reference to Exhibit (4)C of our Form 10-K Annual Report for the year ended December 31, 2005. |
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(4.4) |
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Amended and Restated Indenture, dated as of January 9, 2001, between Ecolab Inc. and The Bank of New York Trust Company, N.A. (as successor in interest to J.P. Morgan Trust Company, National Association and Bank One, NA) as Trustee. |
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Incorporated by reference to Exhibit (4)(A) of our Current Report on Form 8-K dated January 23, 2001. |
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(4.5) |
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Supplemental Indenture, dated as of February 8, 2008, between Ecolab Inc. and The Bank of New York Trust Company, N.A., as Trustee. |
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Incorporated by reference to Exhibit 4.2 of our Form 8-K dated February 8, 2008. |
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(4.6) |
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Form of 4.875% Note due February 15, 2015. |
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Included in Exhibit (4.5) above. |
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(4.7) |
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Second Supplemental Indenture, dated as of December 8, 2011, between the Company, Wells Fargo Bank, National Association, as Trustee and the Bank of New York Mellon Trust Company, N.A. (formerly known as The Bank of New York Trust Company, N.A., as successor in interest to J.P. Morgan Trust Company, National Association and Bank One, National Association), as original trustee. |
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Incorporated by reference to Exhibit (4.2) of our Current Report on Form 8-K dated December 5, 2011. |
(4.8) |
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Forms of 2.375% Notes due 2014 Notes, 3.000% Notes due 2016, 4.350% Notes due 2021 and 5.500% Notes due 2041. |
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Included in Exhibit (4.7) above. |
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(10.1) |
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$1.5 billion 5-Year Revolving Credit Facility, dated as of September 8, 2011, among Ecolab Inc., the lenders party thereto, the issuing banks party thereto, Bank of America, N.A., as administrative agent and swingline bank, and Citibank, N.A., JPMorgan Chase Bank, N.A. and The Bank of Tokyo-Mitsubishi UFJ, Ltd., as co-syndication agents. |
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Incorporated by reference to Exhibit (10.2) of our Form 8-K dated September 8, 2011. |
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(10.2) |
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First Amendment to Note Purchase Agreement dated July 26, 2006, dated as of October 27, 2011, by and among Ecolab Inc. and the Noteholders party thereto. |
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Incorporated by reference to Exhibit (10.2) of our Form 8-K dated October 27, 2011. |
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(10.3) |
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Note Purchase Agreement dated October 27, 2011, by and among Ecolab Inc. and the Purchasers party thereto. |
|
Incorporated by reference to Exhibit (10.1) of our Form 8-K dated October 27, 2011. |
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(10.4) |
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$2.0 billion 364-Day Revolving Credit Facility, dated as of September 8, 2011, among Ecolab Inc., the lenders party thereto, Bank of America, N.A., as administrative agent, and JPMorgan Chase Bank, N.A., Sumitomo Mitsui Banking Corporation and The Bank of Tokyo-Mitsubishi UFJ, Ltd., as co-syndication agents. |
|
Incorporated by reference to Exhibit (10.1) of our Form 8-K dated September 8, 2011. |
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(10.5) |
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Documents comprising global Commercial Paper Programs |
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(i) |
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U.S. $200,000,000 Euro-Commercial Paper Programme |
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(a) |
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Amended and Restated Dealer Agreement dated 2 December 2005 between Ecolab Inc. (as Guarantor), Ecolab B.V. and Ecolab Holding GmbH (as Issuers), Ecolab Inc., Credit Suisse First Boston (Europe) Limited (as Arranger), and Citibank International plc and Credit Suisse First Boston (Europe) Limited (as Dealers). |
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Incorporated by reference to Exhibit (10)B(i)(a) of our Form 10-K Annual Report for the year ended December 31, 2005. |
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(b) |
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Amended and Restated Note Agency Agreement dated as of 2 December 2005 between Ecolab Inc., Ecolab B.V. and Ecolab Holding GmbH (as Issuers) and Citibank, N.A. as Issue and Paying Agent. |
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Incorporated by reference to Exhibit (10)B(i)(b) of our Form 10-K Annual Report for the year ended December 31, 2005. |
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(c) |
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Deed of Covenant made on 2 December 2005 by Ecolab Inc., Ecolab B.V. and Ecolab Holding GmbH. |
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Incorporated by reference to Exhibit (10)B(i)(c) of our Form 10-K Annual Report for the year ended December 31, 2005. |
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(d) |
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Deed of Guarantee made on 2 December 2005. |
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Incorporated by reference to Exhibit (10)B(i)(d) of our Form 10-K Annual Report for the year ended December 31, 2005. |
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(ii) |
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U.S. $3,500,000,000 U.S. Commercial Paper Program |
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(a) |
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Form of Commercial Paper Dealer Agreement for 4 (2) Program. The dealers for the program are Citigroup Global Markets Inc., J.P. Morgan Securities LLC, Wells Fargo Securities, LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Credit Suisse Securities (USA) LLC and RBS Securities Inc. |
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Incorporated by reference to Exhibit (10)A(ii)(a) of our Form 10-Q for the quarter ended June 30, 2003. |
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(b) |
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Issuing and Paying Agency Agreement dated as of July 10, 2000 between Ecolab Inc. and JPMorgan Chase Bank, N.A. (as successor to Bank One, National Association) as Issuing and Paying Agent. |
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Incorporated by reference to Exhibit (10)A(ii)(b) of our Form 10-Q for the quarter ended June 30, 2003. |
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(c) |
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Corporate Commercial Paper Master Note dated July 10, 2000. |
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Filed herewith electronically. |
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(d) |
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Annex to Corporate Commercial Paper Master Note dated July 10, 2000 effective January 9, 2012. |
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Filed herewith electronically. |
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(10.6) |
(i) |
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Ecolab Inc. 1997 Stock Incentive Plan, as Amended and Restated as of August 18, 2000. |
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Incorporated by reference to Exhibit (10) of our Form 10-Q for the quarter ended September 30, 2000. |
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(ii) |
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Non-Statutory Stock Option Agreement as in effect for grants through May 12, 2000. |
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Incorporated by reference to Exhibit (10)B(i) of our Form 10-Q for the quarter ended June 30, 2004. |
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(iii) |
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Non-Statutory Stock Option Agreement as in effect for grants beginning May 13, 2000 through May 10, 2002. |
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Incorporated by reference to Exhibit (10)B(ii) of our Form 10-Q for the quarter ended June 30, 2004. |
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(10.7) |
(i) |
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Ecolab Inc. 2001 Non-Employee Director Stock Option and Deferred Compensation Plan as amended effective May 1, 2004. |
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Incorporated by reference to Exhibit (10)H(ii) of our Form 10-K Annual Report for the year ended December 31, 2003. |
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(ii) |
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|
Amendment No. 1 adopted December 15, 2004 to Ecolab Inc. 2001 Non-Employee Director Stock Option and Deferred Compensation Plan, as amended and restated effective May 1, 2004, with respect to the American Jobs Creation Act of 2004. |
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Incorporated by reference to Exhibit (10)F(ii) of our Form 10-K Annual Report for the year ended December 31, 2004. |
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(iii) |
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Master Agreement Relating to Options (as in effect through May 7, 2004). |
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Incorporated by reference to Exhibit (10)D(i) of our Form 10-Q for the quarter ended June 30, 2004. |
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(iv) |
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Master Agreement Relating to Periodic Options, as amended effective as of May 1, 2004. |
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Incorporated by reference to Exhibit (10)D(ii) of our Form 10-Q for the quarter ended June 30, 2004. |
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(v) |
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Amendment No. 2 to Ecolab Inc. 2001 Non-Employee Director Stock Option and Deferred Compensation Plan, as amended effective May 2, 2008. |
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Incorporated by reference to Exhibit (10)A of our Form 10-Q for the quarter ended September 30, 2008. |
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(vi) |
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Amendment No. 1 to Master Agreement Relating to Periodic Options, as amended effective May 2, 2008. |
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Incorporated by reference to Exhibit (10)B of our Form 10-Q for the quarter ended September 30, 2008. |
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(vii) |
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Amendment No. 3 to Ecolab Inc. 2001 Non-Employee Director Stock Option and Deferred Compensation Plan (as Amended and Restated Effective as of May 1, 2004). |
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Incorporated by reference to Exhibit (10)E(vii) of our Form 10-K Annual Report for the year ended December 31, 2008. |
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(10.8) |
(i) |
|
|
Note Purchase Agreement, dated as of July 26, 2006 by and among Ecolab Inc. and the Purchasers party thereto. |
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Incorporated by reference to Exhibit (10) of our Form 8-K dated July 26, 2006. |
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(ii) |
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First Amendment to Note Purchase Agreement dated July 26, 2006, dated as of October 27, 2011, by and among Ecolab Inc. and the Noteholders party thereto. |
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Incorporated by reference to Exhibit (10.2) of our Form 8-K dated October 27, 2011. |
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(10.9) |
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Form of Director Indemnification Agreement. Substantially identical agreements are in effect as to each of our directors. |
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Incorporated by reference to Exhibit (10)I of our Form 10-K Annual Report for the year ended December 31, 2003. |
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(10.10) |
(i) |
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Ecolab Executive Death Benefits Plan, as amended and restated effective March 1, 1994. |
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Incorporated by reference to Exhibit (10)H(i) of our Form 10-K Annual Report for the year ended December 31, 2006. See also Exhibit (10.16) hereof. |
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(ii) |
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Amendment No. 1 to Ecolab Executive Death Benefits Plan, effective July 1, 1997. |
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Incorporated by reference to Exhibit (10)H(ii) of our Form 10-K Annual Report for the year ended December 31, 1998. |
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(iii) |
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Second Declaration of Amendment to Ecolab Executive Death Benefits Plan, effective March 1, 1998. |
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Incorporated by reference to Exhibit (10)H(iii) of our Form 10-K Annual Report for the year ended December 31, 1998. |
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(iv) |
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|
Amendment No. 3 to the Ecolab Executive Death Benefits Plan, effective August 12, 2005. |
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Incorporated by reference to Exhibit (10)B of our Form 8-K dated December 13, 2005. |
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(v) |
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Amendment No. 4 to the Ecolab Executive Death Benefits Plan, effective January 1, 2005. |
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Incorporated by reference to Exhibit (10)H(v) of our Form 10-K Annual Report for the year ended December 31, 2009. |
(10.11) |
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|
Ecolab Executive Long-Term Disability Plan, as amended and restated effective January 1, 1994. |
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Incorporated by reference to Exhibit (10)I of our Form 10-K Annual Report for the year ended December 31, 2004. See also Exhibit (10.16) hereof. |
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(10.12) |
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Ecolab Financial Counseling Plan effective January 1, 2005. |
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Incorporated by reference to Exhibit (10)J of our Form 10-K Annual Report for the year ended December 31, 2008. |
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(10.13) |
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Ecolab Supplemental Executive Retirement Plan (As Amended and Restated effective as of January 1, 2011). |
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Filed herewith electronically. See also Exhibit (10.16) hereof. |
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(10.14) |
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Ecolab Mirror Savings Plan (As Amended and Restated effective as of January 1, 2012). |
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Filed herewith electronically. See also Exhibit (10.16) hereof. |
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(10.15) |
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Ecolab Mirror Pension Plan (As Amended and Restated effective as of January 1, 2011). |
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Filed herewith electronically. See also Exhibit (10.16) hereof. |
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(10.16) |
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Ecolab Inc. Administrative Document for Non-Qualified Plans (Amended and Restated effective as of January 1, 2011). |
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Filed herewith electronically. |
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(10.17) |
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Ecolab Inc. Management Performance Incentive Plan, as amended and restated on February 27, 2009. |
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Incorporated by reference to Exhibit (10) of our Form 8-K dated May 8, 2009. |
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(10.18) |
(i) |
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Ecolab Inc. Change in Control Severance Compensation Policy, as amended and restated effective February 26, 2010. |
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Incorporated by reference to Exhibit (10) of our Form 8-K dated February 26, 2010. |
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(ii) |
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Amendment No. 1 to Ecolab Inc. Change-in-Control Severance Policy (as Amended and Restated effective as of February 26, 2010). |
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Filed herewith electronically. |
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(10.19) |
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Description of Ecolab Management Incentive Plan. |
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Incorporated by reference to Exhibit (10)Q of our Form 10-K Annual Report for the year ended December 31, 2008. |
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(10.20) |
(i) |
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Ecolab Inc. 2002 Stock Incentive Plan. |
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Incorporated by reference to Exhibit (10) of our Form 10-Q for the quarter ended June 30, 2002. |
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(ii) |
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Non-Statutory Stock Option Agreement as in effect for grants beginning May 11, 2002 through August 12, 2003. |
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Incorporated by reference to Exhibit (10)A(i) of our Form 10-Q for the quarter ended June 30, 2004. |
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(iii) |
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Non-statutory Stock Option Agreement as in effect for grants beginning August 13, 2003. |
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Incorporated by reference to Exhibit (10)A(ii) of our Form 10-Q for the quarter ended June 30, 2004. |
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(10.21) |
(i) |
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Ecolab Inc. 2005 Stock Incentive Plan Incorporated by reference to Exhibit (10)A of our Form 8-K dated May 6, 2005. |
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Incorporated by reference to Exhibit (10)A of our Form 8-K dated May 6, 2005. |
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(ii) |
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Amendment No. 1 to Ecolab Inc. 2005 Stock Incentive Plan, adopted October 31, 2008. |
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Incorporated by reference to Exhibit (10)V(ii) of our Form 10-K Annual Report for the year ended December 31, 2008. |
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(iii) |
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Sample form of Non-Statutory Stock Option Agreement under the Ecolab Inc. 2005 Stock Incentive Plan in effect for grants prior to October 31, 2008. |
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Incorporated by reference to Exhibit (10)B of our Form 8-K dated May 6, 2005. |
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(iv) |
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Sample form of Non-Statutory Stock Option Agreement under the Ecolab Inc. 2005 Stock Incentive Plan in effect for grants after October 31, 2008. |
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Incorporated by reference to Exhibit (10)V(iv) of our Form 10-K Annual Report for the year ended December 31, 2008. |
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(v) |
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Sample form of Restricted Stock Award Agreement under the Ecolab Inc. 2005 Stock Incentive Plan. |
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Incorporated by reference to Exhibit (10)W(iii) of our Form 10-K Annual Report for the year ended December 31, 2006. |
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(vi) |
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Sample form of Performance Based Restricted Stock Unit Agreement under the Ecolab Inc. 2005 Stock Incentive Plan. |
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Incorporated by reference to Exhibit (10) of our Form 10-Q for the quarter ended September 30, 2009. |
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(10.22) |
(i) |
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Ecolab Inc. 2010 Stock Incentive Plan. |
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Incorporated by reference to Exhibit (10)A of our Form 8-K dated May 6, 2010. |
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(ii) |
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Sample form of Non-Statutory Stock Option Agreement under the Ecolab Inc. 2010 Stock Incentive Plan. |
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Incorporated by reference to Exhibit (10)B of our Form 8-K dated May 6, 2010. |
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(iii) |
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Sample form of Restricted Stock Award Agreement under the 2010 Stock Incentive Plan. |
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Incorporated by reference to Exhibit (10)C of our Form 8-K dated May 6, 2010. |
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(iv) |
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Sample form of Performance-Based Restricted Stock Award Agreement under the Ecolab Inc. 2010 Stock Incentive Plan. |
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Incorporated by reference to Exhibit (10)D of our Form 8-K dated May 6, 2010. |
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(v) |
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Sample form of Restricted Stock Unit Award Agreement under the Ecolab Inc. 2010 Stock Incentive Plan. |
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Incorporated by reference to Exhibit (10)A of our Form 10-Q for the quarter ended September 30, 2010. |
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(10.23) |
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Policy on Reimbursement of Incentive Payments adopted December 4, 2008. |
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Incorporated by reference to Exhibit (10)W of our Form 10-K Annual Report for the year ended December 31, 2008. |
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(10.24) |
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Second Amended and Restated Nalco Holding Company 2004 Stock Incentive Plan. |
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Incorporated by reference to Exhibit (4.3) of our Post-Effective Amendment No. 1 on Form S-8 to Form S-4 Registration Statement dated December 2, 2011. |
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(10.25) |
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J. Erik Fyrwald Employment Letter Agreement dated as of February 21, 2008. |
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Incorporated by reference to Exhibit (4.3) of our Post-Effective Amendment No. 1 on Form S-8 to Form S-4 Registration Statement dated December 2, 2011. |
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(10.26) |
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Non-Plan Inducement Award Non-Qualified Stock Option Agreement effective as of March 7, 2008, between Nalco Holding Company and J. Erik Fyrwald. |
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Incorporated by reference from Exhibit 99.1 on Form 8-K of Nalco Holding Company filed on March 12, 2008 (File No. 001-32342). |
(10.27) |
(i) |
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Non-Plan Inducement Award Non-Qualified Restricted Stock Agreement effective as of March 7, 2008, between Nalco Holding Company and J. Erik Fyrwald. |
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Incorporated by reference from Exhibit 99.2 on Form 8-K of Nalco Holding Company filed on March 12, 2008 (File No. 001-32342). |
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(ii) |
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Description of Amendment to Non-Plan Inducement Award Restricted Stock Award Agreement effective as of February 22, 2012. |
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Filed herewith electronically. |
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(10.28) |
(i) |
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Severance Agreement dated January 1, 2011, between J. Erik Fyrwald and Nalco Company, a subsidiary of Nalco Holding Company. |
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Incorporated by reference from Exhibit 99.1 on Form 8-K of Nalco Holding Company filed on January 6, 2011 (File No. 001-32342). |
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(ii) |
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First Amendment to Severance Agreement effective as of February 24, 2012. |
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Filed herewith electronically. |
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(10.29) |
(i) |
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Change of Control Agreement dated January 1, 2011, between J. Erik Fyrwald and Nalco Holding Company. |
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Incorporated by reference from Exhibit 99.1 on Form 8-K of Nalco Holding Company filed on January 6, 2011 (File No. 001-32342). |
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(ii) |
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First Amendment to Change of Control Agreement effective as of February 24, 2012. |
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Filed herewith electronically. |
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(10.30) |
(i) |
|
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Nalco Company Supplemental Profit Sharing Plan, effective May 1, 2005. |
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Incorporated by reference from Exhibit (99.1) on Form 8-K of Nalco Holding Company filed on May 11, 2005 (File No. 001-32342). |
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(ii) |
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Amendment No. 1 to the Nalco Company Supplemental Profit Sharing Plan. |
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Incorporated by reference to Exhibit (99.2) on Form 8-K of Nalco Holding Company filed on August 9, 2007 (File No. 001-32342). |
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(iii) |
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Amendment No. 2 to the Nalco Company Supplemental Profit Sharing Plan. |
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Incorporated by reference to Exhibit (10.26) on Form 10-K of Nalco Holding Company filed on February 26, 2010 (File No. 001-32342). |
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(10.31) |
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Form of Nalco Company Death Benefit Agreement and Addendum to Death Benefit Agreement. |
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Incorporated by reference from Exhibit (99.2) on Form 8-K of Nalco Holding Company filed on May 11, 2005 (File No. 001-32342). |
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(10.32) |
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Sublease Agreement, dated as of November 4, 2003 between Leo Holding Company, as sublandlord and Ondeo Nalco Company, as subtenant. |
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Incorporated by reference from Exhibit (10.6) of the Registration Statement on Form S-4 of Nalco Company filed on May 17, 2004 (File No. 333-115560). |
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(13.1) |
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Those portions of our Annual Report to Stockholders for the year ended December 31, 2011 which are incorporated by reference into Parts I and II hereof. |
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Filed herewith electronically. |
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(14.1) |
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Ecolab Code of Conduct. |
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Incorporated by reference to Exhibit (99)A of our Form 10-K Annual Report for the year ended December 31, 2003. |
(14.2) |
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Ecolab Code of Ethics for Senior Officers and Finance Associates. |
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Incorporated by reference to Exhibit (99)B of our Form 10-K Annual Report for the year ended December 31, 2003. |
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(14.3) |
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Nalco Code of Ethical Business Conduct dated May 3, 2007. |
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Incorporated by reference to Exhibit (99.2) of Nalco Holding Companys Form 8-K dated May 3, 2007 (SEC File No. 1-32342). |
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(21.1) |
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List of Subsidiaries. |
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Filed herewith electronically. |
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(23.1) |
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Consent of Independent Registered Public Accounting Firm at page 42 hereof is filed as a part hereof. |
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Filed herewith electronically. |
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(24.1) |
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Powers of Attorney |
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Filed herewith electronically. |
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(31.1) |
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Rule 13a-14(a) Certifications. |
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Filed herewith electronically. |
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(32.1) |
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Section 1350 Certifications. |
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Filed herewith electronically. |
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(101.1) |
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Interactive Data File. |
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Filed herewith electronically. |
EXHIBIT (3.2)
BY-LAWS
OF
ECOLAB INC.
(A Delaware corporation)
AS AMENDED THROUGH FEBRUARY 26, 2010
ARTICLE I
OFFICES
Section 1. Registered Office . The registered office of the Corporation in the State of Delaware shall be at 1209 Orange Street, City of Wilmington, County of New Castle, Delaware. The name of the resident agent in charge thereof shall be The Corporation Trust Company.
Section 2. Other Offices . The Corporation may also have offices at such other places, within or without the State of Delaware, as the Board of Directors may from time to time determine or the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings . Meetings of stockholders may be held at such place, within or without the State of Delaware, as the Board of Directors or the officer calling the same shall designate.
Section 2. Annual Meeting . An annual meeting of the stockholders of the Corporation for the election of directors by written ballot and for the transaction of such other business as may properly come before the meeting shall be held at such time and on such day of each year as shall be designated by the Board of Directors, the Chairman of the Board, the President or the Secretary.
Section 3. Notice of Stockholder Nominations of Directors . Only persons who are nominated in accordance with the following procedures shall be eligible for election as directors of the Corporation, except as may be otherwise provided in the Restated Certificate of Incorporation of the Corporation. Nominations of persons for election to the Board of Directors may be made at any annual meeting of stockholders (a) by or at the direction of the Board of Directors (or any duly authorized Committee thereof) or (b) by any stockholder of the Corporation (i) who is a stockholder of record on the date of the giving of the notice provided for in this Section 3 and on the record date for the determination of stockholders entitled to vote at such annual meeting and (ii) who complies with the notice procedures set forth in this Section 3.
In addition to any other applicable requirements, for a nomination to be made by a stockholder, such stockholder must have given timely notice thereof in proper written form to the Secretary of the Corporation.
To be timely, a stockholders notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the Corporation (a) in the case of an Annual Meeting, not less than one hundred twenty (120) days nor more than one hundred fifty (150) days prior to the anniversary date of the immediately preceding annual meeting of stockholders; provided, however , that in the event that the annual meeting is called for a date that is not within thirty (30) days before or after such an anniversary date, notice by the stockholder in order to be timely must be so received not later than the close of business on the tenth (10 th ) day following the day on which such notice of the date of the annual meeting was mailed or public disclosure of the date of the annual meeting was made, whichever first occurs; and (b) in the case of a Special Meeting called for the purpose of electing directors, not later than the close of business on the tenth (10 th ) day following the day on which notice of the date of the Special Meeting was mailed or public disclosure of the date of the Special Meeting was made, whichever first occurs. In no event shall the public disclosure of an adjournment of an annual meeting commence a new time period for the giving of a stockholders notice as described above.
To be in proper written form, a stockholders notice to the Secretary must set forth as to each person whom the stockholder proposes to nominate for election as a director and as to the stockholder giving the notice and any Stockholder Associated Person (as defined below) (i) the name, age, business address, residence address and record address of such person, (ii) the principal occupation or employment of such person, (iii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by such person, (iv) any information relating to such person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Securities Exchange Act of 1934, as amended (the Exchange Act), and the rules and regulations promulgated thereunder, (v) the nominee holder for, and number of, shares owned beneficially but not of record by such person, (vi) whether and the extent to which any hedging or other transaction or series of transactions has been entered into by or on behalf of, or any other agreement, arrangement or understanding (including any derivative or short positions, profit interests, options or borrowed or loaned shares) has been made, the effect or intent of which is to mitigate loss to or manage risk or benefit of share price changes for, or to increase or decrease the voting power of, such person with respect to any share of stock of the Corporation, (vii) to the extent known by the stockholder giving the notice, the name and address of any other stockholder supporting the nominee for election or reelection as a director on the date of such stockholders notice, (viii) a description of all arrangements or understandings between or among such persons pursuant to which the nomination(s) are to be made by the stockholder and (ix) a representation that such stockholder intends to appear in person or by proxy at the meeting to nominate the persons named in its notice. Any ownership information shall be supplemented by the stockholder giving the notice not later than ten (10) days after the record date for the
meeting as of the record date. Such notice must be accompanied by a written consent of each proposed nominee to being named as a nominee and to serve as a director if elected. The Corporation may require any proposed nominee to furnish such other information as may reasonably be required by the Corporation to determine the eligibility of such proposed nominee to serve as an independent director of the Corporation or that could be material to a reasonable stockholders understanding of the independence, or lack thereof, of such nominee.
No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the procedures set forth in this Section 3. If the Chairman of the meeting determines that a nomination was not made in accordance with the foregoing procedures, the Chairman shall declare to the meeting that the nomination was defective and such defective nomination shall be disregarded.
Notwithstanding anything in the third paragraph of this Section 3 to the contrary, in the event that the number of directors to be elected to the Board of Directors of the Corporation is increased and there is no public disclosure by the Corporation naming all of the nominees for director or specifying the size of the increased Board of Directors at least one hundred (100) days prior to the first anniversary of the preceding years annual meeting, a stockholders notice required by this By-Law shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the tenth (10 th ) day following the day on which such public disclosure is first made by the Corporation.
Section 4. Notice of Stockholder Proposals of Business . No business may be transacted at an annual meeting of stockholders, other than business that is either: (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors (or any duly authorized committee thereof), (b) otherwise properly brought before the annual meeting by or at the direction of the Board of Directors (or any duly authorized committee thereof) or (c) otherwise properly brought before the annual meeting by any stockholder of the Corporation (i) who is a stockholder of record on the date of the giving of the notice provided for in this Section 4 and on the record date for the determination of stockholders entitled to vote at such annual meeting and (ii) who complies with the notice procedures set forth in this Section 4.
In addition to any other applicable requirements, for business to be properly brought before an annual meeting by a stockholder, such stockholder must have given timely notice thereof in proper written form to the Secretary of the Corporation.
To be timely, a stockholders notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the Corporation not less than one hundred twenty (120) days nor more than one hundred fifty (150) days prior to the anniversary date of the immediately preceding annual meeting of stockholders; provided, however , that in the event that the annual meeting is called for a date that is not within thirty (30)days before or after such anniversary date, notice by the stockholder in order to be timely must be so received not later than the close of business on the tenth (10 th ) day
following the day on which such notice of the date of the annual meeting was mailed or public disclosure of the date of the annual meeting was made, whichever first occurs. In no event shall the public disclosure of an adjournment of an annual meeting commence a new time period for the giving of a stockholders notice as described above.
To be in proper written form, a stockholders notice to the Secretary must set forth as to each matter such stockholder proposes to bring before the annual meeting a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting and as to the stockholder giving the notice and any Stockholder Associated Person (i) the name and record address of such person, (ii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by such person, (iii) the nominee holder for, and number of, shares owned beneficially but not of record by such person, (iv) whether and the extent to which any hedging or other transaction or series of transactions has been entered into by or on behalf of, or any other agreement, arrangement or understanding (including any derivative or short positions, profit interests, options or borrowed or loaned shares) has been made, the effect or intent of which is to mitigate loss to or manage risk or benefit of share price changes for, or to increase or decrease the voting power of, such person with respect to any share of stock of the Corporation, (v) to the extent known by the stockholder giving the notice, the name and address of any other stockholder supporting the proposal of other business on the date of such stockholders notice, (vi) a description of all arrangements or understandings between or among such persons in connection with the proposal of such business by such stockholder and any material interest in such business and (vii) a representation that the stockholder giving the notice intends to appear in person or by proxy at the annual meeting to bring such business before the meeting. Any ownership information shall be supplemented by the stockholder giving the notice not later than ten (10) days after the record date for the meeting as of the record date.
No business shall be conducted at the annual meeting of stockholders except business brought before the annual meeting in accordance with the procedures set forth in this Section 4; provided, however , that, once business has been properly brought before the annual meeting in accordance with such procedures, nothing in this Section 4 shall be deemed to preclude discussion by any stockholder of any such business. If the Chairman of an annual meeting determines that business was not properly brought before the annual meeting in accordance with the foregoing procedures, the Chairman shall declare to the meeting that the business was not properly brought before the meeting and such business shall not be transacted.
Section 5. Definitions . For purposes of Sections 3 and 4 of Article II of these By-Laws:
Public disclosure shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.
Stockholder Associated Person of any stockholder shall mean (i) any person acting in concert, directly or indirectly, with such stockholder and (ii) any person controlling, controlled by or under common control with such stockholder or any Stockholder Associated Person.
Section 6. Special Meetings .
(a) Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute, may be called at any time by the Board of Directors or by the Chairman of the Board, and shall be called by the Chairman of the Board, the President or the Secretary at the written request of the majority of the Board of Directors or at the written request, in accordance with this Section 6, of stockholders owning capital stock having twenty-five percent (25%) of the voting power of the entire issued and outstanding capital stock of the Corporation. Such request shall state the purpose or purposes of the proposed meeting. No business shall be transacted at any special meeting of the stockholders except that stated in the notice of the meeting.
(b) In order that the Corporation may determine the stockholders entitled to demand a special meeting, the Board of Directors may fix a record date to determine the stockholders entitled to make such a demand (the Demand Record Date). The Demand Record Date shall not precede the date upon which the resolution fixing the Demand Record Date is adopted by the Board of Directors and shall not be more than ten (10) days after the date upon which the resolution fixing the Demand Record Date is adopted by the Board of Directors. Any stockholder of record seeking to have stockholders demand a special meeting shall, by sending written notice to the Secretary of the Corporation by hand or by certified or registered mail, return receipt requested, request the Board of Directors to fix a Demand Record Date. The Board of Directors shall promptly, but in all events within ten (10) days after the date on which a valid request to fix a Demand Record Date is received, adopt a resolution fixing the Demand Record Date and shall make a public announcement of such Demand Record Date. If no Demand Record Date has been fixed by the Board of Directors within ten (10) days after the date on which such request is received by the Secretary, the Demand Record Date shall be the tenth (10 th ) day after the first date on which a valid written request to set a Demand Record Date is received by the Secretary. To be valid, such written request shall set forth the purpose or purposes for which the special meeting is to be held, shall be signed by one or more stockholders of record (or their duly authorized proxies or other representatives), shall bear the date of signature of each such stockholder (or proxy or other representative) and shall set forth all information about each such stockholder and about the beneficial owner or owners, if any, on whose behalf the request is made that would be required to be set forth in a stockholders notice described in Section 3 of Article II of these By-Laws.
(c) In order for a stockholder or stockholders to demand a special meeting, a written demand or demands for a special meeting by the holders of record as of the
Demand Record Date of not less than twenty-five percent (25%) of the voting power of the entire issued and outstanding capital stock of the Corporation entitled to vote on the matter proposed to be considered at the special meeting must be delivered to the Corporation. To be valid, each written demand by a stockholder for a special meeting shall set forth the specific purpose or purposes for which the special meeting is to be held (which purpose or purposes shall be limited to the purpose or purposes set forth in the written request to set a Demand Record Date received by the Corporation pursuant to paragraph (b) of this Section 6), shall be signed by one or more persons who as of the Demand Record Date are stockholders of record (or their duly authorized proxies or other representatives), shall bear the date of signature of each such stockholder (or proxy or other representative), shall set forth the name and address, as they appear in the Corporations books, of each stockholder signing such demand and the class and number of shares of the Corporation which are owned of record and beneficially by each such stockholder, shall be sent to the Secretary by hand or by certified or registered mail, return receipt requested, and shall be received by the Secretary within sixty (60) days after the Demand Record Date.
(d) The Corporation shall not be required to call a special meeting upon stockholder demand unless, in addition to the documents required by paragraph (c) of this Section 6, the Secretary receives a written agreement signed by each Soliciting Stockholder (as defined below), pursuant to which each Soliciting Stockholder, jointly and severally, agrees to pay the Corporations costs of holding the special meeting, including the costs of preparing and mailing proxy materials for the Corporations own solicitation, provided that if each of the resolutions introduced by any Soliciting Stockholder at such meeting is adopted, and each of the individuals nominated by or on behalf of any Soliciting Stockholder for election as a director at such meeting is elected, then the Soliciting Stockholders shall not be required to pay such costs. For purposes of this paragraph (d), the following terms shall have the meanings set forth below:
(i) Affiliate of any Person (as defined herein) shall mean any Person controlling, controlled by or under common control with such first Person.
(ii) Participant shall have the meaning assigned to such term in Instruction 3 of Item 4 of Schedule 14A promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act)
(iii) Person shall mean any individual, firm, corporation, partnership, joint venture, association, trust, unincorporated organization or other entity.
(iv) Proxy shall have the meaning assigned to such term in Rule 14a-1 promulgated under the Exchange Act.
(v) Solicitation shall have the meaning assigned to such term in Rule 14a-1 promulgated under the Exchange Act.
(vi) Soliciting Stockholder shall mean, with respect to any special meeting demanded by a stockholder or stockholders, any of the following Persons: (A) if the number of stockholders signing the demand or demands of meeting delivered to the corporation pursuant to paragraph (c) of this Section 6 is 10 or fewer, each stockholder signing any such demand; (B) if the number of stockholders signing the demand or demands of meeting delivered to the corporation pursuant to paragraph (c) of this Section 6 is more than 10, each Person who either (x) was a Participant in any Solicitation of such demand or demands or (y) at the time of the delivery to the Corporation of the documents described in paragraph (c) of this Section 6 had engaged or intended to engage in any Solicitation of Proxies for use at such special meeting (other than a Solicitation of Proxies on behalf of the Corporation); or (C) any Affiliate of a Soliciting Stockholder, if a majority of the directors then in office determine, reasonably and in good faith, that such Affiliate should be required to sign the written notice described in paragraph (c) of this Section 6 and/or the written agreement described in this paragraph (d) in order to prevent the purposes of this Section 6 from being evaded.
(e) Except as provided in the following sentence, any special meeting shall be held at such hour and day as may be designated by whichever of the Chairman of the Board, President or Secretary shall have called such meeting. In the case of any special meeting called by the Chairman of the Board, President or Secretary upon the demand of stockholders (a Demand Special Meeting), such meeting shall be held at such hour and day as may be designated by the Chairman of the Board, President or Secretary; provided, however, that the date of any Demand Special Meeting shall be not more than sixty (60) days after the Record Date (determined pursuant to Section 5 of Article VI of these By-Laws); and provided further that in the event that the directors then in office fail to designate an hour and date for a Demand Special Meeting within ten (10) days after the date that valid written demands for such meeting by the holders of record as of the Demand Record Date of shares representing not less than twenty-five percent (25%) of the voting power of the entire issued and outstanding capital stock of the Corporation entitled to vote on the matter proposed to be considered at the special meeting are delivered to the Corporation (the Delivery Date), then such meeting shall be held at 2:00 P.M. Central Time on the 90th day after the Delivery Date or, if such 90th day is not a Business Day (as defined below), on the first preceding Business Day. In fixing a meeting date for any special meeting, the Chairman of the Board, President or Secretary may consider such factors as he deems relevant within the good faith exercise of his business judgment, including, without limitation, the nature of the action proposed to be taken, the facts and circumstances surrounding any demand for such meeting, and any plan of the Board of Directors to call an annual meeting or a special meeting for the conduct of related business.
(f) The Corporation may engage independent inspectors of elections to act as an agent of the Corporation for the purpose of promptly performing a ministerial
review of the validity of any purported written demand or demands for a special meeting received by the Secretary. For the purpose of permitting the inspectors to perform such review, no purported demand shall be deemed to have been delivered to the Corporation until such date as the independent inspectors certify to the Corporation that the valid demands received by the Secretary represent not less than twenty-five percent (25%) of the voting power of the entire issued and outstanding capital stock of the Corporation entitled to vote on the matter proposed to be considered at the special meeting. Nothing contained in this paragraph (f) shall in any way be construed to suggest or imply that the Board of Directors or any stockholder shall not be entitled to contest the validity of any demand, whether during or after such five (5) Business Day period, or to take any other action (including, without limitation, the commencement, prosecution or defense of any litigation with respect thereto).
(g) For purposes of these By-Laws, Business Day shall mean any day other than a Saturday, a Sunday or a day on which banking institutions in the State of Minnesota are authorized or obligated by law or executive order to close.
(h) Notwithstanding anything in these By-Laws to the contrary, if the Board of Directors shall determine that any request to fix a Demand Record Date or demand a special meeting was not properly made in accordance with this Section 6, or the stockholder or stockholders seeking to take such action do not otherwise comply with this Section 6, then the Board of Directors shall not be required to fix a Demand Record Date or call a special meeting.
Section 7. Notice of Meetings . Written notice stating the place, date and hour of each annual and special meeting of the stockholders and, in the case of a special meeting, the purpose or purposes thereof, shall be given not less than ten (10) nor more than sixty (60) days before the date of such meeting to each stockholder entitled to vote at such meeting, unless otherwise required by applicable law. If mailed, notice shall be deemed given when deposited in the United States mail, postage prepaid, directed to the stockholder at such address as appears on the records of the Corporation. Notice of any meeting of stockholders shall not be required to be given to any stockholder who shall attend such meeting in person or by proxy and shall not, at the beginning of such meeting, object to the transaction of any business because the meeting is not lawfully called or convened, or who shall, either before or after the meeting, submit a signed waiver of notice.
Section 8. Quorum . At all meetings of the stockholders, the holders of a majority of the shares of stock of the Corporation issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall be requisite to constitute a quorum for the transaction of business, except as otherwise provided by statute or in the Restated Certificate of Incorporation. A quorum, once established, shall not be broken by the withdrawal of enough votes to leave less than a quorum. In the absence of a quorum, the holders of a majority of the shares of stock present in person or by proxy and entitled to vote may adjourn the meeting until the requisite amount of stock shall be present.
Section 9. Organization and Order of Business . At each meeting of the stockholders, the Chairman of the Board, or in his absence, the President, or in his absence any other person selected by the Board of Directors, shall act as Chairman of the meeting. The Secretary, or in his absence an Assistant Secretary, or any person appointed by the Chairman of the meeting, shall act as Secretary of the meeting and keep the minutes thereof. The Board of Directors may adopt by resolution such rules and regulations for the conduct of any meeting of the stockholders as it shall deem appropriate. Except to the extent inconsistent with such rules and regulations as adopted by the Board of Directors, the Chairman of any meeting of the stockholders shall have the right and the authority to prescribe such rules, regulations and procedures and to do all such acts, as in the judgment of such Chairman, are appropriate for the proper conduct of the meeting. Such rules, regulations or procedures, whether adopted by the Board of Directors or prescribed by the Chairman of the meeting, may include, without limitation, the following: (i) the establishment of an agenda or order of business for the meeting; (ii) the determination of when the polls shall open and close for any given matter to be voted on at the meeting; (iii) rules and procedures for maintaining order at the meeting and the safety of those present; (iv) limitations on attendance at or participation in the meeting to stockholders of record of the Corporation, their duly authorized and constituted proxies or such other persons as the Chairman of the meeting shall determine; (v) restrictions on entry to the meeting after the time fixed for the commencement thereof; and (vi) limitations on the time allotted to questions or comments by participants
Section 10. Voting . Except as otherwise provided by statute or by the Restated Certificate of Incorporation, at each meeting of the stockholders each stockholder having the right to vote thereat shall be entitled to (i) one vote for each share of common stock of the Corporation standing in his name on the record of stockholders of the Corporation, and (ii) such voting rights, if any, as are provided in the applicable Certificate of Designation, Preferences and Rights with respect to any series of preferred stock of the Corporation standing in his name on the record of stockholders of the Corporation, in all such instances on the date fixed by the Board of Directors as the record date for the determination of the stockholders who shall be entitled to notice of and vote at such meeting; or if no record date shall have been fixed, then at the close of business on the day next preceding the day on which notice thereof shall be given. Each stockholder entitled to vote at any meeting of stockholders may authorize another person or persons to act for him by a proxy signed or otherwise authorized in accordance with Section 212 of the General Corporation Law of Delaware by such stockholder or his attorney-in-fact. No proxy shall be valid after the expiration of three (3) years from the date thereof, unless otherwise provided in the proxy. Except as otherwise provided by statute, these By-Laws or the Restated Certificate of Incorporation, any corporate action to be taken by vote of the stockholders shall be authorized by a majority of the total votes cast at a meeting of stockholders by the holders of shares present in person or represented by proxy and entitled to vote on such action. Unless required by statute, or determined by the chairman of the meeting to be advisable, the vote on any question other than elections need not be by written ballot. On a vote by written ballot, each ballot shall be signed by the stockholder, his
attorney-in-fact, or his proxy if there be such proxy, and shall state the stockholders name and the number of shares voted.
Section 11. Stockholder List . The Secretary shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. This list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present.
Section 12. Inspectors . The Board of Directors may, in advance of any meeting of stockholders, appoint or provide for the appointment of one or more inspectors to act at such meeting or any adjournments thereof. If the inspector or inspectors shall not be appointed, or if any of them shall fail to appear or act, the Chairman of the meeting may, and on the request of any stockholder entitled to vote thereat shall, appoint one or more inspectors. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his ability. On request of the Chairman of the meeting or any stockholder entitled to vote thereat, the inspectors shall make a report in writing of any challenge, request or matter determined by them and shall execute a certificate of any fact found by them. No director or candidate for the office of director shall act as inspector of any election of directors. Inspectors need not be stockholders of the Corporation.
Section 13. Adjourned Meetings . A meeting of stockholders may be adjourned to another time and to another place by either the chairman of the meeting or by the stockholders and proxies present. When a meeting is adjourned to another time or place, notice of such adjourned meeting need not be given if the time and place to which the meeting shall be adjourned are announced at the meeting at which the adjournment is taken. At the adjourned meeting, if a quorum is present any business may be transacted which might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days or if after the adjournment a new record date is fixed for the adjourned meeting, notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.
Section 14. Consent of Stockholders .
(a) Unless otherwise provided in the Restated Certificate of Incorporation, any action required or permitted to be taken at any annual or special meeting of stockholders of the Corporation, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken,shall be signed by the holders of outstanding stock of the Corporation having not less than the minimum number of votes that would be necessary to authorize or
take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing.
(b) In order that the Corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date (a Consent Record Date). The Consent Record Date shall not precede the date upon which the resolution fixing the Consent Record Date is adopted by the Board of Directors and shall not be more than ten (10) days after the date upon which the resolution fixing the Consent Record Date is adopted by the Board of Directors. Any stockholder of record seeking to consent to corporate action in writing without a meeting shall, by sending written notice to the Secretary of the Corporation by hand or by certified or registered mail, return receipt requested, at the Corporations principal executive offices, request the Board of Directors to fix a Consent Record Date. The Board of Directors shall promptly, but in all events within ten (10) days after the date on which a valid request to fix a Consent Record Date is received, adopt a resolution fixing the Consent Record Date and shall make a public announcement of such Consent Record Date. If no Consent Record Date has been fixed by the Board of Directors within ten (10) days after the date on which such request is received by the Secretary, the Consent Record Date shall be the tenth (10 th ) day after the first date on which a valid written request to set a Consent Record Date is received by the Secretary. To be valid, such written request shall set forth the purpose or purposes for which the written consent is sought to be used, shall be signed by one or more stockholders of record (or their duly authorized proxies or other representatives), shall bear the date of signature of each such stockholder (or proxy or other representative) and shall set forth all information about each such stockholder and about the beneficial owner or owners, if any, on whose behalf the request is made that would be required to be set forth in a stockholders notice described in Section 3 of Article II of these By-Laws.
(c) Every written consent shall be signed by one or more persons who as of the Consent Record Date are stockholders of record on the Consent Record Date (or their duly authorized proxies or other representatives), shall bear the date of signature of each such stockholder (or proxy or other representative), and shall set forth the name and address, as they appear in the Corporations books, of each stockholder signing such consent and the class and number of shares of the Corporation which are owned of record and beneficially by each such stockholder and shall be sent to the Secretary by hand or by certified or registered mail, return receipt requested. No written consent shall be effective to take the corporate action referred to therein unless, within sixty (60) days of the date the earliest dated written consent was received in accordance with this paragraph (c) of this Section 14, a written consent or consents signed by a sufficient number of holders to take such action are delivered to the Corporation.
(d) In the event of the delivery, in the manner provided by paragraph (c) of this Section 14, to the Corporation of the requisite written consent or consents to
take corporate action and/or any related revocation or revocations, the Corporation may engage independent inspectors of elections for the purpose of performing a ministerial review of the validity of the consents and revocations. For the purpose of permitting the inspectors to perform such review, no action by written consent without a meeting shall be effective until such date as the independent inspectors certify to the Corporation that the consents represent at least the minimum number of votes that would be necessary to take the corporate action. Nothing contained in this paragraph (d) of Section 14 shall in any way be construed to suggest or imply that the Board of Directors or any stockholder shall not be entitled to contest the validity of any consent or revocation thereof, whether before or after certification by the independent inspectors, or to take any other action (including, without limitation, the commencement, prosecution or defense of any litigation with respect thereto, and the seeking of injunctive relief in such litigation).
(e) Notwithstanding anything in these By-Laws to the contrary, no action may be taken by the stockholders by written consent except in accordance with this Section 14. If the Board of Directors shall determine that any request to fix a Consent Record Date or to take stockholder action by written consent was not properly made in accordance with this Section 14, or the stockholder or stockholders seeking to take such action do not otherwise comply with this Section 14, then the Board of Directors shall not be required to fix a Consent Record Date and any such purported action by written consent shall be null and void to the fullest extent permitted by applicable law.
ARTICLE III
BOARD OF DIRECTORS
Section 1. General Powers . The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. The Board of Directors may exercise all such authority and powers of the Corporation and do all such lawful acts and things as are not by statute or the Restated Certificate of Incorporation or these By-Laws directed or required to be exercised or done by the stockholders.
Section 2. Number and Election of Directors. The number of directors of the Corporation which shall constitute the entire Board of Directors shall be such number as is fixed by the Board of Directors in accordance with the provisions of the Restated Certificate of Incorporation. Directors shall be elected and shall hold office in accordance with the provisions of the Restated Certificate of Incorporation. Directors need not be stockholders of the Corporation.
Section 3. Required Vote for Directors . A nominee for director shall be elected to the Board of Directors by the vote of the majority of the votes cast at any meeting for the election of directors at which a quorum is present; provided, however , that directors shall be elected by a plurality of the votes cast at any meeting of stockholders for which
(i) the Secretary of the Corporation receives a notice that a stockholder has nominated a person for election to the Board of Directors in compliance with the advance notice requirements for stockholder nominees for directors set forth in Article II, Section 3, of these By-Laws and (ii) such nomination has not been withdrawn by such stockholder on or prior to the tenth (10 th ) day preceding the date the Corporation first mails its notice of meeting for such meeting to the stockholders. For purposes of this By-Law, a majority of votes cast shall mean that the number of shares voted for a nominee exceeds fifty percent (50%) of the number of votes cast with respect to such nominee. Votes cast with respect to a nominee shall include votes to withhold authority and exclude abstentions with respect to such nominee.
Section 4. Place of Meeting . The Board of Directors may hold meetings at such place, within or without the State of Delaware, as the Board of Directors or the officer calling the meeting may from time to time determine.
Section 5. Organization Meeting . Promptly following the adjournment of the annual meeting of the stockholders, and without other notice than this By-Law, the newly constituted Board of Directors shall meet for the purpose of organization, the election of officers, and the transaction of other business, with power to adjourn and re-adjourn.
Section 6. Meetings . Regular meetings of the Board of Directors shall be held at such time and place as the Board of Directors may from time to time determine. Special meetings of the Board of Directors may be called by the Chairman of the Board, the President or any two (2) or more Directors.
Section 7. Notice of Meetings . Notice of regular meetings of the Board of Directors need not be given except as otherwise required by statute or these By-Laws. Notice of the place, date and time of the holding of each special meeting of the Board of Directors, and the purpose or purposes thereof, shall be delivered to each director either personally or by mail, telephone, telegraph, cable, or similar means, three (3) days before the day on which such meeting is to be held, or on such shorter notice as the person or persons calling such meeting deem appropriate in the circumstances. Such notice shall be deemed to be given at the time it is dispatched by depositing it in the United States mail with postage prepaid, by transmission by telephone, telegraph or cable, or by personal delivery. Notice of any such meeting need not be given to any director who shall, either before or after the meeting, submit a signed waiver of notice or who shall attend such meeting without protesting, prior to or at its commencement, the lack of notice to him.
Section 8. Quorum and Manner of Acting . Except as otherwise provided by statute, the Restated Certificate of Incorporation or these By-Laws, at all meetings of the Board of Directors a majority of the directors then in office shall constitute a quorum for the transaction of business; provided, however, that if by reason of catastrophe or emergency, a majority of the entire Board is not available or capable of acting, one third (1/3) of the entire Board of Directors, but in any event not less than two (2) directors, shall constitute a quorum for the transaction of business at any meeting of the Board of Directors. The act of a majority of the directors present at any meeting at which there is a quorum, as herein provided, shall be the act of the Board of Directors except as may
be otherwise specifically provided by statute, the Restated Certificate of Incorporation or these By-Laws. In the absence of a quorum at any meeting of the Board of Directors, a majority of the directors present thereat, or if no director be present, the Secretary or an Assistant Secretary, may adjourn such meeting to another time and place until the quorum is had. Notice of any adjourned meeting need not be given. At any adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally called.
Section 9. Organization and Order of Business . At each meeting of the Board of Directors, the Chairman of the Board, or in his absence the President, or in his absence, a member of the Board of Directors selected by the directors in attendance, shall act as Chairman of the meeting. The Secretary, or in his absence, an Assistant Secretary, or any person appointed by the Chairman of the meeting, shall act as Secretary of the meeting and keep the minutes thereof. The order of business at all meetings of the directors shall be as determined by the Chairman of the meeting.
Section 10. Action Without Meeting . Any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the Board of Directors or committee, as the case may be, consent thereto in writing or by electronic transmission, and the writing or writings or electronic transmission or transmissions are filed with the minutes of the proceedings of the Board of Directors or committee.
Section 11. Conference Telephone . Members of the Board of Directors, or of any committee thereof, may participate in a meeting of the Board of Directors or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting in this manner shall constitute presence in person at such meeting.
Section 12. Committees . The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of three (3) or more of the directors of the Corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Any such committee, to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers of the Board of Directors in the management of the business and affairs of the Corporation which the Board of Directors may lawfully delegate, and may authorize the seal of the Corporation to be affixed to all papers which may require it. Meetings of committees may be called by the committee chairman, if any, or as provided in Section 6 of this Article III. Notice of such meetings shall be given to each member of the committee in the manner set forth in Section 7 of this Article III. Notice of any such meeting need not be given to any committee member who shall, either before or after the meeting, submit a signed waiver of notice or who shall attend such meeting without protesting prior to or at its commencement, the lack of notice to him. A notice or waiver of notice of any regular or special meeting of any committee need not state the purposes of such meeting. A majority of any committee may determine its action, unless the Board of Directors shall otherwise provide. Each committee shall keep written minutes of its formal proceedings and shall report such
proceedings to the Board. All such proceedings shall be subject to revision or alteration by the Board of Directors; provided, however, that third parties shall not be prejudiced by such revision or alteration. The Board of Directors shall have power at any time to fill vacancies in, to change the membership, duties or authority of, or to dissolve any such committee.
Section 13. Resignations . Any director of the Corporation may resign at any time by giving notice by writing or by electronic transmission of his resignation to the Board of Directors, the Chairman of the Board, the President or the Secretary. Such resignation shall take effect at the date of the receipt of such notice, or at any later time specified therein; and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.
Section 14. Removal . Except as otherwise required by applicable law, the Restated Certificate of Incorporation or these By-Laws, any director may be removed at any time, at a special meeting of the stockholders called and held for the purpose, but, for so long as the Board of Directors is classified, only for cause, by the affirmative vote of the holders of a majority of the shares then entitled to vote at an election of directors; and the vacancy in the Board caused by any such removal shall be filled as the Restated Certificate of Incorporation provides.
Section 15. Vacancies . Vacancies and newly created directorships resulting from any increase in the authorized number of directors may only be filled by a majority of the directors then in office, though less than a quorum, in accordance with the Restated Certificate of Incorporation.
Section 16. Compensation . The Board of Directors shall have authority to fix the compensation, including fees and reimbursement of expenses, of directors for services to the Corporation in any capacity and no such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor.
ARTICLE IV
OFFICERS
Section 1. Number and Qualification . The officers of the Corporation shall be elected by the Board of Directors. The officers shall be a Chairman of the Board, a President, one or more Vice Presidents, a Chief Financial Officer, a General Counsel, a Secretary, a Treasurer, and a Controller. The Board of Directors may also elect a Vice Chairman of the Board, one or more Sector Presidents and one or more Assistant Secretaries, Assistant Treasurers, and Assistant Controllers, and the Board of Directors may designate any Vice President as an Executive Vice President, a Senior Vice President or a Group Vice President. The Board of Directors may also designate from such officers (i) a Chief Executive Officer who shall have general supervision and authority over the business and affairs of the Corporation subject to the control of the Board of Directors, (ii) a Chief Operating Officer who shall have general supervision and authority
over the operations of the Corporation subject to the control of the Chief Executive Officer, if that designation has been made, and subject to the control of the Board of Directors, or (iii) both a Chief Executive Officer and a Chief Operating Officer. The Chairman of the Board shall be chosen from among the directors, but no other officer need be a director. Any two or more offices may be held by the same person.
Section 2. Election and Term . The officers of the Corporation shall be chosen annually by the Board of Directors at the first meeting of the Board of Directors following the annual meeting of stockholders or as soon thereafter as is conveniently possible. Officers may also be elected from time to time at any other meeting of the Board of Directors to fill vacancies and otherwise. Each officer, except such officers as may be appointed in accordance with the provisions of Section 3 of this Article IV, shall continue in office until his successor shall have been duly elected and qualified or until his earlier resignation or removal.
Section 3. Other Officers and Agents . The Board of Directors or the Chairman of the Board, or in his absence or disability, the President, may appoint such other officers and agents, each of whom shall hold office for such period, have such authority and perform such duties as are provided for in these By-Laws, or as the Board of Directors or Chairman of the Board, or the President, may from time to time determine.
Section 4. Resignation . Any officer may resign at any time by giving written notice to the Chairman of the Board, the President or the Secretary of the Corporation. Such resignation shall take effect at the date of the receipt of such notice, or at any later time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.
Section 5. Removal . Any officer or agent may be removed, either with or without cause, at any time by the vote of the majority of the whole Board of Directors. Any subordinate officer or agent appointed in accordance with the provisions of Section 3 of this Article IV may be removed, either with or without cause, by a vote of the majority of the whole Board of Directors or, except in the case of an officer or agent elected or appointed by the Board of Directors, by the Chairman of the Board or the President.
Section 6. Vacancies . A vacancy in any office because of death, resignation, removal, disqualification or any other cause may be filled for the unexpired portion of the term in the manner prescribed in these By-Laws for the regular election or appointment to such office.
Section 7. Compensation . The compensation of the officers of the Corporation shall be fixed from time to time by the Board of Directors or by such officers or a committee of the Board of Directors to which the Board of Directors has delegated such authority. An officer of the Corporation shall not be prevented from receiving compensation by reason of the fact that he is also a director of the Corporation, but any such officer who shall also be a director shall not have any vote in the determination of the amount of compensation paid to him.
Section 8. Chairman of the Board . The Chairman of the Board, or in his absence, the President, or in the Presidents absence, any other Person selected by the Board of Directors, shall preside at all meetings of the stockholders and of the Board of Directors. He shall perform such duties with such authority as may be prescribed from time to time by the Board of Directors.
Section 9. President . The President shall be responsible to the Chief Executive Officer and shall perform such duties with such authority as may be prescribed in these By-Laws and from time to time by the Board of Directors and the Chief Executive Officer.
Section 10. Vice Presidents . Each Vice President shall have such powers and shall perform such duties as shall from time to time be prescribed by the Board and as shall from time to time be assigned to him by the Chairman of the Board or the President.
Section 11. Secretary . The Secretary shall give or cause to be given all required notices of meetings of stockholders and of the Board of Directors, shall record all of the proceedings and act as custodian of the minutes of all such meetings, shall have charge of the corporate seal and the corporate minute books, and shall make such reports and perform such other duties as may be assigned from time to time by the Board of Directors, the Chairman of the Board, or the President. The Secretary shall keep in safe custody the seal of the Corporation and the Secretary or any Assistant Secretary shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by the signature of the Secretary or any Assistant Secretary. The Assistant Secretaries, or any of them, shall perform such of the duties of the Secretary as may from time to time be assigned to them by the Board of Directors, the Chairman of the Board, the President, or the Secretary, and in the absence of the Secretary or in the event of his disability or refusal to act, shall perform the duties of the Secretary, and when so acting shall have all the powers of and be subject to all the restrictions upon the Secretary.
Section 12. Treasurer . The Treasurer shall have custody of all moneys and securities of the Corporation, shall have responsibility for disbursement of the funds of the Corporation, shall make payment of the just demands on the Corporation, shall invest surplus cash of the Corporation and manage its investment portfolio under the direction of the Board of Directors, and shall render to the Board of Directors an account of all transactions of the Corporation and of the financial condition of the Corporation as may be required of him. The Treasurer shall also perform such other duties as may be assigned to him from time to time by the Board of Directors, the Chairman of the Board, the President or by the Chief Financial Officer. The Assistant Treasurers, or any of them, shall perform such of the duties of the Treasurer as may from time to time be assigned to them by the Board of Directors, the Chairman of the Board, the President, the Chief Financial Officer, or the Treasurer, and in the absence of the Treasurer or in the event of his disability or refusal to act, shall perform the duties of the Treasurer, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Treasurer.
Section 13. Controller . The Controller shall provide and maintain a system of accounts and accounting records of the Corporation, shall provide and administer a system of internal financial controls, and shall present such financial statements to the Board of Directors as may be required. The Controller shall also perform such other duties as may from time to time be assigned to him by the Board of Directors, the Chairman of the Board, the President or by the Chief Financial Officer. The Assistant Controllers, or any of them, shall perform such of the duties of the Controller as may from time to time be assigned to them by the Board of Directors, the Chairman of the Board, the President, the Chief Financial Officer, or the Controller, and in the absence of the Controller or in the event of his disability or refusal to act, shall perform the duties of the Controller, and when so acting shall have all the powers of and be subject to all the restrictions upon the Controller.
ARTICLE V
INDEMNIFICATION
Section 1. Right to Indemnification . Every person who was or is a party or is threatened to be made a party to or is involved in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a director or officer of the Corporation or, while a director or officer of the Corporation, is or was serving at the request of the Corporation or for its benefit as a director, officer, employee or agent of another corporation, or as its representative in a partnership, joint venture, trust or other enterprise, including any employee benefit plan, shall be indemnified and held harmless by the Corporation to the fullest extent legally permissible under the General Corporation Law of the State of Delaware in the manner prescribed therein, from time to time, against all expenses (including attorneys fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection therewith. Similar indemnification shall be provided by the Corporation to an employee of the Corporation or subsidiary of the Corporation who was or is a party or is threatened to be made a party to or is involved in any threatened, pending or completed action, suit or proceeding, by reason of the fact that he is or was serving for the benefit of the Corporation as a director or officer of another corporation or as the Corporations representative in a partnership, joint venture, trust or other enterprise, including any employee benefit plan.
Section 2. Other Indemnification . The rights of indemnification conferred by this Article shall not be exclusive of any other rights which such directors, officers, employees or agents may have or hereafter acquire and, without limiting the generality of such statement, they shall be entitled to their respective rights of indemnification under any by-law, agreement, vote of stockholders, provision of law or otherwise, as well as their rights under this Article.
ARTICLE VI
SHARES AND THEIR TRANSFER
Section 1. Shares of Stock . The shares of stock in the Corporation shall be represented by a certificate, unless and until the Board of Directors of the Corporation adopts a resolution permitting shares to be uncertificated. Notwithstanding the adoption of any such resolution providing for uncertificated shares, every holder of stock of the Corporation theretofore represented by certificates and, upon request, every holder of uncertificated shares, shall be entitled to have a numbered certificate in such form as shall be approved by the Board of Directors, certifying the number of shares owned by him and signed in the name of the Corporation by the Chairman of the Board or the President or a Vice President and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary, and sealed with the seal of the Corporation (which seal may be a facsimile, engraved or printed). Any or all the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent, or registrar at the date of issue.
Section 2. Transfer of Stock . Stock of the Corporation shall be transferable in the manner prescribed by applicable law and in these By-Laws. Transfers of shares of stock of the Corporation shall be made on the stock records of the Corporation, and in the case of certificated shares of stock, only upon authorization by the registered holder thereof, or by his attorney thereunto authorized by power of attorney duly executed and filed with the Secretary or with a transfer agent or transfer clerk, and on surrender of the certificate or certificates for such shares properly endorsed or accompanied by a duly executed stock transfer power with reasonable assurances given that such endorsement is genuine and that all taxes thereon have been paid; or, in the case of uncertificated shares of stock, upon receipt of proper transfer instructions from the registered holder of the shares or by his attorney thereunto authorized by power of attorney duly executed and filed with the Secretary or with the transfer agent or transfer clerk, and reasonable assurances that all taxes thereon have been paid and compliance with appropriate procedures for transferring shares in uncertificated form; provided, however, that such surrender and endorsement, compliance or payment of taxes shall not be required in any case in which the authorized officers of the Corporation shall determine to waive such requirement. Except as otherwise provided by law, the Corporation shall be entitled to recognize the exclusive right of a person in whose name any share or shares stand on the record of stockholders as the owner of such share or shares for all purposes, including, without limitation, the rights to receive dividends or other distributions, and to vote as such owner, and the Corporation may hold any such stockholder or record liable for calls and assessments, and the Corporation shall not be bound to recognize any equitable or legal claim to or interest in any such share or shares on the part of any other person whether or not it shall have express or other notice thereof.
Section 3. Lost Certificates . The Corporation may issue a new certificate of stock in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, or which shall have been mutilated, and the Board of Directors may, in its discretion, require the owner of the lost, stolen, destroyed or mutilated certificate, or his legal representative, to give the Corporation a bond, limited or unlimited, in such sum and in such form and with such surety or sureties as the Board of Directors in its absolute discretion shall determine is sufficient to indemnify the Corporation against any claim that may be made against it on account of the alleged loss, theft, destruction or mutilation of any such certificate, or the issuance of a new certificate. Anything herein to the contrary notwithstanding, the Board of Directors in its absolute discretion may refuse to issue any such new certificate except pursuant to legal proceedings under the laws of the State of Delaware.
Section 4. Rules and Regulations . The Board of Directors may make such additional rules and regulations, not inconsistent with these By-Laws, the Restated Certificate of Incorporation or the laws of the State of Delaware, as it may deem expedient concerning the issuance, transfer and registration of certificates for shares of stock of the Corporation. The Board of Directors may appoint, or authorize any officer or officers of the Corporation to appoint, one or more independent transfer agents and one or more independent registrars, and may require all certificates for shares of stock to bear the signature or signatures of any of them.
Section 5. Record Date . In order to determine the stockholders entitled to notice and to vote at any meeting of stockholders or adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be less than ten (10) nor more than sixty (60) days before the date of such meeting, nor more than sixty (60) days prior to any other action. A determination of stockholders of record entitled to notice of and to vote at a meeting of stockholders shall apply to any adjournment of the meeting unless the Board of Directors shall elect to fix a record date for the adjourned meeting.
ARTICLE VII
GENERAL PROVISIONS
Section 1. Contracts and Other Instruments . The Chairman of the Board, the Vice Chairman of the Board, the President, the Chief Operating Officer, the Chief Financial Officer, the General Counsel, any Sector President, any Senior Executive Vice President, any Executive Vice President and any Senior Vice President may enter into any contract or execute and deliver any instrument in the name of the Corporation and on behalf of the Corporation except as in these By-Laws or by resolution otherwise provided. The Board of Directors, except as in these By-Laws otherwise provided, may
authorize any other officer or officers, agent or agents of the Corporation, to enter into any contract or execute and deliver any instrument in the name of the Corporation and on behalf of the Corporation, and such authority may be general or confined to specific instances, and unless so authorized by the Board of Directors, no such other officer, agent or employee shall have any power or authority to bind the Corporation by any contract or engagement or to pledge its credit or to render it liable pecuniarily for any purpose or to any amount.
Section 2. Loans . No loans shall be contracted on behalf of the Corporation and no negotiable paper shall be issued in its name unless, and on such terms as shall be, authorized by the Board of Directors.
Section 3. Disbursements . All checks, drafts, demands for money, notes or other evidences of indebtedness of the Corporation shall be signed by such officer or officers or such other person or persons as may from time to time be designated by the Board of Directors or by any officer or officers or person or persons authorized by the Board of Directors to make such designations. Facsimile signatures may be authorized in any such case where authorized by the Board of Directors.
Section 4. Deposits . All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation under such conditions and in such banks or other depositories as the Board of Directors may designate, or as may be designated by any officer or officers, agent or agents of the Corporation to whom such power of designation may from time to time be delegated by the Board of Directors. For the purpose of deposit and for the purpose of collection for the account of the Corporation, checks, drafts, and other orders for the payment of money which are payable to the order of the Corporation may be endorsed, assigned and delivered by any officer or agent of the Corporation as the Board of Directors may determine by resolution.
Section 5. Voting Securities of Other Corporations . Unless otherwise ordered by the Board of Directors, the Chairman of the Board, the President or any person either may designate, shall have full power and authority on behalf of the Corporation, in person or by proxy, to attend and to act and to vote at any meeting of the security holders of any other corporation in which this Corporation may hold securities, and at any such meeting he or his proxy shall possess and may exercise any and all rights and powers incident to the ownership of such securities and which as the owner thereof the Corporation might have possessed and exercised if present. The Board of Directors, by resolution from time to time, may confer like powers upon any other person or persons.
Section 6. Corporate Seal . The Board of Directors shall provide a corporate seal, which shall be in the form of a circle, and which shall bear the words and figures:
ECOLAB INC.
CORPORATE SEAL
1924
DELAWARE
Section 7. Fiscal Year . The fiscal year of the Corporation shall be as determined by the Board of Directors.
Section 8. Gender . Whenever used in these By-Laws, words in the masculine gender shall include the feminine gender.
ARTICLE VIII
AMENDMENTS
Except as otherwise provided in the Restated Certificate of Incorporation or these By-Laws, the Board of Directors may from time to time, by vote of a majority of its members, alter, amend or rescind all or any of these By-Laws as permitted, by law, subject to the power of the stockholders to change or repeal such By-Laws.
EXHIBIT (10.5)(ii)(c)
CORPORATE COMMERCIAL PAPER MASTER NOTE
July 10, 2000 |
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ECOLAB INC. (Issuer), for value received, hereby promises to pay to Cede & Co., as nominee of The Depository Trust Company, or to registered assigns: (i) the principal amount, together with unpaid accrued interest thereon, if any, on the maturity date of each obligation identified on the records of Issuer (the Underlying Records) as being evidenced by this Master Note, which Underlying Records are maintained by Bank One, National Association (Paying Agent); (ii) interest on the principal amount of each such obligation that is payable in installments, if any, on the due date of each installment, as specified on the Underlying Records; and (iii) the principal amount of each such obligation that is payable in installments, if any, on the due date of each installment, as specified on the Underlying Records. Interest shall be calculated at the rate and according to the calculation convention specified on the Underlying Records. Payments shall be made by wire transfer to the registered owner from Paying Agent without the necessity of presentation and surrender of this Master Note.
REFERENCE IS HEREBY MADE TO THE FURTHER PROVISIONS OF THIS MASTER NOTE SET FORTH ON THE REVERSE HEREOF.
This Master Note is a valid and binding obligation of Issuer.
Not Valid Unless Countersigned for Authentication by Paying Agent.
BANK ONE, NATIONAL ASSOCIATION |
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ECOLAB INC. |
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/s/Tamra Ames |
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/s/Daniel J. Schmechel |
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(Guarantor) |
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By: |
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(Authorized Signature) |
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At the request of the registered owner, Issuer shall promptly issue and deliver one or more separate note certificates evidencing each obligation evidenced by this Master Note. As of the date any such note certificate or certificates are issued, the obligations which are evidenced thereby shall no longer be evidenced by this Master Note.
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers unto
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(Name, Address, and Taxpayer Identification Number of Assignee) |
the Master Note and all rights thereunder, hereby irrevocably constituting and appointing attorney to transfer said Master Note on the books of Issuer with full power of substitution in the premises.
Dated: |
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Signature(s) Guaranteed: |
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Notice: The signature on this assignment must correspond with the name as written upon the face of this Master Note, in every particular, without alteration or enlargement or any change whatsoever. |
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Unless this certificate is presented by an authorized representative of The Depository Trust Company, a New York corporation (DTC), to Issuer or its agent for registration of transfer, exchange, or payment, and any certificate issued is registered in the name of Cede & Co. or in such other name as is requested by an authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein.
