FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
THIS CONFORMING PAPER FORMAT DOCUMENT IS BEING
SUBMITTED PURSUANT TO RULE 901(d) OF REGULATION S-T
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-4957
NALCO CHEMICAL COMPANY
Incorporated in the State of Delaware
Employer Identification No. 36-1520480
One Nalco Center, Naperville, Illinois 60563-1198
Telephone 708-305-1000
Indicate by check mark whether the registrant (1) has filed all reports required
to be
filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the
preceding
12 months (or for such shorter period that the registrant was required to file
such
reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes X No
The number of shares outstanding of each of the issuer's classes of common
stock, as of
September 30, 1994 was 68,240,066 shares common stock - par value $.1875 a
share.
<PAGE>
NALCO CHEMICAL COMPANY
INDEX
Page No.
Part I. Financial Information:
Item 1. Financial Statements
Condensed Consolidated Statements of
Financial Condition - September 30, 1994
(Unaudited) and December 31, 1993. . . . .2
Condensed Consolidated Statements of
Earnings (Unaudited) - Three Months and
Nine Months Ended September 30, 1994 and 1993. 3
Condensed Consolidated Statements of
Cash Flows (Unaudited)- Three Months
and Nine Months Ended September 30, 1994 and 1993. .4
Notes to Condensed Consolidated Financial
Statements (Unaudited) . . . . . . . . . .5
Report of Independent Accountants on
Review of Interim Financial Information. .7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations. . . . . . . . . . . . . . .8
Part II. Other Information:
Item 6. Exhibits and Reports on Form 8-K. . . . . 11
Exhibit (11) - Statement Re: Computation
of Earnings Per Share. . . . . . . . 12
Exhibit (15) - Awareness Letter of Independent
Accountants. . . . . . . . . . . . . 14
Exhibit (27) - Financial Data Schedule. . . . . . 15
Signatures . . . . . . . . . . . . . . . . . . . 16
<TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
NALCO CHEMICAL COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<CAPTION>
September 30, December 31,
1994 1993
Dollars in millions (Unaudited) (Note)
<C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 72.5 $ 78.1
Accounts receivable, less allowances of
$5.9 and $4.3, respectively 210.9 215.2
Inventories
Finished products 45.9 43.5
Materials and work in process 29.1 25.4
75.0 68.9
Prepaid expenses 13.5 12.8
Total current assets 371.9 375.0
Investments in and advances to
affiliated companies 134.1 16.4
Goodwill, less accumulated amortization of
$14.1 and $10.1, respectively 107.7 112.9
Other assets 139.2 149.6
Property, plant and equipment 1,054.9 1,129.9
Less allowances for depreciation (533.1) (571.4)
521.8 558.5
$1,274.7 $1,212.4
LIABILITIES/SHAREHOLDERS' EQUITY
Current liabilities
Short-term debt $ 13.9 $ 15.2
Accounts payable 100.0 84.5
Accrued formation and consolidation expenses 46.1 -
Other current liabilities 87.5 89.9
Total current liabilities 247.5 189.6
Long-term debt 248.5 252.1
Deferred income taxes 60.8 58.1
Accrued postretirement benefits 100.1 94.2
Other liabilities 65.1 67.8
Shareholders' equity 552.7 550.6
$1,274.7 $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).
