<PAGE>
1993
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1993
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
COMMISSION FILE NUMBER 1-4957
NALCO CHEMICAL COMPANY
INCORPORATED IN THE STATE OF DELAWARE
I.R.S. EMPLOYER IDENTIFICATION NO. 36-1520480
ONE NALCO CENTER, NAPERVILLE, ILLINOIS 60563-1198
TELEPHONE 708-305-1000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE ON
WHICH REGISTERED
TITLE OF EACH CLASS
CHICAGO STOCK EXCHANGE
COMMON STOCK PAR VALUE NEW YORK STOCK EXCHANGE
$ 0.1875 PER SHARE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K ((S) 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant was $2,457,951,746 at February 21, 1994.*
The number of shares outstanding of each of the issuer's classes of Common
Stock, as of February 21, 1994 was 68,985,285 shares of Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's 1993 Annual Report to Shareholders are
incorporated by reference into Parts I and II.
Portions of the Registrant's Proxy Statement dated March 18, 1994 for the
April 20, 1994 Annual Meeting of Shareholders are incorporated by reference
into Part III.
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*Excludes reported beneficial ownership by all directors and executive
officers of the Registrant; however, this determination does not constitute
an admission of affiliate status for any of these stockholders.
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<PAGE>
TABLE OF CONTENTS
PART I
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PAGE
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Item 1 Business........................................................ 1
Executive Officers of the Registrant............................ 3
Item 2 Properties...................................................... 4
Item 3 Legal Proceedings............................................... 5
Item 4 Submission of Matters to a Vote of Security Holders............. 5
PART II
Item 5 Market for the Registrant's Common Stock and Related Security 5
Holder Matters..................................................
Item 6 Selected Financial Data......................................... 5
Item 7 Management's Discussion and Analysis of Financial Condition and 5
Results of Operations...........................................
Item 8 Financial Statements and Supplementary Data..................... 5
Item 9 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure............................................ 6
PART III
Item 10 Directors and Executive Officers of the Registrant.............. 6
Item 11 Executive Compensation.......................................... 6
Item 12 Security Ownership of Certain Beneficial Owners and Management.. 6
Item 13 Certain Relationships and Related Transactions.................. 6
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K. 6
</TABLE>
<PAGE>
PART I
ITEM 1. BUSINESS
Nalco Chemical Company was incorporated in 1928 in Delaware and has its
principal executive offices at One Nalco Center, Naperville, Illinois 60563.
Its telephone number is 708-305-1000. As used in this report, "Company" and
"Nalco" refer to Nalco Chemical Company and its consolidated subsidiaries.
Nalco is engaged primarily in the manufacture and sale of highly specialized
Service Chemicals. Specified financial information for Service Chemicals by
geographic area is shown in Note 2 of the Notes to Consolidated Financial
Statements in the Company's 1993 Annual Report to Shareholders and is
incorporated herein by reference.
Nalco's business includes the production and sale of chemicals, technology,
services, and systems (monitoring and surveillance) used in water treatment,
pollution control, energy conservation, oil production and refining,
steelmaking, papermaking, mining and mineral processing, electricity
generation, other industrial processes, and commercial building utility
systems. Service Chemicals are developed and formulated to meet specific
customer needs. In general, they are part of value added programs designed to
help customers maintain a high level of operating performance and efficiency in
their facilities or to improve the quality of customers' end products. Nalco
products are used for purposes such as: control of scale, corrosion, foam and
fouling in cooling systems, boilers, and other equipment; clarification of
water; improved combustion; separation of liquids and solids; control of dust;
improvement of crude oil production through emulsion breaking and the secondary
and tertiary recovery of oil; lubrication and corrosion protection in rolling,
drawing and forming of metals; improved production of pulp and qualities of
paper; recovery of minerals; superabsorbent polymers for disposable diapers;
and specialized process applications in a variety of industries. The quality
and on-site availability of technical expertise provided through highly
qualified Nalco personnel are also important considerations to customers since
the effective use of the Company's products requires a substantial amount of
problem solving, monitoring, and technical assistance on the part of Nalco
employees.
Service Chemicals are usually marketed through Nalco's own organization
because of the high degree of technical service required. The worldwide field
sales force is trained in the application and use of Nalco Service Chemicals,
and is supported by a marketing staff of specialists in the technology and use
of various Nalco Service Chemicals.
Competitive conditions vary for Nalco depending on the industries served and
the products involved. Management believes the Company is one of the most
important worldwide suppliers of water treatment products and service chemical
programs, based on estimated sales of comparable products for industrial
customers on the process side (e.g., the manufacturing process, which a plant
uses to produce its end product) and the utility side (e.g., boilers for power
generation or cooling systems for process temperature control). All aspects of
this business are considered to be very competitive, and companies providing
similar products or programs range in size from very large multinational
companies to small local manufacturers. The number of competitors varies by
product application and ranges from a few large companies to hundreds of small
local companies. The Company's principal method of competition is based on
quality service, product performance and technology through safe, practical
applied science.
In May 1993, Nalco sold Adco Products, Inc., a subsidiary which manufactured
specialty sealants and adhesives for automotive, industrial, and construction
markets. The results of Adco Products, Inc. were reported as discontinued
operations in 1991, along with the results of Day-Glo Color Corp. and the
Penray Companies. Day-Glo Color Corp. and the Penray Companies were sold in
October 1991 and June 1992, respectively. On February 3, 1994, Nalco and Exxon
Chemical Company, a division of Exxon Corporation, announced that they had
signed a memorandum of understanding to form a worldwide energy chemicals joint
venture. The joint venture will include Nalco's U.S. Petroleum Chemicals
Division business units, certain petroleum chemical product lines of its
international operations, and Exxon Chemical Company's Energy Chemicals
worldwide business. The new company, to be named Nalco/Exxon Energy Chemicals,
is
1
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ITEM 1. BUSINESS (CONT'D)
targeted to start up and begin operations by mid-1994, pending government and
regulatory approvals and definitive agreements between the two companies. On
that same date, the Company announced that it had entered into a letter of
intent to sell its Freeport, Texas plant and its automotive paint spray booth
business to PPG Industries, Inc. The Freeport plant, which has 27 Nalco
employees, produces chemical products for the oil production and refining
market. It is expected that the Nalco/Exxon Energy Chemicals joint venture will
purchase certain of its requirements for these products from PPG. Nalco's
worldwide automotive paint spray booth business, approximately $10 million in
size, is also included in the proposed sale to PPG. Nalco has agreed to sell
and service the water treatment related applications for PPG in the automotive
facilities associated with the business sold. There were no other significant
changes in the markets served or in the methods of distribution since the
beginning of 1993.
Although no single Service Chemicals product represents a material portion of
the business, historically, new product and new market developments have been
designed to increase market penetration and to maintain sales and earnings
growth.
OTHER MATTERS
The principal raw materials used by Nalco ordinarily are available in
adequate quantities from several sources of supply in the United States and in
foreign countries. Purchases of chemicals are made in the ordinary course of
business and in accordance with the requirements of production.
Inventories of Service Chemicals are maintained in Nalco-owned facilities and
in warehouses situated throughout the United States and in countries in which
subsidiaries operate. Shipments to customers may be made from either
manufacturing plants or warehouse stocks.
Nalco owns or is licensed under a large number of patents relating to a
number of products and processes. Nalco's rights under such patents and
licenses are of significant importance in the operation of the business, but no
single patent or license is believed to be material with respect to its
business. Over 700 patents existed at the end of 1993 with remaining durations
ranging from less than one year to 17 years with an average duration of about
10 years.
Nalco's business is considered nonseasonal. Large dollar amounts of backlogs
are unusual since chemicals are normally shipped within a few days of the
receipt of orders. The dollar amount of the normal backlog of orders is not
considered to be significant in relation to the total annual dollar volume of
sales of Nalco.
The Company does not depend upon either a single customer, or very few
customers, for a material part of the business.
Nalco's laboratories are involved in research and development of chemical
products and in providing technical support, including analyses of samples.
Research and development expenses of continuing operations amounted to $50.4
million in 1993, compared to $48.0 million in 1992, and $45.9 million in 1991.
There were approximately 6,800 persons employed full time by Nalco at the end
of 1993.
Compliance with Federal, State, and local regulations relating to the
discharge of materials into the environment, or otherwise relating to the
protection of the environment, has not had a material effect upon the capital
expenditures, earnings, or competitive position of Nalco. There are no material
capital expenditures for environmental control facilities anticipated during
1994. Compliance with increasingly stringent regulations should not have a
material effect upon earnings but may strengthen the competitive position of
Nalco because of available capital and technical resources.
Although inflation is not a significant factor domestically, the Company
adjusts selling prices to maintain profit margins wherever possible.
Investments are made in modern plants and equipment that will increase
2
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ITEM 1. BUSINESS (CONT'D)
productivity and thereby minimize the effect of rising costs. In addition, the
last-in, first-out (LIFO) valuation method is used for 59 percent of the
Company's inventories, which ensures that changing material costs are
recognized in reported income; more importantly, these costs are recognized in
pricing decisions. The impact of inflation in foreign exchange movements at
foreign subsidiaries is managed by minimizing assets exposed to currency
movements and by increasing sales prices to parallel increases in the local
inflation rate. The Company emphasizes working capital management, frequent
dividend remittance, timely settlement of intercompany account balances,
foreign currency borrowings, and selected hedging. In most hyperinflationary
economies, the rate of local currency devaluation is related to and
approximately equal to the local inflation rate. Therefore, Nalco attempts to
increase its local selling prices to help offset the impact of devaluation on
exposed assets and the impact of increases in local content costs.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Registrant are named below together with their
principal occupation. During the last 5 years all of the executive officers
have been employed by the Company, as indicated, except for W. E. Buchholz.
W. H. Clark has been Chief Executive Officer of the Company since 1982 and
Chairman of the Board since 1984. He also served as President from 1982 to
1990.
E. J. Mooney has been Chief Operating Officer since 1992 and President of the
Company since 1990. He had been an Executive Vice President since 1988.
M. B. Harp has been Executive Vice President, International Operations since
January 1993. He had been a Group Vice President since 1988.
W. S. Weeber has been Executive Vice President, Operations Staff since
January 1993. He had been a Group Vice President since 1986.
P. Dabringhausen has been Group Vice President and President, Process
Chemicals Division since January 1993. He had been a Vice President since 1991,
and was President, Nalco Pacific from 1989 to 1992 and an International
Division Vice President, Marketing from 1987 to 1989.
S. D. Newlin was elected Group Vice President, President, Nalco Europe on
March 1, 1994. He had been Vice President, President, Nalco Pacific since
December 1992. From January 1992 to December 1992 he was General Manager, Pulp
and Paper Chemicals Group; from 1990 to 1992 he was General Manager of
UNISOLV(R); and from 1987 to 1990 he was General Manager, WATERGY(R).
J. D. Tinsley has been Group Vice President and President, Water and Waste
Treatment Division since January 1993. From March to December 1992, he was a
Group Vice President and President, Process Chemicals Division, and from 1986
to 1992 he was Vice President, Corporate Development.
W. E. Buchholz has been Vice President and Chief Financial Officer since
January 1993. He was formerly Vice President--Finance and Chief Financial
Officer for Cincinnati Milacron, Inc. (a manufacturer of industrial equipment,
supplies and services for the metal cutting and plastic processing industries)
since 1987.
The corporate officers of the Registrant are usually elected at the annual
meeting of directors and hold office for a term of one year.
There is no family relationship between any of the executive officers. No
arrangement or understanding exists between the executive officers and any
other person pursuant to which such officers were selected as officers of the
Registrant.
For further information on the executive officers of the Registrant, please
refer to the inside back cover of the Company's 1993 Annual Report to
Shareholders, which is incorporated herein by reference.
3
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ITEM 2. PROPERTIES
Nalco has facilities used to produce and store inventories and service
customer needs at 16 domestic and 27 foreign locations. Primary domestic
manufacturing plants are located in:
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LAND AREA BUILDING AREA
(ACRES) (SQ.FT.)
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Carson, California................................ 21 84,000
Jonesboro, Georgia................................ 12 35,000
Chicago, Illinois
6216 West 66th Place........................... 42 856,000
9165 South Harbor Avenue........................ 5 104,000
Garyville, Louisiana.............................. 251 235,000
Paulsboro, New Jersey............................. 14 33,000
Freeport, Texas................................... 139 36,000
Sugar Land, Texas................................. 30 246,000
</TABLE>
(East & West (East
facilities) facility)
Other domestic manufacturing and/or warehouse facilities are located in:
Kenai, Alaska; Bakersfield, California; Hobbs, New Mexico; Oklahoma City,
Oklahoma; Odessa, Texas; Clarksburg, West Virginia; Vancouver, Washington; and
Evansville, Wyoming.
The general offices of the Company are located on a 146-acre site in
Naperville, Illinois. This facility includes three five-story buildings
totaling 417,000 square feet. About 317,000 square feet is used for office
space and the balance is used for support services and storage. A power plant
with a dual energy system (steam and electricity) serves both the Corporate and
Technical Centers and has 31,000 square feet of space.
Primary domestic research facilities are located in Naperville, Illinois and
Sugar Land, Texas. The Naperville Technical Center is adjacent to the Corporate
Center and houses process simulation areas and a technical library in buildings
which total 235,000 square feet. The Sugar Land West facility has process
simulation areas and a technical library. Total building area at this facility
is about 202,000 square feet.
Primary foreign manufacturing plants, which also generally include laboratory
and office facilities, are located in:
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LAND AREA BUILDING AREA
(ACRES) (SQ.FT.)
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Botany, Australia................................. 10 102,000
Vienna, Austria................................... 4 45,000
Suzano, Brazil.................................... 14 81,000
Burlington, Canada................................ 14 138,000
Soledad, Colombia................................. 6 27,000
Cheshire, England................................. 15 226,000
Douvrin-Billy Berclau, France..................... 25 23,000
Biebesheim, Germany............................... 28 103,000
Tilburg, The Netherlands.......................... 6 31,000
Cisterna di Latina, Italy......................... 25 88,000
Celra, Spain...................................... 25 109,000
Jordbro, Sweden................................... 4 28,000
Anaco, Venezuela.................................. 43 76,000
</TABLE>
Other foreign facilities are located in: Perth, Australia; Buenos Aires,
Argentina; Edmonton, Canada; Santiago, Chile; Quito, Ecuador; Maurepas, France;
Bogor, Indonesia; Kashima, Japan; Auckland, New Zealand; Calamba, Laguna,
Philippines; Dammam, Saudi Arabia; Jurong Town, Singapore; Hsin Chu Hsien,
Taiwan; and Maracaibo, Venezuela.
4
<PAGE>
ITEM 2. PROPERTIES (CONT'D)
In 1992, the Company acquired 12 acres of land in Oegstgeest, The
Netherlands, for the purpose of constructing a business and technical center to
serve Nalco customers throughout Europe. Construction of this 88,000 square-
foot facility is in process, and it is scheduled for completion in 1994.