EXHIBIT (10.5)(ii)(d)
Ecolab Inc.
Annex to Corporate Commercial Paper-Master Note dated July 10, 2000
Statement of Terms for Interest-Bearing Short-Term Notes of Ecolab Inc.
THE PROVISIONS SET FORTH BELOW ARE QUALIFIED TO THE EXTENT APPLICABLE BY THE TRANSACTION SPECIFIC PRICING SUPPLEMENT OR TERM SHEET (THE SUPPLEMENT) (IF ANY) SENT TO EACH PURCHASER AT THE TIME OF THE TRANSACTION.
1. General. (a) The obligations of the Issuer to which these terms apply (each a Note) are represented by one or more Master Notes (each, a Master Note) issued in the name of (or of a nominee for) The Depository Trust Company (DTC), which Master Note includes the terms and provisions for the Issuers Interest-Bearing Commercial Paper Notes that are set forth in this Statement of Terms, since this Statement of Terms constitutes an integral part of the Underlying Records as defined and referred to in the Master Note.
(b)Business Day means any day other than a Saturday or Sunday that is neither a legal holiday nor a day on which banking institutions are authorized or required by law, executive order or regulation to be closed in New York City and, with respect to LIBOR Notes (as defined below) is also a London Business Day. London Business Day means, a day, other than a Saturday or Sunday, on which dealings in deposits in U.S. dollars are transacted in the London interbank market.
2. Interest. (a) Each Note will bear interest at a fixed rate (a Fixed Rate Note) or at a floating rate (a Floating Rate Note).
(b) The Supplement sent to each holder of such Note will describe the following terms: (i) whether such Note is a Fixed Rate Note or a Floating Rate Note and whether such Note is an Original Issue Discount Note (as defined below); (ii) the date on which such Note will be issued (the Issue Date); (iii) the Stated Maturity Date (as defined below); (iv) if such Note is a Fixed Rate Note, the rate per annum at which such Note will bear interest, if any, and the Interest Payment Dates; (v) if such Note is a Floating Rate Note, the Base Rate, the Index Maturity, the Interest Reset Dates, the Interest Payment Dates and the Spread and/or Spread Multiplier, if any (all as defined below), and any other terms relating to the particular method of calculating the interest rate for such Note; and (vi) any other terms applicable specifically to such Note. Original Issue Discount Note means a Note which has a stated redemption price at the Stated Maturity Date that exceeds its Issue Price by more than a specified de minimis amount and which the Supplement indicates will be an Original Issue Discount Note.
(c) Each Fixed Rate Note will bear interest from its Issue Date at the rate per annum specified in the Supplement until the principal amount thereof is paid or made available for payment. Interest on each Fixed Rate Note will be payable on the dates specified in the Supplement (each an Interest Payment Date for a Fixed Rate Note) and on the Maturity Date (as defined below). Interest on Fixed Rate Notes will be computed on the basis of a 360-day year of twelve 30-day months.
If any Interest Payment Date or the Maturity Date of a Fixed Rate Note falls on a day that is not a Business Day, the required payment of principal, premium, if any, and/or interest will be payable on the next succeeding Business Day, and no additional interest will accrue in respect of the payment made on that next succeeding Business Day.
(d)The interest rate on each Floating Rate Note for each Interest Reset Period (as defined below) will be determined by reference to an interest rate basis (a Base Rate) plus or minus a number of basis points (one basis point equals one-hundredth of a percentage point) (the Spread), if any, and/or multiplied by a certain percentage (the
Spread Multiplier), if any, until the principal thereof is paid or made available for payment. The Supplement will designate which of the following Base Rates is applicable to the related Floating Rate Note: (a) the CD Rate (a CD Rate Note), (b) the Commercial Paper Rate (a Commercial Paper Rate Note), (c) the Federal Funds Rate (a Federal Funds Rate Note), (d) LIBOR (a LIBOR Note), (e) the Prime Rate (a Prime Rate Note), (f) the Treasury Rate (a Treasury Rate Note) or (g) such other Base Rate as may be specified in such Supplement.
The rate of interest on each Floating Rate Note will be reset daily, weekly, monthly, quarterly or semi-annually (the Interest Reset Period). The date or dates on which interest will be reset (each an Interest Reset Date) will be, unless otherwise specified in the Supplement, in the case of Floating Rate Notes which reset daily, each Business Day, in the case of Floating Rate Notes (other than Treasury Rate Notes) that reset weekly, the Wednesday of each week; in the case of Treasury Rate Notes that reset weekly, the Tuesday of each week; in the case of Floating Rate Notes that reset monthly, the third Wednesday of each month; in the case of Floating Rate Notes that reset quarterly, the third Wednesday of March, June, September and December; and in the case of Floating Rate Notes that reset semiannually, the third Wednesday of the two months specified in the Supplement. If any Interest Reset Date for any Floating Rate Note is not a Business Day, such Interest Reset Date will be postponed to the next day that is a Business Day, except that in the case of a LIBOR Note, if such Business Day is in the next succeeding calendar month, such Interest Reset Date shall be the immediately preceding Business Day. Interest on each Floating Rate Note will be payable monthly, quarterly or semiannually (the Interest Payment Period) and on the Maturity Date. Unless otherwise specified in the Supplement, and except as provided below, the date or dates on which interest will be payable (each an Interest Payment Date for a Floating Rate Note) will be, in the case of Floating Rate Notes with a monthly Interest Payment Period, on the third Wednesday of each month; in the case of Floating Rate Notes with a quarterly Interest Payment Period, on the third Wednesday of March, June, September and December; and in the case of Floating Rate Notes with a semiannual Interest Payment Period, on the third Wednesday of the two months specified in the Supplement. In addition, the Maturity Date will also be an Interest Payment Date.
If any Interest Payment Date for any Floating Rate Note (other than an Interest Payment Date occurring on the Maturity Date) would otherwise be a day that is not a Business Day, such Interest Payment Date shall be postponed to the next day that is a Business Day, except that in the case of a LIBOR Note, if such Business Day is in the next succeeding calendar month, such Interest Payment Date shall be the immediately preceding Business Day. If the Maturity Date of a Floating Rate Note falls on a day that is not a Business Day, the payment of principal and interest will be made on the next succeeding Business Day, and no interest on such payment shall accrue for the period from and after such maturity.
Interest payments on each Interest Payment Date for Floating Rate Notes will include accrued interest from and including the Issue Date or from and including the last date in respect of which interest has been paid, as the case may be, to, but excluding, such Interest Payment Date. On the Maturity Date, the interest payable on a Floating Rate Note will include interest accrued to, but excluding, the Maturity Date. Accrued interest will be calculated by multiplying the principal amount of a Floating Rate Note by an accrued interest factor. This accrued interest factor will be computed by adding the interest factors calculated for each day in the period for which accrued interest is being calculated. The interest factor (expressed as a decimal) for each such day will be computed by dividing the interest rate applicable to such day by 360, in the cases where the Base Rate is the CD Rate, Commercial Paper Rate, Federal Funds Rate, LIBOR or Prime Rate, or by the actual number of days in the year, in the case where the Base Rate is the Treasury Rate. The interest rate in effect on each day will be (i) if such day is an Interest Reset Date, the interest rate with respect to the Interest Determination Date (as
defined below) pertaining to such Interest Reset Date, or (ii) if such day is not an Interest Reset Date, the interest rate with respect to the Interest Determination Date pertaining to the next preceding Interest Reset Date, subject in either case to any adjustment by a Spread and/or a Spread Multiplier.
The Interest Determination Date where the Base Rate is the CD Rate or the Commercial Paper Rate will be the second Business Day next preceding an Interest Reset Date. The Interest Determination Date where the Base Rate is the Federal Funds Rate or the Prime Rate will be the Business Day next preceding an Interest Reset Date. The Interest Determination Date where the Base Rate is LIBOR will be the second London Business Day next preceding an Interest Reset Date. The Interest Determination Date where the Base Rate is the Treasury Rate will be the day of the week in which such Interest Reset Date falls when Treasury Bills are normally auctioned. Treasury Bills are normally sold at auction on Monday of each week, unless that day is a legal holiday, in which case the auction is held on the following Tuesday or the preceding Friday. If an auction is so held on the preceding Friday, such Friday will be the Interest Determination Date pertaining to the Interest Reset Date occurring in the next succeeding week.
The Index Maturity is the period to maturity of the instrument or obligation from which the applicable Base Rate is calculated.
The Calculation Date, where applicable, shall be the earlier of (i) the tenth calendar day following the applicable Interest Determination Date or (ii) the Business Day preceding the applicable Interest Payment Date or Maturity Date.
All times referred to herein reflect New York City time, unless otherwise specified.
The Issuer shall specify in writing to the Issuing and Paying Agent which party will be the calculation agent (the Calculation Agent) with respect to the Floating Rate Notes. The Calculation Agent will provide the interest rate then in effect and, if determined, the interest rate which will become effective on the next Interest Reset Date with respect to such Floating Rate Note to the Issuing and Paying Agent as soon as the interest rate with respect to such Floating Rate Note has been determined and as soon as practicable after any change in such interest rate.
All percentages resulting from any calculation on Floating Rate Notes will be rounded to the nearest one hundred-thousandth of a percentage point, with five-one millionths of a percentage point rounded upwards. For example, 9.876545% (or .09876545) would be rounded to 9.87655% (or .0987655). All dollar amounts used in or resulting from any calculation on Floating Rate Notes will be rounded, in the case of U.S. dollars, to the nearest cent or, in the case of a foreign currency, to the nearest unit (with one-half cent or unit being rounded upwards).
CD Rate Notes
CD Rate means the rate on any Interest Determination Date for negotiable certificates of deposit having the Index Maturity as published by the Board of Governors of the Federal Reserve System (the FRB) in Statistical Release H.15(519), Selected Interest Rates or any successor publication of the FRB (H.15(519)) under the heading CDs (Secondary Market).
If the above rate is not published in H.15(519) by 3:00 p.m. on the Calculation Date, the CD Rate will be the rate on such Interest Determination Date set forth in the daily update of H.15(519), available through the world wide website of the FRB at http://www.federalreserve.gov/releases/h15/Update, or any successor site or publication or other recognized electronic source used for the purpose of displaying the applicable rate (H.15 Daily Update) under the caption CDs (Secondary Market).
If such rate is not published in either H.15(519) or H.15 Daily Update by 3:00 p.m. on the Calculation Date, the Calculation Agent will determine the CD Rate to be the arithmetic mean of the secondary market offered rates as of 10:00 a.m. on such Interest Determination Date of three leading nonbank dealers(1) in negotiable U.S. dollar certificates of deposit in New York City selected by the Calculation Agent for negotiable U.S. dollar certificates of deposit of major United States money center banks of the highest credit standing in the market for negotiable certificates of deposit with a remaining maturity closest to the Index Maturity in the denomination of $5,000,000.
If the dealers selected by the Calculation Agent are not quoting as set forth above, the CD Rate will remain the CD Rate then in effect on such Interest Determination Date.
Commercial Paper Rate Notes
Commercial Paper Rate means the Money Market Yield (calculated as described below) of the rate on any Interest Determination Date for commercial paper having the Index Maturity, as published in H.15(519) under the heading Commercial Paper-Nonfinancial.
If the above rate is not published in H.15(519) by 3:00 p.m. on the Calculation Date, then the Commercial Paper Rate will be the Money Market Yield of the rate on such Interest Determination Date for commercial paper of the Index Maturity as published in H.15 Daily Update under the heading Commercial Paper-Nonfinancial.
If by 3:00 p.m. on such Calculation Date such rate is not published in either H.15(519) or H.15 Daily Update, then the Calculation Agent will determine the Commercial Paper Rate to be the Money Market Yield of the arithmetic mean of the offered rates as of 11:00 a.m. on such Interest
Determination Date of three leading dealers of U.S. dollar commercial paper in New York City selected by the Calculation Agent for commercial paper of the Index Maturity placed for an industrial issuer whose bond rating is AA, or the equivalent, from a nationally recognized statistical rating organization.
If the dealers selected by the Calculation Agent are not quoting as mentioned above, the Commercial Paper Rate with respect to such Interest Determination Date will remain the Commercial Paper Rate then in effect on such Interest Determination Date.
Money Market Yield will be a yield calculated in accordance with the following formula:
Money Market Yield = |
D x 36
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where D refers to the applicable per annum rate for commercial paper quoted on a bank discount basis and expressed as a decimal and M refers to the actual number of days in the interest period for which interest is being calculated.
Federal Funds Rate Notes
Federal Funds Rate means the rate on any Interest Determination Date for federal funds as published in H.15(519) under the heading Federal Funds (Effective) and
(1) Such nonbank dealers referred to in this Statement of Terms may include affiliates of the Dealer.
displayed on Moneyline Telerate (or any successor service) on page 120 (or any other page as may replace the specified page on that service) (Telerate Page 120).
If the above rate does not appear on Telerate Page 120 or is not so published by 3:00 p.m. on the Calculation Date, the Federal Funds Rate will be the rate on such Interest Determination Date as published in H.15 Daily Update under the heading Federal Funds/(Effective).
If such rate is not published as described above by 3:00 p.m. on the Calculation Date, the Calculation Agent will determine the Federal Funds Rate to be the arithmetic mean of the rates for the last transaction in overnight U.S. dollar federal funds arranged by each of three leading brokers of Federal Funds transactions in New York City selected by the Calculation Agent prior to 9:00 a.m. on such Interest Determination Date.
If the brokers selected by the Calculation Agent are not quoting as mentioned above, the Federal Funds Rate will remain the Federal Funds Rate then in effect on such Interest Determination Date.
LIBOR Notes
The London Interbank offered rate (LIBOR) means, with respect to any Interest Determination Date, the rate for deposits in U.S. dollars having the Index Maturity that appears on the Designated LIBOR Page as of 11:00 a.m., London time, on such Interest Determination Date.
If no rate appears, LIBOR will be determined on the basis of the rates at approximately 11:00 a.m., London time, on such Interest Determination Date at which deposits in U.S. dollars are offered to prime banks in the London interbank market by four major banks in such market selected by the Calculation Agent for a term equal to the Index Maturity, commencing on the related Interest Reset Date, and in principal amount equal to an amount that in the Calculation Agents judgment is representative for a single transaction in U.S. dollars in such market at such time (a Representative Amount). The Calculation Agent will request the principal London office of each of such banks to provide a quotation of its rate. If at least two such quotations are provided, LIBOR will be the arithmetic mean of such quotations. If fewer than two quotations are provided, LIBOR for such Interest Determination Date will be the arithmetic mean of the rates quoted at approximately 11:00 a.m., in New York City, on such Interest Determination Date by three major banks in New York City, selected by the Calculation Agent, for loans in U.S. dollars to leading European banks, for a term equal to the Index Maturity, commencing on the related Interest Reset Date, and in a Representative Amount; provided, however, that if fewer than three banks so selected by the Calculation Agent are providing such quotations, the then existing LIBOR rate on such Interest Determination Date will remain in effect for the Interest Payment Period for which LIBOR is being determined.
Designated LIBOR Page means the display that appears on Reuters on page LIBOR01 (or any other page as may replace such page on such service (or any successor service) for the purposes of displaying London interbank offered rates of major banks for deposits in U.S. dollars).
Prime Rate Notes
Prime Rate means the rate on any Interest Determination Date as published in H.15(519) under the heading Bank Prime Loan.
If the above rate is not published in H.15(519) prior to 3:00 p.m. on the Calculation Date, then the Prime Rate will be the rate on such Interest Determination Date as published in H.15 Daily Update opposite the caption Bank Prime Loan.
If the rate is not published prior to 3:00 p.m. on the Calculation Date in either H.15(519) or H.15 Daily Update, then the Calculation Agent will determine the Prime Rate to be the arithmetic mean of the rates of interest publicly announced by each bank that appears on the Reuters Screen US PRIME1 Page (as defined below) as such banks prime rate or base lending rate as of 11:00 a.m., on that Interest Determination Date.
If fewer than four such rates referred to above are so published by 3:00 p.m. on the Calculation Date, the Calculation Agent will determine the Prime Rate to be the arithmetic mean of the prime rates or base lending rates quoted on the basis of the actual number of days in the year divided by 360 as of the close of business on such Interest Determination Date by three major banks in New York City selected by the Calculation Agent.
If the banks selected are not quoting as mentioned above, the Prime Rate will remain the Prime Rate in effect on such Interest Determination Date.
Reuters Screen US PRIME1 Page means the display designated as page US PRIME1 on the Reuters Monitor Money Rates Service (or such other page as may replace the US PRIME1 page on that service for the purpose of displaying prime rates or base lending rates of major United States banks).
Treasury Rate Notes
Treasury Rate means:
(1) the rate from the auction held on the Interest Determination Date (the Auction) of direct obligations of the United States (Treasury Bills) having the Index Maturity specified in the Supplement under the caption INVESTMENT RATE on the display on Moneyline Telerate (or any successor service) on page 56 (or any other page as may replace that page on that service) (Telerate Page 56) or page 57 (or any other page as may replace that page on that service) (Telerate Page 57), or
(2) if the rate referred to in clause (1) is not so published by 3:00 p.m. on the related Calculation Date, the Bond Equivalent Yield (as defined below) of the rate for the applicable Treasury Bills as published in H.15 Daily Update, under the caption U.S. Government Securities/Treasury Bills/Auction High, or
(3) if the rate referred to in clause (2) is not so published by 3:00 p.m. on the related Calculation Date, the Bond Equivalent Yield of the auction rate of the applicable Treasury Bills as announced by the United States Department of the Treasury, or
(4) if the rate referred to in clause (3) is not so announced by the United States Department of the Treasury, or if the Auction is not held, the Bond Equivalent Yield of the rate on the particular Interest Determination Date of the applicable Treasury Bills as published in H.15(519) under the caption U.S. Government Securities/Treasury Bills/Secondary Market, or
(5) if the rate referred to in clause (4) not so published by 3:00 p.m. on the related Calculation Date, the rate on the particular Interest Determination Date of the applicable Treasury Bills as published in H.15 Daily Update, under the caption U.S. Government Securities/Treasury Bills/Secondary Market, or
(6) if the rate referred to in clause (5) is not so published by 3:00 p.m. on the related Calculation Date, the rate on the particular Interest Determination Date calculated by the Calculation Agent as the Bond Equivalent Yield of the arithmetic mean of the secondary market bid rates, as of approximately 3:30 p.m. on that Interest Determination Date, of three primary United States government securities dealers selected by the Calculation Agent, for the issue of Treasury Bills with a remaining maturity closest to the Index Maturity specified in the Supplement, or
(7) if the dealers so selected by the Calculation Agent are not quoting as mentioned in clause (6), the Treasury Rate in effect on the particular Interest Determination Date.
Bond Equivalent Yield means a yield (expressed as a percentage) calculated in accordance with the following formula:
Bond Equivalent Yield = |
D x N
|
x 100 |
360 - (D x M) |
where D refers to the applicable per annum rate for Treasury Bills quoted on a bank discount basis and expressed as a decimal, N refers to 365 or 366, as the case may be, and M refers to the actual number of days in the applicable Interest Reset Period.
3. Final Maturity. The Stated Maturity Date for any Note will be the date so specified in the Supplement, which shall be no later than 270 days from the date of issuance. On its Stated Maturity Date, or any date prior to the Stated Maturity Date on which the particular Note becomes due and payable, each such date being referred to as a Maturity Date, the principal amount of each Note, together with accrued and unpaid interest thereon, will be immediately due and payable.
4. Obligation Absolute. No provision of the Issuing and Paying Agency Agreement under which the Notes are issued shall alter or impair the obligation of the Issuer, which is absolute and unconditional, to pay the principal of and interest on each Note at the times, place and rate, and in the coin or currency, herein prescribed.
5. Supplement . Any term contained in the Supplement shall supercede any conflicting term contained herein.
EXHIBIT (10.13)
ECOLAB SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
(As Amended and Restated Effective January 1, 2011)
ECOLAB SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
(As Amended and Restated Effective as of January 1, 2011)
WHEREAS, the Company previously established the Ecolab Supplemental Executive Retirement Plan (the Plan) to provide additional retirement benefits in consideration of services performed and to be performed by certain participants for the Company and certain related corporations; and
WHEREAS, the American Jobs Creation Act of 2004, P.L. 108-357 (the AJCA) added a new Section 409A to the Code, which significantly changed the Federal tax law applicable to amounts deferred under the Plan after December 31, 2004; and
WHEREAS, before the issuance by the U.S. Treasury and the Internal Revenue Service (the IRS) of interpretive guidance with respect to Code Section 409A, the Company amended the Plan to temporarily freeze the accrual of SERP Benefits hereunder as of December 31, 2004; and
WHEREAS, the IRS and U.S. Treasury subsequently issued regulations and other guidance regarding the requirements of and compliance with Code Section 409A; and
WHEREAS, the Board of Directors of the Company directed and authorized appropriate officers of the Company to amend the Plan to (a) reinstate the accrual of SERP Benefits, effective retroactively as of January 1, 2005 and (b) comply, with respect to the Non-Grand fathered SERP Benefits, with the requirements of Code Section 409 and guidance issued thereunder; and
WHEREAS, the Plan was amended and restated in its entirety, effective as of January 1, 2005; and
WHEREAS, the Board of Directors of the Company authorized the appropriate officers of the Company to amend the Plan (i) to use the lump sum actuarial factors to determine the annual installment payment amount (including an increase in installment payments that were commenced prior to January 1, 2011), and (ii) to include an actuarial increase in the non-grandfathered portion of any payments that are required to be deferred as a result of the five (5) year redeferral rule to a date that is after the later of Separation from Service or age 62; and
WHEREAS, the Plan was amended and restated in its entirety effective as of December 31, 2010; and
WHEREAS, the Company wishes to clarify ambiguous language in the Plan document.
NOW, THEREFORE, pursuant to Section 1.3 of the Plan and Section 5.1 of the Ecolab Inc. Administrative Document for Non-Qualified Benefit Plans, the Company hereby amends and restates the Plan in its entirety, effective as of January 1, 2011, to read as follows:
ARTICLE I
PREFACE
Section 1.1 Effective Date .
(1) The effective date of this amended and restated Plan is January 1, 2011.
(2) The benefit, if any, payable with respect to a former Executive who Retired or died prior to January 1, 2005 (and who is not rehired by a member of the Controlled Group thereafter) shall be determined by, and paid in accordance with, the terms and provisions of the Plan as in effect prior to January 1, 2005, subject to Sections 1.4 and 3.3(2)(c). Notwithstanding any provision of the Plan to the contrary, an Executives SERP Benefit (which was temporarily frozen from December 31, 2004 through December 31, 2008) shall be retroactively adjusted on January 1, 2009 to reflect the benefit that would have been accrued by the Executive under the Plan, in accordance with Section 3.2, during the period commencing on January 1, 2005 and ending on the earlier of December 31, 2008 or the date on which the Executive terminated his services with the Employers as an employee.
Section 1.2 Purpose of the Plan . The purpose of this Plan is to provide additional retirement benefits for certain management and highly compensated employees of the Company who perform management and professional functions for the Company and certain related entities.
Section 1.3 Administrative Document . This Plan includes the Ecolab Inc. Administrative Document for Non-Qualified Benefit Plans (the Administrative Document), which is incorporated herein by reference.
Section 1.4 American Jobs Creation Act of 2004 (AJCA) .
(1) To the extent applicable, it is intended that the Plan (including all Amendments thereto) comply with the provisions of Code Section 409A, as enacted by the American Jobs Creation Act of 2004, P.L. 108-357 (the AJCA), so as to prevent the inclusion in gross income of any amount of SERP Benefit accrued hereunder in a taxable year that is prior to the taxable year or years in which such amounts would otherwise be actually distributed or made available to the Executives. The Plan shall be administered in a manner that will comply with Code Section 409A, including regulations or any other guidance issued by the Secretary of the Treasury and the Internal Revenue Service with respect thereto (collectively with the AJCA, the 409A Guidance). All Plan provisions shall be interpreted in a manner consistent with the 409A Guidance.
(2) The Administrator shall not take any action hereunder that would violate any provision of Code Section 409A. The Administrator is authorized to adopt rules or regulations deemed necessary or appropriate in connection with the 409A Guidance to anticipate and/or comply with the requirements thereof (including any transition or grandfather rules thereunder).
(3) Notwithstanding any provision of the Plan, any Grandfathered SERP Benefits (including any Pre-Retirement SERP Benefits attributable thereto) shall continue to be governed by the law applicable to nonqualified deferred compensation prior to the addition of Section 409A to the Code and shall be subject to the terms and conditions specified in the Plan as in effect prior to January 1, 2005, except as otherwise provided herein. Notwithstanding any provision of the Plan to the contrary, neither the Company nor the Administrator guarantee to any Executive or Death Beneficiary any specific tax consequences of participation in or entitlement to or receipt of benefits from, the Plan, and each Executive or the Executives Death Beneficiary shall be solely responsible for payment of any taxes or penalties incurred in connection with his participation in the Plan.
ARTICLE II
DEFINITIONS
Words and phrases used herein with initial capital letters which are defined in the Pension Plan or the Administrative Document are used herein as so defined, unless otherwise specifically defined herein or the context clearly indicates otherwise. The following words and phrases when used in this Plan
with initial capital letters shall have the following respective meanings, unless the context clearly indicates otherwise:
Section 2.1 Actuarial Equivalent or Actuarially Equivalent . A benefit is the Actuarial Equivalent of another benefit if, on the basis of Actuarial Factors, the present values of such benefits are equal.
Section 2.2 Actuarial Factors shall mean the actuarial assumptions set forth in Exhibit A which is attached to and forms a part of this Plan.
Section 2.3 Cash Balance Participant shall mean an Executive for whom a Retirement Account is maintained under the Pension Plan.
Section 2.4 Death Beneficiary .
The term Death Beneficiary shall mean the beneficiary designated under this Plan and the Mirror Pension Plan. The designation of a Death Beneficiary may be made, and may be revoked or changed only by an instrument (in form prescribed by Administrator) signed by the Executive and delivered to the Administrator during the Executives lifetime. If the Executive is married on the date of his death and has been married to such spouse throughout the one-year period ending on the date of his death, his designation of a Death Beneficiary other than, or in addition to, his spouse under the Plan shall not be effective unless such spouse has consented in writing to such designation. Any Mirror Pension Benefits remaining to be paid after the death of a Death Beneficiary (or a contingent Death Beneficiary, to the extent designated by the Executive) shall be paid to the Death Beneficiarys estate. If no Death Beneficiary is designated by the Executive or all the designated Death Beneficiaries predeceased the Executive, the Executives Death Beneficiary shall be his spouse, and if there is no surviving spouse, then the Executives estate. The most recent Death Beneficiary designation on file with the Administrator will be given effect, and in the event of conflicting forms files simultaneously under this Plan and Mirror Pension Plan, the Death Beneficiary designation under this Plan will govern.
Section 2.5 Disability or Disabled shall mean any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than six months, where such impairment causes the Executive to be unable to perform the duties of his position of employment or any substantially similar position of employment.
Section 2.6 Executive shall mean an Employee who is an elected corporate officer of an Employer and who is selected by the Administrator to participate in the Plan or such other Employee who is selected by the Chief Executive Officer of the Company to participate in the Plan.
Section 2.7 Final Average Compensation shall mean the average of an Executives Annual Compensation (as defined in the Administrative Document but as modified by the next sentence) for the five (5) consecutive Plan Years of employment with the Employers preceding the date on which the Executive terminated his services with all Employers as an employee or death (including the year in which the Executive so terminated his service or death) which yields the highest average compensation. Notwithstanding the foregoing, for purposes of calculating the Final Annual Compensation of a Disabled Executive, the rules applicable for determining the Final Annual Compensation for persons who accrue benefits under the Final Average Compensation formula specified in Section 4.6 of the Pension Plan shall apply. If an Executive has been employed by the Employers for a period of less than five (5) Plan Years preceding the date on which the Executive terminated his services with all Employers or death, Final Average Compensation shall be calculated using the Executives total period of employment with the Employers (calculated using complete months of employment).
Section 2.8 Grandfathered SERP Benefit shall mean the portion of an Executives SERP Benefit that is deemed to have been deferred (within the meaning of the 409A Guidance) under the Plan before January 1, 2005 and that is equal to the present value as of December 31, 2004 of the vested SERP Benefit to which the Executive would be entitled under the Plan, as in effect on October 3, 2004, if the Executive voluntarily terminated employment with the Controlled Group without cause on December 31, 2004 and received a payment, on the earliest possible date allowed under the Plan, of his SERP Benefit in the form with the maximum value. A Grandfathered SERP Benefit shall be increased in subsequent years to equal the present value of the benefit the Executive actually becomes entitled to receive, in the form and at the time actually paid, determined under the terms of the Plan as in effect on October 3, 2004, without regard to any services rendered or Compensation increases applicable after December 31, 2004.
Section 2.9 Mirror Pension Benefit shall mean one-twelfth (l/12th) of the annual total benefit payable to an Executive under the Ecolab Mirror Pension Plan calculated on a single life annuity basis commencing at age 65, as determined by the Administrator.
Section 2.10 Non-Grandfathered SERP Benefit shall mean any SERP Benefit that is not a Grandfathered SERP Benefit.
Section 2.11 Pension Benefit shall mean one-twelfth (1/12th) of the annual total pensions paid or payable to the Executive under any pension plan (other than the Ecolab Savings Plan, as such plan may be amended from time to time) sponsored by a member of the Controlled Group which satisfies the qualification requirements of the Code calculated on a single life annuity basis commencing at age 65, as determined by the Administrator including (a) projected payments from any former pension plan or former profit sharing plan which reduces the pension payable under the Pension Plan, or (b) payments of Retirement Account benefits under the Pension Plan.
Section 2.12 Plan shall mean this Ecolab Supplemental Executive Retirement Plan, as it may be amended from time to time.
Section 2.13 Primary Insurance Amount shall mean the monthly primary social security benefit to which the Executive will be entitled at age 65, determined in accordance with Exhibit B which is attached to and forms a part of this Plan.
Section 2.14 Retirement or Retired . The Retirement of an Executive shall occur upon his termination of employment for any reason other than death or Disability on or after (1) his attainment of age 55 and the completion of at least 10 Years of Eligibility Service, or (2) his attainment of age 65. For purposes of determining Retirement under this Plan, the employment of a Disabled Executive shall be deemed to have terminated for reasons other than Disability twelve months after the Executive becomes Disabled, provided he does not resume active employment with the Controlled Group before such date.
Section 2.15 Savings Plan Benefit shall mean the benefit payable to the Executive calculated as of July 1, 1994 in accordance with Exhibit C which is attached to and forms a part of this Plan.
Section 2.16 Separation from Service or to Separate from Service shall mean any termination of employment with the Controlled Group due to retirement, death, disability or other reason; provided, however, that no Separation from Service is deemed to occur while the Executive (1) is on military leave, sick leave, or other bona fide leave of absence that does not exceed six (6) months (or, in the case of Disability, twelve (12) months), or if longer, the period during which the Executives right to reemployment with the Controlled Group is provided either by statute or by contract, or (2) continues to perform services for the Controlled Group at an annual rate of fifty percent (50%) or more of the average
level of services performed over the immediately preceding 36-month period (or the full period in which the Executive provided services (whether as an employee or as an independent contractor) if the Executive has been providing services for less than 36 months). With respect to the terms of the Plan affecting Non-Grandfathered SERP Benefits, any reference to termination of employment in the Plan shall mean Separation from Service as defined in this Section. Whether an Executive has incurred a Separation from Service shall be determined in accordance with the 409A Guidance.
Section 2.17 SERP Benefit shall mean the retirement benefit determined under Article III.
Section 2.18 SERP Pre-Retirement Benefit shall mean the pre-retirement benefit determined under Article IV.
Section 2.19 Specified Employee shall mean Specified Employee as defined in the Administrative Document.
Section 2.20 Year of Benefit Service .
(1) An Executive shall be credited with one Year of Benefit Service for each year of Credited Service (or such other defined term which is used to determine service for benefit accrual purposes) as defined by and credited to the Executive under the Pension Plan. Notwithstanding the foregoing, for purposes of calculating Years of Benefit Service for a Cash Balance Participant, the rules applicable for determining Credited Service under the Pension Plan for persons who accrue benefits under the Final Average Compensation formula specified in Article 4 of the Pension Plan shall apply.
(2) A Disabled Executive shall continue to accrue Years of Benefit Service during the period of twelve months following the date on which he becomes Disabled for purposes of determining the amount of his SERP Benefit hereunder.
(3) In no event shall an Executives Years of Benefit Service under the Plan exceed thirty (30) years.
Section 2.21 Year of Eligibility Service .
(1) An Executive shall be credited with one Year of Eligibility Service for each year of Continuous Service (or such other defined term which is used to determine service for vesting purposes) as defined by and credited to the Executive under the Pension Plan.
(2) A Disabled Executive shall continue to accrue Years of Eligibility Service during the first twelve months of his Disability for purposes of determining his vested interest in of his SERP Benefit hereunder.
Section 2.22 Year of Past Service Credit means the excess, if any, of the thirty (30) Years of Benefit Service required to earn the maximum SERP Benefit hereunder over the number of Years of Benefit Service it would be possible for the Executive to accumulate by his attainment of age 65 or, if later, the date of his Retirement.
ARTICLE III
SERP BENEFITS
Section 3.1 Participation .
(1) Commencement of Participation . Any Employee who as of the Effective Date is a participant in the Plan, shall continue to participate, subject to Subsection (2). Any other Employee shall become a participant in the Plan as of the first date on or after the Effective Date on which he is an Executive.
(2) Termination of Participation . An Executive shall cease to be a participant in the Plan on the earliest to occur of (a) the date the Executive ceases to be employed by the Controlled Group or dies before becoming vested in his SERP Benefit, or (b) the date on which the Executives SERP Benefit is distributed from the Plan.
Section 3.2 Amount of SERP Benefits . Each vested Executive shall, upon termination of employment (Separation from Service with respect to the Non-Grandfathered SERP Benefit), be entitled to a SERP Benefit which shall be determined as hereinafter provided.
(1) The SERP Benefit shall be a monthly retirement benefit payable in the form of a fifteen-year (15) certain benefit commencing upon the Executives attainment of age 65 equal to the sum of (a) and (b), where:
(a) = one-twelfth (1/12 th ) of the Executives Final Average Compensation, multiplied by two percent (2%) for each of the Executives Years of Benefit Service (up to a maximum of thirty (30)), reduced by (i) the Pension Benefit, (ii) the Mirror Pension Benefit, (iii) fifty percent (50%) of the Primary Insurance Amount, and (iv) the Savings Plan Benefit; and
(b) = the difference between (i) one-twelfth (1/12 th ) of the Executives Final Average Compensation, and (ii) one-twelfth (1/12 th ) of the Executives Annual Compensation for the Plan Year in which the Executive commenced employment with the Controlled Group, such difference multiplied by one percent (1%) for each of the Executives Years of Past Service Credit (if any).
(2) For purposes of Subsection (l)(b)(ii), if the Executive was not an Employee for the entire Plan Year, his Annual Compensation for such Plan Year shall be annualized based on the number of days employed by the Controlled Group out of a Plan Year of 365 days.
(3) Notwithstanding anything in this Section 3.2 to the contrary, in no event will any Executives SERP Benefit be less than such Executives Grandfathered SERP Benefit.
(4) Notwithstanding the foregoing provisions of this Section 3.2, the SERP Benefit shall be frozen as of December 31, 2020. In connection with the freezing of benefit accruals under the SERP as of December 31, 2020, in applying the formula in Section 3.2(1), an Executives Final Average Compensation, Years of Benefit Service, Pension Benefit, Mirror Pension Benefit, Primary Insurance Amount and Savings Plan Benefit will each be determined as of December 31, 2020 (or if earlier, as of the Executives termination of employment (Separation from Service with respect to the Non-Grandfathered SERP Benefit)).
Section 3.3 Time of Payment .
(1) Grandfathered SERP Benefit . The provisions of this Section 3.3(1) shall apply solely with respect to the portion of an Executives SERP Benefit that is a Grandfathered SERP Benefit. Payment of any portion of an Executives SERP Benefit that is a Non-Grandfathered SERP Benefit shall be made in accordance with Section 3.3(2).
(a) In General . An Executives SERP Benefit shall be paid or commence to be paid within 90 days after the later of the date the Executive attains age 65 or the date of the Executives Retirement. Notwithstanding the foregoing, if payment at such time is prevented due to reasons outside of the Administrators control, the SERP Benefits shall commence to be paid as soon as practicable after the end of such 90-day period, and the first payment hereunder shall include any SERP Benefits not paid as a result of the delay in payment.
(b) Early Commencement . Notwithstanding the provisions of Subsection (1)(a) of this Section, upon the written request of the Executive (on a form prescribed by the Administrator) which is filed with the Administrator prior to the Executives termination of employment with the Controlled Group because of involuntary termination, death or Disability or at least one (1) year prior to the Executives voluntary Retirement, the Administrator may, in its complete and sole discretion, commence payment of the SERP Benefits to the Executive at a specified date which is after the Executives Retirement but prior to the Executives attainment of age 65; provided, however, that the amount of the SERP Benefit shall be reduced by one/two hundred and eightieth (1/280th) for each month that the date of the commencement of the SERP Benefits precedes the date on which the Executive will attain age 62.
(2) Non-Grandfathered SERP Benefits . The provisions of this Section 3.3(2) shall apply solely with respect to the portion of an Executives vested SERP Benefit that is a Non-Grandfathered SERP Benefit. Payment of any portion of an Executives SERP Benefit that is a Grandfathered SERP Benefit shall be made in accordance with Section 3.3(1).
(a) In General . Except as provided in subsection (b), an Executives vested Non-Grandfathered SERP Benefit shall be paid or commence to be paid on the first day of the third month following the month in which occurs the later of the date on which the Executive (i) attains age 55 or (ii) Separates from Service, subject to Section 3.3(2)(d), and Section 3.4(2)(d) (as applicable). The amount of any such SERP Benefit paid before the Executives attainment of age 65 shall be reduced by one/two hundred and eightieth (l/280th) for each month that the date of the commencement of the SERP Benefits precedes the date on which the Executive will attain age 62.
(b) Cash Balance Participant . A Cash Balance Participants Non-Grandfathered SERP Benefit shall be paid or commence to be paid on the first day of the third month following the month in which the Executive Separates from Service, subject to Section 3.3(2)(d) and Section 3.4(2)(d) (as applicable).
(c) Certain Transition Distributions to Terminated Executives .
(i) An Executive who Separated from Service after December 31, 2004 and before December 31, 2008 and has commenced payments of his Grandfathered SERP Benefits at any time before December 31, 2008, shall receive his Non-Grandfathered SERP Benefit (if any), for which the Executives SERP Benefit is retroactively adjusted pursuant to Section 1.1 on January 1, 2009, in the same form and at the same time as the
Executives Grandfathered benefit, subject to Section 3.3(2)(d). Notwithstanding the foregoing, a Cash Balance Participants Non-Grandfathered SERP Benefit shall be paid on March 1, 2009, subject to Section 3.3(2)(d).
(ii) An Executive who Separated from Service after December 31, 2004 and before December 31, 2008 and has not before December 31, 2008 commenced payments of his Non-Grandfathered SERP Benefit, shall receive his Non-Grandfathered SERP Benefit, for which the Executives SERP Benefit is retroactively adjusted pursuant to Section 1.2 on January 1, 2009, in a single lump sum on March 1, 2009.
(d) Payment Delay for Specified Employees . Notwithstanding any provision of the Plan, payments to a Specified Employee shall be made or commence on the first day of the month coincident with or immediately following the latest of (i) the date specified in Section 3.3(2)(a), (b) or (c), (ii) the date specified in Section 3.4(2)(d)(i), if the Executive made an election pursuant to such section, or (iii) the date that is six (6) months after the Specified Employees Separation From Service; provided, however, that if the Executive dies before the date specified in (i), (ii) or (iii), the Executives benefit shall be paid or commence on the date specified in Section 4.2. The first payment made to the Specified Employee following the 6-month delay shall include any SERP Benefit payments that were not made as a result of the delay in payment pursuant to this paragraph (d), with interest at an annual rate of five percent (5%) compounded annually. Notwithstanding the foregoing, this paragraph (d) shall not apply to any Executive if on the date of his Separation from Service, the stock of the Company and Controlled Group members is not publicly traded on an established securities market (within the meaning of the 409A Guidance).
(e) Actuarial Adjustment for Delay on Account of Election Under Section 3.4(2)(d)(i) . If an Executives election under Section 3.4(2)(d)(i) delays the commencement of benefits beyond the later of the Executives Separation from Service or the date on which the Executive attains age 62, then such benefit will be actuarially increased using the Actuarial Factors for lump sum calculations, as in effect on the date the benefit payments were originally scheduled to be paid or commenced to be paid, provided, however, in no event will the interest rate exceed seven and one-half percent (7½%).
Section 3.4 Form of Payment .
(1) Grandfathered SERP Benefit . The provisions of this Section 3.4(1) shall apply solely with respect to the portion of an Executives SERP Benefit that is a Grandfathered SERP Benefit.
(a) In General . An Executive who does not want his SERP Benefit to be paid in the form of the 15-year certain benefit described in Section 3.2 may elect to receive his SERP Benefit in any of the optional forms of benefit payment which are permitted under the Pension Plan. Any such optional form of benefit shall be the Actuarial Equivalent of the SERP Benefit payable to the Executive in the form specified in Section 3.2.
(b) Lump Sum Payment .
(i) Notwithstanding the provisions of Subsection (l)(a) of this Section, an Executive may elect to receive the SERP Benefit in the form of a single lump sum payment.
(ii) The lump sum payment described in paragraph (b)(i) of this Subsection shall be calculated by converting the Executives SERP Benefit (calculated in accordance
with the provisions of Section 3.2) at the time of the commencement of such Benefit into a lump sum amount of equivalent actuarial value when computed using the Actuarial Factors specified in Exhibit A for this purpose, and then applying the ten percent (10%) reduction, if applicable, provided for in Subsection (c) of this Section.
(iii) Notwithstanding any provision of the Plan to the contrary, in the event the equivalent actuarial value of the Executives SERP Benefit, when computed using the Actuarial Factors specified in Exhibit A for this purpose, does not exceed $25,000, such Benefit shall be paid in the form of a single lump sum payment.
(c) Form/Timing of Election . Any election of an optional form of benefit must be in writing (on a form provided by the Administrator) and filed with the Administrator prior to the Executives termination of employment with the Controlled Group because of involuntary termination, death or Disability or at least one (1) year prior to the Executives voluntary Retirement. Any such election may be changed at any time and from time to time without the consent of any existing Death Beneficiary or any other person (except as described in Section 2.2), by filing a later signed written election with the Administrator; provided that any election made less than one (1) year prior to the Executives voluntary Retirement shall not be valid, and in such case, payment shall be made in accordance with the latest valid election of the Executive. Notwithstanding the foregoing, an Executive shall be permitted to make an election to receive his SERP Benefit in the form of a lump sum payment within the one (1) year period prior to his voluntary termination if (and only if) the amount of the SERP Benefit payable to the Executive is reduced by ten percent (10%).
(2) Non-Grandfathered SERP Benefits . The provisions of this Section 3.4(2) shall apply solely with respect to the portion of an Executives SERP Benefit that is a Non-Grandfathered SERP Benefit.
(a) Normal Payment Form . Unless an Executive makes an election pursuant to Section 3.4(2)(b) or (e), the Executives Non-Grandfathered SERP Benefit will be paid to the Executive in the form of annual installment payments payable over a period often (10) years, the amount of which is Actuarially Equivalent to the SERP Benefit calculated under Section 3.2.
(b) Optional Forms of Benefit . In lieu of the normal form of payment, an Executive may make or change an election to receive his Non-Grandfathered SERP Benefit in one of the following Actuarially Equivalent optional forms of benefit:
(i) A single life annuity payable monthly to the Executive during the Executives life and ending on the date of the Executives death.
(ii) A reduced joint and survivor annuity payable monthly to the Executive during the Executives life, and after the Executives death, payable monthly to the Executives spouse who survives the Executive in the amount equal to 50%, 75% or 100% (as the Executive elects) of such reduced lifetime monthly amount.
(iii) A reduced life and period certain annuity payable monthly to the Executive during the Executives life, with payment thereof guaranteed to be made for a period of five (5) or ten (10) years, as elected by the Executive, and, in the event of the Executives death before the end of such 5- or 10- year period, payable in the same reduced amount for the remainder of such 5- or 10-year period, to the Death Beneficiary designated by the Executive.
(iv) Annual installment payments payable to the Executive over a period of five (5) or ten (10) years, as elected by the Executive.
(v) A single lump sum payment.
(c) Mandatory Lump Sum . Notwithstanding any provision of the Plan to the contrary, in the event that the present value of the Executives Non-Grandfathered SERP Benefit does not exceed $25,000 at the time of distribution, such Non-Grandfathered SERP Benefit shall be paid in the form of a single lump sum payment on the date of distribution determined under Section 3.3(2).
(d) Election of Optional Form of Payment . An election of an optional form of payment must be in writing (on a form provided by the Administrator) and must satisfy the following requirements:
(i) Except as provided in Section 3.4(2)(e), if an Executive wishes to elect an optional form of payment under Section 3.4(2)(b) above (other than the normal form of payment) or wishes to change his election made under Section 3.4(2)(e) (other than an election change described in Section 3.4(2)(d)(ii)), the election must be filed with the Administrator at least twelve (12) months before the Executives Separation from Service. The most recent election on file with the Administrator (that was filed at least twelve (12) months before the Executives Separation from Service and that remains on file with the Administrator as of the date of Separation from Service) shall be given effect and become irrevocable on the date of the Executives Separation from Service. No election filed less than twelve (12) months before the Executives Separation from Service shall have any force or effect, except as provided in Section 3.4(2)(d)(ii). The payment pursuant to an election made under this Section 3.4(2)(d)(i) shall be made or commence on the first day of the month coincident with or immediately following the fifth anniversary of the original commencement date specified in Section 3.3(2)(a) or (b) (as applicable).
(ii) An Executive who elected, pursuant to Section 3.4(2)(d)(i) or 3.4(2)(e), a life annuity form of payment (within the meaning of the 409A Guidance) described in Section 3.4(2)(b)(i), (ii) or (iii), may, at any time before the date of Separation from Service, change that annuity form of payment to an Actuarially Equivalent life annuity form of payment, provided the commencement date for such annuity, as specified in, respectively, Section 3.4(2)(d)(i) or Section 3.4(2)(e), remains unchanged.
(e) Transition Elections . Notwithstanding any provision of the Plan, any Executive who is an active employee of the Company or a member of the Controlled Group during the election period designated by the Administrator, ending no later than December 31, 2008, may make an election to receive his Non-Grandfathered SERP Benefit in one of the optional forms specified in Section 3.4(2)(b), commencing on the date specified in Section 3.3(2)(a) or(b) (as applicable); provided, however, that such election shall not apply if the Executive Separates from Service on or before December 31, 2008 and is subject to the provision of Section 3.3(2)(c). The transition election must be made in writing, on a form provided by the Administrator and filed with the Administrator within the designated transition election period. The transition election made pursuant to this paragraph (e) may not cause any amount to be paid in 2008 if not otherwise payable and may not delay payment of any amount that is otherwise payable in 2008.
(f) Coordination of Payment Elections with Mirror Pension Plan . If an Executive is also a participant in the Mirror Pension Plan, the Executives Non-Grandfathered Mirror Pension Benefit and the Non-Grandfathered SERP Benefit will be paid in the same form and at the same time. If an Executive makes an election of an optional payment form pursuant to Section 3.4(2)(b) of the Plan or Section 3.3(2)(b) of the Mirror Pension Plan, the most recent election filed with the Administrator under either this Plan or the Mirror Pension Plan at least twelve (12) months before the Separation from Service (or, if applicable, at a date specified in paragraph (d)(ii) of this Subsection) that remains on file with the Administrator on the date of Separation from Service will govern the form and time of payment under the Plan. In the event of conflicting election forms filed simultaneously under this Plan and the Mirror Pension Plan, the election filed under this Plan shall govern.
Section 3.5 Death After Commencement of Non-Grandfathered SERP Benefits . If an Executive dies after commencing payment of his Non-Grandfathered SERP Benefit under the Plan but before his entire Non-Grandfathered SERP Benefit is distributed, payments to the Executives Death Beneficiary (if any) will be made (a) in accordance with the elected optional form of payment described in Section 3.4(2)(b)(ii) or (iii) (if elected), or (b) ninety (90) days after the Executives death in the form of a single lump sum, calculated using the Actuarial Factors in effect on the date of distribution, if the Executive elected one of the optional forms of payment described in Section 3.4(b)(iv).
Section 3.6 Adjustment to Annual Installment Payments Commencing Prior to January 1, 2011 . If payment of an Executives Non-Grandfathered SERP Benefit commenced after January 1, 2005 but prior to January 1, 2011 in the form of annual installment payments over a period of five (5) or ten (10) years, then
(1) The Executives annual installment payments will be recalculated as of the original payment commencement date using the Plans Actuarial Factors for lump sum calculations and any increase in the amount of each such installment will be paid as follows:
(a) The increase in the annual installments that were payable prior to January 1, 2011 will be paid in a single lump sum amount during the calendar quarter beginning January 1, 2011 and ending March 31, 2011; and
(b) Each annual installment due on or after January 1, 2011 will be adjusted to include the increase resulting from the recalculation.
ARTICLE IV
SERP PRE-RETIREMENT BENEFITS
Section 4.1 Eligibility . The Death Beneficiary of an Executive who dies after becoming vested in his SERP Benefits (including the Death Beneficiary of an Executive who dies while he is Disabled) but prior to commencing to receive SERP Benefits hereunder shall be entitled to receive the SERP Pre-Retirement Benefits described in Section 4.2 in lieu of any other benefits described in the Plan.
Section 4.2 Amount, Form and Timing of SERP Pre-Retirement Benefits .
(1) Grandfathered SERP Benefit . A Death Beneficiary who is eligible for a SERP Pre-Retirement Benefit hereunder shall receive the portion of such SERP Pre-Retirement Benefit that is based on the Executives Grandfathered SERP Benefit in accordance with this Subsection (1). The SERP Pre-Retirement Benefit that is based on the Executives Grandfathered SERP Benefit shall be calculated in accordance with, and payable at the same time and (except as provided in Section 3.4(l)(b)) in the same
manner as, the pre-retirement death benefits and (if applicable) the optional death benefits described in the Pension Plan, as determined by the Administrator. Notwithstanding the foregoing, the Death Beneficiary of a Cash Balance Participant who is eligible for a SERP Pre-Retirement Benefit, shall receive such Benefit in the form of a lump sum payment.
(2) Non-Grandfathered SERP Benefit . A Death Beneficiary who is eligible for a SERP Pre-Retirement Benefit hereunder shall receive the portion of such SERP Pre-Retirement Benefit that is based on the Executives vested Non-Grandfathered SERP Benefit as follows.
(a) If an Executive (i) is not married on the date of his death, (ii) has been married for less than one year prior to his death and designates a Death Beneficiary other than his spouse, or (iii) has been married for at least one year prior to his death and the Executives spouse consents to the Executives designation of a Death Beneficiary other than the spouse, the Executives Death Beneficiary shall receive his benefit in an amount Actuarially Equivalent to the survivor benefit determined as if the Executive had Separated from Service on the earlier of the date of his actual Separation from Service or the date of his death, elected to receive his Non-Grandfathered SERP Benefit in the form of a monthly life annuity with (A) a five (5) year certain survivor benefit if the Executive had Separated from Service before attaining age 55, or (B) a ten (10) year certain survivor benefit, if the Executive had attained age 55 while an Employee, had survived to age 55 and had died immediately following his payment commencement date. The Non-Grandfathered SERP Pre-Retirement Benefit shall be paid in the form of an Actuarially Equivalent single lump sum payment on the first day of the third month after the later of the date on which the Executive would have attained age 55 or the date of the Executives death.
(b) If an Executive who dies after becoming vested in his SERP Benefit is married on the date of his death and paragraph (a) does not apply to him, then the Executives surviving spouse shall receive the SERP Pre-Retirement Benefit as follows:
(i) If the Executive had Separated from Service before attaining age 55, the Executives spouse shall receive a reduced annuity payable monthly to the Executives spouse during his life, commencing on the first day of the third month following the later of the date on which the Executive would have attained age 55 or the date of the Executives death and ending on the date of the Executives spouses death, calculated as if the Executive had Separated from Service on the earlier of the date of the Executives death or actual Separation from Service, elected a joint and 50% survivor annuity form of payment described in Section 3.4(2)(b)(ii), survived to age 55 and died on the date following the payment commencement date.
(ii) If the Executive had attained age 55 while an Employee, the Executives spouse shall receive a reduced annuity payable monthly to the Executives spouse during his life, commencing on the first day of the of the third month after the date of the Executives death, calculated as if the Executive had died immediately after commencing payments in the form of an immediate joint and 100% survivor annuity form of payment described in Section 3.4(2)(b)(ii).
(c) Notwithstanding the foregoing, (i) if the SERP Pre-Retirement Benefit under this Subsection (2) is payable to a Cash-Balance Participant, such benefit will be distributed to the Executives Death Beneficiary in the form of an Actuarially Equivalent single lump sum 90 days after the Executives death, and (ii) if the present value of the SERP Pre-Retirement Benefit under this Subsection (2) payable to any Executive not described in (i) does not exceed $25,000, such benefit will be distributed to the Executives Death Beneficiary in the form of an Actuarially
Equivalent single lump sum on the first day of the third month following the later of the date on which the Executive would have attained age 55 of the date of the Executives death.
ARTICLE V
VESTING
Section 5.1 Vesting .
(1) In General . Except as provided in Subsections (2) and (3) of this Section, an Executive shall become vested in the SERP Benefits upon (a) his attainment of age 65 while in the employ of the Controlled Group, (b) his attainment of age 55 while in the employ of the Controlled Group and his completion of 10 Years of Eligibility Service, or (c) his attainment of age 55 during the first twelve-month period of his Disability and his completion of 10 Years of Eligibility Service.
(2) Forfeiture Provision .
(a) Notwithstanding the provisions of Subsection (1) hereof, but subject to the requirements of paragraph (b) of this Subsection, the Employers shall be relieved of any obligation to pay or provide any future SERP Benefits or SERP Pre-Retirement Benefits under this Plan and shall be entitled to recover amounts already distributed if, without the written consent of the Company, the Executive, whether before or after termination with the Controlled Group (i) participates in dishonesty, fraud, misrepresentation, embezzlement or deliberate injury or attempted injury, in each case related to the Company or a Controlled Group member, (ii) commits any unlawful or criminal activity of a serious nature, (iii) commits any intentional and deliberate breach of a duty or duties that, individually or in the aggregate, are material in relation to the Executives overall duties or (iv) materially breaches any confidentiality or noncompete agreement entered into with the Company or a Controlled Group member. The Employers shall have the burden of proving that one of the foregoing events have occurred.
(b) Notwithstanding the foregoing, an Executive shall not forfeit any portion of his SERP Benefits or SERP Pre-Retirement Benefits under paragraph (a) of this Subsection unless (i) the Executive receives reasonable notice in writing setting forth the grounds for the forfeiture, (ii) if requested by the Executive, the Executive (and/or the Executives counsel or other representative) is granted a hearing before the full Board of Directors of the Company (the Board) and (iii) a majority of the members of the full Board determine that the Executive violated one or more of the provisions of paragraph (a) of this Subsection.
(3) Acceleration of Vesting . Notwithstanding the provisions of Subsection (1) hereof, the SERP Benefits of the Executives (a) who are employed by the Controlled Group on the date of a Change in Control or (b) whose employment with the Company was terminated prior to a Change in Control but the Executive reasonably demonstrates that the termination occurred at the request of a third party who has taken steps reasonably calculated to effect the Change in Control, shall become immediately one hundred percent (100%) vested upon the occurrence of such Change in Control.
(4) Vesting Service After December 31, 2020 . Notwithstanding Section 3.2(4) concerning the freeze of benefit accruals after December 31, 2020, an Executive is eligible to accrue Years of Eligibility Service and attain age 55 while in the employ of the Controlled Group for continued employment after December 31, 2020.
ARTICLE VI
MISCELLANEOUS
Section 6.1 Effect of Amendment and Termination . Notwithstanding any provision of the Plan (including the Administrative Document) to the contrary, no amendment or termination of the Plan shall, without the consent of the Executive (or, in the case of his death, his Death Beneficiary), adversely affect the vested SERP Benefit or vested SERP Pre-Retirement Benefit under the Plan of any Executive or Death Beneficiary as such Benefit exists on the date of such amendment or termination; provided, however, that this limitation shall not apply to the extent deemed necessary by the Company to comply with the requirements of the 409A Guidance.
Section 6.2 Protective Provisions . Notwithstanding any provision of the Plan to the contrary, if an Executive commits suicide during the two-year period beginning on the date of his commencement of participation in the Plan or makes any material misstatement or nondisclosure of medical history, then, in the Administrators sole and absolute discretion, no SERP Benefits or SERP Pre-Retirement Benefits shall be payable hereunder or such Benefits may be paid in a reduced amount (as determined by the Administrator).
Section 6.3 Limitation on Payments and Benefits . Notwithstanding any provision of this Plan to the contrary, if any amount or benefit to be paid or provided under this Plan or any other plan or agreement between the Executive and a Controlled Group member would be an Excess Parachute Payment, within the meaning of Code Section 280G, or any successor provision thereto, but for the application of this sentence, then the payments and benefits to be paid or provided under this Plan shall be reduced to the minimum extent necessary (but in no event to less than zero) so that no portion of any such payment or benefit, as so reduced, constitutes an Excess Parachute Payment; provided, however, that the foregoing reduction shall be made only if and to the extent that such reduction would result in an increase in the aggregate payment and benefits to be provided to the Executive, determined on an after-tax basis (taking into account the excise tax imposed pursuant to Code Section 4999, or any successor provision thereto, any tax imposed by any comparable provision of state law, and any applicable federal, state and local income taxes). If requested by the Executive or the Company, the determination of whether any reduction in such payments or benefits to be provided under this Plan or otherwise is required pursuant to the preceding sentence shall be made by the Companys independent accountants, at the expense of the Company, and the determination of the Companys independent accountants shall be final and binding on all persons. The fact that the Executives right to payments or benefits may be reduced by reason of the limitations contained in this Section 6.3 shall not of itself limit or otherwise affect any other rights of the Executive pursuant to this Plan. The Executives benefit will be reduced only to the extent that the reduction in any cash payments due to the Executive is insufficient to reduce or eliminate Excess Parachute Payment as described in this Section. The Executives Non-Grandfathered SERP Benefit (if any) shall be reduced if required by this section before any Grandfathered SERP Benefit is reduced.
Section 6.4 Establishment of Trust Fund .
(1) In General . The Plan is intended to be an unfunded, non-qualified retirement plan. However, the Company may enter into a trust agreement with a trustee to establish a trust fund (the Trust Fund) and to transfer assets thereto (or cause assets to be transferred thereto), subject to the claims of the creditors of the Employers, pursuant to which some or all of the SERP Benefits and SERP Pre-Retirement Benefits shall be paid. Payments from the Trust Fund shall discharge the Employers obligation to make payments under the Plan to the extent that Trust Fund assets are used to satisfy such obligations.
(2) Upon a Change in Control .
(a) Within thirty (30) business days of the occurrence of a Change in Control, to the extent it has not already done so, the Company shall be required to establish an irrevocable Trust Fund for the purpose of paying SERP Benefits and SERP Pre-Retirement Benefits. Except as described in the following sentence, all contributions to the Trust Fund shall be irrevocable and the Company shall not have the right to direct the trustee to return to the Employers, or divert to others, any of the assets of the Trust Fund until after satisfaction of all liabilities to all of the Executives and their Death Beneficiaries under the Plan. Any assets deposited in the Trust Fund shall be subject to the claims of the creditors of the Employers and any excess assets remaining in the Trust Fund after satisfaction of all liabilities shall revert to the Company.
(b) In addition to the requirements described in paragraph (a) above, the Trust Fund which becomes effective on the Change in Control shall be subject to the following additional requirements:
(i) the trustee of the Trust Fund shall be a third party corporate or institutional trustee;
(ii) the Trust Fund shall satisfy the requirements of a grantor trust under the Code; and
(iii) the Trust Fund shall automatically terminate (A) in the event that it is determined by a final decision of the United States Department of Labor (or, if an appeal is taken therefrom, by a court of competent jurisdiction) that by reason of the creation of, and a transfer of assets to, the Trust, the Trust is considered funded for purposes of Title I of ERISA or (B) in the event that it is determined by a final decision of the Internal Revenue Service (or, if an appeal is taken therefrom, by a court of competent jurisdiction) that (I) a transfer of assets to the Trust is considered a transfer of property for purposes of Code Section 83 or any successor provision thereto, or (II) pursuant to Code Section 451 or 409A or any successor provision thereto, amounts are includable as compensation in the gross income of a Trust Fund beneficiary in a taxable year that is prior to the taxable year or years in which such amounts would otherwise be actually distributed or made available to such beneficiary by the trustee. Upon such a termination of the Trust, all of the assets in the Trust Fund attributable to the accrued SERP Benefits and SERP Pre-Retirement Benefits shall be immediately distributed to the Executives and the remaining assets, if any, shall revert to the Company; provided, however, that distributions to the Executives will be made only to the extent and in the manner permitted by the 409A Guidance.
(c) Within five (5) days following establishment of the Trust Fund, the Company shall transfer (or cause the Employers to transfer) to the trustee of such Trust Fund an amount equal to the equivalent actuarial present value of the SERP Benefits and SERP Pre-Retirement Benefits which have been accrued as of the date of the Change in Control on behalf of all of the Executives under the Plan (using the Actuarial Factors specified in Exhibit A for this purpose).
(d) In January of each year following a funding of the Trust Fund pursuant to paragraph (c) above, the Company shall cause to be deposited in the Trust Fund such additional amount (if any) by which the aggregate equivalent actuarial present value (determined using the Actuarial Factors specified in Exhibit A) of the sum of the SERP Benefits and SERP Pre-
Retirement Benefits for all Executives under the Plan as of December 31 of the preceding year exceeds the fair market value of the assets of the Trust Fund as of such date.
(e) Notwithstanding the foregoing, an Employer shall not be required to make any contributions to the Trust Fund if the Employer is insolvent at the time such contribution is required.
(f) The Administrator shall notify the trustee of the amount of SERP Pension Benefits and SERP Pre-Retirement Benefits to be paid to or on behalf of the Executive from the Trust Fund and shall assist the trustee in making distribution thereof in accordance with the terms of the Plan.
(g) Notwithstanding any provision of the Plan or the Administrative Document to the contrary, the provisions of this Section 6.4(2) hereof (i) may not be amended following a Change in Control and (ii) prior to a Change in Control may only be amended (A) with the written consent of each of the Executives or (B) if the effective date of such Amendment is at least two (2) years following the date the Executives were given written notice of the adoption of such amendment; provided, however, that this limitation shall not apply to any amendment that is deemed necessary or reasonable (as determined in the sole discretion of the Committee) to comply with the requirements of the 409A Guidance.
Section 6.5 Delay of Payments Subject to Code Section 162(m) . The Company may delay the distribution of any amount otherwise required to be distributed under the Plan if, and to the extent that, the Company reasonably anticipates that the Companys deduction with respect to such distribution otherwise would be limited or eliminated by application of Code Section 162(m). In such event, (1) if any payment is delayed during any year on account of Code Section 162(m), then all payments that could be delayed on account of Code Section 162(m) during such year must also be delayed; (2) such delayed payments must be paid either (i) in the first year in which the Company reasonably anticipates the payment to be deductible, or (ii) the period beginning on the date of the Executives Separation from Service and ending on the later of the end of the Executives year of separation or the fifteenth (15th) day of the third month after such separation; and (3) if payment is delayed to the date of Separation from Service with respect to an Executive who is a Specified Employee, such payment shall commence after such Executives Separation from Service on the date immediately following the six-month anniversary of the Separation from Service, or if earlier, on the date of the Executives death.
IN WITNESS WHEREOF, Ecolab Inc. has executed this Supplemental Executive Retirement Plan and has caused its corporate seal to be affixed this 21 st day of December, 2011.
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ECOLAB INC. |
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By: |
/s/Steven L. Fritze |
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Steven L. Fritze |
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Chief Financial Officer |
(Seal)
Attest: |
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By: |
/s/James J. Seifert |
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James J. Seifert |
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General Counsel and Secretary |
EXHIBIT A
ACTUARIAL ASSUMPTIONS
FOR SERP BENEFITS AND
SERP PRE-RETIREMENT BENEFITS
1. Interest Rate: |
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A. For Lump Sum |
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The interest rate will be 125% of the 10-year Treasury rate for the month of October preceding the Plan Year (i.e., January 1) (1) in which the retirement or other termination of employment is effective if the SERP Benefit is to commence immediately following such retirement or termination of employment or (2) in which the distribution becomes payable if the payment is to be deferred. |
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B. Annual Installments |
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Same as for lump sum. |
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C. General Actuarial Equivalence |
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7.5% except as provided in item 4 below. |
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2. Mortality General Actuarial Equivalence |
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1971 Group Annuity Table. |
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3. Annuity Values Weighted - General Actuarial Equivalence |
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75% male, 25% female. |
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4. Early Commencement: |
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If payment is in the form of a single lump sum, the lump sum amount shall be based on the lump sum interest rate defined in item 1 above, and the early retirement benefit immediate annuity amount as determined under Section 3.3(l)(b) or 3.3(2)(a). |
EXHIBIT B
PRIMARY SOCIAL SECURITY BENEFITS
(A) For purposes of the Plan, an Executives monthly primary social security benefit is the estimated social security benefit amount, under the Old Age and Survivors Insurance Benefit Act of the United States in effect on the first day of the calendar year during which the Executive terminates employment, which the Executive is receiving, or would be entitled to receive, commencing at his attainment of age 65, whether or not he applies for, or actually receives, such benefits.
(B) The amounts determined under section (A) hereof shall be based upon the following assumptions:
(1) except as otherwise provided in Subsection (5) hereof, the Executive is assumed to have participated in social security starting at the later of age 22 or January 1, 1951;
(2) except as otherwise provided in Subsection (5) hereof, the Executives compensation on which his social security benefit is based shall be assumed to be that resulting from applying a decrease for years prior to the mid-year of the years on which the Executives Final Average Compensation is based, and an increase for years following such mid-year, at the same rates as the national average total wages for adjusting earnings as used in computing social security benefits, as published by the Social Security Administration for each such year, with the rate for the last published year being used for any years subsequent to such last published year;
(3) except as otherwise provided in Subsection (5) hereof, the taxable wage base, the factors for indexing wages, and the table or formula used to determine the estimated monthly primary social security benefit amount will be assumed to remain constant following the Executives termination of employment;
(4) except as otherwise provided in Subsection (5) hereof, for an Executive whose employment terminates prior to his attainment of age 65, it shall be assumed that he earned no compensation from the date of termination of his employment to his attainment of age 65;
(5) for an Executive whose benefit is based, in whole or part, upon the continuing accrual of Years of Benefit Service during the period of his Disability, it shall be assumed that, during the period for which he accrues Years of Benefit Service under those sections, he continued to earn Annual Compensation at the same rate as during the Plan Year in which he became Disabled; provided, however, that, in the event the Executive is receiving, or is entitled to receive, a primary social security disability benefit, the amount of such benefit shall be deemed to be his primary social security benefit for purposes of the Plan, in lieu of the amount otherwise determined under this Exhibit B;
(C) an Executive who, for any reason, is not a participant in the United States social security benefit program shall be deemed to participate fully in such program for purposes of determining the Executives primary social security benefit.
(D) An Executives primary social security benefit may be determined by reference to a schedule based upon pay brackets, provided such schedule is prepared in accordance with the foregoing provisions of this Exhibit B.
EXHIBIT C
SAVINGS PLAN BENEFIT
The Savings Plan Benefit shall be one-twelfth (l/12th) of the annual benefit, determined by the Administrator, that would be provided by Employer Contributions to the Ecolab Savings Plan (formerly the EL Thrift Plan) (hereafter the Savings Plan) made on or prior to July 1, 1994, if the Executives benefit under the Savings Plan as of July 3, 1994 were paid commencing at the Executives attainment of age 65 on a straight life annuity basis (based on an interest rate of 4.25% and the 1984 Unisex Pension Mortality Table shifted forward one year) and assuming (1) that the Employers contributed to the Savings Plan on the Executives behalf from (a) the later of January 1, 1977 or the date of the Executives first eligibility for participation in the Savings Plan until (b) the earlier of the Executives Retirement or July 1, 1994, an annual amount equal to three percent (3%) of the Executives actual Annual Compensation; provided, however, that the three percent (3%) shall be reduced by the amount, if any, which could not be contributed in each year by reason of the maximum contributions limitations of Code Section 415 and the maximum compensation limitations of Code Section 401(a)(17), and (2) that such Employer contributions to the Savings Plan on behalf of the Executive accumulated earnings at an annual rate of eight percent (8%) for all periods prior to January 1, 1991, and for each calendar year thereafter until the earlier of the Executives attainment of age 65 or December 31, 1993, at an interest rate established annually by the Administrator based on the PBGCs immediate annuity rate as of the December 31 of the immediately preceding year, and for the period from January 1, 1994 until the attainment of age 65, at an interest rate of 4.25% (the December 1993 PBGC immediate rate).
