Helping Main Street Understand Wall Street
Making Sense of the Corporate 10 - K
Name: Andrew Dunifer
Company: Ecolab
Section: 10-K December 2010
Prepared by: Andrew Dunifer
1
Preface
To the student:
This project is designed to give you an opportunity to analyze the annual report of a publicly
traded company. Your mindset and knowledge will be crucial to your success. While
completing your analysis, step into the shoes of a potential investor, an auditor, a creditor, a
member of the board of directors, or anyone else who might undertake a critical analysis of the
company.
After completing your accounting degree, you are likely to be in situations where you will need
to analyze an annual report. When doing so, try to remember that you have many different
resources to rely on such as the company's website, the SEC's database system, and your
colleagues. During this project, be sure to rely on these tools. Remember that as an accountant
you are held to high ethical standards. In knowing this, be sure that you gain a true
understanding of the material and not rely too heavily on information gained from your
classmates.
The project has been set up to have you rely on the 10-K from the SEC website and not the
actual annual report from the company's website. This will allow you to use one central location
to find most of your information although you may need to rely on additional sources in order to
get the information you need.
While working on the project, watch out for caution signs along the way. They provide you with
valuable information to make sure that you understand what is being asked of you in a particular
section of the analysis.
Good luck analyzing the annual report.
2
Income Statement
Profitability Analysis
For this section, you will need the following items:
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For this section, "profitability" is equal to the after-tax income from continuing operations.
1. Plot the revenues and expenses for the current and previous two years. You also will need to plot
the revenues and expenses that you forecast for the next two years.

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D o llars
be plotted using the color red 
Year:
Circle One:
20
20
Thousands
Current Year
Millions
20
20
Billions
2. Based on the chart above, in your own words describe the profitability trends of the company
during the last three years. Net Income after interest and taxes indicate that Ecolab had a difficult year in
2009 as it decreased about 6.87% to $417.3 (million) from the previous 2008 year’s $448.1 (million) due to
some of the effects of the worldwide recessions and weak economies. However, 2010 came in with not
only an increase in net profitability making up the decline in 2009, but they still managed to surpass 2008’s
net profitability with a 27.10% increase from 2009 to 2010 bringing them to $530.3 (million) reported to
GAAP.
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3.
Why do you think the profitability has trended this way? Describe the advancements, setbacks,
relevant industry events, etc., that could be responsible for the change. Use logic and be specific.
Information found on Ecolab’s “Review of Operations” for their 2009 Annual Report
(http://www.ecolab.com/investor/pdf/09/ReviewOfOperations.pdf) sheds some light into the causes of
the decline in their Net Profitability for that year as seen on their Income Statement. Many of Ecolab’s
clients are in industries that were most affected by the recent instabilities in the market and worldwide
recessions that affected currency values. Some of their main clients in vehicle care, restaurant equipment
care, textile cleaning within the hospitality industry as well as the food and beverage processing and
cleaning industry were all at a low in 2009. During this year the general population traveled less, dined out
less, were less frequent on luxury and maintenance spending as well as there were less automotive
purchases and care. Although 2009 was a decline in Net Profitability from the previous year, Ecolab was still
profitable as they continued with some strong growths in their foreign markets due to fixed currencies as
well as new account acquisitions.
4.
Why do you think the next two years will trend as you have forecast? Use logic and be specific.
We should overlook 2009 as it was the peak of the recessions around the world, which emphasized huge
swings in the market from a 6.87% decline in net profitability that year to a dramatic 27.10% increase in the
following 2010 year. It would be safer to calculate the growth during 2008 to end of 2010 as it offers a more
stabilized comparison with about an 8.75% average growth rate in net profitability per year in a “normal”
economy. If the $448.10 (million) net profitability reported in 2008 had an 8.75% increase Ecolab would
have reported about $487.31 (million) net profits in 2009 and $529.95 (million) in 2010. This last
approximation in growth is very close to the $530.3 (million) Ecolab actually reported in 2010. If the
economy continues to stabilize with a similar 8.75% growth rate on net profitability, I believe that Ecolab
could possibly see net profit around $576.32 (million) in 2011 and $626.75 (million) in 2012.
4
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5.
For the current year, does the company report any discontinued operations? If so, what are their
impacts on the financial statements? There were not any discontinued operations reported for 2010.
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6.
If there are discontinued operations, please provide a summary of the details given in the related
note disclosure (i.e., why is the company disposing of the operations? what is the carrying amount
of the assets and liabilities being disposed of?)
There were not any discontinued operations reported for 2010.
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7.
For the current year, does the company report any extraordinary items? If so, what are their
impacts on the financial statements? There were not any extraordinary items reported for 2010.
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5
Vertical Analysis
A vertical analysis (also known as a common-size analysis) allows a company to compare individual
accounts from the income statement to the company's revenue on a percentage basis.
1.
Complete the vertical analysis. Round to one decimal place.
Current Year
Previous Year
100.0 %
100.0 %
Cost of sales
49.5%
50.5%
Gross profit
50.5%
49.4%
Operating expense
37.3%
38.0%
Interest expense
1.0%
1.0%
R & D expense
None indicated
None indicated
Revenue
Income tax expense
3.6%
3.4%
Income from continuing
operations
8.7%
7.1%
Net income
8.7%
7.1%
2. Looking at the vertical analysis, what were the three individual accounts with the most significant change? What do
you think is the reason(s) for these changes?
It appears that the three most significant account changes would be Cost of Sales, Operating Expense and
Net Income for each year. After suffering from the 2009 recessions and improving Revenue in 2010, we can
see that Ecolab cut some expenses in order to increase Net Profitability. The Costs of Sales compared to
revenue dropped almost 1% relative to the previous year, which I believe they either renegotiated costs for
raw materials or found alternatives to implement into their goods sold. They may have also increased the
costs of their goods and services to help offset the Cost of Goods Sold. Operating Expense also dropped
about .73%. The biggest impact on this percentage came from less “Special Gains and Charges” in 2010
compared to 2009. The economic impact in 2009 could have caused the company to do some restructuring
during this period to help combat the economic woes and the effects of international currency changes from
their international operations may have impacted this number as well. These changes as well the increased
amount of revenue in 2010 and possibly a more stabilized market line up to the most significant change in
the bottom line of Net Income Profitability demonstrating 1.64% increase relative to the previous year’s
vertical analysis of 2009.
6
Ratio Analysis
Profit Margin Ratio
This ratio illustrates the percentage of net income derived from net sales.
Profit Margin = Net Income
Net Sales

