2. DESCRIPTION OF BUSINESS
Ecolab is the global leader in cleaning, sanitizing, food safety and infection control products and services. Founded
in 1923 and headquartered in St. Paul, Minn., Ecolab has been partnering with customers for more than 80 years.
Ecolab reaches customers in more than 160 countries across North America, Europe, Asia Pacific, Latin America,
the Middle East and Africa, and employs more than 23,000 associates worldwide. Ecolab delivers comprehensive
programs and services to the foodservice, food and beverage processing, hospitality, healthcare, government and
education, retail, textile care, commercial facilities, and vehicle wash industries.
Ecolab is committed to assisting customers worldwide with their unique needs by providing them with
comprehensive, value-added solutions and professional, personal service. With more than 13,000 sales-and-service
experts, Ecolab employs the industry’s largest and best-trained direct sales-and-service force, which advises and
assists customers in meeting a full range of cleaning, sanitation and service needs. For more information, visit
www.ecolab.com or call 1-800-35-CLEAN.
Ecolab common stock is traded on the New York Stock Exchange under the symbol ECL. Ecolab news releases and
other selected investor information are available at www.ecolab.com.
FORWARD-LOOKING STATEMENTS AND RISK FACTORS
We refer readers to the company’s disclosure, entitled “Forward-Looking Statements and Risk Factors,” which is
located on page 26 of this Annual Report.
CUSTOMER SEGMENTS BUSINESS MIX 2006
Full-service restaurants PERCENT OF TOTAL SALES
Quickservice restaurants
UNITED STATES 53% INTERNATIONAL 47%
Hotels
Institutional 27% Europe/Middle East/Africa 32%
Food retail
Food & Beverage 8% Asia Pacific 7%
Schools
Pest Elimination 6% Latin America 4%
Colleges and universities
Kay 5% Canada 3%
Laundries and textile rental
GCS Service 3% Other 1%
Hospitals
Healthcare 1%
Nursing homes
Vehicle Care 1%
Other healthcare facilities
Textile Care 1%
Dairy farms and plants
Water Care Services 1%
Food, beverage and brewery plants
Pharmaceutical and cosmetic facilities
Office buildings
Shopping malls
SALES-AND-SERVICE ASSOCIATES
Retail facilities
2004 2005 2006
DECEMBER 31
Movie theaters
Recreational facilities Institutional 3,150 3,245 3,490
Amusement parks Kay 325 350 355
Building service contractors Pest Elimination 1,725 1,830 1,900
Cruise lines
Healthcare 70 80 80
Correctional facilities
GCS Service 470 470 465
Government facilities
Textile Care 75 75 80
Airlines
Food & Beverage
Light manufacturing industries 450 425 435
Vehicle wash and detailing Water Care Services 95 125 115
Vehicle Care 100 100 105
MARKETS SERVED Europe/Middle East/Africa 3,915 4,150 4,225
United States
Asia Pacific 960 995 1,070
Europe/Middle East/Africa
Canada 355 375 395
Asia Pacific
Latin America 590 690 715
Canada
Latin America TOTAL 12,280 12,910 13,430
3. NET INCOME DILUTED NET INCOME DIVIDENDS DECLARED
NET SALES
PER SHARE PER SHARE
DOLLARS IN MILLIONS
DOLLARS IN MILLIONS
DOLLARS DOLLARS
$1.43
$0.4150
$369
$4,896
$4,535
$0.3625
$319
$1.23
$4,185
$0.3275
$283
$3,762
$1.09
$0.2975
$261
$0.2750
$0.99
$3,404
$196
$0.75
02 03 06 02 03 06 02 03 06 02 03 06
04 05 04 05 04 05 04 05
FINANCIAL HIGHLIGHTS PERCENT CHANGE
2006 2005 2004 2006 2005
THOUSANDS, EXCEPT PER SHARE
Net Sales $4,895,814 $4,534,832 $4,184,933 8% 8%
Net Income 368,615 319,481 282,693 15 13
Percent of Sales 7.5% 7.0% 6.8%
Diluted Net Income Per Common Share 1.43 1.23 1.09 16 13
Diluted Weighted-Average Common Shares Outstanding 257,144 260,098 260,407 (1) –
Dividends Declared Per Common Share 0.4150 0.3625 0.3275 14 11
Cash Provided by Operating Activities 627,564 590,136 570,908 6 3
Capital Expenditures 287,885 268,783 275,871 7 (3)
Shareholders’ Equity 1,680,230 1,649,210 1,598,141 2 3
Return on Beginning Equity 22.4% 20.0% 21.4%
Total Debt 1,066,036 746,301 701,577 43 6
Total Debt to Capitalization 38.8% 31.2% 30.5%
Total Assets $4,419,365 $3,796,628 $3,716,174 16% 2%
ECOLAB STOCK PERFORMANCE ECOLAB STOCK PERFORMANCE COMPARISON
1.70
2004 2005 2006
• Ecolab Stock Price Index, Dec. 31, 2003 = 1.00
$47
• Ecolab Stock Price 31, 2003 = 1.00
ECOLAB, S&P 500 INDICES
QUARTER LOW HIGH LOW HIGH LOW HIGH 1.60
• S&P 500 Index, Dec.
ECOLAB STOCK PRICE
$42
First $26.12 $28.61 $31.20 $35.08 $33.64 $40.50 1.50
Second 27.95 31.77 30.68 34.23 37.00 41.20
1.40
Third 29.04 31.80 30.75 34.14 39.57 45.43 $37
1.30
Fourth 31.32 35.59 30.93 37.15 43.81 46.40
$32 1.20
1 .1 0
$27
1.00
$22 0.90
4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
2003 2004 2005 2006
All financial information for all periods reflects the company’s adoption of Statement of Financial Accounting Standards No. 123 (Revised 2004), “Share-Based
Payment” in the fourth quarter of 2005. All prior periods have been restated.
COVER: Inspiring Confidence is all about expertise. And that’s exactly what Ecolab provides to our customers around the globe.
Our experts provide the most professional, timely service. The most creative, thoughtful problem-solving. The most thorough,
knowledgeable research. In fact, there are more than 23,000 experts hard at work every day at Ecolab to help our customers
run smoother, more efficient and more successful operations. For us, Inspiring Confidence isn’t something to aspire to – it’s a job
requirement. And we wouldn’t have it any other way.