In addition to the property mentioned above, Nalco occupies general and sales
offices and warehouses which are rented under short-term leases. Except for
land leased in the Philippines, Saudi Arabia, Chile, Ecuador and Argentina, all
other real property (including all production facilities) is owned by Nalco.
While the plants are of varying ages, the Company believes that they are well
maintained, are equipped with modern and efficient equipment, and are in good
operating condition and suitable for the purposes for which they are being
used.
Capital expenditures for 1994 should remain near the $117.8 million spent in
1993, if planned sales and earnings for 1994 are reached.
ITEM 3. LEGAL PROCEEDINGS.
For information on this item, please refer to Note 15 of the Notes to
Consolidated Financial Statements in the Company's 1993 Annual Report to
Shareholders, which is incorporated herein by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS.
The Registrant's Common Stock is listed on the New York and Chicago Stock
Exchanges. The number of holders of record of Common Stock, par value $0.1875
per share, at December 31, 1993 was 6,111. Dividends and Common Stock market
prices included in the Quarterly Summary in the Company's 1993 Annual Report to
Shareholders are incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA.
Selected Financial Data including net sales, earnings from continuing
operations, earnings from continuing operations per common share, total assets,
long-term debt, and cash dividends paid are reported in the Eleven Year Summary
in the Company's 1993 Annual Report to Shareholders and are incorporated herein
by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Financial Condition and Results of Operations
Management's discussion and analysis of financial condition and results of
operations which is included in the sections titled "Management's Discussion
and Analysis--Results of Operations" and "Management's Discussion and
Analysis--Financial Condition" in the Company's 1993 Annual Report to
Shareholders is incorporated herein by reference.
Liquidity and Capital Resources
Management's discussion of liquidity and capital resources which is included
in the section titled "Management's Discussion and Analysis--Cash Flows" in the
Company's 1993 Annual Report to Shareholders is incorporated herein by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Report of Independent Accountants, the Consolidated Financial Statements,
and the Notes to Consolidated Financial Statements of the Registrant and its
subsidiaries, included in the Company's 1993 Annual Report to Shareholders, are
incorporated herein by reference. The Reports of Independent Auditors, which
were included in the Company's 1992 and 1991 Annual Reports to Shareholders,
are incorporated herein by reference from the Registrant's Form 10-K for the
years ended 1992 and 1991.
The Quarterly Summary in the Company's 1993 Annual Report to Shareholders is
incorporated herein by reference.
5
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
The information called for hereunder has been previously reported (as defined
in Rule 12b-2 under the Securities and Exchange Act of 1934) in the
Registrant's Form 8-K dated February 16, 1993 and Form 8 dated April 14, 1993.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Item 10 information is set forth in Part I, Item 1, page 3 and also in the
Company's Proxy Statement dated March 18, 1994, under Election of Directors
through Election of Directors--Meetings of the Board and Committees of the
Board, which is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information contained under Election of Directors--Directors'
Remuneration and Retirement Policies through Election of Directors--Change in
Control in the Company's Proxy Statement dated March 18, 1994, with respect to
executive compensation and transactions, is incorporated herein by reference in
response to this item.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information contained under Shares Outstanding and Voting Rights in the
Company's Proxy Statement dated March 18, 1994, with respect to security
ownership of certain beneficial owners and management, is incorporated herein
by reference in response to this item.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) The following consolidated financial statements of the Registrant and
its subsidiaries included in the Company's 1993 Annual Report to Shareholders
are incorporated herein by reference in Item 8:
<TABLE>
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Statements of Consolidated Financial Condition
December 31, 1993, 1992 and 1991
Statements of Consolidated Earnings
Years ended December 31, 1993, 1992 and 1991
Statements of Consolidated Cash Flows
Years ended December 31, 1993, 1992 and 1991
Statement of Consolidated Common Shareholders' Equity
Years ended December 31, 1993, 1992 and 1991
Notes to Consolidated Financial Statements
Quarterly Summary (Unaudited)
Years ended December 31, 1993 and 1992
Report of Independent Accountants
</TABLE>
The Reports of Independent Auditors, which were included in the Company's
1992 and 1991 Annual Reports to Shareholders, are incorporated herein by
reference from the Registrant's Form 10-K for the years ended 1992 and 1991.
(2) The following consolidated financial statement schedules for the years
1993, 1992 and 1991 are submitted herewith:
Report of Independent Accountants on Financial Statement Schedules
<TABLE>
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ScheduleV --Property, Plant and Equipment
ScheduleVI --Accumulated Depreciation, Depletion and Amortization
of Property, Plant and Equipment
Schedule VIII --Valuation and Qualifying Accounts
ScheduleIX --Short-Term Borrowings
Schedule X --Supplementary Income Statement Information
</TABLE>
6
<PAGE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(CONT'D)
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable, and therefore have been omitted.
(3) Exhibits
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Exhibit 3A --Restated Certificate of Incorporation/2/
Exhibit 3B --Certificates of Correction and Amendment to the Restated
Certificate of Incorporation/8/
Exhibit 3C --Certificate of Designations, Preferences and Rights of
Series B ESOP Convertible Preferred Stock/4/
Exhibit 3D --By-laws/1//0/
Exhibit 10A --Form of Key Executive Agreement/1/
10B --Agreements to Restore Benefits Reduced by Excess ERISA-
Related Limits/1/
10C --Form of Death Benefit Agreement/2/
10D --Management Incentive Plan/2/
10E --Performance Unit Plan/2/
10F --Restricted Stock Plan/8/
10G --1982 Stock Option Plan as amended April 16, 1984,
January 30, 1987, and February 12, 1993/1//0/
10H --Deferred Compensation Plan for Directors/3/
10I --Supplemental Retirement Income Plan/6/
10J --1990 Stock Option Plan as amended April 23, 1992, and
February 12, 1993/1//0/
10K --Stock Option Plan for Non-Employee Directors/1//0/
10L --Directors Benefit Protection Trust of Nalco Chemical
Company/6/
10M --Management Benefit Protection Trust of Nalco Chemical
Company/6/
10N --Restricted Stock Trust of Nalco Chemical Company/6/
10O --Performance Share Plan/9/
Exhibit 11 --Computation of Earnings Per Share
Exhibit 13 --Those portions of the 1993 Annual Report to Shareholders
expressly incorporated herein by reference
Exhibit 21 --Subsidiaries of the Registrant
Exhibit 23 --Consent of Independent Accountants
Exhibit 99A --Notice of Annual Meeting and Proxy Statement/1//1/
Exhibit 99B --August 7, 1986 and June 26, 1989 Letters to Shareholders
with Summaries of the Preferred Share Purchase Rights
Agreement as amended/5/
Exhibit 99C --Reports of Other Auditors/1//0/
Exhibit Nos. 10A-10O constitute management contracts, compensation
plans, or arrangements covering directors and officers of the Company.
</TABLE>
(b) Reports on Form 8-K filed in the fourth quarter of 1993 are: None
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/1/Incorporated herein by reference from the Registrant's Form 10-K for the
year ended 1986.
/2/Incorporated herein by reference from the Registrant's Form 10-K for the
year ended 1987.
/3/Incorporated herein by reference from the Registrant's Form 8-K dated July
24, 1986.
/4/Incorporated herein by reference from the Registrant's Form 8-K dated May
15, 1989.
/5/Incorporated herein by reference from the Registrant's Form 10-K for the
year ended 1989.
/6/Incorporated herein by reference from the Registrant's Form 10-K for the
year ended 1990.
/7/Incorporated herein by reference from the Registrant's Form 10-Q for the
quarter ended September 30, 1992.
/8/Incorporated herein by reference from the Registrant's Form 10-K for the
year ended 1991.
/9/Incorporated herein by reference from the Registrant's March 16, 1992 Proxy
Statement.
/1//0/Incorporated herein by reference from the Registrant's Form 10-K for the
year ended 1992.
/1//1/Incorporated herein by reference from the Registrant's Notice of Annual
Meeting and Proxy Statement dated March 18, 1994.
7
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE COMPANY HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
NALCO CHEMICAL COMPANY
W. H. Clark
By___________________________________
W. H. Clark
Chairman and Chief Executive
Officer
Date: March 25, 1994
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW ON MARCH 25, 1994 BY THE FOLLOWING PERSONS ON
BEHALF OF THE REGISTRANT AND IN THE CAPACITIES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE
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<C> <S>
W. E. Buchholz
------------------------------------
W. E. Buchholz Vice President and Chief
Financial Officer
R. L. Ratliff
------------------------------------
R. L. Ratliff Controller
H. G. Bernthal
------------------------------------
H. G. Bernthal Director
W. H. Clark
------------------------------------
W. H. Clark Director, Chairman and Chief Executive
Officer
H. Corless
------------------------------------
H. Corless Director
H. M. Dean
------------------------------------
H. M. Dean Director
J. P. Frazee, Jr.
------------------------------------
J. P. Frazee, Jr. Director
A. L. Kelly
------------------------------------
A. L. Kelly Director
F. A. Krehbiel
------------------------------------
F. A. Krehbiel Director
E. J. Mooney
------------------------------------
E. J. Mooney Director
C. W. Parry
------------------------------------
C. W. Parry Director
W. A. Pogue
------------------------------------
W. A. Pogue Director
J. J. Shea
------------------------------------
J. J. Shea Director
</TABLE>
8
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REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULES
To the Board of Directors
of Nalco Chemical Company
Our audit of the consolidated financial statements referred to in our report
dated January 25, 1994, except as to Note 17, which is as of February 3, 1994,
appearing on page 16 of the 1993 Annual Report of Nalco Chemical Company (which
report and consolidated financial statements are incorporated by reference in
this Annual Report on Form 10-K) also included an audit of the Financial
Statement Schedules listed in Item 14(a) of this Form 10-K. In our opinion,
these Financial Statement Schedules present fairly, in all material respects,
the information set forth therein when read in conjunction with the related
consolidated financial statements.
PRICE WATERHOUSE
Chicago, Illinois
January 25, 1994
9
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NALCO CHEMICAL COMPANY AND SUBSIDIARIES
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SCHEDULE V--PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E COL. F
- ------ -------------- ------------ ----------- --------------- --------------
BALANCE AT OTHER CHANGES-- BALANCE
BEGINNING ADDITIONS ADD (DEDUCT)-- AT END
CLASSIFICATION OF PERIOD AT COST RETIREMENTS DESCRIBE OF PERIOD
-------------- -------------- ------------ ----------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1993
Land.................. $ 37,418,000 $ 358,000 $ 110,000 $ (592,000)(E) $ 39,124,000
2,050,000 (F)
Buildings............. 207,027,000 13,616,000 1,625,000 (3,748,000)(E) 215,225,000
(45,000)(F)
Machinery and
equipment............ 799,779,000 103,851,000 22,934,000(B) (10,508,000)(E) 871,563,000
1,375,000 (F)
-------------- ------------ ----------- ------------ --------------
Total............... $1,044,224,000 $117,825,000(A) $24,669,000 $(11,468,000) $1,125,912,000
============== ============ =========== ============ ==============
Year ended December 31,
1992
Land.................. $ 33,621,000 $ 4,837,000 $ 9,000 $ (1,031,000)(E) $ 37,418,000
Buildings............. 203,599,000 7,626,000 287,000 (3,840,000)(E) 207,027,000
(71,000)(G)
Machinery and
equipment............ 720,549,000 118,523,000 27,239,000(B) (11,364,000)(E) 799,779,000
(690,000)(G)
-------------- ------------ ----------- ------------ --------------
Total............... $ 957,769,000 $130,986,000(A) $27,535,000 $(16,996,000) $1,044,224,000
============== ============ =========== ============ ==============
Year ended December 31,
1991
Land.................. $ 31,076,000 $ 21,000 $ 1,956,000 $ (234,000)(E) $ 33,621,000
5,997,000 (H)
(1,283,000)(I)
Buildings............. 200,148,000 8,304,000 10,954,000(C) (2,315,000)(E) 203,599,000
17,197,000 (H)
(8,781,000)(I)
Machinery and
equipment............ 609,104,000 128,502,000 42,255,000(D) (5,616,000)(E) 720,549,000
40,380,000 (H)
(9,566,000)(I)
-------------- ------------ ----------- ------------ --------------
Total............... $ 840,328,000 $136,827,000(A) $55,165,000 $ 35,779,000 $ 957,769,000
============== ============ =========== ============ ==============
</TABLE>
- --------
Note A--Additions represent expansion of production, distribution, laboratory
and other facilities. The more significant 1993 expenditures are
described on page 20 of the 1993 Annual Report to Shareholders.
Note B--Mainly the retirement of transportation equipment.
Note C--Mainly the sale of Day-Glo Color Corp.
Note D--Mainly the sale of Day-Glo Color Corp. and the retirement of
transportation equipment.
Note E--Foreign currency translation adjustments.
Note F--December 1992 net change; the fiscal year end of the consolidated
foreign subsidiaries was changed from November 30 to December 31.
Note G--Reclassification of additions of Adco Products, Inc. and the Penray
Companies to Net Assets of Discontinued Operations.
Note H--Acquisition of Alchem, Inc., Catoleum (Pty.) Ltd., and Nalfloc
Limited.
Note I--Reclassification of assets of Adco Products, Inc. and the Penray
Companies to Net Assets of Discontinued Operations.
10
<PAGE>
NALCO CHEMICAL COMPANY AND SUBSIDIARIES
--------------
SCHEDULE VI--ACCUMULATED DEPRECIATION, DEPLETION AND
AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E COL. F
- ------ ------------ ------------ ----------- -------------- ------------
ADDITIONS OTHER
BALANCE AT CHARGED TO CHANGES-- BALANCE
BEGINNING COSTS ADD (DEDUCT)-- AT END
DESCRIPTION OF PERIOD AND EXPENSES RETIREMENTS DESCRIBE OF PERIOD
----------- ------------ ------------ ----------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1993
Buildings............. $ 76,483,000 $ 6,362,000 $ 647,000 $(1,367,000)(A) $ 80,918,000
87,000 (B)
Machinery and
equipment............ 434,490,000 76,333,000 14,968,000 (7,521,000)(A) 490,450,000
2,116,000 (B)
------------ ----------- ----------- ----------- ------------
Total............... $510,973,000 $82,695,000 $15,615,000 $(6,685,000) $571,368,000
============ =========== =========== =========== ============
Year ended December 31,
1992
Buildings............. $ 70,451,000 $ 6,652,000 $ 9,000 $ (611,000) $ 76,483,000
Machinery and
equipment............ 393,753,000 68,442,000 20,987,000 (6,718,000) 434,490,000
------------ ----------- ----------- ----------- ------------
Total............... $464,204,000 $75,094,000 $20,996,000 $(7,329,000)(A) $510,973,000
============ =========== =========== =========== ============
Year ended December 31,
1991
Buildings............. $ 66,072,000 $ 6,479,000 $ 2,126,000 $ (869,000)(A) $ 70,451,000
2,434,000 (C)
(1,539,000)(D)
Machinery and
equipment............ 354,987,000 58,067,000 22,786,000 (4,095,000)(A) 393,753,000
13,564,000 (C)
(5,984,000)(D)
------------ ----------- ----------- ----------- ------------
Total............... $421,059,000 $64,546,000 $24,912,000 $ 3,511,000 $464,204,000
============ =========== =========== =========== ============
</TABLE>
- --------
Note A--Foreign currency translation adjustments.