2010 Profit Margin = $530.3/$6089.7 (millions) = .0871 or 8.71%

2009 Profit Margin = $417.3/$5900.6 (millions) = .0707 or 7.01%
Compare the ratios. Explain why you think the ratio changed.
For every $100 that Ecolab made in sales in 2009 the company was earning only $7.01 in profit. In 2010
they were making $8.71 for every $100 in sales. The increased profit margin was due to the expense
cutting as well as the market stabilizations after the 2009 peak of the recessions as well as the
increased profitability in foreign markets in which currency values improved overall profitability for the
company.
Times Interest Earned Ratio
This ratio illustrates the ability of a company to pay the interest charges incurred on its fixed debt
obligations. It compares the amount of the interest charges to the income available to pay those
charges.
Times Interest Earned Ratio = Net Income + Interest Expense + Income Taxes
Interest expense

T.I.E.R. 2010 = 530.3 + 59.1 + 216.6 / 59.1 = 13.6379

T.I.E.R. 2009 = 417.3 + 61.2 + 201.4 / 61.2 = 11.1095

7
Compare the ratios. Explain why you think the ratio changed. The ratio increased in 2010 because of the
improvements as discussed in earlier items (Increased revenue, cutting expenses, market stabilization
and currency profits). This increased number indicates that Ecolab is in a better position now than they
were in 2009. The 2010 improved ratio demonstrates that they are more able to absorb a decline in
Income and still able to pay off their Interest than they were in 2009.
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Balance Sheet
Vertical Analysis: Current Assets
This vertical analysis will allow you to compare the current assets of the company for the current year
to those of the previous year on a percentage basis.
1.
Complete the vertical analysis. Round to one decimal place.
Current Year
Cash & cash equivalents
Short-term investments
Accounts receivable
Prepaid expense
13%
None indicated
53.5%
None indicated
Previous Year
4.1%
None indicated
56.0%
None indicated
All other current assets
33.6%
39.9%
Total current assets
100.0%
100.0%
2. Looking at the current asset vertical analysis, how has the company's liquidity position changed from the previous year
to the current year?
The first figure that is most noticeable is that the Cash and Cash Equivalents has increased from 4.1% to 13%
of their overall current asset values. These are the items that are most liquid and 2010 shows a huge
improvement over 2009. 2010’s balance sheet indicates that Ecolab also had less in accounts receivables.
Although it is good to have money owed to you in Accounts Receivable from sales, these amounts haven’t
been paid to the company yet so this is not very a good indicator of liquidity if these debts are not collected.
There will be a percentage of bad debts that will need to be deducted from Account Receivable which also
can hurt true liquidity of a company. 2010’s higher Cash ratio as compared to accounts receivables is a good
indicator that the company is in a much better position than in 2009. Ecolab’s Other Current Assets mainly
included inventory. In 2009 the company had $493.4 (million) in inventory and in 2010 they had $447.6
(million). When you combine these amounts with some other current assets it is clear that Ecolab’s drop in
current asset percentages from 39.9% in 2009 to 33.6% in 2010 is mostly due to having less inventory on
hand. This could be the result of either the increased revenue in sales in 2010 or that the company adjusted
its production due to the previous year’s recession effects and the anticipation of less inventory needed for
2010. Needless to say the drop in percentage indicates that the company is in a better position of liquidity in
2010.
9
Vertical Analysis: Balance Sheet
This vertical analysis allows a company to compare the changes in individual accounts from the
balance sheet on a percentage basis.
Remember the accounting equation when calculating the combined percentage of total
liabilities plus shareholders' equity.
1.
2.
