FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
(Mark One)
X
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-4957
NALCO CHEMICAL COMPANY
Incorporated in the State of Delaware
Employer Identification No. 36-1520480
One Nalco Center, Naperville, Illinois 60563-1198
Telephone 630-305-1000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
The number of shares outstanding of each of the issuer's classes of common
stock, as of June 30, 1998 was 65,902,695 shares common stock - par value $.1875
a share.
<PAGE>
NALCO CHEMICAL COMPANY
INDEX
<TABLE>
<CAPTION>
<S> <C>
Page No.
Part I. Financial Information:
Item 1. Financial Statements
Condensed Consolidated Statements of
Financial Condition - June 30, 1998
(Unaudited) and December 31, 1997.........................................2
Condensed Consolidated Statements of
Earnings and Comprehensive Income
(Unaudited) - Three Months and Six Months
Ended June 30, 1998 and 1997..............................................3
Condensed Consolidated Statements of
Cash Flows (Unaudited) - Three Months and
Six Months Ended June 30, 1998 and 1997...................................4
Notes to Condensed Consolidated Financial
Statements (Unaudited)....................................................5
Report of Independent Accountants on
Review of Interim Financial Information...................................8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations.............................................................9
Part II. Other Information:
Item 5. Other Information..............................................................13
Item 6. Exhibits and Reports on Form 8-K...............................................13
Exhibit (3)(ii) - By-Laws....................................................................14
Exhibit (11) - Statement Re: Computation
of Earnings Per Share................................................31
Exhibit (15) - Awareness Letter of Independent
Accountants..........................................................33
Exhibit (27) - Financial Data Schedule.......................................................34
Signatures...................................................................................35
</TABLE>
PART I. FINANCIAL INFORMATION
NALCO CHEMICAL COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
<S> <C> <C>
June 30, December 31,
1998 1997
(Dollars in millions) (Unaudited) (Note)
ASSETS
Current assets
Cash and cash equivalents $ 46.0 $ 49.7
Accounts receivable, less allowances
of $3.4 and $4.2, respectively 273.2 241.6
Inventories
Finished products 82.6 68.2
Materials and work in process 29.6 26.3
-------- --------
112.2 94.5
Prepaid expenses, taxes and other
current assets 25.2 23.2
-------- --------
Total current assets 456.6 409.0
Investment in and advances
to partnership 130.3 122.9
Goodwill, less accumulated amortization
of $34.2 and $29.5, respectively 364.9 249.4
Other assets 161.2 167.1
Property, plant and equipment 1,185.8 1,135.2
Less allowances for depreciation (681.4) (642.7)
-------- --------
504.4 492.5
-------- --------
$1,617.4 $1,440.9
======== ========
LIABILITIES/SHAREHOLDERS' EQUITY
Current liabilities
Short-term debt $ 27.3 $ 22.1
Accounts payable 112.1 108.1
Other current liabilities 120.5 125.4
-------- --------
Total current liabilities 259.9 255.6
Long-term debt 480.6 335.3
Deferred income taxes 37.0 37.2
Accrued postretirement benefits 102.5 100.7
Other liabilities 57.6 59.4
Shareholders' equity 679.8 652.7
-------- --------
$1,617.4 $1,440.9
======== ========
</TABLE>
Note: The Statement of Financial Condition at December 31, 1997 has been
derived from the audited financial statements at that date.
See accompanying Notes to Condensed Consolidated Financial Statements
(Unaudited).
NALCO CHEMICAL COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
AND COMPREHENSIVE INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three Months Ended Six Months Ended
(Dollars in millions, June 30, June 30,
except per share data) 1998 1997 1998 1997
------ ------ ------ -----
Net sales $403.0 $354.4 $770.1 $689.0
Operating costs and expenses
Cost of products sold 181.2 152.6 346.1 297.4
Operating expenses 156.5 142.4 302.4 278.8
------ ------ ------ ------
337.7 295.0 648.5 576.2
------ ------ ------ ------
Operating earnings 65.3 59.4 121.6 112.8
Other income (expense)
Other income and expense - net (0.3) 0.4 0.7 1.2
Interest expense (6.9) (3.8) (11.8) (7.4)
Equity in earnings of partnership 7.6 7.4 14.9 13.2
------ ------ ------ ------
Earnings before income taxes 65.7 63.4 125.4 119.8
Income taxes 23.7 23.3 45.4 43.9
------ ------ ------ ------
Net earnings 42.0 40.1 80.0 75.9
Other comprehensive income
Foreign currency translation
adjustments (4.9) (5.5) (11.8) (14.6)
------ ------ ------ ------
Comprehensive income $ 37.1 $ 34.6 $ 68.2 $ 61.3
====== ====== ====== ======
Per common share:
Net earnings - basic $ 0.59 $ 0.56 $ 1.12 $ 1.05
====== ====== ====== ======
Net earnings - diluted $ 0.55 $ 0.51 $ 1.04 $ 0.97
====== ====== ====== ======
Cash dividends $ 0.25 $ 0.25 $ 0.50 $ 0.50
====== ====== ====== ======
Average basic shares outstanding
(in thousands) 66,070 66,749 66,079 66,823
Average diluted shares outstanding
(in thousands) 74,270 75,131 74,402 75,253
</TABLE>
See accompanying Notes to Condensed Consolidated Financial
Statements (Unaudited).
NALCO CHEMICAL COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three Months Ended Six Months Ended
June 30, June 30,
(Dollars in millions) 1998 1997 1998 1997
-------- --------- -------- ------
Cash provided by (used for)
operating activities
Net earnings $ 42.0 $ 40.1 $ 80.0 $ 75.9
Adjustments not affecting cash
Depreciation and amortization 26.9 25.7 52.5 49.5
Other, net 3.0 (0.8) (6.0) (3.2)
Changes in current assets and
liabilities (26.8) (1.3) (37.0) (24.2)
------ ------ ------ ------
Net cash provided by operations 45.1 63.7 89.5 98.0
------ ------ ------ ------
Investing activities
Additions to property,
plant and equipment (32.4) (22.2) (58.2) (38.6)
Business purchases (95.0) (7.6) (118.4) (39.8)
Other (6.3) (11.0) (10.0) (5.2)
------ ------ ------ ------
Net cash (used for)
investing activities (133.7) (40.8) (186.6) (83.6)
------ ------ ------ ------
Financing activities
Cash dividends (19.5) (19.6) (38.9) (39.2)
Changes in short-term debt (0.3) (4.9) 2.0 41.9
Changes in long-term debt 117.7 7.6 150.2 6.3
Common stock reacquired (19.3) (4.0) (25.6) (22.0)
Other (0.8) 3.8 7.4 7.9
------ ------ ------ ------
Net cash provided by (used for)
financing activities 77.8 (17.1) 95.1 (5.1)
------ ------ ------ ------
Effects of foreign exchange
rate changes (0.6) 0.3 (1.7) (1.0)
------ ------ ------ ------
Increase (decrease)in cash
and cash equivalents $(11.4) $ 6.1 $ (3.7) $ 8.3
====== ====== ====== ======
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
Unaudited).
NALCO CHEMICAL COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
June 30, 1998
NOTE A -- BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been prepared,
without audit, in accordance with the instructions to Form 10-Q and therefore do
not include all information and footnotes necessary for a fair presentation of
financial position, results of operations, and cash flows in conformity with
generally accepted accounting principles. Financial information as of December
31 has been derived from the audited financial statements of the Company, but
does not include all disclosures required by generally accepted accounting
principles.
It is the opinion of management that the unaudited condensed consolidated
financial statements include all adjustments necessary to fairly state the
results of operations for the three month and six month periods ended June 30,
1998 and 1997. The results of interim periods are not necessarily indicative of
results to be expected for the year. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended December 31, 1997.
The unaudited condensed consolidated financial statements and the related notes
have been reviewed by Nalco's independent accountants, PricewaterhouseCoopers
LLP. The Independent Accountants' Review Report is included on page 8.
NOTE B -- EARNINGS PER SHARE
Tables which detail the computations of basic and diluted earnings per share for
the three months and six months ended June 30, 1998 and 1997 are included in
Exhibit (11) on pages 31 and 32.