Note B--December 1992 net change; the fiscal year end of the consolidated
foreign subsidiaries was changed from November 30 to December 31.
Note C--Acquisition of Alchem, Inc., Catoleum (Pty.) Ltd., and Nalfloc
Limited.
Note D--Reclassification of assets of Adco Products, Inc. and the Penray
Companies to Net Assets of Discontinued Operations.
11
<PAGE>
NALCO CHEMICAL COMPANY AND SUBSIDIARIES
--------------
SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
- ------ ---------- ----------------------- ------------ ----------
ADDITIONS
-----------------------
(2)
(1) CHARGED
BALANCE AT CHARGED TO OTHER BALANCE
BEGINNING TO COSTS ACCOUNTS-- DEDUCTIONS-- AT END
DESCRIPTION OF PERIOD AND EXPENSES DESCRIBE DESCRIBE OF PERIOD
----------- ---------- ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Reserves deducted in the
Statements of
Consolidated Financial
Condition from the
assets to which they
apply
Allowance for doubtful
accounts Year ended:
December 31, 1993... $5,879,000 $ 716,000 $2,125,000 (A) $4,470,000
========== ========== === ========== ==========
December 31, 1992... $4,756,000 $2,947,000 $1,824,000 (A) $5,879,000
========== ========== === ========== ==========
$1,213,000 (A)
287,000 (B)
(585,000)(C)
--- ----------
December 31, 1991... $4,940,000 $ 731,000 $ 915,000 $4,756,000
========== ========== === ========== ==========
</TABLE>
- --------
Note A--Excess of accounts written off over recoveries.
Note B--U.S. Subsidiaries' allowance for doubtful accounts reclassified to Net
Assets of Discontinued Operations.
Note C--Allowance for doubtful accounts of Alchem, Inc., Catoleum (Pty) Ltd.,
and Nalfloc Limited at date of acquisition.
12
<PAGE>
NALCO CHEMICAL COMPANY AND SUBSIDIARIES
--------------
SCHEDULE IX--SHORT-TERM BORROWINGS
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E COL. F
---------------- ----------- -------- ------------ ----------- ----------
WEIGHTED
MAXIMUM AVERAGE AVERAGE
WEIGHTED AMOUNT AMOUNT INTEREST
AVERAGE OUTSTANDING OUTSTANDING RATE
BALANCE AT INTEREST DURING THE DURING THE DURING THE
CATEGORY OF BORROWINGS END OF YEAR RATE YEAR YEAR(D) YEAR(E)
---------------------- ----------- -------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
1993:
Amounts payable to
banks (A)............ $15,224,000 60.8%(C) $39,972,000 $18,843,000 41.0%(F)
Commercial paper (B).. -- -- 162,500,000 54,166,000 3.2%
1992:
Amounts payable to
banks (A)............ $19,465,000 79.2%(C) $ 43,255,000 $25,525,000 21.1%(F)
Commercial paper (B).. 22,000,000 3.5% 152,000,000 43,987,000 3.7%
1991:
Amounts payable to
banks (A)............ $24,338,000 247.7%(C) $ 99,117,000 $31,808,000 21.3%(F)
Commercial paper (B).. 60,500,000 4.8% 62,500,000 6,857,000 6.0%
</TABLE>
- --------
Note A--Substantially all short-term borrowings at year end were payable to
banks under lines of credit arrangements with no termination date and
include bank overdrafts and short-term notes payable used by foreign
subsidiaries for working capital requirements, and the current portion
of long-term debt.
Note B--Excludes amounts classified as noncurrent.
Note C--The unusually large weighted average interest rate is the result of
local borrowings by the Registrant's subsidiary in Brazil, a
hyperinflationary country. Excluding Brazil, the weighted average
interest rate is 8.5%, 20.1%, and 16.5% for 1993, 1992, and 1991,
respectively.
Note D--Average borrowings were determined based on the amounts outstanding at
each month-end for foreign borrowings and the current portion of long-
term debt and daily or monthly amounts outstanding during the year under
domestic lines of credit.
Note E--The weighted average interest rate during the year was computed by
dividing actual interest expense in each year by average short-term
borrowings outstanding during the year.
Note F--The unusually large weighted average interest rate during the year is
the result of local borrowings by the Registrant's subsidiary in Brazil,
a hyperinflationary country. Excluding Brazil, the weighted average
interest rate during the year was 8.5%, 17.1%, and 17.2% for 1993, 1992,
and 1991, respectively.
13
<PAGE>
NALCO CHEMICAL COMPANY AND SUBSIDIARIES
--------------
SCHEDULE X--SUPPLEMENTARY INCOME STATEMENT INFORMATION
<TABLE>
<CAPTION>
COL. A COL. B
------ -----------------------------------
CHARGED TO COSTS AND EXPENSES
-----------------------------------
YEAR ENDED DECEMBER 31
ITEM 1993 1992 1991
---- ----------- ----------- -----------
<S> <C> <C> <C>
Maintenance and repairs.................... $21,943,000 $22,264,000 $22,796,000
</TABLE>
- --------
Note--Amounts for amortization of intangible assets, royalties, taxes (other
than payroll and income taxes) and advertising costs have been omitted, as
such amounts are less than 1% of total sales and revenues.
14
<PAGE>
EXHIBIT (11)
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
NALCO CHEMICAL COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------
1993 1992 1991
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) -------- -------- --------
<S> <C> <C> <C>
PRIMARY
Average shares outstanding during the year..... 69,125 70,035 69,562
Net effect of dilutive stock options and shares
contingently issuable--based on the treasury
stock method using average market price....... 738 945 815
-------- -------- --------
TOTALS....................................... 69,863 70,980 70,377
======== ======== ========
Earnings from continuing operations before
extraordinary loss and effect of accounting
change........................................ $152,697 $144,989 $134,586
Discontinued operations, net of taxes.......... -- -- 3,205
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................................... 85,635 144,989 137,791
Preferred stock dividends, net of taxes........ (10,813) (9,988) (10,045)
-------- -------- --------
Net earnings to common shareholders............ $ 74,822 $135,001 $127,746
======== ======== ========
Per share amounts:
Earnings from continuing operations before
extraordinary loss and effect of accounting
change........................................ $ 2.03 $ 1.90 $ 1.78
Discontinued operations, net of taxes.......... -- -- .04
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.................................. (.81) -- --
-------- -------- --------
Net earnings to common shareholders............ $ 1.07 $ 1.90 $ 1.82
======== ======== ========
</TABLE>
<PAGE>
EXHIBIT (11)
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
NALCO CHEMICAL COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------
1993 1992 1991
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) -------- -------- --------
<S> <C> <C> <C>
FULLY DILUTED
Average shares outstanding during the year..... 69,125 70,035 69,562
Average dilutive effect of assumed conversion
of ESOP Convertible Preferred Shares.......... 8,190 8,253 8,290
Additional shares assuming exercise of dilutive
stock options and shares contingently
issuable--based on the treasury stock method
using the year-end market price, if higher
than average market price..................... 812 966 1,085
-------- -------- --------
TOTALS....................................... 78,127 79,254 78,937
======== ======== ========
Earnings from continuing operations before
extraordinary loss and effect of accounting
change........................................ $152,697 $144,989 $134,586
Discontinued operations, net of taxes.......... -- -- 3,205
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................................... 85,635 144,989 137,791
Additional ESOP contribution resulting from
assumed conversion, net of taxes.............. (5,254) (5,625) (5,711)
Tax adjustment on assumed common dividends..... (573) 2,563 2,545
-------- -------- --------
Net earnings applicable to common shareholders. $ 79,808 $141,927 $134,625
======== ======== ========
Per share amounts:
Earnings from continuing operations before
extraordinary loss and effect of accounting
change........................................ $ 1.88 $ 1.79 $ 1.67
Discontinued operations, net of taxes.......... -- -- .04
Extraordinary loss from retirement of debt, net
of taxes...................................... (.14) -- --
Cumulative effect of change in accounting for
postretirement benefits other than pensions,
net of taxes.................................. (.72) -- --
-------- -------- --------
Net earnings to common shareholders............ $ 1.02 $ 1.79 $ 1.71
======== ======== ========
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Shareholders of
Nalco Chemical Company
In our opinion, the accompanying statement of consolidated financial condition
and the related consolidated statements of earnings, of cash flows and of common
shareholders' equity present fairly, in all material respects, the financial
position of Nalco Chemical Company and its subsidiaries at December 31, 1993,
and the results of their operations and their cash flows for the year in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above. The financial statements of Nalco Chemical Company for the years ended
December 31, 1992 and 1991 were audited by other independent accountants whose
report dated January 26, 1993 expressed an unqualified opinion on those
statements.
As discussed in the notes to the financial statements, the Company changed its
method of accounting for postretirement benefits other than pensions in 1993.
PRICE WATERHOUSE
Chicago, Illinois
January 25, 1994, except as to Note 17,
which is as of February 3, 1994
R. R. Ross
Engagement Partner
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS--RESULTS OF OPERATIONS
Sales from continuing operations reached record levels for the seventh
consecutive year in 1993, totaling $1,389 million, a 1 percent gain over last
year. 1992 sales rose 11 percent over the 1991 total of $1,237 million; however,
the sales increase would have been 8 percent excluding sales of the five former
affiliated companies which were acquired late in the first quarter 1991. Sales
for the last three years by major operating unit were as follows:
<TABLE>
<CAPTION>
1993 vs 1992 1992 vs 1991
Increase
(in millions) 1993 1992 1991 (Decrease) Increase
- ------------ -------- -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Water and Waste Treatment $ 333.6 $ 320.0 $ 303.1 4% 6%
Process Chemicals 347.1 324.7 285.9 7 14
Petroleum Chemicals 136.1 141.9 138.6 (4) 2
International* 572.6 587.9 509.7 (3) 15
-------- -------- --------
Total $1,389.4 $1,374.5 $1,237.3 1 11
*Includes export sales of 32.2 28.0 31.6
</TABLE>
Sales by the three units comprising U.S. Operations were up 4 percent in 1993,
as six of the twelve marketing groups reported improved results. The Water and
Waste Treatment Division posted a 4 percent increase, with four of the five
marketing groups recording solid advances, including a double-digit gain by
UNISOLV. Strong double-digit gains by Absorbent Chemicals and the Pulp and Paper
Chemicals Group paced the Process Chemicals Division to a 7 percent increase
over 1992. Petroleum Chemicals Division sales were down 4 percent from a year
ago, because of lower oil field production sales. International Operations
reported a 3 percent sales decline. Sales by European subsidiaries were down 9
percent, primarily as a result of the stronger U.S. dollar in relation to
European currencies. Sales in Europe would have increased 6 percent had 1993
exchange rates remained the same as 1992. Sales by Latin American subsidiaries
were 9 percent higher than a year ago as our companies in Venezuela, Chile, and
Argentina reported double-digit advances. In the Pacific Rim, double-digit sales
gains by subsidiaries in Indonesia, Japan, and South East Asia resulted in an 8
<PAGE>
percent increase over 1992. Had translation rates remained unchanged from 1992,
revenues of our Pacific Rim companies would have risen 13 percent.
U.S. Operations posted an 8 percent sales advance in 1992 compared with 1991, as
most marketing groups reported improved results. International Operations
revenues were up 15 percent. The 1991 acquisition of former affiliated companies
contributed about half of the increase because these operations reported 9
months sales in 1991 compared to the full year in 1992. Sales by European
subsidiaries rose 12 percent, primarily as a result of the aforementioned
acquisition and the weaker U.S. dollar in relation to European currencies. Sales
by Latin American subsidiaries increased 13 percent principally because of
double-digit gains by our companies in Brazil, Colombia, and Argentina. In the
Pacific Rim, results of the acquired companies and double-digit sales gains by
most of the other subsidiaries in the region resulted in a 39 percent increase
over 1991.
Cost of products sold was 43.8 percent of sales for 1993, compared with
percentages of 44.5 for 1992 and 45.0 for 1991. U.S. Operations reported
slightly higher selling prices and declining raw material costs which more than
offset increased manufacturing expenses. Gross margins of our foreign
subsidiaries were also slightly higher than a year ago.
Stable selling prices and declining raw material costs, partly offset by higher
manufacturing expenses, accounted for higher gross margins reported by U.S.
Operations in 1992 over 1991. Gross margins of our foreign subsidiaries also
increased from 1991 with our subsidiaries in Australia, Brazil, and Colombia
reporting the most significant improvements.
Operating expenses increased $15 million, or 3 percent in 1993. Selling and
service expenses were up $13 million, or 3 percent over last year. Salaries,
benefits, and commissions rose $10 million, or 4 percent, reflecting growth in
the sales force and the adoption of new accounting rules for retiree benefits
other than pensions.
Worldwide, research expenses rose $2 million, or 5 percent over 1992, mainly due
to higher salaries and benefits. As a percent to sales, research
<PAGE>
expenses were 3.6 percent in 1993 compared to 3.5 percent in 1992 and 3.7
percent in 1991.
Administrative expenses for 1993 declined slightly from last year. Lower
provisions for incentive plans were partly offset by increased salaries and
benefits.
Total operating expenses for 1992 were up $49 million, or 11 percent over 1991
in part because 1992 included a full year of expenses for the acquired companies
compared to nine months in 1991. Higher salaries, benefits, and commissions,
associated with the growth of the sales force, also contributed to this
increase.
Interest and other income for 1993 was $14 million, a $4 million decline from a
year ago. This decrease was primarily the result of lower interest income which
resulted from reduced levels of invested cash balances and lower interest rates.
A $2 million gain on the sale of an investment in a mutual insurance company and
a $1 million improvement in equity in earnings of affiliated companies partially
offset the reduction in interest income. Interest and other income for 1991
included $3 million of equity earnings of the five affiliated companies that
were purchased that year.
Interest expense totaled $28 million in 1993, a decrease of $12 million from a
year ago, which reflects the early repayment of debt discussed below. 1992
interest expense of $40 million was up $13 million over 1991 due to larger
outstanding debt to support the affiliate acquisitions made in 1991.
Earnings from continuing operations before extraordinary loss and effect of
accounting change as a percent to sales were 11.0 percent, 10.5 percent, and
10.9 percent in 1993, 1992, and 1991, respectively.
During the first quarter 1993, the Company recorded an extraordinary loss of $11
million as a result of the early repayment of long-term debt. (See Note 13).
Effective January 1, 1993, the Company implemented, on the immediate recognition
basis, Statement of Financial Accounting Standards No. 106 (SFAS 106),
"Employers' Accounting for Postretirement Benefits Other Than
<PAGE>
Pensions." The adoption of SFAS 106 resulted in a non-recurring charge to 1993
earnings of $57 million, net of $33 million of income tax benefits. (See Note
4). In addition, operating earnings for 1993 were reduced $8 million due to the
recurring additional costs related to SFAS 106.
Also effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes", and
Statement of Financial Accounting Standards No. 112 (SFAS 112), "Employers'
Accounting for Postemployment Benefits." Adoption of these pronouncements did
not have a material effect on the Company's earnings or financial position.