<TABLE>
NALCO CHEMICAL COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
<CAPTION>
Three Months Ended Nine Months Ended
(Amounts in millions, September 30 September 30
except per share data) 1994 1993 1994 1993
<S> <C> <C> <C> <C>
Net sales $343.4 $354.0 $1,031.6 $1,040.5
Operating costs and expenses
Cost of products sold 152.5 154.9 461.2 456.8
Selling, administrative and
research expenses 125.4 131.3 387.4 387.0
Formation and consolidation expenses 51.1 - 51.1 -
329.0 286.2 899.7 843.8
Operating earnings 14.4 67.8 131.9 196.7
Other income (expense)
Interest and other income 9.1 3.0 14.6 9.4
Interest expense (4.3) (6.3) (17.7) (21.1)
Earnings before income taxes 19.2 64.5 128.8 185.0
Income taxes 11.7 25.8 54.4 73.1
Earnings before extraordinary loss and
effect of accounting change 7.5 38.7 74.4 111.9
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 $ 7.5 $ 38.7 $ 74.4 $ 44.8
Per common share
Earnings - Primary
Before extraordinary loss and
accounting change $ .07 $ .52 $ .96 $ 1.48
Extraordinary loss from retirement
of debt - - - (.15)
Cumulative effect of change in
accounting for postretirement
benefits other than pensions - - - (.81)
Net earnings $ .07 $ .52 $ .96 $ .52
Earnings - Fully Diluted
Before extraordinary loss and
accounting change $ .08 $ .48 $ .91 $ 1.37
Extraordinary loss from retirement
of debt - - - (.14)
Cumulative effect of change in
accounting for postretirement
benefits other than pensions - - - (.72)
Net earnings $ .08 $ .48 $ .91 $ .51
Cash dividends $ .24 $ .225 $ .705 $ .66
Average primary shares outstanding
(in thousands) 68,844 69,654 69,196 69,967
Average fully diluted shares outstanding
(in thousands) 76,968 77,836 77,331 78,165
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
(Unaudited).
<TABLE>
NALCO CHEMICAL COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
Dollars in millions 1994 1993 1994 1993
<S> <C> <C> <C> <C>
Cash provided by (used for) operating activities
Net earnings $ 7.5 $ 38.7 $74.4 $ 44.8
Adjustments not affecting cash
Formation and consolidation expenses 51.1 - 51.1 -
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 22.7 22.2 69.8 65.8
Other, net (3.9) 4.1 0.9 7.3
Changes in current assets and
liabilities (2.0) 9.9 3.6 13.6
Net cash provided by operations 75.4 74.9 199.8 198.6
Investing activities
Additions to property, plant and
equipment (29.6) (28.9) (98.1) (82.5)
Changes in short-term marketable
securities - - - 104.0
Other (24.3) (1.4) (25.0) 10.2
Net cash provided by (used for)
investing activities (53.9) (30.3) (123.1) 31.7
Financing activities
Cash dividends (19.2) (18.2) (56.7) (54.0)
Changes in short-term debt (4.1) (0.8) 5.3 (17.5)
Changes in long-term debt (1.8) (1.9) (3.0) (167.7)
Common stock reacquired (6.3) (7.9) (38.7) (52.2)
Other 0.9 2.8 6.3 12.4
Net cash (used for)
financing activities (30.5) (26.0) (86.8) (279.0)
Effects of foreign exchange rate
changes 1.5 0.5 4.5 0.3
Increase (decrease) in cash and
cash equivalents $ (7.5) $ 19.1 $ (5.6) $(48.4)
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
(Unaudited).
<PAGE>
NALCO CHEMICAL COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
September 30, 1994
NOTE A - BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been prepared,
without
audit, in accordance with the instructions to Form 10-Q and therefore do not
include all
information and footnotes necessary for a fair presentation of financial
position, results
of operations, and cash flows in conformity with generally accepted accounting
principles.
Financial information as of December 31 has been derived from the audited
financial
statements of Nalco Chemical Company and subsidiaries (the Company), but does
not include
all disclosures required by generally accepted accounting principles.
It is the opinion of management that the unaudited condensed consolidated
financial
statements include all adjustments necessary to fairly state the results of
operations for
the three month and nine month periods ended September 30, 1994 and 1993. The
results of
interim periods are not necessarily indicative of results to be expected for the
year.
For further information, refer to the consolidated financial statements and
footnotes
thereto included in the Company's annual report on Form 10-K for the year ended
December 31, 1993.
The unaudited condensed consolidated financial statements and the related notes
have been
reviewed by the Company s independent accountants, Price Waterhouse LLP. The
Report of
Independent Accountants on Review of Interim Financial Information is included
on page 7.