Complete the vertical analysis. Round to one decimal place.
Current Year
Previous Year
Current assets
38.4%
36.1%
Long-term investments
none reported
none reported
Property, plant, and
equipment (net)
23.6%
23.6%
Intangibles
33.1%
34.4%
Other assets
5.0%
6.1%
Total assets
100.0%
100.0%
Current liabilities
27.2%
24.9%
Non-current liabilities
29.0%
35.1%
Total liabilities
56.2%
60.0%
Shareholders' equity
43.8%
40.0%
Without looking at the notes to the financial statements, what weaknesses or threats do you
anticipate the company has faced/will face based on the changes you see in the balance sheet
from the previous year to the current year?
The balance sheet continues to show that the company faced harder times in 2009. Total liabilities in
relation to Shareholder’s Equity were higher in that year. 2010 improved (increased) Shareholder’s
Equity percentage so we know the company can invest more back into itself. The only concern in 2010 is
10
that Ecolab’s current liabilities are higher; Short term debt has increased 92% in 2010 and the Income
Taxes have also increased 68%. These increases are big parts of why Total Current Liabilities had
increased relative to Total Liabilities and Equity 2.29% from 2009 to 2010. However, Ecolab’s Current
Assets also increased by 2.25% in relation to all Total Assets so I believe they are still in a good position
of liquidity to combat some of these current liability concerns.
3.
Without looking at the notes to the financial statements, what strengths or opportunities do you
anticipate the company has /will have based on the changes you see in the balance sheet from the
previous year to the current year? ___________________________________________________
The company’s overall profit and profit margin have grown in 2010. They have more cash to invest into
future research and development which they have not been focusing on in these statements. Furthermore,
Ecolab has a history of purchasing companies and merging them into their business model. The previous
year’s losses have been stabilized so they can continue with future acquisitions and growth within the
company. Even more so I believe that the recession experiences in 2009 indicate that the company had to
look into areas of their business where costs needed to be reduced, which they may have not been quite as
focused when they were more profitable prior to the recession. This could have been a very good learning
experience for the company to keep researching areas in which costs can be minimized while keeping with
the most efficient ways of producing outputs and profitability.
Ratio Analysis
Current Ratio
Also known as the working capital ratio, this ratio is used to measure the liquidity of a company.
It is a measure of a company's ability to satisfy its short-term obligations.
Current Ratio =
Current Assets
Current Liabilities
2010 - Current Assets/Current Liabilities = 1869.9 (mill)/ 1324.8 (mill) = 1.41

2009 - Current Assets/Current Liabilities = 1814.2 (mill)/ 1250.2 (mill) = 1.45
11

Compare the ratios. Explain why you think the ratio changed. This is the first ratio or signal thus far in our
analysis that indicates that Ecolab was in a better financial position in 2009 compared to 2010. They
were .04 higher in 2009 indicating they were better off meeting their financial obligations in this year.
It appears that their short term debt was the main contribution to the change in ratio. If profits may
have been better in 2009 the company would have been in a better position to eliminate some of this
in the following year. However this was not the case so it did place some burden on the company in the
following 2010 year with respect to this ratio.
Acid-Test Ratio
Also known as the quick ratio, this ratio indicates whether a company has enough assets to cover
its short-term obligations without having to sell existing inventory. This is the most rigorous test
of a company's liquidity. The numerator consists of the "quick" assets.
Acid-Test Ratio = Cash + Accounts Receivable + Short-Term Investments
Current Liabilities