On August 10, 1993, the Revenue Reconciliation Act of 1993 was signed into law,
which increased the U.S. corporate income tax rate from 34 percent to 35
percent, retroactive to January 1, 1993. Without this tax rate change, the 1993
effective tax rate would have been 38.1 percent, compared with the actual
effective tax rate of 38.9 percent.
The Company is involved in environmental clean-up activities or litigation in
connection with former waste disposal sites and plant locations. (See Note 15).
This involvement has not had, nor is it expected to have, a material effect on
the Company's earnings or financial position.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS--FINANCIAL CONDITION
Total assets decreased $138 million or 10 percent during 1993. A $143 million
decline in cash, cash equivalents, and short-term marketable securities reflects
repayment of commercial paper borrowings.
Inventories were $6 million or 8 percent lower than at the end of 1992, and $18
million lower than the December 31, 1991 level. The Company is committed to a
program of improved inventory management which complements high levels of
customer service.
The $25 million increase in net property, plant, and equipment reflects capital
spending of $118 million and depreciation expense of $83 million. The
translation impact of a stronger U.S. dollar reduced the carrying value of the
fixed assets of foreign subsidiaries.
Liabilities dropped $113 million or 15 percent, primarily because of the
repayment of debt. Short-term debt and long-term debt were down $26 million and
$162 million, respectively, from last year. The cumulative effect of adopting
SFAS No. 106, net of tax benefits, however, added about $60 million in
liabilities.
Current income taxes payable totaled $17 million at the end of 1993, an increase
of $11 million from a year ago, which was mainly the result of higher taxes
currently payable on United States earnings.
Deferred income taxes declined $49 million, primarily because of a $33 million
deferred tax asset associated with the provision for the cumulative effect of
adopting SFAS 106, and a $6 million deferred tax asset recorded as a result of
the extraordinary loss from the early retirement of debt.
<PAGE>
Shareholders' equity declined $25 million or 4 percent during 1993 primarily
because dividends totaling $72 million and common stock repurchases of 1.7
million shares for $59 million were greater than net earnings of $86 million.
Treasury stock transactions for stock option, benefit, and other plans totaled
$15 million.
Based on earnings before the extraordinary loss and the effect of the change in
accounting principle, Nalco's return on average shareholders' equity was 28.6
percent in 1993, up from 25.7 percent in 1992.
On February 3, 1994, Nalco and Exxon Chemical Company, a division of Exxon
Corporation, announced that they had signed a memorandum of understanding to
form a worldwide energy chemicals joint venture. The joint venture will include
Nalco's U.S. Petroleum Chemicals Division business units, certain petroleum
chemical product lines of its international operations, and Exxon Chemical
Company's Energy Chemicals worldwide business. (See Note 17).
On the same date, the Company announced that it had entered into a letter of
intent to sell its Freeport, Texas plant and its automotive paint spray booth
business to PPG Industries, Inc. (See Note 17).
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS--CASH FLOWS
One of Nalco's most significant financial strengths is its ability to
consistently generate strong cash flow from operations. Net cash provided by
operating activities continued to grow in 1993, primarily from growth in net
earnings before noncash charges for the extraordinary loss from retirement of
debt, the effect of the change in accounting principle, depreciation, and
amortization.
Cash flow activity in 1993 reflected strong cash flows from operating activities
of $256 million and net proceeds of $104 million from the liquidation of
marketable securities. Major funding needs included capital spending of $118
million, payments of long-term debt of $169 million, dividends of $72
million, and $59 million for the reacquisition of common stock.
In 1992, cash from operations rose $9 million or 5 percent over the 1991 total
of $199 million, which was mainly attributable to higher net earnings.
Net cash provided by investing activities during 1993 was negligible.
Investments in property, plant, and equipment of $118 million were offset by the
cash proceeds received from the liquidation of marketable securities and the
sale of Adco Products, Inc. Domestic investments accounted for about two-thirds
of the capital spending for 1993, including $18 million for PORTA-FEED units,
$17 million for field equipment, and $18 million for transportation equipment.
The largest foreign expenditure for 1993 was $11 million for the construction
of the Nalco Europe Business and Technical Center near Leiden, The Netherlands,
which is scheduled for completion in mid-1994. In 1994 we plan to invest in
internal growth and expect capital investment to remain near the 1993 level.
In 1992, net cash required for investing activities was $124 million, with
capital spending representing the most significant activity. Domestic
investments represented 70 percent of the total capital investment of $131
million. The most significant investments included $26 million for PORTA-FEED
units, $17 million for field equipment, $26 million for transportation
equipment, and $6 million for the initial costs of constructing the Nalco Europe
Business and Technical Center.
<PAGE>
Investing activities required the use of $238 million in 1991, and the three
most significant business investment activities were for acquisitions, capital
investment, and the sale of a discontinued operation. The remaining 51 percent
of the common shares of five affiliated companies was acquired for $171 million;
investments in property, plant, and equipment of $137 million accounted for the
next largest investing activity; and the Company sold Day-Glo Color Corp. in a
transaction which provided $72 million.
The most significant financing activity in 1993 was the repayment of commercial
paper borrowings as previously discussed. Dividends on common stock paid by
Nalco during 1993 amounted to $61 million or $.885 per share. Since the
Company's founding in 1928, it has paid 262 consecutive quarterly dividends, and
expects to continue its policy of paying regular cash dividends. During the
year, 1.7 million shares of common stock were repurchased at a cost of $59
million. Management believes that the stock repurchase program represents a
sound economic investment for Nalco's shareholders.
Cash dividends represented the most significant financing cash outflows in 1992
and 1991. In 1991, proceeds from debt were principally used to finance the
acquisition of the five affiliated companies.
Management expects that growth in existing businesses will be financed
principally from internally generated funds. For general purposes and to support
the ESOP loans and the issuance of commercial paper, Nalco also has a $340
million Revolving Credit Agreement with twelve banks. The credit arrangements
were unused at December 31, 1993. (See Note 13). In addition, most foreign
subsidiaries have established short-term borrowing facilities in local currency
and use them as the need arises. Net debt (short-term and long-term borrowings
less cash and short-term marketable securities) totaled $189 million, $234
million, and $255 million at December 31, 1993, 1992, and 1991, respectively.
<PAGE>
- --------------------------------------------------------------------------
STATEMENTS OF CONSOLIDATED EARNINGS
<TABLE>
<CAPTION>
December 31
- --------------------------------------------------------------------------
(in millions except per share figures) 1993 1992 1991
- --------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $1,389.4 $1,374.5 $1,237.3
Operating costs and expenses
Cost of products sold 608.9 611.5 557.0
Selling and service 414.3 401.4 360.4
Research and development 50.4 48.0 45.9
Administrative and general 52.9 53.3 47.0
-------- -------- --------
1,126.5 1,114.2 1,010.3
-------- -------- --------
OPERATING EARNINGS 262.9 260.3 227.0
Interest and other income 14.4 18.3 18.9
Interest expense (27.5) (40.3) (27.1)
-------- -------- --------
EARNINGS FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES 249.8 238.3 218.8
Income taxes 97.1 93.3 84.2
-------- -------- --------
EARNINGS FROM CONTINUING OPERATIONS
BEFORE EXTRAORDINARY LOSS AND
EFFECT OF ACCOUNTING CHANGE 152.7 145.0 134.6
Discontinued operations, net of taxes - - 3.2
-------- -------- --------
EARNINGS BEFORE EXTRAORDINARY LOSS
AND EFFECT OF ACCOUNTING CHANGE 152.7 145.0 137.8
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 $ 85.6 $ 145.0 $ 137.8
======== ======== ========
EARNINGS PER COMMON SHARE--PRIMARY
Continuing operations $ 2.03 $ 1.90 $ 1.78
Discontinued operations - - .04
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 (.81) - -
-------- -------- --------
Net earnings $ 1.07 $ 1.90 $ 1.82
======== ======== ========
EARNINGS PER COMMON SHARE--FULLY DILUTED
Continuing operations $ 1.88 $ 1.79 $ 1.67
Discontinued operations - - .04
Extraordinary loss from retirement
of debt, net of taxes (.14) - -
Cumulative effect of change in
accounting for postretirement
benefits other than pensions,
net of taxes (.72) - -
-------- -------- --------
Net earnings $ 1.02 $ 1.79 $ 1.71
======== ======== ========
</TABLE>
The notes to consolidated financial statements are an integral part of these
statements.
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
STATEMENTS OF CONSOLIDATED FINANCIAL CONDITION
December 31
------------------------------
(in millions) 1993 1992 1991
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 78.1 $ 117.5 $ 120.1
Short-term marketable securities--
at cost which approximates market - 104.0 92.2
Receivables, less allowances of $4.5 in 1993,
$5.9 in 1992, and $4.8 in 1991 215.2 213.3 208.3
Inventories
Finished products 43.5 44.7 52.9
Materials and work in process 25.4 30.0 34.4
-------- -------- --------
68.9 74.7 87.3
Prepaid expenses 12.8 12.4 10.0
-------- -------- --------
TOTAL CURRENT ASSETS 375.0 521.9 517.9
Other Assets
Net assets of discontinued operations - 14.1 26.4
Goodwill, less accumulated amortization
of $10.1 in 1993, $6.7 in 1992,
and $3.6 in 1991 112.9 118.2 138.3
Miscellaneous 166.0 163.1 148.2
-------- -------- --------
TOTAL OTHER ASSETS 278.9 295.4 312.9
NET PROPERTY, PLANT, AND EQUIPMENT 558.5 533.3 493.6
-------- -------- --------
TOTAL ASSETS $1,212.4 $1,350.6 $1,324.4
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt $ 15.2 $ 41.5 $ 84.9
Accounts payable 84.5 89.4 98.0
Accrued compensation 26.3 28.4 28.5
Other accrued expenses 46.2 41.8 43.5
Income taxes 17.4 6.5 6.7
-------- -------- --------
TOTAL CURRENT LIABILITIES 189.6 207.6 261.6
LONG-TERM DEBT 252.1 413.8 394.1
DEFERRED INCOME TAXES 58.1 107.3 90.8
ACCRUED POSTRETIREMENT BENEFITS 94.2 - -
OTHER LIABILITIES 67.8 45.6 49.2
COMMITMENTS AND CONTINGENT LIABILITIES - - -
SHAREHOLDERS' EQUITY
Preferred stock--par value $1.00 per share 0.4 0.4 0.4
Capital in excess of par value of shares 195.7 197.3 198.7
Unearned ESOP compensation (174.4) (188.7) (189.6)
-------- -------- --------
21.7 9.0 9.5
Common stock--par value $.1875 per share;
80,287,568 shares issued 15.1 15.1 15.1
Capital in excess of par value of shares 10.6 9.6 8.7
Retained earnings 819.2 807.6 731.4
Minimum pension liability adjustment (7.1) - -
Foreign currency translation adjustments (49.3) (50.4) (23.9)
Common stock reacquired--at cost (259.6) (214.6) (212.1)
-------- -------- --------
TOTAL SHAREHOLDERS' EQUITY 550.6 576.3 528.7
-------- -------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,212.4 $1,350.6 $1,324.4
======== ======== ========
</TABLE>
The notes to consolidated financial statements are an integral part of these
statements .
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CONSOLIDATED CASH FLOWS
December 31
-------------------------
(in millions) 1993 1992 1991
- -------------------------------------------------- ------- ------- -------
<S> <C> <C> <C>
CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES
Net earnings $ 85.6 $ 145.0 $ 137.8
Adjustments to reconcile net earnings to
cash provided by operating activities
Extraordinary loss from retirement
of debt 10.6 - -
Cumulative effect of change in accounting for
postretirement benefits other than pensions 56.5 - -
Depreciation and amortization 86.5 80.6 69.1
Noncurrent deferred income taxes (2.8) 17.2 13.4
Other--net 10.4 (15.7) 1.4
Changes in current assets and liabilities
Receivables (31.6) (24.2) (16.7)
Inventories (4.4) 3.4 (9.5)
Accounts payable 15.4 2.0 1.7
Other 29.7 - 1.9
------- ------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 255.9 208.3 199.1
------- ------- -------
CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES
Additions to property, plant, and equipment (117.8) (131.0) (136.8)
Business purchase - - (170.9)
Purchases of marketable securities and
restricted investments (210.2) (228.9) (222.6)
Sales of marketable securities and
restricted investments 314.2 228.9 222.3
Proceeds from sale of business 15.7 7.5 71.9
Other investing activities (1.4) (0.4) (1.6)
------- ------- -------
NET CASH PROVIDED BY (USED FOR)
INVESTING ACTIVITIES 0.5 (123.9) (237.7)
------- ------- -------
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES
Cash dividends, net of taxes (71.9) (68.8) (67.8)
Proceeds from long-term debt 1.3 32.9 179.0
Payments of long-term debt (168.7) (46.3) (6.1)
Common stock reacquired (58.5) (14.3) -
Other financing transactions 2.2 9.7 21.2
------- ------- -------
NET CASH PROVIDED BY (USED FOR)
FINANCING ACTIVITIES (295.6) (86.8) 126.3
Effect of foreign exchange rate changes
on cash and cash equivalents (0.2) (0.2) (2.8)
------- ------- -------
Increase (decrease) in cash
and cash equivalents (39.4) (2.6) 84.9
Cash and cash equivalents at the
beginning of the year 117.5 120.1 35.2
------- ------- -------
CASH AND CASH EQUIVALENTS
AT THE END OF THE YEAR $ 78.1 $ 117.5 $ 120.1
======= ======= =======
</TABLE>
The notes to consolidated financial statements are an integral part of these
statements.
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
STATEMENT OF CONSOLIDATED COMMON SHAREHOLDERS' EQUITY
(in millions)
- ----------------------------------------------------------------------------------------------------------------------
Capital in Minimum Foreign Common Stock
Common Excess of Pension Currency Reacquired
Stock Par Value Retained Liability Translation Number
Issued of Shares Earnings Adjustment Adjustments of Shares Cost
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1991 $15.1 $ 7.9 $660.2 $ - $(13.0) 11.0 $(222.3)
Net earnings 137.8
Earnings of acquired companies 1.2
Dividends on preferred stock
--net of tax (10.0)
Dividends on common stock
($0.83 per share) (57.8)
Stock issued under option,
benefit, and other plans 0.8 (0.5) 10.2
Currency translation adjustments (10.9)
----- ----- ------ ----- ------ ---- -------
BALANCE AT DECEMBER 31,1991 15.1 8.7 731.4 - (23.9) 10.5 (212.1)
Net earnings 145.0
Dividends on preferred stock
--net of tax (10.0)
Dividends on common stock
($0.84 per share) (58.8)
Reacquired common stock 0.4 (14.3)
Stock issued under option,
benefit, and other plans 0.9 (0.6) 11.8
Currency translation adjustments (26.5)
----- ----- ------ ----- ------ ---- -------
BALANCE AT DECEMBER 31, 1992 15.1 9.6 807.6 - (50.4) 10.3 (214.6)
Net earnings 85.6
Net loss by foreign
subsidiaries in December 1992 (2.1)
Dividends on preferred stock
--net of tax (10.8)
Dividends on common stock
($0.885 per share) (61.1)
Reacquired common stock 1.7 (58.5)
Stock issued under option,
benefit, and other plans 1.0 (0.6) 13.5
Minimum pension liability adjustment (7.1)
Currency translation adjustments 1.1
----- ----- ------ ----- ------ ---- -------
BALANCE AT DECEMBER 31, 1993 $15.1 $10.6 $819.2 $(7.1) $(49.3) 11.4 $(259.6)
===== ===== ====== ===== ====== ==== =======
</TABLE>
The notes to consolidated financial statements are an integral part of these
statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION POLICY--Nalco's consolidated financial statements include the
accounts of the parent company and its majority-owned subsidiaries. In 1993, the
fiscal year end of the consolidated foreign subsidiaries was changed from
November 30 to December 31. As a result of the change, the Company recorded the
results of its foreign operations for the month of December 1992 directly to
retained earnings. Investments in affiliated companies are reported on the
equity method.