TABLE OF CONTENTS
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Page |
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ARTICLE I PREFACE |
1 |
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Section 1.1 |
Effective Date |
1 |
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Section 1.2 |
Purpose of the Plan |
2 |
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Section 1.3 |
Administrative Document |
2 |
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Section 1.4 |
American Jobs Creation Act of 2004 (AJCA) |
2 |
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ARTICLE II DEFINITIONS |
2 |
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Section 2.1 |
Actuarial Equivalent or Actuarially Equivalent. |
3 |
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Section 2.2 |
Actuarial Factors |
3 |
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Section 2.3 |
Cash Balance Participant |
3 |
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Section 2.4 |
Death Beneficiary. |
3 |
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Section 2.5 |
Disability or Disabled |
3 |
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Section 2.6 |
Executive |
3 |
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Section 2.7 |
Final Average Compensation |
3 |
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Section 2.8 |
Grandfathered SERP Benefit |
4 |
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Section 2.9 |
Mirror Pension Benefit |
4 |
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Section 2.10 |
Non-Grandfathered SERP Benefit |
4 |
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Section 2.11 |
Pension Benefit |
4 |
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Section 2.12 |
Plan |
4 |
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Section 2.13 |
Primary Insurance Amount |
4 |
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Section 2.14 |
Retirement or Retired. |
4 |
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Section 2.15 |
Savings Plan Benefit |
4 |
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Section 2.16 |
Separation from Service or to Separate from Service |
4 |
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Section 2.17 |
SERP Benefit |
5 |
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Section 2.18 |
SERP Pre-Retirement Benefit |
5 |
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Section 2.19 |
Specified Employee shall mean Specified Employee |
5 |
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Section 2.20 |
Year of Benefit Service. |
5 |
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Section 2.21 |
Year of Eligibility Service. |
5 |
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Section 2.22 |
Year of Past Service Credit |
5 |
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ARTICLE III SERP BENEFITS |
6 |
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Section 3.1 |
Participation |
6 |
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Section 3.2 |
Amount of SERP Benefits |
6 |
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Section 3.3 |
Time of Payment |
7 |
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Section 3.4 |
Form of Payment |
8 |
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Section 3.5 |
Death After Commencement of Non-Grandfathered SERP Benefits |
11 |
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Section 3.6 |
Adjustment to Annual Installment Payments Commencing Prior to January 1, 2011 |
11 |
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ARTICLE IV SERP PRE-RETIREMENT BENEFITS |
11 |
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Section 4.1 |
Eligibility |
11 |
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Section 4.2 |
Amount, Form and Timing of SERP Pre-Retirement Benefits |
11 |
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ARTICLE V VESTING |
13 |
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Section 5.1 |
Vesting |
13 |
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ARTICLE VI MISCELLANEOUS |
14 |
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Section 6.1 |
Effect of Amendment and Termination |
14 |
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Section 6.2 |
Protective Provisions |
14 |
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Section 6.3 |
Limitation on Payments and Benefits |
14 |
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Section 6.4 |
Establishment of Trust Fund |
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Section 6.5 |
Delay of Payments Subject to Code Section 162(m) |
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EXHIBIT (10.14)
ECOLAB MIRROR SAVINGS PLAN
(As Amended and Restated Effective January 1, 2012)
ECOLAB MIRROR SAVINGS PLAN
(As Amended and Restated Effective as of January 1, 2012)
WHEREAS, the Company previously established the Ecolab Mirror Savings Plan (the Plan) to provide additional deferred compensation benefits for certain management and highly compensated employees who perform management and professional functions for the Company and certain related entities; and
WHEREAS, the American Jobs Creation Act of 2004, P.L. 108-357 (the AJCA) added a new Section 409A to the Code, which significantly changed the Federal tax law applicable to amounts deferred under the Plan after December 31, 2004; and
WHEREAS, the IRS and U.S. Treasury subsequently issued regulations and other guidance regarding the requirements of and compliance with Code Section 409A; and
WHEREAS, the Board of Directors of the Company directed and authorized appropriate officers of the Company to amend the Plan to comply, with respect to the Executives Post-2004 Sub-Accounts, with the requirements of Code Section 409 and guidance issued thereunder; and
WHEREAS, the Company desires to bifurcate the Plan into an excess plan (referred to in the Plan as Primary Deferrals) and a deferred savings plan (referred to in the Plan as Secondary Deferrals), with the former constituting an excess plan for purposes of Minnesota state income tax; and
WHEREAS, on December 19, 2008 the Plan was amended and restated in its entirety, effective as of January 1, 2005; and
WHEREAS, the Company wishes to clarify ambiguous language in the Plan document.
NOW, THEREFORE, pursuant to Section 5.1 of the Ecolab Inc. Administrative Document for Non-Qualified Benefit Plans, Ecolab Inc. (the Company) hereby amends and restates the Plan in its entirety to read as follows:
ARTICLE I
PREFACE
SECTION 1.1 Effective Date . The effective date of this amendment and restatement of the Plan is January 1, 2012, except as otherwise provided in this amendment and restatement. The benefit, if any, payable with respect to a former Executive who terminated employment prior to the Effective Date (and who is not rehired by a member of the Controlled Group thereafter) shall be determined by, and paid in accordance with, the terms and provisions of the Plan as in effect prior to the Effective Date, subject to Section 1.4.
SECTION 1.2 Purpose of the Plan . The purpose of this Plan is to provide additional deferred compensation benefits for certain management and highly compensated employees who perform management and professional functions for the Company and certain related entities.
SECTION 1.3 Administrative Document . This Plan includes the Ecolab Inc. Administrative Document for Non-Qualified Benefit Plans (the Administrative Document), which is incorporated herein by reference.
SECTION 1.4 American Jobs Creation Act (AJCA) .
(1) It is intended that the Plan (including all Amendments thereto) comply with the provisions of Section 409A of the Code, as enacted by the AJCA, to prevent the inclusion in gross income of any amount credited to an Executives Account hereunder in a taxable year that is prior to the taxable year or years in which such amounts would otherwise be actually distributed or made available to the Executive. It is intended that the Plan shall be administered in a manner that will comply with Section 409A of the Code, including proposed, temporary or final regulations or any other guidance issued by the Secretary of the Treasury and the Internal Revenue Service with respect thereto (collectively with the AJCA, the 409A Guidance). All Plan provisions shall be interpreted in a manner consistent with the 409A Guidance.
(2) The Administrator shall not take any action hereunder that would violate any provision of the 409A Guidance. It is intended that all Executives elections hereunder will comply with the 409A Guidance. The Administrator is authorized to adopt rules or regulations deemed necessary or appropriate in connection therewith to anticipate and/or comply with the requirements thereof (including any transition or grandfather rules thereunder). In this regard, the Administrator is authorized to permit Executive elections with respect to amounts deferred after December 31, 2004 and is also permitted to give the Executives the right to amend or revoke such elections in accordance with the 409A Guidance. Notwithstanding the foregoing, neither the Company nor the Administrator guarantee any tax consequences of any Participants participation in, deferrals or contributions under, or payments from, the Plan, and each Participant shall be solely responsible for payment of any tax obligations of such Participant incurred in connection with participation in the Plan.
(3) In furtherance of, but without limiting the foregoing, any Executive Deferrals and Matching Contributions (and the earnings thereon) that are deemed to have been deferred prior to January 1, 2005 and that qualify for grandfathered status under Section 409A of the Code shall continue to be governed by the law applicable to nonqualified deferred compensation prior to the addition of Section 409A to the Code and shall be subject to the terms and conditions specified in the Plan as in effect prior to January 1, 2005. In particular, to the extent permitted under the 409A Guidance, the Bonus Deferrals relating to a Bonus that is earned during 2004, but paid in 2005, shall be allocated to the Executives Pre-2005 Sub-Account hereunder.
SECTION 1.5 Excess Plan . Effective January 1, 2009, (a) all Account balances under the Plan that are attributable to Executive and Company contributions to the Plan made with respect to Plan Years beginning on and after January 1, 2009 (as adjusted for earnings, losses, expenses and distributions) that were not permitted under the Savings Plan due to contribution limitations imposed on qualified plans by the Internal Revenue Code, specifically including Code Sections 401(a)(17), 401(k), 401(m), 402(g) and 415, shall be accounted for separately and shall be, for purposes of any applicable federal and state tax law, an excess plan (the Primary Deferrals); and (b) all Account balances other than the Primary Deferrals Account balances shall be accounted for separately and shall be a deferred savings plan (the Secondary Deferrals).
ARTICLE II
DEFINITIONS
Words and phrases when used herein with initial capital letters which are defined in the Savings Plan or the Administrative Document are used herein as so defined, unless otherwise
specifically defined herein or the context clearly indicates otherwise. The following words and phrases when used in this Plan with initial capital letters shall have the following respective meanings, unless the context clearly indicates otherwise:
SECTION 2.1 Account shall mean the record maintained in accordance with Section 3.4 by the Company for each Executives Mirror Savings Benefit. The Executives Account shall be further divided into the following two Sub-Accounts: (a) the Pre-2005 Sub-Account for amounts that are deferred (as such term is defined in the 409A Guidance) as of December 31, 2004 ( and earnings thereon), which includes the Minimum Benefit, and (b) the Post-2004 Sub-Account for amounts that are deferred after December 31, 2004 (and earnings thereon). Effective as of January 1, 2009, each Executives Pre-2005 Sub-Account shall be part of the Secondary Deferrals. Effective as of January 1, 2009, the Administrator shall establish, under the Executives Post-2004 Sub-Account, (i) the Primary Deferrals Sub-Account consisting of (A) the Executives Deferrals with respect to Base Salary and Bonus earned in Plan Years beginning on and after January 1, 2009 (and earnings thereon) that the Executive was precluded from deferring under the Savings Plan due to contribution limitations imposed on qualified plans by the Code, and (B) Matching Contributions made on the Executives behalf with respect to Plan Years beginning on or after January 1, 2009 (and earnings thereon), and (ii) the Secondary Deferrals Sub-Account consisting of the Executives Post-2004 Sub-Account balances other than the Primary Deferrals Sub-Account balances.
SECTION 2.2 Base Salary shall mean an Executives base salary for the Plan Year (including, for this purpose, any salary reductions caused as a result of participation (1) in an Employer-sponsored plan which is governed by Sections 401(k), 132(f)(4) or 125 of the Code or (2) in this Plan).
SECTION 2.3 Bonus . An Executives Bonus for a Plan Year is equal to the sum of (1) the annual cash incentive bonus under the Companys Management Incentive Plan and/or, if applicable, the Companys Management Performance Incentive Plan, and (2) any similar annual cash incentive bonus under any other equivalent Employer-sponsored bonus program (as determined by the Administrator), which, in either case, is earned with respect to services performed by the Executive during such Plan Year, whether or not such Bonus is actually paid to the Executive during such Plan Year. An election to defer a Bonus under this Plan must be made before the period in which the service is performed which gives rise to such Bonus.
SECTION 2.4 Death Beneficiary .
(1) The term Death Beneficiary shall mean the person or persons designated by the Executive to receive Mirror Savings Benefits hereunder in the event of his death. The designation of a Death Beneficiary under the Plan may be made, and may be revoked or changed only by an instrument (in form prescribed by Administrator) signed by the Executive and delivered to the Administrator during the Executives lifetime. If the Executive is married on the date of his death and has been married to such spouse throughout the one-year period ending on the date of death, his designation of a Death Beneficiary other than, or in addition to, his spouse under the Plan shall not be effective unless such spouse has consented in writing to such designation.
(2) Any Mirror Savings Benefits remaining to be paid after the death of a Death Beneficiary shall be paid to the Death Beneficiarys estate, except as otherwise provided in the Executives Death Beneficiary designation.
SECTION 2.5 Disability or Disabled . With respect to an Executives Pre-2005 Sub-Account, an Executive shall be deemed to have a Disability or be Disabled if the Executives employment with an Employer terminates due to a disability that entitles the Executive to benefits under (1) any long-term disability plan sponsored by the Company, or (2) in the event that the Executive is not a participant in any such plan, the Social Security Act of the United States.
SECTION 2.6 Executive shall mean an Employee (1) whose annualized Annual Compensation (excluding severance pay) and target bonus for any Plan Year exceeds the limitation described in Code Section 401(a)(17), and (2) who is selected by the Administrator to participate in the Plan. Once an Employee has satisfied the requirements of an Executive and commenced participation in the Plan, his participation may continue, notwithstanding the fact that his Annual Compensation is reduced below the limitation described in Code Section 401(a)(17), until the Administrator determines, in his or her sole discretion, that the Employee would fail to satisfy the requirements of a management or highly compensated employee under ERISA.
SECTION 2.7 Executive Deferrals shall mean the amounts described in Section 3.1.
SECTION 2.8 Hypothetical Investment Fund shall mean the investment funds designated by the Company pursuant to Section 6.1.
SECTION 2.9 Insolvent . For purposes of this Plan, an Employer shall be considered Insolvent at such time as it (1) is unable to pay its debts as they mature, or (2) is subject to a pending voluntary or involuntary proceeding as a debtor under the United States Bankruptcy Code.
SECTION 2.10 Matching Contributions shall mean the amounts described in Section 3.3.
SECTION 2.11 Minimum Benefit shall mean the sum of the portions of the Executives Account attributable to amounts credited under a prior plan ( the Prior Plan), including (1) his or her Account balance as of September 1, 1994, and (2) any deferral of his Bonus payable with respect to calendar 1994 and the Matching Contribution thereon.
SECTION 2.12 Mirror Savings Benefit . An Executives Mirror Savings Benefit at any particular time shall be equal to the vested amounts credited to his Account at such time, as determined under Articles III and V.
SECTION 2.13 Plan shall mean the Ecolab Mirror Savings Plan, as described herein and as it may be amended from time to time.
SECTION 2.14 Savings Plan shall mean the Ecolab Savings Plan and ESOP, as such plan may be amended from time to time.
SECTION 2.15 Separation from Service or to Separate from Service shall mean any termination of employment with the Controlled Group due to retirement, death, disability or other reason; provided, however, that no Separation from Service is deemed to occur while the Executive (1) is on military leave, sick leave, or other bona fide leave of absence that does not exceed six (6) months (or, in the case of disability, twelve (12) months), or if longer, the period during which the Executives right to reemployment with the Controlled Group is provided either by statute or by contract, or (2) continues to perform services for the Controlled Group at an annual rate of fifty percent (50%) or more of the average level of services performed over the immediately preceding 36-month period (or the full period in which the Executive provided services (whether as an employee or as an independent contractor) if the Executive has been providing services for less than 36 months). For purposes of this Section, disability shall mean any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than six months, where such impairment causes the Executive to be unable to perform the duties of his or her position of employment or any substantially similar position of employment. Whether an Executive has incurred a Separation from Service shall be determined in accordance with the 409A Guidance.
SECTION 2.16 Specified Employee shall mean Specified Employee as defined in the Administrative Document.
SECTION 2.17 Unforeseeable Emergency . With respect to an Executives Post-2004 Sub-Account, Unforeseeable Emergency shall mean an event which results in a severe financial hardship to the Executive as a consequence of (1) an illness or accident of the Executive, the Executives spouse, Death Beneficiary or a dependent (as defined in Section 152(a) of the Code, without regard to Section 152(b)(1), (b)(2), and (d)(1)(B)), (2) loss of the Executives property due to casualty (including the need to rebuild a home following damage to a home not otherwise covered by insurance, for example, not as a result of a natural disaster) or (3) other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Executive. With respect to an Executives Pre-2005 Sub-Account, Unforeseeable Emergency shall mean an event which results (or will result) in severe financial hardship to the Executive as a consequence of an unexpected illness or accident or loss of the Executives property due to casualty or other similar extraordinary or unforeseen circumstances out of the control of the Executive, determined in accordance with Treas. Reg. § 1.409A-2(i)(3).
ARTICLE III
MIRROR SAVINGS BENEFIT
SECTION 3.1 Amount of Executive Deferrals . Each Executive may, within 30 days after the Plan becomes effective as to him and, thereafter, prior to the first day of any subsequent Plan Year, by written notice to the Administrator on a form provided by the Administrator, direct his Employer:
(1) to reduce (in accordance with rules established by the Administrator) the Executives Base Salary for the balance of the Plan Year in which the Plan becomes effective as to him (but only with respect to Base Salary payable for periods of service commencing after the Executive so directs) or for any following Plan Year (a) by a specified dollar amount or percentage, and/or (b) by an amount determined by the Administrator that is equal to five percent of Executives Base Salary in excess of the limitation described in Code Section 401(a)(17) for the Plan Year (limited to a maximum Salary Deferral of 25% of the Executives Base Salary in the deferral period) (the Salary Deferrals), and
(2) to reduce (in accordance with rules established by the Administrator) the Executives Bonus which is earned with respect to services performed by the Executive for the balance of the Plan Year in which the Plan becomes effective as to him (but only with respect to Bonus payable for period of service commencing after the Executives direction becomes irrevocable) or for any following Plan Year (a) by a specified dollar amount or percentage, and/or (b) by an amount determined by the Administrator, that is equal to five percent of the portion of the Executives Bonus earned during the deferral period which, when added to the Executives Base Salary for the deferral period, is in excess of the limitation described in Code Section 401(a)(17) of the Plan Year (up to a maximum of 100% of the net amount of the Executives Bonus after payment of applicable FICA and related federal and state income tax withholdings) (the Bonus Deferrals), and
(3) to credit the amounts described in Subsections (1) and (2) of this Section (collectively, the Executive Deferrals) to the Account described in Section 3.4 at the times described therein.
SECTION 3.2 Effect and Duration of Direction Pursuant to Section 3.1 .
(1) Plan Year to Plan Year . Any direction by an Executive to make Executive Deferrals under Section 3.1 shall be effective with respect to the Base Salary and Bonus otherwise earned by the Executive with respect to the period to which the direction relates, and the Executive shall not be eligible to receive such Executive Deferrals. Instead, such Executive Deferrals shall be credited to the Executives Account as provided in Section 3.4. Any direction made in accordance with Section 3.1 shall remain in effect until changed or revoked, except that such direction shall become
irrevocable on the last day of the Plan Year immediately preceding the Plan Year with respect to which the Base Salary and Bonus subject to such direction are earned (or, with respect to the first period of eligibility, such direction shall be irrevocable on the last day of the 30-day election period with respect to Base Salary and Bonus earned during the same Plan Year after the election). An Executive may change or revoke a direction with respect to the deferral of Base Salary and Bonus earned in a subsequent Plan Year at any time prior to such direction becoming irrevocable. Notwithstanding the foregoing, all Executives shall be required to make a deferral election for the 2005 Plan Year by December 31, 2004, and prior elections shall not be given any further force or effect (except that the Executives Bonus Deferral election for the Bonus that is earned in the 2004 Plan Year shall continue in effect in accordance with its terms).
(2) Automatic Termination/Suspension of Deferral Election .
(a) An Executive Deferral direction pursuant to Section 3.1 shall automatically terminate on the date of the Executives Separation from Service and with respect to any compensation for services performed after such Executives Separation from Service or, to the extent permitted by the 409A Guidance, on the date the Plan is terminated.
(b) An Executives direction pursuant to Section 3.1 shall automatically be cancelled from the first day of the first payroll period in which the Executive receives a hardship distribution under the Savings Plan or a distribution due to an Unforeseeable Emergency under this Plan through the last day of the Plan Year containing the six-month anniversary date of such hardship distribution or a distribution due to an Unforeseeable Emergency but will automatically be reinstated thereafter (unless otherwise changed in accordance with Subsection (1) hereof).
SECTION 3.3 Matching Contributions .
(1) Matching Contributions With Respect to Salary Deferrals .
(a) The Employers shall credit the Account of an Executive with an amount (the Matching Contributions) equal to the sum of (1) 100% of the Salary Deferrals which do not exceed 3% of the Executives Base Salary and (2) 50% of the Salary Deferrals which exceed 3% of the Executives Base Salary but do not exceed 5% of the Executives Base Salary; provided, however, that such Matching Contributions shall be reduced by the maximum amount (as determined by the Administrator) of matching contributions that could be made to the Executives account under the Savings Plan for such Plan Year based on the Executives Base Salary for such Plan Year, assuming that the Executive has elected to contribute five percent of this Base Salary to the Savings Plan.
(b) The Employers shall also credit the Account of an Executive with an additional Matching Contribution in an amount determined by the Administrator, which amount is equal to the amount of matching contributions (plus earnings allocable thereto) which the Executive is required to forfeit under the Savings Plan due to the application of the before-tax nondiscrimination requirements of the Code (the True-Up Matching Contributions).
(2) Matching Contributions With Respect to Bonus Deferrals . The Employers shall credit the Account of an Executive with a Matching Contribution equal to 100% of the first 3% of the Executives Bonus and 50% of the next 2% of the Executives Bonus, provided, however, the amount of the Executives Bonus that shall be taken into account under this Section 3.3(2) shall not exceed the excess of the Executives Base Salary and Bonus in respect of the Plan Year in which the Bonus was earned (excluding severance) over the maximum compensation which could be
considered under the Savings Plan in such Plan Year under Section 401(a)(17) of the Code, and further provided that an Executives Bonus shall be taken into account under this Section 3.3(2) only to the extent the Executive has elected to defer payment of such Bonus under Section 3.1(2) for the Plan Year.
SECTION 3.4 Executives Accounts . Each Employer shall establish and maintain on its books an Account for each Executive which shall contain the following entries:
(1) Credits for the Executive Deferrals described in Section 3.1, which Executive Deferrals shall be credited to the Executives Account at the time such Executive Deferrals would otherwise have been paid to the Executive;
(2) Credits for the Matching Contributions described in Section 3.3(1)(a), which Matching Contributions shall be credited to the Executives Account at the same time as the underlying Salary Deferrals are credited thereto; but no earlier than when the Executive has received (or has been deemed to receive) the maximum Matching Contribution available under the Savings Plan (as determined by the Administrator);
(3) Credits for the True-Up Matching Contributions described in Section 3.3(1)(b) at the time designated by the Administrator following the end of the Plan Year when the nondiscrimination test results under the Savings Plan are known;
(4) Credits for the Matching Contributions described in Section 3.3(2), which Matching Contributions shall be credited to the Executives Account at the same time as the underlying Bonus Deferrals are credited thereto;
(5) Credits or charges (including income, expenses, gains and losses) equal to the amounts which would have been attributable to the Executive Deferrals and Matching Contributions if such amounts had been invested on a tax deferred basis in the Hypothetical Investment Fund(s) in which such amounts are deemed to have been invested under Section 6.1. The entries provided by this Subsection (5) shall continue to be made until the Executives entire vested Account has been distributed pursuant to Article IV;
(6) Debits for any distributions made from the Account pursuant to Article IV;
(7) The Employers shall make the above-described credits and debits to the Executives Pre-2005 Sub-Account or the Post-2004 Sub-Account, as applicable, in accordance with the 409A Guidance; and
(8) Effective as of January 1, 2009, separate debits and credits shall be made to the Primary Deferrals Sub-Account and the Secondary Deferrals Sub-Account of each Participant.
SECTION 3.5 Statement of Account . The Company shall deliver to each Executive a written statement of his Account not less frequently than annually as of the end of each Plan Year.
ARTICLE IV
PAYMENT OF MIRROR SAVINGS BENEFITS
SECTION 4.1 Time of Payment .
(1) Payment to Executives .
(a) An Executive shall be entitled to receive his Account upon the earlier of (i) with respect to the Executives Pre-2005 Sub-Account, the date on which his or her employment terminates due to Disability or (ii) the date of his or her termination of employment with the Controlled Group for any reason, including retirement (or, with respect to amounts that are allocated to an Executives Post-2004 Sub-Account, thirty (30) days after the date of his or her Separation from Service (or, in the case of the Executives election pursuant to Section 4.2(3)(b)(ii)(B), on the date specified in such Section); provided, however, that distribution made on account of Separation from Service shall be made, or commence to be made, with respect to a Specified Employee on the first day of the month coincident with or next following the date that is six months after the date of the Separation from Service of the Specified Employee (or, if earlier, the date of death), to the extent that Code Section 409A(a)(2)(B)(i) is applicable, except that where the Executive makes an election pursuant to Section 4.2(3)(b)(ii)(B), payment will be made on the date specified in such Section). In the case of installment payments, the first payment made to the Specified Employee following the 6-month delay shall be made on the first day of the seventh month following the Separation from Service and shall include any Mirror Savings Benefit payments that were not made as a result of the delay in payment pursuant to this paragraph (a).
(b) Notwithstanding the foregoing, the Company may at any time, upon written request of the Executive, cause to be paid to such Executive an amount equal to all or any part of the Executives vested Account, other than the portion of his or her Account attributable to Matching Contributions, if the Administrator determines, in its sole and absolute discretion based on such reasonable evidence as it may require, that such a payment or payments is necessary for the purpose of alleviating the consequences of an Unforeseeable Emergency. Payments made on account of an Unforeseeable Emergency shall be permitted only to the extent the amount does not exceed the amount reasonably necessary to satisfy the emergency need (plus, with respect to payments made from an Executives Post-2004 Sub-Account, an amount necessary to pay taxes reasonably anticipated as a result of the distribution) and may not be made to the extent such Unforeseeable Emergency is or may be relieved through reimbursement or compensation by insurance or otherwise, by liquidation of the Executives assets (to the extent such liquidation would not itself cause severe financial hardship) or, to the extent permitted by the 409A Guidance, by cessation of the Executive Deferrals under this Plan. However, the determination of amounts reasonably necessary to satisfy the emergency need is not required to take into account any additional compensation that due to the Unforeseeable Emergency is available under another nonqualified deferred compensation plan but has not actually been paid.
(c) Notwithstanding any provision of the Plan to the contrary, if the payment of all or any portion of an Executives Account would, in the sole opinion of the Company on the advice of its counsel, result in a profit recoverable by the Company under Section 16(b) of the Securities Exchange Act of 1934, but for the operation of this paragraph, then such payment (or portion thereof) shall be deferred and made at the earliest time that such payment (or portion thereof) would no longer be subject to Section 16(b), to the extent permitted by the 409A Guidance.
(2) Payment to Death Beneficiaries . The Death Beneficiary of a deceased Executive shall be entitled to receive the vested Account of the Executive upon the death of the Executive. The Executives vested Account shall be distributed to the Death Beneficiary on the sixtieth (60 th ) day after the Executives death.
SECTION 4.2 Form of Payment .
(1) Payment in Cash . All distributions under the Plan shall be made in the form of cash.
(2) Normal Forms of Payment .
(a) Payments to Executives .
(i) Pre-2005 Sub-Accounts . Unless otherwise elected pursuant to Section 4.2(3), an Executives Pre-2005 Sub-Account shall be distributed to the Executive in the form of a single lump sum payment.
(ii) Post-2004 Sub-Accounts . Unless otherwise elected pursuant to Section 4.2(3), an Executives Post-2004 Sub-Account shall be distributed to the Executive in the form of annual installment payments payable over a period of ten (10) years.
(b) Payments to Death Beneficiaries . An Executives Mirror Savings Benefit (or the remaining installments thereof if payment to the Executive had commenced) shall be distributed to his or her Death Beneficiary in the form of a single lump sum payment.
(c) Small Benefits . Notwithstanding any provision of the Plan to the contrary, in the event that (i) an Executives Pre-2005 Sub-Account does not exceed $25,000, such Sub-Account shall be paid to the Executive in the form of a single lump sum payment at termination of employment with the Controlled Group, and (ii) an Executives Post-2004 Sub-Account does not exceed $25,000, such Sub-Account shall be paid to the Executive in the form of a single lump sum payment at Separation from Service.
(d) Payment of Minimum Benefits . Notwithstanding the foregoing, an Executives Minimum Benefit shall be paid in the form previously elected by the Executive under the Prior Plan, and such election shall remain in full force and effect through the date of distribution.
(3) Optional Forms of Payment for Executives .
(a) In General . An Executive who does not want his or her Mirror Savings Benefit to be paid in the normal form of benefit described in Section 4.2(2)(a) may elect to receive his Pre-2005 Sub-Account in the form of annual installment payments payable over a period not exceeding ten years (as elected by the Executive) and may elect to receive his Post-2004 Sub-Account in the form of a single lump sum payment or in the form of annual installment payments payable over a period of five (5) or ten (10) years (as elected by the Executive); provided, however, the election provided by this Section 4.2(3) shall not apply to the Executives Minimum Benefit. The amount of each installment payment will be determined by dividing the balance of the Executives Mirror Savings Benefit as of the distribution date for such installment payment by the total number of remaining payments (including the current payment). Effective as of January 1, 2009, an Executive may make separate payment elections under this Section 4.2(3) with respect to the Executives Primary Deferrals Sub-Account and Secondary Deferrals Sub-Account.
(b) Form/Timing of Election .
(i) Pre-2005 Sub-Accounts . Any election of an optional form of benefit made with respect to the Pre-2005 Sub-Account must be in writing (on a form provided by the Administrator) and filed with the Administrator prior to the Executives termination of employment with the Controlled Group because of involuntary termination, death or Disability or at least one (1) year prior to the Executives voluntary termination of employment or retirement. Any such election may be changed at any time and from time to time without the consent of any other person (except as described in Section 2.4), by filing a later signed written election with the Administrator; provided that any election made less than one (1) year prior to the Executives voluntary termination of employment shall not be valid, and in such case, payment shall be made in the normal form as provided in Section 4.2(2).
(ii) Post-2004 Sub-Accounts .
(A) In General . Any election of an optional form of benefit made with respect to the Post-2004 Sub-Account must be in writing (on a form provided by the Administrator) and filed with the Administrator at the time the Executive first becomes eligible to participate in the Plan and makes his initial Executive Deferral election pursuant to Section 3.1. Effective as of January 1, 2009, an Executive may make separate payment elections under this Section 4.2(3)(b)(ii) with respect to the Executives Primary Deferrals Sub-Account and Secondary Deferrals Sub-Account.
(B) Subsequent Elections . An Executive may change his election of an optional form of benefit made pursuant to Section 4.2(3)(b)(ii)(A) at any time and from time to time at least twelve (12) months before the Executives Separation from Service. The most recent election on file with the Administrator (that was filed at least twelve (12) months before the Executives Separation from Service and that remains on file with the Administrator on the date of the Executives Separation from Service) shall be given effect and shall become irrevocable on the date of the Executives Separation from Service. No prior or subsequent election shall have any force or effect. The payment of the Executives Post-2004 Sub-Account (or, effective January 1, 2009, the Executives Primary Deferrals Sub-Account and Secondary Deferrals Sub-Account) pursuant to such subsequent election shall be made or commence to be made on the date that is five (5) years after the originally scheduled date of payment.
(C) Transition Elections . Notwithstanding any provision of the Plan to the contrary, an Executive may elect, without regard to the five-year delay (as would be required under Section 4.2(3)(b)(ii)(B)), to receive each of his or her Primary Deferrals Sub-Account and Secondary Deferrals Sub-Account in a lump sum payment or in the form of five-year or ten-year annual installment payments, to be made or commence on the date of his or her Separation from Service. The transition election made under this clause (C) must be made no later than December 31, 2008 and may not cause any amount to be paid in 2008 if not otherwise payable and may not delay beyond 2008 payment of any amount that is otherwise payable in 2008.
ARTICLE V
VESTING
SECTION 5.1 Vesting .
(1) In General . An Executive shall always be 100% vested in both his Executive Deferrals and his Minimum Benefit under the Plan. Subject to the provisions of Subsection (2) of this Section, an Executive who is credited with an Hour of Service on or after March 1, 2002 shall be immediately 100% vested in all Matching Contributions hereunder.
(2) Forfeiture Provisions .
(a) Notwithstanding the provisions of Subsection (1) hereof, but subject to the requirements of paragraph (b) of this Subsection, the Employers shall be relieved of any obligation to pay or provide any future Mirror Savings Plan Benefits under this Plan and shall be entitled to recover amounts already distributed if, without the written consent of the Company, the Executive, whether before or after termination with the Controlled Group (i) participates in dishonesty, fraud, misrepresentation, embezzlement or deliberate injury or attempted injury, in each case related to the Company or a Controlled Group member, (ii) commits any unlawful or criminal activity of a serious nature, (iii) commits any intentional and deliberate breach of a duty or duties that, individually or in the aggregate, are material in relation to the Executives overall duties or (iv) materially breaches any confidentiality or noncompete agreement entered into with the Company or a Controlled Group member. The Employers shall have the burden of proving that one of the foregoing events has occurred. Notwithstanding the foregoing, the provisions of this Subsection 2(a) shall not apply to an Executives Minimum Benefit or the portion of the Executives Account which is attributable to his Executive Deferrals.
(b) Notwithstanding the foregoing, an Executive shall not forfeit any portion of his Mirror Savings Plan Benefits under paragraph (a) of this Subsection unless (i) the Executive receives reasonable notice in writing setting forth the grounds for the forfeiture, (ii) if requested by the Executive, the Executive (and/or the Executives counsel or other representative) is granted a hearing before the full Board of Directors of the Company (the Board) and (iii) a majority of the members of the full Board determine that the Executive violated one or more of the provisions of paragraph (a) of this Subsection.
ARTICLE VI
INVESTMENT OF ACCOUNTS
SECTION 6.1 Hypothetical Investment Funds .
(1) Hypothetical Investment Fund for Matching Contributions on or after January 1, 2006 . Matching Contributions made on or after January 1, 2006 shall be deemed to be made in cash and invested in accordance with the Hypothetical Investment Fund election(s) in effect from time to time for Executive Deferrals under Subsection (2) below.
(2) Hypothetical Investment Funds for Executive Deferrals . To the extent permitted by the 409A Guidance, the Hypothetical Investment Funds for purposes of the portion of an Executives Account which is attributable to his Executive Deferrals shall be those same Investment Funds designated by the Company under the Savings Plan, provided, however that effective January 1, 2006, the Ecolab Stock Fund will not be a Hypothetical Investment Fund with respect to the investment of Executive Deferrals made on or after January 1, 2006. Each Executive (or his Death Beneficiary) may elect, in a manner prescribed by the Administrator from time to time, one or more
Hypothetical Investment Funds in which his Executive Deferrals are deemed to have been invested for purposes of crediting earnings and losses to the portion of the Executives Account which is attributable to Executive Deferrals, provided, however, that effective January 1, 2006, no Executive or Death Beneficiary may elect the Ecolab Stock Fund as a Hypothetical Investment Fund with respect to Executive Deferrals. The Company may deem an Executives Executive Deferrals to have been invested in the Hypothetical Investment Fund elected by the Executive, if any, or may instead, in its sole discretion, deem such Executive Deferrals to have been invested in one or more Hypothetical Investment Funds selected by the Company. Earnings on any amounts deemed to have been invested in any Hypothetical Investment Fund shall be deemed to have been reinvested in such Hypothetical Investment Fund. Notwithstanding the foregoing, any Executive who is subject to Section 16(b) of the Securities Exchange Act of 1934 may not elect and shall not be deemed to have directed any Executive Deferrals to the Ecolab Stock Fund. An Executive shall be deemed, on the day prior to becoming subject to Section 16(b) or at such other time as he is subject to Section 16(b), to have elected to have Executive Deferrals then deemed to be invested in the Ecolab Stock Fund invested in the Hypothetical Investment Fund that under the Savings Plan is designated as a default investment fund, unless another permitted election is in place.
(3) Expenses of Hypothetical Investment Funds . The Hypothetical Investment Funds shall bear and be charged with actual or hypothetical expenses to the same extent that the corresponding Ecolab Stock Fund and other Investment Funds in the Savings Plan bear and are charged with such expenses, as determined by the Administrator.
ARTICLE VII
MISCELLANEOUS
SECTION 7.1 Effect of Amendment and Termination . Notwithstanding any provision of the Plan (including the Administrative Document) to the contrary, no amendment or termination of the Plan shall, without the consent of the Executive (or, in the case of his death, his Death Beneficiary), adversely affect the vested Account under the Plan of any Executive or Death Beneficiary as such Account exists on the date of such amendment or termination; provided, however, that this limitation shall not apply to any amendment or termination that is deemed necessary or reasonable (as determined in the sole discretion of the Committee) to comply with the requirements of the 409A Guidance.
SECTION 7.2 Limitation on Payments and Benefits . Notwithstanding any provision of this Plan to the contrary, if any amount or benefit to be paid or provided under this Plan or any other plan or agreement between the Executive and a Controlled Group member would be an Excess Parachute Payment, within the meaning of Section 280G of the Code, or any successor provision thereto, but for the application of this sentence, then the payments and benefits to be paid or provided under this Plan shall be reduced to the minimum extent necessary (but in no event to less than zero) so that no portion of any such payment or benefit, as so reduced, constitutes an Excess Parachute Payment; provided, however, that the foregoing reduction shall be made only if and to the extent that such reduction would result in an increase in the aggregate payment and benefits to be provided to the Executive, determined on an after-tax basis (taking into account the excise tax imposed pursuant to Section 4999 of the Code, or any successor provision thereto, any tax imposed by any comparable provision of state law, and any applicable federal, state and local income taxes). If requested by the Executive or the Company, the determination of whether any reduction in such payments or benefits to be provided under this Plan or otherwise is required pursuant to the preceding sentence shall be made by the Companys independent accountants, at the expense of the Company, and the determination of the Companys independent accountants shall be final and binding on all persons. The fact that the Executives right to payments or benefits may be reduced by reason of the limitations contained in this Section 7.2 shall not of itself limit or otherwise affect any other rights of the Executive pursuant to this Plan. The Executives Mirror Savings Benefit will be reduced only to the extent that the reduction in any cash payments due to the Executive, the Executives SERP Benefits (if any) and the Executives Mirror Pension Plan Benefits is insufficient to reduce or eliminate Excess Parachute Payment as described in this
Section. The Executives Post-2004 Sub-Account (if any) shall be reduced if required by this section before any Pre-2005 Sub-Account is reduced.
SECTION 7.3 Establishment of a Trust Fund .
(1) In General . The Plan is intended to be an unfunded, non-qualified retirement plan. However, the Company may enter into a trust agreement with a trustee to establish a trust fund (the Trust Fund) and to transfer assets thereto (or cause assets to be transferred thereto), subject to the claims of the creditors of the Employers, pursuant to which some or all of the Mirror Savings Plan Benefits shall be paid. Payments from the Trust Fund shall discharge the Employers obligation to make payments under the Plan to the extent that Trust Fund assets are used to satisfy such obligations.
(2) Upon a Change in Control .
(a) Within thirty (30) business days of the occurrence of a Change in Control, to the extent it has not already done so, the Company shall be required to establish an irrevocable Trust Fund for the purpose of paying Mirror Savings Plan Benefits. Except as described in the following sentence, all contributions to the Trust Fund shall be irrevocable and the Company shall not have the right to direct the trustee to return to the Employers, or divert to others, any of the assets of the Trust Fund until after satisfaction of all liabilities to all of the Executives and their Death Beneficiaries under the Plan. Any assets deposited in the Trust Fund shall be subject to the claims of the creditors of the Employers and any excess assets remaining in the Trust Fund after satisfaction of all liabilities shall revert to the Company.
(b) In addition to the requirements described in paragraph (a) above, the Trust Fund which becomes effective on the Change in Control shall be subject to the following additional requirements:
(i) the trustee of the Trust Fund shall be a third party corporate or institutional trustee;
(ii) the Trust Fund shall satisfy the requirements of a grantor trust under the Code; and
(iii) the Trust Fund shall automatically terminate (A) in the event that it is determined by a final decision of the United States Department of Labor (or, if an appeal is taken therefrom, by a court of competent jurisdiction) that by reason of the creation of, and a transfer of assets to, the Trust, the Trust is considered funded for purposes of Title I of ERISA or (B) in the event that it is determined by a final decision of the Internal Revenue Service (or, if an appeal is taken therefrom, by a court of competent jurisdiction) that (I) a transfer of assets to the Trust is considered a transfer of property for purposes of Code Section 83 or any successor provision thereto, or (II) pursuant to Code Section 451 or 409A or any successor provision thereto, amounts are includable as compensation in the gross income of a Trust Fund beneficiary in a taxable year that is prior to the taxable year or years in which such amounts would otherwise be actually distributed or made available to such beneficiary by the trustee. Upon such termination of the Trust, all of the assets in the Trust Fund attributable to the accrued Mirror Savings Plan Benefits shall be immediately distributed to the Executives (but only to the extent and in the manner permitted by the 409A Guidance), and the remaining assets, if any, shall revert to the Company.
(c) Within five (5) days following establishment of the Trust Fund, the Company shall transfer (or cause the Employers to transfer) to the trustee of such Trust Fund an amount equal to all 100% of the Account balances of all of the Executives under the Plan.
(d) Following the funding of the Trust Fund pursuant to paragraph (a) above, the Company shall cause to be deposited in the Trust Fund additional Executive Deferrals and Matching Contributions, as such amounts are credited to the Accounts of the Executives pursuant to Section 3.4 hereof.
(e) Notwithstanding the foregoing, an Employer shall not be required to make any contributions to the Trust Fund if the Employer is Insolvent at the time such contribution is required.
(f) The Administrator shall notify the trustee of the amount of Mirror Savings Plan Benefits to be paid to the Executive (or his Death Beneficiary) from the Trust Fund and shall assist the trustee in making distribution thereof in accordance with the terms of the Plan.
(g) Notwithstanding any provision of the Plan or the Administrative Document to the contrary, the provisions of this Section 7.3(2) hereof (i) may not be amended following a Change in Control and (ii) prior to a Change in Control may only be amended (A) with the written consent of each of the Executives or (B) if the effective date of such Amendment is at least two years following the date the Executives were given written notice of the adoption of such amendment; provided, however, that this limitation shall not apply to any amendment that is deemed necessary or reasonable (as determined in the sole discretion of the Committee) to comply with the requirements of the 409A Guidance.
SECTION 7.4 Delay of Payments Subject to Code Section 162(m) . The Company may delay the distribution of any amount otherwise required to be distributed under the Plan if, and to the extent that, the Company reasonably anticipates that the Companys deduction with respect to such distribution otherwise would be limited or eliminated by application of Section 162(m) of the Code. In such event, (1) if any payment is delayed during any year on account of Code Section 162(m), then all payments that could be delayed on account of Code Section 162(m) during such year must also be delayed; (2) such delayed payments must be paid either (a) in the first year in which the Company reasonably anticipates the payment to be deductible, or (b) the period beginning on the date of the Executives Separation From Service and ending on the later of the end of the Executives year of separation or the fifteenth (15th) day of the third month after such separation; and (3) if payment is delayed to the date of Separation from Service with respect to an Executive who is a Specified Employee, such payment shall commence after such Executives Separation from Service on the date immediately following the six-month anniversary of the Separation from Service, or if earlier, on the date of the Executives death.
IN WITNESS WHEREOF , the Company has caused this instrument to be executed by its authorized officers and its corporate seal to be affixed, on the date written below.
Dated: |
December 21, 2011 |
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ECOLAB INC. |
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By: |
/s/Steven L. Fritze |
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Steven L. Fritze |
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Chief Financial Officer |
(Seal) |
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Attest: |
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/s/James J. Seifert |
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James J. Seifert |
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General Counsel and Secretary |
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TABLE OF CONTENTS
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Page |
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ARTICLE I |
PREFACE |
1 |
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Section 1.1 |
Effective Date |
1 |
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Section 1.2 |
Purpose of the Plan |
1 |
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Section 1.3 |
Administrative Document |
1 |
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Section 1.4 |
American Jobs Creation Act (AJCA) |
2 |
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Section 1.5 |
Excess Plan |
2 |
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ARTICLE II |
DEFINITIONS |
2 |
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Section 2.1 |
Account |
2 |
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Section 2.2 |
Base Salary |
3 |
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Section 2.3 |
Bonus. |
3 |
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Section 2.4 |
Death Beneficiary. |
3 |
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Section 2.5 |
Disability or Disabled. |
3 |
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Section 2.6 |
Executive |
3 |
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Section 2.7 |
Executive Deferrals |
4 |
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Section 2.8 |
Hypothetical Investment Fund |
4 |
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Section 2.9 |
Insolvent. |
4 |
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Section 2.10 |
Matching Contributions |
4 |
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Section 2.11 |
Minimum Benefit |
4 |
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Section 2.12 |
Mirror Savings Benefit. |
4 |
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Section 2.13 |
Plan |
4 |
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Section 2.14 |
Savings Plan |
4 |
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Section 2.15 |
Separation from Service or to Separate from Service |
4 |
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Section 2.16 |
Specified Employee |
4 |
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Section 2.17 |
Unforeseeable Emergency. |
4 |
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ARTICLE III |
MIRROR SAVINGS BENEFIT |
5 |
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Section 3.1 |
Amount of Executive Deferrals |
5 |
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Section 3.2 |
Effect and Duration of Direction Pursuant to Section 3.1 |
5 |
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Section 3.3 |
Matching Contributions |
6 |
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Section 3.4 |
Executives Accounts |
7 |
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Section 3.5 |
Statement of Account |
7 |
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TABLE OF CONTENTS
(continued)
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ARTICLE IV |
PAYMENT OF MIRROR SAVINGS BENEFITS |
7 |
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Section 4.1 |
Time of Payment |
7 |
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Section 4.2 |
Form of Payment |
9 |
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ARTICLE V |
VESTING |
11 |
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Section 5.1 |
Vesting |
11 |
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ARTICLE VI |
INVESTMENT OF ACCOUNTS |
11 |
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Section 6.1 |
Hypothetical Investment Funds |
11 |
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ARTICLE VII |
MISCELLANEOUS |
12 |
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Section 7.1 |
Effect of Amendment and Termination |
12 |
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Section 7.2 |
Limitation on Payments and Benefits |
12 |
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Section 7.3 |
Establishment of a Trust Fund |
13 |
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Section 7.4 |
Delay of Payments Subject to Code Section 162(m) |
14 |
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EXHIBIT (10.15)
ECOLAB MIRROR PENSION PLAN
(As Amended and Restated Effective January 1, 2011)
ECOLAB MIRROR PENSION PLAN
(As Amended and Restated Effective as of January 1, 2011)
WHEREAS, Ecolab Inc. (the Company) has established the Ecolab Pension Plan (the Pension Plan), a qualified defined benefit pension plan; and
WHEREAS, Sections 401(a)(17) and 415 of the Code place certain limitations on the amount of benefits that would otherwise be made available under the Pension Plan for certain participants; and
WHEREAS, the Company previously established the Ecolab Mirror Pension Plan (the Plan) to provide the benefits which would otherwise have been payable to such participants under the Pension Plan except for such limitations, in consideration of services performed and to be performed by such participants for the Company and certain related corporations; and
WHEREAS, the American Jobs Creation Act of 2004, PX. 108-357 (the AJCA) added a new Section 409A to the Code, which significantly changed the Federal tax law applicable to amounts deferred under the Plan after December 31, 2004; and
WHEREAS, before the issuance by the U.S. Treasury and the Internal Revenue Service (the IRS) of interpretive guidance with respect to Code Section 409A, the Company amended the Plan to temporarily freeze the accrual of Mirror Pension Benefits hereunder as of December 31, 2004; and
WHEREAS, the IRS and U.S. Treasury subsequently issued regulations and other guidance regarding the requirements of and compliance with Code Section 409A; and
WHEREAS, the Board of Directors of the Company directed and authorized appropriate officers of the Company to amend the Plan to (a) reinstate the accrual of Mirror Pension Benefits, effective retroactively as of January 1, 2005 and (b) comply, with respect to the Non-Grandfathered Mirror Pension Benefits thereunder, with the requirements of Code Section 409 and guidance issued thereunder; and
WHEREAS, the Plan was amended and restated in its entirety, effective as of January 1, 2005; and
WHEREAS, the Board of Directors of the Company authorized the appropriate officers of the Company to amend the Plan (i) to use the lump sum actuarial factors to determine the annual installment payment amount (including an increase in installment payments that were commenced prior to January 1, 2011), and (ii) to include an actuarial increase in the non-grandfathered portion of any Standard Mirror Pension Benefit payments that are required to be deferred as a result of the five (5) year redeferral rule to a date that is after the later of termination of employment or age 62; and
WHEREAS, the Plan was amended and restated in its entirety, effective as of December 31, 2010; and
WHEREAS, the Company wishes to clarify ambiguous language in the Plan document.
NOW, THEREFORE, pursuant to Section 1.3 of the Plan and Section 5.1 of the Ecolab Inc. Administrative Document for Non-Qualified Benefit Plans, the Company hereby amends and restates the Plan in its entirety, effective as of January 1, 2011, to read as follows:
ARTICLE I
PREFACE
Section 1.1 Effective Date .
(1) The effective date of this amended and restated Plan is January 1, 2011.
(2) The benefit, if any, payable with respect to a former Executive who Retired or died prior to January 1, 2005 (and who is not rehired by a member of the Controlled Group thereafter) shall be determined by, and paid in accordance with, the terms and provisions of the Plan as in effect prior to January 1, 2005, subject to Section 1.4 and 3.2(2)(c). Notwithstanding any provision of the Plan to the contrary, an Executives Mirror Pension Benefit (which was temporarily frozen from December 31, 2004 through December 31, 2008) shall be retroactively adjusted on January 1, 2009 to reflect the benefit that would have been accrued by the Executive under the Plan, in accordance with Section 3.1, during the period commencing on January 1, 2005 and ending on the earlier of December 31, 2008 or the date on which the Executive terminates his services with all Employers as an employee.
Section 1.2 Purpose of the Plan . The purpose of this Plan is to provide additional retirement benefits for certain management and highly compensated employees of the Company who perform management and professional functions for the Company and certain related entities.
Section 1.3 Administrative Document . This Plan includes the Ecolab Inc. Administrative Document for Non-Qualified Benefit Plans (the Administrative Document), which is incorporated herein by reference.
Section 1.4 American Jobs Creation Act of 2004 (AJCA) .
(1) To the extent applicable, it is intended that the Plan (including all Amendments thereto) comply with the provisions of Code Section 409A, as enacted by the American Jobs Creation Act of 2004, P.L. 108-357 (the AJCA), so as to prevent the inclusion in gross income of any amount of Mirror Pension Benefit accrued hereunder in a taxable year that is prior to the taxable year or years in which such amounts would otherwise be actually distributed or made available to the Executives. The Plan shall be administered in a manner that will comply with Code Section 409A, including regulations or any other guidance issued by the Secretary of the Treasury and the Internal Revenue Service with respect thereto (collectively with the AJCA, the 409A Guidance). All Plan provisions shall be interpreted in a manner consistent with the 409A Guidance.
(2) The Administrator shall not take any action hereunder that would violate any provision of Code Section 409A. The Administrator is authorized to adopt rules or regulations deemed necessary or appropriate in connection with the 409A Guidance to anticipate and/or comply with the requirements thereof (including any transition or grandfather rules thereunder).
(3) Notwithstanding any provision of the Plan, any Grandfathered Mirror Pension Benefits (including any Mirror Pre-Retirement Pension Benefits attributable thereto) shall continue to be governed by the law applicable to nonqualified deferred compensation prior to the addition of Section 409A to the Code and shall be subject to the terms and conditions specified in the Plan as in effect prior to January 1, 2005, except as otherwise provided herein. Notwithstanding any provision of the Plan to the contrary, neither the Company nor the Administrator guarantee to any Executive or Death Beneficiary any specific tax consequences of participation in or entitlement to or receipt of benefits from, the Plan, and each Executive or the Executives Death Beneficiary shall be solely responsible for payment of any taxes or penalties incurred in connection with his participation in the Plan.
ARTICLE II
DEFINITIONS
Words and phrases used herein with initial capital letters which are defined in the Administrative Document or the Pension Plan are used herein as so defined, unless otherwise specifically defined herein or the context clearly indicates otherwise. The following words and phrases when used in this Plan with initial capital letters shall have the following respective meanings, unless the context clearly indicates otherwise:
Section 2.1 Actuarial Equivalent or Actuarially Equivalent . A benefit is the Actuarial Equivalent of another benefit if, on the basis of Actuarial Factors, the present values of such benefits are equal.
Section 2.2 Actuarial Factors shall mean the actuarial assumptions set forth in Exhibit A which is attached to and forms a part of this Plan.
Section 2.3 Code Limitations shall mean the limitations imposed by Code Sections 401(a)(17) and 415, or any successor(s) thereto, on the amount of the benefits which may be payable to or with respect to an Executive from the Pension Plan.
Section 2.4 Death Beneficiary shall mean the beneficiary designated under this Plan and the SERP. The designation of a Death Beneficiary may be made, and may be revoked or changed only by an instrument (in form prescribed by Administrator) signed by the Executive and delivered to the Administrator during the Executives lifetime. If the Executive is married on the date of his death and has been married to such spouse throughout the one-year period ending on the date of his death, his designation of a Death Beneficiary other than, or in addition to, his spouse under the Plan shall not be effective unless such spouse has consented in writing to such designation. Any Mirror Pension Benefits remaining to be paid after the death of a Death Beneficiary (or a contingent Death Beneficiary, to the extent designated by the Executive) shall be paid to the Death Beneficiarys estate. If no Death Beneficiary is designated by the Executive or all designated Death Beneficiaries predecease the Executive, the Executives Death Beneficiary shall be his spouse, and if there is no surviving spouse, then the Executives estate. The most recent Death Beneficiary designation on file with the Administrator will be given effect, and in the event of conflicting forms files simultaneously under this Plan and the SERP, the Death Beneficiary designation under the SERP will govern.
Section 2.5 Disability shall mean any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than six months, where such impairment causes the Executive to be unable to perform the duties of his position of employment or any substantially similar position of employment.
Section 2.6 Executive shall mean an Employee of an Employer (1) whose Annual Compensation from the Employers for the preceding Plan Year exceeds the dollar limitation described in Code Section 401(a)(17), (2) who is a Participant in the Pension Plan, and (3) who is selected by the Administrator to participate in the Plan. Once an Employee has satisfied the requirements of an Executive and commenced participation in the Plan, his participation may continue, notwithstanding the fact that his Annual Compensation is reduced below the limitation described in Code Section 401(a)(17), until the Administrator determines, in his sole discretion, that the Employee would fail to satisfy the requirements of a management or highly compensated employee under ERISA.
Section 2.7 Grandfathered Mirror Pension Benefit shall mean the portion of an Executives Mirror Pension Benefit that is deemed to have been deferred (within the meaning of the 409A Guidance)
under the Plan before January 1, 2005 and that is equal to the present value as of December 31, 2004 of the vested Mirror Pension Benefit to which the Executive would be entitled under the Plan, as in effect on October 3, 2004, if the Executive voluntarily terminated employment with the Controlled Group without cause on December 31, 2004, and received a payment, on the earliest possible date allowed under the Plan, of his Mirror Pension Benefit in the form with the maximum value (increased in subsequent years to equal the present value of the benefit the Executive actually becomes entitled to receive, in the form and at the time actually paid, determined under the terms of the Plan as in effect on October 3, 2004, without regard to any services rendered or Compensation increases applicable after December 31, 2004).
Section 2.8 Mirror Savings Plan shall mean the Ecolab Mirror Savings Plan, as such plan may be amended from time to time.
Section 2.9 Mirror Pension Benefit shall mean the retirement benefit determined under Article III.
Section 2.10 Mirror Pre-Retirement Pension Benefit shall mean the pre-retirement benefit determined under Article IV.
Section 2.11 Non-Grandfathered Mirror Pension Benefit shall mean any Mirror Pension Benefit that is not a Grandfathered Mirror Pension Benefit.
Section 2.12 Plan shall mean this Ecolab Mirror Pension Plan, as it may be amended from time to time.
Section 2.13 Separation from Service or to Separate from Service shall mean any termination of employment with the Controlled Group due to retirement, death, disability or other reason; provided, however, that no Separation from Service is deemed to occur while the Executive (1) is on military leave, sick leave, or other bona fide leave of absence that does not exceed six (6) months (or, in the case of Disability, twelve (12) months), or if longer, the period during which the Executives right to reemployment with the Controlled Group is provided either by statute or by contract, or (2) continues to perform services for the Controlled Group at an annual rate of fifty percent (50%) or more of the average level of services performed over the immediately preceding 36-month period (or the full period in which the Executive provided services (whether as an employee or as an independent contractor) if the Executive has been providing services for less than 36 months). With respect to the terms of the Plan affecting Non-Grandfathered Mirror Pension Benefits, any reference to termination of employment in the Plan shall mean Separation from Service as defined in this Section. Whether an Executive has incurred a Separation from Service shall be determined in accordance with the 409A Guidance.
Section 2.14 SERP shall mean the Ecolab Supplemental Executive Retirement Plan, as in effect from time to time.
Section 2.15 SERP Benefit shall mean an Executives benefit accrued under the SERP.
Section 2.16 Specified Employee shall mean Specified Employee as defined in the Administrative Document.
ARTICLE III
MIRROR PENSION BENEFITS
Section 3.1 Amount of Mirror Pension Benefits .
(1) In General . Each Executive whose benefits under the Pension Plan payable on or after the Effective Date are reduced due to the Code Limitations shall be entitled to a Mirror Pension Benefit, which shall be determined as hereinafter provided.
(2) Standard Mirror Pension Benefits . The Standard Mirror Pension Benefit shall be a monthly retirement benefit calculated using the final average pay benefit formula specified in Article 4 of the Pension Plan equal to the difference between (a) and (b), where:
(a) = the amount of the monthly benefit payable to the Executive under the Pension Plan calculated on a single life annuity basis commencing at age 65, determined under the Pension Plan as in effect on the date of the Executives termination of employment with the Controlled Group but calculated as if (i) the Pension Plan did not contain the Code Limitations, and (ii) the definition of Annual Compensation under the Pension Plan included the Executives deferrals under the Mirror Savings Plan or its predecessor plan; and
(b) = the amount of the monthly benefit which would be payable to the Executive under the Pension Plan calculated on a single life annuity basis commencing at age 65, determined under the Pension Plan as in effect on the date of the Executives termination of employment with the Controlled Group.
As a consequence of the freezing of benefit accruals under Section 4 of the Pension Plan as of December 31, 2020, the formula in this Section 3.1(2) will be applied by determining an Executives Annual Compensation and the monthly benefit under Section 4 of the Pension Plan as of December 31, 2020 (or, if earlier, as of the date of the Executives termination of employment with the Controlled Group).
(3) Cash Balance Mirror Pension Benefits . The Administrator shall establish an Excess Retirement Account for each Executive who is accruing benefits under the cash balance formula described in Article 6 of the Pension Plan. As of the end of each calendar year (or at such other time as a Contribution Credit is made to the Executives Retirement Account under the Pension Plan), the Administrator shall credit each Executives Excess Retirement Account under this Plan with an amount equal to the difference between (a) and (b) where:
(a) = the amount that would have been credited to the Executives Retirement Account under the Pension Plan if (i) the Pension Plan did not contain the Code Limitations, and (ii) the definition of Annual Compensation under the Pension Plan included the Executives deferrals under the Mirror Savings Plan; and
(b) = the amount which is actually credited to the Executives Retirement Account under the Pension Plan.
The Administrator shall also credit each Executives Excess Retirement Account with Interest Credits in accordance with the rules specified in the Pension Plan.
As a consequence of the amendment of the accrual of benefits under Article 6 of the Pension Plan as of December 31, 2020, benefits under this Section 3.1(3) will accrue at the reduced 3% crediting rate for Annual Compensation paid after December 31, 2020.
(4) Notwithstanding anything in this Section 3.1 to the contrary, in no event, will any Executives Mirror Pension Benefit be less than such Executives Grandfathered Mirror Pension Benefit.
Section 3.2 Time of Payment .
(1) Grandfathered Mirror Pension Benefit . The portion of an Executives vested Mirror Pension Benefit that is a Grandfathered Mirror Pension Benefit shall be paid or commence to be paid at the same time and under the same conditions as the benefits payable to the Executive under the Pension Plan. Notwithstanding the foregoing, if payment at such time is prevented due to reasons outside of the Administrators control, the vested Mirror Pension Benefits shall commence as soon as practicable after the benefits commence under the Pension Plan, and the first payment hereunder shall include any Mirror Pension Benefits not paid as a result of the delay in payment.
(2) Non-Grandfathered Mirror Pension Benefit . The provisions of this Section 3.2(2) shall apply solely with respect to the portion of any Executives vested Mirror Pension Benefit that is a Non-Grandfathered Mirror Pension Benefit.
(a) Standard Mirror Pension Benefits . The Executives Standard Mirror Pension Benefit shall be paid or commence to be paid on the first day of the third month following the month in which occurs the later of the date on which the Executive (i) attains age 55 or (ii) Separates from Service, subject to Sections 3.2(2)(d), and 3.3(2)(d) (as applicable). The amount of any such Standard Mirror Pension Benefit paid before the Executives attainment of age 62 shall be actuarially reduced using the Actuarial Factors, as in effect on the date of the Executives Separation from Service.
(b) Cash Balance Mirror Pension Benefit . The Executives Cash Balance Mirror Pension Benefit shall be paid or commence to be paid on the first day of the third month following the month in which Executive Separates from Service, subject to Sections 3.2(2)(d) and 3.3(2)(d) (as applicable).
(c) Certain Transition Distributions to Terminated Executives . Notwithstanding Section 3.2(2)(a) and 3.2(2)(b) and subject to Section 3.2(2)(d),
(i) An Executive who Separated from Service after December 31, 2004 and before December 31, 2008 and has commenced payments of his Grandfathered Mirror Pension Benefits at any time before December 31, 2008, shall receive his Non-Grandfathered Mirror Pension Benefit, for which the Executives Mirror Pension Benefit is retroactively adjusted pursuant to Section 1.1 on January 1, 2009, in the same form and at the same time as the Executives Grandfathered benefit, in the same form and at the same time as the Executives Grandfathered benefit, subject to Section 3.2(2)(d). Notwithstanding the foregoing, an Executives Cash Balance Benefit shall be paid on March 1, 2009, subject to Section 3.2(2)(d).
(ii) An Executive who Separated from Service after December 31, 2004 and before December 31, 2008 and has not before December 31, 2008 commenced payments of his Grandfathered Mirror Pension Benefits shall receive his Non-
Grandfathered Mirror Pension Benefits, for which the Executives Mirror Pension Benefit is retroactively adjusted pursuant to Section 1.1 on January 1, 2009, as follows, subject to Section 3.2(2)(d):
(A) The Executives Standard Mirror Pension Benefit shall be paid to the Executive in a single lump sum amount on the later of March 1, 2009 or the date on which the Executive attains age 55.
(B) The Executives Non-Grandfathered Cash Balance Mirror Pension Benefit credited to the Executives Excess Retirement Account under the Plan shall be paid in a single lump sum amount on March 1, 2009.
(d) Payment Delay for Specified Employees . Notwithstanding any provision of the Plan, payments to a Specified Employee shall be made or commence on the first day of the month coincident with or immediately following the latest of (i) the date specified in Section 3.2(2)(a), (b) or (c), (ii) the date specified in Section 3.3(2)(d)(i), if the Executive made an election pursuant to such section, or (iii) the date that is six (6) months after the Specified Employees Separation From Service; provided, however, that if the Executive dies before the date specified in (i), (ii) or (iii), the Executives benefit shall be paid or commence on the date specified in Section 4.2. The first payment made to the Specified Employee following the 6-month delay shall include any Mirror Pension Benefit payments that were not made as a result of the delay in payment pursuant to this paragraph (d), with interest at an annual rate of five percent (5%). Notwithstanding the foregoing, this paragraph (d) shall not apply to any Executive if on the date of his Separation from Service, the stock of the Company and Controlled Group members is not publicly traded on an established securities market (within the meaning of the 409A Guidance).
(e) Delay of Payments Subject to Code Section 162(m) . The Company may delay the distribution of any amount otherwise required to be distributed under the Plan if, and to the extent that, the Company reasonably anticipates that the Companys deduction with respect to such distribution otherwise would be limited or eliminated by application of Code Section 162(m). In such event, (i) if any payment is delayed during any year on account of Code Section 162(m), then all payments that could be delayed on account of Code Section 162(m) during such year must also be delayed; (ii) such delayed payments must be paid either (A) in the first year in which the Company reasonably anticipates the payment to be deductible, or (B) the period beginning on the date of the Executives Separation From Service and ending on the later of the end of the Executives year of separation or the fifteenth (15th) day of the third month after such separation; and (iii) if payment is delayed to the date of Separation from Service with respect to an Executive who is a Specified Employee, such payment shall commence after such Executives Separation from Service on the date immediately following the six-month anniversary of the Separation from Service, or if earlier, on the date of the Executives death.
(f) Actuarial Adjustment for Delay on Account of Election Under Section 3.3(2)(d)(i) . If an Executives election under Section 3.3(2)(d)(i) delays the commencement of the Executives Standard Mirror Pension Benefit portion of his or her Non-Grandfathered Mirror Pension beyond the later of the Executives Separation from Service or the date on which the Executive attains age 62, then such benefit will be actuarially increased using the Actuarial Factors for lump sum calculations, as in effect on the date the benefit payments were originally scheduled to be paid or commenced to be paid, provided, however, in no event will the interest rate exceed seven and one-half percent (7½%).
Section 3.3 Form of Payment of Mirror Pension Benefits .
(1) Grandfathered Mirror Pension Benefit . The provisions of this Section 3.3(1) shall apply solely with respect to the portion of an Executives vested Standard Mirror Pension Benefit that is a Grandfathered Mirror Pension Benefit.
(a) In General . The Standard Mirror Pension Benefit calculated in accordance with Section 3.1(2) shall be payable in the same form and for the same duration as the benefits payable to the Executive under the Pension Plan; provided, however, that if the form of payment of the Standard Mirror Pension Benefit selected by the Executive is not a single life annuity commencing at age 65, the amount of such Benefit shall be adjusted to an amount which results in a Benefit payable which is the Actuarial Equivalent of a single life annuity commencing at age 65. An election by an Executive of a form of payment under the Pension Plan shall be deemed to be an election by such Executive of the form of his Standard Mirror Pension Benefit. In the absence of an election by the Executive of the form of his Standard Mirror Pension Benefit under the Pension Plan, the form of Standard Mirror Pension Benefit for an unmarried Executive shall be a single life annuity commencing at age 65, and for a married Executive shall be a joint and 50% survivor benefit which is the Actuarial Equivalent of such single life annuity.
(b) Lump Sum Election .
(i) Notwithstanding the foregoing, an Executive may elect to receive the Standard Mirror Pension Benefit or to have his Death Beneficiary receive a Standard Mirror Pre-Retirement Pension Benefit in the form of a single lump sum payment by filing a notice in writing on a form provided by the Administrator, signed by the Executive and filed with the Administrator prior to the Executives termination of employment with the Controlled Group because of involuntary termination, death or Disability, or at least one (1) year prior to the Executives voluntary retirement or termination of employment. Any such election may be changed at any time and from time to time without the consent of any existing Death Beneficiary or any other person other than, if applicable, his spouse, by filing a later signed written election with the Administrator; provided that any election made less than one (1) year prior to the Executives voluntary retirement or termination of employment shall not be valid. An Executives election of a lump sum payment under this Subsection shall be controlling with respect to any payment of Standard Mirror Pre-Retirement Pension Benefits to his Death Beneficiary. Notwithstanding the foregoing, an Executive shall be permitted to make an election to receive his Standard Mirror Pension Benefit in the form of a lump sum payment within the one (1) year period prior to his voluntary termination if (and only if) the amount of the Standard Mirror Pension Benefit payable to the Executive is reduced by ten percent (10%).
(ii) The lump sum payment described in paragraph (b)(i) of this Subsection shall be calculated (A) by converting the Executives Standard Mirror Pension Benefit (calculated in accordance with the provisions of Section 3.1(2)) at the time of the commencement of such Benefit into a lump sum amount of equivalent actuarial value when computed using the Actuarial Factors for this purpose, and then applying the ten percent (10%) reduction, if applicable, or (B) by converting the Death Beneficiarys Standard Mirror Pre-Retirement Pension Benefit (calculated in accordance with the provisions of Section 4.2(1))
at the time of the commencement of such Benefit into a lump sum amount of equivalent actuarial value when computed using the Actuarial Factors for this purpose, and then applying the ten percent (10%) reduction, if applicable.
(iii) Notwithstanding any provision of this Plan to the contrary, in the event the equivalent actuarial value of the Executives Standard Mirror Pension Benefit, when computed using the Actuarial Factors specified in Exhibit A for this purpose, does not exceed $25,000, such Benefit shall be paid in the form of a single lump sum payment.
(c) Cash Balance Mirror Pension Benefits . Notwithstanding any provision of the Plan to the contrary, a Cash Balance Mirror Pension Benefit calculated in accordance with Section 3.1(3) shall automatically be paid to the Executive in the form of a single lump sum payment in an amount equal to the balance in the Executives Excess Retirement Account as the date the payment is processed.
(2) Non-Grandfathered Mirror Pension Benefits . The provisions of this Section 3.3(2) shall apply solely with respect to the portion of an Executives vested Mirror Pension Benefit that is a Non-Grandfathered Mirror Pension Benefit.