4. WE’RE INSPIRING CONFIDENCE
EVERY DAY – WITH THE BEST
PRODUCTS, PROGRAMS AND
PEOPLE ON THE PLANET
TO OUR SHAREHOLDERS:
Our formula is straightforward. We take
Every day, we work to build our
care of our people, help our customers
customers’ confidence in our ability
prosper and grow, maintain a disciplined
to protect and serve them better than
financial approach – and we succeed.
anyone else. How? By providing effective
and innovative solutions. By offering
Looking for additional inspiration?
comprehensive and superior protection.
Read on for our 2006 accomplishments:
And most importantly, by delivering the
DOUGLAS M. BAKER, JR. industry’s broadest and best personal
FINANCIAL PERFORMANCE
service – anytime, anywhere.
Chairman of the Board,
We are proud to report that our net
President and
Chief Executive Officer sales rose 8% to $4.9 billion in 2006,
We have a strong bias for action – and
fueled by double-digit growth in the
for results. When our customers have a
U.S. and Latin America, and solid
need, we solve it. When we say we’ll do
growth in the rest of the regions.
something, we do it. Ecolab is made up
Operating income was $612 million in
of a diverse group of talented, dedicated
2006, up 13% from $542 million in
associates who thrive on making
2005. Operating income increased to
customers happy – and winning. It’s our
12.5% of net sales, compared to last
team that makes us successful and the
year’s 12.0%, driven by strong sales
leader in our industry.
gains and effective productivity
initiatives.
This team has enabled us to develop the
Diluted net income per share was $1.43
most innovative, advanced product and
for 2006, up 16% from $1.23 in 2005.
program solutions to assist our
Our return on beginning shareholders’
customers and exceed their expectations.
equity rose to 22% in 2006, the 15th
We invest millions in research and
consecutive year in which the
development to make sure we’re creating
company achieved its long-term
the best solutions for our customers at
financial objective of a 20% return on
the best value, which allows them to turn
beginning shareholders’ equity.
their focus to other areas of their
We achieved record cash flow from
businesses.
operating activities of $628 million,
and our total debt to capitalization
But even companies with great people
ratio was 39%. These results enabled
and great products can only go so far
us to retain our debt rating within the
without a great growth strategy.
“A” categories of the major rating
Fortunately, at Ecolab, we have a proven
agencies during 2006.
strategy that has helped us achieve
We increased our quarterly dividend
strong, steady growth in the past, and
rate for the 15th consecutive year, as
continues to generate new opportunities
it rose 15% in December to an
for the future. Our Circle the Customer –
indicated annual rate of $0.46 per
Circle the Globe strategy charts a clear
common share.
course for our future as we work to help
Our share price rose 25% in 2006 –
customers achieve the highest levels of
widely outperforming the Standard
safety and sanitation throughout their
& Poor’s 500 14% increase. Our share
operations.
performance has exceeded that of the
S&P 500 in 13 of the past 16 years.
4 ANNUAL REPORT 2006
5. NEW PRODUCTS AND SERVICES LEADERSHIP DEVELOPMENT
In 2006, we continued our tradition of These examples are just a few of the As previously announced, I was elected
excellence in new product innovation to many launched last year. You can find to the additional post of Chairman
provide superior cleaning, food safety more of our latest product, program and of the Board in May 2006 upon
and health protection. For example, we service offerings in the “Review of Al Schuman’s retirement from the Ecolab
built upon our strong antimicrobial Operations” section of this report. board of directors. On behalf of the
platform with the introduction of entire Ecolab family, I want to thank Al
Octa-Gone®, the protein (meat and Of course, beyond products and again for his 49 years of inspired service
poultry) industry’s only fatty-acid based programs, our legendary customer and many contributions to Ecolab. I’m
antimicrobial treatment that reduces service is Ecolab’s key differentiator and honored that the board selected me for
microbial contamination on ready-to-eat No. 1 priority. In 2006, we continued to this additional responsibility, and I’m
meat and poultry products, making them invest in our sales-and-service excited to lead Ecolab as we continue to
safer and contributing to a longer shelf organization, adding more than 500 grow and leverage our many
life. In addition, we further bolstered our new associates to our global field opportunities.
food safety portfolio when Tsunami® 100 organization, which is now more than
became the first EPA-registered 13,000 strong and by far the industry’s Additional important leadership
antimicrobial product that reduces best and largest. This commitment to developments include:
pathogens in fruit and vegetable process personal service continues to inspire
water, thereby helping to reduce the risk confidence among our customers that In February, Jim Howard retired from
of foodborne illness. Ecolab is a dedicated partner in the Ecolab’s board of directors. Jim had
ongoing success of their businesses. served on Ecolab’s board for 15 years,
In addition, we built upon our proven providing strong leadership and wise
solutions and systems that maximize ACQUISITIONS counsel. We thank Jim for his
performance while minimizing total We continued to make targeted outstanding service to Ecolab, and
environmental impact. We expanded our acquisitions, following our disciplined wish him all the best.
highly successful 360º of Protection™ approach to ensure strong strategic and In May, John Zillmer was elected to
program into the long-term care market, business fit, as well as attractive the Ecolab board of directors. John
creating a customized product and economics. is the chairman of the board and chief
service offering that saves time, labor, executive officer of Allied Waste
energy and water to increase operational In June, we acquired Shield Medicare Industries, Inc., a solid waste
efficiencies. By combining a wide-range Ltd., based in Farnham, UK. With management company. In addition,
of products, systems, training and annual sales of $19 million, Shield is a John has extensive experience in the
service, the 360º of Protection™ leading provider of contamination managed services industry, an
program represents the industry’s most control products for pharmaceutical, important Ecolab market. We welcome
comprehensive solution for foodservice, medical device and hospital John to our board.
hospitality and long-term care clean rooms. In November, we regretfully accepted
customers. In September, we purchased Powles the resignation of Luciano Iannuzzi.