CONCENTRATION OF CREDIT RISK--Financial instruments which potentially subject
the Company to concentration of credit risk consist principally of cash and cash
equivalents, short-term marketable securities, and receivables.
Nalco has a formal policy to place cash and cash equivalents with high credit
quality financial institutions and limit the amount of credit exposure to any
one financial institution. Cash and cash equivalents include demand deposits and
short-term highly liquid debt instruments purchased with maturities of three
months or less. Management believes the likelihood of incurring losses related
to credit risk is remote.
Concentration of credit risk relating to receivables is limited due to a large
number of customers from many different industries and locations. Management
believes the recorded allowances for doubtful accounts are adequate to cover
potential credit risk losses.
FOREIGN CURRENCY TRANSLATION--The local currency has been designated as the
functional currency in financial statements of companies which account for
approximately 86 percent of total foreign subsidiary net assets at the end of
1993. These financial statements are translated at current and average exchange
rates, with any resulting translation adjustments included in the cumulative
translation adjustment account in shareholders' equity. The remaining
subsidiaries operate in countries with hyperinflationary environments and their
statements are translated using a combination of current, average, and
historical exchange rates, with the resulting translation impact included in
results of operations. Transactions executed in different currencies resulting
in exchange adjustments are included in results of operations. The impact of
foreign currency exchange transactions, included in interest and other income in
1993, 1992, and 1991, was not
<PAGE>
significant.
FOREIGN CURRENCY EXCHANGE CONTRACTS--Nalco, in the management of its exposure to
fluctuations in foreign currency rates, enters into forward exchange contracts
and currency swaps. The forward contracts hedge foreign currency transactions
and have maturities which generally do not exceed six months. The Company's swap
agreements have maturities up to 7 years, and hedge foreign currency
intercompany loans related to the 1991 affiliate acquisitions. Counterparties
are major financial institutions. Nalco is exposed to credit loss in the event
of non-performance by the counterparties to the contracts. However, management
evaluates the creditworthiness of the counterparties' financial condition and
believes the likelihood of such default is remote and any losses therefrom would
not be material. At December 31, 1993, the Company had approximately $27 million
in foreign forward exchange contracts and $130 million in foreign currency
swaps.
INVENTORY VALUATION--Inventories are valued at the lower of cost or market.
Approximately 59 percent of the inventories at the end of 1993 are valued using
the last-in, first-out (LIFO) method. The remaining inventories are valued using
the average cost or first-in, first-out (FIFO) method. If the FIFO method of
accounting had been used for all inventories, reported inventory amounts would
have been higher at December 31, 1993, 1992, and 1991 by $35 million, $41
million, and $44 million, respectively.
During 1993 and 1992, inventory quantities were reduced, which resulted in a
liquidation of LIFO inventory layers carried at lower costs which prevailed in
prior years. The effect of these liquidations was not material.
GOODWILL--Goodwill consists of costs in excess of the fair value of tangible net
assets of acquired companies and is generally amortized over 40 years using the
straight-line method. The Company periodically makes judgmental determinations
of the value of the recorded goodwill to determine if an impairment has
occurred. Management is currently of the opinion that no such impairment exists.
INCOME TAXES--In 1992 and 1991, the provision for deferred income taxes
represents the tax effect of differences in the timing of income and expense
recognition for tax and financial reporting purposes. The provision for deferred
income taxes in 1993 was determined pursuant to the provisions of Statement of
Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income
Taxes". Under this statement, the provision for deferred income taxes represents
the tax effect of temporary differences between the carrying
<PAGE>
amount of assets and liabilities and their tax bases.
Deferred income taxes are provided on the undistributed earnings of foreign
subsidiaries and affiliated companies except to the extent such earnings are
considered to be permanently reinvested in the subsidiary or affiliate. Where it
is contemplated that earnings will be remitted, credit for foreign taxes already
paid generally will offset applicable U.S. income taxes. In cases where foreign
tax credits will not offset U.S. income taxes, appropriate provisions are
included in the Consolidated Statements of Earnings. Repatriation of permanently
reinvested earnings would not materially increase the Company's tax liabilities.
RETIREMENT PLANS--The cost of retirement plans is computed on the basis of
accepted actuarial methods (using the projected unit credit method for the
principal plan) and includes current service costs, amortization of increases in
prior service costs over the expected future service of active participants as
of the date such costs are first recognized, and amortization of the initial
unrecognized net pension asset or liability on a straight-line basis over 18
years.
The costs of health and life insurance postretirement benefits were charged
against earnings as paid in years prior to 1993. Effective January 1, 1993, the
Company adopted SFAS 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions", and the costs of providing such benefits are accrued as
earned. Annual expense represents a combination of interest and service cost
provisions. Most postretirement benefits are not funded.
EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)--ESOP contribution expense is based upon
non-level debt payments made by the ESOP to meet the plan funding requirements.
An adjustment to expense is made when the computed amount is less than 80
percent of the cumulative expense that would be recognized under the "shares
allocated" method.
EARNINGS PER SHARE--Primary earnings per common share is computed by dividing
net earnings (after deducting preferred stock dividends, net of income taxes) by
the weighted average number of shares and share equivalents outstanding during
the year. Fully diluted earnings per share is based upon the weighted average
number of common shares and share equivalents, plus the weighted average number
of common shares resulting from the assumed conversion of the Series B ESOP
Convertible Preferred Stock (preferred stock). Earnings for purposes of
computing fully diluted earnings per share are reduced for additional ESOP debt
service expense resulting from the assumed replacement of preferred stock
dividends with common stock dividends, net of related tax benefits.
<PAGE>
NOTE 2--BUSINESS SEGMENT AND GEOGRAPHIC AREA DATA
Nalco is engaged in the worldwide manufacture and sale of highly specialized
Service Chemical programs. This includes production and service related to the
sale and application of chemicals and technology used in water treatment,
pollution control, energy conservation, oil production and refining,
steelmaking, papermaking, mining, and other industrial processes as well as a
superabsorbent product for the disposable diaper market.
Within Nalco, sales between geographic areas are made at prevailing market
prices to customers minus an amount intended to compensate the sister Nalco
company for providing quality customer service.
Operating earnings represent sales less cost of products sold and operating
expenses. In computing operating earnings, none of the following items is
considered: general corporate expenses, interest income or expense, equity in
earnings of affiliated companies, or income taxes.
Identifiable assets are those directly associated with operations of the
geographic area. Corporate assets consist mainly of cash and cash equivalents,
marketable securities, investments in unconsolidated affiliates and leveraged
leases, and capital assets used for corporate purposes. Corporate assets for the
years 1992 and 1991 also include the net assets of discontinued operations.
<PAGE>
GEOGRAPHIC AREA DATA
<TABLE>
<CAPTION>
(in millions) 1993 1992 1991
- -----------------------------------------------------------------
<S> <C> <C> <C>
SALES
North America $ 915.1 $ 883.7 $ 815.8
Europe 315.6 346.5 310.6
Latin America 66.4 60.7 53.9
Pacific 116.7 108.2 77.7
Sales between areas (24.4) (24.6) (20.7)
-------- -------- --------
$1,389.4 $1,374.5 $1,237.3
======== ======== ========
OPERATING EARNINGS
North America $ 216.9 $ 211.3 $ 186.7
Europe 41.8 48.9 44.0
Latin America 11.4 10.0 5.6
Pacific 14.4 14.4 8.2
Expenses not allocated to areas (21.6) (24.3) (17.5)
-------- -------- --------
$ 262.9 $ 260.3 $ 227.0
======== ======== ========
IDENTIFIABLE ASSETS
North America $ 566.6 $ 562.2 $ 542.0
Europe 227.4 225.5 240.7
Latin America 45.4 42.7 40.1
Pacific 126.3 124.7 128.9
Corporate 246.7 395.5 372.7
-------- -------- --------
$1,212.4 $1,350.6 $1,324.4
======== ======== ========
</TABLE>
Amounts for United States sales in the tabulation above include exports to the
following areas:
<TABLE>
<CAPTION>
(in millions) 1993 1992 1991
- ----------------------------------------------------------------
<S> <C> <C> <C>
Latin America $19.2 $16.0 $18.8
All other 13.0 12.0 12.8
- ----------------------------------------------------------------
</TABLE>
<PAGE>
NOTE 3--PENSION PLANS
The Company has several noncontributory defined benefit pension plans covering
most employees in the United States and those with eight foreign subsidiaries.
The principal domestic plan represents approximately 73 percent of the projected
benefit obligation and 82 percent of the total market value of assets. This plan
provides benefits that are based on years of service and the employee's highest
paid 48 months during the last 120 months before termination of employment.
Approximately 94 percent of the assets in the plan at December 31, 1993 was
invested in stocks, bonds, and insurance contracts, and the remaining assets
were invested in professionally managed real estate trusts and partnerships. Due
to the present funded position of the plan, no contributions have been made
since 1984, and none are anticipated in 1994. Four of the eight foreign pension
plans are unfunded, generally because amounts contributed are not deductible for
tax purposes.
Employees in the United States whose pension benefits exceed ERISA limitations
are covered by a supplementary non-qualified, unfunded pension plan which is
being provided for by charges to earnings sufficient to meet the projected
benefit obligation (PBO). The accruals for the cost of this plan are based on
substantially the same actuarial methods and economic assumptions as those used
for the principal plan.
Net pension expense for all defined benefit plans included in operating results
was comprised of:
<TABLE>
<CAPTION>
(in millions) 1993 1992 1991
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost for benefits earned $ 16.4 $ 15.9 $ 12.9
Interest costs on the PBO 23.1 24.5 20.7
Actual return on plan assets (41.7) (22.5) (42.1)
Net amortizations and deferrals 17.1 (4.3) 17.0
------ ------ ------
Net pension expense for defined benefit plans $ 14.9 $ 13.6 $ 8.5
====== ====== ======
</TABLE>
<PAGE>
Assumptions for the plans as of the end of the last three years were as follows:
<TABLE>
<CAPTION>
U.S. Plans
-----------------------------
1993 1992 1991
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Weighted-average discount rates 7.5% 8.5% 8.3%
Rates of increase in compensation levels 4.8 6.3 7.0
Rates of return on plan assets 9.0 10.0 10.0
- -------------------------------------------------------------------------
Foreign Plans
-----------------------------
1993 1992 1991
- -------------------------------------------------------------------------
Weighted-average discount rates 6.5-9.0% 7.0-10.0% 6.5-11.0%
Rates of increase in compensation levels 4.5-6.5 5.0- 8.0 5.0- 8.0
Rates of return on plan assets 7.0-9.5 7.0-10.0 6.5-10.0
- -------------------------------------------------------------------------
</TABLE>
The following table sets forth the funded status and amounts recognized in the
consolidated statements of financial condition at year end for plans in which
assets exceed the accumulated benefit obligation (ABO):
<TABLE>
<CAPTION>
December 31
------------------------
(in millions) 1993 1992 1991
- --------------------------------------------------------------
<S> <C> <C> <C>
Actuarial present value of:
Vested benefit obligation $178.1 $150.4 $160.5
Non-vested benefit obligation 3.4 5.6 5.4
------ ------ ------
Total ABO 181.5 156.0 165.9
Effect of future salary increases 90.9 79.2 80.1
------ ------ ------
Total PBO 272.4 235.2 246.0
Plan assets at fair market value 278.2 247.8 266.9
------ ------ ------
Plan assets in excess of the PBO 5.8 12.6 20.9
Unrecognized net (asset)
from date of adoption (32.0) (34.7) (38.0)
Unrecognized prior service cost 15.4 15.4 9.9
Unrecognized net actuarial losses 21.8 22.6 24.7
------ ------ ------
Net pension assets recognized $ 11.0 $ 15.9 $ 17.5
====== ====== ======
</TABLE>
<PAGE>
The following table sets forth the funded status and amounts recognized in the
consolidated statements of financial condition at year end for plans in which
the ABO exceeds assets:
<TABLE>
<CAPTION>
December 31
------------------------
(in millions) 1993 1992 1991
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Actuarial present value of:
Vested benefit obligation $ 25.9 $ 24.7 $ 22.8
Non-vested benefit obligation 2.2 1.9 1.6
------ ------ ------
Total ABO 28.1 26.6 24.4
Effect of future salary increases 13.2 14.9 15.2
------ ------ ------
Total PBO 41.3 41.5 39.6
Plan assets at fair market value 3.4 3.3 -
------ ------ ------
Plan assets (less) than the PBO (37.9) (38.2) (39.6)
Unrecognized net liability
from date of adoption 4.1 4.6 4.3
Unrecognized prior service cost 7.5 8.9 1.2
Unrecognized net actuarial losses 15.9 17.8 11.4
Adjustment to recognize minimum liability (20.5) (10.0) (6.0)
------ ------ ------
Net pension (liabilities) recognized $(30.9) $(16.9) $(28.7)
====== ====== ======
</TABLE>
In accordance with Statement of Financial Accounting Standards No. 87 (SFAS 87),
"Employers' Accounting for Pensions," the Company has recorded a minimum pension
liability for certain plans, representing the excess of the ABO over plan assets
and accrued pension costs. A corresponding amount was recognized as an
intangible asset, except to the extent that these additional liabilities
exceeded related unrecognized prior service cost and net transition obligation,
in which case the increase in liabilities was charged directly to shareholders'
equity. For 1993, the excess minimum pension liability resulted in a $7 million
charge to shareholders' equity, net of income taxes.
<PAGE>
NOTE 4--POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Nalco has defined benefit postretirement plans that provide medical, dental, and
life insurance benefits for substantially all United States retirees and
eligible dependents. Nalco retains the right to change or terminate these
benefits. Effective January 1, 1993, the Company implemented, on the immediate
recognition basis, SFAS 106, "Employers' Accounting for Postretirement Benefits
Other than Pensions." This statement requires that the cost of these benefits be
recognized in the financial statements during an employee's active working
career with the Company. Nalco's previous practice was to expense these costs as
incurred.
