<PAGE>
1994
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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, 1994
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 $2,344,903,008 at February 21, 1995.*
The number of shares outstanding of each of the issuer's classes of Common
Stock, as of February 21, 1995 was 67,845,295 shares of Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's 1994 Annual Report to Shareholders are
incorporated by reference into Parts I and II.
Portions of the Registrant's Proxy Statement dated March 17, 1995 for the
April 20, 1995 Annual Meeting of Shareholders are incorporated by reference
into Part III.
--------------
*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
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
Item 1 Business........................................................ 1
Executive Officers of the Registrant............................ 1
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
Results of Operations........................................... 6
Item 8 Financial Statements and Supplementary Data..................... 6
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. 7
</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 1994 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, 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, improve the quality of
customers' end products, or help customers meet environmental discharge limits
in a cost-effective way. 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; 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). The Company
sells its water treatment products and service chemical programs in more than
100 countries, and is the largest or second largest supplier of those products
in most of the countries it does business. 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.
Effective September 1, 1994, Nalco and Exxon Chemical Company (Exxon), a
division of Exxon Corporation, formed Nalco/Exxon Energy Chemicals, L.P.
(Nalco/Exxon), a joint venture partnership to provide specialty chemical
products and services to the petroleum and chemicals industries worldwide. At
the time of formation of Nalco/Exxon, Nalco transferred the business and sales
volume of its U.S. Petroleum Chemicals Division and certain petroleum chemical
product lines of its international operations to the joint venture, while Exxon
transferred its Energy Chemicals business. The joint venture was formed to
respond to changes in the petroleum and petrochemical market, and to take
advantage of synergies in business
1
<PAGE>
ITEM 1. BUSINESS. (CONT'D)
management, technology, product offerings, and manufacturing operations.
Because the joint venture will be able to focus exclusively on opportunities in
the petroleum market, it strengthens Nalco's capability to address the needs of
petroleum customers worldwide through an expanded network of experienced
personnel, state-of-the-art technology, and consultative services.
In July 1994, Nalco sold its automotive paint spray booth business to PPG
Industries, Inc. This business had generated annual revenues of approximately
$10 million.
On March 6, 1995, Nalco announced that it had signed a memorandum of
understanding to form a joint venture with U.S. Filter Corporation, a leading
industrial water treatment equipment maker. The joint venture will build, own,
and operate water purification facilities on customers' sites under long-term
agreements, and it will design, provide, and install water treatment equipment
for industrial customers and provide chemicals and ongoing service for the
applications.
There were no other significant changes in the markets served or in the
methods of distribution since the beginning of 1994.
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
Primarily as a result of the formation of the Nalco/Exxon joint venture, the
Company adopted a worldwide consolidation plan in 1994 for manufacturing and
support operations. The production volume reduction caused by redundancies
associated with the joint venture formation required the Company to downsize,
close, and consolidate operations. The Company's South Chicago plant will be
closed, and several European manufacturing and support operations have been or
will also be closed or downsized. In addition, certain support functions will
be regionalized on a pan-European basis in order to more efficiently serve
customers. All of these activities are in process, and should be largely
completed by the end of 1995.
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 1994 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.
2
<PAGE>
ITEM 1. BUSINESS. (CONT'D)
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 amounted to $46.4 million in 1994, compared
to $50.4 million in 1993, and $48.0 million in 1992.
There were approximately 5,600 persons employed full time by Nalco at the end
of 1994.
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
1995. 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
productivity and thereby minimize the effect of rising costs. In addition, the
last-in, first-out (LIFO) valuation method is used for 51 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.
E. J. Mooney has been Chief Executive Officer of the Company since April
1994, Chairman of the Board since July 1994, and President since 1990. He had
been Chief Operating Officer since 1992 and an Executive Vice President since
1988.
M. B. Harp was elected Executive Vice President, Operations on January 1,
1995. He had been Executive Vice President, International Operations since 1993
and a Group Vice President since 1988.
W. S. Weeber has been Executive Vice President, Operations Staff since 1993.
He had been a Group Vice President since 1986.
P. Dabringhausen has been Group Vice President and President, Process
Chemicals Division since 1993. He had been a Vice President since 1991, and was
President, Nalco Pacific from 1989 to 1992.
S. D. Newlin has been Group Vice President, President, Nalco Europe since
March 1994. He had been Vice President, President, Nalco Pacific since 1992.
During 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 1993. During 1992 he was a Group Vice President and
President, Process Chemicals Division, and from 1986 to 1992 he was Vice
President, Corporate Development.
3
<PAGE>
ITEM 1. BUSINESS. (CONT'D)
W. E. Buchholz has been Vice President and Chief Financial Officer since
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 1994 Annual Report to
Shareholders, which is incorporated herein by reference.
ITEM 2. PROPERTIES.
Nalco has facilities used to produce and store inventories and service
customer needs at 8 domestic and 26 foreign locations. Primary domestic
manufacturing plants are located in:
<TABLE>
<CAPTION>
BUILDING
LAND AREA
AREA (SQ.
(ACRES) FT.)
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<S> <C> <C>
Carson, California....................................... 21 84,000
Jonesboro, Georgia....................................... 12 35,000
Chicago, Illinois........................................ 42 856,000
Garyville, Louisiana..................................... 251 235,000
Paulsboro, New Jersey.................................... 14 33,000
</TABLE>
Other domestic manufacturing and/or warehouse facilities are located in:
Oklahoma City, Oklahoma; Clarksburg, West Virginia; and Vancouver, Washington.
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 cogeneration system (steam and electricity) serves both the Corporate
and Technical Centers and has 31,000 square feet of space.
The primary domestic research facility is located in Naperville, Illinois.
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.
Primary foreign manufacturing plants, which also generally include laboratory
and office facilities, are located in:
<TABLE>
<CAPTION>
BUILDING
LAND AREA
AREA (SQ.
(ACRES) FT.)
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Botany, Australia........................................ 10 102,000
Suzano, Brazil........................................... 14 81,000
Burlington, Canada....................................... 14 138,000
Soledad, Colombia........................................ 6 27,000
Cheshire, England........................................ 15 226,000
Biebesheim, Germany...................................... 28 103,000
Cisterna di Latina, Italy................................ 25 88,000
Celra, Spain............................................. 25 109,000
Anaco, Venezuela......................................... 43 76,000
</TABLE>
4
<PAGE>
ITEM 2. PROPERTIES. (CONT'D)
Other foreign facilities are located in: Perth, Australia; Vienna, Austria;
Buenos Aires, Argentina; Edmonton, Canada; Santiago, Chile; Quito, Ecuador;
Maurepas, France; Bogor, Indonesia; Kashima, Japan; Tilburg, the Netherlands;
Auckland, New Zealand; Calamba, Laguna, Philippines; Dammam, Saudi Arabia;
Jurong Town, Singapore; Hsin Chu Hsien, Taiwan; and Maracaibo, Venezuela.
During 1994, the Company opened a business and technical center on a 12-acre
site in Oegstgeest, the Netherlands. This 72,000 square-foot facility serves
customers throughout Europe.
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.
In connection with the formation of Nalco/Exxon on September 1, 1994, the
Company transferred manufacturing and research facilities located in Sugar
Land, Texas, along with manufacturing and/or warehouse facilities in Freeport,
Texas; Kenai, Alaska; Hobbs, New Mexico; Odessa, Texas; and Evansville,
Wyoming. These former Nalco facilites are now owned by Nalco/Exxon.
As part of the worldwide consolidation plan for manufacturing and support
operations adopted by the Company during 1994, certain facilities have been or
will be closed during 1995. These include the South Chicago plant located on
South Harbor Avenue in Chicago, Illinois, and plants located in Douvrin--Billy
Berclau, France, and Jordbro, Sweden.
Capital expenditures for 1995 should remain near the $125.6 million spent in
1994, if planned sales and earnings for 1995 are reached.
ITEM 3. LEGAL PROCEEDINGS.
For information on this item, please refer to Note 18 of the Notes to
Consolidated Financial Statements in the Company's 1994 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, 1994 was 6,005. Dividends and Common Stock market
prices included in the Quarterly Summary in the Company's 1994 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 1994 Annual Report to Shareholders and are incorporated herein
by reference.
5
<PAGE>
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 section titled "Management's Discussion and
Analysis--Results of Operations" and "Management's Discussion and Analysis--
Financial Condition" in the Company's 1994 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 1994 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 1994 Annual Report to Shareholders, are
incorporated herein by reference. The Report of Independent Auditors, which was
included in the Company's 1992 Annual Report to Shareholders, is incorporated
herein by reference from the Registrant's Form 10-K for the year ended 1992.
The Quarterly Summary in the Company's 1994 Annual Report to Shareholders is
incorporated herein by reference.
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, under Executive Officers
of the Registrant and also in the Company's Proxy Statement dated March 17,
1995, 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 17, 1995, 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 17, 1995, 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.
6
<PAGE>
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 1994 Annual Report to Shareholders
are incorporated herein by reference in Item 8:
Statements of Consolidated Financial Condition
December 31, 1994 and 1993
Statements of Consolidated Earnings
Years ended December 31, 1994, 1993 and 1992
Statements of Consolidated Cash Flows
Years ended December 31, 1994, 1993 and 1992
Statement of Consolidated Common Shareholders' Equity
Years ended December 31, 1994, 1993 and 1992
Notes to Consolidated Financial Statements
Quarterly Summary (Unaudited) Years ended December 31, 1994 and 1993
Report of Independent Accountants
The Report of Independent Auditors, which was included in the Company's 1992
Annual Report to Shareholders, is incorporated herein by reference from the
Registrant's Form 10-K for the year ended 1992.
(2) The following consolidated financial statement schedule for the years
1994, 1993 and 1992 is submitted herewith:
Report of Independent Accountants on Financial Statement Schedule
Schedule VIII--Valuation and Qualifying Accounts
7
<PAGE>
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
<TABLE>
<C> <S>
Exhibit 3A --Restated Certificate of Incorporation/2/
Exhibit 3B --Certificates of Correction and Amendment to the Restated
Certificate of Incorporation/7/
Exhibit 3C --Certificate of Designations, Preferences and Rights of Series
B ESOP Convertible Preferred Stock/4/
Exhibit 3D --By-laws/9/
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/7/
10G --1982 Stock Option Plan as amended April 16, 1984, January 30,
1987, and February 12, 1993/9/
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, 1993/9/
10K --Stock Option Plan for Non-Employee Directors/9/
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/8/
Exhibit 11 --Computation of Earnings Per Share
Exhibit 13 --Those portions of the 1994 Annual Report to Shareholders
expressly incorporated herein by reference
Exhibit 21 --Subsidiaries of the Registrant
Exhibit 23 --Consents of Independent Accountants
Exhibit 27 --Financial Data Schedule
Exhibit 99A --Notice of Annual Meeting and Proxy Statement/1//0/
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 --Report of Other Auditors/9/
Exhibit 99D --Form 11-K Annual Report
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 1994 are: None
--------
/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-K for the
year ended 1991.
/8/Incorporated herein by reference from the Registrant's March 16, 1992 Proxy
Statement.
/9/Incorporated herein by reference from the Registrant's Form 10-K for the
year ended 1992.
/1//0/Incorporated herein by reference from the Registrant's Notice of Annual
Meeting and Proxy Statement dated March 17, 1995.
8
<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
E. J. Mooney
By___________________________________
E. J. Mooney
Chairman, Chief Executive Officer
and President
March 30, 1995
Date: _______________________________
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
NAME AND TITLE
--------------
<C> <S>
W. E. Buchholz March 30, 1995
------------------------------------
W. E. Buchholz, Vice President, Date: ________
Chief Financial Officer
R. L. Ratliff March 30, 1995
------------------------------------
R. L. Ratliff, Controller Date: ________
J. L. Ballesteros March 30, 1995
------------------------------------
J. L. Ballesteros, Director Date: ________
H. G. Bernthal March 30, 1995
------------------------------------
H. G. Bernthal, Director Date: ________
H. Corless March 30, 1995
------------------------------------
H. Corless, Director Date: ________
------------------------------------
H. M. Dean, Director Date: ________
J. P. Frazee, Jr. March 30, 1995
------------------------------------
J. P. Frazee, Jr., Director Date: ________
A. L. Kelly March 30, 1995
------------------------------------
A. L. Kelly, Director Date: ________
------------------------------------
F. A. Krehbiel, Director Date: ________
E. J. Mooney March 30, 1995
------------------------------------
E. J. Mooney, Director Date: ________
C. W. Parry March 30, 1995
------------------------------------
C. W. Parry, Director Date: ________
W. A. Pogue March 30, 1995
------------------------------------
W. A. Pogue, Director Date: ________
J. J. Shea March 30, 1995
------------------------------------
J. J. Shea, Director Date: ________
</TABLE>
9
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of Nalco Chemical Company
Our audits of the consolidated financial statements referred to in our report
dated February 1, 1995, appearing on page 14 of the 1994 Annual Report to
Shareholders 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 Schedule listed in Item 14(a)
of this Form 10-K. In our opinion, this Financial Statement Schedule presents
fairly, in all material respects, the information set forth therein when read
in conjunction with the related consolidated financial statements.
PRICE WATERHOUSE LLP
Chicago, Illinois
February 1, 1995
10
<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
-----------------------
(1) (2)
CHARGED
BALANCE AT CHARGED TO OTHER BALANCE AT
BEGINNING TO COSTS ACCOUNTS-- DEDUCTIONS-- END OF
DESCRIPTION OF PERIOD AND EXPENSES DESCRIBE DESCRIBE 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, 1994... $4,470,000 $1,845,000 $ 710,000(A) $5,605,000
========== ========== ========== ==========
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
========== ========== ========== ==========
</TABLE>
--------
Note A--Excess of accounts written off over recoveries.
