NALCO CHEMICAL COMPANY
INDEX
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Page No.
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Part I. Financial Information:
Item 1. Financial Statements
Condensed Consolidated Statements of
Financial Condition March 31, 1994
(Unaudited) and December 31, 1993 . . . . 2
Condensed Consolidated Statements of
Operatons (Unaudited) Three Months
Ended March 31, 1994 and 1993 . . . . . . 3
Condensed Consolidated Statements of
Cash Flows (Unaudited) Three Months
Ended March 31, 1994 and 1993 . . . . . . 4
Notes to Condensed Consolidated Financial
Statements (Unaudited). . . . . . . . . . 5
Report of Independent Accountants' on
Review of Interim Financial Information . 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations . . . . . . . . . . . . . . 7
Part II. Other Information:
Item 4. Submission of Matters to a vote of
Security Holders . . . . . . . . . . . . . 9
Item 6. Exhibits and Reports on Form 8-K . . . . . 9
Exhibit (11) Statement Re: Computation
of Earnings Per Share . . . . . . . .10
Exhibit (15) Awareness Letter of Independent
Accountants . . . . . . . . . . . . .12
Signatures . . . . . . . . . . . . . . . . . . . .13
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
NALCO CHEMICAL COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
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<CAPTION>
March 31, December 31,
1994 1993
Dollars in millions (Unaudited) (Note)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 95.5 $ 78.1
Accounts receivable, less allowances of
$4.9 and $4.3, respectively 217.7 215.2
Inventories
Finished products 46.8
43.5
Materials and work in process 27.5 25.4
74.3 68.9
Prepaid expenses 14.1 12.8
Total current assets 401.6 375.0
Goodwill, less accumulated amortization of
$10.9 and $10.1, respectively 113.0 112.9
Other assets 160.7 166.0
Property, plant and equipment 1,160.9 1,129.9
Less allowances for depreciation (591.2) (571.4)
569.7 558.5
$1,245.0 $1,212.4
LIABILITIES/SHAREHOLDERS' EQUITY
Current liabilities
Short-term debt $ 19.7 $ 15.2
Accounts payable 96.3 84.5
Other current liabilities 96.4 89.9
Total current liabilities 212.4 189.6
Long-term debt
249.8252.1
Deferred income taxes 57.7 58.1
Accrued postretirement benefits 95.9 94.2
Other liabilities 65.0
67.8
Shareholders' equity 564.2 550.6
$1,245.0 $1,212.4
</TABLE>
Note: The Statement of Financial Condition at December 31, 1993
has been
derived from the audited financial statements at that date.
See accompanying Notes to Condensed Consolidated Financial
Statements
(Unaudited).
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NALCO CHEMICAL COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
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Three Months Ended
(Amounts in millions, March 31
except per share data) 1994 1993
<S> <C> <C>
Net sales $336.2 $339.0
Operating costs and expenses
Cost of products sold 150.4 150.1
Operating expenses 126.7 125.8
277.1 275.9
Operating earnings 59.1 63.1
Other income (expense)
Interest and other income 2.7 3.5
Interest expense (6.8) (8.4)
Earnings before income taxes 55.0 58.2
Income taxes 21.2 23.1
Earnings before extraordinary
loss and effect of accounting
change 33.8 35.1
Extraordinary loss from
retirement of debt,
net of taxes - (10.6)
Cumulative effect of change
in accounting for postretire-
ment benefits other than
pensions, net of taxes - (56.5)
Net earnings (loss) $ 33.8 $(32.0)
Per common share
Earnings - Primary
Before extraordinary loss
and accounting change $ .45 $ .46
Extraordinary loss from
retirement of debt - (.15)
Cumulative effect of change
in accounting for postre-
tirement benefits other
than pensions - (.80)
Net earnings (loss) $ .45 $ (.49)
Earnings - Fully Diluted
Before extraordinary loss
and accounting change $ .42 $ .43
Extraordinary loss from
retirement of debt - (.13)
Cumulative effect of change
in accounting for postre-
tirement benefits other
than pensions - (.72)
Net earnings (loss) $ .42 $ (.42)
Cash dividends $ .225 $ .21
Average primary shares
outstanding (in thousands) 69,533 70,409
Average fully diluted shares
outstanding (in thousands) 77,686 78,624
</TABLE>
See accompanying Notes to Condensed Consolidated Financial
Statements
(Unaudited).