The adoption of SFAS 106 resulted in a noncash charge of $57 million, net of $33
million of income tax benefits. The expense accrued in 1993 exceeded the amount
under the previous accounting method by $8 million before taxes. Nalco's cash
flows will be unaffected by this accounting change because Nalco intends to
continue its current practice of paying most costs of these postretirement
benefits as the claims are incurred.
The postretirement benefit expense for 1993 totaled $10 million and included $3
million for service cost of benefits earned and $7 million for interest cost on
the accumulated postretirement benefit obligation.
Costs of these benefits were $2 million in 1992 and 1991, and were funded from
current Company cash flows and charged to earnings as claims were paid.
<PAGE>
The 1993 accrued postretirement benefit liability included the following
components:
<TABLE>
<CAPTION>
<S> <C>
(in millions)
- ----------------------------------------------------------------------
Actuarial present value of postretirement benefit obligations
Retirees $41.6
Fully eligible active plan participants 12.2
Other active plan participants 34.8
-----
Accumulated postretirement benefit obligation 88.6
Unrecognized net gain 8.3
-----
Accrued postretirement benefit liability 96.9
Less current portion 2.7
-----
Noncurrent liability $94.2
=====
</TABLE>
Measurement of the accumulated postretirement benefit obligation was based on a
7.5 percent discount rate and a health care cost trend rate of 11.5 percent for
1993, decreasing 0.5 percent per year to an ultimate rate of 5.5 percent. A one-
percentage-point increase in the assumed health care cost trend rate would have
increased the 1993 postretirement benefit expense by approximately $2 million
and would have increased the 1993 accumulated postretirement benefit obligation
by $12 million.
<PAGE>
NOTE 5--EMPLOYEE STOCK OWNERSHIP PLAN (ESOP) AND PROFIT SHARING PLAN
In 1989, Nalco established an ESOP to give most domestic employees an additional
opportunity to share in the ownership of the Company's stock. The ESOP purchased
415,800 shares of preferred stock for $200 million with proceeds from loans
described in Note 13. These shares are allocated to eligible employees based on
a percentage of pretax earnings. See Note 14 for more detail on the preferred
stock.
Selected information about the ESOP for the past three years is as follows:
<TABLE>
<CAPTION>
(in millions) 1993 1992 1991
- ----------------------------------------------------
<S> <C> <C> <C>
Preferred stock dividends $15.7 $15.9 $15.9
Interest expense on ESOP debt 10.3 11.1 13.0
ESOP benefit expense 1.2 0.9 2.4
ESOP contribution payments - - 1.7
- ----------------------------------------------------
</TABLE>
Prior to the establishment of the ESOP, the Company funded a profit sharing
plan. Past contributions were made to a bank trustee for investment in Nalco
common stock for the accounts of participating employees. At the end of 1993,
the trustee of the plan held 3,765,713 shares of Nalco common stock,
representing 5.5 percent of the outstanding shares.
<PAGE>
NOTE 6--LEASE COMMITMENTS AND RENTAL EXPENSE
Nalco has a number of operating leases for office space and equipment. Rental
expense amounted to $14 million in 1993, $15 million in 1992, and $13 million in
1991. Future minimum payments under noncancellable operating leases as of
December 31, 1993 are not material.
<PAGE>
NOTE 7--STOCK OPTION, RESTRICTED STOCK, AND PERFORMANCE PLANS
Nalco's 1990 Stock Option Plan for key management employees authorized the
granting of stock options for the purchase of up to 6,000,000 shares of Nalco
common stock. Nalco's 1982 Stock Option Plan authorized the granting of either
incentive stock options or non-qualified options for the purchase of up to
6,000,000 shares of Nalco's common stock. No additional grants will be made
under the 1982 plan. The option price under both plans cannot be less than the
fair market value on the date of grant. Options granted since 1989 become
exercisable ratably over the three years following the grant date, and will
expire 10 years after the date granted. Options granted prior to 1989 have a
term of 10 years, and became exercisable upon grant. Options may be exercised in
whole or in part for cash, shares of common stock, or a combination thereof.
The changes in shares under option to employees are summarized as follows:
<TABLE>
<CAPTION>
1993 1992 1991
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
At beginning of year 4,348,644 3,205,028 3,719,000
Options granted - price per share
1993-$36.31; 1992-$36.00; 1991-$29.81 491,600 1,776,220 99,600
Options exercised - average price per share
1993-$17.81; 1992-$16.75; 1991-$17.05 (518,734) (601,004) (594,306)
Options expired or cancelled (62,033) (31,600) (19,266)
At end of year - average price per share
1993-$28.09; 1992-$26.03; 1991-$18.80 4,259,477 4,348,644 3,205,028
Options exercisable at end of year 2,639,155
- -------------------------------------------------------------------------------
</TABLE>
The 1990 Stock Option Plan for Non-Employee Directors authorizes the granting of
stock options to outside directors for the purchase of up to 500,000 common
shares. The option price under the plan cannot be less than the fair market
value on the date of the grant and options expire 10 years from the grant date.
A total of 36,000 options were granted under the directors' plan during 1993 at
an option price of $32.94 per share, and a total of 32,000 options were granted
each year under the directors' plan during 1992 and 1991 at option prices of
$33.25 and $31.97 per share, respectively. These options became exercisable upon
grant, but none have yet been exercised.
A Restricted Stock Plan for key management employees provides for the grant of
"share units" which, upon vesting, are paid in shares of Nalco common stock on a
one-for-one basis. One-half of the units granted normally vest five years from
the date of award, and the remaining half vest at retirement,
<PAGE>
if the grantee retires directly from Nalco under the Retirement Income Plan.
However, all of these contingent share units vest automatically in the event of
death, disability, or in the event of a change in control of the Company. Not
more than 500,000 share units may be awarded. The remaining number of share
units available for award under the plan at December 31, 1993 was 275,830, and
99,420 share units were outstanding at year end.
A Performance Unit Plan provided for the annual assignment of contingent
performance units to designated officers and other key executives. The
contingent units assigned were earned, subject to the attainment of goals for
growth in earnings for each performance period. Payment of earned awards are
made in cash following the conclusion of the applicable performance period.
A Performance Share Plan for designated officers and other key executives was
approved by shareholders in 1992. It provides for the annual assignment of
performance shares which are contingent upon future earnings growth of the
Company. Performance awards shall be paid half in cash and half in the Company's
common stock, except that any payments made after 1,000,000 shares have been
issued shall be made only in cash and only with respect to contingent
performance shares already assigned. The cash portion of an award shall be paid
after determination of the award; however, the right to receive common shares
shall not vest to a participant until three years after the end of a performance
period.
Charges to earnings for all plans aggregated $4 million, $5 million, and $1
million in 1993, 1992, and 1991, respectively.
<PAGE>
NOTE 8--INCOME TAXES
Effective January 1, 1993, Nalco adopted Statement of Financial Accounting
Standards No. 109 (SFAS 109), "Accounting for Income Taxes." The cumulative
effect of the change in the method of accounting for income taxes as of the
beginning of 1993 was not material.
A significant amount of earnings from continuing consolidated operations before
income taxes is from foreign sources, as reflected in the following tabulation:
<TABLE>
<CAPTION>
(in millions) 1993 1992 1991
- ---------------------------------------
<S> <C> <C> <C>
Domestic $182.6 $165.9 $152.4
Foreign 67.2 72.4 66.4
------ ------ ------
Total $249.8 $238.3 $218.8
====== ====== ======
</TABLE>
The components of income tax provisions attributable to earnings from continuing
consolidated operations are summarized as follows:
<TABLE>
<CAPTION>
(in millions) 1993 1992 1991
- ------------------------------------
<S> <C> <C> <C>
Current
Federal $55.3 $32.1 $35.0
State 9.5 6.5 6.5
Foreign 26.8 36.9 34.8
----- ----- -----
91.6 75.5 76.3
----- ----- -----
Deferred
Federal 3.0 13.6 9.9
State 0.8 2.8 1.7
Foreign 1.7 1.4 (3.7)
----- ----- -----
5.5 17.8 7.9
----- ----- -----
Total $97.1 $93.3 $84.2
===== ===== =====
</TABLE>
Current foreign taxes listed above include taxes withheld by foreign governments
on distributions from subsidiaries and affiliates (principally dividends and
service fees).
<PAGE>
Nalco made income tax payments of $87 million, $77 million, and $85 million
during 1993, 1992, and 1991, respectively.
The effective income tax rate varies from the federal statutory rate because of
the factors indicated below:
<TABLE>
<CAPTION>
1993 1992 1991
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory U.S. federal tax rate 35.0% 34.0% 34.0%
State income taxes, net of federal tax benefit 2.7 2.6 2.4
Foreign earnings subject to higher rates 0.6 2.0 1.6
Other 0.6 0.6 0.5
---- ---- ----
Effective tax rate 38.9% 39.2% 38.5%
==== ==== ====
</TABLE>
Details of the 1993 deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
(in millions)
- -----------------------------------------------------------------
<S> <C>
Deferred tax assets:
Postretirement benefits $ 39.1
Early retirement of debt 5.1
Other 15.6
------
Total 59.8
------
Deferred tax liabilities:
Depreciation 72.0
Leveraged lease investments 35.6
Other 10.3
------
Total 117.9
------
Net deferred tax liability $ 58.1
======
</TABLE>
<PAGE>
NOTE 9--ACQUISITIONS
In March 1991 the Company acquired the remaining interest in five affiliated
companies for $171 million. Each of these companies provides Nalco's water
treatment and specialty process chemicals to customers. Nalco already owned 49
percent of the common shares of each of these companies and had been accounting
for earnings on the equity basis. The operations of these former affiliated
companies were consolidated effective April 1991.
If the acquisitions had occurred at the beginning of 1991, unaudited pro forma
results for 1991 would have reflected net sales and net earnings of $1,281
million and $133 million, respectively. Earnings per common share would have
been $1.76 on a primary basis and $1.65 fully diluted.
<PAGE>
NOTE 10--DISCONTINUED OPERATIONS
In 1991 the results of our U.S. Subsidiaries, Day-Glo Color Corp., Adco
Products, Inc., and the Penray Companies were reported as discontinued
operations because Day-Glo Color Corp. was sold, and the net assets of the other
two companies were held for sale. The Penray Companies were sold in 1992, and
Adco Products, Inc. was sold in 1993.
The net carrying amount of assets of discontinued operations consisted primarily
of accounts receivable, inventory, and property, plant, and equipment less
related liabilities at December 31, 1992 and 1991.
<PAGE>
NOTE 11--FINANCE SUBSIDIARIES
Nalco has four finance subsidiaries, one wholly-owned and three 80%-owned, which
were established to increase the return on financial assets. These subsidiaries
are the lessor of a diversified portfolio of leveraged leases involving
creditworthy lessees. Amounts related to the finance subsidiaries which are
included in the Statements of Consolidated Financial Condition and Earnings are
as follows:
<TABLE>
<CAPTION>
(in millions) 1993 1992 1991
- ------------------------------------------------------
<S> <C> <C> <C>
AT YEAR END
Leveraged lease investments $44.6 $43.9 $44.4
Current liabilities 1.8 1.6 1.8
Deferred income taxes and other 35.6 35.9 35.6
----- ----- -----
Net assets $ 7.2 $ 6.4 $ 7.0
----- ----- -----
FOR THE YEAR
Net earnings $ 1.5 $ 1.0 $ 1.3
Dividends received by Nalco 0.3 0.3 0.4
- ------------------------------------------------------
</TABLE>
Investments in leased property represent future rentals and residuals, net of
nonrecourse debt. The leased assets are financed primarily by nonrecourse loans
which are secured by the lessees' rental obligations and the leased property,
but ownership of the property is retained by the finance subsidiaries. Such
loans amounted to approximately $59 million at both December 31, 1993 and 1992,
and $61 million at December 31, 1991. Income from leveraged lease transactions
is reported on the financing method, which requires income recognition over the
life of the lease at a level rate of return on the positive net investment.
<PAGE>
NOTE 12--PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment (including major improvements) are recorded at
cost. Depreciation of buildings and equipment is calculated over their estimated
useful lives generally using the straight-line method. The estimated useful
lives of the major classes of depreciable assets are as follows: buildings 15 to
40 years; equipment 3 to 15 years.
Property, plant, and equipment consists of the following:
<TABLE>
<CAPTION>
(in millions) 1993 1992 1991
- ----------------------------------------------------------
<S> <C> <C> <C>
Land $ 39.1 $ 37.4 $ 33.6
Buildings 215.2 207.0 203.6
Equipment 875.6 799.8 720.6
-------- -------- -------
1,129.9 1,044.2 957.8
Allowances for depreciation (571.4) (510.9) (464.2)
-------- -------- -------
$ 558.5 $ 533.3 $ 493.6
======== ======== =======
</TABLE>
<PAGE>
NOTE 13--DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
(in millions) 1993 1992 1991
- ------------------------------------------
<S> <C> <C> <C>
ESOP loans $179.9 $186.0 $190.5
Commercial paper - 160.0 160.0
Other 72.2 67.8 43.6
------ ------ ------
Total $252.1 $413.8 $394.1
====== ====== ======
</TABLE>
In 1989, the ESOP borrowed $200 million to purchase preferred stock from the
Company. Nalco borrowed $66 million which was subsequently loaned to the ESOP,
and guaranteed the balance of $134 million. Borrowings related to the ESOP are
reflected as long-term debt with a corresponding reduction of shareholders'
equity (unearned ESOP compensation). The ESOP is repaying the loans and
interest over a projected 13-year period using Company contributions and
dividends from preferred stock. As the principal amount of the borrowings is
repaid, the debt and the unearned ESOP compensation are being reduced. $88
million of borrowings are variable rate notes which are presently remarketed on
a monthly basis with a final maturity on December 31, 2008. Any notes which
cannot be successfully remarketed will be purchased by the Company or one of its
subsidiaries. The Company entered into an interest rate swap agreement which
effectively converted the $88 million of variable rate notes into fixed-rate
debt of 7.3 percent. The remaining borrowings are 8.1 percent fixed-rate loans
with a final maturity in the year 2000.
During 1993, the Company repaid $160 million of commercial paper borrowings
which had been classified as long-term debt. The early retirement of this debt
resulted in an extraordinary loss of $11 million net of tax benefits of $6
million.
The $72 million in other long-term debt includes $45 million owed by two foreign
subsidiaries at variable interest rates. The balance was borrowed by the parent
company and various foreign subsidiaries.
Interest paid by Nalco was $33 million, $44 million, and $36 million in 1993,
1992, and 1991, respectively.
<PAGE>
The following table presents the projected annual maturities of long-term debt
for the next five years after 1993:
<TABLE>
<CAPTION>
(in millions)
- ----------------
<S> <C>
1994 $ 2.4
1995 0.1
1996 66.1
1997 12.0
1998 12.0
</TABLE>
The amounts above include approximately $90 million in maturities related to the
ESOP loans. The ESOP is required to repay principal on its loan from Nalco
annually in order to allocate shares to participants, and this loan matures for
Nalco in 1996.
