FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1994
THIS CONFORMING PAPER FORMAT DOCUMENT IS BEING
SUBMITTED PURSUANT TO RULE 901(d) OF REGULATION S-T
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-4957
NALCO CHEMICAL COMPANY
Incorporated in the State of Delaware
Employer Identification No. 36-1520480
One Nalco Center, Naperville, Illinois 60563-1198
Telephone 708-305-1000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
The number of shares outstanding of each of the issuer's classes of common
stock, as of June 30, 1994 was 68,354,353 shares common stock - par value
$.1875 a share.
<PAGE>
NALCO CHEMICAL COMPANY
INDEX
<TABLE>
<CAPTION>
Page No.
<S> <C>
Part I. Financial Information:
Item 1. Financial Statements
Condensed Consolidated Statements of
Financial Condition - June 30, 1994
(Unaudited) and December 31, 1993 . . . . 2
Condensed Consolidated Statements of
Earnings (Unaudited) - Three Months and
Six Months Ended June 30, 1994 and 1993 . 3
Condensed Consolidated Statements of
Cash Flows (Unaudited)- Three Months
and Six Months Ended June 30, 1994 and 1993 . . 4
Notes to Condensed Consolidated Financial
Statements (Unaudited). . . . . . . . . . 5
Report of Independent Accountants on
Review of Interim Financial Information . 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations . . . . . . . . . . . . . . 7
Part II. Other Information:
Item 6. Exhibits and Reports on Form 8-K . . . . . 9
Exhibit (11) - Statement Re: Computation
of Earnings Per Share . . . . . . . . 10
Exhibit (15) - Awareness Letter of Independent
Accountants . . . . . . . . . . . . . 12
Signatures . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
NALCO CHEMICAL COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
Dollars in millions (Unaudited) (Note)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 80.0 $ 78.1
Accounts receivable, less allowances of
$5.2 and $4.3, respectively 224.1 215.2
Inventories
Finished products 48.2 43.5
Materials and work in process 28.6 25.4
76.8 68.9
Prepaid expenses 16.1 12.8
Total current assets 397.0 375.0
Goodwill, less accumulated amortization of
$13.7 and $10.1, respectively 116.0 112.9
Other assets 155.6 166.0
Property, plant and equipment 1,186.4 1,129.9
Less allowances for depreciation (601.8) (571.4)
584.6 558.5
$1,253.2 $1,212.4
LIABILITIES/SHAREHOLDERS' EQUITY
Current liabilities
Short-term debt $ 20.5 $ 15.2
Accounts payable 99.6 84.5
Other current liabilities 94.3 89.9
Total current liabilities 214.4 189.6
Long-term debt 249.3 252.1
Deferred income taxes 57.9 58.1
Accrued postretirement benefits 98.1 94.2
Other liabilities 67.2 67.8
Shareholders' equity 566.3 550.6
$1,253.2 $1,212.4
</TABLE>
Note: The Statement of Financial Condition at December 31, 1993 has been
derived from the audited financial statements at that date.
See accompanying Notes to Condensed Consolidated Financial Statements
(Unaudited).