11
<PAGE>
EXHIBIT (11)
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
NALCO CHEMICAL COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------
1994 1993 1992
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) -------- -------- --------
<S> <C> <C> <C>
PRIMARY
Average shares outstanding during the year..... 68,460 69,125 70,035
Net effect of dilutive stock options and shares
contingently issuable--based on the treasury
stock method using average market price....... 569 738 945
-------- -------- --------
TOTALS....................................... 69,029 69,863 70,980
======== ======== ========
Earnings before extraordinary loss and effect
of accounting change.......................... $ 97,111 $152,697 $144,989
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................................... 97,111 85,635 144,989
Preferred stock dividends, net of taxes........ (11,026) (10,813) (9,988)
-------- -------- --------
Net earnings to common shareholders............ $ 86,085 $ 74,822 $135,001
======== ======== ========
Per share amounts:
Earnings before extraordinary loss and effect
of accounting change.......................... $ 1.25 $ 2.03 $ 1.90
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............ $ 1.25 $ 1.07 $ 1.90
======== ======== ========
</TABLE>
<PAGE>
EXHIBIT (11)
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
NALCO CHEMICAL COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------
1994 1993 1992
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) ------- -------- --------
<S> <C> <C> <C>
FULLY DILUTED
Average shares outstanding during the year...... 68,460 69,125 70,035
Average dilutive effect of assumed conversion of
ESOP Convertible Preferred Shares.............. 8,125 8,190 8,253
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........................... 575 812 966
------- -------- --------
TOTALS........................................ 77,160 78,127 79,254
======= ======== ========
Earnings before extraordinary loss and effect of
accounting change.............................. $97,111 $152,697 $144,989
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.................................... 97,111 85,635 144,989
Additional ESOP contribution resulting from
assumed conversion, net of taxes............... (4,911) (5,254) (5,625)
Tax adjustment on assumed common dividends...... (684) (573) 2,563
------- -------- --------
Net earnings applicable to common shareholders.. $91,516 $ 79,808 $141,927
======= ======== ========
Per share amounts:
Earnings before extraordinary loss and effect of
accounting change.............................. $ 1.19 $ 1.88 $ 1.79
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............. $ 1.19 $ 1.02 $ 1.79
======= ======== ========
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Nalco Chemical Company
In our opinion, the accompanying statements 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, 1994 and 1993, and the results of their operations and their cash
flows for the years then ended 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 audits. We conducted our audits 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 audits provide a reasonable basis
for the opinion expressed above. The financial statements of Nalco Chemical
Company for the year ended December 31, 1992 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 LLP
Chicago, Illinois
February 1, 1995
R. R. Ross
Engagement Partner
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
1994 vs 1993
Effective September 1, 1994, Nalco and Exxon Chemical Company (Exxon), a
division of Exxon Corporation, formed Nalco/Exxon Energy Chemicals, L.P.
(Nalco/Exxon), a joint venture partnership to provide specialty chemical
products and services to the petroleum and chemicals industries worldwide.
Nalco's investment in the joint venture is accounted for by the equity method.
(See Note 11).
At the time of formation of Nalco/Exxon, Nalco transferred the business and
sales volume of its U.S. Petroleum Chemicals Division and certain petroleum
chemical product lines of its international operations to the joint venture.
While this formation did not change Nalco's net assets or results of operations,
several historical captions in the consolidated financial statements were
affected. Because 1993 results have not been reclassified to exclude petroleum
chemical operations, the following unaudited statement of consolidated earnings
for the year ended December 31, 1993 is presented. It reflects results of
operations on a comparable basis with 1994; that is, Nalco petroleum chemical
operations are excluded for the last four months of 1993 and recognized as if
they were accounted for by the equity method.
<TABLE>
<CAPTION>
Reclas-
sified
(in millions) 1994 1993
---------------------------------------------------------
<S> <C> <C>
NET SALES $1,345.6 $1,313.5
Operating costs and expenses
Cost of products sold 598.9 574.6
Selling and service 409.6 392.2
Research and development 46.4 46.0
Administrative and general 47.8 48.7
Formation and consolidation 68.2 -
---------------------------------------------------------
1,170.9 1,061.5
---------------------------------------------------------
OPERATING EARNINGS 174.7 252.0
Interest and other income 16.6 14.9
Interest expense (21.8) (27.5)
Equity in earnings of partnership 6.9 8.3
---------------------------------------------------------
EARNINGS FROM OPERATIONS
BEFORE INCOME TAXES 176.4 247.7
Income taxes 79.3 95.0
---------------------------------------------------------
EARNINGS BEFORE EXTRAORDINARY LOSS
AND EFFECT OF ACCOUNTING CHANGE $ 97.1 $ 152.7
--------------------------------------===================
</TABLE>
Sales were $1,346 million in 1994, a 3 percent decline from reported sales for
1993. On a comparable basis, however, sales for 1994 were 2 percent higher than
the year before. Sales for 1994, 1993 as reported, and reclassified 1993 by
major operating unit were as follows:
<TABLE>
<CAPTION>
1994 vs
Reclas-
Reclas- 1994 vs 1993 sified 1993
sified Increase Increase
(in millions) 1994 1993 1993 (Decrease) (Decrease)
--------------------------------------------------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Water and Waste Treatment $ 344.8 $ 335.2 $ 335.2 3% 3%
Process Chemicals 357.5 345.5 345.5 3 3
Petroleum Chemicals 85.3 136.1 89.9 (37) (5)
International 558.0 572.6 542.9 (3) 3
-------- -------- --------
Total $1,345.6 $1,389.4 $1,313.5 (3) 2
</TABLE>
The following discussion of results of operations compares 1994 to the
reclassified 1993 results presented above.
[CHART APPEARS HERE]
15
<PAGE>
Sales by the three units comprising U.S. Operations rose 2 percent in 1994, as
eight of the twelve marketing groups posted higher sales. Sales by International
Operations were up 3 percent. Sales by European subsidiaries were down 3
percent, primarily as a result of lower sales to the Middle East by our
subsidiary company in Italy. In Latin America, sales increased 17 percent over
1993 with gains reported by all companies in the region, most notably Venezuela
and Argentina, which reported double-digit advances. About one-fourth of the
increase in Latin America was attributable to sales by Nalcomex (Mexico), a
former affiliate, which became a wholly owned subsidiary in the fourth quarter
1994. In the Pacific, double-digit sales gains by all subsidiaries in the
region, except Australia and Taiwan, contributed to a 10 percent improvement
over 1993.
Cost of products sold was 44.5 percent of sales for 1994, compared with 43.7
percent of sales for 1993. Slightly lower selling prices, combined with
increased raw material costs and manufacturing expenses, accounted for lower
gross margins reported by U.S. Operations in 1994. Gross margins of our foreign
subsidiaries, primarily in Europe, were also slightly lower than in 1993.
Operating expenses in 1994 rose $17 million, or 3 percent over 1993, excluding
the $68 million charge in 1994 for formation and consolidation expenses
discussed below. Selling and service expenses were up $17 million, or 4 percent
over last year, which was primarily attributable to growth in our International
Operations, principally in the Pacific and Latin America.
Worldwide, research expenses increased 1 percent over 1993, which was also
mainly to support growth overseas. The European Business and Technical Center in
the Netherlands and a technical center in Singapore were opened during 1994 to
better serve our customers in Europe and the Pacific. As a percent to sales,
research expenses were 3.4 percent in 1994 compared to 3.5 percent in 1993.
Administrative expenses for 1994 were down slightly from 1993 as lower
provisions for incentive plans were partly offset by higher salaries and
benefits.
Primarily as a result of the formation of the Nalco/Exxon joint venture, the
Company adopted a worldwide consolidation plan for manufacturing and support
operations during 1994. The joint venture was formed to take advantage of
synergies in business management, technology, product offerings, and
manufacturing operations. 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 required the Company to
downsize, close, and consolidate operations. The Company's South Chicago plant
will be closed, and several European and Latin American manufacturing and
support operations will also be closed or downsized. In addition, certain
support functions will be regionalized on a pan-European basis in order to more
efficiently serve customers. Certain redundant assets that were not contributed
to the joint venture will be scrapped and written down to net realizable value,
and assets associated with other programs will be written off. All of these
activities are in process and should be largely completed by the end of 1995.
As a result of these plans, the Company recorded a pretax provision for
formation and consolidation expenses of $68 million ($54 million after tax, or
70 cents per share on a fully diluted basis). (See Note 3). The Nalco/Exxon
joint venture and the Company's consolidation plan are expected to result in an
annualized pretax 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
chemical operations, as a result of synergies achieved.
[CHART APPEARS HERE]
[CHART APPEARS HERE]
16
<PAGE>
Interest and other income for 1994 was $17 million, a $2 million improvement
over 1993. This increase was primarily the result of a $5 million gain on the
sale of the Company's automotive paint spray booth business. This business had
generated annual revenues of approximately $10 million. Interest income,
however, was $1 million lower than in 1993. Results for 1993 also included a $2
million gain on the sale of an investment in a mutual insurance company.
Interest expense totaled $22 million in 1994, a decrease of $6 million from
1993, which was mainly attributable to lower average borrowing levels and a
monetary control program instituted by the Brazilian government that resulted in
lower interest expense reported by our subsidiary company in Brazil.
Nalco's equity in earnings of Nalco/Exxon for the last four months of 1994 was
$7 million, compared to $8 million in 1993 for the Nalco petroleum chemical
operations. Start up costs incurred by Nalco/Exxon in 1994, coupled with
unusually good results for the Nalco petroleum chemical operations in the fourth
quarter 1993, account for this variation.
Excluding the formation and consolidation expense of $68 million and related
net tax benefit of $14 million, the effective tax rate was 38.2 percent. This
compares to the actual 1993 effective tax rate of 38.9 percent, and a 38.4
percent effective tax rate based on the reclassified results for 1993 presented
above.
Net earnings as a percent to sales was 7.2 percent in 1994. Excluding the net
formation and consolidation expense, earnings as a percent to sales would have
been 11.2 percent. Based on the reclassified results above, earnings before
extraordinary loss and effect of accounting change as a percent to sales was
11.6 percent in 1993.
The Company makes limited use of derivative financial instruments such as
interest rate swaps and foreign exchange contracts. Interest rate swaps are used
to reduce the potential impact of increases in interest rates on floating rate
long-term debt, while foreign exchange contracts are used to minimize exposure
and reduce risk from exchange rate fluctuations. The Company does not hold or
issue financial instruments for trading purposes. (See Note 16).
The Company is involved in environmental clean-up activities in connection
with former waste disposal sites and plant locations and litigation in the
normal course of business. (See Note 18). This involvement has not had, nor is
it expected to have, a material effect on the Company's earnings or financial
position.
1993 vs. 1992
Sales in 1993 totaled $1,389 million, a 1 percent gain over 1992. Sales by major
operating unit for 1993 and 1992 were as follows:
<TABLE>
<CAPTION>
1993 vs 1992
Increase
(in millions) 1993 1992 (Decrease)
----------------------------------------------- -------------
<S> <C> <C> <C>
Water and Waste Treatment $ 335.2 $ 320.0 5%
Process Chemicals 345.5 324.7 6
Petroleum Chemicals 136.1 141.9 (4)
International 572.6 587.9 (3)
-------- --------
Total $1,389.4 $1,374.5 1
</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. 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
[CHART APPEARS HERE]
17
<PAGE>
than in 1992 as our companies in Venezuela, Chile, and Argentina reported
double-digit advances. In the Pacific, double-digit sales gains by
subsidiaries in Indonesia, Japan, and South East Asia contributed to an
8 percent increase over 1992. Had translation rates remained unchanged
from 1992, revenues of our Pacific companies would have risen 13 percent.
Cost of products sold was 43.8 percent of sales for 1993, compared with 44.5
percent for 1992. 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.
Operating expenses increased $15 million, or 3 percent in 1993. Selling and
service expenses were up $13 million, or 3 percent over 1992. 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 expenses
were 3.6 percent in 1993 compared to 3.5 percent in 1992.
Administrative expenses for 1993 declined slightly from 1992. Lower provisions
for incentive plans were partly offset by increased salaries and benefits.
Interest and other income for 1993 was $14 million, a $4 million decline from
1992. This decrease was primarily attributable to 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 expense totaled $28 million in 1993, a decrease of $12 million from
1992, which reflects the early repayment of debt. 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 14).
Earnings from continuing operations before extraordinary loss and effect of
accounting change as a percent to sales were 11.0 percent and 10.5 percent in
1993 and 1992, respectively.
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 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 5). 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.
The Revenue Reconciliation Act of 1993 increased the U.S. corporate income tax
rate from 34 percent to 35 percent. 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.
FINANCIAL CONDITION
Total assets increased $70 million, or 6 percent during 1994.
Accounts receivable were $9 million, or 4 percent lower than at the end of
1993. This reflects the transfer of the Company's petroleum chemical operations
to Nalco/Exxon as of September 1, 1994, partly offset by higher receivables
reported by subsidiary companies in the Pacific resulting from increased sales
levels.
[CHART APPEARS HERE]
18
<PAGE>
Inventories increased $15 million, or 22 percent over year-ago levels. This
was primarily attributable to subsidiary companies overseas, where inventory
levels were raised temporarily to ensure availability of products during the
transition period as a result of the Company's consolidation plan.
Prepaid expenses, taxes, and other current assets rose $15 million over 1993,
which was mainly due to deferred tax assets related to the Company's accrual for
formation and consolidation expenses.
Investment in and advances to partnership increased $109 million during 1994,
which reflected Nalco's investment in Nalco/Exxon. (See Note 11).
The $35 million decrease in net property, plant, and equipment reflects the
transfer of assets with a net book value of $70 million to Nalco/Exxon, and the
write off of assets for the consolidation plan. (See Note 3). It also reflects
capital spending of $126 million and depreciation expense of $85 million. The
translation impact of a weaker U.S. dollar also increased the carrying value of
the fixed assets of certain foreign subsidiaries.
Liabilities increased $76 million, or nearly 12 percent, primarily because of
the $43 million accrual for formation and consolidation expenses (see Note 3)
and a $25 million increase in accounts payable in support of the temporary
increase in inventories previously discussed.
Shareholders' equity declined $7 million, or 1 percent during 1994, primarily
because dividends totaling $76 million and common stock repurchases of 1.8
million shares for $61 million exceeded net earnings of $97 million. Treasury
stock transactions for stock option, benefit, and other plans totaled $12
million, and the weaker U.S. dollar in relation to most European and Pacific
currencies compared to the end of 1993 resulted in a $10 million decrease in
foreign currency translation adjustments.