<TABLE>
NOTE B - SHAREHOLDERS' EQUITY
Shareholders' equity may be further detailed as follows:
<CAPTION>
September 30, December 31,
Dollars in millions, except per share figures 1994 1993
<S> <C> <C> <C>
Preferred stock - par value $1.00 per share;
authorized 2,000,000 shares;
Series B ESOP Convertible Preferred
Stock - 405,537 shares at
September 30, 1994 and 407,806 shares
at December 31, 1993 $ 0.4 $ 0.4
Series A Junior Participating Preferred
Stock - none issued - -
Capital in excess of par value of shares 194.7 195.7
Unearned ESOP compensation (173.6) (174.4)
21.5 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 23.6 10.6
Retained earnings 836.9 819.2
Minimum pension liability adjustment (7.1) (7.1)
Foreign currency translation
adjustments (34.8) (49.3)
Common stock reacquired - at cost
12,047,502 shares at
September 30, 1994 and 11,383,105
shares at December 31, 1993 (302.5) (259.6)
Total shareholders' equity $ 552.7 $ 550.6
</TABLE>
<PAGE>
NOTE C - INVESTMENTS IN AND ADVANCES TO AFFILIATED COMPANIES
The Company s investments in affiliated companies are accounted for by the
equity method and
consist primarily of its 60-percent interest in Nalco/Exxon Energy Chemicals,
L.P. (NEEC), a
joint venture which was formed on September 1, 1994. Nalco and Exxon Chemical
Company
(Exxon), a division of Exxon Corporation, formed NEEC to provide specialty
chemical products
and services to the petroleum and chemicals industries worldwide. These products
and
services are used in oil exploration, production, distribution and refining;
gas
exploration, production and transmissions; and chemical process industry
applications.
At the time of formation of NEEC, the Company contributed cash and other assets
aggregating
approximately $105 million which consisted of its U.S. Petroleum Chemicals
Division and
certain petroleum chemical product lines of its international operations. Minor
additional
assets and liabilities will be transferred during the fourth quarter of 1994.
All significant management decisions of the joint venture require agreement
by both the
Company and Exxon. In addition, certain provisions of the joint venture
agreement provide
Exxon with an option to cause NEEC to redeem a portion of the Company s interest
in NEEC
such that subsequent to such redemption, the Company and Exxon shall share
equally in the
results of the venture. As a result of the Company not exercising control over
NEEC, its
investment in the venture is accounted for under the equity method.
NOTE D - FORMATION AND CONSOLIDATION EXPENSES
The Company adopted a worldwide consolidation plan for manufacturing and support
operations
during the third quarter 1994, primarily as a result of the formation of the
NEEC joint
venture discussed in Note C. The joint venture was formed to take advantage of
synergies in
business management, technology, product offerings, and manufacturing opera-
tions. Because
the joint venture will be able to focus exclusively on opportunities in the
petroleum
market, it strengthens the Company s capability to address the needs of
petroleum industry
customers worldwide through an expanded network of experienced personnel, state-
of-the-art
technology, and consultative services. The production volume reduction caused by
redundancies associated with the joint venture formation requires the Company to
downsize,
close, and consolidate operations. In the United States, the Company will close
its South
Chicago plant, and several manufacturing and support operations will also be
closed or
downsized overseas, primarily in Europe. Certain support functions will be
regionalized on a
pan-European basis in order to more efficiently serve customers. Certain
redundant petroleum
assets that were not contributed to the joint venture will be scrapped and
written down to
net realizable value. In addition, assets associated with other programs have
been written
off. Most of these activities are expected to occur during the first half of
1995, and
should be completed by the end of 1995.
The aggregate expected cost of these plans is approximately $68 million, before
tax. The
after-tax cost is approximately $54 million, or 70 cents per share on a fully
diluted basis,
of which $35.5 million, or 46 cents per share on a fully diluted basis, was
recorded in the
third quarter. The remaining $18.5 million, after tax, is expected to be
recorded in the
fourth quarter 1994, when termination benefits are fully communicated to
affected employees
and tax costs associated with the joint venture formation can be more accurately
determined.