Hunt & Sons International Ltd’s UK Luciano had served as executive vice
We also added PERformance™, a commercial laundry business, with president of the Ecolab Europe/Middle
low-temperature, proprietary oxygen $5 million in annual sales, from the East/Africa organization for the past
bleach that reduces energy consumption Quill International Group. This four years. We thank him for his
and increases textile life, to our acquisition will bolster our textile care dedicated service and wish him the
successful full cycle solutions™ suite for business in the UK, adding scale to best in his future endeavors.
laundry customers. This addition is the business. In February 2007, Ulrich Lehner retired
another way to help commercial Also in September, we acquired from the Ecolab board of directors.
laundries reduce total operating and DuChem Industries, Inc., a Ulrich had served on Ecolab’s board
environmental costs through a manufacturer and marketer of since 2001 as a member of the Finance
combination of chemistry, service, cleaning and sanitizing products for Committee. We thank him for his
engineering, technology and water the food and beverage processing valued service to our company, and
care solutions. market based in Newnan, Ga. wish him well.
DuChem’s core focus is the protein Also in February 2007, Ecolab’s board
Continuing our efforts to customize (meat and poultry) market segment, of directors appointed Hans Van Bylen
solutions to meet specific customer with annual sales of $10 million. to fill the vacancy left by Ulrich
needs, we created a unique pest Lehner’s retirement. Hans is executive
elimination program for limited-service vice president of Cosmetics/Toiletries
hotels. It has seen significant customer of Henkel KGaA of Düsseldorf,
success and is helping to drive Germany. We welcome Hans to
continued strong growth in our the board.
Pest Elimination business.
ANNUAL REPORT 2006 5
6. ACHIEVEMENT & RECOGNITION OUTLOOK FOR 2007
For the seventh consecutive year, We expect 2007 to be another year of Finally, our strategy. Our investments in
Ecolab was honored to be named one growth and achievement for Ecolab and our people and our products fuel our
of the “100 Best Corporate Citizens” our associates. Our major end markets in Circle the Customer – Circle the Globe
by Business Ethics magazine. Ecolab is foodservice, hospitality and healthcare strategy. But ultimately, Circle the
one of only 16 companies to receive appear to be in solid shape as we enter Customer – Circle the Globe is successful
this recognition every year since the 2007, and the ongoing need for improved because it’s driven by our customers.
list’s inception. We are committed to and more effective cleaning and They tell us what they want and need to
operating under the highest standards sanitation solutions in the global food improve their operations, and we listen
of corporate behavior, and this award supply and foodservice system continues and deliver. Whether it’s food safety,
is a terrific acknowledgement of to present new opportunities for us to employee safety, operating efficiency or
our work. better serve our customers. training, we provide best practices and
Ecolab also earned seventh place on programs to help them succeed. And we
“America’s Best Big Companies Honor In 2007, we’ll leverage these trends and back it all up with personal service that
Roll.” The honor roll recognizes 29 continue to inspire confidence in Ecolab has allowed us to deliver results to our
companies that have consistently by doing the same things that have made customers, unit by unit, around the
appeared on Forbes magazine’s annual us successful for the past eight decades. world.
list of the 400 best big companies in This includes investing in our people, our
America – also known as the Forbes product portfolio, and our Circle the We work hard to help all of our
Platinum 400. This recognition Customer – Circle the Globe strategy. stakeholders succeed. We work hard so
underscores our focus on consistently our customers have the best solutions
achieving strong financial results in First, our people. We start here because for all of their needs. We work hard to
the right way. it’s our people that set us apart. They provide our associates meaningful work
In recognition of our global bring the spirit, pride, determination, opportunities that promote personal
commitment to innovation and food commitment, passion and integrity of our development and reward exceptional
safety, the International Association Ecolab Culture to life. We invest in our performance. And we work hard to
for Food Protection selected Ecolab as people by giving them the right tools, provide our shareholders with long-term
the 2006 recipient of the Black Pearl technology and training they need to get superior value. Because for Ecolab, this is
Award of Corporate Excellence in Food their jobs done more quickly and what inspiring confidence is all about.
Safety and Quality. This prestigious efficiently. This ranges from wireless
honor is given annually to one handheld technology for our field
company for its efforts in advancing representatives to robust IT systems for
food safety and quality through administrative functions to streamlined
consumer programs, employee processes for our supply chain
Douglas M. Baker, Jr.
relations, educational activities, operations to online and face-to-face Chairman of the Board,
adherence to standards, and support training programs. It also includes President and Chief Executive Officer
of the goals and objectives of the IAFP. fostering a workplace defined by
We are honored to be chosen for this opportunities for personal growth and
important recognition. professional advancement, and training
Finally, Ecolab was again named to to support that growth.
Selling Power’s list of “The 50 Best
Companies to Sell For” among the Next, our products. We create solutions
largest sales forces in the United that really work for our customers – by
States. Ecolab was ranked third on the focusing on ways to lower their use of
list, which uses key metrics including natural resources and drive costs out of
compensation, training and career their operations. Because it’s not just the
mobility. At Ecolab, we believe that safety and effectiveness of the product
our sales force is at the heart of our that’s important, it’s also the ease of use
success, and we believe the best way and the ability to enhance their operational
to serve our customers is to have the efficiency by providing solutions to
best people serving them. We’re proud better manage time, labor, water and
that Selling Power has again utility costs. Every year, we introduce
acknowledged our investments in exciting advancements to help our
our incredible team. customers achieve even better results
and promote safer workplaces for our
customers and their employees. And
2007 will bring our customers effective
new solutions to help them meet their
challenges.
6 ANNUAL REPORT 2006
7. SOLUTIONS
Only Ecolab provides total solutions for our customers.
It’s not just about products, or technology, or service,
or people – it’s about all of these things, all of the time.
It’s about ensuring that customers have what they
need to succeed – no matter what their business,
no matter where they’re located around the globe.
Because of this, we’re confident that we’ll always
provide the best solutions for our customers, and
that’s what inspires us to keep getting even better.
8. INNOVATION
Through industry-leading innovation, we inspire
confidence by discovering new and better ways to
tackle customers’ biggest issues. Ways to lower costs
through operational efficiencies, such as time and
labor savings, lower water and energy use, and
reduced packaging and waste. Our research and
development team figures in all of this for our latest
formulas – and our customers can be confident that
this knowledge and know-how is all built right in.