<PAGE>
NOTE C -- SHAREHOLDERS' EQUITY
Shareholders' equity may be further detailed as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
June 30, December 31,
(Dollars in millions, 1998 1997
------------ -----------
except per share figures)
Preferred stock par value $1.00 per share; authorized 2,000,000 shares; Series B
ESOP Convertible
Preferred Stock - 379,192 shares
at June 30, 1998 and 383,774
shares at December 31, 1997 $ 0.4 $ 0.4
Series C Junior Participating
Preferred Stock - none issued - -
Capital in excess of par value
of shares 182.0 184.1
Unearned ESOP compensation (140.5) (151.1)
-------- -------
41.9 33.4
Common stock -
par value $.1875 per share;
authorized 200,000,000 shares;
issued 80,287,568 shares 15.1 15.1
Capital in excess of par value
of shares 45.6 40.8
Common stock reacquired - at cost
14,384,873 shares at
June 30, 1998 and 14,251,003
shares at December 31, 1997 (435.9) (420.4)
Retained earnings 1,113.8 1,072.7
Accumulated other comprehensive income (100.7) (88.9)
-------- -------
Total shareholders' equity $ 679.8 $ 652.7
======== =======
</TABLE>
NOTE D--ACQUISITIONS
During the first six months of 1998, the Company acquired nine businesses that
operate in Nalco's core markets of water treatment and process chemicals. Each
of these acquisitions was accounted for as a purchase and, accordingly, the
operating results of each business were included in the consolidated results of
the Company from its respective acquisition date. The combined purchase price of
these businesses was approximately $118 million. The Company is in the process
of evaluating the assets that were purchased and the liabilities that were
assumed and, accordingly, will make any necessary adjustments to the recorded
value of the acquired assets and liabilities.
Effective January 1998, the Company merged its South African affiliate company
with the water treatment interests of Chemical Services Limited, South Africa's
largest specialty chemicals company. The merged entity, Nalco-Chemserve is South
Africa's largest water treatment company. In connection with the merger, Nalco
obtained a controlling interest in Nalco-Chemserve and, accordingly, has
consolidated the results of Nalco-Chemserve from January 1, 1998.
The pro forma impact as if these acquisitions had occurred at the beginning of
1997 is not significant.
NOTE E--EFFECTS OF NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 131 (SFAS 131), "Disclosures about
Segments of an Enterprise and Related Information." SFAS 131 establishes
reporting standards for the way that enterprises report information about
operating segments in annual financial statements and requires that enterprises
report selected information about operating segments in interim financial
reports. SFAS 131 is effective for financial statements for fiscal years
beginning after December 15, 1997. Financial statement disclosures for prior
periods are required to be restated unless it is impracticable to do so. The
adoption of SFAS 131 will have no impact on the Company's results of operations,
financial position or cash flows.
In February 1998, the FASB issued SFAS 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits." SFAS 132 revises employers'
disclosures about pension and other postretirement benefit plans. It does not
change the measurement or recognition of those plans. SFAS 132 is effective for
financial statements for fiscal years beginning after December 15, 1997.
Financial statement disclosures for earlier periods provided for comparative
purposes are required to be restated. The adoption of SFAS 132 will have no
impact on the Company's results of operations, financial position or cash flows.
In March 1998, the Accounting Standards Executive Committee (AcSEC) issued
Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use." SOP 98-1 provides guidance on
accounting for the costs of computer software developed or obtained for internal
use and provides guidance for determining whether computer software is for
internal use. SOP 98-1 is effective for financial statements for fiscal years
beginning after December 15, 1998, and should be applied to internal-use
computer software costs incurred in those fiscal years for all projects,
including those projects in progress upon initial application of SOP 98-1.
Earlier application is encouraged in fiscal years for which annual financial
statements have not been issued. The Company currently plans to adopt SOP 98-1
in January 1999 and expects its application will not have a material effect on
the Company's results of operations, financial position or cash flows.
In April 1998, the AcSEC issued SOP 98-5, "Reporting on the Costs of Start-Up
Activities." SOP 98-5 requires that the costs of start-up activities, including
organization costs, be expensed as incurred. SOP 98-5 requires adoption of its
provisions for fiscal years beginning after December 15, 1998. Earlier
application is encouraged in fiscal years for which annual financial statements
have not been issued. Initial application of SOP 98-5 should be as of the
beginning of the fiscal year in which it is adopted and should be reported as
the cumulative effect of a change in accounting principle. Restatement of
previously issued financial statement is not permitted. The Company plans to
adopt SOP 98-5 in January 1999 and is currently assessing the impact of its
application.
In June 1998, the FASB issued SFAS 133, "Accounting for Derivative Instruments
and Hedging Activities." SFAS 133 establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. It requires the recognition of all
derivatives as either assets or liabilities in the statement of financial
position and the measurement of those instruments at fair value. The accounting
for changes in the fair value of derivatives depends on the intended use of the
derivatives and the resulting designations. SFAS 133 is effective for fiscal
years beginning after June 15, 1999, but earlier application is permitted as of
the beginning of any fiscal quarter subsequent to June 17, 1998. The Company
presently believes that the application of SFAS 133, when adopted, will not have
a material effect on the Company's results of operations, financial position or
cash flows. The Company makes limited use of derivatives to manage well-defined
interest rate and foreign exchange exposures. The Company does not hold or issue
derivatives for trading purposes.
REPORT OF INDEPENDENT ACCOUNTANTS ON REVIEW
OF INTERIM FINANCIAL INFORMATION
To the Board of Directors and
Shareholders of Nalco Chemical Company
We have reviewed the accompanying interim financial information of Nalco
Chemical Company and consolidated subsidiaries as of June 30, 1998, and for the
three month and six month periods then ended. This interim financial information
is the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial information for it to be in conformity
with generally accepted accounting principles.
We previously audited, in accordance with generally accepted auditing standards,
the statement of consolidated financial condition as of December 31, 1997, and
the related statements of consolidated earnings, of cash flows and of common
shareholders' equity for the year then ended (not presented herein), and in our
report dated February 2, 1998, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth in
the accompanying condensed consolidated statement of financial condition as of
December 31, 1997, is fairly stated in all material respects in relation to the
statement of consolidated financial condition from which it has been derived.
PricewaterhouseCoopers LLP
By: Robert R. Ross
Engagement Partner
July 22, 1998
Chicago, Illinois
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Second Quarter 1998 Operations Compared to Second Quarter 1997
Sales increased by 14 percent over last year with five of the six divisions
reporting improved results. Changes in volume, mix and price increased sales
nearly 6 percent over year-ago results. Acquisitions and the consolidation of
Nalco-Chemserve resulted in an additional 10 percent sales gain. Effective July
1, 1997, the Company adopted the policy of reporting freight revenues as a
component of sales rather than reclassifying this revenue against freight costs
that are included as a component of cost of products sold. This resulted in
recognizing additional sales revenues of approximately $16 million for the
second quarter 1998. Adverse foreign currency translation effects resulting from
the stronger U.S. dollar compared to virtually all European, Latin American and
Asian currencies reduced second quarter sales by $23 million or 6 percent. Sales
for the second quarter 1998 and 1997 by major operating unit were as follows:
Second Quarter
(Dollars in millions) 1998 1997 Increase
-------- -------- ---------
Industrial $122.6 $103.1 19%
Specialty 86.0 74.6 15%
Pulp & Paper 93.4 82.4 13%
Process 50.9 45.0 13%
Latin America 21.8 20.9 4%
Pacific 28.3 28.4 -%
------- -------
Total $403.0 $354.4 14%
======= =======
In the second quarter, sales by the Industrial Division were up 19 percent over
last year. About two-thirds of the increase was attributable to acquisitions and
sales by Nalco-Chemserve, which was formed at the beginning of 1998 by the
merging of Nalco's affiliated company in South Africa with the water treatment
interests of Chemical Services Limited. Acquisitions accounted for slightly less
than three-fourths of the 15 percent improvement which was posted by the
Specialty Division and about two-thirds of the Pulp & Paper Division's 13
percent increase. Acquisitions also contributed to the 13 percent improvement in
Process Division sales, but the translation effect of the stronger U.S. dollar
compared to most foreign currencies offset over half the increase from
acquisitions. Pacific Division sales were flat due to the stronger U.S. dollar,
although operations in China, India and Japan reported strong double-digit
increases. Operations in Argentina and Mexico accounted for most of the
improvement in the Latin America Division. Freight revenues and acquisitions had
a minimal impact on Pacific and Latin America Division sales.