<PAGE>
NALCO CHEMICAL COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
(Amounts in millions, June 30 June 30
except per share data) 1994 1993 1994 1993
<S> <C> <C> <C> <C>
Net sales $352.0 $347.5 $688.2 $686.5
Operating costs and expenses
Cost of products sold 158.3 151.8 308.7 301.9
Operating expenses 135.3 129.9 262.0 255.7
293.6 281.7 570.7 557.6
Operating earnings 58.4 65.8 117.5 128.9
Other income (expense)
Interest and other income 2.8 2.9 5.5 6.4
Interest expense (6.6) (6.4) (13.4) (14.8)
Earnings before income taxes 54.6 62.3 109.6 120.5
Income taxes 21.5 24.2 42.7 47.3
Earnings before extraordinary loss and
effect of accounting change 33.1 38.1 66.9 73.2
Extraordinary loss from retirement of debt,
net of taxes - - - (10.6)
Cumulative effect of change in accounting
for postretirement benefits other than
pensions, net of taxes - - - (56.5)
Net earnings $ 33.1 $ 38.1 $ 66.9 $ 6.1
Per common share
Earnings - Primary
Before extraordinary loss and
accounting change $ .44 $ .50 $ .89 $ .96
Extraordinary loss from retirement
of debt - - - (.15)
Cumulative effect of change in
accounting for postretirement
benefits other than pensions - - - (.80)
Net earnings $ .44 $ .50 $ .89 $ .01
Earnings - Fully Diluted
Before extraordinary loss and
accounting change $ .41 $ .46 $ .83 $ .89
Extraordinary loss from retirement
of debt - - - (.13)
Cumulative effect of change in
accounting for postretirement
benefits other than pensions - - - (.72)
Net earnings $ .41 $ .46 $ .83 $ .04
Cash dividends $ .24 $ .225 $ .465 $ .435
Average primary shares outstanding
(in thousands) 69,127 69,830 69,325 70,129
Average fully diluted shares outstanding
(in thousands) 77,263 78,036 77,469 78,335
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
(Unaudited).
NALCO CHEMICAL COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
Dollars in millions 1994 1993 1994 1993
<S> <C> <C> <C> <C>
Cash provided by (used for)
operating activities
Net earnings $ 33.1 $ 38.1 $ 66.9 $ 6.1
Adjustments not
affecting cash
Extraordinary loss from
retirement of debt - - - 10.6
Cumulative effect of change
in accounting for
postretirement benefits
other than pensions - - - 56
Depreciation and amortization23.4 22.0 47.1 43.6
Other, net 7.9 5.4 4.8 3.2
Changes in current assets and
liabilities (6.3) 1.8 5.6 3.7
Net cash provided by
operations 58.1 67.3 124.4 123.7
Investing activities
Additions to property, plant
and equipment (33.8) (28.3) (68.5) (53.6)
Changes in short-term
marketable securities - - - 104.0
Other (3.9) 14.2 (0.7) 11.6
Net cash provided by (used for)
investing activities (37.7) (14.1) (69.2) 62.0
Financing activities
Cash dividends (119.2) (18.4) (37.5) (35.8)
Changes in short-term debt 0.9 4.2 9.4 (16.7)
Changes in long-term debt 0.3 (4.9) (1.2) (165.8)
Common stock reacquired (21.5) (12.5) (32.4) (44.3)
Other 1.8 1.5 5.4 9
Net cash (used for)
financing activities (37.7) (30.1) (56.3) (253.0)
Effects of foreign exchange
rate changes 1.8 - 3.0 (0.2)
Increase (decrease) in cash and
cash equivalents $(15.5) $ 23.1 $ 1.9 $(67.5)
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
(Unaudited).
<PAGE>
NALCO CHEMICAL COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
June 30, 1994
NOTE A - BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been
prepared, without
audit, in accordance with the instructions to Form 10-Q and therefore do
not include all
information and footnotes necessary for a fair presentation of financial
position, results
of operations, and cash flows in conformity with generally accepted
accounting principles.
Financial information as of December 31 has been derived from the audited
financial
statements of the Company, but does not include all disclosures required by
generally
accepted accounting principles.
It is the opinion of management that the unaudited condensed consolidated
financial
statements include all adjustments necessary to fairly state the results of
operations for
the three month and six month periods ended June 30, 1994 and 1993. The
results of
interim periods are not necessarily indicative of results to be expected for the
year.
For further information, refer to the consolidated financial statements and
footnotes
thereto included in the Company's annual report on Form 10-K for the year
ended December 31, 1993.
The unaudited condensed consolidated financial statements and the related notes
have been
reviewed by Nalco's independent accountants, Price Waterhouse LLP. The Report
of
Independent Accountants on Review of Interim Financial Information is included
on page 6.