(a) Normal Form of Payment . Unless an Executive makes an election pursuant to Section 3.3(2)(b) or (e), the Executives Non-Grandfathered Mirror Pension Benefit will be paid to the Executive in the form of annual installment payments payable over a period of ten (10) years, the amount of which is Actuarially Equivalent to the Mirror Pension Benefit calculated under Section 3.1.
(b) Optional Forms of Payment . In lieu of the normal form of payment, an Executive may make or change an election to receive his Non-Grandfathered Mirror Pension Benefit in one of the following Actuarially Equivalent optional forms of benefit:
(i) A single life annuity payable monthly to the Executive during the Executives life and ending on the date of the Executives death.
(ii) A reduced joint and survivor annuity payable monthly to the Executive during the Executives life, and after the Executives death, payable monthly to the Executives spouse who survives the Executive in the amount equal to 50%, 75% or 100% (as the Executive elects) of such reduced lifetime monthly amount.
(iii) A reduced life and period certain annuity payable monthly to the Executive during the Executives life, with payment thereof guaranteed to be made for a period of five (5) or ten (10) years, as elected by the Executive, and, in the event of the Executives death before the end of such 5- or 10- year period, payable in the same reduced amount for the remainder of such 5- or 10- year period, to the Death Beneficiary designated by the Executive.
(iv) Annual installment payments payable to the Executive over a period of five (5) or ten (10) years, as elected by the Executive.
(v) A single lump sum payment.
(c) Mandatory Lump Sum . Notwithstanding any provision of the Plan to the contrary, in the event that the present value of the Executives Non-Grandfathered Mirror Pension Benefit does not exceed $25,000 at the time of distribution, such Non-Grandfathered Mirror Pension Benefit shall be paid in the form of a single lump sum payment on the date of distribution determined under Section 3.2(2).
(d) Election of Optional Form of Payment . An election of an optional form of payment must be in writing (on a form provided by the Administrator) and must satisfy the following requirements:
(i) If an Executive wishes to elect an optional form of payment under Section 3.3(2)(b) above (other than the normal form of payment) or, after December 31, 2008, wishes to change his election made under Section 3.3(2)(e) (other than an election change described in Section 3.3(2)(d)(ii)), the election must be filed with the Administrator at least twelve (12) months before the Executives Separation from Service. The most recent election on file with the Administrator (that was filed at least twelve (12) months before the Executives Separation from Service and that remains on file with the Administrator as of the date of Separation from Service) shall be given effect and become irrevocable on the date of the Executives Separation from Service. No election filed less than twelve (12) months before the Executives Separation from Service shall have any force or effect, except as provided in Section 3.3(2)(d)(ii). The payment pursuant to an election made under this Section 3.3(2)(d)(i) shall be made or commence on the first day of the month coincident with or immediately following the fifth anniversary of the original commencement date specified in Section 3.2(2)(a) or (b) (as applicable).
(ii) An Executive who elected, pursuant to Section 3.3(2)(d)(i) or 3.3(2)(e), a life annuity form of payment (within the meaning of the 409A Guidance) described in Section 3.3(2)(b)(i), (ii) or (iii), may, at any time before the date of Separation from Service, change that annuity form of payment to an Actuarially Equivalent life annuity form of payment, provided the commencement date for such annuity, as specified in, respectively, Section 3.3(2)(d)(i) or Section 3.3(2)(e), remains unchanged.
(e) Transition Elections . Notwithstanding any provision of the Plan, any Executive who is an active employee of the Company or a member of the Controlled Group during the election period designated by the Administrator, ending no later than December 31, 2008, may make an election to receive his Non-Grandfathered Mirror Pension Benefit in one of the optional forms specified in Section 3.3(2)(b), commencing on the date specified in Section 3.2(2)(a) or (b) (as applicable); provided, however, that such election shall not apply if the Executive Separates from Service on or before December 31, 2008 and is subject to the provision of Section 3.2(2)(c). The transition election must be made in writing, on a form provided by the Administrator and filed with the Administrator within the designated transition election period. The transition election made pursuant to this paragraph (e) may not cause any amount to be paid in 2008 if not otherwise payable and may not delay payment of any amount that is otherwise payable in 2008.
(f) Coordination of Payment Elections with SERP . If an Executive is also a participant in the SERP, the Executives Non-Grandfathered Mirror Pension Benefit and the Non-Grandfathered SERP Benefit will be paid in the same form and at the same time. If an Executive makes an election of an optional payment form pursuant to Section 3.3(2)(b) of the Plan or Section
3.4(2)(b) of the SERP, the most recent election filed with the Administrator under either this Plan or the SERP at least twelve (12) months before the Separation from Service (or, if applicable, at a date specified in paragraph (d)(ii) of this Subsection) that remains on file with the Administrator on the date of Separation from Service will govern the form and time of payment under the Plan. In the event of conflicting election forms filed simultaneously under this Plan and the SERP, the election filed under the SERP shall govern.
Section 3.4 Death after Commencement of Non-Grandfathered Mirror Pension Benefits . If an Executive dies after commencing payment of his Non-Grandfathered Mirror Pension Benefits under the Plan but before his entire Non-Grandfathered Mirror Pension Benefit is distributed, payments to the Executives Death Beneficiary (if any) will be made (a) in accordance with the elected optional form of payment described in Section 3.3(2)(b)(ii) or (iii) (if elected), or (b) ninety (90) days after the Executives death in the form of a single lump sum, calculated using the Actuarial Factors in effect on the date of distribution, if the Executive elected one of the optional forms of payment described in Section 3.3(2)(b)(iv).
Section 3.5 Adjustment to Annual Installment Payments Commencing Prior to January 1, 2011 . If payment of an Executives Non-Grandfathered Mirror Pension Benefit commenced after January 1, 2005 but prior to January 1, 2011 in the form of annual installment payments over a period of five (5) or ten (10) years, then
(1) The Executives annual installment payments will be recalculated as of the original payment commencement date using the Plans Actuarial Factors for lump sum calculations and any increase in the amount of each such installment will be paid as follows:
(a) The increase in the annual installments that were payable prior to January 1, 2011 will be paid in a single lump sum amount in the calendar quarter beginning January 1, 2011 and ending March 31, 2011; and
(b) Each annual installment due on or after January 1, 2011 will be adjusted to include the increase resulting from the recalculation.
ARTICLE IV
MIRROR PRE-RETIREMENT PENSION BENEFIT
Section 4.1 Eligibility .
(1) Grandfathered Mirror Pre-Retirement Pension Benefits . The Death Beneficiary of an Executive who dies after attaining eligibility for a pre-retirement death benefit under the Pension Plan, but prior to commencing to receive Mirror Pension Benefits hereunder shall be entitled to receive the Mirror Pre-Retirement Pension Benefits described in Section 4.2(1) in lieu of any other benefits described in the Plan.
(2) Non-Grandfathered Mirror Pre-Retirement Pension Benefits . The Death Beneficiary of an Executive who dies after becoming vested in his Mirror Pension Benefit but prior to commencing to receive Mirror Pension Benefits hereunder shall be entitled to receive the Mirror Pre-Retirement Pension Benefits described in Section 4.2(2) in lieu of any other benefits described in the Plan.
Section 4.2 Amount, Form and Timing of Mirror Pre-Retirement Pension Benefits .
(1) Grandfathered Mirror Pension Benefits . A Death Beneficiary who is eligible for a Mirror Pre-Retirement Pension Benefit hereunder shall receive the portion of such Mirror Pre-Retirement Pension Benefit that is based on the Executives Grandfathered Mirror Pension Benefit in accordance with this Subsection (1).
(a) Cash Balance Mirror Pre-Retirement Pension Benefits . A Death Beneficiary who is eligible for a Cash Balance Mirror Pre-Retirement Pension Benefit shall receive a Cash Balance Mirror Pre-Retirement Pension Benefit, payable at the same time as the pre-retirement death benefits and (if applicable) the optional death benefits described in the Pension Plan, as determined by the Administrator. The Cash Balance Mirror Pre-Retirement Pension Benefit shall automatically be paid in the form of a lump sum payment in an amount equal to the balance in the Executives Excess Retirement Account on the date the payment is processed.
(b) Standard Mirror Pre-Retirement Pension Benefits . A Death Beneficiary who is eligible for a Standard Mirror Pre-Retirement Pension Benefit shall receive a Standard Mirror Pre-Retirement Pension Benefit based on the Executives Standard Mirror Pension Benefit hereunder. The Standard Mirror Pre-Retirement Pension Benefit shall be calculated in accordance with, and payable at the same time and (except as provided in Section 3.3(l)(b)) in the same manner as, the pre-retirement death benefits and (if applicable) the optional death benefits described in the Pension Plan, as determined by the Administrator.
(2) Non-Grandfathered Mirror Pre-Retirement Pension Benefits . A Death Beneficiary who is eligible for a Mirror Pre-Retirement Pension Benefit hereunder shall receive the portion of such Mirror Pre-Retirement Pension Benefit that is based on the Executives vested Non-Grandfathered Mirror Pension Benefit as follows:
(a) Non-Grandfathered Cash Balance Mirror Pre-Retirement Pension Benefits . A Death Beneficiary who is eligible for a Non-Grandfathered Cash Balance Mirror Pre-Retirement Pension Benefit shall receive such benefit in the form of a lump sum payment in an amount equal to the portion of the balance in the Executives Excess Retirement Account attributable to the Non-Grandfathered Mirror Pension Benefit on the date the payment is processed. The Non-Grandfathered Cash Balance Mirror Pre-Retirement Pension Benefit shall be paid ninety (90) days after the Executives death.
(b) Non-Grandfathered Standard Mirror Pre-Retirement Pension Benefits .
(i) If an Executive (A) is not married on the date of his death, (B) has been married for less than one year prior to his death and designates a Death Beneficiary other than his spouse, or (C) has been married for at least one year prior to his death and the Executives spouse consents to the Executives designation of a Death Beneficiary other than the spouse, the Executives Death Beneficiary shall receive his benefit in an amount Actuarially Equivalent to the survivor benefit determined as if the Executive had Separated From Service on the earlier of the date of his actual Separation from Service or the date of his death, elected to receive his Non-Grandfathered Mirror Pension Benefit in the form of a monthly life annuity with a) a five (5) year certain survivor benefit if the Executive Separated from Service before attaining age 55, or b) a ten (10) year certain survivor benefit, if the Executive had attained age 55 while an Employee, had survived to age 55 and had died immediately following his
payment commencement date. The Non-Grandfathered Standard Mirror Pre-Retirement Pension Benefit shall be paid in the form of an Actuarially Equivalent single lump sum payment on the first day of the third month after the later of the date on which the Executive would have attained age 55 or the date of the Executives death.
(ii) If an Executive is married on the date of his death and paragraph (b)(i) does not apply to him, then, the Executives surviving spouse shall receive the Non-Grandfathered Standard Mirror Pre-Retirement Pension Benefit as follows:
(A) If the Executive Separated from Service before attaining age 55, the Executives spouse shall receive a reduced annuity payable monthly to the Executives spouse during his life, commencing on the first day of the third month following the later of the date on which the Executive would have attained age 55 or the date of the Executives death and ending on the date of the Executives spouses death, calculated as if the had Executive Separated from Service on the earlier of the date of the Executives death or actual Separation from Service, elected a joint and 50% survivor annuity form of payment described in Section 3.3(2)(b)(ii), survived to age 55 and died on the date following the payment commencement date.
(B) If the Executive had attained age 55 while an Employee, the Executives spouse shall receive a reduced annuity payable monthly to the Executives spouse during his life, commencing on the first day of the of the third month after the date of the Executives death, calculated as if the Executive had died immediately after commencing payments in the form of an immediate joint and 100% survivor annuity form of payment described in Section 3,3(2)(b)(ii).
(C) Notwithstanding the foregoing, if the present value of the Non-Grandfathered Standard Mirror Pre-Retirement Pension Benefit under this paragraph (b)(ii) does not exceed $25,000, such benefit will be distributed to the Executives Death Beneficiary in the form of an Actuarially Equivalent single lump sum on the first day of the third month following the later of the date on which the Executive would have attained age 55 or the date of the Executives death.
ARTICLE V
VESTING
Section 5.1 Vesting .
(1) In General . Except as provided in Subsection (2) and (3) of this Section, an Executive or Death Beneficiary shall become vested in the Mirror Pension Plan Benefits in accordance with the vesting provisions of the Pension Plan.
(2) Forfeiture Provision .
(a) Notwithstanding the provisions of Subsection (3) hereof, but subject to the requirements of paragraph (b) of this Subsection, the Employers shall be relieved of any obligation
to pay or provide any future Mirror Pension Benefits and Mirror Pre-Retirement Pension Benefits under this Plan and shall be entitled to recover amounts already distributed if, without the written consent of the Company, the Executive, whether before or after termination with the Controlled Group (i) participates in dishonesty, fraud, misrepresentation, embezzlement or deliberate injury or attempted injury, in each case related to the Company or a Controlled Group member, (ii) commits any unlawful or criminal activity of a serious nature, (iii) commits any intentional and deliberate breach of a duty or duties that, individually or in the aggregate, are material in relation to the Executives overall duties or (iv) materially breaches any confidentiality or noncompete agreement entered into with the Company or a Controlled Group member. The Employers shall have the burden of proving that one of the foregoing events have occurred.
(b) Notwithstanding the foregoing, an Executive shall not forfeit any portion of his Mirror Pension Benefits or Mirror Pre-Retirement Pension Benefits under paragraph (a) of this Subsection unless (i) the Executive receives reasonable notice in writing setting forth the grounds for the forfeiture, (ii) if requested by the Executive, the Executive (and/or the Executives counsel or other representative) is granted a hearing before the full Board of Directors of the Company (the Board) and (iii) a majority of the members of the full Board determine that the Executive violated one or more of the provisions of paragraph (a) of this Subsection.
(3) Acceleration of Vesting . Notwithstanding the provisions of Subsection (1) hereof, the Mirror Pension Benefits of the Executives (a) who are employed by the Controlled Group on the date of a Change in Control or (b) whose employment with the Company was terminated prior to a Change in Control but the Executive reasonably demonstrates that the termination occurred at the request of a third party who has taken steps reasonably calculated to effect the Change in Control, shall become immediately 100% vested upon the occurrence of such Change in Control.
ARTICLE VI
AMENDMENT AND TERMINATION
Section 6.1 Effect of Amendment and Termination . Notwithstanding any provision of the Plan (including the Administrative Document) to the contrary, no amendment or termination of the Plan shall, without the consent of the Executive (or, in the case of his death, his Death Beneficiary), adversely affect the vested Mirror Pension Benefit or vested Mirror Pre-Retirement Pension Benefit under the Plan of any Executive or Death Beneficiary as such Benefit exists on the date of such amendment or termination; provided, however, that this limitation shall not apply to the extent deemed necessary by the Company to comply with the requirements of the 409A Guidance.
Section 6.2 Limitation on Payments and Benefits . Notwithstanding any provision of this Plan to the contrary, if any amount or benefit to be paid or provided under this Plan or any other plan or agreement between the Executive and a Controlled Group member would be an Excess Parachute Payment, within the meaning of Code Section 280G, or any successor provision thereto, but for the application of this sentence, then the payments and benefits to be paid or provided under this Plan shall be reduced to the minimum extent necessary (but in no event to less than zero) so that no portion of any such payment or benefit, as so reduced, constitutes an Excess Parachute Payment; provided, however, that the foregoing reduction shall be made only if and to the extent that such reduction would result in an increase in the aggregate payment and benefits to be provided to the Executive, determined on an after-tax basis (taking into account the excise tax imposed pursuant to Code Section 4999, or any successor provision thereto, any tax imposed by any comparable provision of state law, and any applicable federal, state and local income taxes). If requested by the Executive or the Company, the determination of whether any reduction in such payments or benefits to be provided under this Plan or otherwise is required pursuant to the preceding sentence shall be made by the Companys independent accountants, at the expense of the
Company, and the determination of the Companys independent accountants shall be final and binding on all persons. The fact that the Executives right to payments or benefits may be reduced by reason of the limitations contained in this Section 6.2 shall not of itself limit or otherwise affect any other rights of the Executive pursuant to this Plan. The Executives benefit will be reduced only to the extent that the reduction in any cash payments due to the Executive and in the Executives SERP Benefits is insufficient to reduce or eliminate Excess Parachute Payment as described in this Section. The Executives Non-Grandfathered Mirror Pension Benefit (if any) shall be reduced if required by this section before any Grandfathered Mirror Pension Benefit is reduced.
Section 6.3 Establishment of Trust Fund .
(1) In General . The Plan is intended to be an unfunded, non-qualified retirement plan. However, the Company may enter into a trust agreement with a trustee to establish a trust fund (the Trust Fund) and to transfer assets thereto (or cause assets to be transferred thereto), subject to the claims of the creditors of the Employers, pursuant to which some or all of the Mirror Pension Benefits and Mirror Pre-Retirement Pension Benefits shall be paid. Payments from the Trust Fund shall discharge the Employers obligation to make payments under the Plan to the extent that Trust Fund assets are used to satisfy such obligations.
(2) Upon a Change in Control .
(a) Within thirty (30) business days of the occurrence of a Change in Control, to the extent it has not already done so, the Company shall be required to establish an irrevocable Trust Fund for the purpose of paying Mirror Pension Benefits and Mirror Pre-Retirement Pension Benefits. Except as described in the following sentence, all contributions to the Trust Fund shall be irrevocable and the Company shall not have the right to direct the trustee to return to the Employers, or divert to others, any of the assets of the Trust Fund until after satisfaction of all liabilities to all of the Executives and their Death Beneficiaries under the Plan. Any assets deposited in the Trust Fund shall be subject to the claims of the creditors of the Employers and any excess assets remaining in the Trust Fund after satisfaction of all liabilities shall revert to the Company.
(b) In addition to the requirements described in paragraph (a) above, the Trust Fund which becomes effective on the Change in Control shall be subject to the following additional requirements:
(i) the Trustee of the Trust Fund shall be a third party corporate or institutional trustee;
(ii) the Trust Fund shall satisfy the requirements of a grantor trust under the Code; and
(iii) the Trust Fund shall automatically terminate (A) in the event that it is determined by a final decision of the United States Department of Labor (or, if an appeal is taken therefrom, by a court of competent jurisdiction) that by reason of the creation of, and a transfer of assets to, the Trust, the Trust is considered funded for purposes of Title I of ERISA or (B) in the event that it is determined by a final decision of the Internal Revenue Service (or, if an appeal is taken therefrom, by a court of competent jurisdiction) that (I) a transfer of assets to the Trust is considered a transfer of property for purposes of Code Section 83 or any successor provision thereto, or (II) pursuant to Code Section 451 or 409A or any
successor provision thereto, amounts are includable as compensation in the gross income of a Trust Fund beneficiary in a taxable year that is prior to the taxable year or years in which such amounts would otherwise be actually distributed or made available to such beneficiary by the trustee. Upon such termination of the Trust, all of the assets in the Trust Fund attributable to the accrued Mirror Pension Plan Benefits shall be immediately distributed to the Executives, but only to the extent and in the manner permitted by the 409A Guidance, and the remaining assets, if any, shall revert to the Company.
(c) Within five (5) days following establishment of the Trust Fund, the Company shall transfer (or cause the Employers to transfer) to the trustee of such Trust Fund an amount equal to the equivalent actuarial present value of the Mirror Pension Benefits and Mirror Pre-Retirement Pension Benefits which have been accrued as of the date of the Change in Control on behalf of all of the Executives under the Plan (using the Actuarial Factors specified in Exhibit A for this purpose).
(d) In January of each year following a funding of the Trust Fund pursuant to paragraph (c) above, the Company shall cause to be deposited in the Trust Fund such additional amount (if any) by which the aggregate equivalent actuarial present value (determined using the Actuarial Factors specified in Exhibit A) of the sum of the Mirror Pension Benefits and Mirror Pre-Retirement Pension Benefits for all Executives under the Plan as of December 31 of the preceding year exceeds the fair market value of the assets of the Trust Fund as of such date.
(e) Notwithstanding the foregoing, an Employer shall not be required to make any contributions to the Trust Fund if the Employer is insolvent at the time such contribution is required.
(f) The Administrator shall notify the trustee of the amount of Mirror Pension Benefits and Mirror Pre-Retirement Pension Benefits to be paid to or on behalf of the Executive from the Trust Fund and shall assist the trustee in making distribution thereof in accordance with the terms of the Plan.
(g) Notwithstanding any provision of the Plan or the Administrative Document to the contrary, the provisions of this Section 6.3(2) hereof (i) may not be amended following a Change in Control and (ii) prior to a Change in Control may only be amended (A) with the written consent of each of the Executives or (B) if the effective date of such Amendment is at least two (2) years following the date the Executives were given written notice of the adoption of such amendment; provided, however, that this limitation shall not apply to any amendment that is deemed necessary or reasonable (as determined in the sole discretion of the Committee) to comply with the requirements of the 409A Guidance.
IN WITNESS WHEREOF, Ecolab Inc. has executed this Mirror Pension Plan and has caused its corporate seal to be affixed this 21 st day of December, 2011.
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ECOLAB INC. |
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By: |
/s/Steven L. Fritze |
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Steven L. Fritze |
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Chief Financial Officer |
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(Seal) |
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Attest: |
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By: |
/s/James J. Seifert |
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James J. Seifert |
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General Counsel and Secretary |
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EXHIBIT A
ACTUARIAL ASSUMPTIONS
FOR STANDARD MIRROR PENSION BENEFITS
AND STANDARD MIRROR PRE-RETIREMENT PENSION BENEFITS
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Interest Rate: |
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A. For lump sum |
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The interest rate will be 125% of the 10-year Treasury rate for the month of October preceding the Plan Year (i.e., January 1) (1) in which the retirement or other termination of employment is effective if the Mirror Pension Benefit is to commence immediately following such retirement or termination of employment or (2) in which the distribution becomes payable if the payment is to be deferred. |
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B. Annual Installments |
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Same as for lump sum. |
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C. General Actuarial Equivalence |
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7.5% except as provided in item 4 below. |
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2. |
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Mortality: |
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A. For Lump Sum |
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Revenue Ruling 2001-62 prescribed table. (The basis is the 1994 unisex pension tables) |
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B. Annual Installments |
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Same as for lump sum. |
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C. General Actuarial Equivalence |
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1971 Group Annuity Table |
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3. |
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Annuity Values Weighted: |
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A. For Lump Sum |
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N/A |
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B. Annual Installments |
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N/A |
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C. General Actuarial Equivalence |
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75% male, 25% female |
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4. |
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Early Commencement |
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The Mirror Pension Benefit shall be reduced by one two hundred eightieth (1/280th) for each month that the date of the commencement of payment precedes the date on which the Executive will attain age sixty-two (62). If the Executives Ecolab Pension Plan benefit is affected by Section 415 of the Code, the Administrator shall make such further adjustments to the Mirror Pension Benefit as the Administrator, in his or her sole discretion, deems appropriate to ensure that the total early retirement benefit from the Ecolab Pension Plan and the Ecolab Mirror Pension Plan equals the early retirement benefit the Executive would have been entitled to under the Ecolab Pension Plan without regard to the Code Limitations and non-qualified deferrals. |
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If payment is in the form of a single lump sum, the lump sum amount shall be based on the lump sum interest rate defined in item 1 above, the mortality assumptions specified in items 2 and 3 above, and the early retirement benefit immediate annuity amount as determined under this item 4. |
ACTUARIAL ASSUMPTIONS
FOR CASH BALANCE MIRROR PENSION BENEFITS
AND CASH BALANCE MIRROR PRE-RETIREMENT PENSION BENEFITS
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Interest Rate: |
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A. Convert Retirement Account into an Annuity |
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The applicable interest rate(s), within the meaning of Code section 417(e), as specified by the Commissioner of Internal Revenue for the second full calendar month preceding the first day of the Plan Year during which the distribution is made. (Used to determine an actuarially equivalent amount payable immediately as a single-life annuity benefit.) |
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B. Convert Retirement Accountinto Annual Installments |
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The interest rate will be 125% of the 10-year Treasury rate for the month of October preceding the Plan Year (i.e., January 1) (1) in which the retirement or other termination of employment is effective if the Mirror Pension Benefit is to commence immediately following such retirement or termination of employment or (2) in which the distribution becomes payable if the payment is to be deferred. |
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C. General Actuarial Equivalence |
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7.5%. |
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Mortality: |
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A. Convert Retirement Account into an Annuity |
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The applicable mortality table, within the meaning of Code section 417(e), in effect as of the date of distribution as prescribed by the Commissioner of Internal Revenue (described in section 807(d)(5)(A) of the Internal Revenue Code). (Used to determine an actuarially equivalent amount payable immediately as a single-life annuity benefit.) |
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B. Convert Retirement Accountinto Annual Installments |
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N/A |
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C. General Actuarial Equivalence |
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Revenue Ruling 2001-62 prescribed table. (The basis is the 1994 unisex pension tables.) |
TABLE OF CONTENTS
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Page |
ARTICLE I PREFACE |
2 |
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Section 1.1 |
Effective Date |
2 |
Section 1.2 |
Purpose of the Plan |
2 |
Section 1.3 |
Administrative Document |
2 |
Section 1.4 |
American Jobs Creation Act of 2004 (AJCA) |
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ARTICLE II DEFINITIONS |
3 |
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Section 2.1 |
Actuarial Equivalent or Actuarially Equivalent. |
3 |
Section 2.2 |
Actuarial Factors |
3 |
Section 2.3 |
Code Limitations |
3 |
Section 2.4 |
Death Beneficiary |
3 |
Section 2.5 |
Disability |
3 |
Section 2.6 |
Executive |
3 |
Section 2.7 |
Grandfathered Mirror Pension Benefit |
3 |
Section 2.8 |
Mirror Savings Plan |
4 |
Section 2.9 |
Mirror Pension Benefit |
4 |
Section 2.10 |
Mirror Pre-Retirement Pension Benefit |
4 |
Section 2.11 |
Non-Grandfathered Mirror Pension Benefit |
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Section 2.12 |
Plan |
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Section 2.13 |
Separation from Service or to Separate from Service |
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Section 2.14 |
SERP |
4 |
Section 2.15 |
SERP Benefit |
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Section 2.16 |
Specified Employee |
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ARTICLE III MIRROR PENSION BENEFITS |
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Section 3.1 |
Amount of Mirror Pension Benefits |
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Section 3.2 |
Time of Payment |
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Section 3.3 |
Form of Payment of Mirror Pension Benefits |
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Section 3.4 |
Death after Commencement of Non-Grandfathered Mirror Pension Benefits |
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Section 3.5 |
Adjustment to Annual Installment Payments Commencing Prior to January 1, 2011 |
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ARTICLE IV MIRROR PRE-RETIREMENT PENSION BENEFIT |
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Section 4.1 |
Eligibility |
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Section 4.2 |
Amount, Form and Timing of Mirror Pre-Retirement Pension Benefits |
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ARTICLE V VESTING |
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Section 5.1 |
Vesting |
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ARTICLE VI AMENDMENT AND TERMINATION |
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Section 6.1 |
Effect of Amendment and Termination |
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Section 6.2 |
Limitation on Payments and Benefits |
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Section 6.3 |
Establishment of Trust Fund |
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EXHIBIT (10.16)
ECOLAB INC.
ADMINISTRATIVE DOCUMENT FOR NON-QUALIFIED BENEFIT PLANS
(As Amended and Restated Effective as of January 1, 2011)
Ecolab Inc. (the Company) hereby amends and completely restates this Administrative Document (the Administrative Document) which provides for the administration of the non-qualified benefit plans listed on Exhibit A hereto (collectively, the Plans and individually, a Plan) which have been established by the Company for purposes of providing benefits to certain management and highly compensated employees who perform management and professional functions for the Company and certain related entities. This Administrative Document is incorporated by reference in and is a part of each of the Plans.
ARTICLE I
DEFINITIONS
Words and phrases used in this Administrative Document and in the Plans with initial capital letters which are defined in the Pension Plan are used in this Administrative Document and in the Plans as so defined, unless otherwise specifically defined herein or in the Plans or the context clearly indicates otherwise. Words and phrases used in this Administrative Document with initial capital letters which are defined in the Plans are used herein as so defined. The following words and phrases when used in this Administrative Document or in the Plans with initial capital letters shall have the following respective meanings, unless the context clearly indicates otherwise or a particular Plan provides differently with respect to its own provisions:
Section 1.1 Administrator shall mean the person authorized to perform the administrative duties under the Plans pursuant to Section 4.1.
Section 1.2 Annual Compensation for a Plan Year shall mean the sum of (1) the Executives base salary, commission and annual incentive bonuses paid in cash (but not long term incentive bonuses) which are reportable by the Employer for federal income tax purposes as wages for such Plan Year, (2) any salary reductions caused as a result of participation in an Employer-sponsored plan which is governed by Section 401(k), 132(f)(4) or 125 of the Code, and (3) any salary reductions caused as a result of participation in the Ecolab Mirror Savings Plan or its predecessor plan, and (4) for periods prior to January 1, 2011, severance pay (not in excess of 52 weeks duration effective as of January 1, 2002) which will be deemed to have been paid in regular, payroll dates at the Executives regular rate of compensation in effect prior to his termination of employment even if such severance pay is, in fact, paid in a lump sum or other accelerated manner.
Section 1.3 Benefit shall mean a Mirror Pension Benefit, a Mirror Pre-Retirement Pension Benefit, a SERP Benefit, a SERP Pre-Retirement Benefit, a Mirror Savings Benefit, an Executive Death Benefit or an Executive Disability Benefit, as applicable.
Section 1.4 Change in Control . A Change in Control shall be deemed to have occurred if the event set forth in any one of the following Subsections shall have occurred:
(1) any person as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (Exchange Act) (other than the Company, any trustee or other fiduciary holding securities under any employee benefit plan of the Company, or any corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company), is or becomes, including pursuant to a tender or exchange offer for shares of the common stock of the Company (Common Stock) pursuant to which purchases are made, the beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Companys then outstanding securities, other than in a transaction arranged or approved by the Board of Directors of the Company (the Board) prior to its occurrence; provided, however, that if any such person will become the beneficial owner, directly or indirectly, of securities of the Company representing 34% or more of the combined voting power of the Companys then outstanding securities, a Change in Control will be deemed to occur whether or not any or all of such beneficial ownership is obtained in a transaction arranged or approved by the Board prior to its occurrence, and other than in a transaction in which such person will have executed a written agreement with the Company (and approved by the Board) on or prior to the date on which such person becomes the beneficial owner of 25% or more of the combined voting power of the Companys then outstanding securities, which agreement imposes one or more limitations on the amount of such persons beneficial ownership of shares of Common Stock, if, and so long as, such agreement (or any amendment thereto approved by the Board provided that no such amendment will cure any prior breach of such agreement or any amendment thereto) continues to be binding on such person and such person is in compliance (as determined by the Board in its sole discretion) with the terms of such agreement (including such amendment); provided, however that if any such person will become the beneficial owner, directly or indirectly, of securities of the Company representing 50% or more of the combined voting power of the Companys then outstanding securities, a Change in Control will be deemed to occur whether or not such beneficial ownership was held in compliance with such a binding agreement, and provided further that the provisions if this Subsection (1) shall not be applicable to a transaction in which a corporation becomes the owner of all the Companys outstanding securities in a transaction which complies with the provisions of Subsection (3) of this Section (e.g., a reverse triangular merger); or
(2) during any thirty-six consecutive calendar months, individuals who constitute the Board on the first day of such period or any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest including, but not limited to, a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board or nomination for election by the Companys stockholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who were either directors on the first day of such period, or whose appointment, election or nomination for election was previously so approved or recommended, shall cease for any reason to constitute at least a majority thereof; or
(3) there is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent
thereof) more than 50% of the combined voting power of the securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, and in which no person (as defined under Subsection (1) above) acquires 50% or more of the combined voting power of the securities of the Company or such surviving entity or parent thereof outstanding immediately after such merger or consolidation; or
(4) the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Companys assets, other than a sale or disposition by the Company of all or substantially all of the Companys assets to an entity, more than 50% of the combined voting power of the voting securities of which are owned by stockholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale.
Section 1.5 Code shall mean the Internal Revenue Code of 1986, as amended.
Section 1.6 Company shall mean Ecolab Inc., a Delaware corporation or its successor(s).
Section 1.7 Controlled Group shall mean the Company and any other corporation or entity, the employees of which, together with employees of the Company, are required by subsection (b) or (c) of Code Section 414 to be treated as if they were employed by a single employer. For purposes of determining whether a Separation from Service has occurred, members of the Controlled group will be identified in accordance with Code Section 414(b) or (c), except that in applying Code Section 1563(a)(1), (2), and (3) for purposes of Code Section 414(b) or in applying Treas. Reg. §1.414(c)-2 for purposes of Code Section 414(c), the language at least 50 percent shall be used instead of the language at least 80 percent each place it appears in such Code and regulations sections.
Section 1.8 Employee shall mean any person who is designated by an Employer as a common-law employee and who is employed on a full-time or substantially full-time basis.
Section 1.9 Employer shall mean the Company and any other member of the Controlled Group that adopts or has adopted one or more of the Plans pursuant to Section 6.3.
Section 1.10 409A Guidance means Section 409A of the Code and proposed, temporary or final regulations or any other guidance issued thereunder.
Section 1.11 Pension Plan shall mean the Ecolab Pension Plan, as such plan may be amended from time to time.
Section 1.12 Plans shall mean those non-qualified benefit plans listed on Exhibit A hereto, as they may be amended from time to time.
Section 1.13 Plan Year shall mean a calendar year.
Section 1.14 Separation from Service or to Separate from Service shall mean any termination of employment with the Controlled Group due to retirement, death, disability or
other reason; provided, however, that no Separation from Service is deemed to occur while an Employee (1) is on military leave, sick leave, or other bona fide leave of absence that does not exceed six (6) months (or, in the case of disability, twelve (12) months), or if longer, the period during which the Employees right to reemployment with the Controlled Group is provided either by statute or by contract, or (2) continues to perform services for the Controlled Group (whether as an employee or as an independent contractor) at an annual rate of fifty percent (50%) or more of the average level of services performed over the immediately preceding 36-month period (or the full period in which the Employee provided services if the Employee has been providing services for less than 36 months). For purposes of this Section, disability shall mean any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than six months, where such impairment causes the Employee to be unable to perform the duties of his or her position of employment or any substantially similar position of employment. Whether an Employee has incurred a Separation from Service shall be determined in accordance with the 409A Guidance.
Section 1.15 Specified Employee shall have the meaning set forth in Section 6.8.
ARTICLE II
PAYMENT OF BENEFITS
Section 2.1 Special Offset Provision . Notwithstanding any provision of the Plans to the contrary, if the Administrator (in his or her sole discretion) determines that an Executive or Death Beneficiary is indebted to the Controlled Group at the time of a Benefit payment, the Administrator (in his or her sole discretion) may reduce any such Benefit by the amount of the indebtedness, provided, however, that such reduction does not exceed $5,000 in any Plan Year and the reduction is made at the same time and in the same amount as the debt otherwise would have been due from the Executive. An election by the Administrator not to reduce any such Benefit shall not constitute a waiver of the Controlled Groups claim for such indebtedness.
Section 2.2 Withholding/Taxes . To the extent required by applicable law, the Company shall withhold (or cause to be withheld) from the Benefit payments any taxes required to be withheld by any federal, state or local government.
Section 2.3 Adjustments . Notwithstanding any provision of the Plans to the contrary, if an Executive or Death Beneficiary receives Benefits for any period that exceed the aggregate Benefits properly payable for such period, the Administrator (in his or her sole discretion) may, to the extent permitted by the 409A Guidance, make any adjustment he or she deems advisable to future Benefits due to the Executive or Death Beneficiary under the Plans until the aggregate amount of such adjustments equals the aggregate amount of the excess Benefits paid. The provisions of this Section shall not be construed to provide the exclusive means of recovering excess payments to an Executive or Death Beneficiary, and the Administrator may take such other action as he or she deems advisable to recover the amount of excess Benefits that were paid to the Executive or Death Beneficiary.
Section 2.4 Death Beneficiary Designations .
(1) Absence of Designation . If the Executive fails to designate a Death Beneficiary under the Plans, or at any other time when there is no existing Death Beneficiary designated by the Executive, the Executives Death Beneficiary shall be his surviving spouse or, if none, his estate.
(2) Ambiguous Death Beneficiary Designation . In the event that the most recent Death Beneficiary designation filed prior to the Executives death is ambiguous or incapable of reasonable construction, the Administrator may (in his or her sole discretion) (a) construe such designation in such manner as the Administrator deems closest to the Executives intent, (b) determine that such designation is void and distribute the Benefits as if the Executive had not filed any designation, or (c) institute proceedings in a court of competent jurisdiction for construction of such designation and charge any expenses incurred in such proceedings, including reasonable attorneys fees, against the Executives Benefits. Notwithstanding the foregoing, in the event that any benefits under the Plans are provided by insurance contracts which are owned by the Executive and under which the Executives are required to designate a Death Beneficiary, the terms of such insurance contracts shall govern Death Beneficiary designations with respect to such Benefits.
Section 2.5 Protective Provisions . Notwithstanding any provision of the Plans to the contrary, as a condition to receiving any Benefit under any Plan, the Executive and, where applicable, the Death Beneficiary, shall be required to cooperate with the Company by furnishing any and all information requested by the Company in order to facilitate the payment of the Benefit and taking any other action(s) as may be requested by the Company. If an Executive or Death Beneficiary refuses to cooperate, no Benefits shall be payable under the Plans and neither the Company nor the Executives Employer shall have any further obligation to the Executive or his Death Beneficiary under the Plans.
Section 2.6 Liability for Payment .
(1) The Employer by which the Executive was most recently employed at the time of his termination of employment with the Controlled Group shall pay the Benefits (or cause the Benefits to be paid) to the Executive or his Death Beneficiary under the Plans. In the event that an executive transfers employment from one Employer to another, the Executives Benefits (and the underlying assets and liabilities related thereto) shall automatically be transferred from the Executives former Employer to the Executives new Employer.
(2) Notwithstanding subsection (1) above, the Company may (but shall not be required to) guarantee some or all of the obligations of one or more Employers under any one or all of the Plans, with respect to one or more Executives or Death Beneficiaries, to the extent determined by the Company in its sole and absolute discretion.
(3) The Company hereby guarantees all of the Employer obligations of Ecolab USA Inc. (formerly named Ecolab Finance Inc.) under all of the Plans, with respect to Executives or Death Beneficiaries.
ARTICLE III
FUNDING
Section 3.1 Obligation of Employers .
(1) The Plans are designed to be unfunded, nonqualified plans and the entire cost of the Plans shall be paid from the general assets of the Employers. Notwithstanding the foregoing, the Employers may establish one or more trusts pursuant to an agreement with a trustee under which some or all of the Benefits under the Plans shall be paid or the Employers may otherwise purchase insurance for the purpose of providing Benefits under the Plans. In furtherance of, but without limiting, the foregoing, an Employer may, in its sole discretion, satisfy its obligation to provide Executive Death Benefits or Executive Disability Benefits by delivering to the Executive an insurance contract which provides substantially the same benefits.
(2) Any payment by a trustee pursuant to a trust agreement of Benefits payable pursuant to a Plan shall, to the extent thereof, discharge an Employers obligation to pay Benefits thereunder.
Section 3.2 Limitation on Rights of Executives and Death Beneficiaries - No Lien . Nothing contained in the Plans shall be deemed to create a lien in favor of any Executive or Death Beneficiary on any trust account or on any assets of the Employers. The Employers shall have no obligation to purchase any assets that do not remain subject to the claims of the creditors of the Employers for use in connection with the Plans. Any assets contributed to a trust shall remain subject to the claims of the Employers creditors. No Executive, Death Beneficiary or any other person shall have any preferred claim on, or any beneficial ownership interest in, any assets of the Employers prior to the time that such assets are paid to the Executive or Death Beneficiary as provided in the Plans. Each Executive and Death Beneficiary shall have the status of a general unsecured creditor of the Employers and, except as provided in the preceding sentence, shall have no right to, prior claim to, or security interest in, any assets of the Employers or any trust account. No liability for the payment of benefits under the Plans shall be imposed upon any officer, director, employee, or stockholder of an Employer.
ARTICLE IV
ADMINISTRATION
Section 4.1 Responsibility for Administration . The Company shall be responsible for the general administration of the Plans and for carrying out the provisions thereof. The Vice President - Human Resources of the Company shall perform the duties of the Administrator on behalf of the Company. Such Vice President may, from time to time, delegate all or part of the administrative powers, duties and authorities delegated to him or her under the Plans to such person or persons, office or committee as he or she shall select. Any such delegation shall be in writing and will be terminable upon such notice as the Vice President - Human Resources deems reasonable under the circumstances.
Section 4.2 Authority/Duties . The Administrator shall have the sole and absolute discretion to interpret the provisions of the Plans (including, without limitation, by supplying omissions from, and correcting deficiencies in, or resolving inconsistencies or ambiguities in, the
language of the Plans) and, except as otherwise provided in the Plans, shall determine the rights and status of Executives and Death Beneficiaries thereunder (including, without limitation, the amount of any Benefit to which an Executive or Death Beneficiary may be entitled under the Plans). The Administrator shall have the power to make reasonable rules and regulations required in the administration of the Plans, to make all determinations necessary for their administration (except those determinations which the Plans requires others to make) and to facilitate their administration.
Section 4.3 Indemnification . The Company shall indemnify and defend to the fullest extent permitted by law the Vice President - Human Resources and each person performing duties as the Administrator against all liabilities such person may incur in the administration of the Plans. The Administrator shall be entitled to reimbursement from the Company for all expenses incurred in the performance of the duties of the Administrator.
Section 4.4 Expenses . Except as described in the following sentence, the Company shall pay all expenses incurred in the administration and operation of the Plans. Notwithstanding the foregoing, and except as provided in the Ecolab Mirror Savings Plan, the expenses of administering the Ecolab Mirror Savings Plan shall be payable from such Plan, unless the Company determines, in its sole discretion, to pay part or all thereof directly.
Section 4.5 Claims . Any Executive or Death Beneficiary who believes that he is entitled to receive a Benefit under a Plan which he has not received may file with the Administrator a written claim specifying the basis for his claim and the facts upon which he relies in making such claim. The Administrator shall review the claim and shall respond in writing to the claimant within sixty (60) days after receiving the claim. Such written notice shall be written in a manner calculated to be understood by the claimant and shall contain a statement of the specific reasons for the Administrators decision. During the review process, the claimant (or his authorized representative) will be given the opportunity to review the Plan under which he is claiming Benefits and any other documents pertinent thereto and to submit issues and comments in writing. If the Administrator, upon review, denies any part or all of the Benefits claimed by the claimant, the claimant may, within sixty (60) days after receiving the Administrators denial, appeal the Administrators decision to the Chief Financial Officer (CFO) of the Company. Within ninety (90) days after receiving the claimants notice of appeal, the CFO (or his delegate) shall render a decision with respect to the claim, which decision shall be final and binding on all interested parties. The Administrator or CFO may, by written notice to the claimant, extend the 60-day or 90-day periods during which such Administrator or CFO must respond if special circumstances (as determined by the Administrator or CFO) require such an extension.
Section 4.6 American Jobs Creation Act (AJCA) .
(1) To the extent applicable, it is intended that each Non-Qualified Plan (including all amendments thereto) comply with the provisions of Section 409A of the Code, as enacted by the AJCA, so as to prevent the inclusion in gross income of any amount of benefit accrued hereunder in a taxable year that is prior to the taxable year or years in which such amounts would otherwise be actually distributed or made available to the Executives. Each Non-Qualified Plan shall be administered in a manner that will comply with the 409A Guidance. All
provisions of the Administrative Document shall be interpreted in a manner consistent with the 409A Guidance.
(2) The Administrator shall not take any action under the Non-Qualified Plans that would violate any provision of Section 409A of the Code. The Administrator is authorized to adopt rules or regulations deemed necessary or appropriate in connection with the 409A Guidance to anticipate and/or comply with the requirements thereof (including any transition or grandfather rules thereunder).
(3) Any benefit under a Non-Qualified Plan that is deemed to have been deferred prior to January 1, 2005 and that qualifies for grandfathered status under Section 409A of the Code shall continue to be governed by the law applicable to nonqualified deferred compensation prior to the addition of Section 409A to the Code and shall be subject to the terms and conditions specified in the Administrative Document as in effect prior to January 1, 2005.
(4) Notwithstanding any provision of this Administrative Document or any Plan, nothing herein or in any such Plan shall be construed as a guarantee of favorable tax consequences of the provision of Benefits under any of the Plans.
ARTICLE V
AMENDMENT AND TERMINATION
Section 5.1 Amendment . The Board of Directors of the Company reserves the right to amend, at any time, any or all of the provisions of any or all of the Plans (including this Administrative Document) for all Employers, without the consent of any other Employer or any Executive, Death Beneficiary or any other person, provided, however, that the President and CFO of the Company each individually may amend any or all of the Plans (including this Administrative Document) as determined necessary or appropriate by such individual to improve administration of the Plan or Plans, to coordinate with qualified plans or to comply with the Employee Retirement Income Security Act of 1974, as amended (ERISA), tax, securities or other similar laws or regulatory requirements. Any such amendment shall be expressed in an instrument executed by an authorized officer of the Company and shall become effective as of the date designated in such instrument or, if no such date is specified, on the date of its execution.
Section 5.2 Termination . The Board of Directors of the Company does hereby reserve the right to terminate any or all of the Plans at any time for any or all Employers, without the consent of any other Employer or of any Executive, Death Beneficiary or any other person. Such termination shall be expressed in an instrument executed by an authorized officer of the Company and shall become effective as of the date designated in such instrument, or if no date is specified, on the date of its execution. Any Employer which shall have adopted a Plan may, pursuant to the action of its Board of Directors and with the written consent of the Company, elect separately to withdraw from such Plan and such withdrawal shall constitute a termination of such Plan as to it, but it shall continue to be an Employer for the purposes thereof as to Executives or Death Beneficiaries to whom it owes obligations thereunder. Any such withdrawal and termination shall be expressed in an instrument executed by an officer of the
terminating Employer and shall become effective as of the date designated in such instrument or, if no date is specified, on the date of its execution.
Section 5.3 Effect of Amendment and Termination .
(1) Except as specifically provided in a particular Plan, the Board of Directors of the Company (or an Employer, if applicable) shall have the authority, in its action to amend or terminate a particular Plan, to determine the effect of such amendment or termination, including, but not limited to, the authority to reduce or eliminate Benefits for Executives who have terminated employment with the Controlled Group, died or became disabled prior to the date of such amendment or termination.
(2) Notwithstanding anything in the Plans and this Administrative Document to the contrary, in the event of a termination of a Plan, the Company, in its sole and absolute discretion, shall have the right to change the time and/or manner of distribution of Benefits, including, without limitation, by providing for the payment of a single lump sum payment to each Executive or Death Beneficiary then entitled to a Mirror Pension Benefit or SERP Benefit in an amount equal to the actuarially equivalent present value of such benefit (as determined under the respective Plan); provided, however, that to the extent the requirements of Code Section 409A apply to such Plan, any such changes in the time and manner of payment may be made only to the extent and in a manner permitted by the 409A Guidance.
Section 5.4 Board of Directors Action . Any action which is required to be taken by an Employers Board of Directors or which a Board of Directors is authorized to take, may be taken by any committee of such Board of Directors which is appointed in accordance with the laws of the state of incorporation of the Employer. A Board of Directors may, by resolution, delegate to such person or persons as the Board deems advisable any one or more of the powers reserved to the Board under the Plan, subject to the revocation of such delegation by the Board at any time.
ARTICLE VI
MISCELLANEOUS
Section 6.1 Nonalienation . No right or interest of an Executive or his Death Beneficiary under any Plan shall be anticipated, assigned (either in law or in equity) or alienated by the Executive or his Death Beneficiary, nor shall any such right or interest be subject to attachment, garnishment, levy, execution or other legal or equitable process or in any manner be liable for or subject to the debts of any Executive or Death Beneficiary. The Company shall give no effect to any instrument purporting to alienate any persons interest in any Benefits under the Plans. Notwithstanding the foregoing, in the event that any Benefits under the Plans are provided by insurance contracts which are owned by the Executives, such Executives may assign ownership of such contracts to any other person(s), to the extent permitted by law.
Section 6.2 Employment Rights . Employment rights shall not be enlarged or affected hereby. The Employers shall continue to have the right to discharge an Executive, with or without cause.
Section 6.3 Adoption of Plans by Employers . Any member of the Controlled Group may become an Employer under any of the Plans with the prior approval of the Administrator by
furnishing a certified copy of a resolution of its Board of Directors adopting the Plan(s). Any adoption of a Plan by an Employer, however, must either be authorized by the Board of Directors of the Company in advance or be ratified by such Board prior to the end of the Plan Year in which the Employer adopted the Plan(s). An Employer that ceases to exist or ceases to be a member of the Controlled Group shall automatically cease being a participating Employer under the Plans.
Section 6.4 Effect on other Benefits . Except as specifically provided in the Plans or in any other Employer-sponsored plan, benefits payable to or with respect to an Executive under the Pension Plan or any other Employer-sponsored (qualified or nonqualified) plan, if any, are in addition to those provided under the Plans.
Section 6.5 Payment to Guardian . If the Administrator (in his sole discretion) determines that a Benefit payable under a Plan is payable to a minor, to a person declared incompetent or to a person incapable of handling the disposition of his property, the Administrator may (in his or her sole discretion) direct payment of such Benefit to the spouse, parent, adult child, guardian, custodian under the Uniform Transfers to Minors Act of any state, legal representative or person or institution having the care and custody of such minor, incompetent or person. The Administrator may require such proof of incompetency, minority, incapacity or guardianship as it may deem appropriate prior to distribution of the Benefit. Such distribution shall completely discharge the Company and the Employers from all liability with respect to such Benefit.
Section 6.6 Notice . Any notice required or permitted to be given to the Administrator under the Plan shall be deemed sufficient if in writing and hand delivered, or sent by registered or certified mail, to the General Counsel of the Company. Such notice shall be deemed given as of the date of receipt by the General Counsel (if delivery is made by hand) or as of the date shown on the postmark on the receipt for registration or certification (if delivery is made by mail).
Section 6.7 Officers . Any reference in the Plan to a particular officer of the Company shall also refer to the functional equivalent of such officer in the event the title or responsibilities of that office change.
Section 6.8 Specified Employee . For purposes of Code Section 409A and all plans, programs, policies and arrangements that constitute plans of deferred compensation (within the meaning of the 409A Guidance), a Specified Employee shall mean an Employee who at any time during the calendar year immediately preceding the Employees Separation from Service was (1) a corporate officer of (a) the Company, (b) any Controlled Group member in the U.S., (c) any Controlled Group member outside the U.S., to which such individual was seconded by the Company or its U.S. Controlled Group member, or (d) an Employer outside the U.S.; (2) a five-percent (5%) owner of the Company; or (3) a one-percent (1%) owner of the Company having annual compensation in excess of $150,000. For purposes of this Section, an officer means any officer elected by the Board of Directors of the Company.
Section 6.9 Governing Law . The Plans shall be regulated, construed and administered under the laws of the State of Minnesota, except when preempted by federal law.
Section 6.10 Gender and Number . For purposes of interpreting the provisions of the Plans (including this Administrative Document), the masculine gender shall be deemed to include the feminine, the feminine gender shall be deemed to include the masculine, and the singular shall include the plural, unless otherwise clearly required by the context.
Section 6.11 Severability . If any provision of a Plan (including this Administrative Document) or the application thereof to any circumstances(s) or person(s) is held to be invalid by a court of competent jurisdiction, the remainder of such Plan and the application of such provision to other circumstances or persons shall not be affected thereby.
Section 6.12 Integration . The Plans (including this Administrative Document) constitute the entire agreement of the parties, and no change, amendment or modification thereof shall be valid and binding unless made in writing in accordance with the provisions of Article V.
IN WITNESS WHEREOF, Ecolab Inc. has executed this Administrative Document and has caused its corporate seal to be affixed this 21 day of December, 2011.
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ECOLAB INC. |
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By: |
/s/Steven L. Fritze |
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Steven L. Fritze |
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Chief Financial Officer |
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Attest: |
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/s/James J. Seifert |
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James J. Seifert |
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General Counsel and Secretary |
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EXHIBIT A
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Ecolab Executive Death Benefits Plan |
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Ecolab Executive Long-Term Disability Plan |
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Ecolab Mirror Pension Plan |
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Ecolab Supplemental Executive Retirement Plan |
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Ecolab Mirror Savings Plan |
EXHIBIT (10.18)(ii)
AMENDMENT NO. 1 TO
ECOLAB INC.
CHANGE IN CONTROL SEVERANCE COMPENSATION POLICY
(as Amended and Restated Effective as of February 26, 2010)
WHEREAS, Ecolab Inc. (the Company) adopted an amended and restated Change in Control Severance Compensation Policy (the Policy) effective as of February 26, 2010; and
WHEREAS, the Company wishes to adopt a change to the Policy to provide for the exclusion of newly-elected officers that are also covered by a similar plan from participating and the coverage of such officers under the Policy upon the termination or expiration of such similar plan;
NOW THEREFORE, pursuant to the amending power reserved to the Companys Board of Directors by Section 8.2 of the Policy, the Board of Directors adopted this Amendment No. 1 to the Policy on the 27th day of October, 2011.
Section 1
Section 3.1 is amended and restated to insert the following definition as a new subsection (j) and to adjust the current subsections (j) through (t) to accommodate the addition of such new subsection (j):
(j) Existing Agreement means an employment, severance, change in control or other similar agreement not governed by this Policy (other than a stock option or restricted stock agreement or other form of participation document entered into pursuant to an Employer-sponsored plan which may incidentally refer to accelerated vesting or accelerated payment upon a change in control (as defined in such separate plan or document)) with the Company or a Subsidiary which becomes operative upon the occurrence of a change in control of the Company or such Subsidiary (as defined in such agreement) and which agreement is still in effect. An Existing Agreement shall include any such agreement entered into prior to an entity becoming a Subsidiary and pursuant to which a change in control of the Subsidiary has already occurred.
Section 2
The definition of Participant under Section 3.1(o) is amended and restated in its entirety to the following:
(o) Participant means an Executive who meets the eligibility requirements of Article IV hereof.
Section 3
Section 4.1 is amended and restated to read as follows:
Section 4.1 Participation . Each person who is an Executive on the Effective Date shall be a Participant on the Effective Date. Thereafter, each other person who becomes an Executive prior to both (a) a Change in Control and (b), unless specifically provided for by the Board at the time a Participant is elected as an Executive, the date a notice of termination of the Policy is provided under Section 8.1(a), shall automatically become a Participant on the day on which such person becomes an Executive. Notwithstanding the foregoing, however, no Executive shall be a Participant if such person is a party to an Existing Agreement. If an Executive is not eligible to become a Participant on the date such person would otherwise be so entitled solely because the person has entered into and is subject to an Existing Agreement, such person shall automatically become a Participant upon the termination or expiration of such Existing Agreement.
[ Signature page follows .]
EXHIBIT (10.27)(ii)
DESCRIPTION OF AMENDMENT EFFECTIVE AS OF FEBRUARY 22, 2012
TO NON PLAN INDUCEMENT AWARD RESTRICTED STOCK AWARD AGREEMENT
Pursuant to action by the Compensation Committee of the Board of Directors of Ecolab Inc. effective as of February 22, 2012, the Non Plan Inducement Award Restricted Stock Award Agreement effective as of March 7, 2008 (the Agreement) between Nalco Holding Company, a Delaware corporation, and J. Erik Fyrwald (Fyrwald) was amended with respect to Exhibit A to the Agreement by accelerating the vesting date for the remaining 50% of the restricted shares subject to the Agreement (amounting to 67,959 shares of Ecolab Inc. Common Stock) from March 6, 2012 to February 22, 2012.
EXHIBIT (10.28)(ii)
FIRST AMENDMENT
TO
SEVERANCE AGREEMENT
THIS FIRST AMENDMENT TO SEVERANCE AGREEMENT (the Amendment) is entered into by and between Ecolab Inc., a Delaware corporation (the Company) on behalf of its subsidiary Nalco Company, and J. Erik Fyrwald (Executive), effective as of February 24, 2012. Capitalized terms not defined in the Amendment shall have the meanings ascribed to such terms in the Agreement.
RECITALS
WHEREAS, Executive and Nalco Company (Nalco) entered into a Severance Agreement, dated January 1, 2011 (the Agreement); and
WHEREAS, pursuant to that certain Agreement and Plan of Merger, dated as of July 19, 2011, Nalco Holding Company merged with and into Sustainability Partners Corporation a wholly-owned subsidiary of the Company, as of December 1, 2011, pursuant to which Sustainability Partners Corporation survived the merger and was renamed Nalco Holding Company; and
WHEREAS, Nalco is a wholly-owned subsidiary of Nalco Holding Company; and
WHEREAS, Executive and the Company desire to amend the Agreement to acknowledge the occurrence, and revise the definition, of Good Reason and make certain other changes;
NOW, THEREFORE, in consideration of Executives performance, the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree, effective as of the date first above written, to amend the Agreement in the following particulars:
1. By deleting the second and third sentences of the definition of Good Reason under Section 1 of the Agreement and replacing them with the following:
For purposes of this Agreement, the Executive must notify the Company within twenty-four (24) months of a claimed Good Reason Event that Executive is terminating his employment. For the avoidance of doubt, the Company acknowledges and agrees that Executive incurred a material diminution in Executives responsibilities constituting a Good Reason Event as a result of changes in the circumstances of his employment occurring on the date of merger, December 1, 2011, which is not susceptible to cure, and may voluntarily
terminate his employment at any time through November 30, 2013 in accordance with Section 3 herein.
2. By deleting Section 2 of the Agreement and replacing it with the following:
2. Term of Agreement and Termination of All Other Severance Benefits . This Agreement shall be in effect from January 1, 2011 until November 30, 2013 (the Term). Notwithstanding the foregoing but subject to Section 3 (and those portions of Section 1 as apply to Section 3) herein, Executives employment at all times shall be deemed to be an employment at-will and Executives employment may be terminated by Executive or the Company for any reason or no reason. While in force, this Agreement shall represent the only severance benefit for Executive (it being acknowledged and understood that Executives Change in Control Agreement dated January 1, 2011 between Nalco Holding Company and him provides for benefits other than severance and is not affected by this Agreement as amended). All other severance agreements for Executive, including without limitation the Severance Agreement dated February 28, 2008, are hereby terminated, and Executive shall have no claim under any severance policy.
3. By adding the following immediately at the end of Section 6(g) of the Agreement:
With a copy to:
Ecolab Inc.
370 Wabasha Street North
St. Paul, Minnesota 55102
Attention: James J. Seifert, Executive Vice President, General Counsel and Secretary
Fax No. : (651) 293-2471
4. Except as modified herein the Agreement shall remain in full force and effect.
This Amendment may be executed in counterparts, each of which shall be deemed an original for all purposes, and together shall constitute one and the same Amendment.
IN WITNESS WHEREOF , the parties hereto have executed this Amendment on this 24th day of February, 2012, to be effective as of the date first above written.
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Ecolab Inc. |
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By: |
/s/Michael L. Meyer |
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Michael L. Meyer |
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Executive V.P. Human Resources |
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J. Erik Fyrwald |
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/s/J. Erik Fyrwald |
EXHIBIT (10.29)(ii)
FIRST AMENDMENT
TO
CHANGE OF CONTROL AGREEMENT
THIS FIRST AMENDMENT TO CHANGE OF CONTROL AGREEMENT (the Amendment) is entered into by and between Ecolab Inc., a Delaware corporation (the Company) on behalf of its subsidiary Nalco Holding Company, and J. Erik Fyrwald (Executive), effective as of February 24, 2012. Capitalized terms not defined in the Amendment shall have the meanings ascribed to such terms in the Agreement.
RECITALS
WHEREAS, Executive and Nalco Holding Company (Nalco) entered into a Change of Control Agreement, dated January 1, 2011 (the Agreement); and
WHEREAS, pursuant to that certain Agreement and Plan of Merger, dated as of July 19, 2011, Nalco merged with and into Sustainability Partners Corporation a wholly-owned subsidiary of the Company, as of December 1, 2011, pursuant to which Sustainability Partners Corporation survived the merger and was renamed Nalco Holding Company; and
WHEREAS, Executive and the Company desire to amend the Agreement to acknowledge the occurrence, and revise the definition, of Good Reason and make certain other changes;
NOW, THEREFORE, in consideration of Executives performance, the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree, effective as of the date first above written, to amend the Agreement in the following particulars:
1. By deleting the second and third sentences of the definition of Good Reason under Section 1 of the Agreement and replacing them with the following:
For purposes of this Agreement, the Executive must notify the Company within twenty-four (24) months of a claimed Good Reason Event that Executive is terminating his employment. For the avoidance of doubt, the Company acknowledges and agrees that Executive incurred a material diminution in Executives responsibilities constituting a Good Reason Event as a result of changes in the circumstances of his employment occurring on the date of merger, December 1, 2011, which is not susceptible to cure, and may voluntarily terminate his employment at any time through November 30, 2013 in accordance with Section 3 herein.
2. By deleting Section 2 of the Agreement and replacing it with the following:
2. Term of Agreement . This Agreement shall be in effect from January 1, 2011 until November 30, 2013 (the Term). Notwithstanding the foregoing but subject to Section 3 (and those portions of Section 1 as apply to Section 3), Executives employment at all times shall be deemed to be an employment at-will and Executives employment may be terminated by Executive or the Company for any reason or no reason. While in force, this Agreement shall represent the only change of control benefit for Executive (it being acknowledged and understood that Executives Severance Agreement dated January 1, 2011 between Nalco Company and him provides for benefits other than change in control benefits and is not affected by this Agreement as amended). All other change of control agreements for Executive, including without limitation the Change of Control Agreement dated November 26, 2008, are hereby terminated, and Executive shall have no claim under any change in control policy.
3. By adding the following immediately at the end of Section 5(g) of the Agreement:
With a copy to:
Ecolab Inc.
370 Wabasha Street North
St. Paul, Minnesota 55102
Attention: James J. Seifert, Executive Vice President, General Counsel and Secretary
Fax No. : (651) 293-2471
4. Except as modified herein the Agreement shall remain in full force and effect.
This Amendment may be executed in counterparts, each of which shall be deemed an original for all purposes, and together shall constitute one and the same Amendment.
IN WITNESS WHEREOF , the parties hereto have executed this Amendment on this 24th day of February, 2012, to be effective as of the date first above written.
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Ecolab Inc. |
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By: |
/s/Michael L. Meyer |
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Name: |
Michael L. Meyer |
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Title: |
Executive V.P. Human Resources |
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J. Erik Fyrwald |
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/s/J. Erik Fyrwald |
Exhibit (13.1)
MANAGEMENTS DISCUSSION & ANALYSIS
Executive Summary
The following management discussion and analysis (MD&A) provides information that we believe is useful in understanding our operating results, cash flows and financial condition. This discussion contains various Non-GAAP Financial Measures and also contains various Forward-Looking Statements within the meaning of the Private Securities Litigation Reform Act of 1995. We refer readers to the information on Non-GAAP Financial Measures and Forward-Looking Statements and Risk Factors found on pages 21 and 22.
In 2011, we once again delivered strong double-digit adjusted earnings growth despite continued mixed conditions in our end markets and made major investments to develop growth drivers to sustain our business for the future. Global hospitality markets continued to show improving trends and food and beverage and healthcare were generally steady, while foodservice markets in the U.S. and Europe remained soft. We continued to focus on driving our sales, working to expand our shares in all markets and regions; investing in new product development that provides outstanding results and enable customers to save labor, water and energy; making smart investments to sustain our growth in the future; and employing strategic acquisitions to bolster the current business and to develop new areas of growth.
Clearly the largest and most important of these investments for future growth was the merger with Nalco Holding Company (Nalco) completed in December 2011. Nalco brings us a strong management team and organization with leadership positions in the critical water and energy markets, where expanding global demand creates significant growth opportunities. Nalco is the global leader in these industries, with products and services providing the most effective and efficient solutions for customers. Nalcos strengths will combine with our leadership positions in the food safety and healthcare markets, where increasing global demand for improved sanitation and sustainable solutions creates strong long-term needs that we are uniquely positioned to meet for our customers.
In addition, we also worked aggressively to improve our profitability and enhance our returns on investment. A wide range of projects were undertaken to improve process efficiency, simplify and enhance our product portfolio, globalize purchasing, and optimize our business structure. The most significant of these efforts has been our work underway to unlock excess operational and structural costs in Europe and substantially improve margins through the use of our new business systems there, which have brought us a range of tools and capabilities to enable us to leverage our scale in that region.
Through these focused actions, we once again delivered handsomely for our shareholders in 2011 while building opportunity for the future. Our performance underscored the strength and long term potential of our business, our people and our strategies.
Both 2011 and 2010 results of operations included special (gains) and charges, as well as discrete tax items which impact the year-over-year comparisons. International subsidiaries are included in the financial statements on the basis of their November 30 fiscal year-ends. Based on the December 1, 2011 completion of the Nalco merger, one month of legacy Nalco U.S. subsidiary activity has been included in the consolidated Ecolab results during 2011, thus also impacting year-over-year comparisons. In order to provide the most meaningful comparisons of results of operations, where applicable, comparisons made throughout the MD&A are presented excluding the 2011 post merger Nalco activity.
Sales: Reported consolidated net sales increased 12% to $6.8 billion in 2011 from $6.1 billion in 2010. Net sales were favorably impacted by foreign currency exchange compared to the prior year. When measured in fixed rates of foreign currency exchange, net sales increased 9% compared to the prior year. Nalcos post-merger activity added 3% to sales in 2011. Non-GAAP adjusted net sales, excluding the impact of special (gains) and charges, Nalcos post-merger activity and foreign currency exchange increased 6% in 2011. See the section entitled Non-GAAP Financial Measures on page 21 for further information on our Non-GAAP measures, and the Net Sales table on page 13.
Gross Margin: Our reported gross margin was 48.9% of sales for 2011 compared to 50.5% of sales in 2010. Our 2011 gross margin was negatively impacted by significantly higher delivered product costs. In addition, special (gains) and charges included in both sales and cost of sales and Nalco merger related activity combined to decrease our gross margin by 0.5 percentage points.
Operating Income: Reported operating income decreased 7% to $754 million in 2011 compared to $807 million in 2010. Non-GAAP adjusted operating income, excluding the impact of special (gains) and charges and Nalco merger related activity, increased 12% in 2011. See the section entitled Non-GAAP Financial Measures on page 21 for further information on our Non-GAAP measures, and the Operating Income table on page 14.
Earnings Per Share: Reported diluted earnings per share decreased 14% to $1.91 in 2011 compared to $2.23 for 2010. The net impact of special (gains) and charges, discrete tax items and Nalco merger related activity negatively impacted 2011 reported diluted earnings per share by $0.63, primarily driven by restructuring charges. Nalco merger and integration charges and the modification of a long-term customer agreement. Net special (gains) and charges and discrete tax items had no net impact on 2010 reported diluted earnings per share. Non-GAAP adjusted earnings per share, which exclude the impact of special (gains) and charges, discrete tax items and Nalco merger related activity, increased 14% to $2.54 in 2011 compared to $2.23 in 2010. See the section entitled Non-GAAP Financial Measures on page 21 for further information on our Non-GAAP measures, and the Diluted Earnings Per Common Share (EPS) table on page 15.
Cash Flow: Cash flow from operating activities was $686 million in 2011. We continued to generate strong cash flow from operations, allowing us to fund our ongoing operations, investments in the business and pension obligations and return cash to our shareholders through share repurchases and dividend payments.
Balance Sheet: Prior to the Nalco merger, our balance sheet was rated within the A categories of the major rating agencies. Our balance sheet rating was reduced to BBB+/Baa1 in conjunction with the Nalco merger, and the resulting increase in debt leverage, but we remained consistent with our stated objective of having a strong investment grade balance sheet. Our strong balance sheet has allowed us continued access to capital at attractive rates, evidenced by the increase in our credit facilities from $600 million to $3.5 billion, the issuance of $500 million of private placement senior notes and completion of our public debt offering of $3.75 billion of senior notes in 2011.
Return on Equity: Our return on beginning shareholders equity (net income attributable to Ecolab divided by beginning shareholders equity) for 2011 was 21.7%. This was the 20th consecutive year in which we achieved our long-term financial objective of at least 20% return on beginning shareholders equity.
Dividends: We increased our quarterly cash dividend 14% in December 2011 to an indicated annual rate of $0.80 per share for 2012. The increase represents our 20th consecutive annual dividend rate increase and the 75th consecutive year we have paid cash dividends. We have achieved this outstanding dividend record through our excellent business model and strong financial position, and we believe our recent actions have strengthened our growth prospects, cash flow and ability to deliver superior shareholder returns going forward.
Restructuring Initiatives: In February 2011, we commenced a comprehensive plan to substantially improve the efficiency and effectiveness of our European business, sharpen its competitiveness and accelerate its growth and profitability. One year in to the three year effort, we remain focused on the major initiatives of the overall plan, which include additional shared and outsourced services, centralization of business functions, business simplification, office consolidation and supply chain realignment.
