Ecolab 2004 EPS Reaches Record $1.19, Up Double Digits; Fourth Quarter

    Business Editors

    ST. PAUL, Minn.--(BUSINESS WIRE)--Feb. 3, 2005--Ecolab Inc. (NYSE:ECL):

    2004 FULL YEAR HIGHLIGHTS

Fourth Quarter and Year Ended Dec. 31 Fourth Quarter % ------------------------- 2004 2003 increase ------------- ----------- ------------ (Millions, except per share) (unaudited)

Net Sales $1,072.5 $956.5 12%

Operating Income 123.2 114.3 8%

Pretax Income 111.8 103.7 8% Taxes 40.5 36.3 12% ------------- ----------- ------------ Net Income $71.2 $67.4 6% ============= =========== ============

Diluted Net Income Per Common Share $0.27 $0.26 4% Diluted Average Shares Outstanding 262.3 260.6 1%

Year % ------------------------- 2004 2003 increase ------------- ----------- ------------ (Millions, except per share) (unaudited)

Net Sales $4,184.9 $3,761.8 11%

Operating Income 534.1 482.7 11%

Pretax Income 488.8 448.4 9% Taxes 178.3 171.1 4% ------------- ----------- ------------ Net Income $310.5 $277.3 12% ============= =========== ============

Diluted Net Income Per Common Share $1.19 $1.06 12% Diluted Average Shares Outstanding 261.8 262.7 0%


    Continued growth in its domestic and international businesses, along with favorable currency exchange, offset accelerated business investments, higher delivered product costs and a higher tax rate in Ecolab's results for the quarter ended December 31, 2004 as diluted net income per share rose to $0.27, the mid-point of the company's $0.26-$0.28 per share range.
    Ecolab's consolidated sales increased 12% to a record $1.1 billion in 2004's fourth quarter. Net income rose 6% to a record $71 million. Net income per diluted share was $0.27, representing a 4% gain over $0.26 a year ago. Results for the fourth quarter 2003 included $4.5 million of expense related to postretirement death benefits for retired executives. Currency translation had a favorable impact on net income of approximately $3.3 million for the fourth quarter of 2004 compared with a $4.5 million benefit from currency last year.
    Commenting on the quarter, Douglas M. Baker, Ecolab's President and Chief Executive Officer said, "The fourth quarter was right in line with our targets. We used the strong earnings momentum of 2004 to fund accelerated investments and to reduce promotions and sales incentives in the quarter while still delivering an outstanding year. Importantly, we beat all three of our long term financial objectives in 2004: earnings per share growth from ongoing operations was 16% versus our 15% growth goal, return on beginning equity was 24% compared with our 20% target, and we sustained an "A" rated balance sheet, well above our objective of an investment grade rating.
    "It was an outstanding year for Ecolab, our people and our shareholders as we delivered great results and used the momentum to invest in continued growth for the future. Once again, exceptional execution by our sales and service force, another great slate of new products and the commitment of the Ecolab team led the way.
    "The investments we made in 2004 have improved our prospects for the future. We remain excited about our fundamental markets and growth opportunities as 2005 unfolds, and we have the plans in place to take advantage of them. We accelerated sales and service force additions, adding to our already industry-leading team. Further, we will have more innovative new products in 2005 as we continue to drive for better, more effective and more efficient value-driven customer solutions.
    "We feel well positioned as we move into 2005. Clearly, as in any year, we face challenges, and 2005 will be no exception. Rising raw material costs, weak economies in Europe and currency changes will require us to take effective offsetting actions as a management team. However, Ecolab has consistently met such challenges in the past, and we expect to meet them once again in 2005. We are already driving pricing where needed, focusing on cost savings and, as always, driving growth.
    "We enter 2005 in good shape and ready for the challenges ahead. We are focused on the tasks required to achieve what we expect will be another superior performance and record year."
    Fourth quarter sales for Ecolab's United States Cleaning & Sanitizing operations rose 9% to $437 million. Excluding acquisitions and divestitures, sales rose 7% for the quarter, as gains in Institutional and Kay led the growth. Ecolab's United States Cleaning & Sanitizing operating income decreased 16% to $51 million. Excluding acquisitions and divestitures, operating income declined 23%. Planned investments in the sales and service force, technology, and research & development combined with higher delivered product costs, incentive-based compensation costs and a less favorable business mix more than offset sales growth and cost savings programs.
    United States Other Services sales increased 7% to $86 million in the fourth quarter. Operating income rose to $4 million as Pest Elimination showed good growth. GCS showed modest improvement over last year.
    Sales of Ecolab's International operations grew 8% in the fourth quarter when measured at fixed currency rates to $509 million. Excluding acquisitions and divestitures, sales rose 4%. Latin America sales showed strong growth, while Europe/Africa/Middle East and Asia Pacific reported modest gains. Fixed currency operating income rose 10% to $62 million as margins improved in most regions through new products and programs as well as careful management of costs. Excluding acquisitions and divestitures, operating income increased 7%. At public currency rates, International sales increased 16% and operating income grew 20%.
    Ecolab repurchased 1,062,600 shares of its common stock during the fourth quarter.