NOTE B - SHAREHOLDERS' EQUITY
Shareholders' equity may be further detailed as follows:
<TABLE>
<CAPTION>
June 30, December 31,
Dollars in millions, except
per share figures 1994 1993
<S> <C> <C>
Preferred stock - par value $1.00 per share;
authorized 2,000,000 shares;
Series B ESOP Convertible Preferred
Stock - 406,351 shares at
June 30, 1994 and 407,806 shares
at December 31, 1993 $ 0.4 $ 0.4
Series A Junior Participating Preferred
Stock - none issued - -
Capital in excess of par value of
shares 195.1 195.7
Unearned ESOP compensation (173.6) (174.4)
21.9 21.7
Common stock - par value $.1875 per share;
authorized 200,000,000 shares; issued
80,287,568 shares 15.1 15.1
Capital in excess of par value of
shares 23.5 10.6
Retained earnings 848.6 819.2
Minimum pension liability adjustment (7.1) (7.1)
Foreign currency translation
adjustments (38.0) (49.3)
Common stock reacquired - at cost
11,933,215 shares at
June 30, 1994 and 11,383,105
shares at December 31, 1993 (297.7) (259.6)
Total shareholders' equity $ 566.3 $ 550.6
</TABLE>
REPORT OF INDEPENDENT ACCOUNTANTS ON REVIEW
OF INTERIM FINANCIAL INFORMATION
To the Board of Directors and
Shareholders of Nalco Chemical Company
We have reviewed the accompanying interim financial information of Nalco
Chemical Company and consolidated subsidiaries as of June 30, 1994, and for the
three month and six month periods then ended. This interim financial
information is the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial information for it to be in conformity
with generally accepted accounting principles.
We previously audited in accordance with generally accepted auditing standards,
the statement of consolidated financial condition as of December 31, 1993, and
the related statements of consolidated earnings, of cash flows and of common
shareholders equity for the year then ended (not presented herein), and in our
report dated January 25, 1994 (except as to Note 17, which is as of February 3,
1994) we expressed an unqualified opinion on those consolidated financial
statements. Our opinion included an explanatory paragraph which discussed the
Company s change in its method of accounting for postretirement benefits other
than pensions in 1993. In our opinion, the information set forth in the
accompanying condensed consolidated statement of financial condition as of
December 31, 1993, is fairly stated in all material respects in relation to the
statement of consolidated financial condition from which it has been derived.
Price Waterhouse LLP
By: Robert R. Ross
Engagement Partner
July 29, 1994
Chicago, Illinois<PAGE>
Item 2.
Management's Discussion and Analysis of Financial
Condition and Results of
Operations
Second Quarter 1994 Operations Compared to Second Quarter 1993
Sales for the quarter rose 1 percent over last year, with two of the four
operating units
reporting improved results. Net earnings were $33.1 million, a decrease of 13
percent from
second quarter 1993 earnings of $38.1 million.
Sales by the three units comprising U.S. Operations increased 3 percent. Sales
by the
Water and Waste Treatment Division were up 1 percent over a year ago with the
Polymer Group
reporting a double-digit gain. UNISOLV , Utility Chemicals, and Watergy
also posted
gains. The Process Chemicals Division posted a 7 percent increase in sales,
led by the
General Industry and Absorbent Chemicals Groups, which reported double-digit
gains. Pulp
and Paper Chemicals also posted a strong improvement over last year. Sales by
the
Petroleum Division were 5 percent lower than a year ago.
Sales by International Operations were down 1 percent. Latin American
subsidiaries reported
a 9 percent gain in sales with double-digit advances posted by companies in
Venezuela and
Argentina. Pacific Rim sales rose 6 percent with all but one subsidiary
reporting advances
from last year. Sales by European subsidiaries, however, were down 7 percent
from a year
ago, with over half of the decrease resulting from changes in exchange rates.
European
exports to the Middle East were also down significantly.
The gross margin was 55.0 percent, down 1.3 percentage points from last year's
rate of 56.3
percent. Gross margins of U.S. Operations decreased from a year ago as lower raw
material
costs were more than offset by the effects of sales mix changes.
Operating expenses (selling, service, research, etc.) were up $5.4 million or 4
percent
over the second quarter of last year. Spending for future international growth
resulted in
higher salaries, employee benefits, and depreciation.