Based on earnings before the net $54 million for formation and
consolidation expenses in 1994, and before the extraordinary loss and the effect
of the change in accounting principle in 1993, Nalco's return on average
shareholders' equity was 27.2 percent in 1994, down slightly from 28.6 percent
in 1993.
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 was $249 million in 1994, which was generated primarily
from net earnings before noncash charges for formation and consolidation
expenses, depreciation, and amortization.
Cash flow activity in 1994 included major funding for capital spending of $126
million, dividends of $76 million, and $61 million for the reacquisition of
common stock.
In 1993, cash from operations rose $48 million over the 1992 total of $208
million, which was mainly attributable to higher earnings before noncash charges
for the extraordinary loss from retirement of debt, the effect of the change in
accounting principle, depreciation, and amortization.
Investing activities in 1994 included $126 million for investments in
property, plant, and equipment. Investments in the United States represented
over 60 percent of the capital spending in 1994, which included $19 million for
PORTA-FEED units, $18 million for field equipment, and $14 million for
transportation equipment. The most significant investment overseas in 1994 was
$18 million to complete the construction of the Nalco Europe Business and
Technical Center in the Netherlands, which was opened in mid-1994. The Company
plans to continue to invest in internal growth in 1995 and it is expected that
capital investment will remain near the 1994 level.
Other significant investing activities in 1994 included the acquisition of the
remaining 60 percent interest of Nalcomex (Mexico), a former affiliated company,
for approximately $18 million, and cash investments in Nalco/Exxon of $26
million.
[CHART APPEARS HERE]
[CHART APPEARS HERE]
19
<PAGE>
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.
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, and $26 million for transportation
equipment.
Financing activities of $121 million in 1994 included dividends paid on common
stock of $65 million or $.945 per share. Since the Company's founding in 1928,
it has paid 266 consecutive quarterly dividends, and expects to continue its
policy of paying regular cash dividends. The Company continued its stock
repurchase program in 1994 by reaquiring 1.8 million shares of common stock at a
cost of $61 million. In 1993, the Company reaquired 1.7 million shares of common
stock at a cost of $59 million, and 0.4 million shares were repurchased for $14
million in 1992. Management believes that the stock repurchase program
represents a sound economic investment for Nalco's shareholders, and in late
1994 the Company's Board of Directors authorized the repurchase of an additional
2 million shares of common stock.
The most significant financing activities in 1993 were the repayment of $160
million of commercial paper borrowings, payments for cash dividends, and the
repurchase of common stock.
Cash dividends represented the most significant financing cash outflow in
1992.
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 $260
million Revolving Credit Agreement with ten banks. The credit arrangements were
unused at December 31, 1994. (See Note 14). 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 $222 million, $189
million, and $234 million at December 31, 1994, 1993, and 1992, respectively.
[CHART APPEARS HERE]
[CHART APPEARS HERE]
20
<PAGE>
--------------------------------------------------------------------------
STATEMENTS OF CONSOLIDATED EARNINGS
<TABLE>
<CAPTION>
December 31
------------------------------
(in millions, except per share figures) 1994 1993 1992
--------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $1,345.6 $1,389.4 $1,374.5
Operating costs and expenses
Cost of products sold 598.9 608.9 611.5
Selling and service 409.6 414.3 401.4
Research and development 46.4 50.4 48.0
Administrative and general 47.8 52.9 53.3
Formation and consolidation 68.2 - -
-------- -------- --------
1,170.9 1,126.5 1,114.2
-------- -------- --------
OPERATING EARNINGS 174.7 262.9 260.3
Interest and other income 16.6 14.4 18.3
Interest expense (21.8) (27.5) (40.3)
Equity in earnings of partnership 6.9 - -
-------- -------- --------
EARNINGS FROM OPERATIONS
BEFORE INCOME TAXES 176.4 249.8 238.3
Income taxes 79.3 97.1 93.3
-------- -------- --------
EARNINGS BEFORE EXTRAORDINARY LOSS
AND EFFECT OF ACCOUNTING CHANGE 97.1 152.7 145.0
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 $ 97.1 $ 85.6 $ 145.0
======== ======== ========
EARNINGS PER COMMON SHARE--PRIMARY
Earnings from operations $ 1.25 $ 2.03 $ 1.90
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 $ 1.25 $ 1.07 $ 1.90
======== ======== ========
EARNINGS PER COMMON SHARE--FULLY DILUTED
Earnings from operations $ 1.19 $ 1.88 $ 1.79
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 $ 1.19 $ 1.02 $ 1.79
======== ======== ========
</TABLE>
The notes to consolidated financial statements on pages 25 through 32 are an
integral part of these statements.
21
<PAGE>
------------------------------------------------------------------------
STATEMENTS OF CONSOLIDATED FINANCIAL CONDITION
<TABLE>
<CAPTION>
December 31
-------------------
(in millions) 1994 1993
------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 45.1 $ 78.1
Receivables, less allowances
of $5.6 in 1994 and $4.5 in 1993 205.9 215.2
Inventories
Finished products 51.4 43.5
Materials and work in process 32.4 25.4
-------- --------
83.8 68.9
Prepaid expenses, taxes, and other current assets 27.3 12.8
-------- --------
TOTAL CURRENT ASSETS 362.1 375.0
OTHER ASSETS
Investment in and advances to partnership 109.4 -
Goodwill, less accumulated amortization
of $15.1 in 1994 and $10.1 in 1993 114.4 112.9
Miscellaneous 172.4 166.0
-------- --------
TOTAL OTHER ASSETS 396.2 278.9
NET PROPERTY, PLANT, AND EQUIPMENT 523.9 558.5
-------- --------
TOTAL ASSETS $1,282.2 $1,212.4
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt $ 21.6 $ 15.2
Accounts payable 109.1 84.5
Accrued compensation 31.3 26.3
Accrued formation and consolidation expenses 43.2 -
Other accrued expenses 51.7 46.2
Income taxes 17.4 17.4
-------- --------
TOTAL CURRENT LIABILITIES 274.3 189.6
LONG-TERM DEBT 245.3 252.1
DEFERRED INCOME TAXES 56.8 58.1
ACCRUED POSTRETIREMENT BENEFITS 95.2 94.2
OTHER LIABILITIES 66.4 67.8
COMMITMENTS AND CONTINGENT LIABILITIES - -
SHAREHOLDERS' EQUITY
Preferred stock--par value $1.00 per share 0.4 0.4
Capital in excess of par value of shares 194.0 195.7
Unearned ESOP compensation (168.7) (174.4)
-------- --------
25.7 21.7
Common stock--par value $.1875 per share;
80,287,568 shares issued 15.1 15.1
Capital in excess of par value of shares 25.5 10.6
Retained earnings 840.6 819.2
Minimum pension liability adjustment (5.7) (7.1)
Foreign currency translation adjustments (39.3) (49.3)
Common stock reacquired--at cost (317.7) (259.6)
-------- --------
TOTAL SHAREHOLDERS' EQUITY 544.2 550.6
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,282.2 $1,212.4
======== ========
</TABLE>
The notes to consolidated financial statements on pages 25 through 32 are an
integral part of these statements.
22
<PAGE>
-------------------------------------------------------------------------------
STATEMENTS OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
December 31
----------------------------
(in millions) 1994 1993 1992
--------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES
Net earnings $ 97.1 $ 85.6 $ 145.0
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 -
Formation and consolidation expenses 68.2 - -
Depreciation and amortization 89.2 86.5 80.6
Equity in earnings of partnership (6.9) - -
Noncurrent deferred income taxes (3.8) (2.8) 17.2
Other--net 6.8 10.4 (15.7)
Changes in current assets and liabilities
Receivables 10.2 (31.6) (24.2)
Inventories (19.3) (4.4) 3.4
Accounts payable 22.8 15.4 2.0
Other (15.2) 29.7 -
------- ------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 249.1 255.9 208.3
------- ------- -------
CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES
Additions to property, plant, and equipment (125.6) (117.8) (131.0)
Business purchases (20.4) - -
Investments in partnership (26.3) - -
Purchases of marketable securities and
restricted investments - (210.2) (228.9)
Sales of marketable securities and
restricted investments - 314.2 228.9
Proceeds from sale of business 6.4 15.7 7.5
Other investing activities 1.6 (1.4) (0.4)
------- ------- -------
NET CASH PROVIDED BY (USED FOR)
INVESTING ACTIVITIES (164.3) 0.5 (123.9)
------- ------- -------
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES
Cash dividends, net of taxes (75.7) (71.9) (68.8)
Proceeds from long-term debt 2.2 1.3 32.9
Payments of long-term debt (7.7) (168.7) (46.3)
Common stock reacquired (61.3) (58.5) (14.3)
Other financing transactions 21.4 2.2 9.7
------- ------- -------
NET CASH (USED FOR) FINANCING ACTIVITIES (121.1) (295.6) (86.8)
Effect of foreign exchange rate changes
on cash and cash equivalents 3.3 (0.2) (0.2)
------- ------- -------
(Decrease) in cash
and cash equivalents (33.0) (39.4) (2.6)
Cash and cash equivalents at the
beginning of the year 78.1 117.5 120.1
------- ------- -------
CASH AND CASH EQUIVALENTS
AT THE END OF THE YEAR $ 45.1 $ 78.1 $ 117.5
======= ======= =======
</TABLE>
The notes to consolidated financial statements on pages 25 through 32 are an
integral part of these statements.
23
<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, 1992 $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)
Treasury stock transactions 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)
Treasury stock transactions 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)
Net earnings 97.1
Dividends on preferred stock
--net of tax (11.0)
Dividends on common stock
($0.945 per share) (64.7)
Treasury stock transactions 12.3 1.5 (67.4)
Stock issued under option,
benefit, and other plans 2.6 (0.5) 9.3
Minimum pension liability adjustment 1.4
Currency translation adjustments 10.0
----- ----- ------ ------ ------ ---- -------
Balance at December 31, 1994 $15.1 $25.5 $840.6 $(5.7) $(39.3) 12.4 $(317.7)
===== ===== ====== ====== ====== ==== =======
</TABLE>
The notes to consolidated financial statements on pages 25 through 32 are an
integral part of these statements.
24
<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. All
intercompany balances and transactions are eliminated. 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 the partnership and affiliated companies are reported on the
equity method.
CONCENTRATION OF CREDIT RISK--Credit risk represents the accounting loss that
would be recognized at the reporting date if counterparties failed completely to
perform as contracted. Management believes the likelihood of incurring material
losses due to concentration of credit risk is remote. The principal financial
instruments subject to credit risk are as follows:
Cash and cash equivalents, short-term marketable securities - Nalco has a
formal policy of placing these instruments in investment grade companies or
financial institutions and limiting the size of an investment with any single
entity.
Receivables - A large number of customers in diverse industries and
geographies, as well as the practice of establishing reasonable credit lines,
limits credit risk. The allowances for doubtful accounts are adequate to cover
potential credit risk losses.
Foreign exchange contracts and derivatives - The Company has formal policies
which establish credit limits and investment grade credit criteria of "A" or
better for all counterparties.
DERIVATIVES--Gains and losses on hedges of existing assets or liabilities are
included in the carrying amounts of those assets or liabilities and are
ultimately recognized in income as part of those carrying amounts. Gains and
losses related to qualifying hedges of firm commitments also are deferred and
are recognized in income or as adjustments of carrying amounts when the hedged
transaction occurs.
FOREIGN CURRENCY TRANSLATION--The local currency has been designated as the
functional currency in financial statements of companies which account for
approximately 87 percent of total foreign subsidiary net assets at the end of
1994. These financial statements are translated at current and average exchange
rates, with any resulting translation adjustments included in the currency
translation adjustment account in shareholders' equity. The remaining
subsidiaries operate in countries with highly inflationary 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
1994, 1993, and 1992, was not significant.
INVENTORY VALUATION--Inventories are valued at the lower of cost or market.
Approximately 51 percent of the inventories at the end of 1994 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, 1994 and 1993 by $25 million and $35 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 annually evaluates whether the projected
earnings and undiscounted cash flows of each of the acquired companies is
sufficient to recover the carrying value of the net investment, including
goodwill, in order to determine if an impairment has occurred. Management is
currently of the opinion that no such impairment exists.
INCOME TAXES--In 1992, 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
1994 and 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 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.
25
<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 partnership and 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 partnership, affiliates,
and leveraged leases; and capital assets used for corporate purposes.
<TABLE>
<CAPTION>
GEOGRAPHIC AREA DATA
<S> <C> <C> <C>
(in millions) 1994 1993 1992
---------------------------------------------------------------------------
SALES
North America $ 886.9 $ 915.1 $ 883.7
Europe 288.9 315.6 346.5
Latin America 72.2 66.4 60.7
Pacific 127.7 116.7 108.2
Sales between areas (30.1) (24.4) (24.6)
-------- -------- --------
$1,345.6 $1,389.4 $1,374.5
======== ======== ========
OPERATING EARNINGS
North America $ 181.6 $ 216.9 $ 211.3
Europe (10.2) 41.8 48.9
Latin America 9.3 11.4 10.0
Pacific 14.3 14.4 14.4
Expenses not allocated to areas (20.3) (21.6) (24.3)
-------- -------- --------
$ 174.7 $ 262.9 $ 260.3
======== ======== ========
IDENTIFIABLE ASSETS
North America $ 485.2 $ 566.6 $ 562.2
Europe 245.2 227.4 225.5
Latin America 66.9 45.4 42.7
Pacific 147.9 126.3 124.7
Corporate 337.0 246.7 395.5
-------- -------- --------
$1,282.2 $1,212.4 $1,350.6
======== ======== ========
</TABLE>
Amounts for North America sales in the tabulation above include exports to the
following areas:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
(in millions) 1994 1993 1992
---------------------------------------------------------------------------
Latin America $21.9 $19.2 $16.0
All other 7.3 13.0 12.0
---------------------------------------------------------------------------
</TABLE>
The decrease in operating earnings in 1994 was mainly attributable to the
pretax provision of $68 million for formation and consolidation expenses. (See
Note 3). Of that amount, approximately $34 million was included in European
operations.