8 ANNUAL REPORT 2006
9. SERVICE
Nothing inspires confidence more than
professional, timely service that addresses the
unique needs of our customers. We seek out,
train and develop the best people to provide
personal service and pay special attention to the
challenges our customers face. Our brand of
service is all about listening, understanding and
helping customers make their operations better.
Their success is our first priority – and that’s why
we’ve been able to build relationships with
customers that have lasted decades.
ANNUAL REPORT 2006 9
10. INSPIRING
CONFIDENCE
2006 REVIEW OF OPERATIONS
How do we inspire confidence every day with customers around the globe? It’s
simple. Through personal service. Innovative products. And consistently superior
results. Our people across all business units continually provide customers with
the best products, programs and services they need to make their operations
run smoothly and efficiently.
The following is a detailed summary of 2006 and outlook for 2007 from each of
our core businesses.
HIGHLIGHTS
Increased its sales force productivity
Accomplished continued, strong
with the completed national rollout
success with its proven 360° of
of portable 360° Advisor™ tablet
Protection™ program, a
computers, which gather critical
comprehensive suite of solutions for
service reporting information in real
foodservice, hospitality and long-term
time and enhance operational data,
care customers that significantly
helping customers increase food
increases food safety, guest
safety and operational efficiencies.
satisfaction, operating efficiency and
Continued to make significant
employee safety.
investments in its field sales-and-
Achieved substantial competitive
service organization through hiring
gains with new corporate accounts
UNITED STATES:
additional sales-and-service associates,
and independent (street) customers.
INSTITUTIONAL
training and new technology.
Integrated the Professional Products
Institutional drove record 11% sales
line into the Institutional range of
growth and increased profits in 2006,
OUTLOOK
solutions, leveraging the breadth and
thanks to significant new account gains
Institutional expects to once again
expertise of the Institutional sales
and comprehensive, differentiated
achieve strong growth in 2007. The
force to deliver value-added floor care
programs. The division also achieved
division will invest in additional sales-
and janitorial products to customers in
greater operating efficiency, successfully
and-service associates, technology,
hospitality, healthcare and commercial
offset increases in raw materials and
training and R&D to ensure it continues
facilities.
fuel costs, and further penetrated key
to deliver the highest level of exceptional
Drove accelerated growth in the
customer segments with additional
service to customers. The water
water care solutions market, thanks
solutions.
solutions segment offers particularly
in part to a newly designed FresH2O™
good growth potential, and new product
water filtration system, which is used
launches will also enhance the division’s
by restaurants and hospitality
360° value proposition.
customers to purify tap water used
in beverages and food.
10 ANNUAL REPORT 2006
11. PEST ELIMINATION KAY HEALTHCARE
Pest Elimination enjoyed strong, 13% By focusing on large new customer gains Healthcare achieved record sales
sales growth in 2006 driven by new in its core quickservice and food retail and improved market share in its
contract sales, Circle the Customer and markets, Kay accomplished another year instrument care and rinseless hand
penetration of existing accounts in core of strong double-digit growth, with hygiene segments in 2006. Nonetheless,
segments. The division also significantly record sales increasing 11%. Kay also comparing against a strong year-ago
improved its operating income, and expanded its reach in all of its markets period, sales grew 4%. The division
earned the highest level of customer through aggressive penetration of new invested in new training programs for
retention in its history. and existing customer accounts, while sales, leadership and key technical roles
benefiting from continued growth and in order to further strengthen the field
HIGHLIGHTS success of its global chain customers. organization and drive sales.
Attained significant growth in sales
of its Innspect Bed Bug Service™ for HIGHLIGHTS HIGHLIGHTS
the hospitality market and its Wing Enjoyed good gains across the board Made significant new account gains
CommandSM bird program in the retail in the quickservice food industry, as and successfully renewed key GPO
and government segments. new accounts, new programs, new (group purchasing organization)
Created a new, limited-service hotel products and improved product contracts.
program in response to customer penetration all contributed to the gain. Expanded its highly successful
need for bundled services, which has Continued to drive Circle the Customer Asepti-Solid™ program with additional
achieved considerable sales and is – Circle the Globe success through the solutions that further solidify its
driving growth with franchises. MarketGuard™ food retail program, presence as the market leader in
Expanded its proven EcoProSM FS which combines best-of-industry central sterile.
program to the quickservice solutions for food safety, pest Upgraded its hand hygiene dispensing
restaurant segment, where it elimination and floor care. systems, offering superior, touchless
provides exceptional protection Introduced the Formula Foam™ technology while preventing drips
against pests such as fruit flies, Cleaning System, a portable, and clogs.
cockroaches, mice, rats and ants. self-contained, high-foaming system Partnered with industry experts to
Achieved outstanding double-digit designed for cleaning fresh foods develop programs to promote hand
growth in the EcoSure food safety departments in food retail locations hygiene compliance and reduce
and quality assurance business, driven more quickly and thoroughly. healthcare-associated infections.
by Circle the Customer relationships Launched Polar Blue™, a high-
and focus on operational efficiencies. performance pot-and-pan detergent OUTLOOK
Invested in a number of strategies to designed specifically for cold Healthcare expects strong growth in
reduce work-related injuries, increase temperatures found in certain areas 2007 as it continues to make further
driver safety, attract and recruit top of the food retail environment. investments in field sales-and-service
talent, and more efficiently manage its personnel and their capabilities, invest in
routes, all to further enhance its high OUTLOOK R&D, and pursue strategic acquisition
service levels and customer Kay expects continued aggressive growth opportunities. The division plans further
satisfaction. in 2007 in all of its market segments, expansion into the gastrointestinal
fueled by a healthy mix of corporate market with a broad cleaning and
OUTLOOK account gains and new product disinfection portfolio. Its growth is also
In 2007, Pest Elimination expects innovations. Kay will also help develop expected to come from its core product
continued strong growth as it drives new additional solutions for its customers, portfolio for instrument care and hand
contract sales and additional service and further growth for Ecolab, through hygiene, as well as from its strong base
solutions in its core segments. The application of the Circle the Customer – of contract sales.
division also plans to introduce an Circle the Globe strategy in its core
improved food and beverage segment markets of quickservice and food retail.
program, including new programs for the
education and healthcare sectors.