<PAGE>
<PAGE>
NALCO CHEMICAL COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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<CAPTION>
Three Months Ended
March 31
Dollars in millions 1994 1993
<S> <C> <C>
Cash provided by (used for)
operating activities
Net earnings (loss) $ 33.8 $(32.0)
Adjustments not affecting cash
Extraordinary loss from
retirement of debt - 10.6
Cumulative effect of change
in accounting for postre-
tirement benefits other than
pensions - 56.5
Depreciation and amortization 23.7 21.6
Other, net (3.1) (2.2)
Changes in current assets and
liabilities 11.9 1.9
Net cash provided by operations 66.3 56.4
Investing activities
Additions to property, plant
and equipment (34.7 (25.3)
Changes in short-term market-
able securities - 104.0
Other 3.2 (2.6)
Net cash provided by (used for)
investing activities (31.5) 76.1
Financing activities
Cash dividends (18.3 (17.4)
Changes in short-term debt 8.5 (20.9)
Changes in long-term debt (1.5) (160.9)
Common stock reacquired (10.9) (31.8)
Other 3.6 8.1
Net cash (used for)
financing activities (18.6) (222.9)
Effects of foreign exchange
rate changes 1.2 (0.2)
Increase (decrease) in cash
and cash equivalents $ 17.4 $(90.6)
</TABLE>
See accompanying Notes to Condensed Consolidated Financial
Statements
(Unaudited).
<PAGE>
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NALCO CHEMICAL COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
March 31, 1994
NOTE A BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have
been prepared, without
audit, in accordance with the instructions to Form 10-Q and
therefore do not include all
information and footnotes necessary for a fair presentation of
financial position, results
of operations, and cash flows in conformity with generally
accepted accounting principles.
Financial information as of December 31 has been derived from the
audited financial
statements of the Company, but does not include all disclosures
required by generally
accepted accounting principles.
It is the opinion of management that the unaudited condensed
consolidated financial
statements include all adjustments necessary to fairly state the
results of operations for
the three month periods ended March 31, 1994 and 1993. The
results of interim periods are
not necessarily indicative of results to be expected for the
year. For further
information, refer to the consolidated financial statements and
footnotes thereto included
in the Company's annual report on Form 10-K for the year ended
December 31, 1993.
The unaudited condensed consolidated financial statements and the
related notes have been
reviewed by Nalco's independent accountants, Price Waterhouse.
The Independent
Accountants' Review Report is included on page 6.
NOTE B SHAREHOLDERS' EQUITY
Shareholders' equity may be further detailed as follows:
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<CAPTION>
Dollars in millions, except per March 31, December 31,
share figures 1994 1993
<S> <C> <C>
Preferred stock - par value $1.00 per share;
authorized 2,000,000 shares;
Series B ESOP Convertible Preferred
Stock - 407,283 shares at
March 31, 1994 and 407,806 shares
at December 31, 1993 $ 0.4 $ 0.4
Series A Junior Participating Preferred
Stock - none issued - -
Capital in excess of par value of shares 195.5 195.7
Unearned ESOP compensation (173.6) (174.4)
22.3 21.7
Common stock - par value $.1875 per share;
authorized 200,000,000 shares; issued
80,287,568 shares 15.1 15.1
Capital in excess of par value of shares 23.1 10.6
Retained earnings 834.7 819.2
Minimum pension liability adjustment (7.1) (7.1)
Foreign currency translation
adjustments (44.2) (49.3)
Common stock reacquired - at cost
11,497,275 shares at
March 31, 1994 and 11,383,105
shares at December 31, 1993 (279.7) (259.6)
Total shareholders' equity $ 564.2 $ 550.6
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<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT ON REVIEW
OF INTERIM FINANCIAL INFORMATION
To the Board of Directors and Shareholders of Nalco Chemical
Company
We have reviewed the accompanying interim financial information
of Nalco Chemical Company and consolidated subsidiaries as of
March 31, 1994, and for the three month period then ended. This
interim financial information is the responsibility of the
Company's management.
We conducted our review in accordance with standards established
by the American Institute of Certified Public Accountants. A
review of interim financial information consists principally of
applying analytical procedures to financial data and making
inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole. Accordingly,
we do not express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to the accompanying financial
information for it to be in conformity with generally accepted
accounting principles.
We previously audited in accordance with generally accepted
auditing standards, the statement of consolidated financial
condition as of December 31, 1993, and the related statements of
consolidated earnings, of cash flows and of common shareholders
equity for the year then ended (not presented herein), and in our
report dated January 25, 1994 (except as to Note 17, which
is as of February 3, 1994) we expressed an unqualified opinion on
those consolidated financial statements. Our opinion included an
explanatory paragraph which discussed the Company s change in its
method of accounting for postretirement benefits other than
pensions in 1993. In our opinion, the information set forth in
the accompanying condensed consolidated statement of financial
condition as of December 31, 1993, is fairly stated in all
material respects in relation to the statement of consolidated
financial condition from which it has been derived.