For general purposes and to support the ESOP loans and the issuance of
commercial paper, Nalco has a $340 million Revolving Credit Agreement with
twelve banks. This agreement is structured as a three-year revolving credit with
an option in 1996 to convert the borrowings to a four-year term loan. Borrowings
under the credit agreement would be at rates which, at Nalco's option, vary with
the prime rate, CD rate, or LIBOR. The credit line carries a commitment fee of
.25 percent on the unused portion. The credit arrangements were unused at
December 31, 1993.
<PAGE>
NOTE 14--SHAREHOLDERS' EQUITY
Information on preferred and common shares is summarized in the following table:
<TABLE>
<CAPTION>
(dollars in millions, except per share amounts) 1993 1992 1991
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Preferred stock, par value $1.00 per share;
authorized 2,000,000 shares;
Series B ESOP Convertible
Preferred Stock--outstanding;
407,806 shares-1993, 411,032
shares-1992, and 414,037 shares
-1991 $ 0.4 $ 0.4 $ 0.4
Series A Junior Participating
Preferred Stock--none issued
Common stock, par value $.1875 per share;
authorized 200,000,000 shares;
issued 80,287,568 shares 15.1 15.1 15.1
- ----------------------------------------------------------------------
</TABLE>
There were 11,383,105 shares, 10,266,979 shares, and 10,459,404 shares held in
treasury at December 31, 1993, 1992, and 1991, respectively.
In 1990, Nalco's Board of Directors authorized the repurchase of up to 2 million
shares of the Company's common stock. During 1993, the repurchase of those
shares was completed and the Board of Directors authorized the repurchase of an
additional 2 million shares.
The Company issued 415,800 shares of preferred stock to the ESOP in 1989 for
$481.00 per share, the preference price upon liquidation. This preferred stock
ranks senior to Series A Junior Participating Stock and common stock as to the
payment of dividends and the distribution of assets on liquidation, dissolution
and winding up of Nalco. Dividends on each share of preferred stock are
cumulative and will be paid quarterly at the rate of 8 percent or $38.48 per
annum. Full conversion of preferred shares occurs upon a holder's retirement or
separation of service from the Company, and effective in 1999 participants in
the ESOP may partially convert their stock upon reaching age 55. The conversion
ratio and number of votes per share of preferred stock are subject to adjustment
under certain conditions. The preferred stock entitles a participant to 20 votes
per share, voting together with the holders of common stock and initially was
convertible into 20 shares of common stock. The shares of preferred stock are
redeemable by Nalco at $500.24 per share, and at prices declining annually to
$481.00 per share on or after May 15, 1997. Also, the shares of preferred stock
may be required to be redeemed by Nalco under certain circumstances. During
1993, 3,226 preferred shares were converted to 61,566 common shares of Nalco
Stock. During 1992 and 1991, 3,005 and 1,102 preferred shares were converted to
60,082 and 26,318 common shares, respectively. Approximately 8,300,000 common
shares have been reserved for
<PAGE>
the conversion of preferred stock.
In 1986, the Board of Directors declared a dividend distribution of one
Preferred Share Purchase Right (Right) for each outstanding share of common
stock. The Rights, as amended in 1989, are not exercisable or transferrable
apart from the common stock until a person or group has acquired, or makes a
tender offer for 15 percent or more of the common stock. If Nalco is acquired in
a merger or other business combination transaction, each Right other than that
held by the acquiring party will entitle the holder to receive, upon exercise at
a price of $50, common stock of either Nalco or the acquiring company having a
value equal to two times that price. The Rights are redeemable at $.025 each at
any time before a 15 percent or greater position has been acquired, and expire
on August 31, 1996.
<PAGE>
NOTE 15--CONTINGENCIES AND LITIGATION
Nalco has been named as a potentially responsible party by the Environmental
Protection Agency (EPA) or state enforcement agencies at 10 waste sites
where some financial contribution is or may be required.
These agencies have also identified many other parties who may be responsible
for clean-up costs at the waste disposal sites. Nalco's financial contribution
to clean up these sites is expected to be minor. There has been no significant
financial impact on Nalco up to the present, nor is it anticipated that there
will be in the future, as a result of these matters. Nalco has and will continue
to make provisions for these costs when the Company's liability can be
reasonably estimated. As of December 31, 1993, the Company had reserves of
approximately $2 million for potential future environmental clean-up costs. The
Company's 1993 expenditures relating to environmental compliance and clean-up
activities were not significant. The environmental reserves represent
management's current estimate of its proportional clean-up costs and are not
reduced by any possible recoveries from insurance companies or other potentially
responsible parties not specifically identified by the EPA. Although management
cannot determine whether or not a material effect on future operations is
reasonably likely to occur, it believes that the recorded reserve levels are
appropriate estimates of the potential liability. Further, management believes
that the additional maximum exposure level in excess of the recorded reserve
level would not be material to the financial condition of the Company. Although
settlement of the reserves will cause future cash outlays, it is not expected
that such outlays will materially impact the Company's liquidity position.
In the ordinary course of its business, Nalco is also a party to a number of
lawsuits and is subject to various claims, the outcome of which, in the opinion
of management, should not have a material effect on the consolidated financial
position of Nalco.
<PAGE>
NOTE 16--FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of cash and cash equivalents, short-term marketable
securities, short-term debt, commercial paper borrowings, and term borrowings at
variable interest rates approximated their fair values at December 31, 1993 and
1992.
A currency swap which hedges a net investment in a foreign subsidiary was an
asset with a fair value of $9 million, based on current settlement prices, which
did not differ materially from the carrying value at December 31, 1993.
The fair value of certain interest rate swap liabilities, based on current
settlement prices, approximated the carrying value of $15 million at December
31, 1993.
The fair value of the Company's fixed-rate ESOP borrowings at December 31, 1993
and 1992 was approximately $121 million and $120 million, respectively, which
was estimated using discounted cash flow analyses, based on the Company's
current borrowing rates for similar types of borrowing arrangements.
The fair value of the Company's off-balance-sheet financial instruments such as
foreign currency forward contracts, currency swaps, and interest rate swaps was
a net liability of $10 million and $7 million at December 31, 1993 and 1992,
respectively, which was estimated using quoted market prices of comparable
contracts and pricing models or formulas using current assumptions.
<PAGE>
NOTE 17--SUBSEQUENT EVENTS
On February 3, 1994, Nalco and Exxon Chemical Company, a division of Exxon
Corporation, announced that they had signed a memorandum of understanding to
form a worldwide energy chemicals joint venture. The joint venture will include
Nalco's U.S. Petroleum Chemicals Division business units, certain petroleum
chemical product lines of its international operations, and Exxon Chemical
Company's Energy Chemicals worldwide business.
The new company, to be named Nalco/Exxon Energy Chemicals, is targeted to start
up by mid-1994, pending government and regulatory approvals and definitive
agreements between the two companies.
On that same date, the Company announced that it had entered into a letter of
intent to sell its Freeport, Texas plant and its automotive paint spray booth
business to PPG Industries, Inc.
The Freeport plant, which has 27 Nalco employees, produces chemical products for
the oil production and refining market. It is expected that the Nalco/Exxon
Energy Chemicals joint venture will purchase certain of its requirements for
these products from PPG.
Nalco's worldwide automotive paint spray booth business, approximately $10
million in size, would be included in the sale to PPG. Nalco has agreed to sell
and service the water treatment related applications for PPG in the automotive
facilities associated with the business sold.
<PAGE>
<TABLE>
<CAPTION>
QUARTERLY SUMMARY (UNAUDITED)
1993 1992
---------------------------------- ----------------------------------
(Dollar amounts in millions, First Second Third Fourth First Second Third Fourth
except per share figures) Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales $339.0 $347.5 $354.0 $348.9 $326.4 $340.3 $349.5 $358.3
Gross earnings 188.9 195.7 199.1 196.8 179.7 189.2 192.5 201.6
Earnings from operations 35.1 38.1 38.7 40.8 33.0 36.4 34.8 40.8
Extraordinary loss from
retirement of debt (10.6) - - - - - - -
Cumulative effect of
accounting change (56.5) - - - - - - -
Net earnings (loss) (32.0) 38.1 38.7 40.8 33.0 36.4 34.8 40.8
Per common share
Earnings-fully diluted
Earnings from operations .43 .46 .48 .51 .41 .45 .43 .50
Extraordinary loss and
accounting change (.85) - - - - - - -
Net earnings (loss) (.42) .46 .48 .51 .41 .45 .43 .50
Dividends .21 .225 .225 .225 .21 .21 .21 .21
Market price
High 37 3/8 36 3/8 36 3/8 37 7/8 40 7/8 37 36 37 3/4
Low 32 1/2 31 1/4 32 1/2 30 1/4 33 1/4 30 3/4 32 30 3/8
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
ELEVEN YEAR SUMMARY
(Dollar amounts in millions
except per share figures) 1993 1992 1991
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $1,389.4 $1,374.5 $1,237.3
Operating costs and expenses
Cost of products sold 608.9 611.5 557.0
Selling and service 414.3 401.4 360.4
Research and development 50.4 48.0 45.9
Administrative and general 52.9 53.3 47.0
- -------------------------------------------------------------------------------------------------
TOTAL OPERATING COSTS AND EXPENSES 1,126.5 1,114.2 1,010.3
- -------------------------------------------------------------------------------------------------
OPERATING EARNINGS 262.9 260.3 227.0
Interest and other income 14.4 18.3 18.9
Interest expense (27.5) (40.3) (27.1)
- -------------------------------------------------------------------------------------------------
EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 249.8 238.3 218.8
Income taxes 97.1 93.3 84.2
- -------------------------------------------------------------------------------------------------
EARNINGS FROM CONTINUING OPERATIONS 152.7 145.0 134.6
Earnings (loss) from discontinued operations - - 3.2
- -------------------------------------------------------------------------------------------------
EARNINGS BEFORE EXTRAORDINARY LOSS AND
EFFECT OF ACCOUNTING CHANGE 152.7 145.0 137.8
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 $ 85.6 $ 145.0 $ 137.8
=================================================================================================
PER SHARE OF COMMON STOCK
Earnings from continuing operations--primary $ 2.03 $ 1.90 $ 1.78
Discontinued operations - - .04
Extraordinary item (.15) - -
Accounting change (.81) - -
Net earnings 1.07 1.90 1.82
Net earnings--fully diluted 1.02 1.79 1.71
Cash dividends paid .885 .84 .83
- -------------------------------------------------------------------------------------------------
FINANCIAL RATIOS
Earnings as a percent to sales* 11.0% 10.5% 10.9%
Earnings as a percent to shareholders' equity* 28.6 25.7 27.6
Effective income tax rate* 38.9 39.2 38.5
Common stock dividends paid as a percent to earnings* 40.0 40.6 42.9
Research and development expenses as a percent to sales* 3.6 3.5 3.7
Current ratio 2.0 to 1 2.5 to 1 2.0 to 1
- -------------------------------------------------------------------------------------------------
FINANCIAL POSITION DATA
Working capital $ 185.4 $ 314.3 $ 256.3
Total assets 1,212.4 1,350.6 1,324.4
Property, plant, and equipment (cost) 1,129.9 1,044.2 957.8
Long-term debt 252.1 413.8 394.1
Deferred income taxes 58.1 107.3 90.8
Shareholders' equity 550.6 576.3 528.7
- -------------------------------------------------------------------------------------------------
OTHER DATA
Working capital provided from operations $ 245.6 $ 226.7 $ 218.5
Capital investments 117.8 131.0 136.8
Depreciation and amortization* 86.5 79.4 64.6
Dividends on common stock 61.1 58.8 57.8
Cost of common stock repurchased 58.5 14.3 -
Wages, salaries, commissions, and benefits 413.6 403.7 376.6
Common shares outstanding at year end (thousands) 68,905 70,021 69,828
Market price per share of common stock at year end $ 37.50 $ 34.625 $ 41.625
Number of common shareholders of record 6,111 6,129 5,543
Number of employees at year end 6,802 6,714 6,832
- -------------------------------------------------------------------------------------------------
</TABLE>
NOTE: Shares outstanding and per share amounts have been restated to reflect the
two-for-one stock split in 1991.
* based on earnings from continuing operations before extraordinary loss and
effect of accounting change.
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
1990 1989 1988 1987 1986 1985 1984 1983
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$1,068.1 $ 949.6 $ 892.6 $ 756.0 $ 658.5 $ 658.6 $ 655.8 $ 606.3
484.5 439.5 418.9 355.4 298.3 301.2 303.5 280.9
294.0 254.8 238.7 205.7 185.8 172.4 172.0 158.9
40.4 35.6 32.4 30.7 29.2 29.9 30.3 28.6
50.2 47.2 50.0 38.9 41.4 34.3 34.9 30.7
- -------------------------------------------------------------------------------------------
869.1 777.1 740.0 630.7 554.7 537.8 540.7 499.1
- -------------------------------------------------------------------------------------------
199.0 172.5 152.6 125.3 103.8 120.8 115.1 107.2
19.9 27.0 20.6 14.9 12.6 10.9 15.0 12.9
(11.5) (9.7) (9.5) (8.2) (6.0) (3.9) (4.2) (4.6)
- -------------------------------------------------------------------------------------------
207.4 189.8 163.7 132.0 110.4 127.8 125.9 115.5
80.0 72.5 59.6 53.2 48.1 54.3 52.8 50.1
- -------------------------------------------------------------------------------------------
127.4 117.3 104.1 78.8 62.3 73.5 73.1 65.4
3.7 2.6 1.9 1.5 1.4 (0.2) 3.1 5.6
- -------------------------------------------------------------------------------------------
131.1 119.9 106.0 80.3 63.7 73.3 76.2 71.0
- - - - - - - -
- - - - - - - -
- -------------------------------------------------------------------------------------------
$ 131.1 $ 119.9 $ 106.0 $ 80.3 $ 63.7 $ 73.3 $ 76.2 $ 71.0
===========================================================================================
$1.66 $ 1.47 $ 1.33 $ .99 $ .79 $ .94 $ .93 $ .82
.05 .03 .02 .02 .02 - .04 .07
- - - - - - - -
- - - - - - - -
1.71 1.50 1.35 1.01 .81 .94 .97 .89
1.60 1.46 1.35 1.01 .81 .93 .97 .89
.755 .68 .645 .60 .60 .60 .60 .57
- -------------------------------------------------------------------------------------------
11.9% 12.3% 11.7% 10.4% 9.5% 11.2% 11.1% 10.8%
29.1 25.4 22.3 18.4 15.7 20.1 20.8 19.0
38.6 38.2 36.4 40.3 43.6 42.5 41.9 43.4
41.5 43.5 48.5 59.9 75.6 63.9 64.4 69.4
3.8 3.7 3.6 4.1 4.4 4.5 4.6 4.7
2.3 to 1 2.3 to 1 2.1 to 1 1.8 to 1 1.7 to 1 1.8 to 1 2.4 to 1 2.3 to 1
- -------------------------------------------------------------------------------------------
$ 229.7 $ 218.5 $ 174.4 $ 121.8 $ 86.7 $ 80.7 $ 120.5 $ 130.3
1,037.0 938.5 838.9 781.8 621.9 571.1 484.6 493.6
840.3 720.1 648.7 607.5 547.6 499.0 426.1 389.1
282.2 214.0 100.8 72.8 38.4 36.5 18.8 18.6
77.8 62.7 53.7 47.3 42.3 34.4 21.3 14.0
455.6 443.7 477.5 446.8 407.5 384.2 352.1 350.5
- -------------------------------------------------------------------------------------------
$ 192.4 $ 159.1 $ 148.4 $ 132.9 $ 113.2 $ 113.0 $ 109.7 $ 101.5
114.9 86.4 61.6 57.2 63.6 59.9 52.5 40.5
47.5 39.8 42.4 39.7 37.8 32.9 32.8 29.2
52.9 51.0 50.5 47.2 47.1 47.0 47.1 45.4
80.5 111.7 21.5 11.6 - - 19.7 -
326.0 282.5 263.8 231.3 203.7 195.4 182.0 172.3
69,292 72,199 77,129 78,298 78,542 78,308 78,213 79,687
$ 28.25 $ 24.75 $17.625 $16.625 $ 13.75 $13.375 $ 13.25 $ 15.50
5,099 5,224 5,477 5,668 5,821 6,156 5,751 5,125
5,862 5,489 5,381 5,085 4,868 5,065 4,751 4,596
- -------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
BOARD OF DIRECTORS
Harold G. Bernthal/E,C,B/(1980)
Chairman,
CroBern, Inc.