The gross margin was 55.1 percent for the second quarter 1998, and includes the
classification of $16 million of freight revenue as a component of sales rather
than as an offset to cost of products sold. On a comparable basis with 1997, the
gross margin would have been 57.3 percent, slightly higher than the 56.9 percent
reported for the second quarter 1997.
Operating expenses (selling, administrative and research) were up $14.1 million
over the second quarter of last year. Expenses attributable to newly acquired
companies and investment in new field engineers in select markets account for
most of the increase.
Interest expense increased $3.1 million over the second quarter of last year
which reflects higher borrowings to finance acquisitions and stock repurchases.
Nalco's equity in Nalco/Exxon for the second quarter 1998 was $7.6 million, up
slightly over the second quarter 1997.
The effective income tax rate for the second quarter 1998 was 36.1 percent
compared to the 36.8 percent that was reported for the second quarter 1997.
Net earnings as a percent to sales was 10.4 percent for the second quarter 1998,
as compared to last year's return on sales of 11.3 percent. On a comparable
basis, without freight revenue classified as sales, net earnings would have been
10.9 percent of sales for the second quarter 1998. Basic net earnings per share
for the second quarter 1998 was 59 cents compared to the 56 cents for the second
quarter 1997. Net earnings per share on a diluted basis was 55 cents for the
second quarter 1998 compared to 51 cents for the second quarter 1997.
First Six Months 1998 Operations Compared to First Six Months 1997
Sales rose 12 percent with all divisions except the Pacific Division reporting
increases. Changes in volume, mix and price increased sales about 6 percent over
last year, while acquisitions and the consolidation of Nalco-Chemserve
contributed an additional 8 percent. The policy of reporting freight revenues as
a component of sales rather than offsetting freight expenses in cost of products
sold, effective July 1, 1997, increased sales an additional 4 percent over last
year. However, the translation effect of the stronger U.S. dollar compared to
most other currencies reduced sales 6 percent. Sales for the first six months of
1998 and 1997 by major operating unit were as follows:
Six Months Increase
(Dollars in millions) 1998 1997 (Decrease)
-------- -------- ----------
Industrial $235.4 $199.6 18%
Specialty 164.0 142.8 15%
Pulp & Paper 175.7 161.3 9%
Process 99.0 89.6 10%
Latin America 43.5 40.0 9%
Pacific 52.5 55.7 (6%)
------- -------
Total $770.1 $689.0 12%
======= =======
The Industrial Division reported an 18 percent increase over the first six
months of 1997, with sales by acquired companies and Nalco-Chemserve accounting
for slightly less than two-thirds of the increase. Specialty Division sales rose
by 15 percent with acquisitions contributing over half the increase.
Acquisitions also accounted for approximately one-half of the 9 percent
improvement in sales which was posted by the Pulp & Paper Division. The 10
percent improvement in Process Division sales was largely attributable to
acquisitions, but the translation effect of the stronger U.S. dollar compared to
most foreign currencies offset nearly half the increase from acquisitions.
Double-digit sales gains in Latin America were reported by operations in
Argentina, Mexico and in the Venezuela/Central America/Caribbean region. Pacific
Division sales were adversely affected by currency translation rate changes
which negated strong double-digit sales gains by operations in China, India,
Japan and the Philippines. Freight revenues and acquisitions had a minimal
impact on Pacific and Latin America Division sales.
The gross margin was 55.1 percent for the first six months of 1998 compared to
56.8 percent for the six months ended June 30, 1997. The 1998 drop in gross
margin reflects the effect of classifying over $30 million of freight revenues
as sales rather than as a reduction of cost of products sold. The gross margin
for the six months ended June 30, 1998 would have been 57.4 percent had freight
revenues been reported on a comparable basis with last year.
Operating expenses (selling, administrative and research) increased $23.6
million over the same period last year, which was mainly attributable to
acquisitions and the addition of new field engineers in select markets.
Interest expense rose $4.4 million to $11.8 million for the six months ended
June 30, 1998, which reflects higher borrowing levels to finance acquisitions
and stock repurchases.
Nalco's equity in the operations of Nalco/Exxon increased $1.7 million over last
year's reported amount of $13.2 million.
The effective income tax rate for the first six months of 1998 was 36.2 percent
compared to the 36.6 percent that was reported for the first six months of 1997.
Net earnings per share on a diluted basis for the first six months of 1998 was
$1.04 compared to 97 cents for the first six months of 1997, an improvement of 7
percent.
Changes in Financial Condition
Cash and cash equivalents decreased by $3.7 million during the first six months
as detailed in the Unaudited Condensed Consolidated Statement of Cash Flows.
Days sales outstanding were 61 days at June 30, 1998 and December 31, 1997.
Working capital at June 30, 1998 totaled $196.7 million, a $43.3 million
increase from the $153.4 million at December 31, 1997. The ratio of current
assets to current liabilities was 1.8 to 1 at June 30, 1998.
The $115.5 million increase in goodwill is mainly attributable to acquisitions
and the consolidation of Nalco-Chemserve. Acquisitions were financed primarily
by the issuance of commercial paper. On May 12, 1998 the Company issued $150
million of 6.25% unsecured notes under a shelf registration statement filed with
the Securities and Exchange Commission in April 1998. The notes are due May 15,
2008. Proceeds from the issuance were used to reduce outstanding commercial
paper borrowings. This issuance accounts for most of the increase in long-term
debt. Notes up to $250 million remain available under the shelf registration
statement.
Capital investments totaled $58.2 million for the first six months of 1998.
Major expenditures included additional investments to install the Company's new
global management information systems, additional PORTA-FEED(R) units, vehicles
for the sales force and manufacturing improvements.
Effects of New Accounting Standards
There are several recently issued accounting standards that are pending adoption
by the Company. See Note E of the "Notes to Condensed Consolidated Financial
Statements" for further discussion.
Year 2000 Compliance
The Company is engaged in a program to detect problems that may result from the
Year 2000 issue. The program addresses Year 2000-related problems that may arise
in all areas at risk including suppliers, transportation providers, information
systems, manufacturing, facilities, and customers. Management fully expects this
program to address potential problems in a timely fashion and ensure no
disruption in operations. Failure by Nalco or other parties to address Year 2000
issues, however, could have a material impact on the Company's ability to
conduct its business. The Company's risks include, but are not limited to,
disruptions in the manufacture of products; the inability to service, ship
products to, and invoice its customers; difficulty in the collection of payments
from customers; and difficulty in remitting payments to vendors and other
suppliers.
A major aspect of the Company's Year 2000 compliance is the investment of
approximately $50 million for the worldwide implementation of new business and
management information systems. The systems, based on software purchased from
SAP America, Inc., are Year 2000 compliant and will provide an integrated suite
of core business applications to support all major functions worldwide.
Implementation is expected to be completed at the parent company in the United
States during the first half of 1999. The Company's Canadian operation is
already operating on the new systems.
Implementation of the new systems in other geographic regions is not expected to
be completed until after January 1, 2000. However, the Company has converted its
legacy business processing systems to Year 2000 compliance in Europe, as well as
in most of Latin America and the Pacific.
The Company is conducting Year 2000 reviews of its manufacturing
facilities worldwide and plans to implement any necessary remediation
well before 2000. Key suppliers are being identified and sent questionnaires
about their Year 2000 compliance. Management believes that the Company is well
prepared for the Year 2000.
Other than the investments in new systems, the costs of conducting the Year 2000
program are being expensed as incurred and are not expected to have a material
impact on the results of operations.
Forward-Looking Statements
Management's Discussion and Analysis of Financial Condition and Results of
Operations and other sections of this Quarterly Report contain forward-looking
statements that are based on current expectations, estimates and assumptions
regarding the worldwide economy, technological innovation, competitive activity,
interest rates, pricing, currency movements, and the development of certain
markets. These statements are not guarantees of future results or events, and
involve certain risk and uncertainties which are difficult to predict and many
of which are beyond the control of the Company. Actual results and events could
differ materially from those anticipated by the forward-looking statements.