    Business Outlook

    The following statements are based on current expectations. These statements are forward-looking and actual results may differ materially. These statements do not include the potential impact of business acquisitions, divestitures, adoption of new financial accounting standards, or other material corporate events, which may be completed after the date of this release. This Business Outlook section should be read in conjunction with the information on "Forward-Looking Statements" at the end of this release.
    Ecolab expects sales for both domestic and international operations (in fixed currencies) to increase in the first quarter 2005 over the first quarter 2004. Gross margins are expected to be in the range of 51% to 52% of sales, and selling, general and administrative expenses are expected to be in the 39% range. The effective tax rate should approximate 2004's 36.8% full year rate from ongoing operations. Overall, currency translation is expected to contribute to first quarter earnings. Diluted earnings per share from ongoing operations are expected to be in the $0.27-$0.29 range in the first quarter of 2005. Ecolab reported diluted net income per share of $0.25 in the first quarter of 2004; first quarter 2004 earnings from ongoing operations were $0.26 per share. For the full year ending December 31, 2005, Ecolab expects diluted earnings per share from ongoing operations will reach the $1.30 to $1.34 range.
    Beginning with the third quarter ending September 30, 2005, Ecolab plans to adopt SFAS 123(R), the new standard for expensing stock options. The above forecasts for the first quarter and full year 2005 do not include any impact from the accounting rule changes. As part of the transition to the new standard, Ecolab expects to restate its earnings history in line with the pro forma amounts historically disclosed in Ecolab's financial statements. Ecolab expects to have these restated results available on Ecolab's website at www.ecolab.com/investor in the third quarter.
    Ecolab is the leading global developer and marketer of premium cleaning, sanitizing, pest elimination, maintenance and repair products for the hospitality, foodservice, institutional and industrial markets. Ecolab shares are traded on the New York Stock Exchange under the symbol ECL. Ecolab news releases and other investor information are available on the Internet at www.ecolab.com.
    Ecolab will host a live webcast to review the fourth quarter earnings announcement today at 2:00 p.m. Eastern Time. The webcast will be available to the public on Ecolab's website at www.ecolab.com/investor. A replay of the webcast will be available at that site through February 11, 2005.
    Listening to the webcast requires Internet access, a soundcard and the Windows Media Player or other compatible streaming media player. If you do not have the Media Player client installed on your PC, you may download a free version of Media Player at www.microsoft.com/windows/windowsmedia/players.asp.
    This news release contains various "Forward-Looking Statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These include statements concerning our 2005 first quarter and full year financial and business prospects, including estimated sales, gross margins, selling, general and administrative expenses, taxes, currency translation, earnings per share and future accounting for stock options. These statements, which represent Ecolab's 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. Risks and uncertainties that may affect operating results and business performance include: the vitality of the foodservice, hospitality, travel, healthcare and food processing industries; restraints on pricing flexibility due to competitive factors, customer or vendor consolidations, and existing contractual obligations; changes in oil or raw material prices or unavailability of adequate and reasonably priced raw materials or substitutes therefor; the occurrence of capacity constraints or the loss of a key supplier or the inability to obtain or renew supply agreements on favorable terms; the effect of future acquisitions or divestitures or other corporate transactions; the company's ability to achieve plans for past acquisitions; the costs and effects of complying with: (i) laws and regulations relating to the environment and to the manufacture, storage, distribution, efficacy and labeling of our products and (ii) changes in tax, fiscal, governmental and other regulatory policies; economic factors such as the worldwide economy, interest rates and currency movements, including, in particular, our exposure to foreign currency risk; 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 other hostilities which impact our markets), (d) natural or manmade disasters and, (e) severe weather conditions or public health epidemics affecting the foodservice, hospitality, and travel industries; loss of, or changes in, executive management; our ability to continue product introductions or reformulations and technological innovations; and other uncertainties or risks reported from time-to-time in our reports to the Securities and Exchange Commission. 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.