ANNUAL REPORT 2006 11
12. GCS SERVICE TEXTILE CARE FOOD & BEVERAGE
In 2006, GCS Service focused on Textile Care showed a strong Food & Beverage achieved solid growth
developing systems and processes improvement in 2006, with sales rising and record sales in 2006, fueled by
that will drive competitive advantage, 10% to record levels and significantly double-digit gains in its meat and poultry
business scalability and profitable long- improved operating income. The division business and steady gains in the dairy
term growth. Reflecting that focus on continued to invest in field sales-and- and soft drink segments. Ecolab’s Circle
infrastructure development, sales grew service associates and training. Its full the Customer strategy led the 8% sales
only modestly, while substantial progress cycle solutions™ program, an application growth, as the division expanded its
was made in achieving important of Ecolab’s Circle the Customer strategy, antimicrobial platforms, upgraded its
strategic priorities. continued to perform well and helped field training and bolstered its market
drive growth. position through an acquisition.
HIGHLIGHTS
Invested in a major systems conversion HIGHLIGHTS HIGHLIGHTS
Introduced Octa-Gone®, a
to remove inefficient systems, enhance Leveraged tunnel washer technology
speed and service quality, and become from its sister division in Europe for revolutionary, fatty acid-based
better positioned to meet customer the U.S. launch of PERformance™, a antimicrobial product that reduces
challenges. low-temperature, proprietary oxygen microbial contamination on ready-to-
Retooled its business model, including bleach that reduces energy and eat meat and poultry product surfaces
strengthening the management team increases textile life. – the first of its kind on the market.
Tsunami® 100 became the first
and increasing associate retention. Continued to build on the success of
Sharpened the focus on the parts the Aquamiser water reuse system EPA-registered antimicrobial
business, including establishing a and Energy Optimiser heat exchange product that reduces pathogens in
courier program to replenish parts system to provide customers with fruit and vegetable process water.
Tsunami® 100 also controls spoilage-
daily, thereby increasing technician substantial water and energy savings.
efficiency, improving first-time fix Made important account wins and causing organisms, enhances shelf
results and reducing customer better account penetration, including life, and requires no rinsing.
equipment downtime, improving gains in the growing healthcare linen Acquired Georgia-based DuChem
customer satisfaction. market. Industries, further solidifying Ecolab’s
Achieved continued success with Drove continued success with its full leadership position in the meat and
Unit-Trax™, an asset tracking system cycle solutions™, a complete program poultry segment, improving service
that supplies customers with encompassing chemistry, service, coverage, and enhancing growth.
important information about their water care, engineering and Launched DryExx™, a dry lube for
kitchen equipment, related repair technology that helps commercial beverage plants that increases
history and costs. laundries lower costs and optimize productivity by reducing soil buildup
their operations. and eliminating drips and associated
OUTLOOK hazards.
By investing heavily in its service model OUTLOOK
in 2006, GCS Service has made essential Textile Care expects solid sales OUTLOOK
progress in building the right growth in 2007. The division foresees In 2007, Food & Beverage expects
infrastructure to drive long-term growth. accelerated growth in the healthcare and continued strong growth in its protein
and antimicrobial segments. Tsunami®
GCS expects to benefit from these workwear markets, driven by its unique
investments in 2007 as infrastructure lineup of superior solutions. Textile Care 100 is expected to show good strength
work is completed. Long-term, the need will also further develop its information thanks to its unique process water
for a national independent kitchen management systems, and plans to make pathogen claims. The division will
equipment repair service remains strategic investments in R&D aimed at also invest in training and service
important for leading chain accounts, helping customers reduce operating management tools to further enhance its
and GCS will meet that demand as it costs. successful value proposition, and will
leverages its efficient systems and pursue strategic acquisitions that benefit
national footprint. the business.
12 ANNUAL REPORT 2006
13. WATER CARE SERVICES VEHICLE CARE
Water Care Services improved its Vehicle Care posted record sales with
performance in 2006 through aggressive growth of 5% in 2006, led by the
Circle the Customer partnerships with development of new product innovations,
Food & Beverage and Institutional, new account gains, and the addition of
growing sales 8% to record levels. sales-and-service associates. The division
also achieved improved profitability
HIGHLIGHTS through increased efficiency, reduced
Leveraged Ecolab’s expertise in solids costs and an improved operations
technology to introduce a solid network.
product solution for boiler and cooling
towers that replaces large liquid drums HIGHLIGHTS
of product with compact, easy-to-use Built momentum as the industry’s
solid capsules and state-of-the-art innovation leader with its highly
successful Rain-X® Online Protectant,
dispensing systems.
Achieved record growth in the marine a complete surface protectant, which
market, including cruise lines, and was named Most Innovative New
strong double-digit growth in the food Product of 2006 by the International
and beverage market, by partnering Car Wash Association.
with other Ecolab divisions to provide Extended its expertise to new markets
solutions to their core customer base. and customers with the launch of its
Blue Coral® Solid Power program,
Introduced its indoor air quality
program that helps reduce indoor air which includes an alkaline detergent
quality issues that arise from mold, and a powerful presoak that require
dust, allergens and other less space, less labor and reduced
contaminants. storage requirements compared to
Made investments in talent and field traditional liquids.
technology to strengthen its field Made significant new account gains
team and provide excellent service through its focus on advanced
to customers. technology, superior service and
powerful marketing.
OUTLOOK Strengthened its current business
Water Care Services expects to see through increased direct sales and
further growth in 2007 through a distributor partnerships.
continued focus on Circle the Customer
opportunities aided by new innovation. OUTLOOK
Water Care plans to further invest in its Vehicle Care anticipates further growth
infrastructure by attracting, developing in 2007 as it aggressively drives new
and retaining top talent and building its platforms to create additional, value-
field service capabilities through the added products to meet customer needs
introduction of new service reporting and drive sales. The division expects
tools. strong performances from its full-service,
convenience store and fleet segments.
Vehicle Care will also leverage its
TURN THE PAGE FOR MORE
dispensing systems and presoaks
2006 HIGHLIGHTS...
technology, and will add field sales-and-
service staff.