PART II. OTHER INFORMATION
Item 5. Other Information
The Company's By-laws require that for a non-Rule 14a-8 proposal to be properly
raised by a stockholder at an annual meeting, the stockholder must have given
notice in writing to the Secretary of Nalco, delivered or mailed and received at
the principal offices of the Corporation not less than 90 days before the
anniversary date of the prior years' annual meeting. The notice procedures and
information required are set forth in Article II, Section 9 and Article III,
Section 3 of the Company's By-laws. The latest amended By-laws are filed as an
Exhibit to this Form 10-Q.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are included herein:
(3)(ii) By-Laws
(11) Statement Re: Computation of Earnings Per Share
(15) Awareness Letter of Independent Accountants
(27) Financial Data Schedule
(b) The Registrant did not file any reports on Form 8-K during the
three months ended June 30, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NALCO CHEMICAL COMPANY
(Registrant)
Date: August 13, 1998 W. E. BUCHHOLZ
---------------------------
W. E. Buchholz - Senior Vice President,
Chief Financial Officer
Date: August 13, 1998 S. J. GIOIMO
---------------------------
S. J. Gioimo - Secretary
NALCO CHEMICAL COMPANY
BY-LAWS
ARTICLE I
OFFICES
1 Section 1. Principal Office. The principal office of the Corporation shall be
in the City of Naperville, DuPage County, State of Illinois.
Section 2. Registered Office. The registered office shall be in the City of
Wilmington, County of New Castle,
State of Delaware.
Section 3. Other Offices. The Corporation may also have offices at such
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
ARTICLE II
STOCKHOLDER MEETINGS
Section 1. Annual Meeting. The Annual Meeting of Stockholders shall be
held on the first Monday of May of each year at 10:00 a.m., or at such other
date and time as shall be designated by the Board of Directors and stated in the
notice of meeting, for the purpose of electing directors and for transacting
such other business as may properly come before the meeting. If the date fixed
for the Annual Meeting shall be a legal holiday, such meeting shall be held on
the next succeeding business day. If the election of directors shall not be held
on the day designated herein for any annual meeting of stockholders, or at any
adjournment thereof, the Board of Directors shall cause the election to be held
at a Special Meeting of Stockholders as soon thereafter as conveniently may be
held.
2 Section 2. Special Meetings. Special meetings of the stockholders, for any
purpose or purposes, unless otherwise prescribed by statute, may be called only
on the order of the Chairman of the Board, or of the President or of a majority
of the Board of Directors. Only those matters set forth in the notice of the
special meeting may be considered or acted upon at such special meeting, unless
otherwise provided by law.
Section 3. Place of Meeting. All meetings of the stockholders shall be
held at such place as may be designated by the Board of Directors and as stated
in the notice of meeting and in the absence of such designation, at the
principal office of the corporation. A waiver of notice signed by stockholders
entitled to vote at a meeting may designate any place for holding of such
meeting.
Section 4. Notice of Meeting. Written or printed notice stating the
place, day, and hour of the meeting, and in case of a special meeting, the
purpose or purposes for which the meeting is called, shall be mailed to or
delivered to each stockholder entitled to vote at such meeting not less than 10
nor more than 60 days before the date of the meeting.
3 Section 5. Record Date. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action (other than action by written consent), the Board of
Directors may fix in advance a record date which shall not be more than 60 or
less than 10 days before the date of such meeting, nor more than 60 days prior
to any other action.
4 Section 6. Quorum. Holders of shares having a majority of the votes of all
outstanding shares of capital stock, represented in person or by proxy, shall
constitute a quorum at a meeting of stockholders. In the absence of a quorum, a
meeting may be adjourned from time to time without notice to the stockholders.
5 Section 7. Proxies. (a) Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him by
proxy, but no such proxy shall be voted or acted upon after one year from its
date, unless the proxy provides for a longer period.
(b) Without limiting the manner in which a stockholder may
authorize another person or persons to act for him as proxy pursuant to
subsection (b) of this section, the following shall constitue a valid means by
which a stockholder may grant such authority.
(1) A stockholder may execute a writing authorizing another person or
persons to act for him as proxy. Execution may be accomplished by the
stockholder or his authorized officer, director, employee or agent
signing such writing or causing his or her signature to be affixed to
such writing by any reasonable means including, but not limited to, by
facsimile signature.
(2) A stockholder may authorize another person or persons to act for
him as proxy by transmitting or authorizing the transmission of a
telegram, cablegram, or other means of electronic transmission to the
person who will be the holder of the proxy or to a proxy solicitation
firm, proxy support service organization or like agent duly authorized
by the person who will be the holder of the proxy to receive such
transmission, provided that any such telegram, cablegram or other means
of electronic transmission must either set forth or be submitted with
information from which it can be determined that the telegram,
cablegram or other electronic transmission was authorized by the
stockholder. If it is determined that such telegrams, cablegrams or
other electronic transmissions are valid, the inspectors or, if there
are no inspectors, such other persons making that determination shall
specify the information upon which they relied.
(c) any, copy, facsimile telecommunication or other reliable
reproduction of the writing or transmission created pursuant to subsection (c)
of this section may be substituted or used in lieu of the original writing or
transmission for any and all purposes for which the original writing or
transmission could be used, provided that such copy, facsimile telecommunication
or other reproduction shall be a complete reproduction of the entire origianl
writing or transmission.
Section 8. Voting Lists. The officer who has charge of the stock ledger
of the Corporation shall prepare and make, at least 10 days before every meeting
of stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
10 days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
6 Section 9. Notice of Stockholder Business at Annual Meeting. At an annual
meeting of the stockholders, only such business shall be conducted as shall have
been brought before the meeting (a) by or at the direction of the Board of
Directors or (b) by any stockholder of the Corporation who complies with the
notice procedures set forth in this Section 9. For business to be properly
brought before an annual meeting by a stockholder, the stockholder must have
given timely notice thereof in writing to the Secretary of the Corporation. To
be timely, a stockholder's notice must be delivered to or mailed and received at
the principal executive offices of the Corporation, not less than 90 days prior
to the anniversary date of the prior year's annual meeting. A stockholder's
notice to the Secretary shall set forth as to each matter the stockholder
proposes to bring before the annual meeting (a) a brief description of the
business desired to be brought before the annual meeting and the reasons for
conducting such business at the annual meeting, (b) the name and address, as
they appear on the Corporation's books, of the stockholder proposing such
business, (c) the class and number of shares of the Corporation which are
beneficially owned by the stockholder and (d) any material interest of the
stockholder in such business. Notwithstanding anything in these By-laws to the
contrary, no business shall be conducted at an annual meeting except in
accordance with the procedures set forth in this Section 9. The Chairman of an
annual meeting shall, if the facts warrant, determine and declare to the meeting
that business was not properly brought before the meeting and in accordance with
the provisions of this Section 9, and if he should so determine, he shall so
declare to the meeting and any such business not properly brought before the
meeting shall not be transacted.
7 Section 10. Required Vote. Unless the question is one upon which by express
provision of the Delaware General Corporation Law, the certificate of
incorporation or these Bylaws a different vote is required (in which case such
express provision shall govern and control the decision of such question),
action by the stockholders of the Corporation shall require (a) with respect to
the election of directors at a meeting of stockholders, a plurality of the votes
of the shares present in person or represented by proxy at the meeting and
entitled to vote on the election of directors, (b) with respect to any other
matter which is to be decided by stockholders at a meeting of stockholders and
which matter has received the prior approval or recommendation of the
Corporation's Board of Directors, the affirmative vote of holders of shares
constituting a majority of the votes cast with respect to such matter, or (c)
with respect to any other matter, the affirmative vote of holders of shares
constituting a majority of the voting power of all of the Corporation's
outstanding shares.
8 Section 11. Stockholder Vote. Each stockholder shall at every meeting of the
stockholders be entitled to one vote in person or by proxy for each share of the
common stock having voting power held by such stockholder.