Price Waterhouse
By:
Robert R. Ross
Engagement Partner
April 20, 1994
Chicago, Illinois<PAGE>
<PAGE>
Item 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations
First Quarter 1994 Operations Compared to First Quarter 1993
Sales for the quarter decreased 1 percent from last year, with
two of the four operating units reporting improved results.
Earnings were $33.8 million, a decrease of 4 percent
from first quarter 1993 earnings of $35.1 million before an
extraordinary loss and the cumulative effect of a change in
accounting principle.
Sales by the three units comprising U.S. Operations were up 3
percent. Sales by the Water and Waste Treatment Division
increased 4 percent from a year ago, as all five groups
reported improvements. A double-digit gain was posted by the
Polymer Group, and strong increases were also reported by the
UNISOLV and Utility Chemicals Groups. The Process
Chemicals Division also posted a 4 percent gain in sales, led by
a strong improvement by the Pulp and Paper Chemicals Group. Sales
by the Petroleum Chemicals Division were 1 percent lower than a
year ago, as a solid gain by the Additives Group was offset by
lower sales to refineries.
Sales by International Operations decreased 6 percent. This was
attributable to the weak economies in Europe and the stronger
dollar compared to a year ago. Sales by European subsidiaries
were down 9 percent from last year with about half the decline
due to changes in translation rates. Latin American subsidiaries
reported a 2 percent increase in sales with solid gains posted by
companies in Argentina and Colombia. Pacific Rim sales rose 1
percent from a year ago. Most subsidiaries in the region posted
strong improvements, but these gains were offset by lower results
reported by companies in Australia and Indonesia.
The gross margin was 55.3 percent, down 0.4 percentage points
from last year s rate of 55.7 percent. Gross margins of U.S.
Operations decreased from a year ago as stable selling
prices and lower raw material costs were more than offset by
higher costs for field equipment, lower production volumes and
sales mix changes. Slightly higher gross margins were reported by
International Operations, however.
Operating expenses (selling, service research, etc.) were up $0.9
million or 1 percent over the first quarter of last year. Higher
salaries and employee benefits were partially offset by decreased
costs of incentive plans related to the lower sales and earnings
for the quarter.
Operating earnings were down 6 percent to $59.1 million.
Interest and other income decreased $0.8 million from a year ago
primarily as a result of lower interest income which reflected
reduced levels of invested cash balances. Interest expense was
$1.6 million lower than a year ago as a result of lower borrowing
levels.
The effective tax rate was 38.5 percent for the quarter, compared
to 39.7 percent for the same period last year and 38.9 percent
for all of 1993.
Earnings before extraordinary loss and effect of accounting
change as a percent to sales were 10.1 percent compared to 10.4
percent for a year ago. Fully diluted earnings per share before
extraordinary loss and effect of accounting change were 42 cents
for the quarter, a decrease of 2 percent from the 43 cents for
the first quarter 1993. Fully diluted net earnings per share were
42 cents for the quarter, compared to a net loss per share of 42
cents a year ago.
Changes in Financial Condition
Cash and cash equivalents increased $17.4 million during the
quarter as detailed in the Unaudited Condensed Consolidated
Statement of Cash Flows.
Days sales outstanding were 55 days at March 31, 1994, down
slightly from the 56 days at the end of 1993. Working capital at
March 31, 1994 totaled $189.2 million, up slightly from the
$185.4 million at last year end. The ratio of current assets to
current liabilities was 1.9 to 1 at March 31, 1994, which was
slightly lower than the December 31, 1993 ratio of 2.0 to 1.
Domestic projects accounted for more than two-thirds of the $34.7
million in capital investments during the first quarter. Major
expenditures were for additional PORTA-FEED units, automobiles
for the sales force, and construction of the new European
business and technical center near Leiden, The Netherlands which
is scheduled for completion mid-year.
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PART II. OTHER INFORMATION
Item 4.Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders of Nalco Chemical Company was
held on April 20, 1994, for the purpose of electing three Class I
directors for three-year terms and approving the appointment of
independent accountants. Proxies for the meeting were solicited
pursuant to Section 14(a) of the Securities Exchange Act of 1934
and there was no solicitation in opposition to management's
solicitation. All of management s nominees for directors as
listed in the proxy statement were elected. There were no broker
non-votes.