-test ratio for the current year.
2010 - 242.3 + 999.6 + 0/ 1324.8 = .9374


Calculate the acid-test ratio for the previous year.
2009 - 73.6 + 1016.1 + 0/ 1250.2 = .8716
Compare the ratios. Explain why you think the ratio changed. ____________________________
When conducting the Acid Test Ratio above, it is apparent that Ecolab is in a better state of financial
liquidity in 2010. This would be mainly due in part to the increase in their cash asset which went from
73.6 (mill) in 2009 to 242.3 (mill). I believe this could be in part due to the increases in revenue and
sales in their latest year in which they were better able to collect cash.
If you had to perform an analysis of the company using only the acid-test ratio, what conclusion
would you draw regarding the liquidity position of the company? Why would you draw this conclusion? Use logic and
be specific. Using only the Acid Test analysis I would say that Ecoloab is in a decent position but not
completely ideal. In their most current year if they were to use all liquidate all of their monetary assets
they would only be able to cover 93.74% of their current liabilities due. This is much like having a bit of
a balance on your credit card and if Experian knew that you didn’t have enough cash to cover it. This
could impact your credit worthiness and similarly with Ecolab investors might also be concerned about
this
12
slight inability to completely satisfy all current liabilities debts. If Ecolab had twice as much monetary
assets compared to their current liabilities investors would feel much more confident about the
company’s financial position and would potentially increase stock value.
Comparing the results of the acid-test ratio and the current ratio, what significant differences do
you see regarding the company's liquidity position? The acid test interestingly shows that 2010’s ratio is
actually better off than 2009 compared to when we used the Current Ratio in the previous question.
Once we remove the non-monetary assets such as inventories, “other assets” and some deferred taxes,
we can see that Ecolab’s Acid test shows they are in a better position in 2010 with their realized
monetary assets. This paints a better picture for their true ability to handle financial obligations going
forward. With the Current Ratio we would have thought they were in a worse position in 2010 because
of the higher figure in 2009. However, if the company were in a position where they had to liquidate all
of their assets, Ecolab’s non-monetary assets would not recover the value they are recorded at in the
balance sheet as used in the Current Ratio test. Thus the acid test gives us a better picture of their
financial stability.
Working Capital
Although not a ratio, the working capital calculation measures the residual amount of current
assets a company would have if it were required to satisfy all of its short-term obligations.
Working Capital = Current Assets - Current Liabilities

2010 –1869.9(mill) – 1324.8(mill) = 545.1 (mill)

Calculate working capital for the previous year. 2009 – 1814.2(mill) – 1250.2(mill) = 564 (mill)

Comparing the current and previous years' working capital calculations, are there any additional
conclusions you can draw about the company (i.e., is the company planning to pay off debt,
reacquire shares, purchase or sell asset, etc.)? _________________________________________
Ecolab’s 2010 Working Capital is less than that of 2009. Again as we saw in previous questions the
majority of this contributing factor is from their short term debt increase in 2010. I believe now that the
company’s cash and sales are increasing they will be moving to start paying off some of this debt which
will in turn increase their Working Capital in the next year. This would be another indicator that the
company health is improving since 2009. The balance sheet does not show any investments the
company has made and that the majority of their improvements will come strictly from increasing sales
to improve current assets, which I believe they will continue to invest into more inventory and products
to improve numbers for the following year. They do have a history of acquisitions so I could foresee the
company placing some money into purchasing companies to add to their line of products and services
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Debt-to-Total Assets Ratio
This ratio measures the amount of a company's assets that are financed with debt. It is a measure
of solvency. The more solvent a company is, the more likely it is that a company will be able to
pay its obligations.
Debt-to-Total Assets Ratio =
Total Liabilities
Total Assets
-to-total assets ratio for the current year.
2010 – Total Liabilities ($2739.2mill.)/ Total Assets (4872.2mill.) = .5622

-to-total assets ratio for the previous year.
2009 – Total Liabilities ($3011.3mill.)/ Total Assets (5020.9mill.) = .5998