ANNUAL REPORT 2006 13
14. Food & Beverage introduced a new
INTERNATIONAL: ASIA PACIFIC
innovation in low-pressure foaming
EUROPE/MIDDLE EAST/AFRICA In 2006, Asia Pacific achieved a 6%
with Chameleon™, which uses
Market-leading innovations and sales increase with sales reaching record
frequency-controlled pumps to reduce
increasing solutions with existing levels. The region enjoyed strong growth
energy and water required to clean
customers served to offset continuing in China and Southeast Asia, particularly
food processing plants. F&B also
widespread unfavorable market in Thailand and Indochina, as it expanded
leveraged the successful global
conditions in Europe, yielding 4% growth its Professional Products and Pest
DryExx™ dry lubricant technology to
in fixed currency exchange rates for the Elimination programs, added field
help customers achieve water and
region. Europe also realized geographic associates and launched new offerings.
energy savings while improving
growth through further expansion in
workplace safety with the elimination
Eastern Europe, including Russia, HIGHLIGHTS
of wet, slippery floors.
Romania and Bulgaria. In the Middle Drove improved growth in its Australia
Pest Elimination drove new account
East and Africa, Turkey and South Africa business, where innovation, including
sales through investments in its
are creating solid foundations for the launch of Aquamiser, a highly
corporate accounts team, including
continued growth. efficient water reuse system, has led
establishing an expanded sales team to solid business growth and new
in France and accelerating corporate
HIGHLIGHTS account gains.
account growth in the UK. In addition,
Institutional made important gains in Successfully introduced Exelerate™
Pest Elimination introduced new
the retail segment, using the HS, which penetrates dairy soils and
solutions for high-potential markets in
MarketGuard™ program to secure new speeds up the cleaning process for
Europe, and increased customer
corporate accounts. Institutional also dairy pasteurizers and other heated
retention through its Service
introduced comprehensive programs process equipment, while also offering
Excellence program.
that provide a complete suite of savings in water usage and effluent
Middle East and Africa achieved a
products and services for its varied surcharges.
strong sales performance led by
markets, including the 360º of Strengthened the China business
excellent growth in South Africa.
Protection™ program for foodservice infrastructure and added new capacity
Notably, Food & Beverage and Pest
customers, the HotelGuard program to supply our rapid growth with a new,
Elimination secured solid gains
for hospitality customers, and the state-of-the-art manufacturing plant
through the acquisition of new
HealthGuard program for hospitals and in Guangzhou.
customers.
long-term care facilities. Launched proven North American
Textile Care achieved solid growth programs, including the successful
OUTLOOK
through the ongoing success of its 360° of Protection™ program, a
Europe plans to build on the success of
water and energy saving systems, as comprehensive program for
the 360º of Protection™ program and on
well as the introduction of new foodservice, hospitality and long-term
its strengthened distributor network, in
services and products, such as the care customers.
addition to investing in its field teams,
extensions to its successful Turbo line
new technology and new products in
and special oxygen bleaching agent. OUTLOOK
2007. By focusing on customer segments
The business also expanded its Asia Pacific expects strong growth in
and strengthening corporate account
presence in the UK market through the 2007, led by gains in Southeast Asia,
teams across the region, Europe also
acquisition of Powles Hunt, which has China and Hong Kong. The region plans
expects to expand its customer portfolio
annual sales of $5 million. to launch a slate of new products, and
with gains in hospitality, retail, building
Healthcare strengthened its market will expand its Pest Elimination program
services contractors, and food and
leadership in endoscope reprocessing into new markets. It also intends to
beverage.
with Sekumatic Multi-clean, a new increase efficiency in Japan and
formula for cleaning surgical Australia through automated service
instruments, and sterile disinfectants reporting, and will strengthen functional
fueled record growth in the support in areas such as IT, marketing,
pharmaceutical and long-term care R&D and human resources.
markets. In addition, Healthcare
entered the clean room contamination
control products market through the
acquisition of Shield Medicare Ltd.,
a UK-based firm with sales of
$19 million.
14 ANNUAL REPORT 2006
15. CANADA LATIN AMERICA
Canada delivered solid sales growth of Latin America turned in another solid
8% in 2006, driven by strong year of double-digit growth and record
performances in its core markets and sales, increasing sales by 14% in fixed
large hospitality customer gains. currency exchange rates. Key
Investments in the field team, as well as investments in its field team and the
continued focus on Circle the Customer introduction of proven programs from
efforts, created additional synergies other regions helped Latin America make
across the region. significant customer gains and achieve
strong growth.
HIGHLIGHTS
Experienced success with Oasis® 146 HIGHLIGHTS
Multi-Quat Sanitizer, a food contact Launched a new sales automation
hard surface antimicrobial registered tool, which creates specialized,
for sanitizing and disinfecting uses, easy-to-use reports to assist in
gaining sales with independent customer business reviews by
restaurants and chain customers. recording information such as the
Increased its business with quality of results, operational
independent restaurant customers efficiency, customer satisfaction,
with the addition of dedicated sales training of employees and service
personnel and by working with key work performed.
distributor partners. Successfully introduced the 360º of
Leveraged the PERformance™ product Protection™ program for foodservice
line, which offers low-temperature, and hospitality customers, providing
chlorine-free bleaching, as well as the customers with one complete cleaning
Aquamiser water and energy reuse and sanitation program.
system to save customers significant Achieved continued success with
operating costs. DryExx™ dry lube for beverage
Introduced the Sanova® antimicrobial bottling plants, a dry lubricant that
food surface treatment to the protein eliminates the need to use water to
market, secured several new poultry dilute the lubricant, and accelerated
customers and made additional its success with Exelerate™ CIP, a
inroads in the market. premium liquid detergent for milk
Drove growth in the healthcare processing facilities that removes
market with a strong performance in tough soils and rinses faster than
the instrument cleaning segment, as traditional detergents.
well as expansion into the surgical Improved its supply chain efficiencies
scrub segment for operating rooms. with the opening of a state-of-the-art
manufacturing facility in São Paulo,
OUTLOOK Brazil.
In 2007, Canada expects to leverage
additional investments in field service OUTLOOK
tools to drive continued customer gains. In 2007, Latin America expects further
New products should provide Canada strong growth as it drives organic sales
vehicles for further growth, as well as through Circle the Customer – Circle the
offer robust opportunities for Circle the Globe partnerships. Investments in sales
Customer collaboration. force automation, sales training and
supply chain efficiencies should further
spur growth across the region.