ECOLAB INC. CONSOLIDATED STATEMENT OF INCOME FOURTH QUARTER AND YEAR ENDED DECEMBER 31, 2004

Fourth Quarter Year --------------------- ----------------------- (thousands, except per share) 2004 2003 2004 2003 ----------- --------- ----------- ----------- (unaudited) (unaudited)

Net Sales $1,072,535 $956,466 $4,184,933 $3,761,819

Cost of Sales (a) 532,908 469,823 2,031,280 1,845,202 Selling, General and Administrative Expenses 416,884 372,812 1,615,064 1,433,551 Special Charges (Income) (b) (429) (472) 4,467 408 ----------- --------- ----------- -----------

Operating Income 123,172 114,303 534,122 482,658

Gain on Sale of Equity Investment - 228 - 11,105

Interest Expense, Net 11,388 10,839 45,344 45,345 ----------- --------- ----------- -----------

Income before Income Taxes 111,784 103,692 488,778 448,418

Provision for Income Taxes 40,542 36,256 178,290 171,070 ----------- --------- ----------- -----------

Net Income $71,242 $67,436 $310,488 $277,348 =========== ========= =========== ===========

Diluted Net Income per Common Share $0.27 $0.26 $1.19 $1.06 =========== ========= =========== ===========

Weighted-Average Common Shares Outstanding Basic 257,774 257,428 257,575 259,454 Diluted 262,282 260,628 261,776 262,737

(a) Cost of sales includes income from reductions in restructuring accruals of $40 and $31 for the fourth quarters ended December 31, 2004 and 2003, respectively, and $106 and $76 for the years ended December 31, 2004 and 2003, respectively.

(b) Special charges (income) include revisions to reduce prior restructuring expenses of $177 and $821 for the fourth quarter and year ended December 31, 2004, respectively. For the fourth quarter ended December 31, 2004, special charges also include a gain of $292 on the sale of a small business. Special charges for the year ended December 31, 2004, included a charge of $1,600 for in-process research and development as part of the July 30 acquisition of Alcide Corp. It also includes a charge of $3,980 related to the disposal of a grease management product line. Special charges (income) include revisions to reduce prior restructuring expenses of $491 and $1,283 for the fourth quarter and year ended December 31, 2003, respectively. The fourth quarter and year also include expense of $19 and $1,691, respectively, related to a change in the amount of goodwill allocated to an international business sold earlier in the year.

ECOLAB INC. OPERATING SEGMENT INFORMATION FOURTH QUARTER AND YEAR ENDED DECEMBER 31, 2004

Fourth Quarter Year --------------------- ----------------------- (thousands) 2004 2003 2004 2003 ----------- --------- ----------- ----------- (unaudited) (unaudited)

Net Sales United States Cleaning & Sanitizing $436,532 $401,332 $1,796,355 $1,694,323 Other Services 86,498 80,655 339,305 320,444 ----------- --------- ----------- ----------- Total 523,030 481,987 2,135,660 2,014,767

International 508,611 472,562 1,931,321 1,797,400 Effect of Foreign Currency Translation 40,894 1,917 117,952 (50,348) ----------- --------- ----------- ----------- Consolidated $1,072,535 $956,466 $4,184,933 $3,761,819 =========== ========= =========== ===========

Operating Income United States Cleaning & Sanitizing $51,336 $60,891 $290,366 $285,212 Other Services 4,414 1,844 24,432 21,031 ----------- --------- ----------- ----------- Total 55,750 62,735 314,798 306,243

International 61,577 55,988 210,595 187,864 Corporate Expense(a) 469 (3,998) (4,361) (4,834) Effect of Foreign Currency Translation 5,376 (422) 13,090 (6,615) ----------- --------- ----------- ----------- Consolidated $123,172 $114,303 $534,122 $482,658 =========== ========= =========== ===========

(a) Consistent with the company's internal management reporting, corporate expense includes income from reductions in restructuring accruals of $177 and $522 for the fourth quarters ended December 31, 2004 and 2003, respectively and $927 and $1,359 for the years ended December 31, 2004 and 2003, respectively. For the fourth quarter ended December 31, 2004, corporate expense also includes a gain of $292 on the sale of a small business. Corporate expense for the year ended December 31, 2004 included a charge of $1,600 for in-process research and development recorded as part of the July 30 acquisition of Alcide Corp. Corporate expense for the year ended December 31, 2004 also includes a charge of $3,980 related to the disposal of a grease management product line. Corporate expense also includes expense of $19 and $1,691, respectively, for the fourth quarter and year ended December 31, 2003 related to a change in the amount of goodwill allocated to a business sold in 2003 and expense of $4,502 related to postretirement death benefits for retired executives.