Compare the ratios. Explain why you think the ratio changed. Ecolab reduced their liabilities in 2010 compared
to the previous year and their total assets dropped as well. However, in 2010 a good part of the
decrease in 2010’s assets was attributed to “Goodwill” and other “Intangible assets”. A much more
tangible asset “cash” was much higher in 2010 but this is a bit counterintuitive to solvency that this
ratio is believed to convey (discussed more in the next question). Another noticeable change would be
the reduction in “Inventory” from sales in 2010, which could have also contributed more to their cash
increase.
What does this ratio indicate about the solvency of the company? _________________________
This ratio gives should gives us insight into the solvency of the company, which is the information into
how much financial leverage the company has and how much Ecolab’s assets are financed with the
company’s liabilities. However, as I indicated in the question above the biggest changes in assets from
2009 to 2010 is the there was less “’’Goodwill” and “Other Intangible Assets” in the current year. If you
look only at the ratio it would appear that 2009 was more solvent than 2010 by a small percentage, but
the cash increases in 2010 contradict a bit of what this ratio might be telling us. If you were to only look
at this ratio and not the fact the company increased its cash assets substantially then you would think
their performance is declining, but utilizing other ratios thus far in our analysis as well as the Sales
Revenue increases listed on the Income Statement show they are performing better in 2010.
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Statement of Retained Earnings
1.
Analyze the stock section of the statement of retained earnings. Were there any significant sales
or repurchases of stock during the period? If so, why do you think the company issued or
repurchased these shares? Be specific. The most significant change demonstrated were in the changes of
Common Stocks and Treasury Stock between 2009 and 2010. In 2009 the company only acquired $68.8
(million) worth of Treasury Stock (additional 1,457,076 shares) and the Shareholders purchased $90.8
(million) worth of Common Stock (additional 1,872,268 shares). However, this number increased quite a
bit in 2010 where an additional $348.8 (million) worth of shares were purchased in Treasury Stock by
Ecolab (additional 7,397,750 shares) and an additional $135.1 (million) worth of shares were purchased
by shareholders (additional 3,315,760 shares). I believe as the economic climate had become so volatile
in 2009 that it drove market value of their stock down that year. Investors as well as Ecolab thought
2010 would be a good time to buy and reacquire shares in the company after the 2009 decline, which
could prove to be a good investment after the economy begins to rebound somewhat. After also
researching the stock prices for these years on Yahoo Finance, my theory was correct. The stock
continuously dipped throughout 2009, and has proved to have a much higher value in 2010 as more
invested.
2.
Did the company issue cash dividends to its shareholders? If so, how much was the cash dividend
per share? Yes, Ecolab changed the amount paid on for the final quarter of 2010. However with this
change the average price of the cash dividend was .64 cents per share.
3.
Why do you think the company did/did not issue dividends? Ecolab have been issuing dividends at least since
2007 as indicated in this 10-k report. After further research, however, I found out that they have actually
been issuing dividends for the past 74 consecutive years. To stop paying dividends especially in an unstable
economic climate could be detrimental to the company is shareholders thought this was a sign of trouble for
the company. If Ecolab did not issue dividends and shareholders became nervous about the company this
could impact the market value of the company more negatively than just paying dividends. Ecolab did quite
the opposite and actually raised their amount per share from .62 cents a share to .70 cents pers shares paid
out in 2011 which includes the last quarter of 2010’s Cash Dividends.
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______________________________________________________________________________
4.
Using any financial analysis website (e.g. Yahoo Finance, CNN Money, etc.), research the
dividend issuance policy of a similar company. Use your company's 4-digit Standard Industrial
Classification (SIC) code to find a similar company.
Yahoo Finance_______________________________________ 
2842________________________________________ 
Comparison Co.: __The Proctor and Gamble Company___________ _____________ 
5.
Explain the dividend issuance practices of the competitor.
The closest competitors are privately held companies like Johnson Diversey and other more regional
companies for each market. The closest publicly held company is The Proctor and Gamble Company who
has a much broader array of products and services. However if we look at P&G’s practices we see that they
do issue Cash Dividends as well at .48 cents per share.
6. Based on this comparative information, how do you think potential investors will view your
company's stock? Explain your reasoning and be specific.
I believe that Ecolab’s stock is actually a good addition to a portfolio. Stock prices are on the rebound and
and have been continuously rising hovering around $50 per share (after 2010) and if you were going to base
your strategy with only this 10-K information (pre-2011), you could see how the decline in the market value
may have been a good time to purchase in 2009-2010 as well when stock was at a low of around $32.
Compared to The Proctor and Gamble Company which is closer to $68 a share market value, Ecolab’s shares
are cheaper and pays a 46% higher Cash Dividend. Now that some of the losses and cost cutting measures
have also been implemented, I think that Ecolab is in a good growth position for which stock investment
would bring decent returns in the future.
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Ratio Analysis
Cash Dividends per Share
This formula measures the amount of cash dividends that were paid to common shareholders
during the period.
Cash Dividends per Share =