Following the completion of the Nalco merger, in January 2012, we commenced plans to undertake restructuring actions related to the reduction of our global workforce and optimization of our supply chain and office facilities. We expect that restructuring activities related to the Nalco merger will be completed by the end of 2013.
CRITICAL ACCOUNTING ESTIMATES
Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). We have adopted various accounting policies to prepare the consolidated financial statements in accordance with U.S. GAAP. Our most significant accounting policies are disclosed in Note 2 of the Notes to the Consolidated Financial Statements.
Preparation of our consolidated financial statements, in conformity with U.S. GAAP, requires us to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Estimates are considered to be critical if they meet both of the following criteria: (1) the estimate requires assumptions to be made about matters that are highly uncertain at the time the accounting estimate is made, and (2) different estimates that the company reasonably could have used for the accounting estimate in the current period, or changes in the accounting estimate that are reasonably likely to occur from period to period, have a material impact on the presentation of the companys financial condition, changes in financial condition or results of operations.
Besides estimates that meet the critical estimate criteria, we make many other accounting estimates in preparing our financial statements and related disclosures. All estimates, whether or not deemed critical, affect reported amounts of assets, liabilities, revenues and expenses as well as disclosures of contingent assets and liabilities. Estimates are based on experience and other information available prior to the issuance of the financial statements. Materially different results can occur as circumstances change and additional information becomes known, even from estimates not deemed critical. Our critical accounting estimates include the following:
Revenue Recognition
We recognize revenue on product sales at the time evidence of an arrangement exists, title to the product and risk of loss transfers to the customer, the price is fixed and determinable and collection is reasonably assured. We recognize revenue on services as they are performed. Our sales policies do not provide for general rights of return. Significant estimates used in recognizing revenue include the delay between the time that products are shipped and when they are received by customers and title transfers and the amount of credit memos to be issued in subsequent periods. We record estimated reductions to revenue for customer programs and incentive offerings including pricing arrangements, promotions and other volume-based incentives at the time the sale is recorded. Depending on market conditions, we may increase customer incentive offerings, which could reduce gross profit margins at the time the incentive is offered.
Valuation Allowances and Accrued Liabilities
We estimate sales returns and allowances by analyzing historical returns and credits, and apply these trend rates to the most recent 12 months sales data to calculate estimated reserves for future credits. We estimate the allowance for doubtful accounts by analyzing accounts receivable balances by age and applying historical write-off and collection trend rates. In addition, our estimates also include separately providing for customer balances based on specific circumstances and credit conditions, and when it is deemed probable that the balance is uncollectible. Actual results could differ from these estimates under different assumptions. Our allowance for doubtful accounts balance was $49 million and $45 million, as of December 31, 2011 and 2010, respectively. These amounts include our allowance for sales returns and credits of $12 million as of December 31, 2011 and $7 million as of December 31, 2010. Our bad debt expense as a percent of net sales was 0.2%, 0.3% and 0.4% in 2011, 2010 and 2009, respectively. We believe that it is reasonably likely that future results will be consistent with historical trends and experience. However, if the financial condition of our customers were to deteriorate, resulting in an inability to make payments, or if unexpected events or significant changes in future trends were to occur, additional allowances may be required.
Our business and operations are subject to extensive environmental laws and regulations governing, among other things, air emissions, wastewater discharges, the use and handling of hazardous substances, waste disposal and the investigation and remediation of soil and groundwater contamination. As with other companies engaged in similar manufacturing activities and providing similar services, some risk of environmental liability is inherent in our operations. Estimates used to record liabilities related to pending litigation and environmental claims are based on our best estimate of probable future costs. We record the amounts that represent the points in the range of estimates that we believe are most
probable or the minimum amount when no amount within the range is a better estimate than any other amount. Potential insurance reimbursements generally are not anticipated in our accruals for environmental liabilities or other insured losses. Expected insurance proceeds are recorded as receivables when recovery is probable. While the final resolution of litigation and environmental contingencies could result in amounts different than current accruals, and therefore have an impact on our consolidated financial results in a future reporting period, we believe the ultimate outcome will not have a significant effect on our financial or liquidity position.
Actuarially Determined Liabilities
With the December 2011 merger with Nalco, we assumed sponsorship of legacy Nalco qualified and non-qualified pension and other postretirement plans that provide benefits to U.S. and non-U.S. employees. The measurement of our pension and postretirement benefit obligations are dependent on a variety of assumptions determined by management and used by our actuaries. These assumptions affect the amount and timing of future contributions and expenses.
The assumptions used in developing the required estimates include, among others, discount rate, projected salary and health care cost increases, and expected return on assets. We reassessed the discount rate assumption for the U.S. Plans for measurement as of December 31, 2011. As part of this assessment we reviewed the market weighting conventions, the bond population used to develop a bond yield curve and other model inputs. As a result of this reassessment, we selected a new curve that utilizes a market weighted convention which we believe is more accurate than the simple weighted curve we used previously. The discount rate assumption for the U.S. Plans is calculated using a bond yield curve constructed from a population of high-quality, non-callable, corporate bond issues with maturity dates of six months to thirty years. Bond issues in the population are rated Aa by Moodys Investor Services or AA by Standard & Poors and represent the 50% of highest yielding issuances within a certain universe of certain Aa or AA rated bonds. The discount rate is calculated by matching the Plans projected cash flows to the bond yield curve. Projected salary and health care cost increases are based on our long-term actual experience, the near-term outlook and assumed inflation. The expected return on plan assets reflects asset allocations, investment strategies and views of investment advisors. The expected return on assets assumption used to estimate 2012 plan expense was adjusted downward to 8.25% as of December 31, 2011 to reflect our view on long-term asset performance.
The effects of actual results differing from our assumptions, as well as changes in assumptions, are reflected in the unrecognized actuarial loss and amortized over future periods and, therefore, generally affect our recognized expense in future periods. Significant differences in actual experience or significant changes in assumptions may materially affect pension and other post-retirement obligations. The unrecognized actuarial loss on our U.S. qualified and non-qualified pension plans increased from $500 million to $690 million (before tax) as of December 31, 2010 and 2011, respectively, primarily due to a decrease in our discount rate and actual asset returns being lower than the expected return on assets. The assumptions used to estimate our U.S. pension and postretirement obligations vary by plan. In determining our U.S. pension obligations for 2011, our weighted-average discount rate decreased to 4.86% from 5.41% at year-end 2010 and our weighted-average projected salary increase decreased from 4.32% to 4.08% as of December 31, 2010 and 2011, respectively. In determining our U.S. postretirement obligation for 2011, our weighted-average discount rate decreased to 4.80% from 5.41% at year-end 2010.
Our weighted-average expected return on U.S. plan assets, which reflects our expected long-term returns on plan assets used for determining 2011 and 2012 U.S. pension expense, was 8.44% and 8.25%, respectively. Our weighted-average expected return on plan assets used for determining 2011 and 2012 U.S. postretirement expense was 8.50% and 8.25%, respectively.
The effect on 2012 expense of a decrease in the discount rate or expected return on assets assumption as of December 31, 2011 is shown below assuming no changes in benefit levels and no amortization of gains or losses for our major plans:
MILLIONS |
|
EFFECT ON U.S. PENSION PLANS |
|
||||
ASSUMPTION |
|
ASSUMPTION
|
|
INCREASE IN
|
|
HIGHER
|
|
Discount rate |
|
-0.25 pts |
|
$67.3 |
|
$5.1 |
|
Expected return on assets |
|
-0.25 pts |
|
N/A |
|
$3.6 |
|
MILLIONS |
|
EFFECT ON U.S. POSTRETIREMENT
|
|
||||
ASSUMPTION |
|
ASSUMPTION
|
|
INCREASE IN
|
|
HIGHER
|
|
Discount rate |
|
-0.25 pts |
|
$7.2 |
|
$(0.1) |
|
Expected return on assets |
|
-0.25 pts |
|
N/A |
|
$0.1 |
|
Our international pension obligations and underlying plan assets are approximately half the size of our U.S. pension plans, with the majority of the amounts held in the U.K. and eurozone countries. We use similar assumptions to measure our international pension obligations. However, the assumptions used vary by country based on specific local country requirements and information. See Note 15 for further discussion concerning our accounting policies, estimates, funded status, planned contributions and overall financial positions of our pension and post-retirement plan obligations.
In the U.S. we have high deductible insurance policies for casualty and property losses, subject to per occurrence and liability limitations. We are insured for losses in excess of these limitations and have recorded both a liability and an offsetting receivable for amounts in excess of these limitations. Outside of the U.S., legacy Ecolab is fully insured for casualty and property losses, subject to per occurrence deductibles. Outside of the U.S., legacy Nalco is fully insured for casualty and property losses, subject to per occurrence deductibles, which are higher than the legacy Ecolab deductibles. We are self-insured for health care claims for eligible participating employees, subject to certain deductibles and limitations. We determine our liabilities for claims incurred but not reported on an actuarial basis. A change in these assumptions would cause reported results to differ.
Share-Based Compensation
We measure compensation expense for share-based awards at fair value at the date of grant and recognize compensation expense over the service period for awards expected to vest. Determining the fair value of share-based awards at the grant date requires judgment, including estimating expected volatility, exercise behavior, expected dividends and risk-free rates of return. Additionally, the expense that is recorded is dependent on the amount of share-based awards expected to vest or be forfeited, which includes assessing the probability of meeting service and performance conditions. If actual vesting or forfeiture results differ significantly from these estimates, share-based compensation expense and our results of operations could be impacted. For additional information on our equity compensation plans, including significant assumptions used in determining fair value, see Note 10.
Income Taxes
Judgment is required to determine the annual effective income tax rate, deferred tax assets and liabilities and any valuation allowances recorded against net deferred tax assets. Our effective income tax rate is based on annual income, statutory tax rates and tax planning opportunities available in the various jurisdictions in which we operate. Our annual effective income tax rate includes the impact of reserve provisions. We recognize the largest amount of tax benefit that is greater than 50% likely of being realized upon settlement with a taxing authority. We adjust these reserves in light of changing facts and circumstances. During interim periods, this annual rate is then applied to our year-to-date operating results. In the event that there is a significant discrete item recognized in our interim operating results, the tax attributable to that item would be separately calculated and recorded in the same period.
Tax regulations require items to be included in our tax returns at different times than the items are reflected in our financial statements. As a result, the effective income tax rate reflected in our financial statements differs from that reported in our tax returns. Some of these differences are permanent, such as expenses that are not deductible on our tax return, and some are temporary differences, such as depreciation expense.
Temporary differences create deferred tax assets and liabilities. Deferred tax assets generally represent items that can be used as a tax deduction or credit in our tax return in future years for which we have already recorded the tax benefit in our income statement. We establish valuation allowances for our deferred tax assets when the amount of expected future taxable income is not likely to support the utilization of the entire deduction or credit. Relevant factors in determining the realizability of deferred tax assets include future taxable income, the expected timing of the reversal of temporary differences, tax planning strategies and the expiration dates of the various tax attributes. Deferred tax liabilities generally represent items for which we have already taken a deduction in our tax return, but have not yet recognized that tax benefit in our financial statements.
U.S. deferred income taxes are not provided on certain unremitted foreign earnings that are considered permanently reinvested. Undistributed earnings of foreign subsidiaries are considered to have been reinvested indefinitely or are available for distribution with foreign tax credits available to offset the amount of applicable income tax and foreign withholding taxes that might be payable on earnings. It is impractical to determine the amount of incremental taxes that might arise if all undistributed earnings were distributed.
A number of years may elapse before a particular tax matter, for which we have established a reserve, is audited and finally resolved. The number of tax years with open tax audits varies depending on the tax jurisdiction. The Internal Revenue Service (IRS) has completed its examinations of the legacy Ecolab U.S. federal income tax returns through 2008. The legacy Ecolab U.S. income tax returns for the years 2009 and 2010 are currently under audit. The legacy Nalco U.S. income tax returns for the years 2005 through 2008 are currently under audit. The tax positions we take are based on our interpretations of tax laws and regulations in the applicable federal, state and international jurisdictions. We believe that our tax returns properly reflect the tax consequences of our operations, and that our reserves for tax contingencies are appropriate and sufficient for the positions taken. Because of the uncertainty of the final outcome of these examinations, we have reserved for potential reductions of tax benefits (including related interest and penalties) for amounts that do not meet the more-likely-than-not thresholds for recognition and measurement as required by authoritative guidance. The tax reserves are reviewed throughout the year, taking into account new legislation, regulations, case law and audit results. Settlement of any particular issue could result in offsets to other balance sheet accounts, cash payments or receipts and/or adjustments to tax expense. The majority of our tax reserves are presented in the balance sheet within other non-current liabilities. For additional information on income taxes, see Note 11.
Long-Lived, Intangible Assets and Goodwill
We periodically review our long-lived and intangible assets for impairment and assess whether significant events or changes in business circumstances indicate that the carrying value of the assets may not be recoverable. Such circumstances may include, for example, a significant decrease in the market price of an asset, a significant adverse change in the manner in which the asset is being used or in its physical condition or history of operating or cash flow losses associated with the use of the asset. Impairment losses could occur when the carrying amount of an asset exceeds the anticipated future undiscounted cash flows expected to result from the use of the asset and its eventual disposition. The amount of the impairment loss to be recorded, if any, is calculated as the excess of the assets carrying value over its estimated fair value.
We also periodically reassess the estimated remaining useful lives of our long-lived assets. Changes to estimated useful lives would impact the amount of depreciation and amortization expense recorded in earnings. We have experienced no significant changes in the carrying value or estimated remaining useful lives of our long-lived assets. As part of the Nalco merger, we added intangible asset trade names with indefinite useful lives. The carrying value of these assets will be subject to annual impairment testing beginning in 2012.
We test our goodwill for impairment on an annual basis during the second quarter. Our reporting units are our operating units. If circumstances change significantly, we would also test a reporting unit for impairment during interim periods between the annual tests. Goodwill is assessed for impairment using fair value measurement techniques. Specifically, goodwill impairment is determined using a two-step process. Both the first step of determining the fair value of a reporting unit and the second step of determining the fair value of individual assets and liabilities of a reporting unit (including unrecognized intangible assets) are judgmental in nature and often involve the use of significant estimates and assumptions. Fair values of reporting units are established using a discounted cash flow method. Where available and as appropriate, comparable market multiples are used to corroborate the results of the discounted cash flow method. These valuation methodologies use estimates and assumptions, which include projected future cash flows (including timing), discount rates reflecting the risk inherent in future cash flows, perpetual growth rates, and determination of appropriate market comparables. Based on our testing, there has been no impairment of goodwill during the three years ended December 31, 2011.
Our merger with Nalco resulted in the addition of $4.4 billion of goodwill, which will ultimately be maintained in separate reporting units. Subsequent performance of these reporting units relative to projections used in our purchase price allocation 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.
RESULTS OF OPERATIONS
Net Sales
|
|
|
|
|
PERCENT CHANGE |
||||||||
MILLIONS |
|
2011 |
2010 |
2009 |
2011 |
2010 |
|||||||
Reported GAAP net sales |
|
$ |
6,798.5 |
|
$ |
6,089.7 |
$ |
5,900.6 |
|
12% |
|
3% |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|||
Special (gains) and charges |
|
29.6 |
|
|
|
|
|
|
|
|
|||
Nalco merger impact |
|
(193.4) |
|
|
|
|
|
|
|
|
|||
Non-GAAP adjusted net sales |
|
6,634.7 |
|
6,089.7 |
5,900.6 |
|
9 |
|
3 |
|
|||
Effect of foreign currency translation |
|
(136.6) |
|
12.9 |
49.0 |
|
|
|
|
|
|||
Non-GAAP adjusted fixed currency net sales |
|
$ |
6,498.1 |
|
$ |
6,102.6 |
$ |
5,949.6 |
|
6% |
|
3% |
|
The components of the year-over-year net sales change are as follows:
PERCENT |
|
2011 |
2010 |
||
Volume |
|
3 |
% |
2 |
% |
Price changes |
|
1 |
|
|
|
Nalco merger impact |
|
3 |
|
|
|
Other acquisitions and divestitures |
|
2 |
|
|
|
Non-GAAP fixed currency net sales change |
|
9 |
|
3 |
|
Foreign currency translation |
|
2 |
|
1 |
|
Reported GAAP net sales change |
|
12 |
% |
3 |
% |
Note: Amounts in table above do not necessarily sum due to rounding.
Gross Margin
|
|
2011 |
2010 |
2009 |
|||
Gross profit as a percent of net sales |
|
48.9 |
% |
50.5 |
% |
49.5 |
% |
Our gross profit margin (gross margin) (defined as the difference between net sales less cost of sales, divided by net sales) decreased in 2011 compared to 2010 due to significantly higher delivered product costs (including raw materials, freight and fuel) which more than offset sales and pricing gains. The 2011 gross margin was also negatively impacted by restructuring charges of $5.3 million, recognition of fair value step-up in Nalco inventory of $3.6 million, and $29.6 million related to the modification of a customer agreement; the combination of which decreased our gross margin by 0.3 percentage points. The Nalco merger had a negative impact of 0.2 percentage points on our 2011 gross margin. We expect Nalco to continue to have a negative impact on our gross margin in 2012.
Our gross margin increase in 2010 over 2009 was driven by volume gains, favorable delivered product costs and cost savings actions. Our 2009 gross margin was negatively impacted by restructuring charges included in cost of sales of $12.6 million, which decreased our gross margin by 0.2 percentage points.
Selling, General and Administrative Expenses
|
|
2011 |
2010 |
2009 |
|||
Selling, general & administrative expenses as a percent of net sales |
|
35.9 |
% |
37.1 |
% |
36.8 |
% |
Selling, general and administrative expenses as a percentage of consolidated net sales decreased to 35.9% compared to 37.1% in 2010. The decrease in the expense ratio was driven by leverage from sales gains and acquisitions, along with savings from restructuring in 2011, which more than offset investments in the business and cost increases. The impact on the expense ratio in 2011 from the Nalco merger was minimal. We continued to make key business investments that drive innovation and efficiency, through R&D and information technology systems.
Selling, general and administrative expenses as a percentage of consolidated net sales increased to 37.1% in 2010 compared to 36.8% in 2009. Investments in the business and cost increases more than offset leverage from sales gains and savings from restructuring in 2009.
Special (Gains) and Charges
Special (gains) and charges reported on the Consolidated Statement of Income included the following items:
MILLIONS
|
|
2011 |
|
2010 |
|
2009 |
|||||
Net sales |
|
|
|
|
|
|
|
|
|
||
Customer agreement modification |
|
$ 29.6 |
|
|
$ |
|
|
|
$ |
|
|
Cost of sales |
|
|
|
|
|
|
|
|
|
||
Restructuring charges |
|
5.3 |
|
|
|
|
|
12.6 |
|
||
Recognition of Nalco inventory fair value step-up |
|
3.6 |
|
|
|
|
|
|
|
||
Subtotal |
|
8.9 |
|
|
|
|
|
12.6 |
|
||
Special (gains) and charges |
|
|
|
|
|
|
|
|
|
||
Restructuring charges |
|
69.0 |
|
|
|
|
|
59.9 |
|
||
Business structure and optimization |
|
0.9 |
|
|
10.9 |
|
|
2.8 |
|
||
Nalco merger and integration charges |
|
57.7 |
|
|
|
|
|
|
|
||
Cleantec acquisition integration charges |
|
3.4 |
|
|
|
|
|
|
|
||
Gain on sale of investments |
|
|
|
|
(5.9 |
) |
|
|
|
||
Venezuela currency devaluation |
|
|
|
|
4.2 |
|
|
|
|
||
Other items |
|
|
|
|
(1.7 |
) |
|
4.4 |
|
||
Subtotal |
|
131.0 |
|
|
7.5 |
|
|
67.1 |
|
||
Interest expense, net |
|
|
|
|
|
|
|
|
|
||
Nalco merger credit facility costs |
|
1.5 |
|
|
|
|
|
|
|
||
Total special (gains) and charges |
|
$ 171.0 |
|
|
$7.5 |
|
|
$79.7 |
|
||
|
|
|
|
|
|
|
|
|
|
||
For segment reporting purposes, special (gains) and charges have been included in our corporate segment, which is consistent with our internal management reporting.
Restructuring Charges
Merger Restructuring Plan
Following the completion of the Nalco merger, in January 2012, we formally commenced plans to undertake restructuring actions related to the reduction of our global workforce and optimization of our supply chain and office facilities, including planned reduction of plant and distribution center locations (the Merger Restructuring Plan).
In anticipation of this Plan, a limited number of actions were taken in 2011, and as a result, we recorded restructuring charges of $6.6 million ($4.1 million after tax) or $0.02 per diluted share in 2011. We expect that restructuring activities under the Merger Restructuring Plan will be completed by the end of 2013, with total cost through the end of 2013 anticipated to be approximately $180 million ($120 million after tax). We anticipate that approximately $150 million of the pre-tax restructuring charges will represent cash expenditures. The remaining $30 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.
We anticipate savings from the Merger Restructuring Plan, along with synergies achieved in connection with the merger, will be approximately $250 million on an annual basis with the run rate achieved by the end of 2014. We anticipate the corresponding savings and synergies will be approximately $75 million in 2012.
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 remaining liability related to the Nalco Restructuring Plan. We expect minimal charges related to the completion of this Plan.
2011 Restructuring Plan
Following the implementation of new business systems in Europe, in February 2011, we commenced a comprehensive plan to substantially improve the efficiency and effectiveness of our European business, sharpen its competitiveness and accelerate its growth and profitability. Additionally, restructuring has been undertaken outside of Europe, the costs of which have not been and are not expected to be significant (collectively the 2011 Restructuring Plan). As a result of restructuring activities under the 2011 Restructuring Plan, we recorded restructuring charges of $68.1 million ($54.2 million after tax) or $0.22 per diluted share during 2011.
We anticipate that pretax restructuring charges of approximately $150 million ($125 million after tax) will be incurred through 2013, as the 2011 Restructuring Plan continues to roll out. These actions are expected to result in approximately $120 million ($100 million after tax) in annualized cost savings when fully realized, with approximately $15 million ($11 million after tax) of cost savings realized in 2011.
We anticipate that approximately $125 million of the pre-tax charges will represent cash expenditures. The remaining $25 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.
2009 Restructuring Plan
In the first quarter of 2009, we announced plans to undertake restructuring and other cost-saving actions during 2009 in order to streamline operations and improve efficiency and effectiveness (the 2009 Restructuring Plan). The 2009 Restructuring Plan included a reduction of our global workforce and the reduction of plant and distribution center locations. As a result of these actions, we recorded restructuring charges of $72.5 million ($52.0 million after tax) or $0.22 per diluted share during 2009. The restructuring was completed as of the end of 2009. These actions provided annualized pretax savings of approximately $75 million ($50 million after tax), with pretax savings of approximately $50 million realized in 2009.
Restructuring charges have been included as a component of both cost of sales and special (gains) and charges on the Consolidated Statement of Income. Further details related to our restructuring charges are included in Note 3.
Non-restructuring special (gains) and charges
Special (gains) and charges incurred during 2011 include $62.8 million ($45.6 million after tax) or $0.19 per diluted share of charges related to the Nalco merger. Costs are related to merger and integration charges, closing costs and advisory fees, recognition of fair value step-up in Nalco inventory and fees to secure short-term credit facilities. Costs related to the Nalco merger have been included as a component of cost of sales, special (gains) and charges and interest expense, net on the Consolidated Statement of Income.
In the fourth quarter of 2011, we modified a long-term customer agreement that was assumed as part of a previous acquisition. The impact of the modification was included in net sales on the Consolidated Statement of Income, resulting in a sales reduction of $29.6 million ($18.4 million after tax), or $0.08 per diluted share.
In the first quarter of 2011, we completed the purchase of the assets of the Cleantec business of Campbell Brothers Ltd., Brisbane, Queensland, Australia (Cleantec). Special (gains) and charges in 2011 included acquisition integration costs incurred to optimize the Cleantec business structure.
Special (gains) and charges in 2010 include costs to optimize our organizational structure, $8.5 million of which were recorded in the fourth quarter. In the third quarter of 2010, we sold an investment in a small U.S. business and recognized a $5.9 million gain on the sale. The investment was not material to our consolidated results of operations or financial position.
Beginning in 2010, Venezuela has been designated hyper-inflationary and as such all foreign currency fluctuations are recorded in income. On January 8, 2010 the Venezuelan government devalued its currency (Bolivar Fuerte). We are remeasuring the financial statements of our Venezuelan subsidiary using the official exchange rate of 4.30 Bolivars to U.S. dollar. As a result of the devaluation, we recorded a charge of $4.2 million in the first quarter of 2010 due to the remeasurement of the local balance sheet. We are unable to predict the ongoing currency gains and losses for the remeasurement of the balance sheet.
Further details related to our non-restructuring special (gains) and charges are included in Note 3.
Operating Income
|
|
|
|
|
PERCENT CHANGE |
||||||||||||
MILLIONS |
|
2011 |
2010 |
2009 |
2011 |
2010 |
|||||||||||
Reported GAAP operating income |
|
$ |
753.8 |
|
|
|
$ |
806.8 |
|
|
$ |
681.3 |
|
(7 |
)% |
18 |
% |
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special (gains) and charges |
|
169.5 |
|
|
|
|
7.5 |
|
|
|
79.7 |
|
|
|
|
|
|
Nalco merger impact |
|
(13.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP adjusted operating income |
|
909.5 |
|
|
|
|
814.3 |
|
|
|
761.0 |
|
12 |
|
7 |
|
|
Effect of foreign currency translation |
|
(11.6 |
) |
|
|
|
8.6 |
|
|
|
13.3 |
|
|
|
|
|
|
Non-GAAP adjusted fixed currency operating income |
|
$ |
897.9 |
|
|
|
$ |
822.9 |
|
|
$ |
774.3 |
|
9 |
% |
6 |
% |
Reported operating income decreased 7% in 2011 compared to 2010. The operating income decrease was impacted by the year-over-year comparison of special (gains) and charges, offset partially by the impact of including Nalco merger related activity in our consolidated results in December 2011 and the favorable impact of foreign currency exchange. Excluding the impact of special (gains) and charges and Nalco merger related activity, adjusted operating income increased 12% in 2011. Excluding favorable currency exchange, adjusted fixed currency operating income increased 9% in 2011, as sales volume gains, pricing, and efficiencies more than offset increased delivered product costs and investments in the business.
Reported operating income increased 18% in 2010 compared to 2009. The operating income increase was impacted by the year-over-year decrease in special (gains) and charges and the favorable impact of foreign currency exchange. Excluding the impact of special (gains) and charges, adjusted operating income increased 7% in 2010. Excluding favorable currency exchange, adjusted fixed currency operating income increased 6% in 2010 as sales gains, favorable delivered product costs, and savings from restructuring
actions in 2009 more than offset continued investment in the business and other cost increases.
Interest Expense, Net
|
|
|
|
|
PERCENT CHANGE |
|||||||||||
MILLIONS |
|
2011 |
2010 |
2009 |
2011 |
2010 |
||||||||||
Reported GAAP interest expense, net |
|
$ |
74.2 |
|
|
$ |
59.1 |
|
|
$ |
61.2 |
|
26 |
% |
(3 |
)% |
Less adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special (gains) and charges |
|
1.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nalco merger impact |
|
17.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP adjusted interest expense, net |
|
$ |
55.3 |
|
|
$ |
59.1 |
|
|
$ |
61.2 |
|
(6 |
)% |
(3 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported net interest expense increased 26% in 2011 compared to 2010. The net interest expense increase was impacted by the year-over-year comparison of special (gains) and charges which includes short-term credit facility costs incurred to initially finance the Nalco merger. The year-over-year comparison is also impacted by the inclusion of Nalcos merger related activity in our consolidated results in 2011, which includes the interest expense impact of our $3.75 billion public debt issuance in December 2011 as well as interest expense on the Nalco senior notes outstanding as of December 31, 2011. Excluding the impact of special (gains) and charges and the Nalco merger impact, adjusted net interest expense decreased 6% in 2011 due primarily to the repayment of our $150 million 6.875% notes in February 2011.
The decrease in our 2010 net interest expense compared to 2009 was due to lower commercial paper borrowing rates combined with lower borrowing amounts as well as lower interest expense related to hedging activities and higher interest income.
Provision for Income Taxes
The following table provides a summary of our reported tax rate:
PERCENT |
|
2011 |
2010 |
2009 |
|||
Reported tax rate |
|
31.8 |
% |
29.0 |
% |
32.5 |
% |
Tax rate impact of: |
|
|
|
|
|
|
|
Special (gains) and charges |
|
(0.9 |
) |
(0.1 |
) |
(0.6 |
) |
Discrete tax items |
|
(1.0 |
) |
1.0 |
|
(0.2 |
) |
Nalco merger impact |
|
0.0 |
|
|
|
|
|
Non-GAAP adjusted effective tax rate |
|
29.9 |
% |
29.9 |
% |
31.7 |
% |
Our reported tax rate for 2011, 2010 and 2009 includes discrete impacts from special (gains) and charges and discrete tax events. Additionally, our 2011 reported tax rate includes the impact of including Nalcos U.S. activity in our consolidated results beginning in December 2011. Our adjusted effective tax rate in 2011 was comparable to 2010. Our adjusted effective tax rate decreased in 2010 compared to 2009 due primarily to increased benefits from the domestic manufacturing deduction in the U.S.
The 2011 reported tax rate was impacted by $39.5 million of reduced tax expense, including $45.4 million of net tax benefits on special (gains) and charges and $1.5 million of tax benefits related to U.S. Nalco activity included in our consolidated results beginning in December 2011, partially offset by $7.4 million of discrete tax net expense. Discrete tax items in 2011 include an $8 million charge recorded in the fourth quarter related to the realizability of foreign net operating loss carryforwards, as well as discrete tax net expense related to the remeasurement of our deferred tax assets due to the impact of a change in our blended state tax rate. These items were partially offset by net benefits related to recognizing adjustments from filing our 2010 U.S. federal returns and other International income tax returns and recognizing settlements and adjustments related to our 1999 through 2001 U.S. income tax returns. We also had benefits from prior year state refund claims and benefits from recognizing settlements and adjustments related to our 2007 through 2008 U.S. income tax returns.
The 2010 reported tax rate was impacted by $8.9 million of reduced tax expense including $0.9 million of net tax benefits on special (gains) and charges as well as $8.0 million of discrete tax net benefits. 2010 discrete tax benefits primarily include recognizing favorable settlements related to our 2002 through 2004 IRS appeals case and adjustments related to our prior year tax reserves. The discrete tax net benefit for the year also includes a $6 million tax benefit from the settlement of an international tax audit recorded in the first quarter, offset by a $5 million charge also recorded in the first quarter due to the passage of the U.S. Patient Protection and Affordable Care Act which changes the tax deductibility related to federal subsidies and resulted in a reduction of the value of our deferred tax assets related to the subsidies, as well as a $2 million charge in the second quarter for the impact of international tax costs from optimizing our business structure.
The 2009 reported tax rate was impacted by $20.4 million of reduced tax expense including $21.5 million of net tax benefits on special (gains) and charges as well as $1.1 million of discrete tax net charges. Discrete tax items in 2009 included tax benefits of $3.4 million related to prior year reserve adjustments which were more than offset by $4.5 million of tax charges related to optimizing our business structure.
Net Income Attributable to Ecolab
|
|
|
|
|
PERCENT CHANGE |
|||||||||
MILLIONS |
|
2011 |
2010 |
2009 |
2011 |
2010 |
||||||||
Reported GAAP net income |
|
$ |
462.5 |
|
$ |
530.3 |
|
$ |
417.3 |
|
(13 |
)% |
27 |
% |
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|||
Special (gains) and charges |
|
125.6 |
|
6.6 |
|
58.2 |
|
|
|
|
|
|||
Discrete tax expense (benefit) |
|
7.4 |
|
(8.0 |
) |
1.1 |
|
|
|
|
|
|||
Nalco merger impact |
|
2.1 |
|
|
|
|
|
|
|
|
|
|||
Non-GAAP adjusted net income |
|
$ |
597.6 |
|
$ |
528.9 |
|
$ |
476.6 |
|
13 |
% |
11 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings Per Common Share (EPS)
|
|
|
|
|
PERCENT CHANGE |
||||||||||
DOLLARS |
|
2011 |
2010 |
2009 |
2011 |
2010 |
|||||||||
Reported GAAP EPS |
|
$ |
1.91 |
|
$ |
2.23 |
|
$ |
1.74 |
|
(14 |
)% |
28 |
% |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
||||
Special (gains) and charges |
|
0.52 |
|
0.03 |
|
0.24 |
|
|
|
|
|
||||
Discrete tax expense (benefit) |
|
0.03 |
|
(0.03 |
) |
0.00 |
|
|
|
|
|
||||
Nalco merger impact |
|
0.08 |
|
|
|
|
|
|
|
|
|
||||
Non-GAAP adjusted EPS |
|
$ |
2.54 |
|
$ |
2.23 |
|
$ |
1.99 |
|
14 |
% |
12 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note: Per share amounts do not necessarily sum due to rounding.
Net income attributable to Ecolab decreased 13% to $463 million in 2011 compared to 2010. On a per share basis, diluted earnings per share also decreased 14% to $1.91. Amounts for both 2011 and 2010 include special (gains) and charges and discrete tax items. Additionally, 2011 amounts include Nalco merger related activity in our consolidated results beginning in December 2011, as well as shares issued as consideration for the equity portion of the Nalco merger. Excluding these items from both years, adjusted net income attributable to Ecolab increased 13% and adjusted earnings per share increased 14%. Currency translation had a favorable impact of approximately $14 million, net of tax, or $0.06 per share for 2011 compared to 2010.
Net income attributable to Ecolab increased 27% to $530 million in 2010 compared to 2009. On a per share basis, diluted earnings per
share increased 28% to $2.23. Amounts for both 2010 and 2009 include special (gains) and charges and discrete tax items. Excluding these items from both years, adjusted net income attributable to Ecolab increased 11% and adjusted earnings per share increased 12%. Currency translation had a favorable impact of approximately $5 million, net of tax, or $0.02 per share for 2010 compared to 2009.
Segment Performance
Prior to the Nalco merger, we aggregated our twelve operating units into three reportable segments: U.S. Cleaning & Sanitizing, U.S. Other Services and International. Subsequent to the Nalco merger, we continued to aggregate the legacy Ecolab operating units into the same three reportable segments. Effective with the Nalco merger, we added Nalcos three legacy operating units (Water Services, Paper Services and Energy Services) as individual reportable segments, creating our merged reporting structure, as discussed below. No legacy Nalco international sales or operating income results are included in the segment discussion as we include all international subsidiaries based on their November 30 fiscal year-end.
We evaluate the performance of our International operations based on fixed currency exchange rates. Therefore, International sales and operating income totals, as well as the International financial information included in this financial discussion, are based on translation into U.S. dollars at the fixed foreign currency exchange rates used by management for 2011. The difference between the fixed currency exchange rates and the actual currency exchange rates is reported as currency impact in operating segment reporting. All other accounting policies of the reportable segments are consistent with U.S. GAAP and the accounting policies of our company as described in Note 2. Additional information about our reportable segments is included in Note 16.
Sales by Reportable Segment
|
|
|
|
|
PERCENT CHANGE |
||||||||||
MILLIONS |
|
2011 |
2010 |
2009 |
2011 |
2010 |
|||||||||
Net sales |
|
|
|
|
|
|
|
|
|
|
|
||||
Legacy Ecolab |
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. Cleaning & Sanitizing |
|
$ |
2,930 |
|
$ |
2,722 |
|
$ |
2,663 |
|
8 |
% |
2 |
% |
|
U.S. Other Services |
|
457 |
|
449 |
|
450 |
|
2 |
|
0 |
|
||||
Total U.S. |
|
3,387 |
|
3,171 |
|
3,113 |
|
7 |
|
2 |
|
||||
International |
|
3,111 |
|
2,932 |
|
2,837 |
|
6 |
|
3 |
|
||||
Currency impact |
|
137 |
|
(13 |
) |
(49 |
) |
|
|
|
|
||||
Ecolab subtotal |
|
6,635 |
|
6,090 |
|
5,901 |
|
9 |
|
3 |
|
||||
Legacy Nalco |
|
|
|
|
|
|
|
|
|
|
|
||||
Water Services |
|
67 |
|
|
|
|
|
|
|
|
|
||||
Paper Services |
|
34 |
|
|
|
|
|
|
|
|
|
||||
Energy Services |
|
93 |
|
|
|
|
|
|
|
|
|
||||
Nalco subtotal |
|
|
194 |
|
|
|
|
|
|
|
|
|
|
|
|
Corporate |
|
|
(30 |
) |
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
6,799 |
|
$ |
6,090 |
|
$ |
5,901 |
|
12 |
% |
3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Cleaning & Sanitizing sales increased 8% in 2011 compared to 2010 and increased 2% in 2010 versus 2009. Excluding the impact of acquisitions, sales increased 5% in 2011 and 2% in 2010. Sales for our largest U.S. Cleaning & Sanitizing businesses were as follows:
Institutional - Sales grew 4% in 2011 compared to 2010. Sales initiatives, pricing gains, new accounts and effective product and service programs led our results. Demand from our lodging customers continued to show growth, while overall foodservice foot traffic remained soft.
Sales increased 1% in 2010 compared to 2009. 2010 sales benefited from new account gains and increased sales to distributors. We experienced mixed market trends in 2010 as room demand in the lodging market improved while overall foot traffic in the foodservice market continued to decline.
Food & Beverage - Sales increased 7% in 2011 compared to the prior year. The dairy and food market segments drove the increase, led by corporate account wins, pricing and product penetration. 2011 sales also benefited from a large project sale through our Ecovation business during the second quarter of 2011.
Sales increased 3% in 2010 compared to 2009. Sales increased in almost all end markets, led by growth in the food, beverage and agri markets, as corporate account wins and new products offset soft results in the meat & poultry markets. Sales also benefited from improved water, energy and waste treatment capabilities.
Kay - Sales for 2011 increased 7% compared to 2010. The sales increase for 2011 was led by our food retail business. Sales at Kay continue to benefit from good demand from existing and new food retail and quick service accounts.
Sales were strong in 2010 growing 7% compared to 2009. Sales growth was led by new food retail accounts and success with new products and programs.
Healthcare - Sales increased 28% in 2011 compared to 2010. Excluding the impact of the O.R. Solutions acquisition, sales increased 4% in 2011. Growth in sales of hand hygiene and surgical instrument cleaning products were partially offset by slower growth in patient and equipment drapes. Comparison sales in 2011 for hand hygiene were against slower sales in 2010 due to the increase in 2009 from H1N1 preparations.
Sales increased 2% in 2010 compared to 2009. Gains in sales of infection barriers and surgical instrument cleaning products more than offset the spike in demand in 2009 due to H1N1 virus preparations and slowing healthcare market trends in 2010, including fewer patient visits and surgical procedures.
U.S. Other Services sales increased 2% in 2011 compared to 2010 and were flat in 2010. Sales for our U.S. Other Services businesses were as follows:
Pest Elimination - Sales were flat in 2011 compared to the prior year. Gains in the food & beverage plant, healthcare, hospitality and grocery segments were offset by slow conditions in other major segments. Contract sales increased marginally, offset by a decrease in non-contract sales.
Sales for 2010 declined 1% compared to 2009. Sales growth in food safety management services was offset by lower pest elimination contract and non-contract services. Gains in the quick service restaurant, grocery, healthcare and food & beverage plant markets were offset by slow conditions in other major markets.
Equipment Care - Sales increased 6% in 2011 compared to 2010. Pricing gains and new accounts helped drive service and installed parts sales increases during 2011. Direct parts sales decreased slightly in 2011 compared to 2010.
Sales increased 1% in 2010 compared to 2009. Service and installed parts sales increased, benefiting from pricing gains and new accounts, which more than offset the impact of slow foodservice market conditions. Direct parts sales were soft.
We evaluate the performance of our legacy Ecolab International operations based on fixed rates of foreign currency exchange. Fixed currency International sales increased 6% and 3% in 2011 and 2010, respectively. Excluding the impact of acquisitions and divestitures, fixed currency sales increased 4% both in 2011 and 2010. When measured at public currency rates, International sales increased 11% and 5% in 2011 and 2010, respectively. Fixed currency sales changes for our legacy Ecolab International regions were as follows:
Europe, Middle East and Africa (EMEA) - Sales increased 2% in 2011 compared to 2010. Sales growth in MEA, Germany and the U.K. were partially offset by lower sales in France and Italy. From a divisional perspective, Europes Healthcare sales showed a solid increase based on gains in the pharmaceutical and infection prevention markets. Food & Beverage and Pest Elimination sales both increased modestly. Institutional sales increased slightly, while Textile Care sales declined slightly.
Sales increased 1% in 2010 compared to 2009. Sales growth in the U.K. and Turkey were partially offset by lower sales in Italy and France. Sales in Germany were comparable to 2009. From a divisional perspective, Europes Institutional sales increased due to new account gains. Food & Beverage and Pest Elimination sales increased during the year while Healthcare sales were flat compared to 2009 which included higher sales related to H1N1 virus preparations. Textile Care sales declined slightly.
Asia Pacific - Sales increased 15% in 2011 compared to the prior year. Excluding the impact of the Cleantec acquisition, sales increased 5% in 2011. Natural disasters within the region in 2011 reduced sales growth by approximately two percentage points. Sales growth was driven primarily by increases in China and Australia. From a divisional perspective, Institutional sales remained strong driven by new programs and a focus on expansion in emerging Asian markets. Food & Beverage also continued to report strong sales growth, driven by new accounts and improved product penetration.
Sales increased 8% in 2010 compared to 2009 as the region showed a good recovery from low levels of business travel and tourism in 2009. Sales growth was driven by growth in China, Australia and New Zealand. From a division perspective, Institutional sales were strong as hotel occupancy levels improved and Asian economies recovered. Food & Beverage reported strong sales growth, benefiting from increased product penetration and account gains.
Latin America - We continued to experience strong sales growth in Latin America as sales in the region increased 14% in 2011 compared to 2010. At a country level, Brazil, Chile and Mexico all showed strong sales gains. Our Institutional, Food & Beverage and Pest Elimination businesses all reported double-digit increases in sales. Institutional sales growth was driven by increased product penetration and new accounts, while Food & Beverage benefited from continued strong demand in the beverage and brewing markets.
Sales increased 8% in 2010 compared to 2009. Sales were led by strong growth in Brazil, Mexico and Venezuela. Our Institutional, Food & Beverage and Pest Elimination businesses all reported increased sales growth. Sales benefited from new accounts and good demand in the beverage and brewery markets.
Canada - Sales increased 4% in 2011 compared to the prior year. Solid gains in Food & Beverage, good growth in Institutional and a strong recovery in Healthcare led the sales increase.
Sales increased 4% in 2010 compared to 2009. Sales were led by strong growth from Food & Beverage and good growth from Institutional, offset partially by lower Healthcare sales as hospitals worked down their H1N1 related product inventories purchased during 2009.
LEGACY NALCO
Because Ecolab operates its international business on a November 30 fiscal year-end and the Nalco merger closed on December 1, no legacy Nalco international sales results are reported for 2011. Legacy U.S. Nalco sales of $67 million in the Water Services segment, $34 million in the Paper Services segment and $93 million in the Energy Services segment are included within consolidated Ecolab results during 2011. The inclusion of the legacy Nalco amounts within the consolidated Ecolab results added 3% to our total sales growth for 2011.
CORPORATE
The corporate segment includes $30 million of sales reductions related to the modification of a customer agreement.
Operating Income by Reportable Segment
MILLIONS |
|
2011 |
2010 |
2009 |
||||||
|
|
|
|
|
|
|
|
|||
Operating income |
|
|
|
|
|
|
|
|||
Legacy Ecolab |
|
|
|
|
|
|
|
|||
U.S. Cleaning & Sanitizing |
|
$ |
557 |
|
$ |
514 |
|
$ |
495 |
|
U.S. Other Services |
|
70 |
|
71 |
|
66 |
|
|||
Total U.S. |
|
627 |
|
585 |
|
561 |
|
|||
International |
|
292 |
|
261 |
|
238 |
|
|||
Currency impact |
|
12 |
|
(9 |
) |
(14 |
) |
|||
Ecolab subtotal |
|
931 |
|
837 |
|
785 |
|
|||
Legacy Nalco |
|
|
|
|
|
|
|
|||
Water Services |
|
11 |
|
|
|
|
|
|||
Paper Services |
|
6 |
|
|
|
|
|
|||
Energy Services |
|
18 |
|
|
|
|
|
|||
Nalco subtotal |
|
35 |
|
|
|
|
|
|||
Corporate |
|
(212 |
) |
(30 |
) |
(104 |
) |
|||
Consolidated |
|
$ |
754 |
|
$ |
807 |
|
$ |
681 |
|
Operating income as a percent of net sales |
|
|
|
|
|
|
|
|||
Legacy Ecolab |
|
|
|
|
|
|
|
|||
U.S. Cleaning & Sanitizing |
|
19.0 |
% |
18.9 |
% |
18.6 |
% |
|||
U.S. Other Services |
|
15.2 |
|
15.9 |
|
14.6 |
|
|||
Total U.S. |
|
18.5 |
|
18.5 |
|
18.0 |
|
|||
International |
|
9.4 |
|
8.9 |
|
8.4 |
|
|||
Legacy Nalco |
|
|
|
|
|
|
|
|||
Water Services |
|
16.3 |
|
|
|
|
|
|||
Paper Services |
|
18.4 |
|
|
|
|
|
|||
Energy Services |
|
19.2 |
|
|
|
|
|
|||
Consolidated |
|
11.1 |
% |
13.2 |
% |
11.5 |
% |
The operating margin percentages shown for the legacy Nalco segments are not necessarily indicative of full year or future trends, as they include only one month of U.S. activity.
LEGACY ECOLAB
U.S. Cleaning & Sanitizing - Operating income increased 8% to $557 million in 2011 compared to 2010. Excluding the impact of acquisitions, operating income increased 2% in 2011. As a percentage of net sales, operating income increased slightly to 19.0% in 2011 compared to 18.9% in 2010. The increase in acquisition adjusted operating income was driven primarily by volume and pricing gains which more than offset increases in delivered product costs.
U.S. Cleaning & Sanitizing operating income increased 4% to $514 million in 2010 compared to 2009. As a percentage of net sales, operating income increased to 18.9% in 2010 from 18.6% in 2009. Sales gains and favorable delivered product costs more than offset cost increases to drive the increase in operating income.
U.S. Other Services - Operating income decreased 2% to $70 million in 2011 compared to 2010. As a percentage of net sales, operating income decreased to 15.2% in 2011 from 15.9% in 2010. The operating income decrease was driven by higher service delivery costs which outpaced sales gains and cost savings actions.
U.S. Other Services operating income increased 9% to $71 million in 2010 compared to 2009 led by improvement in Equipment Care operating results. As a percentage of net sales, operating income increased to 15.9% in 2010 from 14.6% in 2009. Operating income growth was driven by pricing and cost savings actions which more than offset service delivery and other cost increases.
International - Fixed currency operating income increased 12% to $292 million in 2011 compared to 2010. Excluding the impact of acquisitions and divestitures, fixed currency operating income increased 11% during 2011 when compared to the prior year. The International operating income margin was 9.4% in 2011 compared to 8.9% in 2010. Operating income growth was driven by volume and pricing gains and cost savings actions from our 2011 Restructuring Plan, which more than offset higher delivered product and other costs. When measured at public currency rates, operating income increased 21% to $304 million in 2011 compared to 2010.
Fixed currency operating income increased 10% to $261 million in 2010 compared to 2009. The International operating income margin was 8.9% in 2010 compared to 8.4% in 2009. Volume and pricing gains, favorable delivered product costs, and cost savings efforts more than offset investments in the business and increased costs. When measured at public currency rates, operating income increased 12% to $252 million in 2010 compared to 2009.
Operating income margins of our legacy Ecolab International operations are generally less than those realized for our legacy Ecolab U.S. operations. The lower International margins are due to (i) the smaller scale of International operations where many operating locations are smaller in size, (ii) the additional cost of operating in numerous and diverse foreign jurisdictions and (iii) higher costs of importing certain raw materials and finished goods in some regions. Proportionately larger investments in sales and technical support are also necessary in order to facilitate the growth of our International operations.
LEGACY NALCO
Because Ecolab operates its international business on a November 30 fiscal year-end and the Nalco merger closed on December 1, no legacy Nalco international operating income results are reported for 2011. Legacy U.S. Nalco reported operating income of $11 million in the Water Services segment, $6 million in the Paper Services segment and $18 million in the Energy Services segment within consolidated Ecolab results during 2011. The inclusion of the legacy Nalco operating income within the consolidated Ecolab results, including amounts reported in the Corporate segment, added 2% to our total operating income change for 2011.
CORPORATE
The corporate segment includes special (gains) and charges reported on the Consolidated Statement of Income of $170 million, $8 million and $80 million for 2011, 2010 and 2009, respectively. It also includes investments in the development of business systems, certain Nalco related costs and other corporate investments we made during the last three years as part of our ongoing efforts to improve our efficiency and returns. Starting in December 2011, effective with the Nalco merger, asset step-up amortization specifically related to Nalco assets is also included in the corporate segment to provide better transparency to the performance of the underlying segment results.
FINANCIAL POSITION & LIQUIDITY
Financial Position
Our financial position changed significantly with the closing of the Nalco merger in December 2011. Total assets increased to $18.2 billion as of December 31, 2011 compared to $4.9 billion at December 31, 2010. The Nalco merger added $11.3 billion to total assets, primarily driven by $4.4 billion of goodwill, $3.9 billion of other intangible assets, $1.1 billion of property, plant and equipment, and $1.5 billion of accounts receivable and inventories. Also driving the increase in assets is the $1.8 billion of cash we had on hand at December 31, 2011, the majority of which was used to redeem Nalcos outstanding senior notes in January 2012. Additionally the impact of
foreign currency exchange rates increased the value of international assets on our balance sheet when translated into U.S. dollars.
Total liabilities increased to $12.5 billion at December 31, 2011 from $2.7 billion at December 31, 2010. The large increase is primarily due to an increase in total debt, the balance of which was $7.6 billion at December 31, 2011 compared to $0.8 billion at December 31, 2010. The large debt increase is attributable to debt assumed as part of the Nalco merger, as well additional debt issued to fund both the cash portion of the Nalco merger consideration and share repurchases. As discussed above, in January 2012 we used cash on hand to redeem $1.7 billion of Nalcos legacy senior notes. See further discussion of our debt activity within the Liquidity and Capital Resources section of this MD&A. The increase in total liabilities can also be attributed to other liabilities assumed as part of the Nalco merger, including $1.4 billion of non-current deferred tax liabilities, as well as an increase due to currency translation.
The ratio of total debt to capitalization (total debt divided by the sum of total equity and total debt) was 57% at year-end 2011 and 28% at year-end 2010. The debt to capitalization ratio was higher at year-end 2011 due to the increase in debt offset partially by the increased equity, which were both due primarily to the Nalco merger. The ratio of net debt to net capitalization (total debt less cash divided by the sum of total equity and net debt) was 50% at year-end 2011 which is representative of our total debt to capitalization ratio subsequent to the redemption of the Nalco senior notes in January 2012. Our net debt to net capitalization ratio was 22% at year-end 2010. We view our debt to capitalization ratio as an important indicator of our creditworthiness.
Cash Flows
O perating Activities - Cash provided by operating activities totaled $686 million, $950 million, and $ 695 million in 2011, 2010 and 2009, respectively. Nalco merger related financial advisory service payments of $48 million, a Nalco lease payment of $31 million and a payment on the customer agreement modification of $30 million, all of which were made in the fourth quarter of 2011, negatively impacted the comparison of operating cash flow between 2011 and 2010. Fluctuations in earnings and voluntary contributions to our U.S. pension plan also impacted comparisons across the three year period. We made contributions of $100 million and $225 million in 2011 and 2009, respectively, and no contributions in 2010. Operating cash flow in 2009 was also negatively impacted by the payment of a $35 million legal settlement and restructuring payments of $50 million, which were higher than restructuring payments made in 2011 and 2010.
Our bad debt expense was $15 million or 0.2% of sales in 2011, $18 million or 0.3% of net sales in 2010 and $27 million or 0.4% of net sales in 2009. We continue to monitor our receivable portfolio and the creditworthiness of our customers closely and do not expect our future cash flow to be materially impacted.
Historically, we have had strong operating cash flow. We anticipate this to be enhanced by the Nalco merger, as historically, Nalco has also generated strong cash flow from operating activities. We expect to continue to use this cash flow to fund our ongoing operations and investments in the business, repay debt, acquire new businesses and return cash to shareholders through dividend payments and share repurchases.
Investing Activities - Cash used for investing activities was $2.0 billion in 2011, $304 million in 2010 and $299 million in 2009. The large increase in cash used for investing activities in 2011 was due primarily to the closing of the Nalco merger in December as well as the acquisitions of the Cleantec business of Campbell Brothers Ltd. and O.R. Solutions, Inc. in the first quarter. Total cash paid for acquisitions, net of cash acquired, in 2011 was $1.6 billion, with the Nalco merger accounting for $1.3 billion of this total. Cash paid for acquisitions increased in 2010 when compared to 2009 due to the acquisition of the commercial laundry division of Dober Chemical in the third quarter of 2010 and final payment made on the Ecovation acquisition. The Ecovation acquisition in 2008 included an indemnification escrow agreement. As part of the agreement, we initially deposited $21 million into an escrow account. In 2010 the final payment on the acquisition was settled and $4 million was paid to the seller and is included in cash paid for businesses acquired while we retained the remaining $17 million.
We continue to make investments in the business including equipment used by our customers to dispense our cleaning and sanitizing products as well as chemical feed, process control and process monitoring equipment. We also continue to target strategic business acquisitions which complement our growth strategy and expect to continue to make capital investments and acquisitions in the future to support our long-term growth.
Financing Activities - Cash provided by financing activities was $2.9 billion in 2011. Cash used for financing activities was $462 million and $398 million in 2010 and 2009, respectively. Our cash flows from financing activities reflect issuances and repayment of debt, common stock repurchases, dividend payments and proceeds from common stock issuances related to our equity incentive programs.
2011 financing activities included the issuance of $3.75 billion of senior notes through a public debt offering completed in December and the issuance of $500 million of private placement senior notes, completed in November. Our 2011 financing activities also included the scheduled repayment of our $150 million 6.875% Ecolab notes and the repayment of $1.3 billion of long-term debt assumed as part of the Nalco merger, as well as an increase of $916 million of our U.S. commercial paper and share repurchases of $690 million. 2010 financing activities included a $74 million paydown of our U.S. commercial paper and $349 million of share repurchases. 2009 financing activities included a $242 million paydown of our U.S. commercial paper and $69 million of share repurchases.
In September 2011, we announced a $1.0 billion share repurchase program, contingent upon closing the merger with Nalco. As part this program, in December 2011, we entered into an accelerated
share repurchase (ASR) agreement with a financial institution to repurchase $500 million of our common stock. Under the ASR, we received 8.3 million shares of our common stock in December 2011. The final per share purchase price and the total number of shares to be repurchased under the ASR agreement generally will be based on the volume-weighted average price of our common stock during the term of the agreement, and will be determined upon completion of the ASR transaction, which is expected to be in the first quarter of 2012. All shares acquired under the ASR agreement will be recorded as treasury stock. The remainder of the $1.0 billion share repurchase program is expected to be completed by the end of 2012. The funds required to complete the share repurchase program are expected to come, in whole or in part, from short and long-term debt financing as discussed further in the Liquidity and Capital Resources section of this MD&A.
Shares are repurchased for the purpose of partially offsetting the dilutive effect of stock options and incentives and stock issued in acquisitions, to efficiently return capital to shareholders and for general corporate purposes. Cash proceeds and tax benefits from option exercises provide a portion of the funding for repurchase activity.
In December 2011, we increased our indicated annual dividend rate by 14%. This represents the 20th consecutive year we have increased our dividend. We have paid dividends on our common stock for 75 consecutive years. Cash dividends declared per share of common stock, by quarter, for each of the last three years were as follows:
|
|
FIRST |
|
SECOND |
|
THIRD |
|
FOURTH |
|
|
|
|||||
|
|
QUARTER |
|
QUARTER |
|
QUARTER |
|
QUARTER |
|
YEAR |
|
|||||
2011 |
|
$ |
0.1750 |
|
$ |
0.1750 |
|
$ |
0.1750 |
|
$ |
0.2000 |
|
$ |
0.7250 |
|
2010 |
|
0.1550 |
|
0.1550 |
|
0.1550 |
|
0.1750 |
|
0.6400 |
|
|||||
2009 |
|
0.1400 |
|
0.1400 |
|
0.1400 |
|
0.1550 |
|
0.5750 |
|
|||||
Liquidity and Capital Resources
We currently expect to fund all of our cash requirements which are reasonably foreseeable for 2012, including scheduled debt repayments, new investments in the business, share repurchases, dividend payments, possible business acquisitions and pension contributions from operating cash flow, cash reserves and additional short-term and/or long-term borrowings. We expect our operating cash flow to remain strong.
As of December 31, 2011, we had $1.8 billion of cash and cash equivalents on hand, which were used to redeem Nalcos outstanding senior notes of $1.7 billion in January 2012. As of December 31, 2011, $0.3 billion of our cash and cash equivalents were held outside of the U.S.
In September 2011, we replaced our existing $600 million multi-year credit facility with a $1.5 billion multi-year credit facility, which expires in September 2016. We also entered into a $2.0 billion, 364 day credit facility. Both credit facilities have been established with a diverse portfolio of banks. The credit facilities are expected to be used for general corporate purposes, including share repurchases, the repayment of other indebtedness and acquisitions. The credit facilities were also used in connection with the initial funding of the Nalco merger. The credit facilities support our U.S. commercial paper program, which has been increased from $600 million to $3.5 billion and our $200 million European commercial paper program. Combined borrowing under these two commercial paper programs may not exceed $3.5 billion. As of December 31, 2011, both programs are rated A-2 by Standard & Poors and P-2 by Moodys, having been reduced from A-1 / P-1, respectively, due to our increased debt leverage because of the Nalco merger.
Additionally, we have other committed and uncommitted credit lines of $539 million with major international banks and financial institutions to support our general global funding needs. Approximately $439 million of these credit lines were undrawn and available for use as of our 2011 year end.
In December 2011, we issued $3.75 billion of debt securities in a public debt offering. The offering was a multi-tranche transaction consisting of three, five, ten and thirty year maturities, with interest rates ranging from 2.38% to 5.50%. The proceeds were used to repay outstanding commercial paper borrowings, which were issued to finance a portion of the cash consideration requirements relating to the Nalco merger and repay the Nalco term loans, and for general corporate purposes, including share repurchases. We also used the proceeds to refinance Nalcos outstanding senior notes, which was completed in January 2012.
In October 2011, we entered into a Note Purchase Agreement to issue and sell $500 million private placement senior notes, split into two series: $250 million of seven year notes that mature in 2018 at a rate of 3.69% and $250 million of twelve year notes that mature in 2023 at a rate of 4.32%. Both series of the notes were funded in November 2011. The proceeds were used for general corporate purposes, including partially funding the Nalco merger.
As of December 31, 2011, Standard & Poors and Moodys rated our long-term credit at BBB+ and Baa1, respectively. Our long-term credit ratings were reduced by both Standard & Poors and Moodys as a result of the increased debt leverage because of the Nalco merger. A further reduction in our long-term credit ratings could limit or preclude our ability to issue commercial paper under our current programs. A credit rating reduction could also adversely affect our ability to renew existing, or negotiate new, credit facilities in the future and could increase the cost of these facilities. Should this occur, we could seek additional sources of funding, including issuing additional term notes or bonds. In addition, we have the ability, at our option, to draw upon our $3.5 billion of committed credit facilities prior to termination.
We are in compliance with all covenants and other requirements of our credit agreements and indentures.
A schedule of our obligations under various notes payable, long-term debt agreements, operating leases with noncancelable terms in excess of one year, interest obligations and benefit payments are summarized in the following table:
MILLIONS |
|
|
|
PAYMENTS DUE BY PERIOD |
|
|||||||||||
CONTRACTUAL
|
|
TOTAL |
|
LESS
|
|
2-3
|
|
4-5
|
|
MORE
|
|
|||||
Notes payable |
|
$ |
100 |
|
$ |
100 |
|
$ |
|
|
$ |
|
|
$ |
|
|
Commercial paper |
|
916 |
|
916 |
|
|
|
|
|
|
|
|||||
Long-term debt * |
|
4,904 |
|
1 |
|
673 |
|
1,738 |
|
2,492 |
|
|||||
Capital lease obligations |
|
18 |
|
6 |
|
7 |
|
2 |
|
3 |
|
|||||
Operating leases |
|
473 |
|
105 |
|
136 |
|
81 |
|
151 |
|
|||||
Interest** |
|
248 |
|
52 |
|
95 |
|
63 |
|
38 |
|
|||||
Total contractual cash obligations |
|
$ |
6,659 |
|
$ |
1,180 |
|
$ |
911 |
|
$ |
1,884 |
|
$ |
2,684 |
|
* |
Long-term debt obligations exclude legacy Nalco senior notes of $1.7 billion which were redeemed in January 2012. |
** |
Interest on variable rate debt was calculated using the interest rate at year-end 2011. |
As of December 31, 2011, our gross liability for uncertain tax positions was $90 million of which $50 million relates to legacy Nalco. We are not able to reasonably estimate the amount by which the liability will increase or decrease over an extended period of time or whether a cash settlement of the liability will be required. Therefore, these amounts have been excluded from the schedule of contractual obligations.
We are currently in compliance with all funding requirements of our pension and postretirement health care plans. We are required to make contributions of $38 million to the legacy Nalco U.S. pension plan in 2012, based on plan asset values as of December 31, 2011. We are required to fund certain international pension benefit plans in accordance with local legal requirements. We estimate contributions to be made to our international plans will approximate $45 million in 2012. These amounts have been excluded from the schedule of contractual obligations.
We lease certain sales and administrative office facilities, distribution centers, research and manufacturing facilities and other equipment under longer-term operating leases. Vehicle leases are generally shorter in duration. Vehicle leases have guaranteed residual value requirements that have historically been satisfied primarily by the proceeds on the sale of the vehicles.
Except for approximately $67 million of letters of credit supporting domestic and international commercial relationships and transactions, primarily for our North America self-insurance program, we do not have significant unconditional purchase obligations, or significant other commercial commitments, such as commitments under lines of credit, standby letters of credit, guarantees, standby repurchase obligations or other commercial commitments.
Off-Balance Sheet Arrangements
Other than operating leases, we do not have any off-balance sheet financing arrangements. See Note 12 for information on our operating leases. We do not have relationships with unconsolidated entities or financial partnerships, such as entities often referred to as special purposes entities, which are sometimes established for the purpose of facilitating off-balance sheet financial arrangements or other contractually narrow or limited purposes. As such, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.
New Accounting Pronouncements
Information regarding new accounting pronouncements is included in Note 2.
Market Risk
We enter into contractual arrangements (derivatives) in the ordinary course of business to manage foreign currency exposure and interest rate risks. We do not enter into derivatives for trading purposes. Our use of derivatives is subject to internal policies that provide guidelines for control, counterparty risk and ongoing monitoring and reporting and is designed to reduce the volatility associated with movements in foreign exchange and interest rates on our income statement and cash flows.
We enter into foreign currency forward contracts to hedge certain intercompany financial arrangements, and to hedge against the effect of exchange rate fluctuations on transactions related to cash flows denominated in currencies other than U.S. dollars. See Note 8 for further information on our hedging activity.
We manage interest expense using a mix of fixed and floating rate debt. To help manage borrowing costs, we may enter into interest rate swap agreements. Under these arrangements, we agree to exchange, at specified intervals, the difference between fixed and floating interest amounts calculated by reference to an agreed-upon notional principal amount. As of December 31, 2011 and 2010, we did not have any interest rate swaps outstanding.
Based on a sensitivity analysis (assuming a 10% adverse change in market rates) of our foreign exchange and interest rate derivatives and other financial instruments, changes in exchange rates or interest rates would not materially affect our financial position and liquidity. The effect on our results of operations would be substantially offset by the impact of the hedged items.
Subsequent Events
As previously discussed within the Results of Operations of this MD&A, in January 2012, we announced that in connection with the Nalco merger, we plan to undertake restructuring actions in 2012 and 2013.
Also as previously discussed within the Financial Position & Liquidity section of this MD&A, in January 2012, we redeemed $1.7 billion of Nalco outstanding senior notes, which were assumed in 2011 as part of the merger. As part of this redemption, we recognized an $18 million loss on debt extinguishment.
In December 2011, subsequent to our fiscal year end for international operations, we completed the acquisition of Esoform, the largest independent Italian healthcare manufacturer focused on infection prevention and personal care. Based outside of Venice, Italy, it has annual sales of approximately $12 million, and will be included in our International reportable segment beginning in 2012.
Also in December 2011, we 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 will be integrated with our existing Brazil Pest Elimination business, and will be included in our International reportable segment beginning in 2012.
Non-GAAP Financial Measures
This MD&A includes financial measures that have not been calculated in accordance with U.S. GAAP. These Non-GAAP measures include fixed currency sales and fixed currency operating income, adjusted net sales, adjusted fixed currency net sales, adjusted operating income, adjusted fixed currency operating income, adjusted net interest expense, adjusted effective tax rate, adjusted net income attributable to Ecolab and adjusted diluted earnings per share amounts. We provide these measures as additional information regarding our operating results. We use these Non-GAAP measures internally to evaluate our performance and in making financial and operational decisions, including with respect to incentive compensation. We believe that our presentation of these measures provides investors with greater transparency with respect to our results of operations and that these measures are useful for period-to-period comparison of results.
We include in special (gains) and charges items that are unusual in nature, significant in amount and important to an understanding of underlying business performance. In order to better allow investors to compare underlying business performance period-to-period, we provide adjusted net sales, adjusted fixed currency sales, adjusted operating income, adjusted fixed currency operating income, adjusted net interest expense, adjusted net income attributable to Ecolab and adjusted diluted earnings per share, which exclude special (gains) and charges and discrete tax items. In addition, to allow for a more meaningful comparison against 2010 and 2009 results, where applicable, we have excluded the impact of Nalcos post-merger results in our 2011 non-GAAP measures.
We evaluate the performance of our international operations based on fixed currency rates of foreign exchange. Fixed currency sales, adjusted fixed currency sales, fixed currency operating income and adjusted fixed currency operating income measures eliminate the impact of exchange rate fluctuations on our international sales, adjusted sales, operating income and adjusted operating income, respectively, and promote a better understanding of our underlying
sales and operating income trends. Fixed currency amounts are based on translation into U.S. dollars at fixed foreign currency exchange rates established by management at the beginning of 2011.
The adjusted effective tax rate measure promotes period-to-period comparability of the underlying effective tax rate because the amount excludes the tax rate impact of special (gains) and charges, discrete tax items and Nalcos post merger results which do not necessarily reflect costs associated with historical trends or expected future costs.
These measures are not in accordance with, or an alternative to U.S. GAAP, and may be different from Non-GAAP measures used by other companies. Investors should not rely on any single financial measure when evaluating our business. We recommend that investors view these measures in conjunction with the U.S. GAAP measures included in this MD&A and have provided reconciliations of reported U.S. GAAP amounts to the Non-GAAP amounts.
Forward-Looking Statements and Risk Factors
This MD&A and other portions of this Annual Report to Shareholders contain various Forward-Looking Statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include expectations concerning items such as:
demographic trends and their impact on end-markets
focus areas and priorities
benefits from planned initiatives
margin compression from Nalco mix
outlook for growth
end-market trends and long-term potential
sales and earnings growth
special (gains) and charges
restructuring activity, timing and charges and associated cost savings
benefits of and synergies from the Nalco merger
bad debt experiences and customer credit worthiness
disputes, claims and litigation
environmental contingencies
returns on pension plan assets
currency gains and losses
investments
cash flow and uses for cash
business acquisitions
dividends
share repurchases, including the accelerated share repurchase program
debt repayments
pension and post-retirement medical contributions and benefit payments
liquidity requirements and borrowing methods
impact of credit rating downgrade
finalization of purchase accounting
new accounting pronouncements
tax deductiblity of goodwill
non performance of counterparties
hedged transactions
income taxes, including loss carryforwards, unrecognized tax benefits and uncertain tax positions
Without limiting the foregoing, words or phrases such as will likely result, are expected to, will continue, is anticipated, we believe, we expect, estimate, project (including the negative or variations thereof) or similar terminology, generally identify forward-looking statements. Forward-looking statements may also represent challenging goals for us. These statements, which represent the companys expectations or beliefs concerning various future events, are based on current expectations that involve a number of risks and uncertainties that could cause actual results to differ materially from those of such forward-looking statements. We caution that undue reliance should not be placed on such forward-looking statements, which speak only as of the date made. Some of the factors which could cause results to differ from those expressed in any forward-looking statements are set forth under Item 1A of our Form 10-K for the year ended December 31, 2011, entitled Risk Factors.
In addition, we note that our stock price can be affected by fluctuations in quarterly earnings. There can be no assurances that our earnings levels will meet investors expectations. Except as may be required under applicable law, we undertake no duty to update our Forward-Looking Statements.
CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31 (MILLIONS, EXCEPT PER SHARE AMOUNTS) |
|
2011 |
|
2010 |
|
2009 |
|
|||
Net sales (including special charges of $29.6 in 2011) |
|
$ |
6,798.5 |
|
$ |
6,089.7 |
|
$ |
5,900.6 |
|
Operating expenses |
|
|
|
|
|
|
|
|||
Cost of sales (including special charges of $8.9 in 2011 and $12.6 in 2009) |
|
3,475.6 |
|
3,013.8 |
|
2,978.0 |
|
|||
Selling, general and administrative expenses |
|
2,438.1 |
|
2,261.6 |
|
2,174.2 |
|
|||
Special (gains) and charges |
|
131.0 |
|
7.5 |
|
67.1 |
|
|||
Operating income |
|
753.8 |
|
806.8 |
|
681.3 |
|
|||
Interest expense, net (including special charges of $1.5 in 2011) |
|
74.2 |
|
59.1 |
|
61.2 |
|
|||
Income before income taxes |
|
679.6 |
|
747.7 |
|
620.1 |
|
|||
Provision for income taxes |
|
216.3 |
|
216.6 |
|
201.4 |
|
|||
Net income including noncontrolling interest |
|
463.3 |
|
531.1 |
|
418.7 |
|
|||
Less: Net income attributable to noncontrolling interest |
|
0.8 |
|
0.8 |
|
1.4 |
|
|||
Net income attributable to Ecolab |
|
$ |
462.5 |
|
$ |
530.3 |
|
$ |
417.3 |
|
|
|
|
|
|
|
|
|
|||
Earnings attributable to Ecolab per common share |
|
|
|
|
|
|
|
|||
Basic |
|
$ |
1.95 |
|
$ |
2.27 |
|
$ |
1.76 |
|
Diluted |
|
$ |
1.91 |
|
$ |
2.23 |
|
$ |
1.74 |
|
|
|
|
|
|
|
|
|
|||
Dividends declared per common share |
|
$ |
0.7250 |
|
$ |
0.6400 |
|
$ |
0.5750 |
|
|
|
|
|
|
|
|
|
|||
Weighted-average common shares outstanding |
|
|
|
|
|
|
|
|||
Basic |
|
236.9 |
|
233.4 |
|
236.7 |
|
|||
Diluted |
|
242.1 |
|
237.6 |
|
239.9 |
|
The accompanying notes are an integral part of the consolidated financial statements.
CONSOLIDATED BALANCE SHEET
DECEMBER 31 (MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS) |
|
2011 |
|
|
2010 |
|
||
|
|
|
|
|
|
|
||
ASSETS |
|
|
|
|
|
|
||
Current assets |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
1,843.6 |
|
|
$ |
242.3 |
|
Accounts receivable, net |
|
2,095.3 |
|
|
999.6 |
|
||
Inventories |
|
1,069.6 |
|
|
447.6 |
|
||
Deferred income taxes |
|
164.0 |
|
|
78.9 |
|
||
Other current assets |
|
223.5 |
|
|
101.5 |
|
||
Total current assets |
|
5,396.0 |
|
|
1,869.9 |
|
||
Property, plant and equipment, net |
|
2,295.4 |
|
|
1,148.3 |
|
||
Goodwill |
|
5,855.3 |
|
|
1,329.3 |
|
||
Other intangible assets, net |
|
4,275.2 |
|
|
282.5 |
|
||
Other assets |
|
418.9 |
|
|
242.2 |
|
||
Total assets |
|
$ |
18,240.8 |
|
|
$ |
4,872.2 |
|
|
|
|
|
|
|
|
||
LIABILITIES AND EQUITY |
|
|
|
|
|
|
||
Current liabilities |
|
|
|
|
|
|
||
Short-term debt |
|
$ |
1,023.0 |
|
|
$ |
189.2 |
|
Accounts payable |
|
815.7 |
|
|
349.3 |
|
||
Compensation and benefits |
|
497.2 |
|
|
308.1 |
|
||
Income taxes |
|
81.7 |
|
|
36.7 |
|
||
Other current liabilities |
|
748.7 |
|
|
441.5 |
|
||
Total current liabilities |
|
3,166.3 |
|
|
1,324.8 |
|
||
Long-term debt |
|
6,613.2 |
|
|
656.4 |
|
||
Postretirement health care and pension benefits |
|
1,173.4 |
|
|
565.8 |
|
||
Other liabilities |
|
1,546.8 |
|
|
192.2 |
|
||
Equity (a) |
|
|
|
|
|
|
||
Common stock |
|
336.1 |
|
|
333.1 |
|
||
Additional paid-in capital |
|
3,980.8 |
|
|
1,310.2 |
|
||
Retained earnings |
|
3,559.9 |
|
|
3,279.1 |
|
||
Accumulated other comprehensive loss |
|
(344.9 |
) |
|
(271.9 |
) |
||
Treasury stock |
|
(1,865.2 |
) |
|
(2,521.3 |
) |
||
Total Ecolab shareholders equity |
|
5,666.7 |
|
|
2,129.2 |
|
||
Noncontrolling interest |
|
74.4 |
|
|
3.8 |
|
||
Total equity |
|
5,741.1 |
|
|
2,133.0 |
|
||
Total liabilities and equity |
|
$ |
18,240.8 |
|
|
$ |
4,872.2 |
|
|
|
|
|
|
|
|
(a) Common stock, 800.0 million shares authorized, $1.00 par value, 292.0 million shares outstanding at December 31, 2011; 400.0 million shares authorized, $1.00 par value, 232.5 million shares outstanding at December 31, 2010.
The accompanying notes are an integral part of the consolidated financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31 (MILLIONS) |
|
2011 |
|
|
2010 |
|
2009 |
|
|||
|
|
|
|
|
|
|
|
|
|||
OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
|||
Net income including noncontrolling interest |
|
$ |
463.3 |
|
|
$ |
531.1 |
|
$ |
418.7 |
|
Adjustments to reconcile net income including noncontrolling interest to cash provided by operating activities: |
|
|
|
|
|
|
|
|
|||
Depreciation and amortization |
|
395.7 |
|
|
347.9 |
|
334.3 |
|
|||
Deferred income taxes |
|
41.7 |
|
|
(31.1 |
) |
88.1 |
|
|||
Share-based compensation expense |
|
39.9 |
|
|
29.2 |
|
37.3 |
|
|||
Excess tax benefits from share-based payment arrangements |
|
(13.7 |
) |
|
(16.9 |
) |
(7.7 |
) |
|||
Pension and postretirement plan contributions |
|
(156.6 |
) |
|
(46.6 |
) |
(263.7 |
) |
|||
Pension and postretirement plan expense |
|
83.1 |
|
|
90.8 |
|
82.0 |
|
|||
Restructuring, net of cash paid |
|
49.5 |
|
|
|
|
22.4 |
|
|||
Business write-downs and closures |
|
|
|
|
|
|
2.4 |
|
|||
Other, net |
|
8.9 |
|
|
1.8 |
|
12.9 |
|
|||
Changes in operating assets and liabilities, net of effect of acquisitions: |
|
|
|
|
|
|
|
|
|||
Accounts receivable |
|
(106.0 |
) |
|
(39.3 |
) |
45.1 |
|
|||
Inventories |
|
(36.1 |
) |
|
18.6 |
|
13.0 |
|
|||
Other assets |
|
(60.2 |
) |
|
42.4 |
|
(30.7 |
) |
|||
Accounts payable |
|
60.9 |
|
|
6.8 |
|
(25.1 |
) |
|||
Other liabilities |
|
(84.9 |
) |
|
15.7 |
|
(34.0 |
) |
|||
Cash provided by operating activities |
|
685.5 |
|
|
950.4 |
|
695.0 |
|
|||
|
|
|
|
|
|
|
|
|
|||
INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
|||
Capital expenditures |
|
(341.7 |
) |
|
(260.5 |
) |
(252.5 |
) |
|||
Capitalized software expenditures |
|
(24.3 |
) |
|
(37.2 |
) |
(44.8 |
) |
|||
Property and other assets sold |
|
3.0 |
|
|
2.6 |
|
11.7 |
|
|||
Businesses acquired and investments in affiliates, net of cash acquired |
|
(1,633.2 |
) |
|
(43.4 |
) |
(14.4 |
) |
|||
Sale of businesses |
|
|
|
|
16.0 |
|
0.7 |
|
|||
Receipt from indemnification escrow |
|
|
|
|
21.0 |
|
|
|
|||
Deposit into indemnification escrow |
|
(28.1 |
) |
|
(2.1 |
) |
|
|
|||
Cash used for investing activities |
|
(2,024.3 |
) |
|
(303.6 |
) |
(299.3 |
) |
|||
|
|
|
|
|
|
|
|
|
|||
FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|||
Net issuances (repayments) of commercial paper and notes payable |
|
907.1 |
|
|
(66.6 |
) |
(244.0 |
) |
|||
Long-term debt borrowings |
|
4,238.7 |
|
|
|
|
|
|
|||
Long-term debt repayments |
|
(1,420.4 |
) |
|
(7.4 |
) |
(6.4 |
) |
|||
Reacquired shares |
|
(690.0 |
) |
|
(348.8 |
) |
(68.8 |
) |
|||
Cash dividends paid on common stock |
|
(162.9 |
) |
|
(145.5 |
) |
(132.7 |
) |
|||
Exercise of employee stock options |
|
89.0 |
|
|
89.2 |
|
46.4 |
|
|||
Excess tax benefits from share-based payment arrangements |
|
13.7 |
|
|
16.9 |
|
7.7 |
|
|||
Deferred financing costs |
|
(41.4 |
) |
|
|
|
|
|
|||
Cash provided by (used for) financing activities |
|
2,933.8 |
|
|
(462.2 |
) |
(397.8 |
) |
|||
|
|
|
|
|
|
|
|
|
|||
Effect of exchange rate changes on cash and cash equivalents |
|
6.3 |
|
|
(15.9 |
) |
9.0 |
|
|||
|
|
|
|
|
|
|
|
|
|||
Increase in cash and cash equivalents |
|
1,601.3 |
|
|
168.7 |
|
6.9 |
|
|||
Cash and cash equivalents, beginning of year |
|
242.3 |
|
|
73.6 |
|
66.7 |
|
|||
Cash and cash equivalents, end of year |
|
$ |
1,843.6 |
|
|
$ |
242.3 |
|
$ |
73.6 |
|
|
|
|
|
|
|
|
|
|
|||
SUPPLEMENTAL CASH FLOW INFORMATION |
|
|
|
|
|
|
|
|
|||
Income taxes paid |
|
$ |
224.2 |
|
|
$ |
209.6 |
|
$ |
143.5 |
|
Interest paid |
|
71.1 |
|
|
63.3 |
|
66.4 |
|
|||
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME AND EQUITY
|
|
ECOLAB SHAREHOLDERS |
|
|
|
|
|
||||||||||||||||||
MILLIONS |
|
COMMON
|
|
ADDITIONAL
|
|
RETAINED
|
|
ACCUMULATED
|
|
TREASURY
|
|
TOTAL ECOLAB
|
|
NON-
|
|
TOTAL
|
|
||||||||
Balance December 31, 2008 |
|
$ |
328.0 |
|
$ |
1,090.5 |
|
$ |
2,617.0 |
|
$ |
(359.1 |
) |
$ |
(2,104.8 |
) |
$ |
1,571.6 |
|
$ |
7.4 |
|
$ |
1,579.0 |
|
Net income |
|
|
|
|
|
417.3 |
|
|
|
|
|
417.3 |
|
1.4 |
|
418.7 |
|
||||||||
Cumulative translation adjustment |
|
|
|
|
|
|
|
199.3 |
|
|
|
199.3 |
|
0.3 |
|
199.6 |
|
||||||||
Derivative instruments |
|
|
|
|
|
|
|
(12.0 |
) |
|
|
(12.0 |
) |
|
|
(12.0 |
) |
||||||||
Unrealized gains (losses) on securities |
|
|
|
|
|
|
|
0.3 |
|
|
|
0.3 |
|
0.1 |
|
0.4 |
|
||||||||
Pension and postretirement benefits |
|
|
|
|
|
|
|
(61.4 |
) |
|
|
(61.4 |
) |
|
|
(61.4 |
) |
||||||||
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
543.5 |
|
1.8 |
|
545.3 |
|
||||||||
Distributions to noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.3 |
) |
(0.3 |
) |
||||||||
Purchase of shares from |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.2 |
) |
(0.2 |
) |
||||||||
Cash dividends declared |
|
|
|
|
|
(136.2 |
) |
|
|
|
|
(136.2 |
) |
|
|
(136.2 |
) |
||||||||
Stock options and awards |
|
1.8 |
|
88.8 |
|
|
|
|
|
0.2 |
|
90.8 |
|
|
|
90.8 |
|
||||||||
Reacquired shares |
|
|
|
|
|
|
|
|
|
(68.8 |
) |
(68.8) |
|
|
|
(68.8 |
) |
||||||||
Balance December 31, 2009 |
|
329.8 |
|
1,179.3 |
|
2,898.1 |
|
(232.9 |
) |
(2,173.4 |
) |
2,000.9 |
|
8.7 |
|
2,009.6 |
|
||||||||
Net income |
|
|
|
|
|
530.3 |
|
|
|
|
|
530.3 |
|
0.8 |
|
531.1 |
|
||||||||
Cumulative translation adjustment |
|
|
|
|
|
|
|
(78.1 |
) |
|
|
(78.1 |
) |
(1.0 |
) |
(79.1 |
) |
||||||||
Derivative instruments |
|
|
|
|
|
|
|
0.2 |
|
|
|
0.2 |
|
|
|
0.2 |
|
||||||||
Unrealized gains (losses) on securities |
|
|
|
|
|
|
|
0.2 |
|
|
|
0.2 |
|
|
|
0.2 |
|
||||||||
Pension and postretirement benefits |
|
|
|
|
|
|
|
38.7 |
|
|
|
38.7 |
|
|
|
38.7 |
|
||||||||
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
491.3 |
|
(0.2 |
) |
491.1 |
|
||||||||
Sale of noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
(4.7 |
) |
(4.7 |
) |
||||||||
Cash dividends declared |
|
|
|
|
|
(149.3 |
) |
|
|
|
|
(149.3 |
) |
|
|
(149.3 |
) |
||||||||
Stock options and awards |
|
3.3 |
|
130.9 |
|
|
|
|
|
0.9 |
|
135.1 |
|
|
|
135.1 |
|
||||||||
Reacquired shares |
|
|
|
|
|
|
|
|
|
(348.8 |
) |
(348.8 |
) |
|
|
(348.8 |
) |
||||||||
Balance December 31, 2010 |
|
333.1 |
|
1,310.2 |
|
3,279.1 |
|
(271.9 |
) |
(2,521.3 |
) |
2,129.2 |
|
3.8 |
|
2,133.0 |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Net income |
|
|
|
|
|
462.5 |
|
|
|
|
|
462.5 |
|
0.8 |
|
463.3 |
|
||||||||
Cumulative translation adjustment |
|
|
|
|
|
|
|
31.1 |
|
|
|
31.1 |
|
|
|
31.1 |
|
||||||||
Derivative instruments |
|
|
|
|
|
|
|
(10.5 |
) |
|
|
(10.5 |
) |
|
|
(10.5 |
) |
||||||||
Unrealized gains (losses) on securities |
|
|
|
|
|
|
|
0.3 |
|
|
|
0.3 |
|
|
|
0.3 |
|
||||||||
Pension and postretirement benefits |
|
|
|
|
|
|
|
(93.9 |
) |
|
|
(93.9 |
) |
|
|
(93.9 |
) |
||||||||
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
389.5 |
|
0.8 |
|
390.3 |
|
||||||||
Cash dividends declared |
|
|
|
|
|
(181.7 |
) |
|
|
|
|
(181.7 |
) |
(0.6 |
) |
(182.3 |
) |
||||||||
Nalco merger |
|
|
|
2,573.2 |
|
|
|
|
|
1,300.0 |
|
3,873.2 |
|
70.4 |
|
3,943.6 |
|
||||||||
Stock options and awards |
|
3.0 |
|
142.1 |
|
|
|
|
|
1.4 |
|
146.5 |
|
|
|
146.5 |
|
||||||||
Reacquired shares |
|
|
|
(44.7 |
) |
|
|
|
|
(645.3 |
) |
(690.0 |
) |
|
|
(690.0 |
) |
||||||||
Balance December 31, 2011 |
|
$ |
336.1 |
|
$ |
3,980.8 |
|
$ |
3,559.9 |
|
$ |
(344.9 |
) |
$ |
(1,865.2 |
) |
$ |
5,666.7 |
|
$ |
74.4 |
|
$ |
5,741.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMON STOCK ACTIVITY
|
|
2011 |
|
|
2010 |
|
2009 |
|
||||||
YEAR ENDED DECEMBER 31
|
|
COMMON
|
|
TREASURY
|
|
|
COMMON
|
|
TREASURY
|
|
COMMON
|
|
TREASURY
|
|
Shares, beginning of year |
|
333,141,410 |
|
(100,628,659 |
) |
|
329,825,650 |
|
(93,230,909 |
) |
327,953,382 |
|
(91,773,833 |
) |
Stock options, shares |
|
2,946,833 |
|
93,771 |
|
|
3,315,760 |
|
98,332 |
|
1,872,268 |
|
56,810 |
|
Stock awards, net issuances |
|
|
|
114,064 |
|
|
|
|
112,080 |
|
|
|
27,342 |
|
Nalco merger |
|
|
|
68,316,283 |
|
|
|
|
|
|
|
|
|
|
Reacquired shares |
|
|
|
(12,009,258 |
) |
|
|
|
(7,608,162 |
) |
|
|
(1,541,228 |
) |
Shares, end of year |
|
336,088,243 |
|
(44,113,799 |
) |
|
333,141,410 |
|
(100,628,659 |
) |
329,825,650 |
|
(93,230,909 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS
On December 1, 2011, Nalco Holding Company (Nalco) merged into a wholly-owned subsidiary of Ecolab Inc. (Ecolab or the company), creating the global leader in water, hygiene and energy technologies and services that provide and protect clean water, safe food, abundant energy and healthy environments. The combined company develops and markets premium programs, products and services for the hospitality, foodservice, healthcare, industrial and energy markets in more than 160 countries. The companys cleaning and sanitizing programs and products, pest elimination services, and equipment maintenance and repair services support customers in the foodservice, food and beverage processing, hospitality, healthcare, government and education, retail, textile care, commercial facilities management and vehicle wash sectors. The companys technologies, chemicals and services are also used in water treatment, pollution control, energy conservation, oil production and refining, steelmaking, papermaking, mining and other industrial processes.
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the company and all subsidiaries in which the company has a controlling financial interest. Investments in companies or partnerships in which the company does not have control, but has the ability to exercise significant influence over operating and financial policies, are reported using the equity method. International subsidiaries, including those acquired from Nalco, are included in the financial statements on the basis of their November 30 fiscal year-ends to facilitate the timely inclusion of such entities in the companys consolidated financial reporting. All intercompany transactions and profits are eliminated in consolidation.
Use of Estimates
The preparation of the companys financial statements requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from these estimates. The companys critical accounting estimates include revenue recognition, valuation allowances and accrued liabilities, actuarially determined liabilities, share-based compensation, income taxes, long-lived assets, intangible assets and goodwill.
Foreign Currency Translation
Financial position and reported results of operations of the companys international subsidiaries are measured using local currencies as the functional currency. Assets and liabilities of these operations are translated at the exchange rates in effect at each fiscal year end. The translation adjustments related to assets and liabilities that arise from the use of differing exchange rates from period to period are included in accumulated other comprehensive income (loss) in shareholders equity. Income statement accounts are translated at average rates of exchange prevailing during the year. The company evaluates its International operations based on fixed rates of exchange; however, the different exchange rates from period to period impact the amount of reported income from consolidated operations. The foreign currency fluctuations of any foreign subsidiaries that operate in highly inflationary environments are included in results of operations.
Concentration of Credit Risk
Credit risk represents the accounting loss that would be recognized at the reporting date if counterparties failed to perform as contracted. The company believes the likelihood of incurring material losses due to concentration of credit risk is remote. The principal financial instruments subject to credit risk are as follows:
Cash and Cash Equivalents - The companys investment policy limits exposure to concentrations of credit risk and changes in market conditions.
Accounts Receivable - A large number of customers in diverse industries and geographies, as well as the practice of establishing reasonable credit lines, limits credit risk. Based on historical trends and experiences, the allowance for doubtful accounts is adequate to cover potential credit risk losses.
Foreign Currency Contracts and Derivatives - Exposure to credit risk is limited by internal policies and active monitoring of outstanding positions. In addition, the company selects a diversified group of major international banks and financial institutions as counterparties. The company does not anticipate nonperformance by any of these counterparties.
Cash and Cash Equivalents
Cash equivalents include highly-liquid investments with a maturity of three months or less when purchased.
Accounts Receivable and Allowance For Doubtful Accounts
Accounts receivable are carried at their face amounts less an allowance for doubtful accounts. Accounts receivable are recorded at the invoiced amount and generally do not bear interest. The company estimates the balance of allowance for doubtful accounts by analyzing accounts receivable balances by age and applying historical write-off and collection trend rates. The companys estimates include separately providing for customer balances based on specific circumstances and credit conditions, and when it is deemed probable that the balance is uncollectible. Account balances are charged off against the allowance when it is determined the receivable will not be recovered.
The companys allowance for doubtful accounts balance includes an allowance for the expected return of products shipped and credits related to pricing or quantities shipped of approximately $12 million, $7 million and $10 million as of December 31, 2011, 2010 and 2009, respectively. Returns and credit activity is recorded directly to sales.
The following table summarizes the activity in the allowance for doubtful accounts:
MILLIONS |
|
2011 |
|
|
2010 |
|
2009 |
|
|||
Beginning balance |
|
$ |
45 |
|
|
$ |
52 |
|
$ |
44 |
|
Bad debt expense |
|
15 |
|
|
18 |
|
27 |
|
|||
Write-offs |
|
(16 |
) |
|
(20 |
) |
(23 |
) |
|||
Other (a) |
|
5 |
|
|
(5 |
) |
4 |
|
|||
Ending balance |
|
$ |
49 |
|
|
$ |
45 |
|
$ |
52 |
|
(a) Other amounts are primarily the effects of changes in currency translations and the impact of allowance for returns and credits.
Inventory Valuations
Inventories are valued at the lower of cost or market. Certain U.S. inventory costs, including certain inventory acquired in the Nalco merger, are determined on a last-in, first-out (LIFO) basis. LIFO inventories represented 30% and 22% of consolidated inventories as of December 31, 2011 and 2010, respectively. All other inventory costs are determined using either the average cost or first-in, first-out (FIFO) methods.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Merchandising and customer equipment consists principally of various systems that dispense the companys cleaning and sanitizing products, dishwashing machines and process control and monitoring equipment. The dispensing systems capitalized by legacy Ecolab are accounted for on a mass asset basis, whereby equipment is capitalized and depreciated as a group and written off when fully depreciated. The company capitalizes both internal and external costs of development or purchase of computer software for internal use. Costs incurred for data conversion, training and maintenance associated with capitalized software are expensed as incurred. Expenditures for major renewals and improvements, which significantly extend the useful lives of existing plant and equipment, are capitalized and depreciated. Expenditures for repairs and maintenance are charged to expense as incurred. Upon retirement or disposition of plant and equipment, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in income.
Depreciation is charged to operations using the straight-line method over the assets estimated useful lives ranging from 5 to 40 years for buildings and leasehold improvements, 3 to 18 years for machinery and equipment and 3 to 9 years for merchandising and customer equipment and capitalized software. Total depreciation expense was $331 million, $306 million and $290 million for 2011, 2010 and 2009, respectively.
Goodwill and Other Intangible Assets
Goodwill represents the excess of the purchase price over the fair value of identifiable net assets acquired. The company tests goodwill for impairment on an annual basis during the second quarter. The companys reporting units are its operating units. If circumstances change significantly, the company would also test a reporting unit for impairment during interim periods between the annual tests. An impairment charge is recognized for the amount, if any, by which the carrying amount of goodwill exceeds its implied fair value. Fair values of reporting units are established using a discounted cash flow method. Where available and as appropriate, comparative market multiples are used to corroborate the results of the discounted cash flow method. Based on the companys testing, there has been no impairment of goodwill during the three years ended December 31, 2011. There has been no impairment of goodwill since the adoption of FASB guidance for goodwill and other intangibles on January 1, 2002. The changes in the carrying amount of goodwill for each of the companys reportable segments are as follows:
|
|
U.S. |
|
U.S. |
|
|
|
|
|
|
|
|||||
|
|
CLEANING & |
|
OTHER |
|
INTER- |
|
|
|
|
|
|||||
MILLIONS |
|
SANITIZING |
|
SERVICES |
|
NATIONAL |
|
NALCO ( b ) |
|
TOTAL |
|
|||||
December 31, 2009 |
|
$ |
446.8 |
|
$ |
50.5 |
|
$ |
916.8 |
|
|
|
$ |
1,414.1 |
|
|
Business acquisitions (a) |
|
7.6 |
|
|
|
0.7 |
|
|
|
8.3 |
|
|||||
Business disposals |
|
|
|
|
|
(2.6 |
) |
|
|
(2.6 |
) |
|||||
Foreign currency translation |
|
|
|
|
|
(90.5 |
) |
|
|
(90.5 |
) |
|||||
December 31, 2010 |
|
454.4 |
|
50.5 |
|
824.4 |
|
|
|
1,329.3 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Business acquisitions (a) |
|
89.2 |
|
|
|
5.1 |
|
$ |
4,403.9 |
|
4,498.2 |
|
||||
Foreign currency translation |
|
|
|
|
|
27.8 |
|
|
|
27.8 |
|
|||||
December 31, 2011 |
|
$ |
543.6 |
|
$ |
50.5 |
|
$ |
857.3 |
|
$ |
4,403.9 |
|
$ |
5,855.3 |
|
(a) For 2011, $89.2 million of goodwill acquired is expected to be tax deductible. For 2010, goodwill acquired is not expected to be tax deductible.
(b) The Nalco amount is presented in total as allocated amounts by segment are not currently available.
The merger with Nalco resulted in the addition of $4.4 billion of goodwill, which will ultimately be maintained in separate reporting units. Subsequent performance of these reporting units relative to projections used in the purchase price allocation 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 carrying value of this asset will be subject to impairment testing beginning in 2012.
Other intangible assets subject to amortization primarily include customer relationships, trademarks, patents and other technology. The fair value of identifiable intangible assets is estimated based upon discounted future cash flow projections and other acceptable valuation methods. Other intangible assets are amortized on a straight-line basis over their estimated economic lives. The weighted-average useful life of other intangible assets was 14 years as of December 31, 2011 and 13 years as of December 31, 2010.
The weighted-average useful life by type of amortizable asset at December 31, 2011 is as follows:
NUMBER OF YEAR
Customer relationships |
|
15 |
Trademarks |
|
17 |
Patents |
|
14 |
Other technology |
|
8 |
The straight-line method of amortization reflects an appropriate allocation of the cost of the intangible assets to earnings in proportion to the amount of economic benefits obtained by the company in each reporting period. The company evaluates the remaining useful life of its intangible assets that are being amortized each reporting period to determine whether events and circumstances warrant a change to the remaining period of amortization. If the estimate of an intangible assets remaining useful life is changed, the remaining carrying amount of the intangible asset will be amortized prospectively over that revised remaining useful life. Total amortization expense related to other intangible assets during the last three years and future estimated amortization is as follows:
MILLIONS
2009 |
|
$ |
42 |
2010 |
|
41 |
|
2011 |
|
62 |
|
2012 |
|
238 |
|
2013 |
|
236 |
|
2014 |
|
225 |
|
2015 |
|
221 |
|
2016 |
|
217 |
The significant increase in future estimated amortization is due primarily to the amortizable intangible assets acquired through the Nalco merger.
Long-Lived Assets
The company periodically reviews its long-lived and amortizable intangible assets for impairment and assesses whether significant events or changes in business circumstances indicate that the carrying value of the assets may not be recoverable. An impairment loss may be recognized when the carrying amount of an asset exceeds the anticipated future undiscounted cash flows expected to result from the use of the asset and its eventual disposition. The amount of the impairment loss to be recorded, if any, is calculated by the excess of the assets carrying value over its fair value.
Asset Retirement Obligations
The fair value of a liability for an asset retirement obligation associated with the retirement of tangible long-lived assets is recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The liability is adjusted to its present value in subsequent periods as accretion expense is recorded. The corresponding asset retirement costs are capitalized as part of the carrying amount of the related long-lived asset and depreciated over the assets useful life. The companys asset retirement obligation liability was $11.0 million and $3.4 million, respectively, at December 31, 2011 and 2010. The increase is primarily due to obligations assumed in the Nalco merger.
Income Taxes
Income taxes are recognized during the period in which transactions enter into the determination of financial statement income, with deferred income taxes being provided for the tax effect of temporary differences between the carrying amount of assets and liabilities and their tax bases. The company records a valuation allowance to reduce its deferred tax assets when uncertainty regarding their realizability exists. Deferred income taxes are provided on the undistributed earnings of foreign subsidiaries except to the extent such earnings are considered to be permanently reinvested in the subsidiary.
The company records liabilities for income tax uncertainties in accordance with the recognition and measurement criteria prescribed in authoritative guidance issued by the Financial Accounting Standards Board (FASB).
Revenue Recognition
The company recognizes revenue as services are performed or on product sales at the time evidence of an arrangement exists, title to the product and risk of loss transfers to the customer, the price is fixed and determinable and collection is reasonably assured. The companys sales policies do not provide for general rights of return. The company records estimated reductions to revenue for customer programs and incentive offerings, including pricing arrangements, promotions and other volume-based incentives at the time the sale is recorded. The company also records estimated reserves for anticipated uncollectible accounts and for product returns and credits at the time of sale.
Share-Based Compensation
The company measures compensation expense for share-based awards at fair value at the date of grant and recognizes compensation expense over the service period for awards expected to vest. Grants to retirement eligible recipients (age 55 with required years of service) are attributed to expense using the non-substantive vesting method and are fully expensed over a six month period following the date of grant. In addition, the company includes a forfeiture estimate in the amount of compensation expense being recognized based on an estimate of the number of outstanding awards expected to vest.
Earnings Per Common Share
The computations of the basic and diluted earnings attributable to Ecolab per share amounts were as follows:
MILLIONS
|
|
2011 |
|
2010 |
|
2009 |
|
|||
Net income attributable to Ecolab |
|
$ |
462.5 |
|
$ |
530.3 |
|
$ |
417.3 |
|
Weighted-average common shares outstanding |
|
|
|
|
|
|
|
|||
Basic |
|
236.9 |
|
233.4 |
|
236.7 |
|
|||
Effect of dilutive stock options, units and awards |
|
5.2 |
|
4.2 |
|
3.2 |
|
|||
Diluted |
|
242.1 |
|
237.6 |
|
239.9 |
|
|||
Earnings attributable to Ecolab per common share |
|
|
|
|
|
|
|
|||
Basic |
|
$ |
1.95 |
|
$ |
2.27 |
|
$ |
1.76 |
|
Diluted |
|
$ |
1.91 |
|
$ |
2.23 |
|
$ |
1.74 |
|
Anti-dilutive securities excluded from the computation of earnings per share |
|
4.7 |
|
6.2 |
|
11.4 |
|
Comprehensive Income
Comprehensive income includes net income, foreign currency translation adjustments, unrecognized gains and losses on securities, defined benefit pension and postretirement plan adjustments, gains and losses on derivative instruments designated and effective as cash flow hedges and nonderivative instruments designated and effective as foreign currency net investment hedges that are charged or credited to the accumulated other comprehensive loss account in shareholders equity.
Derivative Instruments and Hedging
The company uses foreign currency forward contracts, interest rate swaps and foreign currency debt to manage risks generally associated with foreign exchange rates, interest rates and net investments in foreign operations. The company does not hold derivative financial instruments of a speculative nature or for trading purposes.
All of the companys derivatives are recognized on the balance sheet at their fair value. The earnings impact resulting from the change in fair value of the derivative instruments is recorded in the same line item in the consolidated statement of income as the underlying exposure being hedged.
New Accounting Pronouncements
In May 2011, the FASB issued updated accounting guidance on fair value measurements. The updated guidance will result in common fair value measurement and disclosure requirements between U.S. GAAP and IFRS. This guidance is effective for fiscal years and interim periods beginning after December 15, 2011 and is not expected to have a material impact on the companys consolidated financial statements.
In June 2011, and subsequently amended in December 2011, the FASB issued final guidance on the presentation of comprehensive income. Under the newly issued guidance, net income and comprehensive income may only be presented either as one continuous statement or in two separate, but consecutive statements. This guidance is effective for fiscal years and interim periods beginning after December 15, 2011. The company is currently evaluating the impact of adoption and will include the required disclosures upon adoption in the first quarter of 2012.
In September 2011, the FASB issued a final standard to enhance disclosures for multiemployer pension plans. Multiemployer pension plans allow for two or more unrelated employers to make contributions to one plan, and are commonly used by employers in unionized industries. The standard is intended to provide more information about an employers financial obligations to a multiemployer plan. This guidance is effective for fiscal years ending after December 15, 2011. The company has identified one plan that falls within the provisions of this guidance. The company adopted the guidance in the fourth quarter of 2011 and has included the required disclosures in Note 15.
Also in September 2011, the FASB amended its guidance on the testing of goodwill impairment to allow an entity the option to first assess qualitative factors to determine whether performing the current two-step process is necessary. Under the new option, the calculation of the reporting units fair value is not required unless as a result of the qualitative assessment, it is more likely than not that the fair value of the reporting unit is less than the units carrying amount. This guidance is effective for fiscal years and interim periods beginning after December 15, 2011, with early adoption permitted. Adoption of this guidance is not expected to have a material effect on the companys consolidated financial statements.
In December 2011, the FASB issued a final standard on balance sheet offsetting disclosures. The standard requires disclosures to provide information to help reconcile differences in the offsetting requirements under U.S. GAAP and IFRS. This guidance is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The company is currently evaluating the impact of adoption.
No other new accounting pronouncements issued or effective have had or are expected to have a material impact on the companys consolidated financial statements.
3. SPECIAL (GAINS) AND CHARGES
Special (gains) and charges reported on the Consolidated Statement of Income included the following:
MILLIONS |
|
2011 |
|
|
2010 |
|
2009 |
|
|||
|
|
|
|
|
|
|
|
|
|||
Net sales |
|
|
|
|
|
|
|
|
|||
Customer agreement modification |
|
$ |
29.6 |
|
|
$ |
|
|
$ |
|
|
Cost of sales |
|
|
|
|
|
|
|
|
|||
Restructuring charges |
|
5.3 |
|
|
|
|
12.6 |
|
|||
Recognition of Nalco inventory fair value step-up |
|
3.6 |
|
|
|
|
|
|
|||
Subtotal |
|
8.9 |
|
|
|
|
12.6 |
|
|||
Special (gains) and charges |
|
|
|
|
|
|
|
|
|||
Restructuring charges |
|
69.0 |
|
|
|
|
59.9 |
|
|||
Business structure and optimization |
|
0.9 |
|
|
10.9 |
|
2.8 |
|
|||
Nalco merger and integration charges |
|
57.7 |
|
|
|
|
|
|
|||
Cleantec acquisition integration charges |
|
3.4 |
|
|
|
|
|
|
|||
Gain on sale of investment |
|
|
|
|
(5.9 |
) |
|
|
|||
Venezuela currency devaluation |
|
|
|
|
4.2 |
|
|
|
|||
Other items |
|
|
|
|
(1.7 |
) |
4.4 |
|
|||
Subtotal |
|
131.0 |
|
|
7.5 |
|
67.1 |
|
|||
Interest expense, net |
|
|
|
|
|
|
|
|
|||
Nalco merger credit facility fees |
|
1.5 |
|
|
|
|
|
|
|||
Total special (gains) and charges |
|
$ |
171.0 |
|
|
$ |
7.5 |
|
$ |
79.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
For segment reporting purposes, special (gains) and charges are included in the Corporate segment, which is consistent with the companys internal management reporting.
Restructuring charges
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. Restructuring liabilities have been classified as a component of other current liabilities on the Consolidated Balance Sheet.
Employee termination costs are largely based on policies and severance plans and include personnel reductions and related costs for severance, benefits and outplacement services. Asset disposals include leasehold improvement write-downs. Other charges include lease terminations.
2011 Restructuring Plan
Following the implementation of new business systems in Europe, 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 900 positions are expected to be eliminated.
The company anticipates that pretax restructuring charges of approximately $150 million ($125 million after tax) will be incurred through 2013, as the 2011 Restructuring Plan continues to roll out. The company anticipates that approximately $125 million of the pre-tax charges will represent cash expenditures. The remaining $25 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 activities undertaken through the 2011 Restructuring Plan, the company recorded restructuring charges of $68.1 million ($54.2 million after tax).
Restructuring charges and subsequent activity during 2011 related to the 2011 Restructuring Plan include the following:
|
|
2011 Restructuring Plan |
|
|||||||||||||||
|
|
EMPLOYEE |
|
|
|
|
|
|
|
|
||||||||
|
|
TERMINATION |
|
ASSET |
|
|
|
|
|
|
||||||||
MILLIONS |
|
COSTS |
|
DISPOSALS |
|
OTHER |
|
TOTAL |
|
|
||||||||
Recorded expense and accrual |
|
$ |
60.5 |
|
|
$ |
0.5 |
|
|
$ |
7.1 |
|
|
$ |
68.1 |
|
|
|
Cash payments |
|
(22.2 |
) |
|
|
|
|
(2.6 |
) |
|
(24.8 |
) |
|
|
||||
Non-cash charges |
|
|
|
|
(0.5 |
) |
|
|
|
|
(0.5 |
) |
|
|
||||
Currency translation |
|
(2.2 |
) |
|
|
|
|
|
|
|
(2.2 |
) |
|
|
||||
Restructuring liability, December 31, 2011 |
|
$ |
36.1 |
|
|
$ |
|
|
|
$ |
4.5 |
|
|
$ |
40.6 |
|
|
|
Merger Restructuring Plan
Following the completion of the Nalco merger, in January 2012, 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 reduction of plant and distribution center locations (the Merger Restructuring Plan).
The company expects that restructuring activities under the Merger Restructuring Plan will be completed by the end of 2013, with total cost through the end of 2013 anticipated to be approximately $180 million ($120 million after tax). 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.
In anticipation of this Plan, a limited number of actions were taken in 2011, and as a result, the company recorded restructuring charges of $6.6 million ($4.1 million after tax). The liability related to this Plan as of December 31, 2011 was $6.3 million.
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 December 31, 2011, the remaining liability balance related to the Nalco Restructuring Plan remained $10.6 million. The company expects minimal charges related to the run-out of this Plan.
2009 Restructuring Plan
As previously disclosed, in 2009, the company completed restructuring and other cost-saving actions in order to streamline operations and improve efficiency and effectiveness (the 2009 Restructuring Plan). As a result of these actions, the company recorded restructuring charges of $72.5 million ($52.0 million after tax) during 2009. The 2009 Restructuring Plan was finalized and all actions, except for certain cash payments, were completed as of December 31, 2009. As of December 31, 2010, the remaining liability related to the 2009 Restructuring Plan was $2.8 million. A minimal amount remains as a liability related to the 2009 Restructuring Plan as of December 31, 2011.
Non-restructuring special (gains) and charges
As a result of the Nalco merger, during 2011, the company incurred charges of $62.8 million ($45.6 million after tax). Nalco merger charges have been included as a component of cost of sales, special (gains) and charges and interest expense, net on the Consolidated Statement of Income. Amounts included in cost of sales included recognition of fair value step-up in Nalco inventory. Amounts included in special (gains) and charges include merger and integration charges, closing costs and advisory fees. Amounts included in interest expense, net include fees to secure short-term credit facilities to initially fund the Nalco merger. Further details related to the Nalco merger are included in Note 4.
In the fourth quarter of 2011, the company modified a long-term customer agreement that was assumed as part of a previous acquisition. The impact of the modification was included in net sales on the Consolidated Statement of Income, resulting in a sales reduction of $29.6 million ($18.4 million after tax).
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 included acquisition integration costs incurred to optimize the Cleantec business structure. Further details related to the Cleantec acquisition are included in Note 4.
Special (gains) and charges in 2010 include costs to optimize the companys business structures. In the third quarter of 2010, the company sold an investment in a small U.S. business and recognized a gain on the sale. The investment was not material to the companys consolidated results of operations or financial position.
Beginning in 2010, Venezuela was designated hyper-inflationary and as such all foreign currency fluctuations are recorded in income. On January 8, 2010 the Venezuelan government devalued its currency, the Bolivar Fuerte. As a result of the devaluation, the company recorded a charge in the first quarter of 2010 due to the remeasurement of the local balance sheet using the official rate of exchange for the Bolivar Fuerte.
4. ACQUISITIONS AND DISPOSITIONS
Acquisitions
Ecolab makes acquisitions from time to time that the company feels align with strategic business objectives. In accordance with authoritative guidance on business combination accounting, the assets and liabilities of the acquired entities have been recorded as of the acquisition date, at their respective fair values, and consolidated with the company. The purchase price allocation is based on estimates of the fair value of assets acquired and liabilities assumed. The results of operations related to each acquired entity have been included in the results of the company from the date each entity was acquired. The aggregate purchase price of acquisitions has been reduced for any cash or cash equivalents acquired with the acquisition.
Nalco merger
On December 1, 2011, the company completed its merger with Nalco, the worlds leading water treatment and process improvement company. Based in Naperville, Illinois, Nalco offers water management sustainability services focused on industrial, energy and institutional market segments. Nalcos programs and services are used in water treatment applications to prevent corrosion, contamination and the buildup of harmful deposits and extend asset life, among other functions, and in production processes to enhance process efficiency, extend asset life and improve customers end products. Nalco also helps customers reduce energy, water and other natural resource consumption, minimizing environmental releases. Effective with the Nalco merger, the company added Nalcos three legacy operating units (Water Services, Paper Services and Energy Services) as individual reportable segments.
Under the terms of the merger agreement, each share of Nalco common stock issued and outstanding immediately prior to the effective time of the merger was converted into the right to receive, at the election of the stockholder, either 0.7005 shares of Ecolab common stock or $38.80 in cash, without interest, provided that approximately 70% of the issued and outstanding Nalco common stock immediately prior to the effective date was converted into the right to receive Ecolab common stock and approximately 30% of issued and outstanding shares of Nalco common stock immediately prior to the effective date was converted into the right to receive cash. In order to achieve this 70%/30% stock-cash consideration mix, the merger agreement provided for pro-rata adjustments to and reallocation of the stock consideration paid to Nalco stockholders, and cash elections made by Nalco stockholders, as well as the allocation of cash as the default consideration paid for Nalco shares owned by stockholders who failed to make an election. Those Nalco stockholders making stock elections received approximately 94% of their consideration in Ecolab shares while those electing cash received 100% cash consideration. Nalco stockholders did not receive any fractional shares of Ecolab common stock in the merger. Instead, they received cash in lieu of any fractional shares of Ecolab common stock.
The final consideration transferred to acquire all of Nalcos stock is as follows:
MILLIONS, EXCEPT PER SHARE
Cash consideration |
|
|
|
|
|
Number of Nalco common shares outstanding receiving cash consideration |
|
41.8 |
|
|
|
Cash consideration per common share outstanding |
|
$ |
38.80 |
|
|
Total cash paid to Nalco shareholders electing cash consideration |
|
$ |
1,621.8 |
|
|
Stock consideration |
|
|
|
|
|
Number of Nalco common shares outstanding receiving stock consideration |
|
97.5 |
|
|
|
Exchange ratio |
|
0.7005 |
|
|
|
Ecolab shares issued to Nalco shareholders electing stock consideration |
|
68.3 |
|
|
|
Ecolabs closing stock price on December 1, 2011 |
|
$ |
55.62 |
|
|
Total fair value of stock consideration |
|
$ |
3,799.7 |
|
|
Fair value of Nalco equity compensation awards converted to Ecolab awards |
|
$ |
73.5 |
|
|
Total fair value of cash and stock consideration |
|
$ |
5,495.0 |
|
|
|
|
|
|
|
The company incurred certain merger and integration costs associated with the transaction that were expensed as incurred and are reflected in the Consolidated Statements of Income. A total of $62.8 million has been incurred, with $57.7 million included in special (gains) and charges related to merger and integration charges, closing costs and advisory fees, $3.6 million included in cost of sales related to recognition of fair value step-up in Nalco inventory and $1.5 million included in interest expense, net related to fees to secure short-term credit facilities.
The company initially financed the merger through commercial paper borrowings backed by its $1.5 billion, 5 year credit facility and its $2.0 billion 364 day credit facility and through proceeds from its $500 million private placement senior notes. See Note 6 for further discussion on the companys debt. The company also issued 68.3 million shares of Ecolab common stock as part of the merger transaction. In addition, certain outstanding Nalco equity compensation awards were converted into Ecolab equity compensation awards of which the consideration portion was $73.5 million. See Notes 9 and 10 for further discussion on equity and equity compensation, respectively.
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 (see below) and are subject to change, which could be significant.
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. The following items remain subject to change:
- Amounts for contingent liabilities, pending the finalization of the companys review of the Nalco contingent liabilities
- Certain tangible and intangible assets, pending the finalization of valuation procedures
- Certain assets and liabilities related to non-wholly owned subsidiaries
- Certain assets and liabilities pending the results of a comprehensive accounting policy consistency review
- Amounts for deferred tax assets and liabilities, pending the finalization of assets acquired, liabilities assumed and resulting goodwill
The following table summarizes the values of Nalco assets acquired and liabilities assumed as of the merger date. To the extent previously discussed, such amounts are considered preliminary:
MILLIONS
Current assets |
|
$ |
1,869.6 |
|
|
Property, plant and equipment |
|
1,069.2 |
|
|
|
Other assets |
|
97.3 |
|
|
|
Identifiable intangible assets: |
|
|
|
|
|
Customer relationships |
|
2,160.0 |
|
|
|
Patents |
|
321.0 |
|
|
|
Trade names |
|
1,230.0 |
|
|
|
Trademarks |
|
79.0 |
|
|
|
Other technology |
|
91.0 |
|
|
|
Total assets acquired |
|
6,917.1 |
|
|
|
|
|
|
|
|
|
Current liabilities |
|
1,105.5 |
|
|
|
Long-term debt |
|
2,858.4 |
|
|
|
Pension and postretirement benefits |
|
505.7 |
|
|
|
Net deferred tax liability |
|
1,188.7 |
|
|
|
Noncontrolling interests and other liabilities |
|
167.7 |
|
|
|
Total liabilities and noncontrolling interests assumed |
|
5,826.0 |
|
|
|
Goodwill |
|
4,403.9 |
|
|
|
Total consideration transferred |
|
$ |
5,495.0 |
|
|
|
|
|
|
|
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.
In-process research and development associated with the Nalco merger was not significant.
Goodwill is calculated as the excess of the consideration transferred over the fair value of identifiable net assets acquired and represents the expected synergies and other benefits from combining the operations of Nalco with the operations of Ecolab. The company expects that the merger will produce revenue growth synergies through the cross-selling of products in complementary markets and also expand geographic and market breadth, while adding scale to operations in smaller countries, thus creating a stronger more globally diversified and strategically well-positioned combined entity. Key areas of cost synergies include increased purchasing power for raw materials, supply chain consolidation and elimination of corporate general and administrative functions overlap. Goodwill related to the Nalco merger is currently presented in total, but will
ultimately be allocated to the Water Services, Paper Services and Energy Services operating units.
The following table provides net sales and operating income from the Nalco business included in the companys results since the December 1, 2011 merger.
MILLIONS
Net sales |
|
$ |
193.4 |
|
Operating income |
|
13.8 |
|
|
|
|
|
|
The following table provides unaudited pro forma net sales and reported results of operations for the years ended December 31, 2011 and 2010, assuming the Nalco merger had been completed on January 1, 2010. The historical financial information has been adjusted to give effect to pro forma events 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 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.
MILLIONS |
|
2011 |
|
2010 |
|
Net sales |
|
$ 11,283.9 |
|
$ 10,340.2 |
|
Net income attributable to Ecolab |
|
624.3 |
|
572.3 |
|
Earnings attributable to Ecolab per common share |
|
|
|
|
|
Basic |
|
2.08 |
|
1.90 |
|
Diluted |
|
2.04 |
|
1.86 |
|
Other significant acquisition activity
Excluding the Nalco merger, the pro forma impact of all other acquisitions during 2011, 2010, and 2009 was not material to the companys consolidated financial statements; therefore pro forma financial information is not presented. Based upon purchase price allocations, excluding the Nalco merger, the components of the aggregate purchase prices of 2011, 2010 and 2009 acquisitions are shown in the following table. The contingent consideration relates to in an immaterial acquisition completed during 2011.
MILLIONS |
|
2011 |
|
|
2010 |
|
2009 |
|
|||
|
|
|
|
|
|
|
|
|
|||
Net tangible assets acquired (liabilities assumed) |
|
$ |
58.6 |
|
|
$ |
17.4 |
|
$ |
(0.7 |
) |
Identifiable intangible assets |
|
|
|
|
|
|
|
|
|||
Customer relationships |
|
145.5 |
|
|
11.3 |
|
3.0 |
|
|||
Patents |
|
0.3 |
|
|
|
|
1.4 |
|
|||
Trademarks |
|
11.2 |
|
|
0.7 |
|
0.2 |
|
|||
Other technology |
|
8.4 |
|
|
5.7 |
|
5.3 |
|
|||
Total |
|
165.4 |
|
|
17.7 |
|
9.9 |
|
|||
Goodwill |
|
94.3 |
|
|
8.3 |
|
5.2 |
|
|||
Total aggregate purchase price |
|
318.3 |
|
|
43.4 |
|
14.4 |
|
|||
Contingent consideration |
|
(5.0 |
) |
|
|
|
|
|
|||
Liability for indemnification |
|
(28.1 |
) |
|
|
|
|
|
|||
Net cash paid for acquistions |
|
$ |
285.2 |
|
|
$ |
43.4 |
|
$ |
14.4 |
|
|
|
|
|
|
|
|
|
|
Excluding the Nalco merger, the weighted average useful lives of intangible assets acquired was 13 years as of December 31, 2011, 2010 and 2009.
2011 Activity
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 companys U.S. Cleaning & Sanitizing segment during the first quarter of 2011.
In December 2010, subsequent to the companys 2010 year end for international operations, the company completed the purchase of selected assets of the Cleantec business of Campbell Brothers Ltd. in Australia. Cleantec is a developer, manufacturer and marketer of cleaning and hygiene products principally within the Australian food and beverage processing, food service, hospitality and commercial laundry 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 companys International segment during the first quarter of 2011.
2010 Activity
In September 2010, the company acquired the commercial laundry division of Dober Chemical Corp. The acquisition strengthens the companys U.S. and Canada Textile Care business by adding customer relationships and business scale, as well as important customer technology. The business, which had annual sales of approximately $37 million, became part of the companys U.S. Cleaning & Sanitizing segment during the third quarter of 2010.
2009 Activity
In October 2009, the company acquired the ISS pest elimination business in the U.K. The business, which had annual sales of approximately $6 million, was integrated with the companys existing U.K. pest elimination business during the fourth quarter of 2009.
In February 2009, the company acquired assets of the Stackhouse business of CORPAK Medsystems, Inc. Stackhouse is a leading developer, manufacturer and marketer of surgical helmets and smoke evacuators, primarily for use during orthopedic surgeries. The business, which had annual sales of approximately $4 million, became part of the companys U.S. Cleaning & Sanitizing segment during the first quarter of 2009.
Dispositions
During the third quarter of 2010, the company sold an investment in a small U.S. business and realized a gain of $5.9 million, which was reported in special (gains) and charges. The investment was not material to the companys consolidated results of operations or financial position.
During the second quarter of 2010, the company sold a small joint venture in its international segment. The impact of this divestiture and the joint venture were not material to the companys consolidated results of operations or financial position.
The company had no significant business dispositions in 2011 or 2009.
5. BALANCE SHEET INFORMATION
DECEMBER 31 (MILLIONS) |
|
2011 |
|
|
2010 |
|
||
|
|
|
|
|
|
|
||
Accounts receivable, net |
|
|
|
|
|
|
||
Accounts receivable |
|
$ |
2,144.6 |
|
|
$ |
1,044.5 |
|
Allowance for doubtful accounts |
|
(49.3 |
) |
|
(44.9 |
) |
||
Total |
|
$ |
2,095.3 |
|
|
$ |
999.6 |
|
Inventories |
|
|
|
|
|
|
||
Finished goods |
|
$ |
745.5 |
|
|
$ |
254.2 |
|
Raw materials and parts |
|
351.4 |
|
|
216.1 |
|
||
Inventories at FIFO cost |
|
1,096.9 |
|
|
470.3 |
|
||
Excess of FIFO cost over LIFO cost |
|
(27.3 |
) |
|
(22.7 |
) |
||
Total |
|
$ |
1,069.6 |
|
|
$ |
447.6 |
|
Property, plant and equipment, net |
|
|
|
|
|
|
||
Land |
|
$ |
158.8 |
|
|
$ |
28.4 |
|
Buildings and improvements |
|
483.8 |
|
|
279.9 |
|
||
Leasehold improvements |
|
77.3 |
|
|
75.9 |
|
||
Machinery and equipment |
|
1,206.1 |
|
|
699.1 |
|
||
Merchandising and customer equipment |
|
1,682.7 |
|
|
1,419.2 |
|
||
Capitalized software |
|
385.7 |
|
|
321.2 |
|
||
Construction in progress |
|
182.7 |
|
|
48.9 |
|
||
|
|
4,177.1 |
|
|
2,872.6 |
|
||
Accumulated depreciation |
|
(1,881.7 |
) |
|
(1,724.3 |
) |
||
Total |
|
$ |
2,295.4 |
|
|
$ |
1,148.3 |
|
Other intangible assets, net |
|
|
|
|
|
|
||
Cost of intangible assets not subject to amortization: |
|
|
|
|
|
|
||
Trade names |
|
$ |
1,230.0 |
|
|
|
|
|
Cost of intangible assets subject to amortization: |
|
|
|
|
|
|
||
Customer relationships |
|
$ |
2,593.2 |
|
|
$ |
281.6 |
|
Trademarks |
|
201.0 |
|
|
111.3 |
|
||
Patents |
|
404.4 |
|
|
79.0 |
|
||
Other technology |
|
174.6 |
|
|
73.3 |
|
||
|
|
3,373.2 |
|
|
545.2 |
|
||
Accumulated amortization: |
|
|
|
|
|
|
||
Customer relationships |
|
(204.8 |
) |
|
(165.0 |
) |
||
Trademarks |
|
(48.6 |
) |
|
(41.0 |
) |
||
Patents |
|
(36.3 |
) |
|
(28.2 |
) |
||
Other technology |
|
(38.3 |
) |
|
(28.5 |
) |
||
Total |
|
$ |
4,275.2 |
|
|
$ |
282.5 |
|
Other assets |
|
|
|
|
|
|
||
Deferred income taxes |
|
$ |
118.0 |
|
|
$ |
112.0 |
|
Pension |
|
22.3 |
|
|
1.5 |
|
||
Other |
|
278.6 |
|
|
128.7 |
|
||
Total |
|
$ |
418.9 |
|
|
$ |
242.2 |
|
Other current liabilities |
|
|
|
|
|
|
||
Discounts and rebates |
|
$ |
239.9 |
|
|
$ |
220.7 |
|
Dividends payable |
|
60.0 |
|
|
40.7 |
|
||
Interest payable |
|
51.0 |
|
|
9.3 |
|
||
Taxes payable, other than income |
|
74.1 |
|
|
49.2 |
|
||
Derivative liabilities |
|
3.3 |
|
|
5.1 |
|
||
Restructuring |
|
57.5 |
|
|
2.8 |
|
||
Other |
|
262.9 |
|
|
113.7 |
|
||
Total |
|
$ |
748.7 |
|
|
$ |
441.5 |
|
Other liabilities |
|
|
|
|
|
|
||
Deferred income taxes |
|
$ |
1,305.3 |
|
|
$ |
65.3 |
|
Income taxes payable - noncurrent |
|
80.8 |
|
|
38.1 |
|
||
Other |
|
160.7 |
|
|
88.8 |
|
||
Total |
|
$ |
1,546.8 |
|
|
$ |
192.2 |
|
Accumulated other comprehensive loss |
|
|
|
|
|
|
||
Unrealized gain (loss) on derivative financial instruments, net of tax |
|
$ |
(13.5 |
) |
|
$ |
(3.3 |
) |
Unrecognized pension and postretirement benefit expense, net of tax |
|
(481.3 |
) |
|
(387.4 |
) |
||
Cumulative translation, net of tax |
|
149.9 |
|
|
118.8 |
|
||
Total |
|
$ |
(344.9 |
) |
|
$ |
(271.9 |
) |
|
|
|
|
|
|
|
6. DEBT AND INTEREST
The company had total debt of $7.6 billion as of December 31, 2011 compared to $845.6 million as of December 31, 2010. The significant increase is due primarily to the Nalco merger, which was completed on December 1, 2011. The following tables provide the components of the companys debt obligations, along with applicable interest rates as of December 31, 2011 and 2010:
MILLIONS, |
|
2011 |
|
2010 |
|
|||||||
EXCEPT INTEREST RATES |
|
|
|
AVERAGE |
|
|
|
|
AVERAGE |
|
||
|
|
|
|
INTEREST |
|
|
|
|
INTEREST |
|
||
|
|
PAYABLE |
|
RATE |
|
|
PAYABLE |
|
RATE |
|
||
|
|
|
|
|
|
|
|
|
|
|
||
Short-term debt |
|
|
|
|
|
|
|
|
|
|
||
Commercial paper |
|
$ |
916.1 |
|
0.67% |
|
|
|
|
|
|
|
Notes payable |
|
100.3 |
|
1.53% |
|
|
$ |
32.4 |
|
6.00% |
|
|
Long-term debt, current maturities |
|
6.6 |
|
|
|
|
156.8 |
|
|
|
||
Total |
|
$ |
1,023.0 |
|
|
|
|
$ |
189.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MILLIONS, EXCEPT INTEREST RATES |
|
|
|
|
|
|
2011 |
|
|
|
|
|
|
2010 |
|
|
|
||
|
|
|
|
|
|
|
AVERAGE |
|
EFFECTIVE |
|
|
|
|
AVERAGE |
|
EFFECTIVE |
|
||
|
|
MATURITY |
|
|
CARRYING |
|
INTEREST |
|
INTEREST |
|
|
CARRYING |
|
INTEREST |
|
INTEREST |
|
||
|
|
BY YEAR |
|
|
VALUE |
|
RATE |
|
RATE |
|
|
VALUE |
|
RATE |
|
RATE |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Long-term debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Description / 2011 Principal Amount |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Series A senior euro notes (125 million euro) |
|
2013 |
|
|
$ |
168.1 |
|
4.36% |
|
4.51% |
|
|
$ |
162.3 |
|
4.36% |
|
4.51% |
|
Series B senior euro notes (175 million euro) |
|
2016 |
|
|
235.3 |
|
4.59% |
|
4.67% |
|
|
227.2 |
|
4.59% |
|
4.67% |
|
||
Senior notes ($250 million) |
|
2015 |
|
|
249.1 |
|
4.88% |
|
4.99% |
|
|
248.8 |
|
4.88% |
|
4.99% |
|
||
Series A private placement senior notes ($250 million) |
|
2018 |
|
|
250.0 |
|
3.69% |
|
5.15% |
|
|
|
|
|
|
|
|
||
Series B private placement senior notes ($250 million) |
|
2023 |
|
|
250.0 |
|
4.32% |
|
4.32% |
|
|
|
|
|
|
|
|
||
Three year 2011 senior notes ($500 million) |
|
2014 |
|
|
499.7 |
|
2.38% |
|
2.40% |
|
|
|
|
|
|
|
|
||
Five year 2011 senior notes ($1.25 billion) |
|
2016 |
|
|
1,247.6 |
|
3.00% |
|
3.04% |
|
|
|
|
|
|
|
|
||
Ten year 2011 senior notes ($1.25 billion) |
|
2021 |
|
|
1,249.2 |
|
4.35% |
|
4.36% |
|
|
|
|
|
|
|
|
||
Thirty year 2011 senior notes ($750 million) |
|
2041 |
|
|
742.3 |
|
5.50% |
|
5.53% |
|
|
|
|
|
|
|
|
||
Term notes |
|
2011 |
|
|
|
|
|
|
|
|
|
150.0 |
|
6.88% |
|
6.96% |
|
||
Legacy Nalco senior notes ($750 million) |
|
2019 |
|
|
838.7 |
|
6.63% |
|
5.13% |
|
|
|
|
|
|
|
|
||
Legacy Nalco senior euro notes (200 million euro) |
|
2019 |
|
|
300.7 |
|
6.88% |
|
5.53% |
|
|
|
|
|
|
|
|
||
Legacy Nalco senior notes ($500 million) |
|
2017 |
|
|
558.5 |
|
8.25% |
|
6.30% |
|
|
|
|
|
|
|
|
||
Capital lease obligations |
|
2019 |
|
|
18.3 |
|
|
|
|
|
|
17.5 |
|
|
|
|
|
||
Other |
|
|
|
|
12.3 |
|
|
|
|
|
|
7.4 |
|
|
|
|
|
||
|
|
|
|
|
6,619.8 |
|
|
|
|
|
|
813.2 |
|
|
|
|
|
||
Long-term debt, current maturities |
|
|
|
|
(6.6 |
) |
|
|
|
|
|
(156.8 |
) |
|
|
|
|
||
Total |
|
|
|
|
$ |
6,613.2 |
|
|
|
|
|
|
$ |
656.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In September 2011, the company replaced its existing $600 million multi-year credit facility with a $1.5 billion multi-year credit facility, which expires in September 2016. The company also entered into a $2.0 billion, 364 day credit facility. Both of the $1.5 billion and $2.0 billion credit facilities have been established with a diverse portfolio of banks. No amounts were outstanding under any of these agreements at year end 2011 or 2010.
The credit facilities support the companys $3.5 billion U.S. commercial paper program, which was increased from $600 million in 2011, and the companys $200 million European commercial paper program. Combined borrowing under these two commercial paper programs may not exceed $3.5 billion. The company had $916 million in outstanding U.S. commercial paper at December 31, 2011 and no commercial paper outstanding under the U.S. program at December 31, 2010. The company had no commercial paper outstanding under its European program at December 31, 2011 or 2010. As of December 31, 2011, the companys short-term borrowing program was rated A-2 by Standard & Poors and P-2 by Moodys.
In December 2011, the company issued $3.75 billion of debt securities in a public debt offering. The offering was a multi-tranche transaction consisting of three, five, ten and thirty year maturities. Interest rates range from 2.38% to 5.50%. The proceeds were used to repay outstanding commercial paper, which were issued to fund a portion of the cash component of the Nalco merger and repay the Nalco term loans, and fund share repurchases.
In October 2011, the company entered into a Note Purchase Agreement to issue and sell $500 million private placement senior notes, split into two series: $250 million of seven year notes that mature in 2018 at a rate of 3.69% and $250 million of twelve year notes that mature in 2023 at a rate of 4.32%. Both series of the notes were funded in November 2011. The proceeds were used for general corporate purposes, including partially funding the Nalco merger.
In February 2008, the company issued and sold $250 million aggregate principal amount of senior unsecured notes that mature in 2015 at a rate of 4.88% in a public debt offering. The proceeds were used to refinance outstanding commercial paper and for general corporate purposes.
The company has outstanding euro 300 million ($403 million as of December 31, 2011) aggregate principal amount of the companys private placement senior notes in two series: 4.36% Series A Senior Notes due 2013 in the aggregate principal amount of euro 125 million and 4.59% Series B Senior Notes due 2016 in the aggregate principal amount of euro 175 million, issued in December 2006, pursuant to a Note Purchase Agreement dated July 26, 2006.
The series of notes issued by the company in February 2008 and December 2011 pursuant to public debt offerings (the Public Notes) may be redeemed by the company at its option at redemption prices that include accrued and unpaid interest and a
make-whole premium. Upon the occurrence of a change of control accompanied by a downgrade of the Public Notes below investment grade rating, within a specified time period, the company will be required to offer to repurchase the Public Notes at a price equal to 101% of the aggregate principal amount thereof, plus any accrued and unpaid interest to the date of repurchase.
The Public Notes are senior unsecured and unsubordinated obligations of the company and rank equally with all other senior and unsubordinated indebtedness of the company from time to time outstanding.
The series of notes issued by the company in December 2006 and November 2011 pursuant to private debt offerings (the Private Notes) may be redeemed by the company at its option at redemption prices that include accrued and unpaid interest and a make-whole premium. Upon the occurrence of specified changes of control involving the company, the company will be required to offer to repurchase the Private Notes at a price equal to 100% of the aggregate principal amount thereof, plus any accrued and unpaid interest to the date of repurchase. Additionally, the company will need to make a similar offer to repurchase the Private Notes upon the occurrence of specified merger events or asset sales involving the company, when accompanied by a downgrade of the Private Notes below investment grade rating, within a specified time period.
The Private Notes are senior obligations of the company and rank equal in right of payment with all other senior indebtedness of the company. The Private Notes shall be unconditionally guaranteed by subsidiaries of the company in certain circumstances, as described in the note purchase agreements as amended.
The company is in compliance with all covenants at December 31, 2011.
In February 2011, the company repaid its $150 million 6.875% notes when they became due.
In January 2012, the company redeemed $1.7 billion of Nalco senior notes, which were assumed in 2011 as part of the merger. As of December 31, 2011, the legacy 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.
As of December 31, 2011, the aggregate annual maturities of long-term debt for the next five years were:
MILLIONS
|
|
|
|
|
2012 |
|
$ |
7 |
|
2013 |
|
175 |
|
|
2014 |
|
505 |
|
|
2015 |
|
254 |
|
|
2016 |
|
1,486 |
|
|
Interest expense and interest income incurred during 2011, 2010 and 2009 were as follows:
MILLIONS |
|
2011 |
|
|
2010 |
|
2009 |
|
|||
Interest expense |
|
$ |
82.1 |
|
|
$ |
65.6 |
|
$ |
67.5 |
|
Interest income |
|
(7.9 |
) |
|
(6.5 |
) |
(6.3 |
) |
|||
Interest expense, net |
|
$ |
74.2 |
|
|
$ |
59.1 |
|
$ |
61.2 |
|
7. FAIR VALUE MEASUREMENTS
The companys 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.
The carrying values of cash and cash equivalents, accounts receivable, accounts payable, commercial paper and notes payable approximate fair value because of their short maturities. The carrying amount and the estimated fair value for assets and liabilities measured on a recurring basis were:
DECEMBER 31 (MILLIONS) |
|
2011 |
|
||||||||||
|
|
CARRYING |
|
FAIR VALUE MEASUREMENTS |
|
||||||||
|
|
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 |
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Liabilities: |
|
|
|
|
|
|
|
|
|
||||
Foreign currency forward contracts |
|
3.3 |
|
|
|
3.3 |
|
|
|
||||
Contingent consideration obligations |
|
25.1 |
|
|
|
|
|
25.1 |
|
||||
|
|
2010 |
|
||||||||||
|
|
CARRYING |
|
FAIR VALUE MEASUREMENTS |
|
||||||||
|
|
AMOUNT |
|
LEVEL 1 |
|
LEVEL 2 |
|
LEVEL 3 |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
||||
Foreign currency forward contracts |
|
$ |
1.8 |
|
$ |
|
|
$ |
1.8 |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Liabilities: |
|
|
|
|
|
|
|
|
|
||||
Foreign currency forward contracts |
|
5.1 |
|
|
|
5.1 |
|
|
|
||||
Money market funds held in rabbi trusts are classified within level 1 because they are valued using quoted prices in active markets. The carrying value of foreign currency forward contracts is at fair value, which is determined based on foreign currency exchange rates as of the balance sheet date, and is classified within level 2.