Interest and other income decreased $0.1 million from a year ago as improved
foreign
exchange results were offset by lower equity in earnings of affiliated
companies. Interest
expense was up $0.2 million over the second quarter 1993.
The effective tax rate was 39.4 percent for the quarter, compared to 38.9
percent for the
same period last year and for all of 1993.
Operating earnings of $58.4 million were 11 percent lower than last year s
$65.8 million.
Net earnings as a percent to sales were 9.4 percent compared to 11.0 percent
for a year
ago. Fully diluted earnings per share were 41 cents for the quarter, a decrease
of 11
percent from the 46 cents for the second quarter 1993.
First Half 1994 Operations Compared To First Half 1993
Sales for the first six months were $688.2 million, up slightly over sales of
$686.5
million for the same period last year.
Sales by the three domestic divisions rose 3 percent. The Water and Waste
Treatment
Division reported a 3 percent increase with advances posted by four of the five
marketing
groups, most notably the Polymer Group which recorded a double-digit gain.
Process
Chemicals Division sales were up 6 percent, with the Absorbent Chemicals,
General Industry,
and Pulp and Paper Chemicals Groups reporting solid growth. Petroleum Chemicals
Division
sales were down 3 percent from a year ago.
International Operations reported a 3 percent decrease in sales from a year ago.
Sales by
Latin American subsidiaries were up 6 percent, with solid increases posted by
companies in
Venezuela and Argentina. In the Pacific Rim, sales advanced 3 percent as double-
digit gains
were recorded by subsidiaries in Hong Kong, Japan, Philippines, and Thailand.
Unfavorable
translation rates compared to last year and lower exports to the Middle East
contributed to
an 8 percent decrease in sales by European subsidiaries from a year ago.
The gross margin was 55.1 percent, down 0.9 percentage points from last
year's rate of 56.0
percent. Gross margins of U.S. Operations decreased from a year ago primarily
as a result
of sales mix changes. Gross margins of our International Operations were
unchanged from last year.
Operating expenses were up $6.3 million or 2 percent from a year ago as a result
of higher salaries, benefits and depreciation.
Interest and other income decreased $0.9 million from a year ago as a result of
lower
interest income, which reflected reduced levels of invested cash balances. In
addition,
lower equity in earnings of affiliated companies and net other miscellaneous
income were
partly offset by improved foreign exchange results compared to last year.
Interest expense
was down $1.4 million from last year as a result of lower borrowing levels.
The effective tax rate was 38.9 percent, slightly lower than the 39.3 percent
for the first half of 1993.
Operating earnings were $117.5 million, a decrease of 9 percent from a year ago.
Earnings
before extraordinary loss and effect of accounting change as a percent to sales
were 9.7
percent compared to 10.7 percent for a year ago. Fully diluted earnings per
share before
extraordinary loss and effect of accounting change were 83 cents, a decrease of
7 percent
from the 89 cents for the first half 1993. Fully diluted net earnings per share
were 83 cents for the first half of 1994, compared to 4 cents for a year ago.
Changes in Financial Condition
Cash and cash equivalents increased $1.9 million during the first half of 1994
as detailed in the Unaudited Condensed Consolidated Statements of Cash Flows.
Days sales outstanding were 56 days at June 30, 1994, unchanged from December
31, 1993.
Working capital at June 30, 1994 totaled $182.6 million, down slightly from the
$185.4
million at last year end. The ratio of current assets to current liabilities was
1.9 to 1
at June 30, 1994, which was slightly lower than the December 31, 1993 ratio of
2.0 to 1.
Domestic projects accounted for about two-thirds of the $68.5 million in capital
investments during the first half. Major expenditures were for additional PORTA-
FEED
units, automobiles for the sales force, and construction of the new European
business and
technical center near Leiden, The Netherlands, which was dedicated in June 1994.