Calculate the cash dividends per share for the current year.
149.3 (million)
232.13 (million)

Cash Dividends Paid to Common Shareholders
Average Number of Outstanding Common Shares
= .64 cents per share
Calculate the cash dividends per share for the previous year.
136.2 (million)
237.55 (million)
= .5750 cents per share
Compare the ratios. Explain why you think the ratio changed. The main reason for the change was cash
dividends per share increased from .1550 per quarter (.62 cents pear year) to .1775 per quarter (.70
cents per year) moving from 2010 into 2011. Dividends from the last quarter of 2010 were paid in 2011
at the new rate thus increasing the ratio.
Basic/Diluted Earnings per Share (BEPS & DEPS)
BEPS measures the amount of earnings or profits attributable to each weighted-average share of
common stock. DEPS measures what the amount of earnings per share would be if all convertible
options were exercised.

2010 BEPS was $2.27 per share
17
he DEPS for the current year?
2010 DEPS was $2.23 per share
Why do these calculations differ? If Ecolab were to issue all of their potential authorized shares, then this
could “dilute” the BEPS value from $2.27 to the DEPS or diluted value of $2.23 per share. Essentially this
would be due to the fact that each share would be worth a smaller percentage of the company thus
impacting their value in a negative manner.
Price-Earnings Ratio (P/E Ratio)
This ratio measures the correlation between a company's market share price and the company's
earnings. Generally, the higher the P/E ratio is, the higher the anticipated future earnings are. If
the market price(s) are not available, use the high and low prices for the period to compute an
average.
P/E Ratio =

Market Price per Share
Earnings per Share
Calculate the P/E ratio for the current year.
$48.03
$2.27 = 21.26

Calculate the P/E ratio for the previous year.
$45.03
$1.76 = 25.59
Compare the ratios. Explain why you think the ratio changed. The main reason the ratio changed is due to the
Earnings Per Share impact from 2009 to 2010. Ecolab significantly increased Net Income in 2010, which
although more shares were sold still affected the Earnings Per Share in a positive manner. Even with a
higher amount paid on cash dividends, Ecolab still managed to improve the ratio. This is a good
indicator that the company’s financial position is improving and they continuing to grow.
18
Notes and Supporting Schedules
The notes and schedules that support a company's financial statements provide supplemental
information that assists the user in making decisions. Because each company can have unique
business processes and policies, the actual information contained in the notes and supporting
schedules will likely differ depending on the company being analyzed.
Be thorough in your analysis of the notes and supporting schedules. Understand that some
sections may not pertain to your company. Some information may be found under headings
with titles differing from those contained in this workbook. Remember, companies have
flexibility in deciding how to prepare this section.
Cash and Cash Equivalents
1.
Cash and cash equivalents typically consists of cash, commercial paper, money market funds, and
U.S. Treasury Bills. How does you company define "cash and cash equivalents"? “
Cash Equivalents include highly – liquid investments with a maturity of 3 months or less when
purchases” according to Ecolab’s 10-K.
2.
If defined, find the note containing information related to investments. What types of securities
are classified as "cash equivalents"? There are no other remarks in regards to Cash and Cash Equivalents
made other than the statement indicated in question #1 above. I have researched other Financial
Websites as well as Ecolab’s Investors link and I have not been able to find more information about
what types of specific securities are classified in this category.
19
Investments
1.
Investments are often categorized (e.g., cash and cash equivalents, short-term investments). If
given, what accounts on the company's balance sheet correspond to these classifications?
1) Capital Expenditures
2) Capital Software Expenditures
3) Property Sold
4) Businesses Acquired
5) Sale of Businesses
6) Receipt from indemnification escrow
7) Deposit info indemnification escrow
2.
What are the company's three largest investments?
1) Merchandising Equipment primarily for systems used by customers to dispense cleaning and
sanitizing products made by Ecolab
2) Cash Paid for Acquisitions
3) Capital Expenditures
3.
Why do you think the company holds these three specific assets as investments? Use logic and be
specific. All three of these investments are tied to enhancing the overall performance of Ecolab. If they
can help companies that make equipment for dispensing Ecolab’s products, then these companies can
continue to grow and take more market share and more customers will own this equipment, which in turn
would also make the customers purchase Ecolab’s products to go with the dispensing equipment. Capital
Expenditures and Cash Paid for Acquisitions are also investments back into new divisions and products for
Ecolab which are essential to long term growth for the company.
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Accounts Receivable
1.
Did your company allow for uncollectible accounts receivable? Yes
2.
If yes, what amount was allowed? $44.9 (million)
Percent Uncollectible Ratio
This ratio indicates the percentage of accounts receivable that have been deemed uncollectible.
Percent Uncollectible =
Allowance for Uncollectible Accounts
Gross Accounts Receivable