The fair value of long-term debt, including current maturities, is based on quoted market prices for the same or similar debt instruments. The carrying amount and the estimated fair value of long-term debt, including current maturities, held by the company were:
DECEMBER 31 (MILLIONS) |
|
2011 |
|
2010 |
|
||||||||||
|
|
CARRYING |
|
FAIR |
|
CARRYING |
|
FAIR |
|
||||||
|
|
|
AMOUNT |
|
VALUE |
|
|
AMOUNT |
|
VALUE |
|
||||
Long-term debt |
|
|
|
|
|
|
|
|
|
|
|
||||
(including current maturities) |
|
|
$ |
6,619.8 |
|
$ |
6,885.3 |
|
|
$ |
813.2 |
|
$ |
850.6 |
|
For business acquisitions after December 31, 2008, contingent consideration obligations are recognized and measured at fair value at the acquisition date. After initial recognition, contingent consideration obligations are remeasured at fair value, with changes in fair value recognized in earnings. Contingent consideration liabilities are classified within level 3 because fair value is measured based on the probability-weighted present value of the consideration expected to be transferred. The company did not have significant contingent consideration liabilities as of December 31, 2010. Changes in the fair value of contingent consideration for 2011 were as follows:
MILLIONS |
|
2011 |
|
|
Balance at beginning of year |
|
$ |
2.4 |
|
Liabilities recognized at acquistion date |
|
5.0 |
|
|
Assumed through Nalco merger |
|
16.9 |
|
|
Loss (gains) recognized in earnings |
|
0.8 |
|
|
Balance at end of year |
|
$ |
25.1 |
|
8. DERIVATIVES AND HEDGING TRANSACTIONS
Derivative Instruments and Hedging
The company uses foreign currency forward contracts, interest rate swaps and foreign currency debt to manage risks associated with foreign currency exchange rates, interest rates and net investments in foreign operations. The company records all derivatives as assets and liabilities on the balance sheet at fair value. Changes in fair value are recognized immediately in earnings unless the derivative qualifies and is designated as a hedge. The effective portion of changes in fair value of hedges is initially recognized in accumulated other comprehensive income (AOCI) on the Consolidated Balance Sheet. Amounts recorded in AOCI are reclassified into earnings in the same period or periods during which the hedged transactions affect earnings. The company evaluates hedge effectiveness at inception and on an ongoing basis. If a derivative is no longer expected to be effective, hedge accounting is discontinued. Hedge ineffectiveness, if any, is recorded in earnings.
The company does not hold derivative financial instruments of a speculative nature or for trading purposes. The company is exposed to credit loss in the event of nonperformance of counterparties for foreign currency forward exchange contracts and interest rate swap agreements. The company monitors its exposure to credit risk by using credit approvals, credit limits and credit ratings and by selecting major international banks and financial institutions as counterparties. The company does not anticipate nonperformance by any of these counterparties.
Derivatives Designated as Cash Flow Hedges
The company utilizes foreign currency forward contracts to hedge the effect of foreign currency exchange rate fluctuations on forecasted foreign currency transactions, including: sales, inventory purchases, and intercompany royalty and management fee payments. These forward contracts are designated as cash flow hedges. The effective portions of the changes in fair value of these contracts are recorded in AOCI until the hedged items affect earnings, at which time the gain or loss is reclassified into the same line item in the Consolidated Statement of Income as the underlying exposure being hedged. All hedged transactions are forecasted to occur within the next twelve months.
The company occasionally enters into interest rate swap contracts to manage interest rate exposures. In 2011, the company entered into six forward starting swap contracts in connection with the issuance of its private placement debt during the fourth quarter of 2011. The interest rate swap agreements were designated and effective as a cash flow hedge of the expected interest payments related to the anticipated debt issuance. In the fourth quarter of 2011 the company settled the swap agreements and the decline in fair value of $15.3 million, net of tax, was recorded in AOCI. In 2006, the company entered into and subsequently closed two forward starting swap contracts related to the issuance of its senior euro notes with the net settlement recorded in AOCI. The amounts in AOCI for both the 2011 and 2006 transactions are recognized in earnings as part of interest expense over the remaining life of the notes as the forecasted interest transactions occur. The company did not have any forward starting interest rate swap agreements outstanding at December 31, 2011, 2010 and 2009.
Derivatives Not Designated as Hedging Instruments
The company also uses foreign currency forward contracts to offset its exposure to the change in value of certain foreign currency denominated assets and liabilities, primarily receivables and payables. Although the contracts are effective economic hedges, they are not designated as accounting hedges. Therefore, changes in the value of these derivatives are recognized immediately in earnings, thereby offsetting the current earnings effect of the related foreign currency denominated assets and liabilities.
The following table summarizes the fair value of the companys outstanding derivatives as of December 31. The amounts are included in other current assets and other current liabilities on the companys balance sheet.
|
|
ASSET DERIVATIVES |
|
LIABILITY DERIVATIVES |
|
||||||||
MILLIONS |
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Foreign currency forward contracts |
|
$ |
3.8 |
|
$ |
0.5 |
|
$ |
1.2 |
|
$ |
3.2 |
|
|
|
|
|
|
|
|
|
|
|
||||
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Foreign currency forward contracts |
|
6.6 |
|
1.3 |
|
2.1 |
|
1.9 |
|
||||
Total |
|
$ |
10.4 |
|
$ |
1.8 |
|
$ |
3.3 |
|
$ |
5.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The company had foreign currency forward exchange contracts with notional values that totaled $586 million and $433 million at December 31, 2011 and 2010, respectively.
The impact on AOCI and earnings from derivative contracts that qualified as cash flow hedges was as follows:
MILLIONS |
|
LOCATION |
|
2011 |
|
2010 |
|
2009 |
|
|||||
Unrealized gain (loss) recognized into AOCI (effective portion) |
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|||
Foreign currency forward contracts |
|
AOCI (equity) |
|
|
$ |
0.2 |
|
|
$ |
(2.5 |
) |
$ |
(6.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|||
Interest rate swap contracts |
|
AOCI (equity) |
|
|
(15.3 |
) |
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|||
Gain (loss) recognized in income (effective portion) |
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|||
Foreign currency forward contracts |
|
Sales |
|
|
(0.3 |
) |
|
|
|
0.8 |
|
|||
|
|
Cost of sales |
|
|
(4.7 |
) |
|
(4.1 |
) |
5.4 |
|
|||
|
|
SG&A |
|
|
(1.5 |
) |
|
0.5 |
|
2.8 |
|
|||
|
|
|
|
|
(6.5 |
) |
|
(3.6 |
) |
9.0 |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|||
Interest rate swap contracts |
|
Interest expense, net |
|
|
(0.8 |
) |
|
(0.4 |
) |
(0.4 |
) |
|||
|
|
Total |
|
|
$ |
(7.3 |
) |
|
$ |
(4.0 |
) |
$ |
8.6 |
|
Gain (loss) recognized in income (ineffective portion) |
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts |
|
Interest expense, net |
|
|
$ |
(1.8 |
) |
|
$ |
(1.2 |
) |
$ |
(1.3 |
) |
The impact on earnings from derivative contracts that are not designated as hedging instruments was as follows:
MILLIONS |
|
LOCATION |
|
2011 |
|
2010 |
|
2009 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|||||
Gain (loss) recognized in income |
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|||
Foreign currency forward contracts |
|
SG&A |
|
|
$ |
2.9 |
|
|
$ |
(5.4 |
) |
$ |
1.6 |
|
|
|
Interest expense, net |
|
|
(5.4 |
) |
|
(5.5 |
) |
(7.0 |
) |
|||
|
|
Total |
|
|
$ |
(2.5 |
) |
|
$ |
(10.9 |
) |
$ |
(5.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
The amounts recognized in SG&A above offset the earnings impact of the related foreign currency denominated assets and liabilities. The amounts recognized in interest expense above represent the component of the hedging gains (losses) attributable to the difference between the spot and forward rates of the hedges as a result of interest rate differentials.
Net Investment Hedge
The company designates its legacy Ecolab euro denominated borrowings and related accrued interest as a hedge of existing foreign currency exposures related to net investments the company has in certain Euro functional subsidiaries. Additionally, legacy Nalco has euro denominated borrowings that are also designated as a hedge of existing foreign currency exposures. Accordingly, the transaction gains and losses on the euronotes, which are designated and effective as hedges of the companys net investments, have been included as a component of the cumulative translation adjustment account. The carrying value of euro-denominated debt designated as a net investment hedge was $704 million and $389 million as of December 31, 2011 and 2010, respectively. Total transaction gains and losses related to the euronotes charged to shareholders equity were as follows:
MILLIONS |
|
2011 |
|
|
2010 |
|
2009 |
|
|||
Transaction gains (losses), net of tax |
|
$ |
(9.5 |
) |
|
$ |
37.6 |
|
$ |
(43.9 |
) |
The company formally assesses, on a quarterly basis, whether the euro-denominated debt is effective at offsetting changes in the value of the underlying exposure. No hedge ineffectiveness was recorded in earnings during 2011, 2010 and 2009.
9. SHAREHOLDERS EQUITY
Authorized common stock, par value $1.00 per share, was 400 million shares in 2010 and 2009. Effective December 1, 2011, following approval by the companys shareholders, the companys authorized common stock was increased to 800 million shares. Treasury stock is stated at cost. Dividends declared per share of common stock were $0.725 for 2011, $0.640 for 2010 and $0.575 for 2009.
On December 1 ,2011, the company issued 68,316,283 shares of common stock for the stock consideration portion of the Nalco merger (see Note 4). In addition, as part of the consideration, each outstanding Nalco stock option was converted into an option to purchase the companys common stock with both the number of options and the exercise price adjusted accordingly based on the stock award exchange ratio. Pursuant to change-in-control agreements, Nalcos existing restricted stock awards to non-employee directors and certain officers, in general, fully vested as a result of the merger. For those awards that did not vest as a result of the merger, each Nalco unvested restricted stock award was converted based on the stock award exchange ratio into a restricted stock award of the company, with vesting subject to continued employment. In conjunction with the merger, the level of attainment of the performance criteria applicable to converted Nalco performance based restricted stock awards was fixed based on actual and target financial performance and such awards were converted based on the stock award exchange ratio into a time based restricted stock award of the company based on such performance level, with vesting subject to continued employment.
The company has 15 million shares, without par value, of authorized but unissued preferred stock. Of these 15 million shares, 0.4 million shares were designated as Series A Junior Participating Preferred Stock and 14.6 million shares were undesignated as of December 31, 2011.
Under the companys shareholder rights plan, one preferred stock purchase right is issued for each outstanding share of the companys common stock. A right entitles the holder, upon occurrence of certain events, to buy one one-thousandth of a share of Series A Junior Participating Preferred Stock at a purchase price of $135, subject to adjustment. The rights, however, do not become exercisable unless and until, among other things, any person or group acquires 15% or more of the outstanding common stock of the company, or the companys board of directors declares a holder of 10% or more of the outstanding common stock to be an adverse person as defined in the rights plan. Upon the occurrence of either of these events, the rights will become exercisable for common stock of the company (or in certain cases common stock of an acquiring company) having a market value of twice the exercise price of a right. The rights are redeemable under certain circumstances at one cent per right and, unless redeemed earlier, will expire on March 10, 2016.
In February 2010, the companys Board of Directors authorized the repurchase of up to 10 million shares of common stock, including shares to be repurchased under Rule 10b5-1. In May 2011, the companys Board of Directors authorized the repurchase of up to 15 million additional shares of common stock, including shares to be repurchased under Rule 10b5-1. In August 2011, the Finance Committee of the companys Board of Directors, via delegation by the companys Board of Directors, authorized the repurchase of an additional 10 million common shares which was contingent upon completion of the merger with Nalco. In September 2011, under the existing Board authorization, subject to the completion of the Nalco merger, the company announced a $1.0 billion share repurchase program. As part this program, in December 2011, the company entered into an accelerated share repurchase (ASR) agreement with a financial institution to repurchase $500 million of its common stock. Under the ASR, the company received 8,330,379 shares of its common stock in December 2011. The final per share purchase price and the total number of shares to be repurchased under the ASR agreement generally will be based on the volume-weighted average price of the companys common stock during the term of the agreement, and will be determined upon completion of the ASR transaction which is expected to be in the first quarter of 2012. All shares acquired under the ASR agreement will be recorded as treasury stock. In addition to the ASR the company reacquired 3,491,425 shares, 7,366,001 shares and 1,225,078 shares of its common stock in 2011, 2010 and 2009, respectively, through open market and private purchases. The company also reacquired 187,454 shares, 242,161 shares and 316,150 shares of its common stock in 2011, 2010 and 2009, respectively, related to the exercise of stock options and the vesting of stock awards. The company intends to repurchase all shares under its authorizations, for which no expiration date has been established, in open market or privately negotiated transactions, subject to market conditions. As of December 31, 2011, 18,532,979 shares remained to be repurchased under the companys repurchase authorization.
10. EQUITY COMPENSATION PLANS
The companys equity compensation plans provide for grants of stock options, restricted stock awards and restricted stock unit awards. Common shares available for grant as of December 31, 2011, 2010 and 2009 were 8,813,059, 11,608,387 and 2,376,663, respectively. Common shares available for grant reflect 12 million shares approved by shareholders in 2010 for issuance under the plans. Following the Nalco merger, 1,405,530 common shares on a converted basis formerly reserved for grant under Nalcos 2004 Stock Incentive Plan were added to the shares available for grant by the company. The company generally issues authorized but previously unissued shares to satisfy stock option exercises. The company has a share repurchase program and generally repurchases shares on the open market to help offset the dilutive effect of share-based compensation.
Prior to 2009, almost all awards granted were non-qualified stock options. Beginning in 2009, the company changed its annual long-term incentive share-based compensation program from 100% stock options to a new program where the value of awards granted is made up of 50% stock options and 50% performance-based restricted stock unit (PBRSU) awards. The company also grants a limited number of non-performance based restricted stock awards (RSA) and restricted stock unit awards (RSU).
Prior to the Nalco merger, Nalco had outstanding stock options, restricted stock awards and performance share awards that were issued pursuant to its incentive compensation plan, as well as certain non-plan inducement stock options and restricted stock awards. For each of the converted awards discussed below, the stock award exchange ratio of .67959 was used to convert Nalco awards into Ecolab awards. As a result of the merger, the majority of Nalcos existing stock options fully vested. Each outstanding Nalco option was converted into an option to purchase the companys common stock with both the number of options and the exercise price adjusted accordingly based on the stock award exchange ratio. Pursuant to change-in-control agreements, Nalcos existing restricted stock awards to non-employee directors and certain officers, in general, fully vested as a result of the merger. For those awards that did not vest as a result of the merger, each unvested restricted stock award was converted based on the stock award exchange ratio into a restricted stock award of the company, with vesting subject to continued employment. In conjunction with the merger, the level of attainment of the performance criteria applicable to converted Nalco performance based restricted stock awards was fixed based on actual and target financial performance. As such, each Nalco performance share award converted based on the stock award exchange ratio into a time based restricted award of the company based on such performance level, with vesting subject to continued employment. The total fair value of Nalcos converted equity compensation as of the merger dates was $111 million, of which $73 million was included in the consideration transferred to acquire Nalco, with the remaining $38 million subject to expense recognition over the remainder of the vesting term.
Total compensation expense related to all share-based compensation plans was $40 million, ($27 million net of tax benefit), $29 million ($19 million net of tax benefit) and $37 million ($24 million net of tax benefit) for 2011, 2010 and 2009, respectively.
As of December 31, 2011, there was $124 million of total measured but unrecognized compensation expense related to non-vested share-based compensation arrangements granted under all of the companys plans. That cost is expected to be recognized over a weighted-average period of 1.8 years.
Stock Options
Options are granted to purchase shares of the companys stock at the average daily share price on the date of grant. These options generally expire within ten years from the grant date. The company recognizes compensation expense for these awards on a straight-line basis over the three year vesting period. Stock option grants to retirement eligible recipients are attributed to expense using the non-substantive vesting method.
A summary of stock option activity and average exercise prices is as follows:
SHARES |
|
2011 |
|
|
2010 |
|
2009 |
|
|||
Outstanding, beginning of year |
|
19,988,025 |
|
|
22,262,204 |
|
22,695,125 |
|
|||
Granted |
|
2,661,551 |
|
|
1,783,293 |
|
1,969,241 |
|
|||
Issued in connection with Nalco merger |
|
883,173 |
|
|
|
|
|
|
|||
Exercised |
|
(3,331,926 |
) |
|
(3,813,865 |
) |
(2,061,771 |
) |
|||
Canceled |
|
(74,244 |
) |
|
(243,607 |
) |
(340,391 |
) |
|||
Outstanding, end of year |
|
20,126,579 |
|
|
19,988,025 |
|
22,262,204 |
|
|||
Exercisable, end of year |
|
15,885,276 |
|
|
16,091,416 |
|
17,315,445 |
|
|||
Vested and expected to vest, end of year |
|
19,915,922 |
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|||
AVERAGE PRICE |
|
|
|
|
|
|
|
|
|||
PER SHARE |
|
2011 |
|
|
2010 |
|
2009 |
|
|||
Outstanding, beginning of year |
|
$ |
38.66 |
|
|
$ |
36.22 |
|
$ |
34.51 |
|
Granted |
|
55.38 |
|
|
48.03 |
|
45.03 |
|
|||
Issued in connection with Nalco merger |
|
29.35 |
|
|
|
|
|
|
|||
Exercised |
|
32.59 |
|
|
28.46 |
|
24.95 |
|
|||
Canceled |
|
43.68 |
|
|
43.86 |
|
41.68 |
|
|||
Outstanding, end of year |
|
$ |
41.45 |
|
|
$ |
38.66 |
|
$ |
36.22 |
|
Exercisable, end of year |
|
$ |
38.57 |
|
|
$ |
37.42 |
|
$ |
34.73 |
|
Vested and expected to vest, end of year |
|
$ |
41.33 |
|
|
|
|
|
|
The total aggregate intrinsic value of options outstanding as of December 31, 2011 was $329 million, with a corresponding weighted-average remaining contractual life of 6.0 years. The total aggregate intrinsic value of options exercisable as of December 31, 2011 was $305 million, with a corresponding weighted-average remaining contractual life of 5.1 years. The total aggregate intrinsic value of options vested and expected to vest as of December 31, 2011 was $328 million, with a corresponding weighted-average remaining contractual life of 6.0 years.
Information related to stock options outstanding and stock options exercisable as of December 31, 2011, is as follows:
OPTIONS OUTSTANDING
RANGE OF
|
|
OPTIONS
|
|
WEIGHTED-
|
|
WEIGHTED- AVERAGE
|
|
|
$ 17.55-34.06 |
|
2,547,775 |
|
3.1 years |
|
$ |
27.36 |
|
34.08-35.34 |
|
3,732,870 |
|
3.5 years |
|
34.28 |
|
|
35.63-41.45 |
|
3,246,566 |
|
6.9 years |
|
36.03 |
|
|
41.85-45.24 |
|
2,377,390 |
|
5.0 years |
|
44.96 |
|
|
45.52-48.06 |
|
3,218,811 |
|
8.2 years |
|
46.93 |
|
|
48.10-49.42 |
|
2,304,248 |
|
5.9 years |
|
49.40 |
|
|
49.66-55.60 |
|
2,698,919 |
|
9.7 years |
|
55.37 |
|
|
|
|
20,126,579 |
|
6.0 years |
|
41.45 |
|
|
OPTIONS EXERCISABLE
RANGE OF EXERCISE PRICES |
|
OPTIONS
|
|
WEIGHTED-
|
|
WEIGHTED- AVERAGE
|
|
||
$ |
17.55-34.06 |
|
2,534,348 |
|
3.0 years |
|
$ |
27.36 |
|
|
34.08-35.34 |
|
3,732,870 |
|
3.5 years |
|
|
34.28 |
|
|
35.63-41.45 |
|
3,246,566 |
|
6.9 years |
|
|
36.03 |
|
|
41.85-45.24 |
|
2,307,986 |
|
5.0 years |
|
|
45.00 |
|
|
45.52-48.06 |
|
1,698,539 |
|
7.9 years |
|
|
46.55 |
|
|
48.10-49.42 |
|
2,275,148 |
|
5.8 years |
|
|
49.42 |
|
|
49.66-55.60 |
|
89,819 |
|
2.9 years |
|
|
51.36 |
|
|
|
|
15,885,276 |
|
5.1 years |
|
|
38.57 |
|
The total intrinsic value of options (the amount by which the stock price exceeded the exercise price of the option on the date of exercise) that were exercised during 2011, 2010 and 2009 was $69 million, $76 million and $35 million, respectively.
The lattice (binomial) option-pricing model is used to estimate the fair value of options at grant date. The companys primary employee option grant occurs during the fourth quarter. The weighted-average grant-date fair value of options granted and the significant assumptions used in determining the underlying fair value of each option grant, on the date of grant were as follows:
|
|
2011 |
|
|
2010 |
|
2009 |
|
|||
Weighted-average grant-date fair value of options granted at market prices |
|
$ |
11.01 |
|
|
$ |
10.11 |
|
$ |
9.59 |
|
Assumptions |
|
|
|
|
|
|
|
|
|||
Risk-free rate of return |
|
1.4 |
% |
|
2.0 |
% |
2.2 |
% |
|||
Expected life |
|
6 years |
|
|
6 years |
|
5 years |
|
|||
Expected volatility |
|
22.8 |
% |
|
23.1 |
% |
23.3 |
% |
|||
Expected dividend yield |
|
1.4 |
% |
|
1.4 |
% |
1.4 |
% |
|||
The risk-free rate of return is determined based on a yield curve of U.S. treasury rates from one month to ten years and a period commensurate with the expected life of the options granted. Expected volatility is established based on historical volatility of the companys stock price. The expected dividend yield is determined based on the companys annual dividend amount as a percentage of the average stock price at the time of the grant.
Restricted Stock Awards and Restricted Stock Units
The expense associated with PBRSU awards is based on the average of the high and low share price of the companys common stock on the date of grant, adjusted for the absence of future dividends. The awards vest based on the company achieving a defined performance target and with continued service for a three year period. Upon vesting, the company issues shares of its common stock such that one award unit equals one share of common stock. The company assesses the probability of achieving the performance target and recognizes expense over the three year vesting period when it is probable the performance target will be met. PBRSU awards granted to retirement eligible recipients are attributed to expense using the non-substantive vesting method. The awards are generally subject to forfeiture in the event of termination of employment.
The expense associated with shares of non-performance based RSAs and RSUs is based on the average of the high and low share price of the companys common stock on the date of grant, adjusted for the absence of future dividends and is amortized on a straight-line basis over the periods during which the restrictions lapse. The company currently has RSAs and RSUs that vest over periods between 12 and 60 months. The awards are generally subject to forfeiture in the event of termination of employment.
A summary of non-vested PBRSU awards and restricted stock activity is as follows:
NON-VESTED AWARDS
|
|
|
|
WEIGHTED- |
|
|
|
WEIGHTED- |
|
||
|
|
|
|
AVERAGE |
|
|
|
AVERAGE |
|
||
|
|
|
|
FAIR VALUE |
|
|
|
FAIR VALUE |
|
||
|
|
PBRSU |
|
AT GRANT |
|
RSAs AND |
|
AT GRANT |
|
||
|
|
AWARDS |
|
DATE |
|
RSUs |
|
DATE |
|
||
December 31, 2010 |
|
845,630 |
|
$ |
44.70 |
|
167,171 |
|
$ |
43.54 |
|
Granted |
|
572,350 |
|
52.96 |
|
126,121 |
|
51.02 |
|
||
Issued in connection with |
|
|
|
|
|
|
|
|
|
||
Nalco merger |
|
857,366 |
|
55.62 |
|
808,883 |
|
55.62 |
|
||
Vested/Earned |
|
(13,360 |
) |
55.62 |
|
(81,874 |
) |
48.71 |
|
||
Canceled |
|
(121,321 |
) |
54.07 |
|
(3,641 |
) |
41.80 |
|
||
December 31, 2011 |
|
2,140,665 |
|
$ |
50.68 |
|
1,016,660 |
|
$ |
53.67 |
|
11. INCOME TAXES
Income before income taxes consisted of:
MILLIONS |
|
2011 |
|
|
2010 |
|
2009 |
|
|||
United States |
|
$ |
440.0 |
|
|
$ |
497.5 |
|
$ |
452.7 |
|
International |
|
239.6 |
|
|
250.2 |
|
167.4 |
|
|||
Total |
|
$ |
679.6 |
|
|
$ |
747.7 |
|
$ |
620.1 |
|
The provision for income taxes consisted of:
MILLIONS |
|
2011 |
|
|
2010 |
|
2009 |
|
|||
Federal and state |
|
$ |
104.9 |
|
|
$ |
173.5 |
|
$ |
56.3 |
|
International |
|
69.7 |
|
|
74.2 |
|
57.0 |
|
|||
Total current |
|
174.6 |
|
|
247.7 |
|
113.3 |
|
|||
Federal and state |
|
25.2 |
|
|
(26.3 |
) |
93.2 |
|
|||
International |
|
16.5 |
|
|
(4.8 |
) |
(5.1 |
) |
|||
Total deferred |
|
41.7 |
|
|
(31.1 |
) |
88.1 |
|
|||
Provision for income taxes |
|
$ |
216.3 |
|
|
$ |
216.6 |
|
$ |
201.4 |
|
The companys overall net deferred tax assets and deferred tax liabilities were comprised of the following:
DECEMBER 31 (MILLIONS) |
|
2011 |
|
|
2010 |
|
||
Deferred tax assets |
|
|
|
|
|
|
||
Other accrued liabilities |
|
$ |
112.4 |
|
|
$ |
56.5 |
|
Loss carryforwards |
|
112.0 |
|
|
26.1 |
|
||
Share-based compensation |
|
71.8 |
|
|
64.0 |
|
||
Pension and other comprehensive income |
|
346.3 |
|
|
155.5 |
|
||
Foreign tax credits |
|
44.7 |
|
|
22.4 |
|
||
Debt fair value adjustment |
|
79.4 |
|
|
|
|
||
Other, net |
|
131.1 |
|
|
46.1 |
|
||
Valuation allowance |
|
(73.1 |
) |
|
(11.2 |
) |
||
Total |
|
824.6 |
|
|
359.4 |
|
||
Deferred tax liabilities |
|
|
|
|
|
|
||
Property, plant and equipment basis differences |
|
289.6 |
|
|
106.3 |
|
||
Intangible assets |
|
1,412.1 |
|
|
132.2 |
|
||
Unremitted foreign earnings |
|
98.0 |
|
|
|
|
||
Other, net |
|
60.9 |
|
|
0.6 |
|
||
Total |
|
1,860.6 |
|
|
239.1 |
|
||
Net deferred tax assets (liabilities) balance |
|
$ |
(1,036.0 |
) |
|
$ |
120.3 |
|
As of December 31, 2011 the company has tax effected federal, state and international net operating loss carryforwards of approximately $2 million, $15 million and $95 million, respectively, which will be available to offset future taxable income. The state carryforwards expire from 2012 to 2031. $36 million of the international carryforwards expire from 2013 to 2031, and $59 million are unlimited carryforwards that do not expire.
The company has recorded a $73 million valuation allowance on certain deferred tax assets based on managements determination that it is more likely than not that the tax benefits will not be utilized. Valuation allowances increased by $62 million mainly due to the addition of the deferred tax assets and related valuation allowances acquired in the Nalco merger. For additional information on the Nalco merger see Note 4. The companys U.S. foreign tax
credit carryforward stands at $45 million. The credits have a ten-year carryforward period and will expire between 2015 and 2021 if not utilized.
A reconciliation of the statutory U.S. federal income tax rate to the companys effective income tax rate is as follows:
|
|
2011 |
|
|
2010 |
|
2009 |
|
Statutory U.S. rate |
|
35.0 |
% |
|
35.0 |
% |
35.0 |
% |
State income taxes, net of federal benefit |
|
2.0 |
|
|
1.9 |
|
2.4 |
|
Foreign operations |
|
(3.2 |
) |
|
(4.5 |
) |
(2.7 |
) |
Domestic manufacturing deduction |
|
(2.9 |
) |
|
(2.0 |
) |
(1.1 |
) |
Change in valuation allowance |
|
1.2 |
|
|
|
|
|
|
Nondeductible deal costs |
|
0.8 |
|
|
|
|
|
|
Audit settlements and refunds |
|
(0.5 |
) |
|
(1.3 |
) |
|
|
Other, net |
|
(0.6 |
) |
|
(0.1 |
) |
(1.1 |
) |
Effective income tax rate |
|
31.8 |
% |
|
29.0 |
% |
32.5 |
% |
As of December 31, 2011, the company has recorded a deferred tax liability of $98 million on foreign earnings that the company intends to repatriate. This was recorded in connection with the Nalco merger as part of purchase accounting. U.S deferred income taxes are not provided on certain unremitted foreign earnings that are considered permanently reinvested which as of December 31, 2011 were approximately $1.2 billion. These earnings are considered to be reinvested indefinitely or available for distribution with foreign tax credits available to offset the amount of applicable income tax and foreign withholding taxes that might be payable on earnings. It is impractical to determine the amount of incremental taxes that might arise if all undistributed earnings were distributed.
The company files income tax returns in the U.S. federal jurisdiction and various U.S. state and international jurisdictions. With few exceptions, the company is no longer subject to state and foreign income tax examinations by tax authorities for years before 2005. The Internal Revenue Service (IRS) has completed examinations of the companys U.S. federal income tax returns through 2004. The legacy Ecolab U.S. income tax returns for the years 2009 and 2010 are currently under audit. The legacy Nalco U.S. income tax returns for the years 2005 through 2008 are currently under audit. In addition to the U.S. federal examination, there is limited audit activity in several U.S state and foreign jurisdictions. The company anticipates changes to its uncertain tax positions due to closing of various audit years mentioned above. The company believes these changes could result in a decrease in the companys gross liability for unrecognized tax benefits of up to $10 million during the next twelve months. Decreases in the companys gross liability could result in offsets to other balance sheet accounts, cash payments, and/or adjustments to tax expense. The occurrence of these events and/ or other events not included above within the next twelve months could change depending on a variety of factors and result in amounts different from above.
During 2011, the company recognized a net discrete tax expense of $7.4 million. The net expense in 2011 is largely made up of favorable settlements and adjustments related to prior year returns and reserves which were more than offset by the impact of a charge related to the realizability of foreign net operating loss carryforwards as well as a change in the blended state tax rate. The settlements are related to the companys 1999 through 2001 and 2007 through 2008 U.S. income tax returns and various state and other international returns.
During 2010, the company recognized a net discrete tax benefit of $8.0 million. The net discrete tax benefit in 2010 primarily included recognizing favorable settlements related to the companys 2002 through 2004 U.S. Federal IRS appeals case, a favorable settlement of an income tax audit in Germany for the years 2003 through 2006 and adjustments related to prior year tax reserves. These benefits were partially offset by a $5 million charge due to the passage of the U.S. Patient Protection and Affordable Care Law which changes the tax deductibility related to federal subsidies and resulted in a reduction of the value of the companys deferred tax assets related to the subsidies, as well as the negative impact of international tax costs from optimizing the companys business structure.
The company recognized discrete tax charges of $4.5 million related to optimizing its business structure in 2009.
A reconciliation of the beginning and ending amount of gross liability for unrecognized tax benefits is as follows:
MILLIONS |
|
2011 |
|
|
2010 |
|
2009 |
|
|||
Balance at beginning of year |
|
$ |
66.2 |
|
|
$ |
116.7 |
|
$ |
110.6 |
|
Additions based on tax positions related to the current year |
|
7.3 |
|
|
10.4 |
|
16.0 |
|
|||
Additions for tax positions of prior years |
|
1.4 |
|
|
0.2 |
|
6.0 |
|
|||
Reductions for tax positions of prior years |
|
(27.0 |
) |
|
(9.1 |
) |
(5.2 |
) |
|||
Reductions for tax positions due to statute of limitations |
|
(0.8 |
) |
|
(6.8 |
) |
(8.7 |
) |
|||
Settlements |
|
(8.0 |
) |
|
(44.6 |
) |
(5.4 |
) |
|||
Assumed in connection with the Nalco merger |
|
50.1 |
|
|
|
|
|
|
|||
Foreign currency translation |
|
0.3 |
|
|
(0.6 |
) |
3.4 |
|
|||
Balance at end of year |
|
$ |
89.5 |
|
|
$ |
66.2 |
|
$ |
116.7 |
|
Included in the gross liability for unrecognized tax benefits balance at December 31, 2011 is $87 million of tax positions that, depending on the ultimate resolution, could impact the annual effective tax rate in future periods.
The company recognizes both penalties and interest accrued related to unrecognized tax benefits in the companys provision for income taxes. During the year ended December 31, 2011 the company accrued approximately $4 million in interest. The company had approximately $6 million and $4 million of interest and penalties accrued at December 31, 2011 and 2010, respectively.
12. RENTALS AND LEASES
The company leases sales and administrative office facilities, distribution centers, research and manufacturing facilities, as well as vehicles and other equipment under operating leases. Rental expense under all operating leases was $130 million in 2011 and $121 million in both 2010 and 2009. As of December 31, 2011, future minimum payments with non-cancelable terms in excess of one year under all legacy Ecolab operating leases and legacy Nalco operating leases related to facilities were:
MILLIONS
|
|
|
|
|
2012 |
|
$ |
105 |
|
2013 |
|
80 |
|
|
2014 |
|
56 |
|
|
2015 |
|
43 |
|
|
2016 |
|
38 |
|
|
Thereafter |
|
151 |
|
|
Total |
|
$ |
473 |
|
The company enters into operating leases for vehicles whose non-cancelable terms are one year or less in duration with month-to-month renewal options. These leases have been excluded from the table above. The company estimates payments under such leases will approximate $39 million in 2012. These vehicle leases have guaranteed residual values that have historically been satisfied primarily by the proceeds on the sale of the vehicles.
13. RESEARCH EXPENDITURES
Research expenditures that related to the development of new products and processes, including significant improvements and refinements to existing products are expensed as incurred. Such costs were $96 million in 2011, $88 million in 2010 and $86 million in 2009.
14. COMMITMENTS AND CONTINGENCIES
The company is subject to various claims and contingencies related to, among other things, workers compensation, general liability (including product liability), automobile claims, health care claims, environmental matters, income taxes and lawsuits. The company also has contractual obligations including lease commitments.
The company records liabilities where a contingent loss is probable and can be reasonably estimated. If the reasonable estimate of a probable loss is a range, the company records the most probable estimate of the loss or the minimum amount when no amount within the range is a better estimate than any other amount. The company discloses a contingent liability even if the liability is not probable or the amount is not estimable, or both, if there is a reasonable possibility that a material loss may have been incurred.
Insurance: In the U.S. the company has high deductible insurance policies for casualty and property losses, subject to per occurrence and liability limitations. The company is insured for losses in excess of these limitations and has recorded both a liability and an offsetting receivable for amounts in excess of these limitations. Outside of the U.S., legacy Ecolab is fully insured for casualty and property losses, subject to per occurrence deductibles. Outside of the U.S., legacy Nalco is fully insured for casualty and property losses, subject to per occurrence deductibles, which are higher than the legacy Ecolab deductibles. The company is self-insured for health care claims for eligible participating employees, subject to certain deductibles and limitations. The company determines its liabilities for claims incurred but not reported on an actuarial basis.
Environmental matters: The company is currently participating in environmental assessments and remediation at 32 locations and environmental liabilities have been accrued reflecting managements best estimate of future costs. The companys reserve for environmental remediation costs was approximately $5 million and $3 million at December 31, 2011 and 2010, respectively. Potential insurance reimbursements are not anticipated in the companys accruals for environmental liabilities.
Lease commitments: Information on the companys lease commitments and future minimum rental commitments under non-cancelable operating leases are disclosed in Note 12.
Taxes: The company is subject to ongoing tax audits in tax jurisdictions around the world. See Note 11 for further information on the companys income taxes.
Litigation: The company and certain subsidiaries are party to various lawsuits, claims and environmental actions that have arisen in the ordinary course of business. These include from time to time antitrust, commercial, patent infringement, product liability and wage hour lawsuits, as well as possible obligations to investigate and mitigate the effects on the environment of the disposal or release of certain chemical substances at various sites, such as Superfund sites and other operating or closed facilities. The company has established accruals for certain lawsuits, claims and environmental matters. The company currently believes that there is not a reasonably possible risk of material loss in excess of the amounts accrued related to these legal matters. Because litigation is inherently uncertain, and unfavorable rulings or developments could occur, there can be no certainty that the company may not ultimately incur charges in excess of presently recorded liabilities. A future adverse ruling, settlement or unfavorable development could result in future charges that could have a material adverse effect on the companys results of operations or cash flows in the period in which they are recorded. The company currently believes that such future charges related to suits and legal claims, if any, would not have a material adverse effect on the companys consolidated financial position.
Matters Related to Wage Hour claims
The company is a defendant in five wage hour lawsuits claiming violations of the Fair Labor Standards Act or a similar state law. Four of the suits seek certification of a state class of certain Institutional, Pest Elimination or GCS/Ecolab Equipment Care division associates. The fifth suit, in which a tentative settlement has been reached, seeks certification of a national class of certain independent contractors in the companys U.S. Other Services segment, as well as the granting of certain employment benefits. None of the suits have been certified for class-action status. The suits are still in their initial phases.
Matters Related to the Merger Transaction With Nalco Holding Company
Following the announcement of the Nalco merger, four purported stockholders of Nalco filed putative class action lawsuits against the members of Nalcos board of directors and Ecolab, among other defendants, in the Circuit Court of the Eighteenth Judicial Circuit, DuPage County, State of Illinois. The court consolidated the four putative class action lawsuits into one action. The plaintiffs in the consolidated action filed a consolidated amended complaint. The consolidated amended complaint alleges, among other things, that the merger transaction was the result of an unfair and inadequate process, that the consideration to be received by Nalco stockholders in the merger was inadequate, that the preliminary joint proxy statement/prospectus (filed with the Securities and Exchange Commission in connection with the merger) contained misstatements and omissions and that the members of Nalcos board of directors breached their fiduciary duties to Nalco stockholders. The consolidated amended complaint additionally alleges that Nalco and Ecolab aided and abetted the Nalco board of directors in their alleged breach of fiduciary duties. The consolidated action sought, among other things, injunctive relief enjoining Ecolab and Nalco from proceeding with the merger.
On October 24, 2011, the parties to the consolidated action reached an agreement in principle regarding settlement of the consolidated action. Under the settlement, the consolidated action will be dismissed with prejudice on the merits and all defendants will be released from any and all claims relating to, among other things, the merger and any related disclosures. The settlement is subject to customary conditions, including completion of certain confirmatory discovery, class certification for purposes of settlement and final approval by the court. In exchange for the releases provided in the settlement, Ecolab and Nalco provided additional disclosure in the joint proxy statement/prospectus requested by plaintiffs in the consolidated action. The parties have agreed that the lead plaintiff may apply to the court for an award of attorneys fees and reimbursement of expenses, which, under certain circumstances, the defendants have agreed not to oppose.
As discussed below, Nalco had various pending claims in place prior to the close of the Nalco merger.
Matters Related to Deepwater Horizon Incident Response
On April 22, 2010, the deepwater drilling platform, the Deepwater
Horizon, operated by a subsidiary of BP plc, sank in the Gulf of Mexico after a catastrophic explosion and fire that began on April 20, 2010. A massive oil spill resulted. Approximately one week following the incident, subsidiaries of BP plc, under the authorization of the responding federal agencies, formally requested Nalco Company, now an indirect subsidiary of Ecolab, to supply large quantities of COREXIT® 9500, a Nalco oil dispersant product listed on the U.S. EPA National Contingency Plan Product Schedule. Nalco Company responded immediately by providing available COREXIT and increasing production to supply the product to BPs subsidiaries for use, as authorized and directed by agencies of the federal government throughout the incident. Prior to the incident, Nalco and its subsidiaries had not provided products or services or otherwise had any involvement with the Deepwater Horizon platform. On July 15, 2010, BP announced that it had capped the leaking well, and the application of dispersants by the responding parties ceased shortly thereafter.
On May 1, 2010, the President appointed retired U.S. Coast Guard Commandant Admiral Thad Allen to serve as the National Incident Commander in charge of the coordination of the response to the incident at the national level. The EPA directed numerous tests of all the dispersants on the National Contingency Plan Product Schedule, including those provided by Nalco Company, to ensure decisions about ongoing dispersant use in the Gulf of Mexico are grounded in the best available science. Nalco Company cooperated with this testing process and continued to supply COREXIT 9500, as requested by BP and government authorities. After review and testing of a number of dispersants, on June 30, 2010, and on August 2, 2010, the EPA released toxicity data for eight oil dispersants.
The use of dispersants by the responding parties was one tool used by the government and BP to avoid and reduce damage to the Gulf area from the spill. Since the spill occurred, the EPA and other federal agencies have closely monitored conditions in areas where dispersant has been applied. Nalco Company has encouraged ongoing monitoring and review of COREXIT and other dispersants and have cooperated fully with the governmental review and approval process. However, in connection with its provision of COREXIT, Nalco Company has been named in several lawsuits as described below.
Putative Class Action Litigation
In June, July and August 2010, and in April 2011, Nalco Company was named, along with other unaffiliated defendants, in eight putative class action complaints filed in either the United States District Court for the Eastern District of Louisiana (Parker, et al. v. Nalco Company, et al., Civil Action No. 2:10-cv-01749-CJB-SS; Harris, et al. v. BP, plc, et al., Civil Action No. 2:10-cv-02078-CJB-SS; Irelan v. BP Products, Inc., et al., Civil Action No. 11-cv-00881; Adams v. Louisiana, et al., Civil Action No. 11-cv-01051), the United States District Court for the Southern District of Alabama, Southern Division (Lavigne, et al. v. BP PLC, et al., Civil Action No. 1:10-cv-00222-KD-C; Wright, et al. v. BP, plc, et al., Civil Action No. 1:10-cv-00397-B) or the United States District Court for the Northern District of Florida, Pensacola Division (Walsh, et al. v. BP, PLC, et al., Civil Action No. 3:10-cv-00143-RV-MD; Petitjean, et al. v. BP, plc, et al., Case No. 3:10-cv-00316-RS-EMT) on behalf of various potential classes of persons who live and work in or derive income from the Coastal Zone. The Parker, Lavigne and Walsh cases have since been voluntarily dismissed. Each of the remaining actions contains substantially similar allegations, generally alleging, among other things, negligence relating to the use of our COREXIT dispersant in connection with the Deepwater Horizon oil spill. The plaintiffs in each of these putative class action lawsuits are generally seeking awards of unspecified compensatory and punitive damages, and attorneys fees and costs.
Other Related Federal Claims
In July, August, September, October and December 2010, Nalco Company was also named, along with other unaffiliated defendants, in eight complaints filed by individuals in either the United States District Court for the Eastern District of Louisiana (Ezell v. BP, plc, et al., Case No. 2:10-cv-01920-KDE-JCW), the United States District Court for the Southern District of Alabama, Southern Division (Monroe v. BP, plc, et al., Case No. 1:10-cv-00472-M; Hill v. BP, plc, et al., Civil Action No. 1:10-cv-00471-CG-N; Hudley v. BP, plc, et al., Civil Action No. 10-cv-00532-N), the United States District Court for the Northern District of Florida, Tallahassee Division (Capt Ander, Inc. v. BP, plc, et al., Case No. 4:10-cv-00364-RH-WCS), the United States District Court for the Southern District of Mississippi, Southern Division (Trehern v. BP, plc, et al., Case No. 1:10-cv-00432-HSO-JMR) or the United States District Court for the Southern District of Texas (Chatman v. BP Exploration & Production, Civil Action No. 10-cv-04329; Brooks v. Tidewater Marine LLC, et al., Civil Action No. 11-cv-00049).
In April 2011, Nalco Company was also named in Best v. British Petroleum plc, et al., Civil Action No. 11-cv-00772 (E.D. La.); Black v. BP Exploration & Production, Inc., et al. Civil Action No. 2:11-cv-867, (E.D. La.); Pearson v. BP Exploration & Production, Inc., Civil Action No. 2:11-cv-863, (E.D. La.); Alexander, et al. v. BP Exploration & Production, et al., Civil Action No. 11-cv-00951 (E.D. La.); and Coco v. BP Products North America, Inc., et al. (E.D. La.).
The complaints generally allege, among other things, negligence and injury resulting from the use of COREXIT dispersant in connection with the Deepwater Horizon oil spill. The complaints seek unspecified compensatory and punitive damages, and attorneys fees and costs. The Chatman case was voluntarily dismissed.
All of the above-referenced cases pending against Nalco Company have been administratively transferred for pre-trial purposes to a judge in the United States District Court for the Eastern District of Louisiana with other related cases under In Re: Oil Spill by the Oil Rig Deepwater Horizon in the Gulf of Mexico, on April 20, 2010, Civil Action No. 10-md-02179 (E.D. La.) (MDL 2179). Pursuant to orders issued by Judge Barbier in MDL 2179, the claims have been consolidated in several master complaints, including one naming Nalco Company and others who responded to the Gulf Oil Spill (known as the B3 Bundle). Plaintiffs are required by Judge Barbier to prepare a list designating previously-filed lawsuits that assert claims within the B3 Bundle regardless of whether the lawsuit named each defendant named in the B3 Bundle master complaint. Nalco Company has received a draft list from the plaintiffs steering committee. The draft list identifies fifteen cases in the B3 Bundle, some of which are putative class actions. Six cases previously filed against Nalco Company are not included in the B3 Bundle.
Pursuant to orders issued by Judge Barbier in MDL 2179, claimants wishing to assert causes of action subject to one or more of the master complaints were permitted to do so by filing a short-form joinder. A short-form joinder is deemed to be an intervention into one or more of the master complaints in MDL 2179. The deadline for filing short form joinders was April 20, 2011. Of the individuals who have filed short form joinders that intervene in the B3 Bundle, Nalco Company has no reason to believe that these individuals are different from those covered by the putative class actions described above. These plaintiffs who have intervened in the B3 Bundle seek to recover damages for alleged personal injuries, medical monitoring and/or property damage related to the oil spill clean-up efforts.
Nalco Company, the incident defendants and the other responder defendants have been named as third party defendants by
Transocean Deepwater Drilling, Inc. and its affiliates (the Transocean Entities) (In re the Complaint and Petition of Triton Asset Leasing GmbH, et al, MDL No. 2179, Civil Action 10-2771). In April and May 2011, the Transocean Entities, Cameron International Corporation, Halliburton Energy Services, Inc., M-I L.L.C., Weatherford U.S., L.P. and Weatherford International, Inc. (collectively, the Cross Claimants) filed cross claims in MDL 2179 against Nalco Company and other unaffiliated cross defendants. The Cross Claimants generally allege, among other things, that if they are found liable for damages resulting from the Deepwater Horizon explosion, oil spill and/or spill response, they are entitled to indemnity or contribution from the cross defendants.
In April and June 2011, in support of its defense of the claims against it, Nalco Company filed counterclaims against the Cross Claimants. In its counterclaims, Nalco Company generally alleges that if it is found liable for damages resulting from the Deepwater Horizon explosion, oil spill and/or spill response, it is entitled to contribution or indemnity from the Cross Claimants.
Other Related State Court Actions
In March 2011, Nalco Company was named, along with other unaffiliated defendants, in an amended complaint filed by an individual in the Circuit Court of Harrison County, Mississippi, Second Judicial District (Franks v. Sea Tow of South Miss, Inc., et al., Cause No. A2402-10-228 (Circuit Court of Harrison County, Mississippi)). The amended complaint generally asserts, among other things, negligence and strict product liability claims relating to the plaintiffs alleged exposure to chemical dispersants manufactured by Nalco Company. The plaintiff seeks unspecified compensatory damages, medical expenses, and attorneys fees and costs.
In October 2011, Nalco Company was named along with other unaffiliated defendants, in a complaint filed in Louisiana State Court, Toups, et al. v Nalco Company, et al., No. 59-121 (25th Judicial District Court, Parish of Plaquemines, Louisiana). The complaint alleges that 26 boat operators and clean-up technicians suffered health-related problems as a result of using chemicals during the oil spill response efforts.
On January 18, 2012, Nalco Company was named, along with other unaffiliated defendants, in a complaint filed in Louisiana State Court, Top Water Charters, LLC v. BP, P.L.C., et al., No. 0165708 (32nd Judicial District Court, Parish of Terrebonne, Louisiana). The complaint generally alleges, among other things, negligence and gross negligence relating to the Deepwater Horizon oil spill and use of chemical dispersants. The plaintiffs allege that the oil and dispersants have harmed their fishing charter businesses and seek unspecified compensatory damages, punitive damages and attorneys fees and costs.
The company believes the claims asserted against Nalco Company are without merit and intends to defend these lawsuits vigorously. The company also believes that it has rights to contribution and/ or indemnification (including legal expenses) from third parties. However, the company cannot predict the outcome of these lawsuits, the involvement it might have in these matters in the future, or the potential for future litigation.
15. RETIREMENT PLANS
Pension and Postretirement Health Care Benefits Plans
With the December 1, 2011 merger with Nalco, Ecolab assumed sponsorship of the legacy Nalco qualified and non-qualified pension and other post-retirement benefit plans that provide benefits to U.S. and non-U.S. employees. As a result, the company assumed the following plan assets and obligations from Nalco. Additionally, where appropriate, disclosures within Note 15 include 2011 Nalco data.
MILLIONS |
|
|
|
|
|
U.S. POST- |
|
|||
|
|
|
|
INTERNATIONAL |
|
RETIREMENT |
|
|||
|
|
U.S. PENSION |
|
PENSION |
|
HEALTHCARE |
|
|||
Fair value of plan assets |
|
$ |
290.2 |
|
$ |
257.6 |
|
$ |
|
|
Projected benefit obligation |
|
$ |
537.4 |
|
$ |
402.8 |
|
$ |
121.4 |
|
The combined Ecolab and Nalco company has non-contributory qualified defined benefit pension plans covering most of its U.S. employees. The combined company also has U.S. non-contributory non-qualified defined benefit plans, which provide for benefits to employees in excess of limits permitted under its U.S. pension plan. The non-qualified plans are not funded and the recorded benefit obligation for the non-qualified plans was $94 million and $75 million at December 31, 2011 and 2010, respectively. The measurement date used for determining the U.S. pension plan assets and obligations is December 31.
Various international subsidiaries also have defined benefit pension plans. International plans are funded based on local country requirements. The measurement date used for determining the international pension plan assets and obligations is November 30, the fiscal year-end of the companys international affiliates.
The combined company provides postretirement health care benefits to certain U.S. employees. The corresponding plans are contributory based on years of service and family status, with retiree contributions adjusted annually. The measurement date used to determine the U.S. postretirement health care plan assets and obligations is December 31. Certain employees outside the U.S. are covered under government-sponsored programs, which are not required to be fully funded. The expense and obligation for providing international postretirement health care benefits is not significant.
The following table sets forth financial information related to the companys pension and postretirement health care plans:
|
|
U.S.
|
|
INTERNATIONAL
|
|
U.S. POSTRETIREMENT
|
|
|||||||||||||||
MILLIONS |
|
2011 |
|
|
2010 |
|
2011 |
|
|
2010 |
|
2011 |
|
|
2010 |
|
||||||
Accumulated Benefit Obligation, end of year |
|
$ |
1,683.5 |
|
|
$ |
1,023.4 |
|
$ |
896.0 |
|
|
$ |
537.4 |
|
$ |
277.3 |
|
|
$ |
159.4 |
|
Projected Benefit Obligation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Projected benefit obligation, beginning of year |
|
1,154 .7 |
|
|
1,092.7 |
|
579.4 |
|
|
563.4 |
|
159.4 |
|
|
154.6 |
|
||||||
Service cost |
|
46.7 |
|
|
50.6 |
|
23.1 |
|
|
18.9 |
|
2.2 |
|
|
2.0 |
|
||||||
Interest |
|
63.4 |
|
|
62.6 |
|
28.2 |
|
|
26.7 |
|
9.0 |
|
|
8.8 |
|
||||||
Participant contributions |
|
|
|
|
|
|
3.7 |
|
|
3.2 |
|
4.4 |
|
|
3.5 |
|
||||||
Medicare subsidies received |
|
|
|
|
|
|
|
|
|
|
|
0.7 |
|
|
0.7 |
|
||||||
Curtailments and settlements |
|
|
|
|
(0.6 |
) |
(5.4 |
) |
|
(0.1 |
) |
|
|
|
|
|
||||||
Plan amendments |
|
|
|
|
(39.8 |
) |
(3.7 |
) |
|
|
|
0.1 |
|
|
|
|
||||||
Actuarial loss (gain) |
|
128.9 |
|
|
23.1 |
|
(43.0 |
) |
|
34.1 |
|
(6.2 |
) |
|
2.8 |
|
||||||
Assumed through Nalco merger |
|
537.4 |
|
|
|
|
402.8 |
|
|
|
|
121.4 |
|
|
|
|
||||||
Benefits paid |
|
(38.7 |
) |
|
(33.9 |
) |
(26.3 |
) |
|
(18.0 |
) |
(13.7 |
) |
|
(13.0 |
) |
||||||
Foreign currency translation |
|
|
|
|
|
|
19.8 |
|
|
(48.8 |
) |
|
|
|
|
|
||||||
Projected benefit obligation, end of year |
|
1,892.4 |
|
|
1,154.7 |
|
978.6 |
|
|
579.4 |
|
277.3 |
|
|
159.4 |
|
||||||
Plan Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Fair value of plan assets, beginning of year |
|
988.9 |
|
|
898.8 |
|
318.5 |
|
|
299.4 |
|
19.6 |
|
|
12.7 |
|
||||||
Actual returns on plan assets |
|
7.3 |
|
|
120.8 |
|
9.7 |
|
|
24.9 |
|
0.2 |
|
|
2.4 |
|
||||||
Company contributions |
|
104.4 |
|
|
3.2 |
|
44.0 |
|
|
27.4 |
|
8.2 |
|
|
16.0 |
|
||||||
Participant contributions |
|
|
|
|
|
|
3.7 |
|
|
3.2 |
|
2.3 |
|
|
1.5 |
|
||||||
Assumed through Nalco merger |
|
290.2 |
|
|
|
|
257.6 |
|
|
|
|
|
|
|
|
|
||||||
Settlements |
|
|
|
|
|
|
(4.3 |
) |
|
|
|
|
|
|
|
|
||||||
Benefits paid |
|
(38.7 |
) |
|
(33.9 |
) |
(26.3 |
) |
|
(18.0 |
) |
(13.7 |
) |
|
(13.0 |
) |
||||||
Foreign currency translation |
|
|
|
|
|
|
9.7 |
|
|
(18.4 |
) |
|
|
|
|
|
||||||
Fair value of plan assets, end of year |
|
1,352.1 |
|
|
988.9 |
|
612.6 |
|
|
318.5 |
|
16.6 |
|
|
19.6 |
|
||||||
Funded Status, end of year |
|
(540.3 |
) |
|
(165.8 |
) |
(366.0 |
) |
|
(260.9 |
) |
(260.7 |
) |
|
(139.8 |
) |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Amounts recognized in Consolidated Balance Sheet: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Other assets |
|
|
|
|
|
|
22.3 |
|
|
1.5 |
|
|
|
|
|
|
||||||
Other current liabilities |
|
(10.6 |
) |
|
(4.3 |
) |
(11.4 |
) |
|
(7.4 |
) |
(8.0 |
) |
|
(1.8 |
) |
||||||
Postretirement healthcare and pension benefits |
|
(529.7 |
) |
|
(161.5 |
) |
(376.9 |
) |
|
(255.0 |
) |
(252.7 |
) |
|
(138.0 |
) |
||||||
Net liability |
|
(540.3 |
) |
|
(165.8 |
) |
(366.0 |
) |
|
(260.9 |
) |
(260.7 |
) |
|
(139.8 |
) |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Amounts recognized in Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Other Comprehensive Loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Unrecognized net actuarial loss |
|
690.4 |
|
|
499.9 |
|
102.8 |
|
|
134.6 |
|
12.9 |
|
|
18.1 |
|
||||||
Unrecognized net prior service costs (benefits) |
|
(33.9 |
) |
|
(38.0 |
) |
(2.5 |
) |
|
1.2 |
|
0.3 |
|
|
0.3 |
|
||||||
Tax benefit |
|
(251.7 |
) |
|
(179.3 |
) |
(30.8 |
) |
|
(41.3 |
) |
(6.2 |
) |
|
(8.1 |
) |
||||||
Accumulated other comprehensive loss, net of tax |
|
404.8 |
|
|
282.6 |
|
69.5 |
|
|
94.5 |
|
7.0 |
|
|
10.3 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Change in Accumulated Other Comprehensive Loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Amortization of net actuarial loss |
|
(31.8 |
) |
|
(24.7 |
) |
(8.1 |
) |
|
(4.0 |
) |
(0.2 |
) |
|
(0.2 |
) |
||||||
Amortization of prior service benefits (costs) |
|
4.2 |
|
|
(0.5 |
) |
(0.1 |
) |
|
(0.4 |
) |
(0 .1 |
) |
|
0.4 |
|
||||||
Current period net actuarial loss (gain) |
|
222.2 |
|
|
(7.6 |
) |
(30.2 |
) |
|
26.4 |
|
(5.0 |
) |
|
(4.6 |
) |
||||||
Current period prior service costs |
|
|
|
|
(39.8 |
) |
(3.7 |
) |
|
|
|
0.1 |
|
|
|
|
||||||
Curtailment |
|
|
|
|
(0.9 |
) |
|
|
|
|
|
|
|
|
|
|
||||||
Tax expense (benefit) |
|
(72.4 |
) |
|
28.2 |
|
10.5 |
|
|
(7.7 |
) |
1.9 |
|
|
1.8 |
|
||||||
Foreign currency translation |
|
|
|
|
|
|
6.6 |
|
|
(5.1 |
) |
|
|
|
|
|
||||||
Other comprehensive loss (income) |
|
122.2 |
|
|
(45.3 |
) |
(25.0 |
) |
|
9.2 |
|
(3.3 |
) |
|
(2.6 |
) |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
(a) Includes qualified and non-qualified plans
Estimated amounts in accumulated other comprehensive loss expected to be reclassified to net period cost during 2012 are as follows:
|
|
U.S. |
|
INTERNATIONAL |
|
U.S. POSTRETIREMENT |
|
|||
MILLIONS |
|
PENSION (a) |
|
PENSION |
|
HEALTH CARE |
|
|||
|
|
|
|
|
|
|
|
|||
Net actuarial loss |
|
$ |
45.1 |
|
$ |
3.9 |
|
$ |
0.4 |
|
Net prior service costs/(benefits) |
|
(4.2 |
) |
(0.2 |
) |
0.1 |
|
|||
Total |
|
$ |
40.9 |
|
$ |
3.7 |
|
$ |
0.5 |
|
(a) Includes qualified and non-qualified plans
The aggregate projected benefit obligation, accumulated benefit obligation and fair value of plan assets for plans with accumulated benefit obligations in excess of plan assets were as follows:
DECEMBER 31 (MILLIONS) |
|
2011 |
|
2010 |
|
||
Aggregate projected benefit obligation |
|
$ |
2,638.2 |
|
$ |
526.4 |
|
Accumulated benefit obligation |
|
2,378.2 |
|
478.3 |
|
||
Fair value of plan assets |
|
1,727.8 |
|
194.1 |
|
||
These plans include various international pension plans and the U.S. postretirement health care plans, which are funded consistent with local practices and requirements. These plans also include the U.S. non-qualified pension plans which are not funded, as well as for 2011, the U.S. qualified pension plans.
Plan Assets
The fair value of plan assets is determined by using a fair value methodology that categorizes the inputs used to measure fair value. The first category is for unadjusted quoted prices in an active market (Level 1). The second category is for values measured using significant observable inputs, such as quoted prices for a similar asset or liability in an active market (Level 2). The third category is for fair value measurements based on significant unobservable inputs (Level 3).
Cash, equity securities and fixed income (Level 1) : Valued at the quoted market prices of shares held by the plans at year-end in the active market on which the individual securities are traded.
Real estate and insurance contracts (Level 2) : Valued based on inputs other than quoted prices that are observable for the securities.
Hedge funds and private equity (Level 3) : Valued based on the net asset values of the underlying partnerships. The net asset values of the partnerships are based on the fair values of the underlying investments of the partnerships. Quoted market prices are used to value the underlying investments of the partnerships, where available.
United States
The allocation and fair value of the companys U.S. plan assets for its defined benefit pension and postretirement health care benefit plans are as follows:
ASSET CATEGORY |
|
TARGET
|
|
PERCENTAGE
|
|
||||||||
DECEMBER 31 (%) |
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
||||
Cash |
|
|
|
|
|
|
|
|
|
|
2 |
% |
|
Equity securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Large cap equity |
|
34 |
% |
|
35 |
% |
|
38 |
% |
|
43 |
|
|
Small cap equity |
|
9 |
|
|
10 |
|
|
10 |
|
|
12 |
|
|
International equity |
|
13 |
|
|
13 |
|
|
12 |
|
|
13 |
|
|
Fixed income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Core fixed income |
|
22 |
|
|
22 |
|
|
22 |
|
|
20 |
|
|
High-yield bonds |
|
2 |
|
|
|
|
|
2 |
|
|
|
|
|
Other: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate |
|
4 |
|
|
5 |
|
|
4 |
|
|
3 |
|
|
Hedge funds |
|
10 |
|
|
6 |
|
|
9 |
|
|
6 |
|
|
Private equity |
|
6 |
|
|
5 |
|
|
3 |
|
|
1 |
|
|
Alternative investments |
|
|
|
|
4 |
|
|
|
|
|
|
|
|
Total |
|
100 |
% |
|
100 |
% |
|
100 |
% |
|
100 |
% |
|
MILLIONS |
|
FAIR VALUE AS OF
|
|
||||||||||
|
|
LEVEL 1 |
|
LEVEL 2 |
|
LEVEL 3 |
|
TOTAL |
|
||||
Equity securities: |
|
|
|
|
|
|
|
|
|
||||
Large cap equity |
|
$ |
525.1 |
|
|
|
|
|
$ |
525.1 |
|
||
Small cap equity |
|
131.0 |
|
|
|
|
|
131.0 |
|
||||
International equity |
|
161.8 |
|
|
|
|
|
161.8 |
|
||||
Fixed income: |
|
|
|
|
|
|
|
|
|
||||
Core fixed income |
|
303.5 |
|
|
|
|
|
303.5 |
|
||||
High-yield bonds |
|
21.0 |
|
|
|
|
|
21.0 |
|
||||
Emerging markets |
|
6.1 |
|
|
|
|
|
6.1 |
|
||||
Other: |
|
|
|
|
|
|
|
|
|
||||
Real estate |
|
|
|
$ |
49.4 |
|
|
|
49.4 |
|
|||
Hedge funds |
|
|
|
|
|
$ |
127.1 |
|
127.1 |
|
|||
Private equity |
|
|
|
|
|
41.5 |
|
41.5 |
|
||||
Other |
|
1.7 |
|
0.5 |
|
|
|
2.2 |
|
||||
Total |
|
$ |
1,150.2 |
|
$ |
49.9 |
|
$ |
168.6 |
|
$ |
1,368.7 |
|
MILLIONS |
|
FAIR VALUE AS OF
|
|
|||||||||||||
|
|
LEVEL 1 |
|
LEVEL 2 |
|
LEVEL 3 |
|
TOTAL |
|
|||||||
Cash |
|
$ |
19.7 |
|
|
|
|
|
$ |
19.7 |
|
|||||
Equity securities: |
|
|
|
|
|
|
|
|
|
|||||||
Large cap equity |
|
433.0 |
|
|
|
|
|
433.0 |
|
|||||||
Small cap equity |
|
120.0 |
|
|
|
|
|
120.0 |
|
|||||||
International equity |
|
135.5 |
|
|
|
|
|
135.5 |
|
|||||||
Fixed income: |
|
|
|
|
|
|
|
|
|
|||||||
Core fixed income |
|
205.4 |
|
|
|
|
|
205.4 |
|
|||||||
Other: |
|
|
|
|
|
|
|
|
|
|||||||
Real estate |
|
|
|
$ |
28.9 |
|
|
|
28.9 |
|
||||||
Hedge funds |
|
|
|
|
|
$ |
55.4 |
|
55.4 |
|
||||||
Private equity |
|
|
|
|
|
10.6 |
|
10.6 |
|
|||||||
Total |
|
$ |
913.6 |
|
$ |
28.9 |
|
$ |
66.0 |
|
$ |
1,008.5 |
|
|||
For those assets that are valued using significant unobservable inputs (level 3), the following is a rollforward of the significant activity for the year:
MILLIONS |
|
HEDGE
|
|
PRIVATE
|
|
||
Beginning balance at December 31, 2010 |
|
$ |
55.4 |
|
$ |
10.6 |
|
Assumed through Nalco merger |
|
25.9 |
|
21.0 |
|
||
Actual return on plan assets
|
|
(0.9 |
) |
2.7 |
|
||
Purchases, sales and settlements, net |
|
46.7 |
|
7.2 |
|
||
Transfers in and/or out |
|
|
|
|
|
||
Ending balance at December 31, 2011 |
|
$ |
127.1 |
|
$ |
41.5 |
|
MILLIONS |
|
HEDGE
|
|
PRIVATE
|
|
||
Beginning balance at December 31, 2009 |
|
$ |
49.3 |
|
$ |
3.1 |
|
Actual return on plan assets |
|
|
|
|
|
||
Unrealized gains |
|
2.6 |
|
1.1 |
|
||
Realized losses |
|
|
|
(0.2 |
) |
||
Purchases, sales and settlements, net |
|
3.5 |
|
6.6 |
|
||
Transfers in and/or out |
|
|
|
|
|
||
Ending balance at December 31, 2010 |
|
$ |
55.4 |
|
$ |
10.6 |
|
The company is responsible for the valuation process and seeks to obtain quoted market prices for all securities. When quoted market prices are not available, a number of methodologies are used to establish fair value estimates, including discounted cash flow models, prices from recently executed transactions of similar securities or broker/dealer quotes using market observable information to the extent possible. The company reviews the values generated by those models for reasonableness and, in some
cases, further analyzes and researches values generated to ensure their accuracy, which includes reviewing other publicly available information.
The companys U.S. investment strategy and policies are designed to maximize the possibility of having sufficient funds to meet the long-term liabilities of the pension fund, while achieving a balance between the goals of asset growth of the plan and keeping risk at a reasonable level. Current income is not a key goal of the plan. The asset allocation position reflects the ability and willingness to accept relatively more short-term variability in the performance of the pension plan portfolio in exchange for the expectation of better long-term returns, lower pension costs and better funded status in the long run.
The pension fund is diversified across a number of asset classes and securities. Selected individual portfolios within the asset classes may be undiversified while maintaining the diversified nature of total plan assets. The company has no significant concentration of risk in its U.S. plan assets.
International
The fair value of the companys international plans and the allocation of plan assets for its defined benefit pension plans are as follows:
ASSET CATEGORY |
|
PERCENTAGE
|
|
||||
|
|
2011 |
|
2010 |
|
||
DECEMBER 31 (%) |
|
|
|
|
|
|
|
Cash |
|
1 |
% |
|
1 |
% |
|
Equity securities: |
|
|
|
|
|
|
|
International equity |
|
41 |
|
|
39 |
|
|
Fixed income: |
|
|
|
|
|
|
|
Corporate bonds |
|
25 |
|
|
24 |
|
|
Government bonds |
|
17 |
|
|
15 |
|
|
Total fixed income |
|
42 |
|
|
39 |
|
|
Other: |
|
|
|
|
|
|
|
Real estate |
|
1 |
|
|
4 |
|
|
Insurance contracts |
|
15 |
|
|
17 |
|
|
Total |
|
100 |
% |
|
100 |
% |
|
MILLIONS |
|
FAIR VALUE AS OF
|
|
|||||||||
|
|
LEVEL 1 |
|
LEVEL 2 |
|
LEVEL 3 |
|
TOTAL |
|
|||
Cash |
|
$ |
6.7 |
|
|
|
|
|
$ |
6.7 |
|
|
Equity securities: |
|
|
|
|
|
|
|
|
|
|||
International equity |
|
248.0 |
|
|
|
|
|
248.0 |
|
|||
Fixed income: |
|
|
|
|
|
|
|
|
|
|||
Corporate bonds |
|
153.9 |
|
$ |
0.2 |
|
|
|
154.1 |
|
||
Government bonds |
|
102.3 |
|
|
|
|
|
102.3 |
|
|||
Other: |
|
|
|
|
|
|
|
|
|
|||
Real estate |
|
|
|
9.0 |
|
|
|
9.0 |
|
|||
Insurance contracts |
|
|
|
92.5 |
|
|
|
92.5 |
|
|||
Total |
|
$ |
510.9 |
|
$ |
101.7 |
|
|
|
$ |
612.6 |
|
MILLIONS |
|
FAIR VALUE AS OF
|
|
|||||||||
|
|
LEVEL 1 |
|
LEVEL 2 |
|
LEVEL 3 |
|
TOTAL |
|
|||
Cash |
|
$ |
1.9 |
|
|
|
|
|
$ |
1.9 |
|
|
Equity securities: |
|
|
|
|
|
|
|
|
|
|||
International equity |
|
123.7 |
|
|
|
|
|
123.7 |
|
|||
Fixed income: |
|
|
|
|
|
|
|
|
|
|||
Corporate bonds |
|
77.2 |
|
|
|
|
|
77.2 |
|
|||
Government bonds |
|
47.3 |
|
|
|
|
|
47.3 |
|
|||
Other: |
|
|
|
|
|
|
|
|
|
|||
Real estate |
|
|
|
$ |
12.3 |
|
|
|
12.3 |
|
||
Insurance contracts |
|
|
|
56.1 |
|
|
|
56.1 |
|
|||
Total |
|
$ |
250.1 |
|
$ |
68.4 |
|
|
|
$ |
318.5 |
|
Assets of funded retirement plans outside the U.S. are managed in each local jurisdiction and asset allocation strategy is set in accordance with local rules, regulations and practice. Therefore, no overall target asset allocation is presented. Although equity securities are all considered international for the company, some equity securities are considered domestic for the local plan. The funds are invested in a variety of equities, bonds and real estate investments and, in some cases, the assets are managed by insurance companies which may offer a guaranteed rate of return. The company has no investments that are level 3 in its international plan assets. The company has no significant concentration of risk in its international plan assets.