The pretax cost of providing termination benefits for the elimination of
approximately 400
positions worldwide, including manufacturing and support personnel, will
require
approximately $26 million in cash. Charges associated with facility closings and
the
disposition of assets that are no longer productive will total about $24
million, including
$21 million for non-cash asset write-offs and $3 million in cash payments
associated with
asset disposals. The remaining $18 million of the pretax charge represents cash
payments for
post-closure plant environmental remediation, legal and consulting fees and
other exit
costs. Approximately $10 million of the termination benefits and other cash
outlays is
expected to be paid in 1994, and the remaining $37 million in 1995. The Company
anticipates
that these cash expenditures will be funded through operating cash flows. This
charge is
expected to generate a tax benefit of approximately $14 million, net of tax
costs associated
with the contribution of assets to various joint venture entities.
As of September 30, 1994, $5.0 million had been charged against the $51.1
million provision
for formation and consolidation expenses that was recorded in the third quarter.
These
charges were primarily costs incurred to effect the formation of the joint
venture and
write-downs of certain assets to their net realizable values. Termination
benefits paid
during the quarter were not significant.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON REVIEW
OF INTERIM FINANCIAL INFORMATION
To the Board of Directors and
Shareholders of Nalco Chemical Company
We have reviewed the accompanying interim financial information of Nalco
Chemical Company and consolidated subsidiaries as of September 30, 1994, and
for the three month and nine month periods then ended. This interim financial
information is the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial information for it to be in conformity
with generally accepted accounting principles.
We previously audited in accordance with generally accepted auditing standards,
the statement of consolidated financial condition as of December 31, 1993, and
the related statements of consolidated earnings, of cash flows and of common
shareholders equity for the year then ended (not presented herein), and in our
report dated January 25, 1994 (except as to Note 17, which is as of February 3,
1994) we expressed an unqualified opinion on those consolidated financial
statements. Our opinion included an explanatory paragraph which discussed the
Company s change in its method of accounting for postretirement benefits other
than pensions in 1993. In our opinion, the information set forth in the
accompanying condensed consolidated statement of financial condition as of
December 31, 1993, is fairly stated in all material respects in relation to the
statement of consolidated financial condition from which it has been derived.
Price Waterhouse LLP
By: Robert R. Ross
Engagement Partner
October 24, 1994
Chicago, Illinois
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
Operations
Third Quarter 1994 Operations Compared to Third Quarter 1993
Sales for the quarter decreased 3 percent from last year, which was caused by
the transfer
of the Company s U.S. Petroleum Chemicals Division marketing groups and certain
petroleum
chemical product lines of its international operations to the newly formed
Nalco/Exxon
Energy Chemicals, L.P. joint venture on September 1, 1994. On a comparable
basis, sales for
the third quarter would have increased 2.5 percent. Net earnings were $7.5
million, which
included an after-tax charge of $35.5 million that resulted from the formation
of the joint
venture and the adoption of a worldwide consolidation plan. Excluding the after-
tax charge,
earnings would have been $43.0 million, an 11 percent increase over third
quarter 1993
earnings of $38.7 million.
Sales by the Water and Waste Treatment Division were up 2 percent over a year
ago with the
UNISOLV Group reporting a double-digit gain. The Polymer, Utility Chemicals,
and WATERGY
Groups also posted improvements. The Process Chemicals Division reported
slightly lower
sales from a year ago as a result of a decrease by Absorbent Chemicals. Modest
improvements
were posted by the other groups in the Division, however. Sales by the
Petroleum Division
were 37 percent lower than a year ago, as a result of the transfer of business
to the newly
formed joint venture. On a comparable basis, sales by the Division would have
decreased 8
percent.
Sales by International Operations were up $0.2 million over the third quarter
1993, but
would have increased 6 percent over last year without the transfer of business
to the joint
venture. On a comparable basis, sales by Latin American and Pacific Rim
subsidiaries would
have risen 20 percent and 14 percent, respectively. Sales by European
subsidiaries would
have been up 1 percent, as lower European exports to the Middle East were offset
by the
effects of favorable translation rate changes from last year.
The gross margin was 55.6 percent, down 0.6 percentage points from last year's
rate of 56.2
percent. Gross margins of U.S. Operations decreased from a year ago as a result
of higher
raw material costs, lower average selling prices, and sales mix changes.
Slightly lower
gross margins were also reported by International Operations, primarily in
Europe.
Selling, administrative, and research expenses were down $5.9 million or 4
percent from the
third quarter of last year, as a result of the transfer of business to the joint
venture.