$44.9 (million)
$1,044.5 (million) = 4.3%
year.
$52.4 (million)
$1,068.5 (million) = 4.9%

Comparing the current and previous year's percent uncollectible, is the company expecting a
higher or lower percentage of uncollectible amounts? Why do you think this is the case? Use
logic and be specific. Ecolab was expecting a lower amount of uncollectible accounts in the current 2010
year. This was probably mainly due to the fact that they had less of an amount of outstanding (past
due) accounts or the length of past due may have been at a lower percentage. Also the amount of credit
vs. cash sales could have been lower in 2010 vs. 2009. Another reason could have been that
Management felt that their credit accounts may be in a better position to pay Ecolab now that the
Economy was a bit more stabilized in 2010 versus the previous year so Ecolab lowered their expected
percentage of Uncollectible Accounts.
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Inventories
1.
What inventory flow method(s) does the company use? If more than one method is used, what are
the methods and what are they used for? United States Chemicals Last in First Out (LIFO) which accounts for
22% of Ecolabs inventory. The remaining 78% is done using First In First Out (FIFO). FIFO makes sure that Ecolab
can get out their inventory before any expirations of the product occur as well as helps matches the costs of
those goods to the revenues associated with the sale. Furthermore, If Ecolab does sell so much inventory that
they do sell some of the older products, then they may be able to report more gains in income because of
inflation from when the products were originally made and the lower costs at that time to produce them are
now expensed. The LIFO inventory may have more sensitive expiration dates or regulations since this is
particular to the US Market. LIFO accounting also matches current revenue and current costs of goods sold
which aids in examining the Gross Margin.
2.
Why might a company use more than one type of inventory flow method?
LIFO better follows the “Matching Concept” so that revenues and costs are more accurate. However, some
products do exipire so it is important to have those older products go out first which is in the case of FIFO.
LIFO Reserve
A company that uses last in-first out (LIFO) as an inventory flow method must disclose the LIFO
reserve. The LIFO reserve is the difference of the inventory amount using LIFO and the inventory
valued at current cost, or first in-first out (FIFO).
Inventory using FIFO
$ 470.3 (million)
LIFO Allowance
$ (22.7) (million)
Inventory using LIFO
Inventory section does not
explicitly state this amount.
However, if we know that 22%
of inventory is LIFO and 78% is
FIFO (above) then we can
estimate that LIFO amount
would be $132.65 (million)
22
Fixed Assets and Depreciation
1.
Identify the type of fixed asset(s) the company has and the depreciation method used for each.
Type of Fixed Asset
Building & Improvements
Machinery and Equipments
Merchandising Equipment
2.
Depreciation Method Used
Straight-line 5-40 years
Straight-line 3-11 years
Straight-line 3-7 years
Is there an impairment loss related to fixed assets taken for the current year? If so, how much and
what is the loss attributable to?
There were no impairment losses reported in regard to fixed assets in 2010.
Intangibles (excluding goodwill)
Does not apply
1.
What intangible assets does the company have recorded?
The intangibles that were recorded excluding Goodwill were the following:
1)
2)
3)
4)
5)
Customer Relationships
Trademarks
Patents
Customer Lists
Other Technology
2.
What is the value of each intangible asset?
1)
2)
3)
4)
5)
Customer Relationships - $276 (million)
Trademarks - $111.3 (million)
Patents - $79.0 (million)
Customer Lists - $5.6 (million)
Other Technology - $73.3 (million)
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3.
1
2
3
4
5
Is there any impairment losses related to intangible assets? If so, how much?
Customer Relationships – Accumulated Amortization = ($159.5) million
Trademarks – Accumulated Amortization = ($41.0) million
Patents – Accumulated Amortization = ($28.2) million
Customer Lists – Accumulated Amortization = ($5.5) million
Other Technology – Accumulated Amortization = ($28.5) million
Goodwill
Does not apply
Remember how a company acquires goodwill.
1.
How much goodwill does the company have recorded? 1,329.3 (million)
2.
What is the source of the goodwill? Business Acquisitions, Business Disposals and Foreign Currency
Translations
Other Assets
1.
Does the company have a separate section for other assets? Yes, totaling 242.2 (million)