ANNUAL REPORT 2006 15
16. Sustainable financial performance is only part of our responsibility as a company.
To continuously earn the trust of our customers, shareholders and associates, we
know we must uphold the highest standards of integrity. While we value and expect
good business results, we also place great value on how we achieve those results.
ENVIRONMENTAL SUSTAINABILITY
Ecolab strives to use resources efficiently
in our manufacturing operations to
reduce waste and improve our
environmental performance. It’s good
for the environment, and its good for
business. We make every effort to
use environmentally responsible and
sustainable raw materials to meet our
needs, and invest in improving energy
efficiency and conservation in our
operations.
Sustainability is a growing area of
interest to our customers. We meet
demand with a systematic approach
to creating products, programs and
services that reduce environmental
impact. Our superior technology,
global knowledge base and commitment
to research and development allow us
to continue investing in innovative
solutions. Our products and services
provide superior performance while
preserving our environment, and at SOCIAL RESPONSIBILITY
the same time, provide us important We also take a passionate approach in
differentiation in the marketplace. our commitment to our communities.
Ecolab promotes the well-being of
associates, customers and shareholders
by contributing to the quality of life in
The financial portion of this
our communities through charitable
report was printed on 100%
giving and volunteerism.
post-consumer recycled paper.
The Ecolab Foundation celebrated its
ENVIRONMENTAL SAVINGS
20th anniversary this year, and over the
Number of trees saved 459
years has contributed more than $35
Water (gallons) 78,329
million to our communities. Through the
Energy (000 BTUs) 107,501
107,501
Foundation, we continued to sustain this
Solid Waste (lbs.) 8,416
strong giving tradition in 2006 by
Water-borne wastes (lbs.) 539
contributing $4 million – approximately
Atmospheric emissions (lbs.) 16,322
1.2 percent of U.S. pretax earnings. We
also helped strengthen our communities
by supporting our associates in
volunteering thousands of hours to
charitable organizations and by
providing over $1 million of in-kind
cleaning and sanitizing products.
16 ANNUAL REPORT 2006
17. million in 2006 and allowed us to fund investments in our
FINANCIAL DISCUSSION
business operations, make business acquisitions, reacquire
EXECUTIVE SUMMARY
$283 million of our common stock and make a voluntary
This Financial Discussion should be read in conjunction with the
contribution of $45 million to our U.S. pension plan.
information on Forward-Looking Statements and Risk Factors
We increased our quarterly dividend rate for the fifteenth
found at the end of the Financial Discussion.
consecutive year. The dividend was increased 15 percent in
December 2006 to an indicated annual rate of $0.46 per
2006 was an outstanding year for Ecolab. We achieved a strong
common share.
financial performance including record net sales of $4.9 billion
Our return on beginning RETURN ON BEGINNING
and improved operating income margins which drove 16 percent EQUITY
shareholders’ equity (net
diluted earnings per share growth. We realized major
income divided by beginning
competitive gains, made significant investments in our people
23.3%
shareholders’ equity) rose to
22.4%
and business, and further improved our long-term growth
21.9%
22.4 percent in 2006, the
21.4%
potential.
20.0%
fifteenth consecutive year in
which we achieved our long-
We exceeded all three of our long-term financial objectives:
term financial objective of a
20 percent return on
2006 RESULTS LONG-TERM OBJECTIVE
beginning shareholders’
EPS Growth 16.3% 15% equity.
ROBE 22.4% 20% Our balance sheet remained
strong, maintaining our debt
Balance Sheet A Investment Grade
rating within the “A” 02 03 06
04 05
categories of the major
OPERATING HIGHLIGHTS
rating agencies during
We made important competitive gains in our market during TOTAL RETURN TO
2006. We also strengthened
2006, creating enhanced global opportunities to pursue SHAREHOLDERS
and solidified our capital
our Circle the Customer – Circle the Globe growth strategy as
structure, successfully 28.7%
we believe Ecolab alone can offer consistent service around
refinancing a maturing debt
the globe.
29.5%
instrument and lowering our
11.8%
We enjoyed double-digit sales and profit growth in the United
24.3%
future financing cost.
4.4%
States and improved sales and profit growth from our
25.9%
We adopted the provisions
International operations.
of Statement of Financial
In 2006 we continued our tradition of new product innovation
Accounting Standard No.
building on our core product platforms. We introduced a 10.9% 4.9% 15.8%
158, “Employers’ Accounting
product in our antimicrobial platform that reduces microbial
for Defined Benefit Pension
contamination in ready-to-eat meat and poultry products,
and Other Postretirement
making them safer and contributing to a longer shelf life. To
Plans” (“SFAS 158”)
help reduce the risk of foodborne illness, we introduced the
effective as of our 2006 (22.1)%
first EPA-registered antimicrobial product that reduces
year end. The impact of 02 03 06
04 05
pathogens in fruit and vegetable process water at food
adopting SFAS 158 is
processing plants. We also continued our efforts to customize Share appreciation plus dividends
reflected as a reduction in S&P 500 total return
solutions to meet specific customer needs through new
net assets on our balance
programs.
sheet of $168 million, with no impact to the statements of
We continued to make business acquisitions in order to
income and cash flows. See Note 15 for more information on
broaden our product and service offerings in line with our
this adoption.
Circle the Customer – Circle the Globe strategy. Details of
these acquisitions are shown below.
ACQUISITIONS
We grew our industry-leading sales and service force by more
In June, we acquired Shield Medicare Ltd., based in the UK.
than 500 people, to more than 13,400 strong, and made key
With annual sales of $19 million, Shield is a leading provider of
investments in tools, training and technology to improve their
contamination control products for pharmaceutical, medical
sales productivity and effectiveness.
device and hospital clean rooms.
We made significant investments in our business systems that
In September, we acquired DuChem Industries, Inc., a U.S.
will drive competitive advantage in the future.
manufacturer and marketer of cleaning and sanitizing
We continue to work to simplify and streamline our business
products for the food and beverage market. DuChem’s core
processes, bolstering our ability to deliver growth more
focus is the protein (meat & poultry) market segment, and has
efficiently in the future.
annual sales of $10 million.