On a comparable basis, these expenses would have risen nearly $2.0 million as a
result of
higher salaries, employee benefits, and depreciation.
Results for the third quarter 1994 were significantly impacted by a $51.1
million charge,
before tax, for formation and consolidation expenses, as described in Note D.
The
Nalco/Exxon Energy Chemicals joint venture and the Company s consolidation plan
are
expected to result in an annualized earnings improvement of at least $8 million,
beginning
in 1995. This is expected to be realized through lower payroll expenses,
depreciation, and
other operating expenses resulting from the joint venture and the consolidation
plan. The
joint venture is expected to contribute increased earnings compared to what was
previously
generated by the Company s petroleum business, as a result of synergies
achieved.
Interest and other income increased $6.1 million from a year ago, primarily as a
result of
a gain on the sale of the Company s automotive paint spray booth business. This
business
had generated annual revenues of approximately $10 million. Also contributing to
the
improvement was higher equity in earnings of affiliated companies, because of
the initial
month of operations for the joint venture. Interest expense decreased $2.0
million from a
year ago, mainly because of a new monetary control program in Brazil and a
reduced
borrowing level by our Brazilian subsidiary.
The effective tax rate was 61.2 percent for the quarter. This unusually high
rate reflects
tax expenses on assets transferred to the joint venture and the significantly
lower
earnings before tax amount due to the formation and consolidation charge.
Excluding the tax
expense associated with the assets contributed to the joint venture, the
effective tax rate
would have been about 40.3 percent for the quarter, compared to 40.0 percent for
the same
period last year, and 38.9 percent for all of 1993.
Operating earnings, excluding the $51.1 million charge for formation and
consolidation
expenses, would have been $65.5 million, 3 percent lower than last year s $67.8
million.
Without the after-tax charge of $35.5 million for formation and consolidation
expenses, net
earnings as a percent to sales would have been 12.5 percent compared to 10.9
percent for a
year ago. Fully diluted earnings per share were 8 cents for the quarter.
However, excluding
the 46 cents per share charge for formation and consolidation expenses, fully
diluted
earnings per share would have been 54 cents, compared to the 48 cents per share
reported
for the third quarter 1993. After tax, the gain on the sale of the automotive
paint spray
booth business contributed 4 cents per share to third quarter 1994 results.
First Nine Months 1994 Operations Compared To First Nine Months 1993
Sales for the first nine months were $1,031.6 million, a 1 percent decrease from
sales of
$1,040.5 million for the same period last year. This decrease reflects business
transferred
to the newly formed Nalco/Exxon Energy Chemicals joint venture on September 1,
1994. On a
comparable basis, sales would have increased 1 percent.
Sales by the three domestic divisions were unchanged from a year ago, again
reflecting the
transfer of the Company s U.S. Petroleum Chemicals Division marketing groups to
the joint
venture on September 1, 1994. On a comparable basis, sales by the three domestic
divisions
would have risen 2 percent. The Water and Waste Treatment Division reported a 3
percent
increase with advances posted by four of the five marketing groups, most
notably the
Polymer and UNISOLV Groups. Process Chemicals Division sales were up 3 percent,
with
improvements reported by all four marketing groups. Petroleum Chemicals Division
sales were
down 15 percent from a year ago, primarily as a result of business transferred
to the joint
venture.
International Operations reported a 2 percent decrease in sales from a year ago.
On a
comparable basis, sales by International Operations would have been unchanged.
Sales by
Latin American subsidiaries would have been up 10 percent, with solid increases
posted by
companies in Argentina, Colombia, and Venezuela. In the Pacific Rim, sales would
have
advanced 7 percent as double-digit gains were recorded by subsidiaries in Hong
Kong, Japan,
Philippines, Singapore, and Thailand. Sales by European subsidiaries would have
decreased
about 6 percent, which was primarily attributable to lower exports to the Middle
East and
unfavorable translation rate changes compared to last year.
The gross margin was 55.3 percent, down 0.8 percentage points from last year's
rate of 56.1
percent. Gross margins of U.S. Operations decreased from a year ago primarily as
a result
of sales mix changes. Gross margins of our International Operations were also
slightly
lower than a year ago.