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are included herein:
(11) Statement Re: Computation of Earnings Per Share
(15) Awareness Letter of Independent Accountants
(b) The Registrant did not file any reports on Form 8-K during the three
months
ended June 30, 1994.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NALCO CHEMICAL COMPANY
(Registrant)
Date: August 10, 1994 W. E. BUCHHOLZ
W. E. Buchholz - Vice President,
Chief Financial Officer
Date: August 10, 1994 S. J. GIOIMO
S. J. Gioimo - Secretary
EXHIBIT (11)
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
NALCO CHEMICAL COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
(Amounts in thousands, June 30 June 30
except per share data) 1994 1993 1994 1993
<S> <C> <C> <C> <C>
Primary
Average shares outstanding 68,595 69,066 68,744 69,333
Net effect of dilutive stock options
and shares contingently issuable -
based on the treasury stock method
using average market price 532 764 581 796
TOTALS 69,127 69,830 69,325 70,129
Earnings before extraordinary loss and
effect of accounting change $33,128 $38,052 $66,933 $73,141
Extraordinary loss from retirement of
debt, net of taxes - - - (10,600)
Cumulative effect of change in accounting
for postretirement benefits other than
pensions, net of taxes - - - (56,462)
Net earnings 33,128 38,052 66,933 6,079
Preferred stock dividends -
net of taxes (2,756) (2,823) (5,520) (5,652)
Net earnings to common
shareholders $30,372 $35,229 $61,413 $ 427
Per share amounts
Earnings before extraordinary loss and
effect of accounting change $ .44 $ .50 $ .89 $ .96
Extraordinary loss from retirement
of debt, net of taxes - - - (.15)
Cumulative effect of change in accounting
for postretirement benefits other than
pensions, net of taxes - - - (.80)
Net earnings to common
shareholders $ .44 $ .50 $ .89 $ .01
</TABLE>
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
NALCO CHEMICAL COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
(Amounts in thousands, June 30 June 30
except per share data) 1994 1993 1994 1993
<S> <C> <C> <C> <C>
Fully diluted
Average shares
outstanding 68,595 69,066 68,744 69,333
Average dilutive effect of
assumed conversion of ESOP
Convertible Preferred
shares 8,136 8,197 8,144 8,206
Additional shares assuming exercise
of dilutive stock options and shares
contingently issuable-based on the
treasury stock method using the
quarter-end market price, if higher
than average market price 532 773 581 796
TOTALS 77,263 78,036 77,469 78,335
Earnings before extraordinary loss
and effect of accounting
change $33,128 $38,052 $66,933 $73,141
Extraordinary loss from retirement
of debt, net of taxes - - - (10,600)
Cumulative effect of change in
accounting for postretirement benefits
other than pensions, net of
taxes - - - (56,462)
Net earnings 33,128 38,052 66,933 6,079
Additional ESOP contribution resulting
from assumed conversion,
net of taxes (1,212) (1,316) (2,503) (2,714)
Tax adjustment on assumed
common dividends (169) (535) (348) (408)
Net earnings applicable to
common shareholders $31,747 $36,201 $64,082 $ 2,957
Per share amounts
Earnings before extraordinary loss
and effect of accounting
change $ .41 $ .46 $ .83 $ .89
Extraordinary loss from retirement
of debt, net of taxes - - - (.13)
Cumulative effect of change in accounting
for postretirement benefits other than
pensions, net of taxes - - - (.72)
Net earnings to common
shareholders $ .41 $ .46 $ .83 $ .01
</TABLE>
EXHIBIT (15)
AWARENESS LETTER OF INDEPENDENT ACCOUNTANTS
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Dear Sirs:
We are aware that Nalco Chemical Company has included our report dated
July 29, 1994 (issued pursuant to the provisions of Statement on
Auditing Standards No. 71) in the Prospectuses constituting part of
its Registration Statements on Form S-3 (Nos. 33-53111, 33-9934 and 2-
97721) and Form S-8 (Nos. 33-38033, 33-38032, 33-29149, 2-97721, 2-
97131 and 2-82642). We are also aware of our responsibilities under
the Securities Act of 1933.
Yours very truly,
Price Waterhouse LLP
By: Robert R. Ross
Engagement Partner
August 10, 1994
Chicago, Illinois