In September, we acquired Powles Hunt & Sons International
FINANCIAL PERFORMANCE
Ltd’s UK commercial laundry business. With annual sales of
Consolidated net sales reached a record of $4.9 billion
$5 million, this acquisition will add scale to our textile care
for 2006, an increase of 8 percent over net sales of
business in the UK.
$4.5 billion in 2005.
Our operating income for 2006 increased 13 percent to a
2007 EXPECTATIONS
record $612 million.
We look for continued momentum from our existing business,
Diluted net income per share increased 16 percent to $1.43
investments in our key growth drivers and from competitive
per share for 2006, compared to $1.23 per share in 2005.
gains achieved in 2006 to drive growth and market share
Cash flow from operating activities reached a record $628
opportunities in 2007.
ANNUAL REPORT 2006 17
18. We will continue to leverage our Circle the Customer – Circle VALUATION ALLOWANCES AND ACCRUED LIABILITIES
the Globe growth strategy through cross-selling and enhanced We estimate sales returns and allowances by analyzing historical
marketing of our many product and service solutions returns and credits, and apply these trend rates to the most
under the Ecolab brand. recent 12 months’ sales data to calculate estimated reserves for
We will continue to invest in new product, system and service future credits. We estimate the allowance for doubtful accounts
development in order to deliver improved value to our by analyzing accounts receivable balances by age, applying
customers and thereby earn more of their business. historical write-off trend rates to the most recent 12 months’
We plan to seek strategic business acquisitions which sales, less actual write-offs to date. In addition, our estimates
complement our growth strategy. also include separately providing for 100 percent of specific
We will continue to work on streamlining our business customer balances when it is deemed probable that the balance
processes in order to reduce costs and improve sustainability. is uncollectible. Actual results could differ from these estimates
We intend to make significant investments in our business under different assumptions.
systems to drive growth in the future.
We will continue to work to deliver superior results to our Estimates used to record liabilities related to pending litigation
customers, returns to shareholders and opportunity to our and environmental claims are based on our best estimate of
valued associates. probable future costs. Estimated future legal costs are expensed
as incurred. We record the amounts that represent the points in
CRITICAL ACCOUNTING ESTIMATES the range of estimates that we believe are most probable or the
Our consolidated financial statements are prepared in minimum amounts when no amount within the range is a better
accordance with accounting principles generally accepted in the estimate than any other amount. Potential insurance
United States of America (U.S. GAAP). We have adopted various reimbursements are not anticipated in our accruals for
accounting policies to prepare the consolidated financial environmental liabilities. While the final resolution of litigation
statements in accordance with U.S. GAAP. Our most significant and environmental contingencies could result in amounts
accounting policies are disclosed in Note 2 of the notes to the different than current accruals, and therefore have an impact on
consolidated financial statements. our consolidated financial results in a future reporting period, we
believe the ultimate outcome will not have a significant effect on
Preparation of our consolidated financial statements, in our consolidated results of operations, financial position or
conformity with U.S. GAAP, requires us to make estimates and cash flows.
assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes. ACTUARIALLY DETERMINED LIABILITIES
Estimates are considered to be critical if they meet both of the The measurement of our pension and postretirement benefit
following criteria: (1) the estimate requires assumptions to be obligations are dependent on a variety of assumptions
made about matters that are highly uncertain at the time the determined by management and used by our actuaries. These
accounting estimate is made, and (2) different estimates that the assumptions affect the amount and timing of future
company reasonably could have used for the accounting contributions and expenses.
estimate in the current period, or changes in the accounting
estimate that are reasonably likely to occur from period to The assumptions used in developing the required estimates
period, have a material impact on the presentation of the include, among others, discount rate, projected salary and health
company’s financial condition, changes in financial condition or care cost increases and expected return or earnings on assets.
results of operations. Beginning in 2005, the discount rate assumption for the U.S.
Plans is calculated using a bond yield curve constructed from a
Besides estimates that meet the “critical” estimate criteria, we large population of high-quality, non-callable, corporate bond
make many other accounting estimates in preparing our issues with maturity dates of six months to thirty years. Bond
financial statements and related disclosures. All estimates, issues in the population are rated no less than Aa by Moody’s
whether or not deemed critical, affect reported amounts of Investor Services or AA by Standard & Poors. The discount rate
assets, liabilities, revenues and expenses as well as disclosures of is calculated by matching of the plan liability cash flows to the
contingent assets and liabilities. Estimates are based on yield curve. Prior to 2005, the discount rate assumption was
experience and other information available prior to the issuance based on the investment yields available at year-end on
of the financial statements. Materially different results can occur corporate long-term bonds rated AA. Projected salary and health
as circumstances change and additional information becomes care cost increases are based on our long-term actual
known, even from estimates not deemed critical. Our critical experience, the near-term outlook and assumed inflation. The
accounting estimates include the following: expected return on plan assets reflects asset allocations,
investment strategies and the views of investment advisors. The
REVENUE RECOGNITION effects of actual results differing from our assumptions, as well
We recognize revenue on product sales at the time title to the as changes in assumptions, are reflected in the unrecognized
product and risk of loss transfers to the customer. We recognize actuarial loss and amortized over future periods and, therefore,
revenue on services as they are performed. Our sales policies do generally affect our recognized expense in future periods. Our
not provide for general rights of return and do not contain unrecognized actuarial loss on our U.S. qualified and
customer acceptance clauses. We record estimated reductions to nonqualified pension plans decreased to $189 million (before tax)
revenue for customer programs and incentive offerings including due primarily to a better than expected return on plan assets
pricing arrangements, promotions and other volume-based and an increase in the discount rate at the end of 2006. As of
incentives at the time the sale is recorded. Depending on market December 31, 2006, this unrecognized loss is included on our
conditions, we may increase customer incentive offerings, which balance sheet as a component of Accumulated Other
could reduce gross profit margins at the time the incentive Comprehensive Income due to the adoption of SFAS 158.
is offered. Significant differences in actual experience or significant
changes in assumptions may materially affect pension and other
post-retirement obligations.
18 ANNUAL REPORT 2006