Selling, administrative, and research expenses were comparable to a year ago,
reflecting
the transfer of business to the joint venture. On a comparable basis, these
expenses would
have been up about $8.0 million, primarily as a result of higher salaries,
benefits, and
depreciation.
The Company recorded a before-tax charge of $51.1 million in the third quarter
1994 that
resulted from the formation of the Nalco/Exxon Energy Chemicals joint venture
and adoption
of a worldwide consolidation plan. After tax, this charge reduced net earnings
for the
first nine months of 1994 by $35.5 million, or 46 cents per share on a fully
diluted basis.
An additional $18 million, after tax, is expected to be recorded in the fourth
quarter
1994, bringing the total after-tax charge to approximately $54 million, or 70
cents per
share on a fully diluted basis. See Note D, Formation and Consolidation
Expenses.
Interest and other income increased $5.2 million over a year ago primarily as a
result of a
gain on the sale of the Company s automotive paint spray booth business. Higher
equity in
earnings of affiliated companies, resulting from the initial month of operations
for the
joint venture, and improved foreign exchange results were offset by lower
interest income
and net other miscellaneous income. Interest expense was down $3.4 million from
last year
as a result of lower borrowing levels and a new monetary control program in
Brazil.
The effective tax rate was 42.2 percent. Included in tax expense for the first
nine months
of 1994 were taxes associated with establishing the joint venture. Excluding
those taxes,
the effective tax rate would have been 39.1 percent, compared to the 39.5
percent for the
same period last year.
Without the $51.1 million charge for formation and consolidation expenses,
operating
earnings would have been $183.0 million, a decrease of 7 percent from a year
ago. Excluding
the after-tax charge of $35.5 million for formation and consolidation expenses,
earnings
before extraordinary loss and effect of accounting change as a percent to sales
would have
been 10.7 percent compared to 10.8 percent for a year ago. Excluding the 46
cents per share
net charge for formation and consolidation expenses, fully diluted earnings per
share
before extraordinary loss and effect of accounting change would have been
$1.37, comparable
to the amount for the first nine months of 1993. Fully diluted net earnings per
share were
91 cents for the first nine months of 1994, compared to 51 cents for the same
period last
year.
Changes in Financial Condition
Cash and cash equivalents decreased $5.6 million during the first nine months of
1994 as
detailed in the Unaudited Condensed Consolidated Statements of Cash Flows.
Days sales outstanding were 56 days at September 30, 1994 and December 31, 1993.
Working
capital at September 30, 1994 totaled $124.4 million, down from the $185.4
million at last
year end. This decrease was primarily attributable to the accrual for formation
and
consolidation expenses and cash and inventory contributed to the newly formed
joint
venture. The ratio of current assets to current liabilities was 1.5 to 1 at
September 30,
1994, down from the December 31, 1993 ratio of 2.0 to 1.
Investments in and advances to affiliated companies increased nearly $118
million from
December 31, 1993, reflecting assets contributed to the joint venture.
Domestic projects accounted for about two-thirds of the $98.1 million in capital
investments during the first nine months of 1994. Major expenditures were for
additional
PORTA-FEED units, automobiles for the sales force, and construction of the new
European
business and technical center near Leiden, The Netherlands, which was dedicated
in June
1994.
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are included herein:
(11) Statement Re: Computation of Earnings Per Share
(15) Awareness Letter of Independent Accountants
(27) Financial Data Schedule
(b) The Registrant has filed a report on Form 8-K dated September 1, 1994
relating
to the completion of its agreement with Exxon Chemical Company to form
a worldwide energy chemicals joint venture company to be known as
Nalco/Exxon
Energy Chemicals, L.P.
At the same time, the Registrant announced a worldwide restructuring
and
consolidation of manufacturing and support operations aimed at
achieving
greater efficiencies and enhanced customer satisfaction.