Net Periodic Benefit Costs
Pension and postretirement health care benefits expense for the companys operations:
|
|
U.S.
|
|
INTERNATIONAL
|
|
U.S. POSTRETIREMENT HEALTH CARE |
|
||||||||||||||||||||||||
MILLIONS |
|
2011 |
|
|
2010 |
|
2009 |
|
2011 |
|
|
2010 |
|
2009 |
|
2011 |
|
|
2010 |
|
2009 |
|
|||||||||
Service cost - employee benefits earned during the year |
|
$ |
46.7 |
|
|
$ |
50.6 |
|
$ |
47.2 |
|
$ |
23.1 |
|
|
$ |
18.9 |
|
$ |
14.9 |
|
$ |
2.2 |
|
|
$ |
2.0 |
|
$ |
2.0 |
|
Interest cost on benefit obligation |
|
63.4 |
|
|
62.6 |
|
59.0 |
|
28.2 |
|
|
26.7 |
|
24.6 |
|
9.0 |
|
|
8.8 |
|
9.5 |
|
|||||||||
Expected return on plan assets |
|
(100.6 |
) |
|
(90.1 |
) |
(75.5 |
) |
(22.5 |
) |
|
(17.0 |
) |
(16.4 |
) |
(1.4 |
) |
|
(1.5 |
) |
(1.4 |
) |
|||||||||
Recognition of net actuarial loss |
|
31.8 |
|
|
24.7 |
|
15.9 |
|
5.7 |
|
|
4.0 |
|
1.6 |
|
0.2 |
|
|
0.2 |
|
4.3 |
|
|||||||||
Amortization of prior service cost (benefit) |
|
(4.2 |
) |
|
0.5 |
|
0.5 |
|
0.1 |
|
|
0.4 |
|
0.3 |
|
0 .1 |
|
|
(0.4 |
) |
(5.9 |
) |
|||||||||
Settlements/Curtailments |
|
|
|
|
0.3 |
|
|
|
1.3 |
|
|
0.1 |
|
0.5 |
|
|
|
|
|
|
0.9 |
|
|||||||||
Total expense |
|
$ |
37.1 |
|
|
$ |
48.6 |
|
$ |
47.1 |
|
$ |
35.9 |
|
|
$ |
33.1 |
|
$ |
25.5 |
|
$ |
10.1 |
|
|
$ |
9.1 |
|
$ |
9.4 |
|
(a) Includes qualified and non-qualified plans
Plan assumptions
|
|
U.S.
|
|
INTERNATIONAL
|
|
U.S. POSTRETIREMENT
|
|
||||||||||||
PERCENT |
|
2011 |
|
2010 |
|
2009 |
|
2011 |
|
2010 |
|
2009 |
|
2011 |
|
2010 |
|
2009 |
|
Weighted-average actuarial assumptions used to determine benefit obligations as of year end: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
|
4.86 |
% |
5.41 |
% |
5.84 |
% |
5.02 |
% |
4.62 |
% |
5.21 |
% |
4.80 |
% |
5.41 |
% |
5.84 |
% |
Projected salary increase |
|
4.08 |
|
4.32 |
|
4.32 |
|
2.98 |
|
3.40 |
|
3.38 |
|
|
|
|
|
|
|
Weighted-average actuarial assumptions used to determine net cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
|
5.23 |
|
5.84 |
|
6.26 |
|
4.26 |
|
5.21 |
|
6.39 |
|
5.34 |
|
5.84 |
|
6.26 |
|
Expected return on plan assets |
|
8.44 |
|
8.50 |
|
8.50 |
|
6.37 |
|
6.22 |
|
5.48 |
|
8.50 |
|
8.50 |
|
8.50 |
|
Projected salary increase |
|
4.07 |
|
4.32 |
|
4.32 |
|
3.62 |
|
3.38 |
|
3.23 |
|
|
|
|
|
|
|
(a) Includes qualified and non-qualified plans
The discount rate assumptions for the U.S. plans are developed using a bond yield curve constructed from a population of high-quality, non-callable, corporate bond issues with maturities ranging from six months to thirty years. Individual discount rates are estimated for each of the U.S. plans and are based on the durations of each underlying plan. The company reassessed the population of bonds and the underlying discount rate curves for measurement of the plans as of December 31, 2011. The reassessment of the bond yield curve was driven by the planned discontinuation of the companys previous bond yield curve. As a result of this reassesment, the company selected a new curve that utilizes a market weighted convention which the company believes is more accurate than the simple weighted curve previously used. The legacy Nalco U.S. plans were measured using the same bond yield curves as adopted by Ecolab.
The expected long-term rate of return used for the U.S. plans is generally based on the pension plans asset mix. The company considers expected long-term real returns on asset categories, expectations for inflation, and estimates of the impact of active management of the assets in coming to the final rate to use. The company also considers actual historical returns.
The expected long-term rate of return used in the companys international plans is determined in each local jurisdiction and is based on the assets held in that jurisdiction, the expected rate of returns for the type of assets held and any guaranteed rate of return provided by the investment. The other assumptions used to measure the international pension obligations, including discount rate, vary by country based on specific local requirements and information. As previously noted, the measurement date for these plans is November 30. Discount rates were lower at December 31, 2011 as compared to November 30, 2011.
For postretirement benefit measurement purposes as of December 31, 2011, the annual rates of increase in the per capita cost of covered health care were assumed to be 7.5% (for pre-age 65 retirees) and 8% (for post-age 65 retirees). The rates were assumed to decrease each year until they reach 5% in 2020 for both pre-age 65 retirees and post-age 65 retirees and remain at those levels thereafter. Health care costs which are eligible for subsidy by the company are limited to a maximum 4% annual increase beginning in 1996 for certain employees.
Assumed health care cost trend rates have an effect on the amounts reported for the companys U.S. postretirement health care benefits plan. A one-percentage point change in the assumed health care cost trend rates would have the following effects:
|
|
1-PERCENTAGE POINT |
|
||||
MILLIONS |
|
INCREASE |
|
DECREASE |
|
||
Effect on total of service and interest cost components |
|
$ |
0.4 |
|
$ |
(0.3 |
) |
Effect on postretirement benefit obligation |
|
0.1 |
|
(2.1 |
) |
||
Multiemployer Plan
The company contributes to a multiemployer defined benefit pension plan under the terms of a collective-bargaining agreement that covers certain of its union-represented employees. The risks of participating in a multiemployer plan are different from single-employer pension plans such that assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other participating employers. Additionally, if a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers, and if the company chooses to stop participating in the multiemployer plan, the company may be required to pay the plan an amount based on the underfunded status of the plan, referred to as a withdrawal liability.
The company contributed $0.4 million during 2011 and $0.5 million in both 2010 and 2009 to its multiemployer defined benefit pension plan. Participation in the multiemployer pension plan is not considered significant to the company as a whole.
Amendments
In December 2010, the company amended the legacy Ecolab qualified and non-qualified U.S. pension plans to change the formula for benefit accruals in future years for certain plan participants. These amendments resulted in a decrease in the projected benefit obligation as of December 31, 2010.
Health Care Reform
In March 2010, the Patient Protection and Affordable Care Act and Health Care and Education Reconciliation Act were signed into law in the U.S. These new laws impact active employees who receive health care coverage through an employer as well as retirees who have postretirement health care benefits. Many provisions of the new laws do not take effect until future years; however, accounting rules require the expected impact on the postretirement health care plan to be reflected in the current period, if material. Based on the companys analysis of the new laws, the company concluded that the new laws are not a significant event for the plan and interim remeasurement was not required. As of the December 31, 2010 measurement date, the new laws decreased our postretirement health care benefits projected benefit obligation by $0.3 million.
Cash Flows
As of year-end 2011, the companys estimate of benefits expected to be paid in each of the next five fiscal years and in the aggregate for the five fiscal years thereafter for the companys pension and postretirement health care benefit plans are as follows:
MILLIONS |
|
ALL PLANS |
|
MEDICARE SUBSIDY
|
|
||
2012 |
|
$ |
162 |
|
$ |
2 |
|
2013 |
|
164 |
|
1 |
|
||
2014 |
|
169 |
|
|
|
||
2015 |
|
182 |
|
|
|
||
2016 |
|
183 |
|
|
|
||
2017-2021 |
|
1,029 |
|
|
|
||
Depending on plan funding levels, the legacy Nalco U.S. defined benefit qualified pension plan provides terminating participants with an option to receive their pension benefits in the form of lump sum payments.
The company is currently in compliance with all funding requirements of its U.S. pension and postretirement health care plans. The companys funding policy for the U.S. pension plan is to achieve and maintain a return on assets that meets the long-term funding requirements identified by the projections of the pension plans actuaries while simultaneously satisfying the fiduciary responsibilities prescribed in ERISA. The company also takes into consideration the tax deductibility of contributions to the benefit plans. In January 2011, the company made a $100 million voluntary contribution to the U.S. pension plan. Certain international pension benefit plans are required to be funded in accordance with local government requirements. The company estimates that it will contribute approximately $109 million to the pension and postretirement health care benefit plans during 2012.
The company is not aware of any expected refunds of plan assets within the next twelve months from any of its existing U.S. or international pension or postretirement benefit plans.
Savings Plan, ESOP and Profit Sharing
Legacy Ecolab
The company provides a 401(k) savings plan for substantially all U.S. employees. Employee before-tax contributions of up to 3% of eligible compensation are matched 100% by the company and employee before-tax contributions between 3% and 5% of eligible compensation are matched 50% by the company. The companys matching contributions are 100% vested immediately. The companys contributions amounted to $24 million in 2011, $23 million in 2010 and $22 million in 2009.
Legacy Nalco
The company sponsors a defined contribution profit sharing and savings plan for most legacy Nalco U.S. employees. Under the plan, annual profit sharing contributions are made to the accounts of participating employees that vary based on the companys financial performance. In addition, the plan provides for matching contributions of up to 4% of eligible compensation for employees who elect to contribute to 401(k) accounts. All contributions are made to the Profit Sharing, Investment and Pay Deferral Plan Trust (the Trust). Contributions to the Trust, profit sharing and 401(k) matching contribution expenses from December 1, 2011 though the end of 2011 were $0.9 million, $1.8 million and $1.0 million, respectively. The company had a payable to the Trust of $34.2 million at December 31, 2011, which will be paid during 2012.
16. OPERATING SEGMENTS AND GEOGRAPHIC INFORMATION
Prior to the Nalco merger, the company aggregated its twelve operating units into three reportable segments: U.S. Cleaning & Sanitizing, U.S. Other Services and International. Subsequent to the Nalco merger, the company continued to aggregate the legacy Ecolab operating units into the same three reportable segments. Effective with the Nalco merger, the company added Nalcos three legacy operating units (Water Services, Paper Services and Energy Services) as individual reportable segments to the merged companys reporting structure, as discussed below. The profitability of the companys operating segments is evaluated by management based on operating income. The company has no intersegment revenues.
Legacy Ecolab
U.S. Cleaning & Sanitizing - This reportable segment provides cleaning and sanitizing products to U.S. markets through its legacy Ecolab Institutional, Food & Beverage, Kay, Healthcare, Textile Care and Vehicle Care operating segments. These operating segments exhibit similar products, manufacturing processes, customers, distribution methods and economic characteristics.
U.S. Other Services - This reportable segment includes all other U.S. operations of the legacy Ecolab company. This segment provides pest elimination and kitchen equipment repair and maintenance through its Pest Elimination and Equipment Care operating segments, respectively. These two operating segments are primarily fee for service businesses. Since the primary focus of these businesses is service, they have not been combined with the companys U.S. Cleaning & Sanitizing reportable segment. These operating segments are combined and disclosed as an all other category.
International - This reportable segment includes four legacy Ecolab operating segments: Europe/Middle East/Africa (EMEA), Asia Pacific, Latin America and Canada. These segments provide cleaning and sanitizing products as well as pest elimination service. Legacy Ecolab International operations are managed by geographic region and exhibit similar products, manufacturing processes, customers, distribution methods and economic characteristics.
The company evaluates the performance of its legacy Ecolab International operations based on fixed currency exchange rates. The difference between the fixed currency exchange rates and the actual currency exchange rates is reported as currency impact in operating segment reporting. All other accounting policies of the reportable segments are consistent with accounting principles generally accepted in the United States of America and the accounting policies of the company described in Note 2.
Legacy Nalco
The legacy Nalco business provides integrated water treatment and process improvement services for industrial and institutional applications, using technologically advanced solutions, combining chemical products and equipment, and consistent, reliable on-site service and expertise.
These solutions and services enable the companys customers to improve production yields, lower manufacturing costs, extend asset lives and maintain environmental standards at costs that represent a small share of their overall production expense.
The legacy Nalco business is operated through three reportable segments as described below.
Water Services - This reportable segment serves the global water treatment and process chemical needs of the industrial and institutional markets.
Paper Services - This reportable segment serves the process chemicals and water treatment needs of the global pulp and paper industry.
Energy Services - This reportable segment serves the process chemicals and water treatment needs of the global petroleum and petrochemical industries in both upstream and downstream applications.
Corporate
Consistent with the companys internal management reporting, corporate operating expense for 2011, 2010 and 2009 includes $169.5 million, $7.5 million and $79.7 million, respectively, of special charges included on the Consolidated Statement of Income as well as merger integration costs, investments the company is making in business systems and investments in the companys business structure. Starting in December 2011, effective with the Nalco merger, asset fair value step-up amortization specifically related to Nalco assets is also included in the corporate segment.
The company has two classes of products within its U.S. Cleaning & Sanitizing and International operations which comprised 10% or more of consolidated net sales in any of the last three years. Sales of warewashing products were approximately 18% of consolidated net sales in 2011, and approximately 19% in both 2010 and 2009. Sales of laundry products were approximately 10% of consolidated net sales in 2011 and 2010 and approximately 11% in 2009.
Total service revenue within the companys operating segments, at public exchange rates, is included in the following table. Service revenue within the legacy Nalco operating segments is not significant.
|
|
Service Revenue |
|
||||||||
(MILLIONS) |
|
2011 |
|
|
2010 |
|
2009 |
|
|||
U.S. Other Services |
|
$ |
384.5 |
|
|
$ |
379.0 |
|
$ |
381.0 |
|
International |
|
202.4 |
|
|
183.0 |
|
171.0 |
|
|||
Operating Segment Information
The following tables present net sales and operating income (loss) by reportable segment.
|
|
Net Sales |
|
Operating Income (Loss) |
|
||||||||||||||
MILLIONS |
|
2011 |
|
2010 |
|
2009 |
|
2011 |
|
2010 |
|
2009 |
|
||||||
Legacy Ecolab |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
U.S. Cleaning & Sanitizing |
|
$ |
2,930.3 |
|
$ |
2,721.9 |
|
$ |
2,663.3 |
|
$ |
556.7 |
|
$ |
513.9 |
|
$ |
495.2 |
|
U.S. Other Services |
|
457.1 |
|
448.5 |
|
449.4 |
|
69.7 |
|
71.4 |
|
65.7 |
|
||||||
Total U.S. |
|
3,387.4 |
|
3,170.4 |
|
3,112.7 |
|
626.4 |
|
585.3 |
|
560.9 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
International |
|
3,110.7 |
|
2,932.2 |
|
2,836.9 |
|
292.5 |
|
260.6 |
|
237.6 |
|
||||||
Currency impact |
|
136.6 |
|
(12.9 |
) |
(49.0 |
) |
11.6 |
|
(8.6 |
) |
(13.3 |
) |
||||||
Ecolab subtotal |
|
6,634.7 |
|
6,089.7 |
|
5,900.6 |
|
930.5 |
|
837.3 |
|
785.2 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Legacy Nalco |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Water Services |
|
67.2 |
|
|
|
|
|
11.0 |
|
|
|
|
|
||||||
Paper Services |
|
33.9 |
|
|
|
|
|
6.2 |
|
|
|
|
|
||||||
Energy Services |
|
92.3 |
|
|
|
|
|
17.7 |
|
|
|
|
|
||||||
Nalco subtotal |
|
193.4 |
|
|
|
|
|
34.9 |
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Corporate |
|
(29.6) |
|
|
|
|
|
(211.6) |
|
(30.5 |
) |
(103.9 |
) |
||||||
Consolidated |
|
$ |
6,798.5 |
|
$ |
6,089.7 |
|
$ |
5,900.6 |
|
$ |
753.8 |
|
$ |
806.8 |
|
$ |
681.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following tables present the companys depreciation and amortization, capital expenditures (including capitalized software expenditures) and total assets by reportable segment. The legacy Nalco amounts are presented in total as discretely identifiable amounts by reportable segment are not available. Corporate assets are principally cash and cash equivalents and deferred taxes. All amounts presented are measured in public exchange rates.
|
|
|
|
|
|
|
|
Capital Expenditures |
|
|
|
||||||||||||||
|
|
Depreciation & Amortization |
|
(Including Capitalized Software) |
|
Total Assets |
|
||||||||||||||||||
(MILLIONS) |
|
2011 |
|
2010 |
|
2009 |
|
2011 |
|
2010 |
|
2009 |
|
2011 |
|
2010 |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
U.S. Cleaning & Sanitizing |
|
$ |
199.8 |
|
$ |
184.3 |
|
$ |
185.4 |
|
$ |
163.4 |
|
$ |
148.7 |
|
$ |
145.5 |
|
$ |
2,270.7 |
|
$ |
1,876.2 |
|
U.S. Other Services |
|
5.3 |
|
5.4 |
|
6.4 |
|
4.5 |
|
2.5 |
|
4.0 |
|
154.2 |
|
149.4 |
|
||||||||
International |
|
174.0 |
|
158.2 |
|
142.5 |
|
176.3 |
|
146.5 |
|
147.8 |
|
2,607.9 |
|
2,413.4 |
|
||||||||
Legacy Nalco |
|
5.6 |
|
|
|
|
|
21.8 |
|
|
|
|
|
11,082.4 |
|
|
|
||||||||
Corporate |
|
11.0 |
|
|
|
|
|
|
|
|
|
|
|
2,125.6 |
|
433.2 |
|
||||||||
Consolidated |
|
$ |
395.7 |
|
$ |
347.9 |
|
$ |
334.3 |
|
$ |
366.0 |
|
$ |
297.7 |
|
$ |
297.3 |
|
$ |
18,240.8 |
|
$ |
4,872.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Geographic Information
Net sales and property, plant and equipment at public exchange rates by geographic region are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Property, Plant |
|
||||||||
|
|
|
|
|
|
Net Sales |
|
|
|
|
|
& Equipment, net |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
(MILLIONS) |
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
2011 |
|
|
2010 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
United States |
|
|
$ |
3,551.2 |
|
|
$ |
3,170.4 |
|
|
$ |
3,112.7 |
|
|
$ |
1,205.4 |
|
|
$ |
628.4 |
|
EMEA |
|
|
1,955.5 |
|
|
1,843.2 |
|
|
1,854.4 |
|
|
488.4 |
|
|
298.7 |
|
|||||
Asia Pacific |
|
|
721.4 |
|
|
575.7 |
|
|
489.8 |
|
|
366.3 |
|
|
126.8 |
|
|||||
Latin America |
|
|
321.2 |
|
|
272.5 |
|
|
246.0 |
|
|
147.4 |
|
|
57.6 |
|
|||||
Canada |
|
|
249.2 |
|
|
227.9 |
|
|
197.7 |
|
|
87.9 |
|
|
36.8 |
|
|||||
Consolidated |
|
|
$ |
6,798.5 |
|
|
$ |
6,089.7 |
|
|
$ |
5,900.6 |
|
|
$ |
2,295.4 |
|
|
$ |
1,148.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17. QUARTERLY FINANCIAL DATA (UNAUDITED)
MILLIONS, EXCEPT PER SHARE |
|
FIRST
|
|
SECOND
|
|
THIRD
|
|
FOURTH
|
|
YEAR |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
2011 |
|
|
|
|
|
|
|
|
|
|
|
|||||
Net sales (including special charges of $29.6 in Q4) |
|
$ |
1,518.3 |
|
$ |
1,698.8 |
|
$ |
1,736.1 |
|
$ |
1,845.3 |
|
$ |
6,798.5 |
|
Cost of sales (including special charges of $0.8, $4.5 and $3.6 in Q1, Q3 and Q4, respectively) |
|
770.4 |
|
860.8 |
|
877.9 |
|
966.5 |
|
3,475.6 |
|
|||||
Selling, general and administrative expenses |
|
581.6 |
|
609.6 |
|
595.3 |
|
651.6 |
|
2,438.1 |
|
|||||
Special (gains) and charges |
|
14.6 |
|
30.1 |
|
23.3 |
|
63.0 |
|
131.0 |
|
|||||
Operating income |
|
151.7 |
|
198.3 |
|
239.6 |
|
164.2 |
|
753.8 |
|
|||||
Interest expense, net (including special charges of $1.5 in Q4) |
|
13.5 |
|
13.1 |
|
13.2 |
|
34.4 |
|
74.2 |
|
|||||
Income before income taxes |
|
138.2 |
|
185.2 |
|
226.4 |
|
129.8 |
|
679.6 |
|
|||||
Provision for income taxes |
|
44.4 |
|
59.0 |
|
71.9 |
|
41.0 |
|
216.3 |
|
|||||
Net income including noncontrolling interest |
|
93.8 |
|
126.2 |
|
154.5 |
|
88.8 |
|
463.3 |
|
|||||
Less: Net income attributable to noncontrolling interest |
|
0.2 |
|
0.3 |
|
0.2 |
|
0.1 |
|
0.8 |
|
|||||
Net income attributable to Ecolab |
|
$ |
93.6 |
|
$ |
125.9 |
|
$ |
154.3 |
|
$ |
88.7 |
|
$ |
462.5 |
|
Earnings attributable to Ecolab per common share |
|
|
|
|
|
|
|
|
|
|
|
|||||
Basic |
|
$ |
0.40 |
|
$ |
0.54 |
|
$ |
0.67 |
|
$ |
0.35 |
|
$ |
1.95 |
|
Diluted |
|
$ |
0.40 |
|
$ |
0.53 |
|
$ |
0.65 |
|
$ |
0.34 |
|
$ |
1.91 |
|
Weighted-average common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|||||
Basic |
|
232.0 |
|
231.6 |
|
231.9 |
|
252.2 |
|
236.9 |
|
|||||
Diluted |
|
235.9 |
|
236.1 |
|
236.1 |
|
257.5 |
|
242.1 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
2010 |
|
|
|
|
|
|
|
|
|
|
|
|||||
Net sales |
|
$ |
1,432.1 |
|
$ |
1,520.2 |
|
$ |
1,561.9 |
|
$ |
1,575.5 |
|
$ |
6,089.7 |
|
Cost of sales |
|
716.7 |
|
750.0 |
|
763.4 |
|
783.7 |
|
3,013.8 |
|
|||||
Selling, general and administrative expenses |
|
558.1 |
|
565.3 |
|
558.5 |
|
579.7 |
|
2,261.6 |
|
|||||
Special (gains) and charges |
|
3.5 |
|
0.6 |
|
(5.1 |
) |
8.5 |
|
7.5 |
|
|||||
Operating income |
|
153.8 |
|
204.3 |
|
245.1 |
|
203.6 |
|
806.8 |
|
|||||
Interest expense, net |
|
15.0 |
|
15.0 |
|
14.9 |
|
14.2 |
|
59.1 |
|
|||||
Income before income taxes |
|
138.8 |
|
189.3 |
|
230.2 |
|
189.4 |
|
747.7 |
|
|||||
Provision for income taxes |
|
43.1 |
|
59.8 |
|
55.9 |
|
57.8 |
|
216.6 |
|
|||||
Net income including noncontrolling interest |
|
95.7 |
|
129.5 |
|
174.3 |
|
131.6 |
|
531.1 |
|
|||||
Less: Net income attributable to noncontrolling interest |
|
0.2 |
|
0.2 |
|
0.1 |
|
0.3 |
|
0.8 |
|
|||||
Net income attributable to Ecolab |
|
$ |
95.5 |
|
$ |
129.3 |
|
$ |
174.2 |
|
$ |
131.3 |
|
$ |
530.3 |
|
Earnings attributable to Ecolab per common share |
|
|
|
|
|
|
|
|
|
|
|
|||||
Basic |
|
$ |
0.41 |
|
$ |
0.55 |
|
$ |
0.75 |
|
$ |
0.57 |
|
$ |
2.27 |
|
Diluted |
|
$ |
0.40 |
|
$ |
0.54 |
|
$ |
0.74 |
|
$ |
0.56 |
|
$ |
2.23 |
|
Weighted-average common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|||||
Basic |
|
235.4 |
|
233.4 |
|
232.8 |
|
232.1 |
|
233.4 |
|
|||||
Diluted |
|
239.0 |
|
237.4 |
|
237.0 |
|
236.4 |
|
237.6 |
|
Per share amounts do not necessarily sum due to changes in the calculation of shares outstanding for each discrete period and rounding.
REPORTS OF MANAGEMENT
To our Shareholders:
Managements Responsibility for Financial Statements
Management is responsible for the integrity and objectivity of the consolidated financial statements. The statements have been prepared in accordance with accounting principles generally accepted in the United States of America and, accordingly, include certain amounts based on managements best estimates and judgments.
The Board of Directors, acting through its Audit Committee composed solely of independent directors, is responsible for determining that management fulfills its responsibilities in the preparation of financial statements and maintains financial control of operations. The Audit Committee recommends to the Board of Directors the appointment of the companys independent registered public accounting firm, subject to ratification by the shareholders. It meets regularly with management, the internal auditors and the independent registered public accounting firm.
The independent registered public accounting firm has audited the consolidated financial statements included in this annual report and have expressed their opinion regarding whether these consolidated financial statements present fairly in all material respects our financial position and results of operation and cash flows as stated in their report presented separately herein.
Managements Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of management, including the principal executive officer and principal financial officer, an evaluation of the design and operating effectiveness of internal control over financial reporting was conducted based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the evaluation under the framework in Internal Control - Integrated Framework, management concluded that internal control over financial reporting was effective as of December 31, 2011.
On December 1, 2011, Nalco Holding Company merged into a wholly-owned subsidiary of the company. See Note 4 of the Notes to the Consolidated Financial Statements for additional information. As permitted by the Securities and Exchange Commission, companies may exclude acquisitions from their assessment of internal controls over financial reporting during the first year of an acquisition and management elected to exclude Nalco from its assessment of internal control over financial reporting as of December 31, 2011. Nalcos total assets and total revenues represent approximately 16% and 3%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2011.
The companys independent registered public accounting firm, PricewaterhouseCoopers LLP, has audited the effectiveness of the companys internal control over financial reporting as of December 31, 2011 as stated in their report which is included herein.
|
|
|
|
|
|
Douglas M. Baker, Jr. |
|
Steven L. Fritze |
Chairman and Chief Executive Officer |
|
Chief Financial Officer |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of Ecolab Inc.:
To the Shareholders and Board of Directors of Ecolab Inc.:
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, comprehensive income and equity and of cash flows present fairly, in all material respects, the financial position of Ecolab Inc. and its subsidiaries at December 31, 2011 and 2010, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2011 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2011, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Companys management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Managements Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on these financial statements and on the Companys internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A companys internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A companys internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
As described in Managements Report on Internal Control Over Financial Reporting, management has excluded Nalco from its assessment of internal control over financial reporting as of December 31, 2011 because it was acquired by the Company in a purchase business combination during 2011. We have also excluded Nalco from our audit of internal control over financial reporting. Nalco is a wholly-owned subsidiary whose total assets and total revenues represent 16% and 3%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2011.
|
|
|
|
|
|
PricewaterhouseCoopers LLP Minneapolis, Minnesota February 28, 2012 |
|
|
Summary Operating and Financial Data
DECEMBER 31 (MILLIONS, EXCEPT PER SHARE AND EMPLOYEES) |
|
|
2011 |
|
|
2010 |
|
2009 |
|
2008 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
||||
OPERATIONS |
|
|
|
|
|
|
|
|
|
|
|
||||
Net sales |
|
|
|
|
|
|
|
|
|
|
|
||||
United States (including special (gains) and charges (1) ) |
|
|
$ |
3,551.2 |
|
|
$ |
3,170.4 |
|
$ |
3,112.7 |
|
$ |
3,130.1 |
|
International (at average rates of currency exchange) |
|
|
3,247.3 |
|
|
2,919.3 |
|
2,787.9 |
|
3,007.4 |
|
||||
Total |
|
|
6,798.5 |
|
|
6,089.7 |
|
5,900.6 |
|
6,137.5 |
|
||||
Cost of sales (including special (gains) and charges (2) ) |
|
|
3,475.6 |
|
|
3,013.8 |
|
2,978.0 |
|
3,141.6 |
|
||||
Selling, general and administrative expenses |
|
|
2,438.1 |
|
|
2,261.6 |
|
2,174.2 |
|
2,257.2 |
|
||||
Special (gains) and charges |
|
|
131.0 |
|
|
7.5 |
|
67.1 |
|
25.9 |
|
||||
Operating income |
|
|
753.8 |
|
|
806.8 |
|
681.3 |
|
712.8 |
|
||||
Gain on sale of equity investment |
|
|
|
|
|
|
|
|
|
|
|
||||
Interest expense, net (Including special (gains) and charges (3) ) |
|
|
74.2 |
|
|
59.1 |
|
61.2 |
|
61.6 |
|
||||
Income from continuing operations before income taxes, equity earnings and changes in accounting principle |
|
|
679.6 |
|
|
747.7 |
|
620.1 |
|
651.2 |
|
||||
Provision for income taxes |
|
|
216.3 |
|
|
216.6 |
|
201.4 |
|
202.8 |
|
||||
Equity in earnings of Henkel-Ecolab |
|
|
|
|
|
|
|
|
|
|
|
||||
Income from continuing operations |
|
|
463.3 |
|
|
531.1 |
|
418.7 |
|
448.4 |
|
||||
Gain from discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
||||
Changes in accounting principle |
|
|
|
|
|
|
|
|
|
|
|
||||
Net income including noncontrolling interest |
|
|
463.3 |
|
|
531.1 |
|
418.7 |
|
448.4 |
|
||||
Less: Net income attributable to noncontrolling interest |
|
|
0.8 |
|
|
0.8 |
|
1.4 |
|
0.3 |
|
||||
Net income attributable to Ecolab |
|
|
462.8 |
|
|
530.3 |
|
417.3 |
|
448.1 |
|
||||
Goodwill amortization adjustment |
|
|
|
|
|
|
|
|
|
|
|
||||
Net income excluding goodwill amortization (4) |
|
|
$ |
462.8 |
|
|
$ |
530.3 |
|
$ |
417.3 |
|
$ |
448.1 |
|
Earnings per share, as reported (GAAP) |
|
|
|
|
|
|
|
|
|
|
|
||||
Diluted - continuing operations |
|
|
$ |
1.91 |
|
|
$ |
2.23 |
|
$ |
1.74 |
|
$ |
1.80 |
|
Diluted - net income |
|
|
1.91 |
|
|
2.23 |
|
1.74 |
|
1.80 |
|
||||
Earnings per share, as adjusted (Non-GAAP) (5) |
|
|
|
|
|
|
|
|
|
|
|
||||
Diluted - continuing operations |
|
|
2.54 |
|
|
2.23 |
|
1.99 |
|
1.86 |
|
||||
Diluted - net income |
|
|
$ |
2.54 |
|
|
$ |
2.23 |
|
$ |
1.99 |
|
$ |
1.86 |
|
Weighted-average common shares outstanding - basic |
|
|
236.9 |
|
|
233.4 |
|
236.7 |
|
245.4 |
|
||||
Weighted-average common shares outstanding - diluted |
|
|
242.1 |
|
|
237.6 |
|
239.9 |
|
249.3 |
|
||||
SELECTED INCOME STATEMENT RATIOS |
|
|
|
|
|
|
|
|
|
|
|
||||
Gross profit |
|
|
48.9 |
% |
|
50.5 |
% |
49.5 |
% |
48.8 |
% |
||||
Selling, general and administrative expenses |
|
|
35.9 |
|
|
37.1 |
|
36.8 |
|
36.8 |
|
||||
Operating income |
|
|
11.1 |
|
|
13.2 |
|
11.5 |
|
11.6 |
|
||||
Income from continuing operations before income taxes |
|
|
10.0 |
|
|
12.3 |
|
10.5 |
|
10.6 |
|
||||
Income from continuing operations |
|
|
6.8 |
|
|
8.7 |
|
7.1 |
|
7.3 |
|
||||
Effective income tax rate |
|
|
31.8 |
% |
|
29.0 |
% |
32.5 |
% |
31.1 |
% |
||||
FINANCIAL POSITION |
|
|
|
|
|
|
|
|
|
|
|
||||
Current assets |
|
|
$ |
5,396.0 |
|
|
$ |
1,869.9 |
|
$ |
1,814.2 |
|
$ |
1,691.1 |
|
Property, plant and equipment, net |
|
|
2,295.4 |
|
|
1,148.3 |
|
1,176.2 |
|
1,135.2 |
|
||||
Goodwill, intangible and other assets |
|
|
10,549.4 |
|
|
1,854.0 |
|
2,030.5 |
|
1,930.6 |
|
||||
Total assets |
|
|
$ |
18,240.8 |
|
|
$ |
4,872.2 |
|
$ |
5,020.9 |
|
$ |
4,756.9 |
|
Current liabilities |
|
|
$ |
3,166.3 |
|
|
$ |
1,324.8 |
|
$ |
1,250.2 |
|
$ |
1,441.9 |
|
Long-term debt |
|
|
6,613.2 |
|
|
656.4 |
|
868.8 |
|
799.3 |
|
||||
Postretirement health care and pension benefits |
|
|
1,173.4 |
|
|
565.8 |
|
603.7 |
|
680.2 |
|
||||
Other liabilities |
|
|
1,546.8 |
|
|
192.2 |
|
288.6 |
|
256.5 |
|
||||
Ecolab shareholders equity |
|
|
5,666.7 |
|
|
2,129.2 |
|
2,000.9 |
|
1,571.6 |
|
||||
Noncontrolling interest |
|
|
74.4 |
|
|
3.8 |
|
8.7 |
|
7.4 |
|
||||
Total equity |
|
|
5 ,741.1 |
|
|
2,133.0 |
|
2,009.6 |
|
1,579.0 |
|
||||
Total liabilities and equity |
|
|
$ |
18,240.8 |
|
|
$ |
4,872.2 |
|
$ |
5,020.9 |
|
$ |
4,756.9 |
|
SELECTED CASH FLOW INFORMATION |
|
|
|
|
|
|
|
|
|
|
|
||||
Cash provided by operating activities |
|
|
$ |
685.5 |
|
|
$ |
950.4 |
|
$ |
695.0 |
|
$ |
753.2 |
|
Depreciation and amortization |
|
|
395.7 |
|
|
347.9 |
|
334.3 |
|
334.7 |
|
||||
Capital expenditures |
|
|
341.7 |
|
|
260.5 |
|
252.5 |
|
326.7 |
|
||||
Cash dividends declared per common share |
|
|
$ |
0.7250 |
|
|
$ |
0.6400 |
|
$ |
0.5750 |
|
$ |
0.5300 |
|
SELECTED FINANCIAL MEASURES/OTHER |
|
|
|
|
|
|
|
|
|
|
|
||||
Total debt |
|
|
$ |
7,636.2 |
|
|
$ |
845.6 |
|
$ |
967.3 |
|
$ |
1,138.2 |
|
Total debt to capitalization |
|
|
57.1 |
% |
|
28.4 |
% |
32.5 |
% |
41.9 |
% |
||||
Book value per common share |
|
|
$ |
19.41 |
|
|
$ |
9.16 |
|
$ |
8.46 |
|
$ |
6.65 |
|
Return on beginning equity |
|
|
21.7 |
% |
|
26.5 |
% |
26.6 |
% |
23.1 |
% |
||||
Dividends per share/diluted earnings per common share |
|
|
38.0 |
% |
|
28.7 |
% |
33.1 |
% |
29.4 |
% |
||||
Net interest coverage |
|
|
10.2 |
|
|
13.7 |
|
11.1 |
|
11.6 |
|
||||
Year end market capitalization |
|
|
$ |
16,879.0 |
|
|
$ |
11,723.3 |
|
$ |
10,547.4 |
|
$ |
8,301.7 |
|
Annual common stock price range |
|
|
$ |
58.13-43.81 |
|
|
$ |
52.46-40.66 |
|
$ |
47.88-29.27 |
|
$ |
52.35-29.56 |
|
Number of employees |
|
|
40,200 |
|
|
26,494 |
|
25,931 |
|
26,568 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
DECEMBER 31 (MILLIONS, EXCEPT PER SHARE AND EMPLOYEES) |
|
2007 |
|
2006 |
|
2005 |
|
2004 |
|
2003 |
|
2002 |
|
2001 |
|
|||||||
OPERATIONS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Net sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
United States (including special (gains) and charges (1) ) |
|
$ |
2,801.3 |
|
$ |
2,562.8 |
|
$ |
2,327.4 |
|
$ |
2,135.7 |
|
$ |
2,014.8 |
|
$ |
1,923.5 |
|
$ |
1,821.9 |
|
International (at average rates of currency exchange) |
|
2,668.3 |
|
2,333.0 |
|
2,207.4 |
|
2,049.3 |
|
1,747.0 |
|
1,480.1 |
|
498.8 |
|
|||||||
Total |
|
5,469.6 |
|
4,895.8 |
|
4,534.8 |
|
4,185.0 |
|
3,761.8 |
|
3,403.6 |
|
2,320.7 |
|
|||||||
Cost of sales (including special (gains) and charges (2) ) |
|
2,691.7 |
|
2,416.1 |
|
2,248.8 |
|
2,033.5 |
|
1,846.6 |
|
1,688.7 |
|
1,121.1 |
|
|||||||
Selling, general and administrative expenses |
|
2,089.2 |
|
1,866.7 |
|
1,743.0 |
|
1,656.1 |
|
1,458.7 |
|
1,302.9 |
|
896.4 |
|
|||||||
Special (gains) and charges |
|
19.7 |
|
|
|
|
|
4.5 |
|
0.4 |
|
37.0 |
|
0.8 |
|
|||||||
Operating income |
|
669.0 |
|
613.0 |
|
543.0 |
|
490.9 |
|
456.1 |
|
375.0 |
|
302.4 |
|
|||||||
Gain on sale of equity investment |
|
|
|
|
|
|
|
|
|
11.1 |
|
|
|
|
|
|||||||
Interest expense, net (Including special (gains) and charges (3) ) |
|
51.0 |
|
44.4 |
|
44.2 |
|
45.3 |
|
45.3 |
|
43.9 |
|
28.4 |
|
|||||||
Income from continuing operations before income taxes, equity earnings and changes in accounting principle |
|
618.0 |
|
568.6 |
|
498.8 |
|
445.6 |
|
421.9 |
|
331.1 |
|
274.0 |
|
|||||||
Provision for income taxes |
|
189.1 |
|
198.6 |
|
178.7 |
|
161.9 |
|
160.2 |
|
131.3 |
|
110.5 |
|
|||||||
Equity in earnings of Henkel-Ecolab |
|
|
|
|
|
|
|
|
|
|
|
|
|
15.8 |
|
|||||||
Income from continuing operations |
|
428.9 |
|
370.0 |
|
320.1 |
|
283.7 |
|
261.7 |
|
199.8 |
|
179.3 |
|
|||||||
Gain from discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
1.9 |
|
|
|
|||||||
Changes in accounting principle |
|
|
|
|
|
|
|
|
|
|
|
(4.0 |
) |
|
|
|||||||
Net income including noncontrolling interest |
|
428.9 |
|
370.0 |
|
320.1 |
|
283.7 |
|
261.7 |
|
197.7 |
|
179.3 |
|
|||||||
Less: Net income attributable to noncontrolling interest |
|
1.7 |
|
1.4 |
|
0.6 |
|
1.0 |
|
1.1 |
|
1.4 |
|
1.8 |
|
|||||||
Net income attributable to Ecolab |
|
427.2 |
|
368.6 |
|
319.5 |
|
282.7 |
|
260.6 |
|
196.3 |
|
177.5 |
|
|||||||
Goodwill amortization adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
18.5 |
|
|||||||
Net income excluding goodwill amortization (4) |
|
$ |
427.2 |
|
$ |
368.6 |
|
$ |
319.5 |
|
$ |
282.7 |
|
$ |
260.6 |
|
$ |
196.3 |
|
$ |
196.0 |
|
Earnings per share, as reported (GAAP) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Diluted - continuing operations |
|
$ |
1.70 |
|
$ |
1.43 |
|
$ |
1.23 |
|
$ |
1.09 |
|
$ |
0.99 |
|
$ |
0.76 |
|
$ |
0.68 |
|
Diluted - net income |
|
1.70 |
|
1.43 |
|
1.23 |
|
1.09 |
|
0.99 |
|
0.75 |
|
0.68 |
|
|||||||
Earnings per share, as adjusted (Non-GAAP) (5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Diluted - continuing operations |
|
1.66 |
|
1.43 |
|
1.24 |
|
1.09 |
|
0.96 |
|
0.88 |
|
0.75 |
|
|||||||
Diluted - net income |
|
$ |
1.66 |
|
$ |
1.43 |
|
$ |
1.24 |
|
$ |
1.09 |
|
$ |
0.96 |
|
$ |
0.87 |
|
$ |
0.75 |
|
Weighted-average common shares outstanding - basic |
|
246.8 |
|
252.1 |
|
255.7 |
|
257.6 |
|
259.5 |
|
258.2 |
|
254.8 |
|
|||||||
Weighted-average common shares outstanding - diluted |
|
251.8 |
|
257.1 |
|
260.1 |
|
260.4 |
|
262.7 |
|
261.6 |
|
259.9 |
|
|||||||
SELECTED INCOME STATEMENT RATIOS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Gross profit |
|
50.8 |
% |
50.7 |
% |
50.4 |
% |
51.4 |
% |
50.9 |
% |
50.4 |
% |
51.7 |
% |
|||||||
Selling, general and administrative expenses |
|
38.2 |
|
38.1 |
|
38.4 |
|
39.6 |
|
38.8 |
|
38.3 |
|
38.6 |
|
|||||||
Operating income |
|
12.2 |
|
12.5 |
|
12.0 |
|
11.7 |
|
12.1 |
|
11.0 |
|
13.0 |
|
|||||||
Income from continuing operations before income taxes |
|
11.3 |
|
11.6 |
|
11.0 |
|
10.6 |
|
11.2 |
|
9.7 |
|
11.8 |
|
|||||||
Income from continuing operations |
|
7.8 |
|
7.6 |
|
7.1 |
|
6.8 |
|
7.0 |
|
5.9 |
|
7.7 |
|
|||||||
Effective income tax rate |
|
30.6 |
% |
34.9 |
% |
35.8 |
% |
36.3 |
% |
38.0 |
% |
39.7 |
% |
40.3 |
% |
|||||||
FINANCIAL POSITION |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Current assets |
|
$ |
1,717.3 |
|
$ |
1,853.6 |
|
$ |
1,421.7 |
|
$ |
1,279.1 |
|
$ |
1,150.3 |
|
$ |
1,015.9 |
|
$ |
929.6 |
|
Property, plant and equipment, net |
|
1,083.4 |
|
951.6 |
|
868.0 |
|
867.0 |
|
769.1 |
|
716.1 |
|
668.4 |
|
|||||||
Goodwill, intangible and other assets |
|
1,922.1 |
|
1,614.2 |
|
1,506.9 |
|
1,570.1 |
|
1,309.5 |
|
1,133.9 |
|
943.4 |
|
|||||||
Total assets |
|
$ |
4,722.8 |
|
$ |
4,419.4 |
|
$ |
3,796.6 |
|
$ |
3,716.2 |
|
$ |
3,228.9 |
|
$ |
2,865.9 |
|
$ |
2,541.4 |
|
Current liabilities |
|
$ |
1,518.3 |
|
$ |
1,502.8 |
|
$ |
1,119.4 |
|
$ |
939.6 |
|
$ |
851.9 |
|
$ |
853.8 |
|
$ |
828.0 |
|
Long-term debt |
|
599.9 |
|
557.1 |
|
519.4 |
|
645.5 |
|
604.4 |
|
539.7 |
|
512.3 |
|
|||||||
Postretirement health care and pension benefits |
|
418.5 |
|
420.2 |
|
302.0 |
|
270.9 |
|
249.9 |
|
207.6 |
|
183.3 |
|
|||||||
Other liabilities |
|
243.2 |
|
252.7 |
|
201.7 |
|
257.3 |
|
195.9 |
|
140.5 |
|
117.4 |
|
|||||||
Ecolab shareholders equity |
|
1,935.7 |
|
1,680.2 |
|
1,649.2 |
|
1,598.1 |
|
1,321.1 |
|
1,119.8 |
|
896.7 |
|
|||||||
Noncontrolling interest |
|
7.2 |
|
6.4 |
|
4.9 |
|
4.8 |
|
5.7 |
|
4.5 |
|
3.7 |
|
|||||||
Total equity |
|
1,942.9 |
|
1,686.6 |
|
1,654.1 |
|
1,602.9 |
|
1,326.8 |
|
1,124.3 |
|
900.4 |
|
|||||||
Total liabilities and equity |
|
$ |
4,722.8 |
|
$ |
4,419.4 |
|
$ |
3,796.6 |
|
$ |
3,716.2 |
|
$ |
3,228.9 |
|
$ |
2,865.9 |
|
$ |
2,541.4 |
|
SELECTED CASH FLOW INFORMATION |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Cash provided by operating activities |
|
$ |
797.6 |
|
$ |
627.6 |
|
$ |
590.1 |
|
$ |
570.9 |
|
$ |
523.9 |
|
$ |
412.7 |
|
$ |
358.5 |
|
Depreciation and amortization |
|
291.9 |
|
268.6 |
|
256.9 |
|
247.0 |
|
228.1 |
|
220.6 |
|
158.8 |
|
|||||||
Capital expenditures |
|
306.5 |
|
287.9 |
|
268.8 |
|
275.9 |
|
212.0 |
|
212.8 |
|
157.9 |
|
|||||||
Cash dividends declared per common share |
|
$ |
0.4750 |
|
$ |
0.4150 |
|
$ |
0.3625 |
|
$ |
0.3275 |
|
$ |
0.2975 |
|
$ |
0.2750 |
|
$ |
0.2625 |
|
SELECTED FINANCIAL MEASURES/OTHER |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Total debt |
|
$ |
1,003.4 |
|
$ |
1,066.1 |
|
$ |
746.3 |
|
$ |
701.6 |
|
$ |
674.6 |
|
$ |
699.8 |
|
$ |
745.7 |
|
Total debt to capitalization |
|
34.1 |
% |
38.7 |
% |
31.1 |
% |
30.4 |
% |
33.7 |
% |
38.4 |
% |
45.3 |
% |
|||||||
Book value per common share |
|
$ |
7.84 |
|
$ |
6.69 |
|
$ |
6.49 |
|
$ |
6.21 |
|
$ |
5.13 |
|
$ |
4.31 |
|
$ |
3.51 |
|
Return on beginning equity |
|
25.4 |
% |
22.4 |
% |
20.0 |
% |
21.4 |
% |
23.3 |
% |
21.9 |
% |
23.1 |
% |
|||||||
Dividends per share/diluted earnings per common share |
|
27.9 |
% |
29.0 |
% |
29.5 |
% |
30.0 |
% |
30.1 |
% |
36.7 |
% |
38.6 |
% |
|||||||
Net interest coverage |
|
13.1 |
|
13.8 |
|
12.3 |
|
10.8 |
|
10.1 |
|
8.5 |
|
10.6 |
|
|||||||
Year end market capitalization |
|
$ |
12,639.9 |
|
$ |
11,360.4 |
|
$ |
9,217.8 |
|
$ |
9,047.5 |
|
$ |
7,045.5 |
|
$ |
6,432.0 |
|
$ |
5,148.0 |
|
Annual common stock price range |
|
$ |
53.78-37.01 |
|
$ |
46.40-33.64 |
|
$ |
37.15-30.68 |
|
$ |
35.59-26.12 |
|
$ |
27.92-23.08 |
|
$ |
25.20-18.27 |
|
$ |
22.20-14.25 |
|
Number of employees |
|
26,052 |
|
23,130 |
|
22,404 |
|
21,338 |
|
20,826 |
|
20,417 |
|
19,326 |
|
On December 1, 2011, the company completed its merger with Nalco, which significantly impacts the comparability of certain 2011 financial data against prior years. Results for 2004 through 2000 have been restated to reflect the effect of retroactive application of ASC 718 C ompensation - Stock Compensation . The former Henkel-Ecolab joint venture is included as a consolidated subsidiary effective November 30, 2001. (1) U.S. Net sales includes special (gains) and charges of $29.6 in 2011. (2) Cost of sales includes special (gains) and charges of $8.9 in 2011, $12.6 in 2009, ($0.1) in 2004, ($0.1) in 2003, $9.0 in 2002 and ($0.6) in 2001. (3) Interest expense, net includes special (gains) and charges of $1.5 million in 2011. (4) Net income excluding goodwill amortization for 2001 reflect the pro forma effect of the discontinuance of the amortization of goodwill as if ASC 350 Intangibles - Goodwill and Other had been in effect since January 1, 2000. This non-GAAP measure is used to provide comparability of the companys net income results. (5) Earnings per share, as adjusted (Non-GAAP) amounts exclude the impact of special (gains) and charges, discrete tax items and for 2011, post merger legacy Nalco activity. All per share, shares outstanding and market price data reflect the two-for-one stock split declared in 2003.
EXHIBIT (21.1)
Registrant
ECOLAB INC.
Name of Affiliate |
|
State or Other
|
|
% of
|
International |
|
|
|
|
Ecolab (Antigua) Ltd. |
|
Antigua |
|
100 |
Ecolab S.A. |
|
Argentina |
|
100 |
Nalco Argentina S.R.L. |
|
Argentina |
|
100 |
Ecolab (Aruba) NV |
|
Aruba |
|
100 |
Ecolab Pty Ltd. |
|
Australia |
|
100 |
Ecolab (Fiji) Pty Limited |
|
Australia |
|
100 |
Nalco Australia Pty Ltd |
|
Australia |
|
100 |
Ecolab AT 2 GmbH |
|
Austria |
|
100 |
Ecolab GmbH |
|
Austria |
|
100 |
Ecolab Limited |
|
Bahamas |
|
100 |
Ecolab (Barbados) Limited |
|
Barbados |
|
100 |
Ecolab B.V.B.A./S.P.R.L. |
|
Belgium |
|
100 |
Ecolab Production Belgium BVBA |
|
Belgium |
|
100 |
Kay N.V. |
|
Belgium |
|
100 |
Nalco Belgium BVBA |
|
Belgium |
|
100 |
Ecolab Bm 1 Limited |
|
Bermuda |
|
100 |
Ecolab Bm 2 Limited |
|
Bermuda |
|
100 |
Ecolab Quimica Ltda. |
|
Brazil |
|
100 |
Insetcenter Controle De Vetores E Pragas Ltds |
|
Brazil |
|
100 |
Nalco Brasil Ltda |
|
Brazil |
|
100 |
Ecolab EOOD |
|
Bulgaria |
|
100 |
Ecolab Co. |
|
Canada |
|
100 |
Nalco Canada Co. |
|
Canada |
|
100 |
Name of Affiliate |
|
State or Other
|
|
% of
|
Ecolab Cayman 1 Limited |
|
Cayman Islands |
|
100 |
Ecolab Cayman 2 Limited |
|
Cayman Islands |
|
100 |
Ecolab S.A. |
|
Chile |
|
100 |
Nalco Industrial Services Chile Limitada |
|
Chile |
|
100 |
Guangzhou Green Harbour Termite |
|
China, Peoples Republic of |
|
100 |
Ecolab Chemicals Ltd. |
|
China, Peoples Republic of |
|
100 |
Ecolab China Ltd. |
|
China, Peoples Republic of |
|
100 |
Ecolab (China) Investment Co., Ltd. |
|
China, Peoples Republic of |
|
100 |
Ecolab (Taicang) Technology Co., Ltd. |
|
China, Peoples Republic of |
|
100 |
Ecolab (Gz) Chemicals Limited |
|
China, Peoples Republic of |
|
100 |
Guangzhou Green Harbour Environmental Operations |
|
China, Peoples Republic of |
|
100 |
Nalco (Shanghai) Trading Co. Ltd. |
|
China, Peoples Republic of |
|
100 |
Nalco Industrial Services (Nanjing) Co., Ltd. |
|
China, Peoples Republic of |
|
100 |
Nalco Industrial Services (Suzhou) Co., Ltd. |
|
China, Peoples Republic of |
|
100 |
Ecolab Colombia S.A. |
|
Colombia |
|
100 |
Nalco De Colombia Ltda |
|
Colombia |
|
100 |
Ecolab, Sociedad Anonima |
|
Costa Rica |
|
100 |
Ecolab D.O.O. |
|
Croatia |
|
100 |
Ecolab Holding (Cyprus) Limited |
|
Cyprus |
|
100 |
Ecolab Hygiene S.R.O. |
|
Czech Republic |
|
100 |
Ecolab Aps |
|
Denmark |
|
100 |
Microtek Dominicana S.A. |
|
Dominican Republic |
|
100 |
Ecolab Ecuador Cia. Ltda. |
|
Ecuador |
|
100 |
Nalco Egypt Trading |
|
Egypt |
|
99 |
Nalco Egypt, Ltd. |
|
Egypt |
|
100 |
Ecolab, S.A. De C.V. |
|
El Salvador |
|
100 |
Name of Affiliate |
|
State or Other
|
|
% of
|
Oy Ecolab AB |
|
Finland |
|
100 |
Nalco Finland Oy |
|
Finland |
|
100 |
Alpha Holding SAS |
|
France |
|
100 |
Amboile Services SAS |
|
France |
|
100 |
Ecolab SAS |
|
France |
|
100 |
Ecolab Production France SAS |
|
France |
|
100 |
Ecolab SNC |
|
France |
|
100 |
Europlak SAS |
|
France |
|
100 |
Shield Medicare Sarl |
|
France |
|
100 |
Nalco France |
|
France |
|
100 |
Ecolab Deutschland GmbH |
|
Germany |
|
100 |
Ecolab Engineering GmbH |
|
Germany |
|
100 |
Ecolab Export GmbH |
|
Germany |
|
100 |
J. F. Knauer Industrie-Elektronik GmbH |
|
Germany |
|
100 |
Nalco Deutschland GmbH |
|
Germany |
|
100 |
Ecolab A.E.B.E. |
|
Greece |
|
100 |
Nalco Hellas S.A. |
|
Greece |
|
100 |
Ecolab (Guam) LLC |
|
Guam |
|
100 |
Ecolab, Sociedad Anonima |
|
Guatemala |
|
100 |
Quimicas Ecolab, S.A. |
|
Honduras |
|
100 |
Ecolab Limited |
|
Hong Kong |
|
100 |
Ecolab Name Holding Limited |
|
Hong Kong |
|
100 |
Green Harbour Mainland Holdings Ltd |
|
Hong Kong |
|
100 |
Nalco Hong Kong Limited |
|
Hong Kong |
|
100 |
Ecolab Holding Hungary LLC |
|
Hungary |
|
100 |
Ecolab Hygiene Kft. |
|
Hungary |
|
100 |
Nalco Hungary Kft. |
|
Hungary |
|
100 |
Name of Affiliate |
|
State or Other
|
|
% of
|
Ecolab Food Safety And Hygiene Solutions Private Limited |
|
India |
|
100 |
Nalco Water India Limited |
|
India |
|
98.38 |
P.T. Ecolab Indonesia |
|
Indonesia |
|
100 |
P.T. Nalco Indonesia |
|
Indonesia |
|
100 |
Nalco Iraq Holding Limited, Representative Office |
|
Iraq |
|
100 |
Ecolab Finance Company Limited |
|
Ireland |
|
100 |
Ecolab (Holdings) Limited |
|
Ireland |
|
100 |
Ecolab Limited |
|
Ireland |
|
100 |
Ecolab JVZ Limited |
|
Israel |
|
100 |
Ecolab Holding Italy Srl |
|
Italy |
|
100 |
Ecolab Production Italy Srl |
|
Italy |
|
100 |
Ecolab Srl |
|
Italy |
|
100 |
Esoform SPA |
|
Italy |
|
100 |
Esoform Srl |
|
Italy |
|
100 |
Findesadue Srl |
|
Italy |
|
100 |
Nalco Italiana Srl |
|
Italy |
|
100 |
Ecolab Limited |
|
Jamaica |
|
100 |
Ecolab K.K. |
|
Japan |
|
100 |
Katayama Nalco Inc. |
|
Japan |
|
50.1 |
Nalco Gulf Limited |
|
Jersey |
|
100 |
Ecolab East Africa (Kenya) Limited |
|
Kenya |
|
100 |
Ecolab Korea Ltd. |
|
Korea |
|
100 |
Nalco Korea Limited |
|
Korea |
|
100 |
Ecolab SIA |
|
Latvia |
|
100 |
Ecolab LUX 1 S.À R.L. |
|
Luxembourg |
|
100 |
Ecolab LUX 2 S.À R.L. |
|
Luxembourg |
|
100 |
Ecolab LUX 3 S.À R.L. |
|
Luxembourg |
|
100 |
Ecolab LUX 4 S.À R.L. |
|
Luxembourg |
|
100 |
Name of Affiliate |
|
State or Other
|
|
% of
|
Ecolab LUX 5 S.À R.L. |
|
Luxembourg |
|
100 |
Ecolab LUX 6 S.À R.L. |
|
Luxembourg |
|
100 |
Ecolab-Importacao E Exportacao Limitada |
|
Macau |
|
100 |
Ecolab Sdn Bhd |
|
Malaysia |
|
100 |
Nalco Industrial Services Malaysia Sdn. Bhd |
|
Malaysia |
|
100 |
Microtek Medical Malta Limited |
|
Malta |
|
100 |
Microtek Medical Malta Holding Limited |
|
Malta |
|
100 |
Ecolab, S. De R.L. De C.V. |
|
Mexico |
|
100 |
Ecolab Holdings Mexico, S. De R.L. De C.V. |
|
Mexico |
|
100 |
Nalco De Mexico, S. De R. L. De C.V. |
|
Mexico |
|
100 |
Ecolab Maroc S. A. |
|
Morocco |
|
100 |
Ecolabone B.V. |
|
Netherlands |
|
100 |
Ecolabtwo B.V. |
|
Netherlands |
|
100 |
Ecolab B.V. |
|
Netherlands |
|
100 |
Ecolab NL 3 BV |
|
Netherlands |
|
100 |
Ecolab NL 4 BV |
|
Netherlands |
|
100 |
Ecolab NL 5 BV |
|
Netherlands |
|
100 |
Ecolab NL 6 BV |
|
Netherlands |
|
100 |
Ecolab NL 7 CV |
|
Netherlands |
|
100 |
Ecolab Production Netherlands BV |
|
Netherlands |
|
100 |
Microtek Medical Holding BV |
|
Netherlands |
|
100 |
Microtek Medical BV |
|
Netherlands |
|
100 |
Nalco Europe B.V. |
|
Netherlands |
|
100 |
Nalco Netherlands BV |
|
Netherlands |
|
100 |
Ecolab Limited |
|
New Zealand |
|
100 |
Nalco New Zealand Limited |
|
New Zealand |
|
100 |
Ecolab Nicaragua, S.A. |
|
Nicaragua |
|
100 |
Name of Affiliate |
|
State or Other
|
|
% of
|
Ecolab A/S |
|
Norway |
|
100 |
Nalco Norge AS |
|
Norway |
|
100 |
Nalco Tiorco Middle East LLC |
|
Oman |
|
100 |
Ecolab S.A. |
|
Panama |
|
100 |
Ecolab Perú Holdings S.R.L. |
|
Peru |
|
100 |
Ecolab Philippines Inc. |
|
Philippines |
|
100 |
Ecolab Production Poland Sp. Z O.O. |
|
Poland |
|
100 |
Ecolab Services Poland Sp. Z O.O. |
|
Poland |
|
100 |
Ecolab Sp. Z O.O. |
|
Poland |
|
100 |
Ecolab S.R.L. |
|
Romania |
|
100 |
Zao Ecolab |
|
Russia |
|
100 |
Nalco Company OOO |
|
Russian Federation |
|
100 |
Nalco Saudi Co. Ltd. |
|
Saudi Arabia |
|
60 |
Ecolab Hygiene D.O.O. |
|
Serbia |
|
100 |
Ecolab Pte. Ltd. |
|
Singapore |
|
100 |
Nalco Pacific Pte. Ltd. |
|
Singapore |
|
100 |
Ecolab S.R.O. |
|
Slovakia |
|
100 |
Ecolab D.O.O. |
|
Slovenia |
|
100 |
Ecolab (Proprietary) Ltd. |
|
South Africa |
|
100 |
Nalco Africa (Pty.) Ltd. |
|
South Africa |
|
50.1 |
Ecolab Hispano-Portuguesa, S.A. |
|
Spain |
|
100 |
Hicopla SL |
|
Spain |
|
100 |
Derypol SA |
|
Spain |
|
66.75 |
Nalco Española, S.L. |
|
Spain |
|
100 |
Ecolab (St. Lucia) Limited |
|
St. Lucia |
|
100 |
Ecolab AB |
|
Sweden |
|
100 |
Ecolab CH 1 GmbH |
|
Switzerland |
|
100 |
Name of Affiliate |
|
State or Other
|
|
% of
|
Ecolab CH 2 GmbH |
|
Switzerland |
|
100 |
Ecolab CH 3 GmbH |
|
Switzerland |
|
100 |
Ecolab Europe GmbH |
|
Switzerland |
|
100 |
Ecolab (Schweiz) GmbH |
|
Switzerland |
|
100 |
Ecolab Ltd. |
|
Taiwan |
|
100 |
Nalco Taiwan Co., Ltd. |
|
Taiwan |
|
100 |
Ecolab East Africa (Tanzania) Limited |
|
Tanzania |
|
100 |
Ecolab Ltd. |
|
Thailand |
|
100 |
Nalco Industrial Services (Thailand) Co. Ltd. |
|
Thailand |
|
100 |
Ecolab (Trinidad & Tobago) Limited |
|
Trinidad & Tobago |
|
100 |
Ecolab Temizleme Sistemleri Limited Sirketi |
|
Turkey |
|
100 |
Nalco Anadolu Kimya Sanayii Ve Ticaret A. S. |
|
Turkey |
|
100 |
Ecolab Emirates General Trading LLC |
|
UAE |
|
49 |
Ecolab Gulf FZE |
|
UAE |
|
100 |
Ecolab East Africa (Uganda) Limited |
|
Uganda |
|
100 |
Ecolab LLC |
|
Ukraine |
|
100 |
Ecolab Limited |
|
United Kingdom |
|
100 |
Ecolab (U.K.) Holdings Limited |
|
United Kingdom |
|
100 |
Microtek Medical Europe, Ltd. |
|
United Kingdom |
|
100 |
Shield Holdings Limited |
|
United Kingdom |
|
100 |
Shield Medicare Limited |
|
United Kingdom |
|
100 |
Shield Salvage Associates Limited |
|
United Kingdom |
|
100 |
Nalco Limited |
|
United Kingdom |
|
100 |
Ecolab S. A. |
|
Uruguay |
|
100 |
Ecolab S.A. |
|
Venezuela |
|
74 |
Nalco Venezuela S. C. A. |
|
Venezuela |
|
100 |
Nalco Vietnam Company Limited |
|
Vietnam |
|
100 |
Name of Affiliate |
|
State or Other
|
|
% of
|
United States |
|
|
|
|
Ecolabeight Inc. |
|
Delaware |
|
100 |
Ecolab AP Holdings LLC |
|
Delaware |
|
100 |
Ecolab Holdings (Europe) Inc. |
|
Delaware |
|
100 |
Ecolab Holdings Inc. |
|
Delaware |
|
100 |
Ecolab Investment LLC |
|
Delaware |
|
100 |
Ecolab Israel Holdings LLC |
|
Delaware |
|
100 |
Ecolab Manufacturing Inc. |
|
Delaware |
|
100 |
Ecolab USA Inc. |
|
Delaware |
|
100 |
Ecovation, Inc. |
|
Delaware |
|
100 |
GCS Service, Inc. |
|
Delaware |
|
100 |
Krofta Technologies, LLC |
|
Delaware |
|
100 |
Microtek Medical Inc. |
|
Delaware |
|
100 |
Total Enterprise Control LLC |
|
Delaware |
|
100 |
Wabasha Leasing LLC |
|
Delaware |
|
100 |
Nalco Cal Water, LLC |
|
Delaware |
|
100 |
Nalco Company |
|
Delaware |
|
100 |
Nalco Crossbow Water LLC |
|
Delaware |
|
100 |
Nalco Energy Services Equatorial Guinea LLC |
|
Delaware |
|
100 |
Nalco Fab-Tech LLC |
|
Delaware |
|
100 |
Nalco Finance Holdings LLC |
|
Delaware |
|
100 |
Nalco Holding Company |
|
Delaware |
|
100 |
Nalco Industrial Outsourcing Company |
|
Delaware |
|
100 |
Nalco Mobotec, Inc. |
|
Delaware |
|
100 |
Nalco Receivables LLC |
|
Delaware |
|
100 |
Nalco Tiorco Middle East Holdings, LLC |
|
Delaware |
|
100 |
Total Enterprise Control LLC |
|
Delaware |
|
100 |
Name of Affiliate |
|
State or Other
|
|
% of
|
Quantum Technical Services, LLC |
|
Delaware |
|
100 |
Wabasha Leasing LLC |
|
Delaware |
|
100 |
Microtek Medical Holdings Inc. |
|
Georgia |
|
100 |
Ecovation Wastewater Treatment Company Inc. |
|
New York |
|
100 |
Kay Chemical Company |
|
North Carolina |
|
100 |
Kay Chemical International, Inc. |
|
North Carolina |
|
100 |
Ecolab Food Safety Specialties Inc. |
|
Texas |
|
100 |
Certain additional subsidiaries, which are not significant in the aggregate, are not shown.
EXHIBIT (24.1)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS , That the undersigned, a director of Ecolab Inc., a Delaware corporation, does hereby make, nominate and appoint DOUGLAS M. BAKER, JR., JAMES J. SEIFERT and MICHAEL C. McCORMICK, and each of them, to be my attorney-in-fact, with full power and authority to sign his name to the Annual Report on Form 10-K of Ecolab Inc. for the fiscal year ended December 31, 2011, and all amendments thereto, provided that the Annual Report and any amendments thereto, in final form, be approved by said attorney-in-fact; and his name, when thus signed, shall have the same force and effect as though I had manually signed said document.
IN WITNESS WHEREOF , I have hereunto affixed my signature this 24 th day of February, 2012.
|
/s/Barbara J. Beck |
|
Barbara J. Beck |
|
|
|
/s/Les S. Biller |
|
Les S. Biller |
|
|
|
/s/Jerry A. Grundhofer |
|
Jerry A. Grundhofer |
|
|
|
/s/Arthur J. Higgins |
|
Arthur J. Higgins |
|
|
|
/s/Joel W. Johnson |
|
Joel W. Johnson |
|
|
|
/s/Michael Larson |
|
Michael Larson |
|
|
|
/s/Jerry W. Levin |
|
Jerry W. Levin |
|
|
|
/s/Robert L. Lumpkins |
|
Robert L. Lumpkins |
|
|
|
/s/Paul J. Norris |
|
Paul J. Norris |
|
|
|
/s/C. Scott OHara |
|
C. Scott OHara |
|
|
|
/s/Victoria J. Reich |
|
Victoria J. Reich |
|
|
|
/s/Daniel S. Sanders |
|
Daniel S. Sanders |
|
|
|
/s/Mary M. VanDeWeghe |
|
Mary M. VanDeWeghe |
|
|
|
/s/John J. Zillmer |
|
John J. Zillmer |
EXHIBIT (31.1)
CERTIFICATIONS
I, Douglas M. Baker, Jr., certify that:
1. I have reviewed this annual report on Form 10-K of Ecolab Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: 28 February 2012
/s/Douglas M. Baker, Jr. |
|
Douglas M. Baker, Jr. |
|
Chairman of the Board and |
|
Chief Executive Officer |
|
I, Steven L. Fritze, certify that:
1. I have reviewed this annual report on Form 10-K of Ecolab Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: 28 February 2012
/s/Steven L. Fritze |
|
Steven L. Fritze |
|
Chief Financial Officer |
|
EXHIBIT (32.1)
SECTION 1350 CERTIFICATIONS
Pursuant to 18 U.S.C. Section 1350, each of the undersigned officers of Ecolab Inc. does hereby certify that:
(a) the Annual Report on Form 10-K of Ecolab Inc. for the year ended December 31, 2011(the Report) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(b) information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Ecolab Inc.
Dated: 28 February 2012 |
|
/s/Douglas M. Baker, Jr. |
|
|
Douglas M. Baker, Jr. |
|
|
Chairman of the Board and |
|
|
Chief Executive Officer |
|
|
|
|
|
|
Dated: 28 February 2012 |
|
/s/Steven L. Fritze |
|
|
Steven L. Fritze |
|
|
Chief Financial Officer |