NOTE 3--FORMATION AND CONSOLIDATION EXPENSES
The Company adopted a worldwide consolidation plan for manufacturing and support
operations during 1994, primarily as a result of the formation of Nalco/Exxon
discussed in Note 11. The production volume reduction caused by redundancies
associated with the joint venture formation required the Company to downsize,
close, and consolidate operations. The Company's South Chicago plant will be
closed, and several European manufacturing and support operations will also be
closed or downsized. In addition, certain support functions will be regionalized
on a pan-European basis in order to more efficiently serve customers. Certain
redundant assets that were not contributed to the joint venture will be scrapped
and written down to net realizable value, and assets associated with other
programs will be written off. All of these activities are in process, and should
be largely completed by the end of 1995.
As a result of these plans, the Company recorded a pretax provision of $68
million ($54 million after tax, or 70 cents per share on a fully diluted basis).
Included in this provision is the cost of termination benefits for the
elimination of over 400 positions, primarily in the United States and Europe,
including manufacturing and support personnel, which will require approximately
$27 million in cash. Costs associated with facility closings and the disposition
of assets that are no longer productive total approximately $24 million,
including $21 million for non-cash asset write-offs and $3 million in cash
payments associated with asset disposals. The remaining $17 million of the
pretax costs represents anticipated cash payments for post-closure plant
environmental remediation, legal and consulting fees, and other exit costs. The
Company anticipates that cash expenditures will be funded through operating cash
flows. A tax benefit of $14 million, net of tax costs associated with the
contribution of assets to various joint venture entities, was included in the
Company's 1994 income tax provision related to the formation and consolidation
expenses.
As of December 31, 1994, $25 million had been charged against the provision
for formation and consolidation expenses and over 300 employees had been
terminated. The following table sets forth the details of activity for 1994:
<TABLE>
<CAPTION>
1994 Cash Noncash Balance at
(in millions) Accrual Payments Charges December 31, 1994
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Termination benefits $27.0 $ (9.4) $ - $17.6
Asset write-downs 23.7 - (10.6) 13.1
Nalco/Exxon formation 2.0 (2.0) - -
Legal and consulting 6.3 (3.0) - 3.3
Environmental remediation 9.2 - - 9.2
----------------------------------------------------------------------------
Total $68.2 $(14.4) $(10.6) $43.2
------------------------------==============================================
</TABLE>
NOTE 4--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 66 percent of the projected
benefit obligation (PBO) and 80 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, 1994 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 1995. Four of the eight
foreign pension plans are
26
<PAGE>
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. 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) 1994 1993 1992
-------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost for benefits earned $ 17.4 $ 16.4 $ 15.9
Interest costs on the PBO 24.3 23.1 24.5
Actual return on plan assets (0.2) (41.7) (22.5)
Net amortizations and deferrals (23.7) 17.1 (4.3)
------ ------ ------
Net pension expense for defined benefit plans $ 17.8 $ 14.9 $ 13.6
====== ====== ======
</TABLE>
Assumptions for the plans as of the end of the last three years were as
follows:
<TABLE>
<CAPTION>
U.S. Plans
-----------------------------
1994 1993 1992
-------------------------------------------------------------------------
<S> <C> <C> <C>
Weighted-average discount rates 9.0% 7.5% 8.5%
Rates of increase in compensation levels 4.8 4.8 6.3
Rates of return on plan assets 9.0 9.0 10.0
-------------------------------------------------------------------------
Foreign Plans
-----------------------------
1994 1993 1992
-------------------------------------------------------------------------
Weighted-average discount rates 7.0-9.0% 6.5-9.0% 7.0-10.0%
Rates of increase in compensation levels 4.5-6.5 4.5-6.5 5.0- 8.0
Rates of return on plan assets 7.0-9.5 7.0-9.5 7.0-10.0
-------------------------------------------------------------------------
</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) 1994 1993
--------------------------------------------------------------
<S> <C> <C>
Actuarial present value of:
Vested benefit obligation $159.1 $178.1
Non-vested benefit obligation 15.6 3.4
------ ------
Total ABO 174.7 181.5
Effect of future salary increases 59.3 90.9
------ ------
Total PBO 234.0 272.4
Plan assets at fair market value 271.3 278.2
------ ------
Plan assets in excess of the PBO 37.3 5.8
Unrecognized net (asset)
from date of adoption (28.2) (32.0)
Unrecognized prior service cost 12.2 15.4
Unrecognized net actuarial (gains) losses (4.2) 21.8
------ ------
Net pension assets recognized $ 17.1 $ 11.0
====== ======
</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
the ABO exceeds assets:
<TABLE>
<CAPTION>
December 31
----------------
(in millions) 1994 1993
-------------------------------------------------------------
<S> <C> <C>
Actuarial present value of:
Vested benefit obligation $ 21.2 $ 25.9
Non-vested benefit obligation 2.7 2.2
------ ------
Total ABO 23.9 28.1
Effect of future salary increases 11.8 13.2
------ ------
Total PBO 35.7 41.3
Plan assets at fair market value - 3.4
------ ------
Plan assets (less) than the PBO (35.7) (37.9)
Unrecognized net liability
from date of adoption 3.1 4.1
Unrecognized prior service cost 8.3 7.5
Unrecognized net actuarial losses 13.5 15.9
Adjustment to recognize minimum liability (19.9) (20.5)
------ ------
Net pension (liabilities) recognized $(30.7) $(30.9)
====== ======
</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 1994 and 1993, the excess minimum pension liability resulted in
after-tax charges to shareholders' equity of $6 million and $7 million,
respectively.
NOTE 5--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, Statement of Financial Accounting Standards No. 106 (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 in 1993.
The postretirement benefit expense totaled $10 million each year for 1994 and
1993 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 were funded from current
Company cash flows and charged to earnings as claims were paid.
27
<PAGE>
The components of the accrued postretirement benefit liability as of the end
of the last two years were as follows:
<TABLE>
<CAPTION>
(in millions) 1994 1993
-----------------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of postretirement
benefit obligations:
Retirees $37.3 $41.6
Fully eligible active plan participants 8.9 12.2
Other active plan participants 25.4 34.8
----- -----
Accumulated postretirement benefit obligation 71.6 88.6
Unrecognized net gain 26.4 8.3
----- -----
Accrued postretirement benefit liability 98.0 96.9
Less current portion 2.8 2.7
----- -----
Noncurrent liability $95.2 $94.2
===== =====
</TABLE>
The assumptions used to measure the accumulated postretirement benefit
obligation are as follows:
<TABLE>
<CAPTION>
1994 1993
-----------------------------------------------------------------------------------------
<S> <C> <C>
Weighted-average discount rate 9.0% 7.5%
Health care cost trend rate 11.0 11.5
</TABLE>
The health care cost trend rate will decrease 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 1994 postretirement benefit
expense by approximately $2 million and would have increased the 1994
accumulated postretirement benefit obligation by $12 million.
NOTE 6--EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)
Nalco established an ESOP in 1989 to give most United States employees an
additional opportunity to share in the ownership of the Company's stock.
Preferred shares are allocated to eligible employees based on a percentage of
pretax earnings.
Selected information about the ESOP is as follows:
<TABLE>
<CAPTION>
(dollars in millions, shares in thousands) 1994 1993 1992
------------------------------------------------------------------
<S> <C> <C> <C>
Preferred stock dividends $ 15.6 $15.7 $15.9
Interest expense on ESOP debt 10.6 10.3 11.1
ESOP benefit expense 1.9 1.2 0.9
ESOP contribution payments - - -
Preferred shares at year end:
Allocated 88.0
Committed-to-be-released 23.9
Suspense 292.3
------------------------------------------------------------------
</TABLE>
NOTE 7--LEASE COMMITMENTS AND RENTAL EXPENSE
Nalco has a number of operating leases for office space and equipment. Rental
expense amounted to $14 million in both 1994 and 1993, and $15 million in 1992.
Future minimum payments under noncancellable operating leases as of December 31,
1994 are not material.
NOTE 8--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 were 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>
1994 1993 1992
--------------------------------------------------------------------------------
<S> <C> <C> <C>
At beginning of year 4,259,477 4,348,644 3,205,028
Options granted - average price per share
1994-$35.37; 1993-$36.31; 1992-$36.00 403,700 491,600 1,776,220
Options exercised - average price per share
1994-$17.70;1993-$17.81; 1992-$16.75 (413,655) (518,734) (601,004)
Options expired or cancelled (82,299) (62,033) (31,600)
At end of year - average price per share
1994-$29.67; 1993-$28.09; 1992-$26.03 4,167,223 4,259,477 4,348,644
Options exercisable at end of year 3,019,179
--------------------------------------------------------------------------------
</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 was granted under the directors' plan during 1994 at
an option price of $32.69 per share, a total of 36,000 options was granted under
the directors' plan during 1993 at an option price of $32.94 per share, and a
total of 32,000 options was granted under the directors' plan during 1992 at an
option price of $33.25 per share. These options were exercisable upon grant,
but none have yet been exercised.
A Restricted Stock Plan for key management employees provided 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, 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. There were
68,220 share units outstanding at December 31, 1994.
28
<PAGE>
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 $1 million, $4 million, and $5
million in 1994, 1993, and 1992, respectively.
NOTE 9--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.
The sources of earnings from operations before income taxes were as follows:
<TABLE>
<CAPTION>
(in millions) 1994 1993 1992
---------------------------------------
<S> <C> <C> <C>
Domestic $171.1 $182.6 $165.9
Foreign 5.3 67.2 72.4
---------------------------------------
Total $176.4 $249.8 $238.3
-----------------====== ====== ======
</TABLE>
The significant decrease in foreign source earnings in 1994 is primarily
attributable to formation and consolidation expenses. (See Note 3).
The components of income tax provisions attributable to earnings from
consolidated operations are summarized as follows:
<TABLE>
<CAPTION>
(in millions) 1994 1993 1992
-------------------------------------
<S> <C> <C> <C>
Current
Federal $ 55.1 $55.3 $32.1
State 12.7 9.5 6.5
Foreign 28.7 26.8 36.9
------ ----- -----
96.5 91.6 75.5
------ ----- -----
Deferred
Federal (3.4) 3.0 13.6
State (0.5) 0.8 2.8
Foreign (13.3) 1.7 1.4
------ ----- -----
(17.2) 5.5 17.8
------ ----- -----
Total $ 79.3 $97.1 $93.3
====== ===== =====
</TABLE>
Current foreign taxes listed above include taxes withheld by foreign
governments on distributions from subsidiaries and affiliates (principally
dividends and service fees). Current foreign taxes in 1994 also include $11.3
million of taxes on partnership formation.
Nalco made income tax payments of $92 million, $87 million, and $77 million
during 1994, 1993, and 1992, respectively.
The effective income tax rate varies from the federal statutory rate because
of the factors indicated below:
<TABLE>
<CAPTION>
1994 1993 1992
-------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory U.S. federal tax rate 35.0% 35.0% 34.0%
State income taxes, net
of federal tax benefit 4.5 2.7 2.6
Foreign taxes on formation
and consolidation 5.7 - -
Foreign earnings subject to
higher (lower) rates (0.4) 0.6 2.0
Other 0.1 0.6 0.6
---- ------ ------
Effective tax rate 44.9% 38.9% 39.2%
==== ====== ======
</TABLE>
Details of the 1994 and 1993 deferred tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
(in millions) 1994 1993
---------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Postretirement benefits $ 42.3 $ 39.1
Formation and consolidation expenses 15.2 -
Early retirement of debt - 5.1
Other 32.6 27.0
------ ------
Total 90.1 71.2
------ ------
Deferred tax liabilities:
Depreciation 74.4 72.0
Leveraged lease investments 34.8 35.6
Other 15.7 14.1
------ ------
Total 124.9 121.7
------ ------
Net deferred tax liability $ 34.8 $ 50.5
====== ======
Included in:
Prepaid expenses, taxes,
and other current assets $(13.4) $ -
Income taxes (8.6) (7.6)
Deferred income taxes 56.8 58.1
------ ------
$ 34.8 $ 50.5
====== ======
</TABLE>
SFAS 109 specifies that deferred tax assets be reduced by a valuation
allowance if it is "more likely than not" that some portion or all of the
deferred tax assets will not be realized. No valuation allowance was necessary
as a result of management's evaluation of the likelihood that all of the
deferred tax assets will be realized.
NOTE 10--ACQUISITIONS
In October 1994, the Company purchased the remaining 60 percent of the common
shares of Nalcomex, S.A. de C.V. in Mexico for $18 million. The purchase price
exceeded the fair value of the net assets acquired by $9 million. Nalcomex
provides Nalco's water treatment and specialty process chemicals to customers.
Nalco already owned 40 percent of the common shares of Nalcomex and had been
accounting for earnings on the equity basis. The operations of this former
affiliated company were consolidated effective October 1994.
The pro forma impact as if this acquisition had occurred at the beginning of
1993 is not significant.
29
<PAGE>
NOTE 11--INVESTMENT IN AND ADVANCES TO PARTNERSHIP
The Company's investment in partnership consists of its 60 percent interest in
Nalco/Exxon Energy Chemicals, L.P. (Nalco/Exxon), a joint venture partnership
which was formed on September 1, 1994. In connection with the formation of
Nalco/Exxon, the Company invested cash of $26 million and transferred
inventories of $13 million; property, plant, and equipment of $70 million; and
employee related liabilities of $20 million. The assets transferred consisted of
Nalco's U.S. Petroleum Chemicals Division and certain petroleum chemical product
lines of its international operations, while Exxon transferred similar assets to
the joint venture. It is anticipated that the partners will transfer additional
assets to the joint venture in 1995, the total of which is not expected to be
significant.
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 Nalco/Exxon to redeem a portion
of the Company's interest in Nalco/Exxon such that subsequent to such
redemption, the Company and Exxon shall share equally in the results of the
joint venture. As a result of the Company not exercising control over
Nalco/Exxon, its investment in the joint venture is accounted for by the equity
method.