<PAGE>
SIG NATURES
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: November 11, 1994 W. E. BUCHHOLZ
W. E. Buchholz - Vice President,
Chief Financial Officer
Date: November 11, 1994 S. J. GIOIMO
S. J. GIOIMO - Secretary
<TABLE>
EXHIBIT (11)
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
NALCO CHEMICAL COMPANY AND SUBSIDIARIES
<CAPTION>
Three Months Ended Nine Months Ended
(Amounts in thousands, September 30 September 30
except per share data) 1994 1993 1994 1993
Primary
<S> <C> <C> <C> <C>
Average shares outstanding 68,346 68,945 68,624 69,211
Net effect of dilutive stock options
and shares contingently issuable -
based on the treasury stock method
using average market price 498 709 572 756
TOTALS 68,844 69,654 69,196 69,967
Earnings before extraordinary loss and
effect of accounting change $7,427 $38,713 $74,360 $111,854
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 7,427 38,713 74,360 44,792
Preferred stock dividends -
net of taxes (2,743) (2,729 ) (8,263) (8,381)
Net earnings to common
shareholders $ 4,684 $35,984 $66,097 $36,411
Per share amounts
Earnings before extraordinary loss and
effect of accounting change$ .07 $ .52 $ .96 $ 1.48
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 $ .07 $ .52 $ .96 $ .52
</TABLE>
EXHIBIT (11)
<TABLE>
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
NALCO CHEMICAL COMPANY AND SUBSIDIARIES
<CAPTION>
Three Months Ended Nine Months Ended
(Amounts in thousands, September 30 September 30
except per share data) 1994 1993 1994 1993
Fully diluted
<S> <C> <C> <C> <C>
Average shares outstanding 68,346 68,945 68,624 69,211
Average dilutive effect of
assumed conversion of ESOP
Convertible Preferred shares 8,118 8,182 8,135 8,198
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 504 709 572 756
TOTALS 76,968 77,836 77,331 78,165
Earnings before extraordinary loss
and effect of accounting change $ 7,427 $38,713 $74,360 $111,854
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 7,427 38,713 74,360 44,792
Additional ESOP contribution resulting
from assumed conversion, net
of taxes (1,207) (1,250) (3,710) (3,964)
Tax adjustment on assumed
common dividends (166) (190) (514) (598)
Net earnings applicable to
common shareholders $ 6,054 $37,273 $70,136 $40,230
Per share amounts
Earnings before extraordinary loss
and effect of accounting
change $ .08 $ .48 $ .91 $ 1.37
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 $ .08 $ .48 $ .91 $ .51
</TABLE>
EXHIBIT (15)
AWARENESS LETTER OF INDEPENDENT ACCOUNTANTS
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Dear Sirs:
We are aware that Nalco Chemical Company has included our report dated
October 24, 1994 (issued pursuant to the provisions of Statement on
Auditing Standards No. 71) in the Prospectuses constituting part of
its Registration Statements on Form S-3 (Nos. 33-53111, 33-9934 and 2-
97721) and Form S-8 (Nos. 33-38033, 33-38032, 33-29149, 2-97721, 2-
97131 and 2-82642). We are also aware of our responsibilities under
the Securities Act of 1933.
Yours very truly,
Price Waterhouse LLP
By: Robert R. Ross
Engagement Partner
November 11, 1994
Chicago, Illinois
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The Schedule contains summary financial information extracted from the
condensed
consolidated statement of financial condition at September 30, 1994 and the
condensed consolidated statement of earnings for the nine months ended
September
30, 1994 of Nalco Chemical Company and subsidiaries and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> QTR-3
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JUL-1-1994
<PERIOD-END> SEP-30-1994
<CASH> 73
<SECURITIES> 0
<RECEIVABLES> 217
<ALLOWANCES> (6)
<INVENTORY> 75
<CURRENT-ASSETS> 372
<PP&E> 1,055
<DEPRECIATION> (533)
<TOTAL-ASSETS> 1,275
<CURRENT-LIABILITIES> 248
<BONDS> 249
<COMMON> 15
0
0
<OTHER-SE> 537
<TOTAL-LIABILITY-AND-EQUITY> 1,275
<SALES> 1,032
<TOTAL-REVENUES> 1,032
<CGS> 461
<TOTAL-COSTS> 461
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18
<INCOME-PRETAX> 129
<INCOME-TAX> 54
<INCOME-CONTINUING> 74
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 74
<EPS-PRIMARY> 1
<EPS-DILUTED> 1
</TABLE>