ECOLAB INC. CONSOLIDATED BALANCE SHEET DECEMBER 31, 2004

December 31 December 31 (thousands) 2004 2003 ----------- ----------- (unaudited) Assets Current assets Cash and cash equivalents $71,231 $85,626 Accounts receivable, net 738,266 626,002 Inventories 338,603 309,959 Deferred income taxes 76,038 75,820 Other current assets 54,928 52,933 ----------- ----------- Total current assets 1,279,066 1,150,340

Property, plant and equipment, net 834,730 736,797

Goodwill, net 991,811 797,211

Other intangible assets, net 229,095 203,859

Other assets, net 381,472 340,711 ----------- -----------

Total assets $3,716,174 $3,228,918 =========== ===========

Liabilities and Shareholders' Equity Current liabilities Short-term debt $56,132 $70,203 Accounts payable 269,561 212,287 Compensation and benefits 231,856 190,386 Income taxes 22,709 59,829 Other current liabilities 359,289 319,237 ----------- ----------- Total current liabilities 939,547 851,942

Long-term debt 645,445 604,441

Postretirement health care and pension benefits 270,930 249,906

Other liabilities 297,733 227,203

Shareholders' equity 1,562,519 1,295,426 ----------- -----------

Total liabilities and shareholders' equity $3,716,174 $3,228,918 =========== ===========

ECOLAB INC. SUPPLEMENTAL DILUTED EARNINGS PER SHARE INFORMATION (unaudited)

Six Quarter Quarter Months Quarter Ended Ended Ended Ended March 31 June 30 June 30 Sept. 30 2003 2003 2003 2003 -------- --------------- --------

Pro forma income from ongoing operations $0.21 $0.25 $0.46 $0.32 Pro forma adjustments: Gain from sale of equity investments 0.02 Special charges (0.01) -------- ------- ------- -------- Net income, as reported $0.21 $0.25 $0.46 $0.33 ======== ======= ======= ========

Six Quarter Quarter Months Quarter Ended Ended Ended Ended March 31 June 30 June 30 Sept. 30 2004 2004 2004 2004 -------- --------------- --------

Pro forma income from ongoing operations $0.26 $0.30 $0.56 $0.36 Pro forma adjustments: Special charges (0.01) (0.01) -------- ------- ------- -------- Net income, as reported $0.25 $0.30 $0.55 $0.36 ======== ======= ======= ========

Nine Months Quarter Year Ended Ended Ended Sept. 30 Dec. 31 Dec. 31 2003 2003 2003 --------- --------- -------

Pro forma income from ongoing operations $0.78 $0.26 $1.03 Pro forma adjustments: Gain from sale of equity investments 0.02 0.03 Special charges --------- --------- ------- Net income, as reported $0.80 $0.26 $1.06 ========= ========= =======

Nine Months Quarter Year Ended Ended Ended Sept. 30 Dec. 31 Dec. 31 2004 2004 2004 --------- --------- -------

Pro forma income from ongoing operations $0.92 $0.27 $1.19 Pro forma adjustments: Special charges (0.01) (0.01) --------- --------- ------- Net income, as reported $0.92 $0.27 $1.19 ========= ========= =======

Per share amounts do not necessarily sum due to changes in shares outstanding and rounding.

The non-GAAP financial measures in the tables above are provided to assist in the reader's understanding of the comparability of the company's operations for 2004 and 2003. The company believes that pro forma income from ongoing operations, a non-GAAP financial measure, is a useful basis to compare the company's results against, because unusual items during 2004 and 2003 impacted the company's reported net income (see "pro forma adjustments" in table above). The presentation above reconciles as reported net income (U.S. GAAP amounts) to pro forma income from ongoing operations for the full year, quarters and interim year-to-date periods ended March 31, June 30, September 30, and December 31, 2004 and for the full year and quarters and interim year-to-date periods ended March 31, June 30, September 30 and December 31, 2003. The information was originally presented in the company's quarterly earning releases and reflects the impact of the company's two-for-one stock split paid June 6, 2003. Special charges includes reductions to prior restructuring expenses, losses related to the sale of a product line, a charge for in- process research and development and a favorable tax benefit related to prior periods. The pro forma information should not be construed as an alternative to reported results under U.S. GAAP.

--30--CLR/ms*

CONTACT: Ecolab Inc., St. Paul Michael J. Monahan, 651-293-2809 651-225-3123 (Fax)

KEYWORD: MINNESOTA INDUSTRY KEYWORD: CHEMICALS/PLASTICS MEDICAL TRAVEL RETAIL ENVIRONMENT EARNINGS CONFERENCE CALLS SOURCE: Ecolab Inc.

Copyright Business Wire 2005