The Company's equity in earnings of Nalco/Exxon for its initial four months of
operations was:
<TABLE>
<CAPTION>
(in millions) 1994
-------------------------------------------------
<S> <C>
Nalco/Exxon:
Net sales $156.0
Earnings before income taxes 12.8
Net income 10.7
Nalco's equity interest 60%
------
Nalco's equity in net income 6.4
Amortization and income preference, net 0.5
------
Equity in earnings of partnership $ 6.9
======
</TABLE>
The Company's investment in Nalco/Exxon at December 31, 1994 included $3.3
million for the net excess of the Company's investment over its equity in the
joint venture's net assets which is being amortized to equity earnings over the
life of the related assets. In addition, the Company received a 10 percent
earnings preference in 1994 which has been included in equity earnings.
Condensed balance sheet information for the Nalco/Exxon joint venture at
December 31, 1994 was as follows:
<TABLE>
<CAPTION>
(in millions)
----------------------------------------
<S> <C>
Current assets $137.8
Noncurrent assets 104.3
Current liabilities 44.8
Noncurrent liabilities 33.7
----------------------------------------
</TABLE>
The Company entered into a four year agreement with Nalco/Exxon to provide
certain administrative services to the partnership. Fees earned by the Company
in 1994 were $5 million.
In the normal course of business, the Company supplies Nalco/Exxon with
certain products, and purchases certain products from Nalco/Exxon. These
transactions are generally at cost and were not significant in 1994.
NOTE 12--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) 1994 1993 1992
------------------------------------------------------
<S> <C> <C> <C>
AT YEAR END
Leveraged lease investments $44.1 $44.6 $43.9
Current liabilities 1.7 1.8 1.6
Deferred income taxes and other 34.8 35.6 35.9
----- ----- -----
Net assets $ 7.6 $ 7.2 $ 6.4
----- ----- -----
FOR THE YEAR
Net earnings $ 1.4 $ 1.5 $ 1.0
Dividends received by Nalco 0.3 0.3 0.3
------------------------------------------------------
</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 $56 million at December 31, 1994 and $59 million
at December 31, 1993. 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.
NOTE 13--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) 1994 1993
---------------------------------------------------------
<S> <C> <C>
Land $ 37.6 $ 39.1
Buildings 208.3 215.2
Equipment 821.2 875.6
-------- --------
1,067.1 1,129.9
Allowances for depreciation (543.2) (571.4)
-------- --------
Net property, plant, and equipment $ 523.9 $ 558.5
--------------------------------------======== ========
</TABLE>
NOTE 14--DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
(in millions) 1994 1993
---------------------------------------
<S> <C> <C>
ESOP loans $174.1 $179.9
Other 71.2 72.2
------ ------
Total $245.3 $252.1
====== ======
</TABLE>
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
30
<PAGE>
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 $71 million in other long-term debt includes $41 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 $20 million, $33 million, and $44 million in 1994,
1993, and 1992, respectively.
The following table presents the projected annual maturities of long-term debt
for the next five years after 1994:
<TABLE>
<CAPTION>
(in millions)
--------------------
<S> <C>
1995 $ 5.8
1996 72.8
1997 16.7
1998 15.9
1999 12.0
</TABLE>
The amounts above include approximately $102 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. 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 $260 million Revolving Credit Agreement with ten
banks. This agreement is structured as a five-year revolving credit. Borrowings
under the credit agreement would be at rates which, at Nalco's option, vary with
the prime rate, CD rate, LIBOR, or money market rates. The credit line carries a
facility fee of .15 percent. The credit arrangements were unused at December 31,
1994.
NOTE 15--SHAREHOLDERS' EQUITY
Information on preferred and common shares is summarized in the following table:
<TABLE>
<CAPTION>
(dollars in millions, except per share amounts) 1994 1993
---------------------------------------------------------------
<S> <C> <C>
Preferred stock, par value $1.00 per share;
authorized 2,000,000 shares;
Series B ESOP Convertible
Preferred Stock--outstanding;
404,224 shares-1994 and 407,806
shares-1993 $ 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
---------------------------------------------------------------
</TABLE>
There were 12,387,441 shares and 11,383,105 shares held in treasury at
December 31, 1994 and 1993, respectively.
In 1993, Nalco's Board of Directors authorized the repurchase of up to 2
million shares of the Company's common stock. During 1994, 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
1994, 3,582 preferred shares were converted to 72,212 common shares of Nalco
stock. During 1993 and 1992, 3,226 and 3,005 preferred shares were converted to
61,566 and 60,082 common shares, respectively. Approximately 8,300,000 common
shares have been reserved for 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.
NOTE 16--FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
Nalco has limited involvement with derivative financial instruments and does not
trade them. The Company does use derivatives to fix the cost of issuing debt and
to manage well defined interest rate and foreign exchange exposures.
Notional Amounts and Credit Exposures of Derivatives
The notional amounts of derivatives summarized below do not represent
amounts exchanged by the parties and, thus, are not a measure of the
exposure of the Company through its use of derivatives. The amounts
exchanged are calculated on the basis of the notional amounts and the
other terms of the derivatives, which relate primarily to interest rates
and foreign exchange rates.
The Company is exposed to credit-related losses in the event of
nonperformance by counterparties to financial instruments, but it does not
expect any counterparties to fail to meet their obligations given their
high credit ratings.
31
<PAGE>
Interest Rate Risk Management
Interest rate swap agreements are used to reduce the potential impact of
increases in interest rates on floating rate long-term debt. As of
December 31, 1994 and 1993, the Company was a counterparty to six interest
rate swaps:
1. One interest rate swap with a notional value of $88 million fixes
interest payments on $88 million of floating rate ESOP notes at 7.3
percent until February 1999. The average interest rate received on
this interest rate swap was 3.5% and 2.6% in 1994 and 1993,
respectively.
2. Three interest rate swaps entered into in 1991 were designed to fix
interest rate payments at 8.5 percent on $160 million of floating rate
debt used to acquire affiliated companies in that year. In 1993, with
cash from the sale of other subsidiaries, Nalco elected to repay the
$160 million of debt, and therefore entered into two interest rate
swaps with an aggregate notional value of $160 million which offset
the three 1991 interest rate swaps. Nalco received 4.6 percent on
these two swaps. All five of these agreements mature in March 1996.
The average interest rate received on the 1991 interest rate swaps and
the average rate paid on the 1993 interest rate swaps was 4.4% in 1994
and 3.2% in 1993.
Foreign Exchange Risk Management
The Company enters into various types of foreign exchange contracts in
managing its intercompany foreign exchange risk, including currency swaps
and forward exchange contracts.
The Company's currency swap agreements were designed to hedge foreign
currency intercompany loans that have maturities up to six years. Gains
and losses related to these swaps are offset with gains and losses on the
underlying foreign currency loans. Forward exchange contracts are used to
hedge various intercompany transactions with foreign subsidiaries and
usually have maturities of six months, but occasionally may mature in one
year.
The Company had foreign exchange contracts with a notional value of $160
million and $158 million at December 31, 1994 and 1993, respectively.
Deferred realized and unrealized gains and losses from firm foreign
currency commitments, based on dealer-quoted prices, are included in the
Statements of Consolidated Financial Condition as either miscellaneous
other assets or accounts payable. They are recognized in earnings as part
of the underlying transaction when it is recognized. The net deferred
realized and unrealized loss was $0.5 million at both December 31, 1994
and 1993.
NOTE 17--FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and fair values of the
Company's financial instruments at December 31, 1994 and 1993:
<TABLE>
<CAPTION>
1994 1993
----------------------------------
Carrying Fair Carrying Fair
(in millions) Amount Value Amount Value
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Nonderivatives:
Cash and cash equivalents $ 45.1 $ 45.1 $ 78.1 $ 78.1
Short-term debt 21.6 21.6 15.2 15.2
Long-term debt 245.3 246.3 252.1 261.0
Derivatives:
Miscellaneous other assets 8.7 5.3 12.1 9.4
Other liabilities 9.0 12.4 14.7 24.4
-----------------------------------------------------------------
</TABLE>
The following methods and assumptions were used to estimate the fair values of
financial instruments:
Cash and cash equivalents - The carrying amount approximates fair value
because of the short-term maturities of such instruments.
Short-term debt - The carrying amount approximates fair value because of the
short-term maturities of such instruments.
Long-term debt - The carrying amount of term borrowings at variable interest
rates approximates fair value. The fair value of the Company's fixed-rate ESOP
borrowings was estimated using discounted cash flow analyses, based on the
Company's current borrowing rates for similar types of borrowing arrangements.
Derivatives - The fair value of derivatives, including currency swaps, foreign
currency forward exchange contracts, and interest rate swaps was estimated based
on current settlement prices, quoted market prices of comparable contracts, and
pricing models or formulas using current assumptions.
NOTE 18--CONTINGENCIES AND LITIGATION
Nalco has been named as a potentially responsible party (PRP) by the
Environmental Protection Agency (EPA) or state enforcement agencies at 12 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 remediate 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 if the Company's liability becomes probable
and when costs can be reasonably estimated. As of December 31, 1994, the Company
had undiscounted reserves of approximately $2 million for the maximum amount of
known environmental clean-up costs. The Company's 1994 expenditures relating to
environmental compliance and clean-up activities were not significant. These
environmental reserves represent management's current estimate of its
proportional clean-up costs and are based upon negotiation and agreement with
enforcement agencies, its previous experience with respect to clean-up
activities, a detailed review by the Company of known conditions, and
information about other PRPs. They are not reduced by any possible recoveries
from insurance companies or other PRPs not specifically identified. Although
management cannot determine whether or not a material effect on future
operations is reasonably likely to occur, given the evolving nature of
environmental regulations, it believes that the recorded reserve levels are
appropriate estimates of the potential liability. Although settlement will
require future cash outlays, it is not expected that such outlays will
materially impact the Company's liquidity position.
Nalco provided $9 million for estimated post-closure costs at 15 locations for
site remediation as part of the formation and consolidation plan described in
Note 3. These facilities, which were used for manufacturing and/or warehousing,
will be prepared for disposal or alternative uses. The Company also retained
some liability for potential future environmental costs at active locations
contributed to Nalco/Exxon.
It is the Company's policy to accrue for estimated post-closure and site
remediation costs when the decision has been made by management to close a
facility.
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.
32
<PAGE>
<TABLE>
<CAPTION>
QUARTERLY SUMMARY (UNAUDITED)
1994 1993
------------------------------------ ------------------------------------
(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 $336.2 $ 352.0 $ 343.4 $ 314.0 $ 339.0 $ 347.5 $ 354.0 $ 348.9
Gross earnings 185.8 193.7 190.9 176.3 188.9 195.7 199.1 196.8
Earnings from operations 33.8 33.1 7.5* 22.7* 35.1 38.1 38.7 40.8
Extraordinary loss from
retirement of debt - - - - (10.6) - - -
Cumulative effect of
accounting change - - - - (56.5) - - -
Net earnings (loss) 33.8 33.1 7.5* 22.7* (32.0) 38.1 38.7 40.8
Per common share
Earnings-fully diluted
Earnings from operations .42 .41 .08 .28 .43 .46 .48 .51
Extraordinary loss and
accounting change - - - - (.85) - - -
Net earnings (loss) .42 .41 .08 .28 (.42) .46 .48 .51
Dividends .225 .24 .24 .24 .21 .225 .225 .225
Market price
High 37 7/8 34 1/2 34 7/8 34 37 3/8 36 3/8 36 3/8 37 7/8
Low 33 31 29 3/4 31 1/4 32 1/2 31 1/4 32 1/2 30 1/4
----------------------------------------------------------------------------------------------------------
</TABLE>
* Includes an after tax charge for formation and consolidation expenses of $35.5
million and $18.5 million in the third and fourth quarters of 1994,
respectively.
33
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
ELEVEN YEAR SUMMARY
(Dollar amounts in millions
except per share figures) 1994 1993 1992
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $1,345.6 $1,389.4 $1,374.5
Operating costs and expenses
Cost of products sold 598.9 608.9 611.5
Selling and service 409.6 414.3 401.4
Research and development 46.4 50.4 48.0
Administrative and general 47.8 52.9 53.3
Formation and consolidation 68.2 - -
----------------------------------------------------------------------------------------------------------------------------------
Total Operating Costs and Expenses 1,170.9 1,126.5 1,114.2
----------------------------------------------------------------------------------------------------------------------------------
OPERATING EARNINGS 174.7 262.9 260.3
Interest and other income 16.6 14.4 18.3
Interest expense (21.8) (27.5) (40.3)
Equity in earnings of partnership 6.9 - -
----------------------------------------------------------------------------------------------------------------------------------
EARNINGS FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES 176.4 249.8 238.3
Income taxes 79.3 97.1 93.3
----------------------------------------------------------------------------------------------------------------------------------
EARNINGS FROM CONTINUING OPERATIONS 97.1 152.7 145.0
Earnings (loss) from discontinued operations - - -
----------------------------------------------------------------------------------------------------------------------------------
EARNINGS BEFORE EXTRAORDINARY LOSS AND
EFFECT OF ACCOUNTING CHANGE 97.1 152.7 145.0
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 $ 97.1 $ 85.6 $ 145.0
----------------------------------------------------------------------------------------------------==============================
PER SHARE OF COMMON STOCK
Earnings from continuing operations--primary $ 1.25 $ 2.03 $ 1.90
Discontinued operations - - -
Extraordinary item - (.15) -
Accounting change - (.81) -
Net earnings 1.25 1.07 1.90
Net earnings--fully diluted 1.19 1.02 1.79
Cash dividends paid .945 .885 .84
----------------------------------------------------------------------------------------------------------------------------------
FINANCIAL RATIOS
Earnings as a percent to sales* 7.2% 11.0% 10.5%
Earnings as a percent to shareholders' equity* 17.5 28.6 25.7
Effective income tax rate* 44.9 38.9 39.2
Common stock dividends paid as a percent to earnings* 66.6 40.0 40.6
Research and development expenses as a percent to sales* 3.4 3.6 3.5
Current ratio 1.3 to 1 2.0 to 1 2.5 to 1
----------------------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION DATA
Working capital $ 87.8 $ 185.4 $ 314.3
Total assets 1,282.2 1,212.4 1,350.6
Property, plant, and equipment (cost) 1,067.1 1,129.9 1,044.2
Long-term debt 245.3 252.1 413.8
Deferred income taxes 56.8 58.1 107.3
Shareholders' equity 544.2 550.6 576.3
----------------------------------------------------------------------------------------------------------------------------------
OTHER DATA
Working capital provided from operations $ 250.1 $ 245.6 $ 226.7
Capital investments 125.6 117.8 131.0
Depreciation and amortization* 89.2 86.5 79.4
Dividends on common stock 64.7 61.1 58.8
Cost of common stock repurchased 61.3 58.5 14.3
Wages, salaries, commissions, and benefits 411.1 413.6 403.7
Common shares outstanding at year end (thousands) 67,900 68,905 70,021
Market price per share of common stock at year end $ 33.50 $ 37.50 $ 34.625
Number of common shareholders of record 6,005 6,111 6,129
Number of employees at year end 5,601 6,802 6,714
----------------------------------------------------------------------------------------------------------------------------------
</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.