Section 12. Consent Without a Meeting. (a) Whenever the vote of
stockholders at a meeting thereof is required or permitted to be taken for or in
connection with any corporate action by any provision of the statutes, the
meeting and vote of stockholders may be dispensed with if the certificate of
incorporation authorizes the action to be taken with the written consent of the
holders of less than all of the stock who would have been entitled to vote upon
the action if a meeting were held, on the written consent of the stockholders
having not less than such percentage of the number of votes as may be authorized
in the certificate of incorporation; provided that in no case shall the written
consent be by the holders of stock having less than the minimum percentage of
the vote required by statute for the proposed corporate action, and provided
that prompt notice must be given to all stockholders of the taking of corporate
action with a meeting.
9 (b) The record date for determining stockholders entitled to express consent
to corporate action in writing without a meeting shall be fixed by the Board of
Directors. Any stockholder of record seeking to have the stockholders authorize
or take corporate action by written consent without a meeting shall, by written
notice to the Secretary, request the Board of Directors to fix a record date.
Upon receipt of such a request, the Secretary shall place such request before
the Board of Directors at its next regularly scheduled meeting, provided,
however, that if the stockholder represents in such request that he intends, and
is prepared, to commence a consent solicitation as soon as is permitted by the
Securities Exchange Act of 1934, as amended, and the regulations thereunder and
other applicable law, the Secretary shall as promptly as practicable call a
special meeting of the Board of Directors, which meeting shall be held as
promptly as practicable but in all events within ten days after the date on
which the stockholder's request was received. At such regular or special
meeting, the Board of Directors shall fix a record date as provided in Section
213(b) (or its successor provision) of the Delaware General Corporation Law.
Should the Board of Directors fail to fix a record date as provided for in this
Section 12, the record date for determining the stockholders entitled to consent
to corporate action in writing without a meeting, when no prior action by the
Board of Directors is required by applicable law, shall be the first date on
which a signed written consent setting forth the action taken or proposed to be
taken is delivered to the Corporation by delivery to its registered office in
the State of Delaware, its principal place of business, or an officer or agent
of the Corporation having custody of the records in which proceedings of
stockholders meetings are recorded, to the attention of the Secretary of the
Corporation. Delivery shall be by hand or by certified or registered mail,
return receipt requested. If no record date has been fixed by the Board of
Directors and prior action by the Board of Directors is required by applicable
law, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting shall be at the close of business
on the date on which the Board of Directors adopts the resolution taking such
prior action.
10 (c) In the event of the delivery to the Corporation of written consents
purporting to represent the requisite voting power to authorize or take
corporate action and/or related revocations, the Secretary of the Corporation
shall provide for the safekeeping of such consents and revocations and shall, as
promptly as practicable, engage nationally recognized independent inspectors of
elections for the purpose of promptly performing a ministerial review of the
validity of the consents and revocations. No action by written consent and
without a meeting shall be effective until such inspectors have completed their
review, determined that the requisite number of valid and unrevoked consents has
been obtained to authorize or take the action specified in the consents, and
certified such determination for entry in the records of the Corporation kept
for the purpose of recording the proceedings of meeting of stockholders.
ARTICLE III
DIRECTORS
Section 1. Function of Board. The business of the Corporation shall be
managed by or under the direction of its Board of Directors which may exercise
all such powers of the Corporation and do all such lawful acts and things as are
not by statute or by the certificate of incorporation or by these By-laws
directed or required to be exercised or done by the stockholders.
11 Section 2. Number of Directors. The Board of Directors shall consist of not
less than seven (7) nor more than fifteen (15) directors, the precise number of
directors to be designated from time to time by resolution adopted by the
affirmative vote of a majority of the entire Board of Directors, and in the
absence of such designation the number shall be eleven (11). The directors shall
be divided into three classes as nearly equal in number as possible, designated
Class I, Class II and Class III. At the 1984 Annual Meeting of Stockholders,
Class I directors shall be elected for a one-year term, Class II directors for a
two-year term and Class III directors for a three-year term. At each succeeding
Annual Meeting of Stockholders beginning in 1985, successors to the class of
directors whose term expires at that Annual Meeting shall be elected for a
three-year term. If the number of directors is changed, any increase or decrease
shall be apportioned among the classes so as to maintain the number of directors
in each class as nearly equal as possible, but in no case shall a decrease in
the number of directors shorten the term of any incumbent director. A director
shall hold office until the annual meeting for the year in which his term
expires or until his successor has been elected and qualified. Directors need
not be stockholders. No director of the corporation shall be removed from office
with or without cause unless such removal is approved either by the holders of
three-fourths of the shares of common stock of the corporation outstanding at
the time a determination is made or by the affirmative vote of three-fourths of
the directors in office at the time a determination is made. This section of the
By-laws shall not be amended without either the approval of the holders of
three-fourths of the common stock outstanding at the time of the amendment or
the affirmative vote of three-fourths of the directors in office at the time of
the amendment.
12 Section 3. Notice of Stockholder Nominees. Only persons who are nominated in
accordance with the procedures set forth in these By-laws shall be eligible for
election as directors. Nominations of persons for election to the Board of
Directors of the Corporation may be made at a meeting of stockholders (a) by or
at the direction of the Board of Directors or (b) by any stockholder of the
Corporation entitled to vote for the election of Directors at the meeting who
complies with the notice procedures set forth in this Section 3. Such
nominations, other than those made by or at the direction of the Board of
Directors, shall be made pursuant to timely notice in writing to the Secretary
of the Corporation. To be timely, a stockholder's notice shall be delivered to
or mailed and received at the principal executive offices of the Corporation not
less than 90 days prior to the anniversary date of the prior year's annual
meeting. Such stockholder's notice shall set forth (a) as to each person whom
the stockholder proposes to nominate for election or re-election as a director,
all information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required, in
each case pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended (including such person's written consent to being named in the proxy
statement as a nominee and to serving as a director if elected); and (b) as to
the stockholder giving the notice (i) the name and address, as they appear on
the Corporation's books, of such stockholder and (ii) the class and number of
shares of the Corporation which are beneficially owned by such stockholder. At
the request of the Board of Directors any person nominated by the Board of
Directors for election as a director shall furnish to the Secretary of the
Corporation that information required to be set forth in a stockholder's notice
of nomination which pertains to the nominee. No person shall be eligible for
election as a director of the Corporation unless nominated in accordance with
the procedures set forth in the By-laws. The Chairman of the meeting shall, if
the facts warrant, determine and declare to the meeting that a nomination was
not made in accordance with the procedures prescribed by these By-laws, and if
he should so determine, he shall so declare to the meeting and the defective
nomination shall be disregarded.
13 Section 4. Vacancies of Directors. The term of a director elected by the
stockholders to fill a newly created directorship or other vacancy shall expire
at the same time as the terms of the other directors of the class for which the
new directorship is created or in which the vacancy occurred. Any vacancy on the
Board of Directors that results from an increase in the number of directors and
any other vacancy occurring in the Board of Directors may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director. Any director so elected by the Board of Directors
shall, without regard to the class in which the vacancy occurred, hold office
until the next Annual Meeting of Stockholders and until his successor is elected
and qualified.
Section 5. Meetings of the Board of Directors. The Board of Directors
of the Corporation may hold meetings, both regular and special, either within or
without the State of Delaware.
14 Section 6. Annual Board Meeting. The Annual Board Meeting of the Corporation
shall be held on the day of the Annual Meeting of Stockholders for the purpose
of the organization of the Board, the election and appointment of officers for
the ensuing year, and for the transaction of such other business as may be
properly brought before such meeting. In the event such meeting is not held at
the time and place so fixed by these By-laws, the meeting may be held at such
time and place as shall be specified in a notice given as hereinafter provided
for special meetings of the Board of Directors, or as shall be specified in a
written waiver signed by all of the directors.
Section 7. Regular Board Meetings. Regular meetings of the Board of
Directors may be held without notice at such time and at such place as shall
from time to time be determined by the Board.
15 Section 8. Special Board Meetings. Special meetings of the Board may be
called by order of the Chairman of the Board, the President, or by any two
directors on one (1) days' notice to each director, either personally, by mail,
by telephone, or by telegram.