2.
If so, list the three largest items in this section and their respective values.
Deferred Income Taxes – 112 (million)
Pension – 1.5 (million)
“Other” – 128.7 (million)
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Contingencies
Does not apply
1.
Choose the three contingencies you deem to be the most significant. Describe each in detail. Why
do you think these contingencies have the most significance? Be specific. ___________________
1) Litigation – Ecolab and their subsidiaries have various lawsuits occurring around the world which
include anitrusts, patent infringements, product liability and wage hour suits as well as items
pertaining to environmental affects and releases of the chemical substances at their sites. These are
important to the company because a unfavorable judgment against the company could affect their
cash flows in which any judgments are recorded. However the company does not believe that any
future changes resulting from current suits would seriously affect their financial position
2) Environmental Matters – Ecolab is participating in 20 assessments and remediation at 20 locations
for environmental liabilities and management has best estimated these future costs. This is
significant because they have set a reserve of $3 (million) and 4 (million) for the past years and this
is a significant amount to record on the books
3) Insurance – Ecolab has very high deductible for US insurance policies for workers compensation,
general liability and automotive liability losses. The company has recorded a liability to offset
amounts that are not covered (more than) the insurance policies offer as well as being self insurance
for health care claims. They are also fully insured for losses internationally. These high deductibles
are very important to record as contingencies because of the liability amounts involved.
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Shareholders' Equity
List the following items pertaining to shareholders' equity:
1.
Number of regular shares outstanding: - Beginning of 2010: Common Stock = 329,825,650 and
Treasury = (93,230,909)
2.
Number of shares issued during the period: - 3,315,760 of common stock
Shares repurchased during the period: - (7,608,162) of Treasury Stock (removing other stock options, shares,
stock awards, and net issuances from this amount give balance below)
3.
4.
Ending balance: Common = 333,141,410 and Treasury = 100,628,659
5.
Does the company issue dividends? Yes
6.
If so, what kind of dividends (e.g. stock or cash). Cash & Stock Options & Awards
7.
What was the total per share dividend for last year? (If issued on a quarterly or semi-annual basis,
translate into an annual amount.) Cash Dividends were paid out at an average of .64 cents per share
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Auditor's Report
1.
Who is the auditor? Pricewaterhouse Coopers LLP
2. To whom is the auditor's report addressed? Shareholders & Board of Directors for Ecolab Inc.
3.
Why did the auditor choose to address this party specifically and not another party (e.g. only
management, creditors, etc.)? They addressed the Board of Directors because they watch over the
management at Ecolab who is responsible for recording these financial documents. Shareholders need this
information to determine if the company is a good investment by look at the various ratios and notes
discussed in this report.
4.
What specific services did the company and auditor agree to and what obligations are each, the
company and auditor, abiding by per the report? Ecolab is responsible for internal control over financial
reporting for preparing these financial statements for external purposes and in accordance with GAAP.
Pricewaterhouse Cooper LLP is obligated to express their opinions on these financial statements and
Ecolab’s capabilities to manage the internal controls on the financial reporting based on Pricewaterhouse
Coopers’ integral audits in the standards of Public Company Accounting Oversight Board.
5.
What type of an opinion did the auditor issue? If other than unqualified, what reason was given, if
any? Pricewaterhouse Coopers LLP issues three opinions below:
1) Ecolab fairly reports “in all material aspects” the financial position of the company and their
subsidiaries at December 31, 2010 and 2009 as well as the results of their operations and their cash
flows for each of 3 years ending December 31,2010
2) Ecolab maintained effective control over the financial reporting during this period
3) Ecolab’s management is however responsible for these financial statements.
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