34
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
1991 1990 1989 1988 1987 1986 1985 1984
------------------------------------------------------------------------------------------
$1,237.3 $1,068.1 $ 949.6 $ 892.6 $ 756.0 $ 658.5 $ 658.6 $ 655.8
557.0 484.5 439.5 418.9 355.4 298.3 301.2 303.5
360.4 294.0 254.8 238.7 205.7 185.8 172.4 172.0
45.9 40.4 35.6 32.4 30.7 29.2 29.9 30.3
47.0 50.2 47.2 50.0 38.9 41.4 34.3 34.9
- - - - - - - -
------------------------------------------------------------------------------------------
1,010.3 869.1 777.1 740.0 630.7 554.7 537.8 540.7
------------------------------------------------------------------------------------------
227.0 199.0 172.5 152.6 125.3 103.8 120.8 115.1
18.9 19.9 27.0 20.6 14.9 12.6 10.9 15.0
(27.1) (11.5) (9.7) (9.5) (8.2) (6.0) (3.9) (4.2)
- - - - - - - -
------------------------------------------------------------------------------------------
218.8 207.4 189.8 163.7 132.0 110.4 127.8 125.9
84.2 80.0 72.5 59.6 53.2 48.1 54.3 52.8
------------------------------------------------------------------------------------------
134.6 127.4 117.3 104.1 78.8 62.3 73.5 73.1
3.2 3.7 2.6 1.9 1.5 1.4 (0.2) 3.1
------------------------------------------------------------------------------------------
137.8 131.1 119.9 106.0 80.3 63.7 73.3 76.2
- - - - - - - -
- - - - - - - -
------------------------------------------------------------------------------------------
$ 137.8 $ 131.1 $ 119.9 $ 106.0 $ 80.3 $ 63.7 $ 73.3 $ 76.2
==========================================================================================
$1.78 $ 1.66 $ 1.47 $ 1.33 $ .99 $ .79 $ .94 $ .93
.04 .05 .03 .02 .02 .02 - .04
- - - - - - - -
- - - - - - - -
1.82 1.71 1.50 1.35 1.01 .81 .94 .97
1.71 1.60 1.46 1.35 1.01 .81 .93 .97
.83 .755 .68 .645 .60 .60 .60 .60
------------------------------------------------------------------------------------------
10.9% 11.9% 12.3% 11.7% 10.4% 9.5% 11.2% 11.1%
27.6 29.1 25.4 22.3 18.4 15.7 20.1 20.8
38.5 38.6 38.2 36.4 40.3 43.6 42.5 41.9
42.9 41.5 43.5 48.5 59.9 75.6 63.9 64.4
3.7 3.8 3.7 3.6 4.1 4.4 4.5 4.6
2.0 to 1 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
------------------------------------------------------------------------------------------
$ 256.3 $ 229.7 $ 218.5 $ 174.4 $ 121.8 $ 86.7 $ 80.7 $ 120.5
1,324.4 1,037.0 938.5 838.9 781.8 621.9 571.1 484.6
957.8 840.3 720.1 648.7 607.5 547.6 499.0 426.1
394.1 282.2 214.0 100.8 72.8 38.4 36.5 18.8
90.8 77.8 62.7 53.7 47.3 42.3 34.4 21.3
528.7 455.6 443.7 477.5 446.8 407.5 384.2 352.1
------------------------------------------------------------------------------------------
$ 218.5 $ 192.4 $ 159.1 $ 148.4 $ 132.9 $ 113.2 $ 113.0 $ 109.7
136.8 114.9 86.4 61.6 57.2 63.6 59.9 52.5
64.6 47.5 39.8 42.4 39.7 37.8 32.9 32.8
57.8 52.9 51.0 50.5 47.2 47.1 47.0 47.1
- 80.5 111.7 21.5 11.6 - - 19.7
376.6 326.0 282.5 263.8 231.3 203.7 195.4 182.0
69,828 69,292 72,199 77,129 78,298 78,542 78,308 78,213
$41.625 $ 28.25 $ 24.75 $17.625 $16.625 $ 13.75 $ 13.375 $ 13.25
5,543 5,099 5,224 5,477 5,668 5,821 6,156 5,751
6,832 5,862 5,489 5,381 5,085 4,868 5,065 4,751
------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
NALCO CHEMICAL COMPANY AND SUBSIDIARIES
APPENDIX TO 1994 FORM 10-K
GRAPHS AND IMAGE MATERIAL
1994 ANNUAL REPORT TO SHAREHOLDERS
The following is a list and narrative description of graphs included in those
portions of the 1994 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:
Year Amount
---- ------
1990 $1,068
1991 $1,237
1992 $1,375
1993 $1,389
1994 $1,346
Depreciation, based on continuing operations, in millions of
dollars.
The values depicted in the graph are as follows:
Year Amount
---- ------
1990 $47
1991 $61
1992 $75
1993 $83
1994 $85
Operating earnings, in millions of dollars. The amount for 1994 excludes a $68
million pretax provision for formation and consolidation expenses.
The values depicted in the graph are as follows:
Year Amount
---- ------
1990 $199
1991 $227
1992 $260
1993 $263
1994 $243
<PAGE>
NALCO CHEMICAL COMPANY AND SUBSIDIARIES
APPENDIX TO 1994 FORM 10-K
GRAPHS AND IMAGE MATERIAL
1994 ANNUAL REPORT TO SHAREHOLDERS
Market Value of Nalco Common Share at Year-End Closing Price, in dollars.
The values depicted in the graph are as follows:
Year Amount
---- -------
1990 $ 28.25
1991 $41.625
1992 $34.625
1993 $ 37.50
1994 $ 33.50
Shareholders' Equity, in millions of dollars.
The values depicted in the graph are as follows:
Year Amount
---- ------
1990 $456
1991 $529
1992 $576
1993 $551
1994 $544
Return on Shareholders' Equity, excluding net charge for formation and
consolidation expenses in 1994, and before extraordinary loss and effect of
accounting change in 1993, in percentages.
The values depicted in the graph are as follows:
Year Amount
---- ------
1990 29.9%
1991 28.3%
1992 25.7%
1993 28.6%
1994 27.2%
Cash Provided by Operating Activities, in millions of dollars.
The values depicted in the graph are as follows:
Year Amount
---- ------
1990 $188
1991 $199
1992 $208
1993 $256
1994 $249
<PAGE>
NALCO CHEMICAL COMPANY AND SUBSIDIARIES
APPENDIX TO 1994 FORM 10-K
GRAPHS AND IMAGE MATERIAL
1994 ANNUAL REPORT TO SHAREHOLDERS
Capital Additions, in millions of dollars.
The values depicted in the graph are as follows:
Year Amount
---- ------
1990 $115
1991 $137
1992 $131
1993 $118
1994 $126
Dividends per Common Share, in dollars.
The values depicted in the graph are as follows:
Year Amount
---- ------
1990 $0.755
1991 $ 0.83
1992 $ 0.84
1993 $0.885
1994 $0.945
<PAGE>
BOARD OF DIRECTORS
Harold G. Bernthal/E,C,B/ (1980)
Chairman,
CroBern, Inc.
Health and investment company
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)
Chairman and Chief Executive 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
As of December 31, 1994
(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
Edward J. Mooney (53)
Chairman and Chief Executive Officer
26 years of service
Milford B. Harp (57)
Executive Vice President,
Operations
31 years of service
W. Steven Weeber (52)
Executive Vice President,
Operations Staff
28 years of service
Peter Dabringhausen (56)
Group Vice President
President, Process Chemicals Division
25 years of service
Stephen D. Newlin (42)
Group Vice President,
President Nalco Europe
19 years of service
J. David Tinsley (54)
Group Vice President
President, Water and Waste Treatment Division
29 years of service
Ronald J. Allain (54)
Senior Vice President,
Research and Development
24 years of service
James F. Lambe (49)
Senior Vice President,
Human Resources
25 years of service
David R. Bertran (51)
Senior Vice President,
Manufacturing and Logistics
11 years of service
John D. Berthoud (51)
Vice President,
Marketing and Quality Management
24 years of service
George M. Brannon (43)
Vice President, President Nalco Pacific
19 years of service
William E. Buchholz (52)
Vice President,
Chief Financial Officer
2 years of service
<PAGE>
Gilberto Pinzon (54)
Vice President, President
Nalco Latin America
25 years of service
Anthony J. Sadowski (56)
Vice President,
Environmental Health and Safety
28 years of service
Dale W. Walker (58)
Vice President,
Corporate Sales
35 years of service
Robert L. Ratliff (46)
Controller
19 years of service
William G. Marshall (48)
Treasurer
14 years of service
Suzzanne J. Gioimo (51)
Secretary
25 years of service
Craig J. Holderness (42)
Assistant Treasurer
17 years of service
Mary D. Hall (38)
Assistant Treasurer
1 year of service
As of March 1, 1995
<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
Energy Chemicals Holdings, Inc............................ Delaware
Energy Chemicals Holdings, Inc............................ Illinois
Nalco Delaware............................................ Delaware
Nalco Foreign Sales Corporation........................... U.S. Virgin Islands
Nalco FT, Inc............................................. Delaware
Nalco International Sales Company......................... Delaware
Nalco Japan Company, Ltd.................................. Delaware
Nalco Leasing Corporation................................. Delaware
Nalco Neighborhood Development Corporation................ Delaware
Nalco Resources Investment Company........................ Texas
NalFirst Financial Corporation............................ Delaware(1)
NalFirst Holding Inc...................................... Delaware(1)
NalFirst Leasing Corporation.............................. Delaware(1)
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./S.A.................................... Belgium
Nalco Brazil Ltda......................................... Brazil
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 Chemie.............................................. Czechoslovakia
Nalco de Venezuela, C.A................................... Venezuela
Nalco Ecuador, S.A........................................ Ecuador
Nalco Chemical Egypt...................................... Egypt
Nalco Espanola, S.A....................................... Spain
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATE OR OTHER
JURISDICTION OF
INCORPORATION OR
COMPANY ORGANIZATION
------- ----------------
<S> <C>
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
Nalco Investments Australia, Pty. Limited.................... Australia
Nalco Investments U.K. Limited............................... United Kingdom
Nalco Italiana, S.p.A........................................ Italy
Nalco Japan Technical Center Co. 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 Pacific Pte. Ltd....................................... Singapore
Nalco Poland................................................. Poland
Nalco Portuguesa (Q.I.) Ltda................................. Portugal
Nalco Productos Quimicos de Chile S.A........................ Chile
Nalco Saudi Co., Ltd. ....................................... Saudi Arabia(2)
Nalcochemical (Malaysia) SDN BHD............................. Malaysia
Nalcomex, S.A. de C.V........................................ Mexico
Nalfleet, Inc................................................ United Kingdom
P.T. Nalco Perkasa........................................... Indonesia(3)
Quimica Nalco de Colombia, S.A............................... Colombia
Suomen Nalco Oy.............................................. Finland
Taiwan Nalco Chemical Co., Ltd............................... Taiwan(4)
</TABLE>
--------
Note(1)--80% of voting securities owned by Registrant
Note(2)--60% of voting securities owned by Registrant
Note(3)--51% of voting securities owned by Registrant
Note(4)--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 33-57363,
33-53111, 2-97721, 33-9934) and Form S-8 (Numbers 33-54377, 33-38033, 33-38032,
33-29149, 2-97721, 2-97131, 2-82642) of our report dated February 1, 1995,
which appears on page 14 of the 1994 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, 1994. We
also consent to the incorporation by reference of our report on the Financial
Statement Schedule.
Price Waterhouse LLP
Chicago, Illinois
March 30, 1995
<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 33-57363,
33-53111, 2-97721, 33-9934) and Form S-8 (Numbers 33-54377, 33-38033, 33-38032,
33-29149, 2-97721, 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 LLP
Liverpool, England
March 30, 1995
<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 33-57363,
33-53111, 2-97721, 33-9934) and Form S-8 (Numbers 33-54377, 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 LLP
Sydney, Australia
March 30, 1995
<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 33-57363,
33-53111, 2-97721, 33-9934) and Form S-8 (Numbers 33-54377, 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 LLP
Burlington, Ontario, Canada
March 30, 1995
<PAGE>
EXHIBIT (23-5)
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the 1994 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 schedule of Nalco Chemical
Company listed in Item 14(a) as of December 31, 1992 and for the year then
ended. This schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audit. In our opinion, the
consolidated financial statement schedule referred to above, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents 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 schedule of Nalco Chemical Company as of
December 31, 1992 and for the year then ended which are incorporated by
reference in this Annual Report on Form 10-K for the year ended December 31,
1994:
<TABLE>
<CAPTION>
COMMISSION FILE NO.