Section 9. Quorum at Board Meetings. At all meetings of the Board a
majority of the designated number of members of the Board then in effect shall
constitute a quorum for the transaction of business, and the act of a majority
of the directors present at any meeting at which there is a quorum shall be the
act of the Board of Directors, except as may be otherwise specifically provided
by statute or by the certificate of incorporation. If a quorum shall not be
present at any meeting of the Board of Directors the directors present thereat
may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
Section 10. Consent Without a Meeting. Unless otherwise restricted by
the certificate of incorporation or these By-laws, any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if all members of the Board or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board or committee.
16 Section 11. (a) Executive Committee. The Board of Directors by resolution
adopted by a majority of the whole Board, may designate at least four (4), but
not more than seven (7) directors, including the Chairman of the Board and the
President, to constitute an Executive Committee and shall designate a Chairman
of the Committee and a Secretary. The members of the Executive Committee shall
hold office until the next annual meeting of the Board of Directors following
their designation as members thereof, unless sooner removed by action of a
majority of the whole Board. The Board of Directors shall fill vacancies in the
Executive Committee by election from the directors. The Executive Committee
shall keep regular minutes of its proceedings and report the same to the Board
when required by the Board. Meetings of the Executive Committee may be called by
order of the Chairman of the Executive Committee, the President, or by any two
members of the Executive Committee on one (1) days' notice to each member,
either personally, by mail, by telephone, or by telegram.
17 (b) The Executive Committee shall have and exercise all the authority of the
Board of Directors in the management of the business and affairs of the
Corporation between meetings of the Board, and shall represent the Board for the
purpose of consulting with the officers and giving special consideration to
matters of importance affecting the policies, financing, management and
operation of the business and taking action thereon, or making recommendations
to the Board; however, the Executive Committee shall have no power or authority
in reference to amending the Certificate of Incorporation, adopting an agreement
of merger or consolidation, recommending to the stockholders the sale, lease or
exchange of all or substantially all of the Corporation's property and assets,
recommending to the stockholders a dissolution of the Corporation or a
revocation of a dissolution, or amending the By-laws. The Executive Committee
shall have power and authority to declare a dividend and to authorize the
issuance of stock.
Section 12. (a) Audit Committee. The Board of Directors, by resolution
adopted by a majority of the whole Board, may designate at least three (3)
non-employee directors to constitute an Audit Committee. The members of the
Audit Committee shall hold office until the next annual meeting of the Board of
Directors following their designation as members thereof, unless sooner removed
by action of a majority of a whole Board. The Board of Directors shall fill
vacancies in the Audit Committee by election from the non-employee directors.
The Audit Committee shall keep regular minutes of its proceedings and report the
same to the Board when required by the Board.
(b) The Audit Committee shall in general, but not by way of limitation,
represent the Board of Directors in dealing with the public accountants and
management of the Corporation on matters involving accounting and financial
reporting policies, accounting and financial controls and the independence of
the public accountants. The Committee shall also review the scope and nature of
the non-audit related services performed by the public accountants for the
Corporation and shall have authority to authorize such services. The Committee
shall also recommend to the Board the firm of public accountants which should be
engaged by the Corporation.
Section 13. Other Committees of Directors. The Board of Directors may,
by resolution or resolutions passed by a majority of the whole Board, designate
one or more committees other than the Executive Committee and Audit Committee,
each committee to consist of two (2) or more of the directors of the
Corporation, which, to the extent provided in said resolution or resolutions,
shall have and may exercise the powers of the Board of Directors, to the extent
permitted by statute, in carrying out their prescribed duties, and may have
power to authorize the seal of the Corporation to be affixed to all papers which
may require it. Such committee or committees shall have such name or names as
may be determined from time to time by resolution adopted by the Board of
Directors. Such committees shall keep regular minutes of their proceedings and
report the same to the Board when required by the Board.
18 Section 14. Compensation of Directors. Directors who are not officers of the
Corporation ("outside directors") shall be entitled to receive such compensation
as may be fixed from time to time by resolution of a majority of the Directors
who are officers of the Corporation. Directors will be entitled to reimbursement
for expenses necessarily incurred in attending any meeting of the Board or
committees of the Board.
ARTICLE IV
OFFICERS
19 Section 1. Officers. The officers of the Corporation shall be the Chairman of
the Board of Directors, Chairman of the Executive Committee, a President, one or
more Executive Vice Presidents, one or more Vice Presidents (one or more of whom
may be designated Senior Vice President or Group Vice President), a Secretary, a
Treasurer, a Controller and such Assistant Secretaries, Assistant Treasurers and
other officers or agents as may be elected or appointed by the Board of
Directors. In its discretion the Board of Directors may leave unfilled for any
period any office except the office of President, at least one Vice President,
Secretary, and Treasurer.
Section 2. Election of Officers. The officers of the Corporation shall
be elected or appointed by the Board of Directors and each officer shall hold
office until his successor shall have been duly elected and qualified, but any
officer may be removed at any time by the affirmative vote of a majority of the
whole Board of Directors.
20 Section 3(a). Chairman of Board. The Chairman of the Board of Directors shall
be the Chief Executive Officer of the Corporation, shall exercise general
supervision over the affairs of and operation of the business of the Corporation
and shall preside at all meetings of the stockholders and the Board of Directors
and shall perform such other duties as are incident to his office or are
assigned to him by the Board of Directors from time to time.
Section 3(b). Chairman of Executive Committee. The Chairman of the
Executive Committee shall preside at all meetings of the Executive Committee and
shall perform such other duties as are incident to his office or are assigned to
him by the Board of Directors from time to time. In the absence of the Chairman
of the Board, he shall preside at all meetings of the stockholders and the Board
of Directors and shall perform such duties for the Chairman of the Board as may
be required.
21 Section 4. President. The President shall have such powers and shall perform
such duties as are incident to his office or are assigned to him by the Board of
Directors from time to time. In the absence of the Chairman of the Board of
Directors and Chairman of the Executive Committee, he shall preside at all
meetings of the stockholders and the Board of Directors and exercise the
functions of the Chairman of the Board.
22 Section 5. Executive Vice President. In the event of a disability or actual
unavailability of the President, the Executive Vice President designated to do
so shall exercise the functions of the President. The Executive Vice Presidents
shall have such powers and shall perform such other duties as may be assigned to
them by the Board of Directors or the President.
Section 6. Vice Presidents. Each Vice President, including each Vice
President designated as Senior Vice President or Group Vice President, shall
have such powers and perform such duties as may be assigned to him by the Board
of Directors or the President.
Section 7. Secretary. The Secretary shall attend all sessions of the
Board of Directors and all meetings of the stockholders and record all votes and
the minutes of all proceedings in a book to be kept for that purpose, and shall
perform like duties for the standing committees when required. He shall give, or
cause to be given, notice of all meetings of the stockholders and of the Board
of Directors. He may sign on behalf of the Corporation such forms, reports or
other documents as may be required to be filed by the Corporation with the
jurisdictions in which the Corporation is qualified to do business, and with
various governmental agencies.
The Secretary shall also perform such other duties as may be prescribed
by the Board of Directors or the President. He shall be sworn to the faithful
discharge of his duty, and shall in general perform all duties incident to the
office of Secretary, subject to the control of the Board of Directors.
Section 8. Treasurer. The Treasurer shall have the custody of the
corporate funds and securities and shall deposit all moneys, and other valuable
effects in the name and to the credit of the Corporation, in such depositories
as may be designated by the Board of Directors. He shall disburse the funds of
the Corporation as may be authorized by the Board of Directors and shall sign
such notes, checks, receipts and documents as may be from time to time directed
or authorized by the Board of Directors. The Treasurer shall submit statements
of his accounts whenever required by the Board of Directors and shall give the
Corporation a bond, if required by the Board of Directors, in such sum as the
Board of Directors may require. He shall perform such other duties incident to
his office or as are assigned to him by the Board of Directors or the President
from time to time.
Section 9. Controller. The Controller shall be the Chief Accounting
Officer of the Corporation. He shall keep or cause to be kept all books of
accounts and accounting records of the Corporation, and shall prepare or have
prepared appropriate financial statements for submission to the Board of
Directors and stockholders. He shall perform other duties incident to his office
or which are assigned to him by the Board of Directors or the President from
time to time.