Health and investment company
W. H. Clark/E,B/(1980)
Chairman and Chief Executive Officer
Harry Corless/A/(1989)
Retired Chairman,
ICI Americas, Inc.
Chemicals and pharmaceuticals company
Howard M. Dean/C,B/(1987)
Chairman and Chief Executive Officer,
Dean Foods Company
Diversified food processor and distributor
John P. Frazee, Jr./A/(1985)
Retired President and Chief Operating Officer
Sprint Corporation
Telecommunications company
Arthur L. Kelly/C/(1992)
Managing Partner,
KEL Enterprises Ltd.
Holding and investment company
Frederick A. Krehbiel/A/(1990)
Chairman and Chief Executive Officer,
Molex Incorporated
Electrical and electronic equipment company
Edward J. Mooney/E,B/(1988)
President and Chief Operating Officer
Charles W. Parry/E,A/(1985)
Retired Chairman and Chief Executive Officer,
Aluminum Company of America
Aluminum and advanced materials company
William A. Pogue/E,C,B/(1981)
Retired Chairman and Chief Executive Officer,
CBI Industries, Inc.
Metal fabrication and investment company
John J. Shea/A/(1993)
President and Chief Executive Officer,
Spiegel, Inc.
Apparel, special retail and catalog sales
(Year in which elected)
Committee assignments effective April 23, 1993
/E/Executive Committee
/A/Audit Committee
/C/Executive Compensation Committee
/B/Board Affairs and Nominating Committee
<PAGE>
CORPORATE OFFICERS
W. H. Clark (61)
Chairman and Chief Executive Officer
34 years of service
Edward J. Mooney (52)
President and Chief Operating Officer
25 years of service
Milford B. Harp (56)
Executive Vice President,
International Operations
30 years of service
W. Steven Weeber (51)
Executive Vice President,
Operations Staff
27 years of service
Peter Dabringhausen (55)
Group Vice President
President, Process Chemicals Division
24 years of service
John R. Sutley (50)
Group Vice President
President, Nalco Europe
24 years of service
J. David Tinsley (53)
Group Vice President
President, Water and Waste Treatment Division
28 years of service
Ronald J. Allain (53)
Senior Vice President,
Research and Development
23 years of service
James F. Lambe (48)
Senior Vice President,
Human Resources
24 years of service
David R. Bertran (50)
Senior Vice President,
Manufacturing and Logistics
10 years of service
John D. Berthoud (50)
Vice President,
Marketing and Quality Management
23 years of service
William E. Buchholz (51)
Vice President,
Chief Financial Officer
1 year of service
<PAGE>
Christian L. Campbell (43)
Vice President and General Counsel
4 years of service
Francisco A. Laddaga (60)
Vice President, President
Nalco Latin America
28 years of service
Stephen D. Newlin (41)
Vice President,
President Nalco Pacific
18 years of service
Anthony J. Sadowski (55)
Vice President,
Environmental Health and Safety
27 years of service
Jack A. Shubert (43)
Vice President
President, Petroleum Chemicals Division
17 years of service
Dale W. Walker (57)
Vice President,
Corporate Sales
34 years of service
Robert L. Ratliff (45)
Controller
18 years of service
William G. Marshall (47)
Treasurer
13 years of service
Suzzanne J. Gioimo (50)
Secretary
24 years of service
Craig J. Holderness (41)
Assistant Treasurer
16 years of service
Mary D. Hall (37)
Assistant Treasurer
(as of February 15, 1994)
<PAGE>
NALCO CHEMICAL COMPANY AND SUBSIDIARIES
APPENDIX TO 1993 FORM 10-K
GRAPHS AND IMAGE MATERIAL
1993 ANNUAL REPORT TO SHAREHOLDERS
The following is a list and narrative description of graphs included in those
portions of the 1993 Annual Report to Shareholders expressly incorporated herein
by reference.
In the portion of the Annual Report to Shareholders titled Management's
Discussion and Analysis" the following graphs appear:
Sales, based on continuing operations, in millions of dollars.
The values depicted in the graph are as follows:
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
1989 $ 950
1990 $1,068
1991 $1,237
1992 $1,375
1993 $1,389
</TABLE>
Operating earnings, in millions of dollars.
The values depicted in the graph are as follows:
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
1989 $ 173
1990 $ 199
1991 $ 227
1992 $ 260
1993 $ 263
</TABLE>
Depreciation, based on continuing operations, in millions of
dollars.
The values depicted in the graph are as follows:
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
1989 $40
1990 $47
1991 $61
1992 $75
1993 $83
</TABLE>
<PAGE>
NALCO CHEMICAL COMPANY AND SUBSIDIARIES
APPENDIX TO 1993 FORM 10-K
GRAPHS AND IMAGE MATERIAL
1993 ANNUAL REPORT TO SHAREHOLDERS
Shareholders' Equity, in millions of dollars.
The values depicted in the graph are as follows:
<TABLE>
<CAPTION>
Year Amount
----- ------
<S> <C>
1989 $444
1990 $456
1991 $529
1992 $576
1993 $551
</TABLE>
Return on Shareholders' Equity, before extraordinary loss and effect of
accounting change, in percentages.
The values depicted in the graph are as follows:
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
1989 26.0%
1990 29.9%
1991 28.3%
1992 25.7%
1993 28.6%
</TABLE>
Cash Provided by Operating Activities, in millions of dollars.
The values depicted in the graph are as follows:
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
1989 $169
1990 $188
1991 $199
1992 $208
1993 $256
</TABLE>
Capital Additions, in millions of dollars.
The values depicted in the graph are as follows:
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
1989 $ 86
1990 $115
1991 $137
1992 $131
1993 $118
</TABLE>
<PAGE>
NALCO CHEMICAL COMPANY AND SUBSIDIARIES
APPENDIX TO 1993 FORM 10-K
GRAPHS AND IMAGE MATERIAL
1993 ANNUAL REPORT TO SHAREHOLDERS
Dividends per Common Share, in dollars.
The values depicted in the graph are as follows:
<TABLE>
<CAPTION>
Year Amount
---- -------
<S> <C>
1989 $ 0.68
1990 $ 0.755
1991 $ 0.83
1992 $ 0.84
1993 $ 0.885
</TABLE>
Market Value of Nalco Common Share at Year-End Closing Price, in
dollars.
The values depicted in the graph are as follows:
<TABLE>
<CAPTION>
Year Amount
---- -------
<S> <C>
1989 $ 24.75
1990 $ 28.25
1991 $41.625
1992 $34.625
1993 $ 37.50
</TABLE>
<PAGE>
EXHIBIT (21)
NALCO CHEMICAL COMPANY AND SUBSIDIARIES
--------------
SUBSIDIARIES OF THE REGISTRANT
Subsidiaries of the registrant, all of which are wholly-owned unless
otherwise indicated, are as follows:
<TABLE>
<CAPTION>
STATE OR OTHER
JURISDICTION OF
INCORPORATION OR
COMPANY ORGANIZATION
------- -------------------
<S> <C>
Domestic:
Aluminate Sales Corporation.............................. Illinois
Chicago Chemical Company................................. Illinois
Board Chemistry, Inc..................................... Illinois
East End Properties Corporation.......................... Illinois
Nalco Delaware........................................... Delaware
Nalco Foreign Sales Corporation.......................... U.S. Virgin Islands
Nalco FT, Inc............................................ Delaware
Nalco International Sales Company........................ Delaware
Nalco Leasing Corporation................................ Delaware
Nalco Neighborhood Development Corporation............... Delaware
Nalco Resources Investment Company....................... Texas
Nalgreen, Inc............................................ Delaware
Oil Products & Chemical Company, Inc..................... Illinois
The Flox Company......................................... Minnesota
Visco Products Company................................... Texas
Foreign:
Deutsche Nalco-Chemie, G.m.b.H........................... Germany
Nalco Anadolu A.S........................................ Turkey
Nalco Applied Services of Europe B.V..................... Netherlands
Nalco Argentina, S.A..................................... Argentina
Nalco Australia Pty. Limited............................. Australia
Nalco Belgium N.V........................................ Belgium
Nalco Canada, Inc........................................ Canada
Nalco Chemical A.B....................................... Sweden
Nalco Chemical B.V....................................... Netherlands
Nalco Chemical Company (Philippines) Inc................. Philippines
Nalco Chemical Company (Thailand) Limited................ Thailand
Nalco Chemical Gesellschaft m.b.H........................ Austria
Nalco Chemical (H.K.) Limited............................ Hong Kong
Nalco Chemii............................................. Czechoslovakia
Nalco de Venezuela, C.A.................................. Venezuela
Nalco Ecuador, S.A....................................... Ecuador
Nalco Egypt.............................................. Egypt
Nalco Espanola, S.A...................................... Spain
Nalco Europe B.V......................................... Netherlands
Nalco France............................................. France
Nalco GIAP--CHEM......................................... Russia
Nalco Gulf Limited....................................... Dubai
Nalco Hellas S.A......................................... Greece
Nalco Holdings Australia Pty. Limited.................... Australia
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATE OR OTHER
JURISDICTION OF
INCORPORATION
COMPANY OR ORGANIZATION
------- ---------------
<S> <C>
Nalco Investments Canada, Inc................................ Canada
Nalco Investments Australia, Pty. Limited.................... Australia
Nalco Investments U.K. Limited............................... United Kingdom
Nalco Italiana, S.p.A........................................ Italy
Nalco Japan Company, Ltd..................................... Japan
Nalco Kemiai Kft............................................. Hungary
Nalco Korea Co., Ltd......................................... South Korea
Nalco Limited................................................ United Kingdom
Nalco New Zealand, Ltd....................................... New Zealand
Nalco Norge A/S.............................................. United Kingdom
Nalco Poland................................................. Poland
Nalco Portuguesa (Q.I.) Ltda................................. Portugal
Nalco Productos Quimicos de Chile S.A........................ Chile
Nalco Produtos Quimicos Limitada............................. Brazil
Nalco Saudi Co., Ltd......................................... Saudi Arabia(1)
Nalco South East Asia Pte. Limited........................... Singapore
Nalfleet, Inc................................................ United Kingdom
P.T. Nalco Perkasa........................................... Indonesia
Quimica Nalco de Colombia, S.A............................... Colombia
Suomen Nalco Oy.............................................. Finland
Taiwan Nalco Chemical Co., Ltd............................... Taiwan(2)
NCC Chemicals (Malaysia) SDN BHD............................. Malaysia
</TABLE>
- --------
Note (1)--60% of voting securities owned by Registrant
Note (2)--55% of voting securities owned by Registrant
<PAGE>
EXHIBIT (23-1)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 (Numbers 2-97721,
33-9934) and Form S-8 (Numbers 33-38033, 33-38032, 33-29149, 2-97721, 2-97131,
2-82642) of our report dated January 25, 1994, except as to Note 17, which is
as of February 3, 1994, which appears on page 16 of the 1993 Annual Report to
Shareholders of Nalco Chemical Company, which is incorporated by reference in
Nalco Chemical Company's Annual Report on Form 10-K for the year ended December
31, 1993. We also consent to the incorporation by reference of our report on
the Financial Statement Schedules, which appears on page 9 of such Annual
Report on Form 10-K.
PRICE WATERHOUSE
Chicago, Illinois
March 25, 1994
<PAGE>
EXHIBIT (23-2)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 (Numbers 2-97721,
33-9934) and Form S-8 (Numbers 33-38033, 33- 38032, 33-29149, 2-97721, 2-97131,
2-97131, 2-82642) of Nalco Chemical Company of our report dated December 30,
1992 relating to the financial statements of Nalco Investments UK Limited in
this Form 10-K.
PRICE WATERHOUSE
March 25, 1994
Liverpool, England
<PAGE>
EXHIBIT (23-3)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 (Numbers 2-97721,
33-9934) and Form S-8 (Numbers 33-38033, 33-38032, 33-29149, 2-97721, 2-97131,
2-82642) of Nalco Chemical Company of our report dated March 18, 1993 relating
to the financial statements of Nalco Australia Pty Limited in this Form 10-K.
PRICE WATERHOUSE
March 25, 1994
Sydney, Australia
<PAGE>
EXHIBIT (23-4)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 (Numbers 2-97721,
33-9934) and Form S-8 (Numbers 33-38033, 33-38032, 33-29149, 2-97721, 2-97131,
2-82642) of Nalco Chemical Company of our report dated December 23, 1992
relating to the financial statements of Nalco Canada Inc. in this Form 10-K.
PRICE WATERHOUSE
March 25, 1994
Burlington, Ontario, Canada
<PAGE>
EXHIBIT (23-5)
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the 1993 Annual Report on
Form 10-K of Nalco Chemical Company of our report dated January 26, 1993
included in the Company's 1992 Annual Report to Shareholders and incorporated
by reference in its 1992 Annual Report on Form 10-K.
Our audit also included the consolidated financial schedules of Nalco
Chemical Company listed in Item 14(a) as of December 31, 1992 and 1991 and for
the years then ended. These schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, the consolidated financial statement schedules referred to above,
when considered in relation to the basic consolidated financial statements
taken as a whole, present fairly in all material respects the information set
forth therein.
We also consent to the incorporation by reference in the following
Registration Statements of Nalco Chemical Company and in the related
Prospectuses of our report dated January 26, 1993 with respect to the
consolidated financial statements and schedules of Nalco Chemical Company as of
December 31, 1992 and 1991 and for the years then ended which are incorporated
by reference in this Annual Report on Form 10-K for the year ended December 31,
1993:
<TABLE>
<CAPTION>
COMMISSION FILE NO.
-------------------------------------------------------------
FORM S-
FORM S-8 3
-------- -------
<S> <C>
33-38033 2-97721
33-38032 33-9934
33-29149
2-97721
2-97131
2-82642
</TABLE>
Ernst & Young
Chicago, Illinois
March 25, 1994