-----------------------------------------------------------
FORM S-8 FORM S-3
-------- --------
<S> <C>
33-54377 2-97721
33-38033 33-9934
33-38032 33-53111
33-29149 33-57363
2-97721
2-97131
2-82642
</TABLE>
Ernst & Young LLP
Chicago, Illinois
March 30, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>The schedule contains summary financial information extracted from the
Statement of Consolidated Financial Condition at December 31, 1994 and
the Statement of Consolidated Earnings for the year ended December 31,
1994 of Nalco Chemical Company and Subsidiaries and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 45,100,000
<SECURITIES> 0
<RECEIVABLES> 211,500,000
<ALLOWANCES> (5,600,000)
<INVENTORY> 83,800,000
<CURRENT-ASSETS> 362,100,000
<PP&E> 1,067,100,000
<DEPRECIATION> (543,200,000)
<TOTAL-ASSETS> 1,282,200,000
<CURRENT-LIABILITIES> 274,300,000
<BONDS> 245,300,000
<COMMON> 15,100,000
0
400,000
<OTHER-SE> 528,700,000
<TOTAL-LIABILITY-AND-EQUITY> 1,282,200,000
<SALES> 1,345,600,000
<TOTAL-REVENUES> 1,345,600,000
<CGS> 598,900,000
<TOTAL-COSTS> 598,900,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,800,000
<INCOME-PRETAX> 176,400,000
<INCOME-TAX> 79,300,000
<INCOME-CONTINUING> 97,100,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 97,100,000
<EPS-PRIMARY> 1.25
<EPS-DILUTED> 1.19
</TABLE>
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 11-K
(Mark One)
[X] Annual Report pursuant to Section 15(d) of the Securities Exchange
Act of 1934 For the Fiscal year ended December 30, 1994
OR
[_] Transition report pursuant to section 15(d) of the Securities
Exchange Act of 1934
For the Transition period from to
------------------- --------------------
Commission file number 1-4957
---------------------
PROFIT SHARING, INVESTMENT
AND PAY DEFERRAL PLAN
OF NALCO CHEMICAL COMPANY
NALCO CHEMICAL COMPANY
One Nalco Center
Naperville, Illinois 60563-1198
(Issuer and address of principal executive offices)
<PAGE>
NALCO CHEMICAL COMPANY PROFIT SHARING,
INVESTMENT AND PAY DEFERRAL PLAN
--------------------------------
FINANCIAL STATEMENTS
AND SCHEDULES
-------------
INDEX
-----
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants 1
Statements of Net Assets Available for Plan Benefits 2
Statements of Changes in Net Assets Available for
Plan Benefits 3
Notes to Financial Statements 4-11
Supplementary Schedules:
Assets Held for Investment Schedule I
Reportable Transactions Schedule II
</TABLE>
Note: All other schedules have been omitted because they are not applicable.
<PAGE>
200 East Randolph Drive Telephone 312 540 1500
Chicago, IL 60601
-----------------------------------------------------------------------------
Price Waterhouse LLP [LOGO OF PRICE WATERHOUSE]
Report of Independent Accountants
---------------------------------
March 10, 1995
To the Employee Benefit Plan
Administration Committee of
Nalco Chemical Company
In our opinion, the accompanying statements of net assets available for
plan benefits and the related statements of changes in net assets
available for plan benefits present fairly, in all material respects, the
financial status of the Nalco Chemical Company Profit Sharing, Investment
and Pay Deferral Plan at December 31, 1994 and 1993, and the changes in
its financial status for the year and one day then ended, respectively, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the plan's management; our
responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits 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 audits provide a reasonable basis for the opinion expressed above.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The additional information
included in the supplementary schedules is presented for purposes of
additional analysis and is not a required part of the basic financial
statements but is additional information required by ERISA. Such
information has been subjected to the auditing procedures applied in the
audit of the basic financial statements and, in our opinion, is fairly
stated in all material respects in relation to the basic financial
statements taken as a whole.
[SIGNATURE OF PRICE WATERHOUSE LLP]
<PAGE>
NALCO CHEMICAL COMPANY
PROFIT SHARING, INVESTMENT AND PAY DEFERRAL PLAN
------------------------------------------------
STATEMENTS OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
----------------------------------------------------
AS OF DECEMBER 31, 1994 and 1993
--------------------------------
<TABLE>
<CAPTION>
1994 1993
------------ ------------
<S> <C> <C>
Investments, at fair value:
Nalco Chemical Company
common stock $124,075,759 $141,214,238
Mutual funds 42,640,935 35,103,703
Group annuity contract deposits 83,365,821 76,469,443
Bank commingled investment funds 6,153,424 6,027,882
Collective short-term investment
funds 12,147,013 20,484,915
------------ ------------
268,382,952 279,300,181
Loans receivable from participants 5,617,080 4,031,790
Due from Nalco Chemical Company
Employee Stock Ownership Plan 57,754 25,425
Accrued income receivable 54,104 55,153
------------ ------------
Net assets available for plan benefits $274,111,890 $283,412,549
============ ============
</TABLE>
The accompanying notes are an integral part
of these financial statements.
-2-
<PAGE>
NALCO CHEMICAL COMPANY
PROFIT SHARING, INVESTMENT AND PAY DEFERRAL PLAN
------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS
---------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1994 AND
----------------------------------------
FOR THE ONE DAY ENDED DECEMBER 31, 1993
---------------------------------------
<TABLE>
<CAPTION>
1994 1993
------------ ------------
<S> <C> <C>
Sources of net assets:
Contributions by employees $ 13,207,318 $ 21,414
Dividend income 4,266,586 215,562
Interest income 6,734,447 18,693
Transfers from Nalco Chemical
Company Employee Stock
Ownership Plan 177,551 -
------------ ------------
Total sources of net assets 24,385,902 255,669
Applications of net assets:
Net realized/unrealized
appreciation (depreciation)
of investments (15,661,843) 2,159,255
Account expenses (44,581) -
Withdrawals by participants (17,980,137) 28,999
------------ ------------
Increase (decrease) in net assets
available for plan benefits (9,300,659) 2,443,923
Net assets available for plan
benefits at beginning of period 283,412,549 280,968,626
------------ ------------
Net assets available for plan
benefits at end of period $274,111,890 $283,412,549
============ ============
</TABLE>
The accompanying notes are an integral part
of these financial statements.
-3-
<PAGE>
NALCO CHEMICAL COMPANY
PROFIT SHARING, INVESTMENT AND PAY DEFERRAL PLAN
------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1994 and 1993
--------------------------
NOTE 1 - DESCRIPTION OF THE PLAN:
--------------------------------
The Nalco Chemical Company Profit Sharing, Investment and Pay Deferral Plan (the
Plan) is a voluntary contribution, individual account plan, which covers
substantially all Nalco Chemical Company (Company) employees. No service
requirement exists before an employee is eligible to participate in the Plan.
The Company does not contribute to the Plan. The Plan also accepts transfers of
Company common stock and cash from the Employee Stock Ownership Plan for
retirees.
Beginning in 1993, the Plan expanded to include seven investment alternatives:
the Nalco Stock Fund, the U.S. Government Money Market Fund, the Stable Capital
Fund, the Bond Index Fund, the Balanced Fund, the Growth and Income Fund, and
the Equity Index Fund. A participant who has attained the age of 50 can
transfer once per calendar year a minimum of 10% of his balance from the Nalco
Stock Fund to any of the other funds in the Plan. The maximum allowable
transfer is determined by the Employee Benefit Plan Administration Committee
(EBPAC). Participants electing to make tax-deferred contributions through cash
or salary deductions have the option of investing these contributions in a
combination of any of the funds. Participants can transfer assets acquired with
their individual funds at their discretion.
A participant can also make contributions which are not tax-deferred through
payroll deductions or a lump-sum investment. All participant contributions vest
immediately, and participants are entitled to their entire account balance upon
retirement, termination, disability, or death as a lump-sum payment (or in semi-
annual stock installments for shares in the Nalco Stock Fund).
Effective June 1, 1993, participants are allowed to borrow from the Plan,
provided the amount does not exceed the lesser of one-half the vested Plan
balance of the participant, or $50,000. The length of the loan is decided by
the employee, subject to certain governmental restrictions, and the interest
charged is determined by the EBPAC and communicated to the participants in
writing.
At December 31, 1994, employees participating in the Plan had invested in the
available funds as follows (some have investments in more than one fund): 1994
1993
<TABLE>
<CAPTION>
1994 1993
----- -----
<S> <C> <C>
Total employees participating 4,224 3,290
Nalco Stock Fund 3,255 3,334
U.S. Government Money Market Fund 203 172
Stable Capital Fund 2,379 2,479
Bond Index Fund 305 321
Balanced Fund 725 601
Growth and Income Fund 2,052 1,851
Equity Index Fund 656 530
</TABLE>
-4-
<PAGE>
The Company believes that the Plan will continue without interruption, but
reserves the right to terminate the Plan at any time. In the event of
termination of the Plan, the Nalco Chemical Company Profit Sharing, Investment
and Pay Deferral Plan Trust (the Trust) will continue until all of the funds
held by The Northern Trust Company (the Trustee) have been distributed to the
participants or their beneficiaries. Such distribution will be made in
accordance with the provisions of the Plan in effect on the date of its
termination.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES:
-----------------------------------------
Basis of Accounting
-------------------
The financial statements of the Plan are prepared on the accrual basis of
accounting.
Valuation of Investments
------------------------
All investments, except for group annuity contract deposits, are valued by the
Trustee based on the closing market value on the last business day of the plan
year. The group annuity contract deposits are stated at estimated fair value,
which represents contributions made under the contracts at original cost plus
interest at the contract rate. The insurance companies are contractually liable
for the contract value provided the investment remains with the insurance
company.
Amounts Due Participants
------------------------
In accordance with ERISA requirements for reporting by employee benefit plans,
benefit payments to former participants are recorded when paid. Accordingly, at
December 31, 1994 and 1993, the following amounts have been allocated to the
individual accounts of former participants, but not recorded as liabilities on
the Statements of Net Assets Available for Plan benefits:
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Nalco Stock Fund $20,279,907 $20,031,733
U.S. Government Money Market Fund 254,612 181,659
Stable Capital Fund 43,170,030 45,013,634
Bond Index Fund 821,707 980,664
Balanced Fund 1,994,839 2,252,805
Growth and Income Fund 7,062,957 5,103,016
Equity Index Fund 876,817 450,046
----------- -----------
$74,460,869 $74,013,557
=========== ===========
</TABLE>
The above accounting treatment results in a difference between these financial
statements and the Form 5500 as these amounts have been recorded as liabilities
as of December 31, 1994 and 1993, and have been included in benefits paid for
the respective years on the Form 5500.
-5-
<PAGE>
NOTE 3 - PLAN AMENDMENTS:
------------------------
In 1994, the Plan document was amended and restated to include the provisions
required by certain tax regulations. These amendments did not affect the
operations of the Plan as the Plan previously complied with such tax
regulations. Effective December 31, 1993, the Plan was amended to provide for
participant loans and to change the Plan's fiscal year end to December 31.
NOTE 4 - INVESTMENTS:
--------------------
The cost of investments and number of shares or units held at December 31, 1994
and 1993 were as follows:
<TABLE>
<CAPTION>
1994 1993
------------------------ ------------------------
Shares or Shares or
Units Cost Units Cost
------------------------ ------------------------
<S> <C> <C> <C> <C>
Nalco Chemical Company
common stock 3,703,754 $ 53,041,047 3,766,391 $ 53,878,891
American Balanced Fund 525,784 6,677,936 530,206 6,826,613
Dreyfus Government Money
Market Instruments 1,042,639 1,042,639 918,846 918,846
Fidelity Investments -
Hartford Annuity Contract deposit 10,612,748 10,612,748 10,092,262 10,092,262
Life of Georgia Contract deposit 5,277,280 5,277,280 5,047,091 5,047,091
Pacific Mutual Contract deposit 10,382,705 10,382,705 - -
Provident Contract deposits 16,548,213 16,548,213 - -
Sun Life America Contract
deposit 5,280,757 5,280,757 5,055,776 5,055,776
John Hancock Mutual Life
Insurance Company Group
Annuity Contract deposit 20,923,971 20,923,971 25,726,368 25,726,368
Neuberger & Berman Guardian Fund 1,935,759 35,320,110 1,479,579 26,632,744
The Prudential Asset
Manager Group Annuity
Contract deposit - - 17,393,441 17,393,441
State Mutual Life Assurance
Company Group Annuity
Contract deposit 14,340,146 14,340,146 13,154,505 13,154,505
Wells Fargo Equity Index Fund 365,780 4,057,520 305,743 3,380,002
Wells Fargo Govt./Corp.
Bond Index Fund 189,710 1,954,767 241,138 2,507,011
The Northern Trust Company
Collective Short-Term
Investment Fund 12,147,014 12,147,014 20,484,915 20,484,915
------------ ------------
Total $197,606,853 $191,098,465
============ ============
</TABLE>
-6-
<PAGE>
Individual investments that represent 5% or more of the fair value of net assets
available for plan benefits at December 31, 1994 are as follows:
<TABLE>
<CAPTION>
Shares or Fair
Units Cost Value
---------- ----------- ------------
<S> <C> <C> <C>
Nalco Chemical Company common stock 3,703,754 $53,041,047 $124,075,759
John Hancock Mutual Life Insurance
Company Group Annuity Contract -
GAC 5588 20,923,971 20,923,971 20,923,971
State Mutual Life Assurance Company
Group Annuity Contract - GAC 91636A 14,340,146 14,340,146 14,340,146
Neuberger & Berman Commingled
Guardian Fund 35,320,110 35,320,110 35,288,893
</TABLE>
NOTE 5 - TRANSACTIONS WITH RELATED PARTY:
----------------------------------------
Certain expenses pertaining to the operation of the Plan are paid by the Company
and are not charged against the assets or income of the Plan. In addition,
various administrative, legal, and accounting services are performed by Company
personnel on behalf of the Plan. No charges are made to the Plan for these
services.
NOTE 6 - INCOME TAX STATUS:
--------------------------
The Internal Revenue Service has determined and informed the Company by letter
dated March 20, 1989, that the Plan and related trust are designed in accordance
with applicable sections of the Internal Revenue Code (IRC). The Plan has been
amended since receiving this determination letter. However, the EBPAC and the
Plan's tax counsel believe the Plan is designed and is currently being operated
in compliance with the applicable requirements of the IRC and is therefore
exempt from federal income taxation under Section 501(a).