23 Section 10. Assistant Officers and Agents. The Board of Directors or Chief
Executive Officer may appoint one or more Assistant Secretaries, Assistant
Treasurers and Assistant Controllers or appoint divisional officers and agents,
each of whom shall have such powers and perform such duties as may be assigned
or delegated to them by the Board of Directors or Chief Executive Officer from
time to time.
Section 11. Salaries of Officers. The salaries of all officers of the
Corporation shall be fixed by the Board of Directors.
Section 12. Delegation of Powers. In case of the absence of any officer
of the Corporation, or for any other reason that the Board of Directors may deem
sufficient, the Board of Directors may delegate for the time being the powers or
duties, or any of them, of such officer to any other officer, director or agent,
provided a majority of the Board concur therein.
24 Section 13. Signature Authority. Unless the Board of Directors shall
otherwise direct, the Chairman of the Board, the Chairman of the Executive
Committee, the President and any Vice President of the Corporation may sign and
execute bonds, mortgages, and other contracts and obligations of the Corporation
in the name of the Corporation, except that contracts may be signed with like
effect by any other officer or employee of the Corporation so designated by the
Board of Directors.
Section 14. Exercise of Rights as Stockholders. Unless otherwise
ordered by the Board of Directors, the President, the Secretary or a Vice
President thereunto duly authorized by the President shall have full power and
authority on behalf of the Corporation to attend and to vote at any meeting of
stockholders of any corporation in which this Corporation may hold stock, and
may exercise on behalf of this Corporation any and all of the rights and powers
incident to the ownership of such stock at any such meeting, and shall have
power and authority to execute and deliver proxies and consents on behalf of
this Corporation in connection with the exercise by this Corporation of the
rights and powers incident to the ownership of such stock. The Board of
Directors, from time to time, may confer like powers upon any other person or
persons.
ARTICLE V
STOCK CERTIFICATES
Section 1. Certificate of Stock. Every holder of stock in
the Corporation shall be entitled to have a certificate, signed by, or in the
name of the Corporation by, the Chairman of the Board of Directors, or the
President, or a Vice President and the Treasurer or an Assistant Treasurer, or
the Secretary or an Assistant Secretary of the Corporation, certifying the
number of shares owned by him in the Corporation. If the Corporation shall be
authorized to issue more than one class of stock or more than one series of any
class, the designations, preferences and relative, participating, optional or
other special rights of each class of stock or series thereof and the
qualifications, limitations or restrictions of such preferences and/or rights
shall be set forth in full or summarized on the face or back of the certificate
which the Corporation shall issue to represent such class or series of stock,
provided that, except as otherwise provided in Section 202 of the General
Corporation Law of Delaware, in lieu of the foregoing requirements, there may be
set forth on the face or back of the certificate which the Corporation shall
issue to represent such class or series of stock, a statement that the
Corporation will furnish without charge to each stockholder who so requests the
designations, preferences and relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.25 Section 2.
Facsimile Signatures. Any signature on a certificate may be a facsimile. In case
any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, it may
be issued by the Corporation with the same effect as if he were such officer,
transfer agent or registrar at the date of issue. Section 3. Lost Certificates.
The Board of Directors may direct a new certificate or certificates to be issued
in place of any certificate or certificates theretofore issued by the
Corporation alleged to have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen or destroyed. When authorizing such issue of a new certificate or
certificates, the Board of Directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate or certificates, or his legal representative, to advertise
the same in such manner as it shall require and/or to give the Corporation a
bond in such sum as it may direct as indemnity against any claim that may be
made against the Corporation with respect to the certificate alleged to have
been lost, stolen or destroyed. Section 4. Transfer of Stock. Upon surrender to
the Corporation or the transfer agent of the Corporation of a certificate for
shares duly endorsed or accompanied by proper evidence of succession, assignment
or authority to transfer, it shall be the duty of the Corporation to issue a new
certificate to the person entitled thereto, cancel the old certificate and
record the transaction upon its books. Section 5. Registered Stockholders. The
Corporation shall be entitled to recognize the exclusive right of a person
registered on its books as the owner of shares to receive dividends, and to vote
as such owner, and to hold liable for calls and assessments a person registered
on its books as the owner of shares, and shall not be bound to recognize any
equitable or other claim to or interest in such share or shares on the part of
any other person, whether or not it shall have express or other notice thereof,
except as otherwise provided by the laws of Delaware.
ARTICLE VI
NOTICES
Section 1. Notices. Whenever, under the provisions of the statutes or
of the certificate of incorporation or of these By-laws, notice is required to
be given to any director or stockholder, it shall not be construed to mean
personal notice, but such notice may be given in writing, by mail, addressed to
such director or stockholder at his address as it appears on the records of the
Corporation, with postage thereon prepaid, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United States mail.
Notice to directors may also be given by telegram or telephone. Section 2.
Waiver of Notice. Whenever any notice is required to be given under the
provisions of the statutes or of the certificate of incorporation or of these
By-laws, a waiver thereof in writing, signed by the person or persons entitled
to said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE VII
INDEMNIFICATION
Section 1. Procedure of Indemnification. Any indemnification of
a director or officer under paragraphs 1, 2 and 3, or advance of expenses to a
director or officer under paragraph 5, of Article SIXTH of the Corporation's
Restated Certificate of Incorporation, shall be made promptly, and in any event
within 60 days, after the written request of the director or officer, and the
determination as to whether indemnification is proper, required by paragraph 4
of Article SIXTH, shall be made promptly, so as to enable indemnification to be
made within such 60-day period. The right to indemnification or advances as
provided for by such Article SIXTH shall be enforceable by the director or
officer, in any court of competent jurisdiction, if the Corporation denies such
request, in whole or in part, or if no disposition thereof is made within such
60 day period. Such person's expenses incurred in connection with successfully
establishing his right to indemnification, in whole or in part, in any such
action shall also be indemnified by the Corporation. It shall be a defense to
any such action (other than an action brought to enforce a claim by an officer
or director for the advance of expenses under paragraph 5 of such Article SIXTH
where the required undertaking, if any, has been received by the Corporation)
that the claimant has not met the standard of conduct set forth in paragraphs 1
or 2 of such Article SIXTH, but the burden of proving such defense shall be on
the Corporation. Neither the failure of the Corporation (including its Board of
Directors, its independent legal counsel, and its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he has met the applicable
standard of conduct set forth in paragraphs 1 or 2 of such Article SIXTH, nor
the fact that there has been an actual determination by the Corporation
(including its Board of Directors, its independent legal counsel, and its
stockholders) that the claimant has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that the claimant has
not met the applicable standard of conduct. All rights to indemnification under
Article SIXTH of the Corporations's Restated Certificate of Incorporation shall
be deemed to be a contract between the Corporation and each director or officer
of the Corporation who serves or served in such capacity at any time while such
Article SIXTH is in effect. Section 2. Insurance. The Corporation shall purchase
and maintain insurance on behalf of any person who is or was a director or
officer of the Corporation, or is or was serving at the request of the
Corporation as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under the provisions of Article SIXTH of the Corporation's
Restated Certificate of Incorporation or of relevant provisions of the Delaware
General Corporation Law, provided that such insurance is available on acceptable
terms, which determination shall be made by a vote of a majority of the entire
Board of Directors.
ARTICLE VIII
GENERAL PROVISIONS
Section 1. Dividends.
Dividends upon the capital stock of the Corporation, subject to the provisions
of the certificate of incorporation, if any, may be declared by the Board of
Directors at any regular or special meeting, pursuant to law. Dividends may be
paid in cash, in property, or in shares of the capital stock, subject to the
provisions of the certificate of incorporation. Section 2. Dividend Reserve.
Before payment of any dividend, there may be set aside out of any funds of the
Corporation available for dividends such sum or sums as the directors from time
to time, in their absolute discretion, think proper as a reserve or reserves to
meet contingencies, or for equalizing dividends, or for repairing or maintaining
any property of the Corporation, or for such other purpose as the directors
shall think conducive to the interest of the Corporation, and the directors may
modify or abolish any such reserve in the manner in which it was created.