The vote electing the individual directors was as follows:
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Shares Shares
Director Voted For Withheld
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J. P. Frazee, Jr. 67,358,893 616,086
A. L. Kelly 66,565,335 1,409,644
F. A. Krehbiel 61,679,571 6,295,408
</TABLE>
The appointment of Price Waterhouse as independent accountants
for the Company was approved by the following vote:
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<CAPTION>
Shares Shares Shares
Voted Voted Voted
For Against Abstaining
<S> <C> <C> <C>
67,527,296 247,344 200,339
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are included herein:
(11) Statement Re: Computation of Earnings Per Share
(15) Awareness Letter of Independent Accountants
(b) The Registrant has filed a report on Form 8-K dated
February 3, 1994 relating to a proposed joint venture
with Exxon Chemical Company and letter of intent
to sell its Freeport, Texas plant and worldwide
automotive paint spray booth business to PPG
Industries, Inc.
No financial statements were filed as a part of this
report.
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
NALCO CHEMICAL COMPANY
(Registrant)
Date: May 10, 1994 W. E. BUCHHOLZ
W. E. Buchholz - Vice
President, Chief Financial
Officer
Date: May 10, 1994 S. J. GIOIMO
S. J. Gioimo - Secretary
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
NALCO CHEMICAL COMPANY
(Registrant)
Date: May 10, 1994
W. E. Buchholz - Vice
President, Chief Financial
Officer
Date: May 10, 1994
S. J. Gioimo - Secretary
<PAGE>
<PAGE>
EXHIBIT (11)
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
NALCO CHEMICAL COMPANY AND SUBSIDIARIES
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<CAPTION>
Three Months Ended
(Amounts in thousands, March 31
except per share data) 1994 1993
<S> <C> <C>
Primary
Average shares outstanding 68,904 69,586
Net effect of dilutive stock options
and shares contingently issuable -
based on the treasury stock method
using average market price 629 823
TOTALS 69,533 70,409
Earnings before extraordinary loss and
effect of accounting change $ 33,805 $ 35,089
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 (loss) 33,805 (31,973)
Preferred stock dividends,
net of taxes (2,764) (2,829)
Net earnings (loss) to common
shareholders $ 31,041$(34,802)
Per share amounts
Earnings before extraordinary loss
and effect of accounting change $ .45 $ .46
Extraordinary loss from retirement
of debt, net of taxes - (.15)
Cumulative effect of change in accounting
for postretirement benefits other than
pensions, net of taxes - (.80)
Net earnings (loss) to common
shareholders $ .45 $ (.49)
</TABLE>
<PAGE>
<PAGE>
EXHIBIT (11)
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
NALCO CHEMICAL COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
Three Months Ended
(Amounts in thousands, March 31
except per share data) 1994 1993
<S> <C> <C>
Fully diluted
Average shares outstanding 68,904 69,586
Average dilutive effect of
assumed conversion of ESOP
Convertible Preferred shares 8,153 8,215
Additional shares assuming exercise
of dilutive stock options and shares
contingently issuable based on the
treasury stock method using the
quarter-end market price, if higher
than average market price 629 823
TOTALS 77,686 78,624
Earnings before extraordinary loss
and effect of accounting change $ 33,805 $35,089
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 (loss) 33,805 (31,973)
Additional ESOP contribution resulting
from assumed conversion, net of taxes (1,291) (1,398)
Tax adjustment on assumed
common dividends (179) 128
Net earnings (loss) applicable
to common shareholders $ 32,335 $(33,243)
Per share amounts
Earnings before extraordinary loss
and effect of accounting change $ .42 $ .43
Extraordinary loss from retirement
of debt, net of taxes - (.13)
Cumulative effect of change in
accounting for postretirement
benefits other than pensions,
net of taxes - (.72)
Net earnings (loss) to common
shareholders $ .42 $ (.42)
</TABLE>
<PAGE>
EXHIBIT (15)
AWARENESS LETTER OF INDEPENDENT ACCOUNTANTS
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Dear Sirs:
We are aware that Nalco Chemical Company has included our
report dated April 20, 1994 (issued pursuant to the provisions of
Statement on Auditing Standards No. 71) in the Prospectuses
constituting part of its Registration Statements on Form S-3
(Nos. 33-53111, 33-9934, and 2-97721) and Form S-8 (Nos.
33-38033, 33-38032, 33-29149, 2-97721, 2-97131 and 2-82642). We
are also aware of our responsibilities under the Securities Act
of 1933.
Yours very truly,
Price Waterhouse
By: Robert R. Ross
Engagement Partner
May 10, 1994
Chicago, Illinois