-7-
<PAGE>
NOTE 7 - STATEMENTS OF NET ASSETS:
---------------------------------
The statements of net assets available for plan benefits by fund as of December
31, 1994 and 1993, are as follows:
NALCO CHEMICAL COMPANY
----------------------
PROFIT SHARING, INVESTMENT AND PAY DEFERRAL PLAN
------------------------------------------------
STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS BY FUND
-----------------------------------------------------------
AS OF DECEMBER 31, 1994
-----------------------
<TABLE>
<CAPTION>
Nalco U.S. Govt Stable Bond
Stock Money Mkt Capital Index Balanced
Fund Fund Fund Fund Fund
------------ ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Investments, at fair value:
Nalco Chemical Company
common stock $124,075,759
Mutual funds $1,042,639 $6,309,403
Group annuity contract
deposits $83,365,821
Bank commingled mutual funds $1,910,378
Collective short-term
investment fund 1,044,977 10,342,920
------------ ---------- ----------- ---------- ----------
125,120,736 1,042,639 93,708,741 1,910,378 6,309,403
Loans receivable from
participants
Due from Nalco Chemical
Company Employee Stock
Ownership Plan 57,754
Accrued income receivable 8,280 4,069 40,309
------------ ---------- ----------- ---------- ----------
Net assets available for
plan benefits $125,186,770 $1,046,708 $93,749,050 $1,910,378 $6,309,403
============ ========== =========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Growth & Equity
Income Index Loan Clearing
Fund Fund Account Account Total
----------- ---------- ---------- -------- ------------
<S> <C> <C> <C> <C> <C>
Investments, at fair value:
Nalco Chemical Company
common stock $124,075,759
Mutual funds $35,288,893 42,640,935
Group annuity contract deposits 83,365,821
Bank commingled mutual funds $4,243,046 6,153,424
Collective short-term
investment fund $759,116 12,147,013
----------- ---------- ---------- -------- ------------
35,288,893 4,243,046 759,116 268,382,952
Loans receivable from
participants $5,617,080 5,617,080
Due from Nalco Chemical
Company Employee Stock
Ownership Plan 57,754
Accrued income receivable 1,446 54,104
----------- ---------- ---------- -------- ------------
Net assets available for
plan benefits $35,288,893 $4,243,046 $5,617,080 $760,562 $274,111,890
=========== ========== ========== ======== ============
</TABLE>
-8-
<PAGE>
NALCO CHEMICAL COMPANY
----------------------
PROFIT SHARING, INVESTMENT AND PAY DEFERRAL PLAN
------------------------------------------------
STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS BY FUND
-----------------------------------------------------------
AS OF DECEMBER 31, 1993
-----------------------
<TABLE>
<CAPTION>
Nalco U.S. Govt Stable Bond
Stock Money Mkt Capital Index Balanced
Fund Fund Fund Fund Fund
------------ --------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Investments, at fair value:
Nalco Chemical Company
common stock $141,214,238
Mutual funds $918,846 $6,664,695
Group annuity contract
deposits $76,469,443
Bank commingled mutual funds $2,527,128
Collective short-term
investment fund 1,750,687 18,442,733
------------ -------- ----------- ---------- ----------
142,964,925 918,846 94,912,176 2,527,128 6,664,695
Loans receivable from
participants
Due from Nalco Chemical
Company Employee Stock
Ownership Plan 25,425
Accrued income receivable 4,948 1,867 47,674
------------ -------- ----------- ---------- ----------
Net assets available for
plan benefits $142,995,298 $920,713 $94,959,850 $2,527,128 $6,664,695
============ ======== =========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Growth & Equity
Income Index Loan Clearing
Fund Account Account Total Total
----------- ---------- ---------- -------- ------------
<S> <C> <C> <C> <C> <C>
Investments, at fair value:
Nalco Chemical Company
common stock $141,214,238
Mutual funds $27,520,162 35,103,703
Group annuity contract
deposits 76,469,443
Bank commingled mutual funds $3,500,754 6,027,882
Collective short-term
investment fund $291,495 20,484,915
----------- ---------- ---------- -------- ------------
27,520,162 3,500,754 291,495 279,300,181
Loans receivable from
participants $4,031,790 4,031,790
Due from Nalco Chemical
Company Employee Stock
Ownership Plan 25,425
Accrued income receivable 664 55,153
----------- ---------- ---------- -------- ------------
Net assets available for
plan benefits $27,520,162 $3,500,754 $4,031,790 $292,159 $283,412,549
=========== ========== ========== ======== ============
</TABLE>
-9-
<PAGE>
NOTE 8 - STATEMENTS OF CHANGES IN NET ASSETS:
--------------------------------------------
The statements of changes in net assets available for benefits by fund for the
year ended December 31, 1994 and for the one day ended December 31, 1993 are as
follows:
NALCO CHEMICAL COMPANY
----------------------
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS BY FUND
----------------------------------------------------------------------
DECEMBER 31, 1994
-----------------
<TABLE>
<CAPTION>
Nalco U.S. Govt Stable Bond Growth & Equity
Stock Money Capital Index Balanced Income Index
Fund Market Fund Fund Fund Fund Fund
------------ ---------- ------------ ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Sources of net assets:
Contributions
by employees $ 1,117,236 $ 153,225 $ 4,864,554 $ 255,495 $ 885,729 $ 5,037,766 $ 893,314
Dividend income 3,506,287 302,764 457,535
Interest income 70,442 35,912 6,286,877
Transfers from Nalco
Chemical Company
Employee Stock
Ownership Plan 177,551
Net transfers
authorized
by participants (2,618,386) 8,425 514,792 (638,352) (556,819) 5,288,834 139,996
Total sources of net
assets 2,253,130 197,562 11,666,223 (382,857) 631,674 10,784,135 1,033,310
Applications of net
assets:
Net realized/unrealized
appreciation
(depreciation) of
investments (14,921,941) (83,590) (294,081) (394,023) 31,792
Account expenses
Withdrawals by
participants (5,139,717) (71,567) (12,877,025) (150,303) (692,885) (2,621,381) (322,810)
------------ ---------- ------------ ---------- ---------- ----------- ----------
Increase (decrease)
in net assets
available for plan
benefits (17,808,528) 125,995 (1,210,802) (616,750) (355,292) 7,768,731 742,292
Net assets available for
plan benefits at
beginning of period 142,995,298 920,713 94,959,850 2,527,128 6,664,695 27,520,162 3,500,754
------------ ---------- ------------ ---------- ---------- ----------- ----------
Net assets
available for
plan benefits
at end of
period $125,186,770 $1,046,708 $ 93,749,048 $1,910,378 $6,309,403 $35,288,893 $4,243,046
============ ========== ============ ========== ========== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
Loan Clearing
Account Account Total
----------- -------- ------------
<S> <C> <C> <C>
Sources of net assets:
Contributions
by employees $ 13,207,319
Dividend income 4,266,586
Interest income $ 331,955 $ 9,260 6,734,446
Transfers from Nalco
Chemical Company
Employee Stock
Ownership Plan 177,551
Net transfers
authorized
by participants (2,141,040) 2,550 --
Total sources of net
assets (1,809,085) 11,810 24,385,902
Applications of net
assets:
Net realized/unrealized
appreciation
(depreciation) of
investments (15,661,843)
Account expenses (44,581) (44,581)
Withdrawals by
participants 3,394,375 501,176 (17,980,137)
----------- -------- ------------
Increase (decrease)
in net assets
available for plan
benefits 1,585,290 468,405 (9,300,659)
Net assets available for
plan benefits at
beginning of period 4,031,790 292,159 283,412,549
----------- -------- ------------
Net assets
available for
plan benefits
at end of
period $ 5,617,080 $760,564 $274,111,890
=========== ======== ============
</TABLE>
-10-
<PAGE>
NALCO CHEMICAL COMPANY
----------------------
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS BY FUND
----------------------------------------------------------------------
DECEMBER 31, 1993
-----------------
<TABLE>
<CAPTION>
Nalco U.S. Govt Stable Bond
Stock Money Capital Index Balanced
Fund Market Fund Fund Fund
------------ --------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Sources of net assets:
Contributions by
employees $ 1,328 $ 209 $ 14,023 $ 447 $ 578
Dividend income
Interest income 151 59 18,458
Net transfers authorized
by participants (238,168) 83,824 (10,042) 11,003
Net realized/unrealized
appreciation
(depreciation) of
investments 2,353,995 (2,411) (15,906)
------------ -------- ----------- ---------- ----------
Total sources of net
assets 2,117,306 268 116,305 (12,006) (4,325)
Applications of net
assets:
Withdrawals by
participants (31,501)
------------ -------- ----------- ---------- ----------
Increase (decrease)
in net assets
available for plan
benefits 2,117,306 268 84,804 (12,006) (4,325)
Net assets available for
plan benefits at
beginning of period 140,877,992 920,445 94,875,046 2,539,134 6,669,020
------------ -------- ----------- ---------- ----------
Net assets available for
plan benefits at
end of period $142,995,298 $920,713 $94,959,850 $2,527,128 $6,664,695
============ ======== =========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Growth & Equity
Income Index Loan Clearing
Fund Fund Account Account Total
----------- ---------- ---------- -------- ------------
<S> <C> <C> <C> <C> <C>
Sources of net assets:
Contributions by
employees $ 3,829 $ 1,000 $ 21,414
Dividend income 215,562 215,562
Interest income $ 25 18,693
Net transfers authorized
by participants 153,383 -
Net realized/unrealized
appreciation
(depreciation) of
investments (158,078) (18,345) 2,159,255
----------- ---------- ---------- -------- ------------
Total sources of net
assets 214,696 (17,345) 25 2,414,924
Applications of net
assets:
Withdrawals by
participants (3,000) $ 29,000 34,500 28,999
----------- ---------- ---------- -------- ------------
Increase (decrease)
in net assets
available for plan
benefits 211,696 (17,345) 29,000 34,525 2,443,923
Net assets available for
plan benefits at
beginning of period 27,308,466 3,518,099 4,002,790 257,634 280,968,626
----------- ---------- ---------- -------- ------------
Net assets available for
plan benefits at
end of period $27,520,162 $3,500,754 $4,031,790 $292,159 $283,412,549
=========== ========== ========== ======== ============
</TABLE>
-11-
<PAGE>
SCHEDULE I
----------
NALCO CHEMICAL COMPANY PROFIT SHARING,
INVESTMENT AND PAY DEFERRAL PLAN
--------------------------------
ASSETS HELD FOR INVESTMENT
--------------------------
AS OF DECEMBER 31, 1994
-----------------------
<TABLE>
<CAPTION>
Fair
Identity of Issuer Description of Investment Cost Value
------------------ ------------------------- ------------ ------------
<S> <C> <C> <C>
Nalco Chemical Company 3,703,754 shares of common stock $ 53,041,047 $124,075,759
John Hancock Mutual Life Insurance
Company Group annuity contract deposit, GAC5588, 9.5%, due 6/1/95 20,923,971 20,923,971
State Mutual Life Assurance Company Group annuity contract deposit, GA91636A, 8.05%,
due 11/30/96 14,340,146 14,340,146
Fidelity Management Trust Company:
Hartford Group annuity contract deposit, GA10156, 6.63%, due 12/21/98 10,612,748 10,612,748
Life of Georgia Group annuity contract deposit, FR101, 6.65%, open 5,277,280 5,277,280
Pacific Group annuity contract deposit, G208041, 6.65%, due 6/1/96,
6/1/97, and 6/1/98 10,382,705 10,382,705
Provident Group annuity contract deposits, #627-05692, 6.21%,due 12/1/95
and 6/1/97
#627-05692-2A, 7.00%, due 6/1/96 and 6/1/98 16,548,213 16,548,213
Sun Life America Group annuity contract deposit, FA464, 4.45%, due 12/1/95 5,280,757 5,280,757
American American Balanced Fund - 525,784 shares 6,677,936 6,309,403
Dreyfus U.S. Government Money Market Fund 1,042,639 1,042,639
Neuberger & Berman Guardian Fund 1,935,759 shares 35,320,110 35,288,893
Wells Fargo Wells Fargo Equity Index Fund
365,780 shares 4,057,520 4,243,046
Wells Fargo Bond Index Fund
189,710 shares 1,954,767 1,910,378
The Northern Trust Company Collective short-term investment fund 12,147,014 12,147,014
------------ ------------
$197,606,853 $268,382,952
============ ============
</TABLE>
<PAGE>
SCHEDULE II
-----------
NALCO CHEMICAL COMPANY
PROFIT SHARING, INVESTMENT AND PAY DEFERRAL PLAN
------------------------------------------------
REPORTABLE TRANSACTIONS
-----------------------
FOR THE YEAR ENDED DECEMBER 31, 1994
------------------------------------
<TABLE>
<CAPTION>
Expenses Value of
Incurred Asset on Net
Purchase Selling With Cost of Transaction Gain
Identity of Party Involved Description of Asset Price Price Transaction Asset Date (Loss)
--------------------------- ----------------------- ----------- ----------- ----------- ----------- ----------- ------
Category (iii) - A series of security transactions in excess of 5% of the current value of plan assets
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
The Northern Trust Company Collective Short-Term
Investment Fund:
298 purchases $52,617,042 $ -- $ -- $52,617,042 $52,617,042 $ --
431 sales -- $60,954,943 -- $60,954,943 $60,954,943 --
Fidelity Management Trust Group Annuity Contracts
Company 3 purchases $26,000,000 -- -- $26,000,000 $26,000,000 --
Prudential Asset Management Group Annuity Contracts
1 sale -- $17,952,302 -- $17,952,302 $17,952,302 --
There were no reportable category (i), (ii), or (iv) transactions for the year ended December 31, 1994.
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
trustees (or other persons who administer the employee benefit plan) have duly
caused this annual report to be signed on its behalf by the undersigned hereunto
duly authorized.
PROFIT SHARING, PAY DEFERRAL
AND INVESTMENT PLAN OF
NALCO CHEMICAL COMPANY
BY W. E. Buchholz
------------------------------
Member, Employee Benefit Plan
Administration Committee
Dated: March 30, 1995
------------------------
<PAGE>
NALCO CHEMICAL COMPANY
PROFIT SHARING, INVESTMENT
AND PAY DEFERRAL PLAN
---------------------
FINANCIAL STATEMENTS
AND SCHEDULES
-------------
DECEMBER 31, 1994 and 1993
--------------------------