Section 3. Checks. All checks or demands for money and notes of the Corporation
shall be signed by the Treasurer or his designatees and such officer or officers
or such other person or persons as the Board of Directors may from time to time
designate. Section 4. Fiscal Year. The fiscal year of the Corporation shall
begin the first day of January and end on the thirty-first day of December in
each year. Section 5. Seal. The corporate seal shall have inscribed thereon the
name of the Corporation, the year of its organization and the words "Corporate
Seal, Delaware." The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or in any other manner reproduced.
ARTICLE IX
AMENDMENTS
Section 1. Amendments. These By-laws may be altered, amended or repealed or
new By-laws may be adopted by the stockholders or by the Board of Directors,
when such power is conferred upon the Board of Directors by the
certificate of incorporation, at any regular meeting of the stockholders or
of the Board of Directors if notice of such alteration, amendment, repeal,
or adoption of new By-laws be contained in the notice of such special meeting.
1 Amended September 25, 1986.
2 Amended July 24, 1986 and June 20, 1996.
3 Amended June 20, 1996.
4 Amended June 20, 1996.
5 Amended June 18, 1998. 6 Amended July 24, 1986 and June 20, 1996.
7 Amended June 20, 1996.
8 Amended July 24, 1986.
9 Amended July 24, 1986 and June 20, 1996.
10 Amended July 24, 1986.
11 Amended September 27, 1984, September 26, 1985, October 24, 1985,
September 25, 1986, April 30, 1987, April 30, 1987, April 27, 1989,
June 22, 1989, February 15, 1990 and April 23, 1992.
12 Amended July 24, 1986 and June 20, 1996.
13 Amended April 26, 1984.
14 Amended June 23, 1988.
15 Amended February 2, 1984.
16 Amended February 2, 1984 and June 18, 1998.
17 Amended May 5, 1980.
18 Amended January 29, 1987.
19 Amended October 28, 1982.
20 Amended August 22, 1991.
21 Amended August 22, 1991.
22 Amended December 18, 1986.
23 Amended April 28, 1983.
24 Amended October 28, 1982.
25 Amended December 21, 1989.
26 Amended July 24, 1986 and April 30, 1987.
ADOPTED: JULY 31, 1979
AMENDED AS FOLLOWS:
January 29, 1980 (Article III, Section 2)
May 5, 1980 (Article III, Section 10b)
(Article IV, Section 10)
September 30, 1980 (Article III, Section 2) June 24, 1982 (Article III, Section
2) October 28, 1982 (Article IV, Section 1)
(Article IV, Section 3)
(Article IV, Section 4)
(Article IV, Section 13)
January 27, 1983 (Article III, Section 2) April 28, 1983 (Article IV, Section
10) February 2, 1984 (Article III, Section 7) February 2, 1984 (Article III,
Section 10a) April 26, 1984 (Article III, Section 2)
(Article III, Section 3)
September 27, 1984 (Article III, Section 2)
September 26, 1985 (Article III, Section 2)
October 24, 1985 (Article III, Section 2)
July 24, 1986 (Article II, Section 2)
(Article II, Section 9) (Article II,
Section 11) (Article II, Section
12b) (Article II, Section 12c)
(Article III, Section 3) (Article
VII)
September 25, 1986 (Article I, Section 1)
(Article III, Section 2)
December 18, 1986 (Article IV, Section 5)
January 29, 1987 (Article III, Section 14)
April 30, 1987 (Article VII)
(Article III, Section 2)
June 23, 1988 (Article III, Section 6)
April 27, 1989 (Article III, Section 2)
June 22, 1989 (Article III, Section 2)
December 21, 1989 (Article V, Section 2)
February 15, 1990 (Article III, Section 2)
August 22, 1991 (Article IV, Section 3(a))
(Article IV, Section 4)
April 23, 1992 (Article III, Section 2) June 20, 1996 (Article II, Section 2)
(Article II, Section 5) (Article II,
Section 6) (Article II, Section 9)
(Article II, Section 10) (Article
II, Section 12) (Article III,
Section 3)
June 18, 1998 (Article II, Section 7)
(Article III, Section 11(a)
EXHIBIT (11)
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
NALCO CHEMICAL COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three Months Ended Six Months Ended
(Amounts in thousands, June 30, June 30,
except per share data) 1998 1997 1998 1997
------ ------- ------ -----
Basic
Average shares outstanding 66,070 66,749 66,079 66,823
======== ======== ======== ========
Net earnings $41,955 $40,064 $79,956 $75,895
Dividends on preferred stock,
net of taxes (2,878) (2,875) (5,782) (5,753)
------- ------- ------- -------
Net earnings to common shareholders $39,077 $37,189 $74,174 $70,142
======= ======= ======= =======
Per share amounts:
Net earnings to common shareholders $0.59 $0.56 $1.12 $1.05
======== ======== ======== ========
</TABLE>
EXHIBIT (11)
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
NALCO CHEMICAL COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three Months Ended Six Months Ended
(Amounts in thousands, June 30, June 30,
except per share data) 1998 1997 1998 1997
------ ------- ------ -----
Diluted
Average shares outstanding
used in Basic earnings per share 66,070 66,749 66,079 66,823
Effect of dilutive securities:
Assumed conversion of
preferred stock 7,615 7,784 7,639 7,808
Stock options and contingently
issuable shares 585 598 684 622
------- ------- ------- -------
TOTALS 74,270 75,131 74,402 75,253
======= ======= ======= =======
Net earnings $41,955 $40,064 $79,956 $75,895
Additional ESOP expense resulting
from assumed conversion of
preferred stock, net of taxes (1,103) (1,122) (2,225) (2,245)
Income tax adjustment on assumed
common dividends (288) (261) (574) (522)
------- ------- ------- -------
Net earnings to common shareholders $40,564 $38,681 $77,157 $73,128
======= ======= ======= =======
Per share amounts:
Net earnings to common shareholders $0.55 $0.51 $1.04 $0.97
======= ======= ======= =======
</TABLE>
EXHIBIT (15)
AWARENESS LETTER OF INDEPENDENT ACCOUNTANTS
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Dear Sirs:
We are aware that Nalco Chemical Company has included our report
dated July 22, 1998 (issued pursuant to the provisions of
Statement on Auditing Standards No. 71) in the Prospectuses
constituting part of its Registration Statements on Form S-3
(Nos. 333-50469, 33-57363, 33-53111, 33-993 and 2-97721) and Form
S-8 (Nos. 333-06955, 333-06963, 33-54377, 33-38033, 33-38032,
33-29149, 2-97721, 2-97131 and 2-82642). We are also aware of our
responsibilities under the Securities Act of 1933.
Yours very truly,
PricewaterhouseCoopers LLP
By: Robert R. Ross
Engagement Partner
August 13, 1998
Chicago, Illinois
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL CONDITION AT JUNE 30, 1998 AND
THE CONDENSED CONSOLIDATED STATEMENT OF EARNINGS FOR THE SIX MONTHS ENDED
JUNE 30, 1998 OF NALCO CHEMICAL COMPANY AND SUBSIDIARIES AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 46,000,000
<SECURITIES> 0
<RECEIVABLES> 276,600,000
<ALLOWANCES> (3,400,000)
<INVENTORY> 112,200,000
<CURRENT-ASSETS> 456,600,000
<PP&E> 1,185,800,000
<DEPRECIATION> (681,400,000)
<TOTAL-ASSETS> 1,617,400,000
<CURRENT-LIABILITIES> 259,900,000
<BONDS> 480,600,000
400,000
0
<COMMON> 15,100,000
<OTHER-SE> 664,300,000
<TOTAL-LIABILITY-AND-EQUITY> 1,617,400,000
<SALES> 770,100,000
<TOTAL-REVENUES> 770,100,000
<CGS> 346,100,000
<TOTAL-COSTS> 346,100,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,800,000
<INCOME-PRETAX> 125,400,000
<INCOME-TAX> 45,400,000
<INCOME-CONTINUING> 80,000,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 80,000,000
<EPS-PRIMARY> 1.12
<EPS-DILUTED> 1.04
</TABLE>
